UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 20-F
(Mark One)
(cid:133)
(cid:95)
(cid:133)
(cid:133)
REGISTRATION STATEMENT PURSUANT TO SECTION 12(B) OR 12(G) OF THE SECURITIES EXCHANGE ACT OF
1934
OR
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE
FISCAL YEAR ENDED DECEMBER 31, 2016.
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE
TRANSITION PERIOD FROM TO
SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
OR
Date of event requiring this shell company report
Commission file number: 001-36140
58.com Inc.
(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)
Building 105, 10 Jiuxianqiao North Road Jia
Chaoyang District, Beijing 100015
People’s Republic of China
(Address of principal executive offices)
Hao Zhou, Chief Financial Officer
Telephone: +86 10 5956-5858
Building 105, 10 Jiuxianqiao North Road Jia
Chaoyang District, Beijing 100015
People’s Republic of China
(Name, Telephone, E-mail 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
American depositary shares, each representing two Class A ordinary shares
Class A ordinary shares, par value US$0.00001 per share*
Name of each exchange on which registered
New York Stock Exchange
New York Stock Exchange*
* Not for trading, but only in connection with the listing on the New York Stock Exchange of American depositary shares.
Securities registered or to be registered pursuant to Section 12(g) of the Act:
Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act:
None
(Title of Class)
None
(Title of Class)
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
annual report. 289,670,997 ordinary shares, par value US$0.00001 per share, being the sum of 240,930,737 Class A ordinary shares and 48,740,260 Class B
ordinary shares as of December 31, 2016.
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes (cid:95) No (cid:133)
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
the Securities Exchange Act of 1934. Yes (cid:133) No (cid:95)
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
1934 during 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 filing
requirements for the past 90 days. Yes (cid:95) No (cid:133)
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File
required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter
period that the registrant was required to submit and post such files). Yes (cid:95) No (cid:133)
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 the definitions of “large accelerated filer,” “accelerated filer,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer (cid:95)
Non-accelerated filer (cid:133)
Accelerated filer (cid:133)
Emerging growth company (cid:133)
If an emerging growth company that prepare its financial statements in accordance with U.S. GAAP, indicate by check mark if the registrant has elected not
to use the extended transition period for complying with any new or revised financial accounting standards† provided pursuant to Section 13(a) of the
Exchange Act. (cid:133)
†The term “new or revised financial accounting standard” refers to any update issued by the Financial Accounting Standards Board to its Accounting
Standards Codification after April 5, 2012.
Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing:
U.S. GAAP
(cid:95) International Financial Reporting Standards as issued by
the International Accounting Standards Board (cid:133)
Other (cid:133)
If “Other” has been checked in response to the previous question, indicate by check mark which financial statement item the registrant has elected to
follow. (cid:133) Item 17 (cid:133) 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 Exchange Act). (cid:133) Yes
(cid:95) 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 Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court. (cid:133) Yes (cid:133) No
TABLE OF CONTENTS
INTRODUCTION
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
PART I
ITEM 1.
ITEM 2.
ITEM 3.
ITEM 4.
ITEM 4A.
ITEM 5.
ITEM 6.
ITEM 7.
ITEM 8.
ITEM 9.
ITEM 10.
ITEM 11.
ITEM 12.
IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS
OFFER STATISTICS AND EXPECTED TIMETABLE
KEY INFORMATION
INFORMATION ON THE COMPANY
UNRESOLVED STAFF COMMENTS
OPERATING AND FINANCIAL REVIEW AND PROSPECTS
DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES
MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS
FINANCIAL INFORMATION
THE OFFER AND LISTING
ADDITIONAL INFORMATION
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES
PART II
ITEM 13.
ITEM 14.
ITEM 15.
ITEM 16A.
ITEM 16B.
ITEM 16C.
ITEM 16D.
ITEM 16E.
ITEM 16F.
ITEM 16G.
ITEM 16H.
DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES
MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS
CONTROLS AND PROCEDURES
AUDIT COMMITTEE FINANCIAL EXPERT
CODE OF ETHICS
PRINCIPAL ACCOUNTANT FEES AND SERVICES
EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES
PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS
CHANGE IN REGISTRANT’S CERTIFYING ACCOUNTANT
CORPORATE GOVERNANCE
MINE SAFETY DISCLOSURE
PART III
ITEM 17.
ITEM 18.
ITEM 19.
FINANCIAL STATEMENTS
FINANCIAL STATEMENTS
EXHIBITS
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1
1
1
1
37
67
67
92
99
105
106
107
118
118
120
120
120
120
122
122
122
122
122
122
123
123
124
124
124
124
In this annual report, unless otherwise indicated or the context otherwise requires, references to:
“ADSs” refers to our American depositary shares, each of which represents two Class A ordinary shares of 58.com Inc.;
INTRODUCTION
“58.com,” “we,” “us,” “our company,” and “our” refer to 58.com Inc., its subsidiaries and its consolidated variable interest entities;
“China” or “PRC” refers to the People’s Republic of China, excluding, for purposes of this annual report only, Taiwan, Hong Kong and Macau;
“Renminbi” or “RMB” refers to the legal currency of China;
“U.S. GAAP” refers to generally accepted accounting principles in the United States; and
“US$,” “dollars” or “U.S. dollars” refers to the legal currency of the United States.
(cid:120)
(cid:120)
(cid:120)
(cid:120)
(cid:120)
(cid:120)
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This annual report on Form 20-F contains forward-looking statements that relate to our current expectations and views of future events. The
forward-looking statements are contained principally in the items entitled “Information on the Company,” “Risk Factors,” “Operating and Financial Review
and Prospects,” “Financial Information” and “Quantitative and Qualitative Disclosures About Market Risk.” Our forward-looking statements relate to events
that involve known and unknown risks, uncertainties and other factors, including those listed under “Risk Factors,” which may cause our actual results,
performance or achievements to be materially different from any future results, performance or achievements expressed or implied by the forward-looking
statements. These statements are made under the “safe harbor” provisions of the U.S. Private Securities Litigations Reform Act of 1995. You can identify
some of these forward-looking statements by words or phrases such as “may,” “will,” “expect,” “anticipate,” “aim,” “estimate,” “intend,” “plan,” “believe,”
“is/are likely to,” “potential,” “continue” or other similar expressions, although not all forward-looking statement contain these words. Forward-looking
statements include, but are not limited to, statements relating to:
(cid:120)
(cid:120)
(cid:120)
(cid:120)
(cid:120)
(cid:120)
(cid:120)
(cid:120)
our goals and strategies;
our expansion plans;
our future business development, financial condition and results of operations;
the expected growth of the online marketing services, mobile services and e-commerce industries;
our expectations regarding demand for, and market acceptance of, our services;
our expectations regarding keeping and strengthening our relationships with customers;
our plans to invest in research and development to enhance our solution and service offerings; and
general economic and business conditions in the regions where we provide our solutions and services.
We would like to caution you not to place undue reliance on forward-looking statements and you should read these statements in conjunction with
the risk factors disclosed in “Item 3. Key Information — D. Risk Factors.” Those risks are not exhaustive. We operate in an emerging and evolving
environment. New risk factors emerge from time to time and it is impossible for our management to predict 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 cause actual results to differ materially from those contained in
any forward-looking statement. We do not undertake any obligation to update or revise the forward-looking statements except as required under applicable
law. You should read this annual report and the documents that we reference in this annual report completely and with the understanding that our actual
future results may be materially different from what we expect.
i
ITEM 1.
IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS
Not applicable.
ITEM 2.
OFFER STATISTICS AND EXPECTED TIMETABLE
PART I
Not applicable.
ITEM 3.
KEY INFORMATION
A.
Selected Financial Data
Selected Consolidated Financial Data
The following table presents the selected consolidated financial information of our company. Our summary data of consolidated statements of
comprehensive income/(loss) and summary consolidated cash flow data presented below for the years ended December 31, 2014, 2015 and 2016 and our
summary consolidated balance sheet data as of December 31, 2015 and 2016 have been derived from our audited consolidated financial statements included
elsewhere in this annual report. Our summary data of consolidated statements of comprehensive income/(loss), and summary consolidated cash flow data
presented below for the years ended December 31, 2012 and 2013 and our summary consolidated balance sheet data as of December 31, 2012, 2013 and
2014 have been derived from our management accounting records. Our audited consolidated financial statements are prepared in accordance with U.S.
GAAP.
You should read the summary consolidated financial information in conjunction with our consolidated financial statements and related notes and
“Item 5. Operating and Financial Review and Prospects” included elsewhere in this annual report. Our historical results are not necessarily indicative of our
results expected for future periods.
Summary Data of Consolidated Statements of
Comprehensive Income/(Loss):
Revenues:
Membership
Online marketing services
E-commerce service
Other services
Total revenues
Cost of revenues(2)
Gross profit
Operating expenses(2):
Sales and marketing expenses
Research and development expenses
General and administrative expenses
Total operating expenses
Income/(loss) from operations
Net income/(loss)
Add: Net loss attributable to noncontrolling
interests
Less:
Deemed dividend to mezzanine classified
noncontrolling interests
Accretions to preference shares redemption values
Income attributable to preference shareholders
Net income/(loss) attributable to 58.com Inc.
For the Year Ended December 31,
2012
RMB
2013
RMB
2014
RMB
(in thousands)
2015(1)
RMB
2016
RMB
US$
302,482
179,959
—
67,504
549,945
(65,691)
484,254
(482,375)
(116,544)
(82,620)
(681,539)
(197,285)
(191,884)
530,150
361,261
—
9,713
901,124
(52,469)
848,655
(523,216)
(155,631)
(80,288)
(759,135)
89,520
119,918
857,017
768,316
—
2,787
1,628,120
(85,081)
1,543,039
(1,106,689)
(268,336)
(126,709)
(1,501,734)
41,305
139,433
1,859,987
2,414,906
144,930
58,275
4,478,098
(322,016)
4,156,082
(4,316,217)
(760,796)
(659,284)
(5,736,297)
(1,580,215)
(1,648,583)
2,951,135
4,363,777
166,753
110,462
7,592,127
(707,237)
6,884,890
(4,941,380)
(1,107,897)
(601,906)
(6,651,183)
233,707
(772,963)
425,419
629,058
24,038
15,924
1,094,439
(101,951)
992,488
(712,322)
(159,708)
(86,767)
(958,797)
33,691
(111,425)
—
—
—
80,705
4,916
709
—
(64,597)
—
(256,481)
—
(56,704)
(7,620)
55,594
1
—
—
—
139,433
(5,762)
—
—
(1,573,640)
(15,717)
—
—
(783,764)
(2,266)
—
—
(112,982)
For the Year Ended December 31,
2012
RMB
2014
RMB
(in thousands, except for share, per share and per ADS data)
2013
RMB
2015
RMB
2016
RMB
US$
Net income/(loss)
(191,884)
119,918
139,433
(1,648,583)
(772,963)
(111,425)
Foreign currency translation adjustment, net of nil
tax
Unrealized gain/(loss) on available-for-sale
securities
Reclassification into investment loss, net of nil tax
Total comprehensive income/(loss)
Net income/(loss) per ordinary share attributable to
ordinary shareholders – basic
Net income/(loss) per ordinary share attributable to
ordinary shareholders – diluted
Net income/(loss) per ADS attributable to ordinary
shareholders – basic
Net income/(loss) per ADS attributable to ordinary
shareholders – diluted
Weighted average number of ordinary shares used in
245
8,745
(3,192)
(69,708)
(76,027)
(10,960)
—
—
(191,639)
—
—
128,663
(6,804)
—
129,437
16,919
—
(1,701,372)
(13,104)
2,989
(859,105)
(1,889)
431
(123,843)
(5.80)
(5.80)
(11.59)
(11.59)
0.87
0.80
1.75
1.61
0.83
0.80
1.65
1.60
(6.70)
(6.70)
(13.40)
(13.40)
(2.73)
(2.73)
(5.46)
(5.46)
(0.39)
(0.39)
(0.79)
(0.79)
computing basic earnings/(losses) per share
44,245,388
63,717,007
168,589,273
234,811,986
286,975,068
286,975,068
Weighted average number of ordinary shares used in
computing diluted earnings/(losses) per share
44,245,388
69,159,524
174,024,997
234,811,986
286,975,068
286,975,068
Notes:
(1) For the year ended December 31, 2015, the financial statement included the results of significant business combinations and acquisitions,
deconsolidation of 58 Home and Guazi, and other related significant transactions, please refer to “Item 4. Information on the Company — A. History
and Development of the Company.”
(2) Share-based compensation expenses were allocated in cost of revenues and operating expenses as follows:
Cost of revenues
Sales and marketing expenses
Research and development expenses
General and administrative expenses
Total
For the Year Ended December 31,
2014
RMB
(in thousands)
109
8,579
14,772
14,473
37,933
2015
RMB
2016
RMB
US$
760
44,049
59,314
72,482
176,605
490
59,017
98,515
108,553
266,575
71
8,508
14,201
15,648
38,428
2012
RMB
2013
RMB
189
1,704
3,087
5,568
10,548
227
2,759
6,163
8,573
17,722
2
Summary Data of Consolidated Balance Sheets:
Cash, cash equivalents, term deposits and short-term
investments
Total assets
Deferred revenues
Customer advances
Total liabilities
Total mezzanine equity
Total shareholders’ equity/(deficit)
Number of ordinary shares outstanding
Summary Data of Consolidated Statements of
Cash Flows:
Net cash provided by/(used in) operating activities
Cash used in purchase of property and equipment
Cash paid for business acquisition of Anjuke and
Ganji, net of acquisition of cash
Net cash used in investing activities
Net cash provided by financing activities
2012
RMB
2013
RMB
As of December 31,
2015
2014
RMB
RMB
(in thousands)
2016
RMB
US$
224,062
354,853
181,994
69,394
433,717
876,936
(955,800)
44,245,388
1,896,714
2,032,344
335,935
130,284
689,302
—
1,343,042
158,876,693
3,726,686
4,307,360
583,359
220,182
1,203,089
—
3,104,271
176,375,211
3,406,037
26,380,294
1,344,563
981,429
7,989,037
97,647
18,293,610
283,068,677
2,060,298
25,326,006
1,845,846
1,236,076
7,473,830
86,457
17,765,719
289,670,997
297,001
3,650,858
266,087
178,186
1,077,386
12,463
2,561,009
289,670,997
For the Year Ended December 31,
2012
RMB
2013
RMB
2014
RMB
2015
RMB
2016
RMB
US$
(in thousands)
(29,817)
(32,995)
—
(171,411)
1,600
409,411
(25,866)
606,717
(199,631)
198,538
(1,255,553)
1,887,849
(212,449)
—
(1,424,626)
1,309,245
—
(1,884,031)
1,584,885
(4,044,962)
(2,781,242)
4,930,710
(1,659,973)
(3,948,027)
58,631
272,143
(30,625)
(239,292)
(569,126)
8,452
Change in Reporting Currency and Exchange Rate Information
Starting from December 31, 2016, we changed our reporting currency from U.S. dollars to Renminbi. The change in reporting currency is to
facilitate investors to evaluate our financial results as most of our business operations are conducted in the PRC. Assets and liabilities of entities with
functional currencies other than Renminbi are translated into Renminbi using the exchange rate on the balance sheet date. Revenues and expenses of entities
with functional currencies other than Renminbi are translated into Renminbi using the average rate prevailing during the reporting period. Prior periods’
financial information has been recasted as if we always used Renminbi as our reporting currency.
Unless otherwise noted, all translations from Renminbi to U.S. dollars and from U.S. dollars to Renminbi in this annual report were made at a rate
of RMB6. 9370 to US$1.00, the middle rate published by the State Administration of Foreign Exchange, or SAFE, on December 30, 2016. We make no
representation that any Renminbi or U.S. dollar amounts could have been, or could be, converted into U.S. dollars or Renminbi, as the case may be, at any
particular rate, or at all. The PRC government imposes control over its foreign currency reserves in part through direct regulation of the conversion of
Renminbi into foreign exchange and through restrictions on foreign trade. On April 21, 2017, the middle rate published by SAFE was RMB6.8823 to
US$1.00.
3
The following table sets forth information concerning exchange rates between the Renminbi and the U.S. dollars set forth in the H.10 statistical
release of the Board of Governors of the Federal Reserve System for the periods indicated.
Period
2012
2013
2014
2015
2016
October
November
December
2017
January
February
March
April (through April 21, 2017)
Source: Federal Reserve Statistical Release
Period End
Average(1)
Low
High
(RMB per US$1.00)
Exchange Rate
6.2301
6.0537
6.2046
6.4778
6.9430
6.7735
6.8837
6.9430
6.8768
6.8665
6.8832
6.8845
6.2990
6.1412
6.1704
6.2869
6.6549
6.7303
6.8402
6.9198
6.8907
6.8694
6.8940
6.8871
6.3879
6.2438
6.2591
6.4896
6.9580
6.7819
6.9195
6.9580
6.9575
6.8821
6.9132
6.8988
6.2221
6.0537
6.0402
6.1870
6.4480
6.6685
6.7534
6.8771
6.8360
6.8517
6.8687
6.8778
(1) Annual averages were calculated by using the average of the exchange rates on the last day of each month during the relevant year. Monthly averages are
calculated by using the average of the daily rates during the relevant month.
B.
Capitalization and Indebtedness
Not applicable.
C.
Reasons for the Offer and Use of Proceeds
Not applicable.
D.
Risk Factors
Risks Related to Our Business
We operate in a fast-evolving industry, which makes it difficult to evaluate our business and prospects.
We commenced operations in 2005 and many of the elements of our business are evolving and relatively unproven. The markets for our technology
and products and services are relatively new and rapidly developing and are subject to significant challenges. Our business plan relies heavily upon growing
our user base and exploring new market opportunities, and we may not succeed in any of these respects.
As the online marketing services and mobile services industries in China are relatively young and untested, there are few proven methods of
projecting user demand or available industry standards on which we can rely. We cannot assure you that our attempts to expand our user base and products
and services will be successful, profitable or widely accepted and therefore the future revenue and income potential of our business are difficult to evaluate.
You should consider our prospects in light of the risks and uncertainties fast-growing companies with limited operating histories may encounter.
We may not be able to regain profitability.
We generated net income in 2014 but incurred losses in 2015 and 2016. Our loss in 2015 was attributable to increased competition and the fact that
we had new initiatives such as 58 Daojia Inc., or 58 Home, a mobile-based closed-loop transactional platform for home services, and Guazi.com Inc., or
Guazi, a subsidiary that operated our consumer-to-consumer (C2C) used car trading platform, that were still in early stages of development. We have ceased
consolidating 58 Home’s financial results in our consolidated financial statements since its completion of Series A equity financing round on November 27,
2015, and we divested Guazi on December 31, 2015. However, as we account for 58 Home as our equity investee, we share our portion of its income or loss.
We may also decide to provide additional capital to support its business. Our loss in 2016 primarily resulted from our share of 58 Home’s loss.
4
Furthermore, cash from operating activities was positive in each year from 2014 through 2016 but decreased significantly in 2015. Meanwhile, our
cash used in investing activities exceeded our cash generated from operating activities in each year from 2014 through 2016 due to our increased merger and
acquisition activities and our purchase of headquarters office space.
Our future profitability may also be significantly impacted by the success of our recent and new service and product offerings, such as our new
mobile applications. As competition in these new services intensifies in China, we may choose to invest heavily to gain market share, which may adversely
affect our profitability. We expect that we will continue to incur marketing and sales, research and development and other expenses to launch new services
and grow our user base, which may affect our profitability and operating cash flow in the future. For example, we launched a new mobile application, Zhuan
Zhuan (“转转”), which targets the consumer-to-consumer used products market. We have invested, and may continue to invest, in the marketing of Zhuan
Zhuan (“转转”) and our other new service and product offerings. Our results of operations will be adversely affected if our new product initiatives including
Zhuan Zhuan (“转转”) fail to generate sufficient revenue to recoup our investment and expenses. Our future profitability may also be significantly impacted
by our integration with Anjuke and Ganji. We have consolidated Anjuke since March 2015 and Ganji since August 2015. The Ganji and Anjuke businesses
have thousands of employees and their own respective users and merchant networks. Also, to a large extent, we currently have separate teams selling
separate services for the 58, Ganji and Anjuke platforms. We are keeping their brands and hope to grow the user base and enhance monetization. Failure to
integrate these businesses may adversely affect our profitability. There is no assurance that we may be able to achieve anticipated revenues, earnings or cash
flows with respect to our acquired businesses.
In addition, our ability to achieve or maintain profitability is affected by various factors that are beyond our control. For example, our revenues and
profitability depend on the continuous development of the online marketing industry in China and local merchants’ allocation of more of their budgets to
online marketing services. We cannot assure you that online marketing services will become more widely accepted in China or that merchants will increase
their spending on online marketing services.
If we are unsuccessful in addressing any of these risks and uncertainties, our business may be materially and adversely affected and we may incur
net loss in the future. If we are unable to maintain positive operating cash flows, we may need to seek debt or equity financing or may cease to operate as a
going concern. Further equity financings may dilute our existing shareholders.
We may be subject to liability for placing advertisements with content that is deemed inappropriate or misleading.
In July 2016, the State Administration for Industry and Commerce of the People's Republic of China, or SAIC, promulgated the Interim
Administrative Measures for Internet Advertisements, or the Interim Measures, which became effective on September 1, 2016. The Interim Measures provide
for, among other things, a more detailed definition of online advertising and the obligations and liabilities of online adverting operators and distributors.
Certain parts of our business which were not specified as forms of advertising under previous regulations, such as priority listing in the yellow page business
may now be deemed as online advertising business under the Interim Measures and subject to the Interim Measures and other PRC advertising laws and
regulations.
The PRC advertising laws and regulations, including the Interim Measures, prohibit advertising operators and distributors from producing,
distributing or publishing any advertisement with content that violates PRC laws and regulations, impairs the national dignity of the PRC, involves designs of
the PRC national flag, national emblem or national anthem or the music of the national anthem, is considered reactionary, obscene, superstitious or absurd, is
fraudulent, or disparages similar products. We, as a platform for online classifieds and listings, have higher obligations with respect to the advertisements
placed on our websites than to other information posted on our websites. For example, under the Interim Measures, internet advertisement shall be labeled
visibly and distinguishably as “advertisement” for identification by the consumers. We are obligated to monitor the advertising content and examine the
supporting documents for advertisements provided by advertisers to ensure that the content is accurate and in compliance with applicable law. In addition,
where a special government review is required for specific categories of advertisements before posting, we are obligated to confirm that such review has been
performed and approval, if required, has been obtained. We are also required to employ personnel familiar with the advertising laws to review advertisements
or set up a special Internet advertisement review department. We have adopted policies and procedures and have provided training to our content review
team to ensure our compliance with these new measures. However, PRC advertising laws and regulations do not provide clear guidance on the content
standards. If we are found in violation of these regulations we will be subject to penalties such as fines and confiscation of advertising income. We may also
be ordered to cease dissemination of the advertisements. In circumstances involving serious violations, the SAIC or its local branches has the authority to
suspend the violators’ advertising business or revoke the violators' business licenses. Furthermore, we may be subject to claims by consumers misled by
advertisements placed on our websites.
5
If we fail to continually anticipate user preferences and provide attractive services on our online platforms, we may not be able to grow and retain
our user base.
Our success depends on our ability to grow and retain our user base. In order to attract and retain users and compete against our direct competitors
and other industry or content-specific vertical websites, we must continue to innovate and introduce services that our users find useful and attract them to use
our online platforms more frequently and become our paying users. For example, we must continue to develop new content categories on our online
platforms that appeal to our users. The popularity of online marketing services and other internet services is difficult to predict, and we cannot be certain that
the services we offer will continue to be popular with our users or sufficiently successful to offset the costs incurred to offer these services. Given that we
operate in a rapidly evolving industry in China, we need to continually anticipate user preferences and industry changes and respond to such changes in a
timely and effective manner. If we fail to anticipate and meet the needs of our users, the size of our user base may decrease. A decrease in our user base
would render our online platforms less attractive to merchants and may reduce our membership and online marketing revenues, which may have a material
and adverse effect on our marketing business, financial condition and results of operations.
If we fail to retain existing or attract new local merchants to use our online platforms and pay for our membership and online marketing services,
our business, financial condition and prospects may be materially and adversely affected.
The success of our business depends on our ability to attract and retain local merchants that provide information on our online platforms to
consumers and pay for our membership and online marketing services and to offer attractive products and services to our consumer users. If we are unable to
grow and maintain a healthy ecosystem of local merchants, our users may find our online platforms to be less useful than expected and may not continue to
use our online platforms. This in turn may affect our ability to attract new merchants and convince existing merchants to renew their paid memberships or
increase their level of spending on our services. Our membership contracts have terms ranging from one month to one year. A significant portion of our
paying merchant members are small and medium-sized local merchants who fail to renew their membership contracts upon expiration for a number of
reasons. In particular, Ganji and Anjuke have only a low percentage of their paying merchants purchasing real time bidding services due to a lack of
experience in this area prior to our acquisition. There is no assurance that we could successfully drive the increase in paying merchant members using such
platforms going forward. The competitive landscape for such local merchants changes quickly and they may have only temporary or occasional recruiting or
marketing needs. In addition, our efforts to provide greater incentives for our existing paying merchant members to use our online marketing services,
including marketing activities to highlight the value of differentiated paying merchant members-only services, may not be successful. Our customers may
terminate their memberships or other spending on our online marketing services because we no longer serve their needs or because their demands can be
better fulfilled by our competitors or other service providers. Our ability to maintain or grow our membership base may also be affected by changes in
China’s macro economy. For example, largely due to unfavorable housing policies, memberships in the housing vertical suffered a negative impact, resulting
in a slower growth in our paying membership accounts in the fourth quarter of 2016, as compared with the previous quarters. Furthermore, we have used our
own sales teams to replace third-party sales agencies in selected industry verticals and may continue to do so. As a result of this transition, we may lose
paying merchants who have established relationships with the third-party agencies or who are not satisfied with the performance of our own teams. Decisions
by our customers not to renew their memberships or not to use our online marketing services could reduce our revenues, as well as cause us to incur
additional cost in attracting new paying merchant members and other customers. A significant increase in local merchant attrition or decrease in local
merchant spending on our services would have an adverse effect on our business, financial condition and results of operations.
6
Strategic acquisition of businesses and assets, and the subsequent integration of newly acquired businesses into our own, create significant
challenges that may have a material adverse effect on our business, reputation, results of operations and financial condition.
Since our IPO in October 2013, we have made a number of acquisitions and investments, including several major ones. In March 2015, we acquired
Anjuke, a major online real estate listing platform in China, for a combination of share consideration and cash, including 4.8 million newly issued ordinary
shares of our company and US$160.2 million in cash. We also issued 0.2 million fully vested restricted share units of our company to former Anjuke
employees as part of the share consideration. In April 2015, we acquired a less than 50% equity stake in Ganji, a major online local services platform in
China, for a combination of share consideration and cash, including 34.0 million newly issued ordinary shares of our company and US$412.2 million in cash.
Later in 2015, our company, as a limited partner, committed an aggregate of 46.5 million newly issued ordinary shares and US$406.7 million in cash to
several private equity funds, of which all the ordinary shares and US$272.4 million in cash were contributed in August 2015. These funds are dedicated to
investing in businesses in China and are separately managed by different investment entities as general partners which are unaffiliated with each other and
unaffiliated with us. These funds, together with Tencent, acquired all the remaining equity interests in Ganji in August 2015. We also transferred an
aggregate of 4.4 million fully vested restricted share units of our company and US$51.0 million in cash to former Ganji employees. As a result of the
foregoing transactions, we have consolidated the financial statements of Anjuke into our financial statements since March 2015, and Ganji’s financial
statements into our own since August 2015.
The addition of Anjuke has strengthened our market position in the online rental and secondary property sales markets and has allowed us to enter
the primary home sales segment. The acquisition of the strategic stake in Ganji and our subsequent business cooperation and integration have allowed us to
increase our market share in the job, housing, yellow page local services and used car categories and reduce marketing costs and expenses. Ganji’s
integration continued to progress well as we gradually realized more synergies. However, Anjuke and Ganji are major businesses with thousands of
employees in distributed locations. They also have their own respective user bases and merchant networks that might not overlap with those of 58. Their
business processes and practices, system infrastructure and architecture and company values are also different from those of 58. We might experience
unexpected employee turnover or loss of users and customers after our acquisition or investment. These acquisitions and investments expose us to potential
risks, including risks associated with unforeseen or hidden liabilities, diversion of management attention and resources from our existing business and
inability to generate sufficient revenues to offset the costs and expenses of the acquisition or investment.
Other than Anjuke and Ganji, we have made various other acquisitions and investments since our IPO in 2013. If we fail to integrate these acquired
businesses or the companies in which we invested fail to grow as we expect or continue to generate losses, we may experience losses in our acquisitions and
investments.
If we are presented with appropriate opportunities in the future, we may acquire or invest in additional businesses or assets that are complementary
to our business. However, strategic acquisitions and the subsequent integration of new businesses and assets into our own would require significant attention
from our management and could result in a diversion of resources from our existing business, which in turn could have an adverse effect on our business
operations. In addition, acquisitions could result in potential dilutive issuances of equity securities, use of substantial amounts of cash, and exposure to
potential ongoing financial obligations and unforeseen or hidden liabilities of the acquired businesses. The cost and duration of, and difficulties in,
integrating newly acquired businesses and managing a larger overall business could also materially exceed our expectations. Moreover, we may not be able
to achieve our intended strategic synergies and may record substantial impairment charges to goodwill, if we fail to successfully integrate the newly acquired
businesses or manage a larger business. Our equity investees may generate significant losses, a portion of which will be shared by us in accordance with U.S.
GAAP. In addition, we may incur impairment losses if the financial or operating results of those investees fail to meet the expectations. Any such negative
developments could have a material adverse effect on our business, reputation, results of operations and financial condition.
We face intense competition, and if we do not compete successfully against existing and new competitors, we may lose market share and suffer
losses.
We face intense competition. Our competitors in the online marketing space include other smaller multi-category online classifieds companies as
well as industry or content-specific vertical websites whose information serve the same underlying industries as certain content categories of our online
platforms. For example, Anjuke, our online real estate listing platform, competes with other listing platforms in the real estate industry. We may also face
competition from major internet companies, who may enter the online classifieds market in China. We compete primarily on the basis of user traffic,
effectiveness of services in reaching targeted users, ability to demonstrate marketing results and customer service capabilities.
7
We believe that our competitiveness depends upon many factors both within and beyond our control, including our ability to increase our brand
recognition and continue to develop user loyalty, our ability to keep up with the technological developments and users’ changing demands and our ability to
raise sufficient capital to sustain and expand our business. For example, we may have to increase our sales and marketing expenses from time to time to
promote our brand, especially when the competition is intense. Some of our current and potential competitors may have greater financial, marketing, user
traffic and other resources than we have. In addition, local content providers may be acquired by, receive investments from or enter into strategic
relationships with larger, well-established and well-financed companies or investors. Certain of our competitors may be able to devote greater resources to
marketing and promotional campaigns and devote substantially more resources to website and system development than us. Increased competition may
reduce our market share and require us to increase our marketing and promotion efforts, which could negatively affect our operating margins or force us to
incur losses. There can be no assurance that we will be able to compete successfully against current and future competitors or maintain our leading position
or level of user traffic in the online marketing services market in China, and competitive pressures may have a material adverse effect on our business,
prospects, financial condition and results of operations.
We may not be able to effectively manage our growth and expansion or implement our business strategies, in which case our business and results of
operations may be materially and adversely affected.
We have experienced a period of rapid growth and expansion, which has placed, and continues to place, significant strain on our management and
resources. We cannot assure you that this level of significant growth and expansion will be sustainable or achieved at all in the future. We believe that our
continued growth and expansion will depend on our ability to develop new sources of revenue, attract new users, paying merchant members and customers,
retain and expand paying merchant members and customers, encourage additional spending by our customers, continue developing innovative technologies
in response to user demand, increase brand awareness through marketing and promotional activities, react to changes in user access to and use of the internet,
expand into new market segments, integrate new devices, platforms and operating systems and take advantage of any growth in the relevant markets. We
cannot assure you that we will achieve any of the above.
To manage our growth and expansion, and to attain and maintain profitability, we anticipate that we will need to implement a variety of new and
upgraded operational and financial systems, procedures and controls, including the improvement of our accounting and other internal management systems.
We will also need to further expand, train, manage and motivate our workforce and manage our relationships with our paying merchant members and
customers. All of these endeavors involve risks and will require substantial management efforts and skills and significant additional expenditures. Our further
expansion may divert our management, operational or technological resources from our existing business operations. In addition, our expansion may require
us to operate in new cities in China, including a number of small cities in China, where we may have difficulty in satisfying local market demands and
regulatory requirements. We cannot assure you that we will be able to effectively manage our growth and expansion or implement our future business
strategies effectively, and failure to do so may materially and adversely affect our business and results of operations.
Any damage to our reputation and brands or failure to enhance our brand recognition may materially and adversely affect our business, financial
condition and results of operations.
Our major brands include 58.com, Ganji and Anjuke. We believe that the market recognition and reputation of our brands have significantly
contributed to the success of our business. Maintaining and enhancing our brands is critical to our success and ability to compete. Many factors, some of
which are beyond our control, may negatively impact our brand and reputation, such as:
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any failure to maintain a pleasant and reliable experience for users as their preferences evolve and as we expand into new services;
any decrease in brand awareness among our existing and potential users; and
any negative publicity about us or online marketing services or mobile services in general, including any actual or perceived security or product or
service quality problems involving online marketing service providers in China.
8
Although all of our paying merchant members and a growing number of registered users go through certain verification procedures, fraudulent
transactions and sale of counterfeit or pirated, as well as faulty or defective, items through our online platforms have occurred in the past and may occur in
the future. In the past, we found several counterfeit products sold through our websites primarily relating to our group buying business, which we
significantly scaled back since mid-2012, and immediately stopped the sellers from selling such counterfeit products. Although we do not believe that we are
responsible for the sellers’ wrongdoings, several Chinese media reported the incidents and accused us of failure to safeguard buyers’ rights on our websites.
These incidents and any similar incidents or true or untrue claims of such incidents could harm our reputation, impair our ability to attract and retain users
and grow our base of paying customers. If we are unable to maintain a good reputation, further enhance our brand recognition, continue to develop our user
loyalty and increase positive awareness of our websites, our results of operations may be materially and adversely affected.
In addition, any claims or negative publicity about our company, our products and services, our employees, our business practices, regardless of
their veracity, could harm our brand image and in turn adversely affect our business and results of operations. We cannot assure you that we will be able to
defuse negative publicity to the satisfaction of our investors, users, customers and business partners. From time to time, there have been claims or negative
publicities about our company and our business practice, which adversely affected our public image and reputation during the period of such negative
publicities. Intense negative publicities may divert our attention and may adversely impact our business, and we cannot assure you that our brands, public
image and reputation will not be materially and adversely affected.
We have incurred significant costs on a variety of marketing efforts, including significant advertising expenses, designed to attract users, and some
marketing campaigns and methods may turn out to be ineffective.
We have invested significantly in marketing to promote public awareness of online marketing services, enhance our brand recognition and drive
user growth, including incurring RMB451.2 million, RMB1.8 billion and RMB2.0 billion in advertising expenses in 2014, 2015 and 2016, respectively. Such
advertising expenses represented 40.8%, 42.0% and 41.3% of our total sales and marketing expenses and 27.7%, 40.5% and 26.9% of our revenues in the
corresponding periods. Our marketing activities may not be well received by users and may not attract the additional traffic that we anticipated. The evolving
marketing approaches and tools require us to enhance our marketing approaches and experiment with new marketing methods to keep pace with industry
developments and user preferences. Failure to refine our existing marketing approaches or to introduce new effective marketing approaches in a cost-
effective manner could reduce our market share, cause our revenues to decline and negatively impact our profitability.
We derive a significant portion of our revenues from five of China’s major cities and we face market risk due to our concentration in these major
urban areas.
We derive a significant portion of our revenues from five of China’s major cities: Beijing, Shanghai, Shenzhen, Guangzhou and Chengdu. We
expect these five cities to continue to be important sources of revenues in all of our content categories. If any of these major cities experience events which
negatively impact the internet industry, such as a serious economic downturn or contraction, a natural disaster, or slower economic growth due to adverse
governmental policies or otherwise, demand for our services could decline significantly and our revenues and profitability could be materially reduced. Any
of these cities may experience decreases in demand for services related to specific content categories on our platforms, such as real estate or automotive, due
to local policies, regulations or economic conditions. In addition, if a competitor, including a local competitor whose business focuses on one of these cities,
were to gain significant market share in any of these cities, our revenues may be materially and adversely affected.
The markets for online marketing services and mobile services in China are constantly evolving and may not grow as quickly as expected or at all.
Our business and prospects are affected by the development of emerging internet business models in China, including those for online marketing
services and mobile services. Our membership services and other online marketing services have distinct business models which may differ from models for
these businesses in other markets, such as the United States, and that are in varying stages of development and monetization. Our future success will depend
on our ability to respond to rapidly changing technologies, adapt our products and services to evolving industry standards and improve the performance and
reliability of our products and services. Our failure to adapt to such changes could harm our business. In addition, changes in user behavior resulting from
technological developments may also adversely affect us. We cannot assure you that the online marketing services and mobile services industries in China
will continue to grow as rapidly as they have in the past or at all. With the development of technology, new internet services may emerge which are not a part
of our service offerings and which may render online marketing services or mobile services less attractive to users. The growth and development of these
industries are affected by numerous factors, such as the macroeconomic environment, regulatory changes, technological innovations, development of internet
and internet-based services, users’ general online experience, cultural influences and changes in tastes and preferences. If the online marketing services and
mobile services industries in China do not grow as quickly as expected or at all, or if we fail to benefit from such growth by successfully implementing our
business strategies, our business and prospects may be adversely affected.
9
Our real estate vertical is susceptible to fluctuations in China’s real estate industry, and if we are unable to continue to obtain listings from our key
real estate market participants, the results of operations and financial performance of our real estate vertical could be materially and adversely
affected.
We derive a significant portion of our revenues from the real estate content category, or vertical. Our 58 and Ganji platforms have mainly secondary
property sales and rental listings, while our Anjuke platform has both primary and secondary property sales listings, with the Anjuke platform contributing
the most to the revenues from the real estate vertical among the three platforms.
Our real estate vertical is susceptible to fluctuations in China’s real estate industry. Demand for private residential real estate in China has grown
rapidly in recent years but such growth is often coupled with volatility and fluctuations in real estate transaction volume and prices. Fluctuations of supply
and demand in China’s real estate industry are caused by economic, social, political and other factors. Over the years, governments at both national and local
levels have announced and implemented various policies and measures aimed to regulate the real estate market, in some cases to stimulate further
development and more purchase of residential real estate units and in other cases to restrict these activities from growing too rapidly. These measures can
affect real estate buyers’ eligibility to purchase additional units, their down payment requirements and financing, as well as availability of land to developers
and their ability to obtain financing. These measures have affected and continue to affect the conditions of China’s real estate market and cause fluctuations
in real estate pricing and transaction volume. To the extent fluctuations in China’s real estate industry adversely affect spending on real estate marketing, the
results of operations and financial performance of our real estate vertical may be materially and adversely affected. Furthermore, the results of our business
in the real estate vertical, such as that of Anjuke, are susceptible to seasonal fluctuations. For example, Anjuke’s revenues are expected to be lower during
holidays in China, such as the traditional Chinese New Year period in the first quarter of each year, during which time there are generally fewer housing
transactions than in the rest of the year.
The success of our real estate vertical depends on our ability to persuade real estate agents, brokers, developers and property owners and managers
to list their properties on our 58, Anjuke and Ganji platforms. We believe having large numbers of high-quality listings from such real estate market
participants attracts users to our platforms, thereby enhancing our attractiveness to advertisers and other real estate market participants. However, our real
estate listing agreements are typically non-exclusive, which we believe is generally consistent with industry practice. Our listing customers may stop using
our listing services and may choose to use the services of one or more of our competitors or alternative means of marketing, such as real estate magazines or
newspapers. If owners of large numbers of property listings, such as major developers or large brokers or property owners in key real estate markets choose
not to list their properties on our platforms, our platforms could become less attractive to users. If we experience reduced user traffic on our platforms,
advertisers and other real estate market participants may discontinue the use of or be unwilling to pay for our services. In such an event, the competitive
position of our real estate vertical could be significantly weakened and our business, financial condition and results of operations could be materially and
adversely affected.
If we fail to keep up with the technological developments and users’ changing requirements or to successfully capture and retain a significant
portion of the growing number of users that access online marketing services, we may be unable to meet our revenue growth expectations and our
results of operation may be adversely affected.
The internet industries in China are subject to rapid and continuous changes in technology, user preferences, the nature of services offered and
business models. Our success will depend on our ability to keep up with the changes in technology and user behavior resulting from technological
developments. If we do not adapt our services to such changes in an effective and timely manner, we may suffer from decreased user traffic, which may
result in a reduction of revenues from our membership services or a decrease in spending on our other services.
10
Our online marketing services are now accessible to users from many internet-enabled devices, and we offer versions of our services for mobile
operating systems, including Android and iOS. An important element of our strategy is to continue to develop our online platforms and services for mobile
devices to capture a greater share of the growing number of users that access online marketing services and other internet services through smartphones and
other mobile devices. The lower resolution, functionality and memory associated with some mobile devices make the use of services through such devices
more difficult and the services we develop for these devices may fail to prove compelling to users. Manufacturers or distributors may establish unique
technical standards for their devices, and our services may not work or be viewable on these devices as a result. As new devices and new services are
continually being released, it is difficult to predict the problems we may encounter in developing our services for use on these devices and we may need to
devote significant resources to the creation, support and maintenance of such services. Devices providing access to our products and services are not
manufactured and sold by us, and we cannot assure you that the companies who manufacture or sell these devices would always ensure that their devices
perform reliably and are maximally compatible with our systems. Any faulty connection between these devices and our products and services may result in
consumer dissatisfaction with us, which could damage our brand and have a material and adverse effect on our financial results. Furthermore, new online
marketing services may emerge which are specifically created to function on mobile platforms, as compared to our online marketing services that were
originally designed to be accessed through personal computers (“PCs”), and such new services may operate more effectively through mobile devices than our
own. If we are unable to attract and retain a substantial number of mobile device users to our services, or if we are slower than our competitors in developing
attractive services that are adapted for such devices, we may fail to capture a significant share of an increasingly important portion of the market for our
services or lose existing users, either of which may have a material adverse effect on our business, financial condition and results of operations.
Furthermore, changes in technologies may require substantial capital expenditures in development of new features, applications and services as well
as in modification of existing features, applications, services or infrastructure. We may not successfully execute our business strategies due to a variety of
reasons such as technical hurdles, misunderstandings or erroneous predictions of market demand or lack of necessary resources. Failure in keeping up with
technological developments may result in our online platforms being less attractive, and as a result we may be unable to meet our revenue growth
expectations and our results of operations may be adversely affected.
If internet search engines’ ranking methodologies are modified or our search result page rankings decline for other reasons, our user traffic could
decrease.
We depend in part on various internet companies to direct traffic to our websites. Our ability to maintain the number of visitors directed to our
websites is not entirely within our control. Our competitors’ search engine optimization efforts may result in their websites receiving a higher search result
page ranking than ours, or internet companies could revise their methodologies in an attempt to improve their search results, which could adversely affect the
placement of our search result page ranking. If internet companies modify their search algorithms in ways that are detrimental to our user growth or in ways
that make it harder for our users to find our websites, or if our competitors’ search engine optimization efforts are more successful than ours, our overall
growth in user traffic could slow down or decrease, and we could lose existing users. Our websites have experienced fluctuations in search result rankings in
the past, and we anticipate similar fluctuations in the future. Any reduction in the number of users directed to our websites would harm our business and
results of operations.
Our business depends substantially on the continuing efforts of our executive officers and key employees, and our business may be severely
disrupted if we lose their services.
We currently depend on the continued services and performance of the key members of our management team, in particular Mr. Jinbo Yao, our
chairman and chief executive officer. Mr. Yao is one of our founders and his leadership has played an integral role in our growth. Our future success depends
substantially on the continued efforts of our executive officers and key employees. If one or more of our executive officers or key employees were unable or
unwilling to continue their service, we might not be able to replace them in a timely manner, or at all, and our business may be severely disrupted, our
financial conditions and results of operations may be materially and adversely affected and we may incur additional expenses to recruit, train and retain
personnel. If any of our executive officers or key employees joins a competitor or forms a competing company, we may lose users, know-how and key
professionals and staff members. Each of our executive officers and key employees has entered into an employment agreement and a confidentiality and non-
competition agreement with us. However, if any dispute arises between our executive officers and key employees, on one hand, and us on the other, we
cannot assure you that we would be able to enforce these non-compete provisions in China, where these executive officers reside, in light of uncertainties
with the PRC legal system. See “— Risks Related to Doing Business in China — Uncertainties in the interpretation and enforcement of PRC laws and
regulations could limit the legal protections available to you and us.”
11
If we are unable to attract, train and retain qualified personnel, our business may be materially and adversely affected.
Our future success depends, to a significant extent, on our ability to attract, train and retain qualified personnel, particularly management, technical
and marketing personnel with expertise in the online marketing industry. Our field sales and customer service teams are also critical to maintaining the
quality of our services as they interact with local merchants on a daily basis. We must continue to attract qualified personnel at a fast pace to keep up with
our growing user base and the scale of our operations. Since our industry is characterized by high demand and intense competition for talent, there can be no
assurance that we will be able to attract or retain qualified staff or other highly skilled employees that we will need to achieve our strategic objectives. As we
are still a relatively young company, our ability to train and integrate new employees into our operations may not meet the growing demands of our business.
If we are unable to attract, train, and retain qualified personnel, our business may be materially and adversely affected.
Future strategic alliances, acquisitions or business disposals may have a material and adverse effect on our business, reputation and results of
operations.
We may enter into strategic alliances with various third parties to further our business purposes from time to time. For example, in June 2014, we
entered into a strategic partnership with Tencent Holdings Limited, or Tencent, a leading provider of comprehensive Internet services in China, pursuant to
which Tencent invested US$736.1 million in exchange for an approximately 19.9% equity interest in our company on a fully-diluted basis. Strategic alliances
with third parties could subject us to a number of risks, including risks associated with sharing proprietary information, non-performance by the counter-
party, and an increase in expenses incurred in establishing new strategic alliances, any of which may materially and adversely affect our business. In
addition, to the extent the strategic partner suffers negative publicity or harm to their reputation from events relating to their business, we may also suffer
negative publicity or harm to our reputation by virtue of our association with such third parties, and we may have little ability to control or monitor their
actions.
Investments and acquisitions and the subsequent integration of new assets and businesses into our own require significant attention from our
management and may divert resources from our existing business, which in turn could have an adverse effect on our business operations. Invested or
acquired assets or businesses may not generate the financial results we expect and may adversely affect our results of operations. Furthermore, investments
and acquisitions could result in the use of substantial amounts of cash, potentially dilutive issuances of equity securities, the occurrence of significant
goodwill impairment charges, amortization expenses for other intangible assets and exposure to potential unknown liabilities of the acquired businesses.
Moreover, the costs of identifying and consummating acquisitions may be significant.
Furthermore, the legal requirements on acquisitions by us and our PRC subsidiaries are different from acquisitions by our consolidated affiliated
entities. Most importantly, if we or our PRC subsidiaries acquire any domestic companies in China, such acquisition will be subject to PRC laws and
regulations on foreign investment. We and our PRC subsidiaries are restricted or prohibited from directly acquiring interests in companies in certain
industries under PRC laws and regulations. See “Item 4. Information on the Company — B. Business Overview — Regulation — Regulations on Value-
Added Telecommunication Services.” Our consolidated affiliated entities are not subject to PRC laws and regulations on foreign investment and may acquire
PRC companies operating in industries where foreign investments are restricted or prohibited. However, there are uncertainties with respect to the
interpretation and application of PRC laws and regulations regarding indirect foreign investments in such industries. See “— Risks Related to Our Corporate
Structure and Restrictions on Our Industry — Substantial uncertainties and restrictions exist with respect to the interpretation and application of PRC laws
and regulations relating to online commerce and the distribution of internet content in China. If the PRC government finds that the structure we have adopted
for our business operations does not comply with PRC laws and regulations, we could be subject to severe penalties, including the shutting down of our
websites.”
On December 31, 2015, we sold our controlling ownership stake in Guazi, a subsidiary that operated our consumer-to-consumer (C2C) used car
trading platform, to Mr. Mark Haoyong Yang, the former co-chairman of our board of directors and our former co-chief executive officer, for cash
consideration of US$50.0 million. We concurrently used the proceeds to invest in a US$50 million non-interest bearing convertible note issued by Guazi and
converted the convertible note into series B preference shares of Guazi in March 2016. In June 2016, we sold all of our interests in Mighty Talent Limited, or
Mayi, a China-based short-term and vacation rental platform that was owned by Ganji, to Tujia.com Inc., or Tujia, in return for equity interests in Tujia.
Concurrently with the sale of Mayi, we also acquired additional equity interests in Tujia. As a result of these transactions, we hold less than 5% of equity
interests in Tujia.
12
We may dispose of other businesses that we control, particularly ones that are not closely related to our core focus areas or might require more
resources or financial capital than we can allocate to them. These decisions are largely based on our management’s assessment of the business models and
likelihood of success of these businesses. Our judgment could be inaccurate and divesting ownership of these businesses might negatively affect our
operations or long-term value.
The proper functioning of our platforms, network infrastructure and information technology systems is essential to our business, and any failure to
maintain the satisfactory performance, security and integrity of our systems will materially and adversely impair our ability to provide services and
affect our business, reputation, financial condition and results of operations.
The proper functioning of our platforms is essential to the conduct of our business. Specifically, the satisfactory performance, reliability and
availability of our websites and mobile applications, our transaction-processing systems and our network infrastructure are critical to our success and our
ability to attract and retain users and provide adequate services. Our revenues depend on the user traffic on our websites and the volume of activities that
traffic creates.
In addition, our ability to provide consumers and local merchants with a high-quality online experience depends on the continuing operation and
scalability of our network infrastructure and information technology systems. The risks we face in this area include:
(cid:120)
our systems are potentially vulnerable to damage or interruption as a result of earthquakes, floods, fires, extreme temperatures, power loss,
telecommunications failures, technical error, computer viruses, hacking and similar events;
(cid:120) we may encounter problems when upgrading our systems or services and undetected programming errors could adversely affect the
performance of the software we use to provide our services. The development and implementation of software upgrades and other
improvements to our internet services is a complex process, and issues not identified during pre-launch testing of new services may only
become evident when such services are made available to our entire user base; and
(cid:120) we rely on servers, data centers and other network facilities provided by third parties, and the limited availability of third-party providers with
sufficient capacity to house additional network facilities and broadband capacity in China may lead to higher costs or limit our ability to offer
certain services or expand our business. In particular, electricity, temperature control or other failures at the data centers we use may adversely
affect the operation of our servers or result in service interruptions or data loss.
These and other events in the past occasionally led to and may in the future lead to interruptions, decreases in connection speed, degradation of our
services or the permanent loss of user data and uploaded content. Any system interruptions caused by telecommunications failures, computer viruses, or
hacking or other attempts to harm our systems that result in the unavailability of our websites and mobile applications or reduced performance would reduce
the attractiveness of the services offered on our online platforms. If we experience frequent or persistent service disruptions, whether caused by failures of
our own systems or those of third-party service providers, our reputation or relationships with our users may be damaged and our users may switch to our
competitors, which may have a material adverse effect on our business, financial condition and results of operations.
Our operations depend on the performance of the internet infrastructure and fixed telecommunications networks in China.
Almost all access to the internet in China is maintained through state-owned telecommunication operators under the administrative control and
regulatory supervision of the Ministry of Industry and Information Technology, or the MIIT. Moreover, we primarily rely on a limited number of
telecommunication service providers to provide us with data communications capacity through local telecommunications lines and internet data centers to
host our servers. We have limited access to alternative networks or services in the event of disruptions, failures or other problems with the PRC internet
infrastructure or the fixed telecommunications networks provided by telecommunication service providers. With the expansion of our business, we may be
required to upgrade our technology and infrastructure to keep up with the increasing traffic on our websites. We cannot assure you that the internet
infrastructure and the fixed telecommunications networks in China will be able to support the demands associated with the continued growth in internet
usage.
13
In addition, we have no control over the costs of the services provided by telecommunication service providers. If the prices we pay for
telecommunications and internet services rise significantly, our results of operations may be materially and adversely affected. Furthermore, if internet access
fees or other charges to internet users increase, our user traffic may decline and our business may be harmed.
We may not be able to prevent others from unauthorized use of our intellectual property, which could harm our business and competitive position.
We regard our trademarks, service marks, domain names, trade secrets, proprietary technologies and similar intellectual property as critical to our
success, and we rely on trademark law, trade secret protection and confidentiality and license agreements with our employees, partners and others to protect
our proprietary rights. As of March 31, 2017, we had registered 37 domain names that are material to our business, including www.58.com, www.58.com.cn,
www.ganji.com, www.ganji.com.cn, www.anjuke.com and www.anjuke.cn, and 848 trademarks in China, excluding those relating to 58 Home. As the
registrant of the trademarks, Beijing 58 Information Technology Co., Ltd., or Beijing 58, has an exclusive right to use such trademarks in China for the goods
or services under the trademark categories that it has registered. Beijing 58 also enjoys the exclusive right to use the domain names that it has registered.
However, trademarks may also be invalidated, circumvented or challenged. For example, under PRC law, certain graphics may not be registered as a
trademark and if a registered trademark is found to violate such prohibition, the relevant authority can invalidate the trademark; third parties may challenge
such registered trademarks and apply to the authority for invalidation. In addition, if a registered trademark is identical or similar to a well-known trademark
or prejudices the existing right obtained by others, it may be invalidated by the relevant authority upon request by the right holder. Trade secrets are difficult
to protect, and our trade secrets may be leaked or otherwise become known or be independently discovered by competitors. Confidentiality agreements may
be breached, and we may not have adequate remedies for any breach.
It is often difficult to enforce intellectual property rights in China. Even where adequate laws exist in China, it may not be possible to obtain prompt
and equitable enforcement of such laws, or to obtain enforcement of a court judgment or an arbitration award delivered in another jurisdiction, and
accordingly, we may not be able to effectively protect our intellectual property rights in China. Policing any unauthorized use of our intellectual property is
difficult and costly and the steps we have taken may be inadequate to prevent the misappropriation of our technologies.
We may not be able to successfully halt the operations of websites that aggregate our data as well as data from other companies, including social
networks, or “copycat” websites that have misappropriated our data in the past or may misappropriate our data in the future.
From time to time, third parties have misappropriated our data through website scraping, robots or other means and aggregated this data on their
websites. In addition, “copycat” websites have misappropriated data on our websites and attempted to imitate our brand or the functionality of our websites.
When we have become aware of such websites, we have taken measures to halt such conduct. However, we may not be able to detect all such websites in a
timely manner and the measures we take may be insufficient to stop their conduct. In those cases, our available remedies may not be adequate to protect us
against such websites. Regardless of whether we can successfully enforce our rights against these websites, any measures that we may take could require us
to expend significant financial or other resources.
We may be subject to intellectual property infringement claims or other allegations by third parties for services we provide or for information or
content displayed on, retrieved from or linked to our websites, or distributed to our users, which may materially and adversely affect our business,
financial condition and prospects.
Internet, technology and media companies are frequently involved in litigation based on allegations of infringement of intellectual property rights,
unfair competition, invasion of privacy, defamation and other violations of other parties’ rights. The validity, enforceability and scope of protection of
intellectual property rights in internet-related industries, particularly in China, are uncertain and still evolving. We face, from time to time, and expect to face
in the future, allegations that we have infringed the trademarks, copyrights, patents and other intellectual property rights of third parties, including our
competitors, or allegations that we are involved in unfair competition against our competitors. As we face increasing competition and sometimes have to take
defensive measures in response to competitive pressure and as litigation become more common in China in resolving commercial disputes, we face a higher
risk of being the subject of intellectual property infringement and unfair competition claims. Intellectual property and unfair competition claims and litigation
may be expensive and time-consuming to investigate and defend, and may divert resources and management attention from the operation of our business.
Such claims, even if they do not result in liability, may harm our reputation. Any resulting liability or expenses, or changes required to be made to our
websites to reduce the risk of future liability, may have a material adverse effect on our business, financial condition and prospects.
14
We utilize software that selectively identifies classified information listings on other websites in certain content categories for which our
certification procedure is not required and replicates such listings on our websites. These replicated listings are not given individualized registered user
accounts and are not counted as listings for purposes of calculating the listings per day posted by our users as disclosed in this annual report. If an original
poster wants to delete a replicated listing on our websites, the poster can either use our online self-help functions or contact our customer service online to
delete the listing. We do not explicitly indicate the replicated listings on our websites, although we notify our users of the replicated nature of the listings
upon inquiry. We believe this is a widespread practice in our industry in China. However, the practice may be deemed to be in violation of the PRC Anti-
Unfair Competition Law. If other market participants bring legal claims against us for conducting unfair competition, we may be held liable by the court and
be required to pay damages to the plaintiffs equal to the losses suffered by the market participants as a result of the unfair competition practices or, if it is
difficult to calculate the losses, equal to the aggregate profits earned through the unfair competition practices and the reasonable expenses incurred by the
plaintiffs to investigate the unfair competition practices. We have never generated revenue from replicated listings. In addition, if the replicated listings are
protected under copyright law, the practice of replicating listings may be deemed to be copyright infringement. In such case, we may be required to cease the
act of infringement, eliminate any influence caused, apologize to and pay damages to the copyright owners and be subject to penalties including confiscation
of illegal gains and imposition of fines by the relevant governmental authorities. In addition, we have from time to time been the subject of critical media
coverage due to this practice, which could harm our reputation and business.
We may be held liable to third parties for information or content displayed on, retrieved from or linked to our websites, or distributed to website
users, which could harm our reputation and business.
Our online marketing services enable users to exchange local business or service information, generate content, market products and services,
conduct business and engage in various other online activities. Claims may be brought against us for defamation, libel, negligence, copyright, patent or
trademark infringement, tort (including personal injury), fraud, other unlawful activity or other theories and claims based on the nature and content of
information to which we link or that may be posted on our websites, generated by our users, or delivered or shared hypertext links to third-party websites, or
video or image services, if appropriate licenses and/or third-party consents have not been obtained. Third-parties may also seek to assert claims against us
alleging unfair competition or violations of privacy rights or failure to maintain the confidentiality of user data. Our defense of any such actions could be
costly and involve significant time and attention of our management and other resources.
We are also regularly approached and asked to remove content uploaded by users on the grounds of alleged copyright or personal rights
infringement. In such cases, we investigate the claims and remove any uploads that appear to infringe the rights of a third party after our reasonable
investigation and determination. Our corporate policy requires a user to enter into a user agreement in the registration process before posting any content on
our websites. Pursuant to the user agreement, a user makes certain representations and warranties relating to the user generated content on our websites. See
“Item 4. Information on the Company — B. Business Overview — Content Management and Monitoring.” However, we have been and in the future may be
subject to intellectual property infringement claims or other allegations by third parties for services provided or content displayed on our websites. Although
we believe that we will have recourse to indemnification from alleged infringing users on the basis of the user agreement, such right to recourse is subject to
the enforcement mechanism of PRC legal system, which may not be effective. Our data security team also screens our websites to eliminate content that we
believe may infringe copyrights. Although our internal policy, terms of our user agreements and the screening system are designed to help limit the
occurrences and impact of infringing activities, they may not be effective in eliminating such occurrences or dissemination of infringing materials on our
websites.
Pursuant to PRC national and Beijing local regulations and judicial interpretations, online service providers that provide information storage space
for users to upload works or link services may be held liable for damages if such providers know or have reason to know that the works uploaded or linked
infringe others’ copyrights. The Supreme People’s Court of China promulgated a judicial interpretation on infringement of the right of dissemination through
internet in December 2012. This judicial interpretation, like certain court rulings and certain other judicial interpretations, provide that the courts will place
the burden on internet service providers to remove not only links or contents that have been specifically mentioned in the notices of infringement from right
holders, but also links or contents they should have known to contain infringing content. The interpretation further provides that where an internet service
provider has directly obtained economic benefits from any contents made available by an internet user, it has a higher duty of care with respect to internet
users’ infringement of third-party copyrights. This interpretation could subject us and other online service providers to significant administrative burdens and
litigation risks.
15
Concerns about collection and use of personal data could damage our reputation and deter current and potential users from using our services.
Concerns about our practices with regard to the collection, use or disclosure of personal information or other privacy-related matters, even if
unfounded, could damage our reputation and operating results. Pursuant to the applicable PRC laws and regulations concerning the collection, use and
sharing of personal data, our PRC subsidiaries and consolidated affiliated entities are required to keep our users’ personal information confidential and are
prohibited from disclosing such information to any third parties without the users’ consent. We apply strict management and protection to any information
provided by users, and under our privacy policy, without our users’ prior consent, we will not provide any of our users’ personal information to any unrelated
third party. In December 2012 and July 2013, new laws and regulations were issued by the standing committee of the PRC National People’s Congress and
the MIIT to enhance the legal protection of information security and privacy on the internet. The laws and regulations also require internet operators to take
measures to ensure confidentiality of information of users. In November 2016, the Standing Committee of the PRC National People’s Congress promulgated
the PRC Cyber Security Law, which, among others, prohibits network operators from collecting personal information irrelevant to their services. While we
strive to comply with our privacy guidelines as well as all applicable data protection laws and regulations, any failure or perceived failure to comply may
result in proceedings or actions against us by government entities or others, and could damage our reputation. User and regulatory attitudes towards privacy
are evolving, and future regulatory or user concerns about the extent to which personal information is shared with merchants or others may adversely affect
our ability to share certain data with merchants, which may limit certain methods of targeted marketing. Concerns about the security of personal data could
also lead to a decline in general internet usage, which could lead to lower user traffic on our websites. A significant reduction in user traffic could lead to
lower revenues from paying users, which could have a material adverse effect on our business, financial condition and results of operations.
We could be liable for any breach of security relating to the third-party online payment platforms we use, and concerns about the security of internet
transactions could damage our reputation, deter current and potential users from using our online platforms and have other adverse consequences
to our business.
Users may conduct transactions on our online platforms through third-party online payment platforms. In these online payment transactions, secured
transmission of confidential information, such as customers’ credit card numbers and expiration dates, personal information and billing addresses, over
public networks is essential to maintain consumer confidence. In addition, we expect that an increasing amount of our sales and transactions conducted on
our online platforms will be conducted over the internet as a result of the growing use of online payment platforms. As the prevalence of using online
payment methods increases, associated online crimes will likely increase as well. Our current security measures and those of the third-party online payment
platform service providers may not be adequate. We must be prepared to increase and enhance our security measures and efforts so that our users have
confidence in the reliability of the online payment platforms that we use, which will impose additional costs and expenses and may still not guarantee
complete safety. In addition, we do not have control over the security measures of our third-party online payment platform service providers. Security
breaches of the online payment platforms that we use could expose us to litigation and possible liability for failing to secure confidential user information and
could, among other things, damage our reputation.
A significant barrier to financial transactions or other electronic payment processing platforms over the internet in general has been public concern
over the security of online payments. If these concerns are not adequately addressed, they may inhibit the growth of paid online services generally. If an
internet or mobile network security breach were to occur and get publicized, the perceived security of the online payment platforms may be damaged, and
users concerned about the security of their transactions may become reluctant to purchase our services even if the publicized breach did not involve payment
platforms or methods used by us.
If any of the above were to occur and damage our reputation or the perceived security of the online payment platforms that we use, we may lose
users and user traffic, and users may be discouraged from purchasing our services, which may have an adverse effect on our business. Any significant
reduction in user traffic could lead to lower revenues from membership and online marketing services.
16
Spammers and malicious applications may make our services less user-friendly and discourage users from using our websites or services.
Spammers may use our websites and services to send targeted and untargeted spam messages to users, which may embarrass or annoy users and
make usage of our websites and services more time-consuming and less user-friendly. As a result, our users may use our services less or stop using them
altogether. As part of fraudulent spamming activities, spammers typically create multiple user accounts, such as accounts being set-up for the purposes of
sending spam messages. Although we have technologies and employees that attempt to identify and delete accounts created for spamming purposes, we are
not able to eliminate all spam messages from being sent on our websites.
Our business, financial condition and results of operations, as well as our ability to obtain financing, may be adversely affected by the downturn in
the global or Chinese economy.
The online information services and mobile services industries may be affected by economic downturns. Thus, our business and prospects may be
affected by the macroeconomic environment in China. A prolonged slowdown in the Chinese economy may lead to a reduced amount of activities on our
platforms, which could materially and adversely affect our business, financial condition and results of operations. In addition, our products and services may
be viewed as discretionary by our users, who may choose to discontinue or reduce spending on such products and services during an economic downturn. In
such an event, our ability to retain existing paying merchant members and customers and recruiting new paying merchant members and customers will be
adversely affected, which would in turn negatively impact our business and results of operations.
Moreover, a slowdown or disruption in the global or China’s economy may have a material and adverse impact on financings available to us. The
weakness in the economy could erode investors’ confidence, which constitutes the basis of the credit market. The recent financial turmoil affecting the
financial markets and banking system may significantly restrict our ability to obtain financing in the capital markets or from financial institutions on
commercially reasonable terms, or at all. Although we are uncertain about the extent to which the recent global financial and economic crisis and slowdown
of China’s economy may impact our business in the short-term and long-term, there is a risk that our business, results of operations and prospects would be
materially and adversely affected by any global economic downturn or disruption or slowdown of China’s economy.
We may need additional capital, and the sale of additional ADSs or other equity securities could result in additional dilution to our shareholders.
As of December 31, 2016, we had cash and cash equivalents, term deposits and short-term investments totaling RMB2.1 billion. Our ability to
continue as a going concern is dependent on our ability to successfully execute our business plan, which includes increasing revenues while controlling
operating expenses, as well as generating cash flows from operating activities and continuing to gain support from outside sources of financing. We can
adjust the pace of our operation expansion and control our operating expenses. Although we believe that we have sufficient funds to meet our working capital
requirements and debt obligations in the ordinary course of business for the next twelve months from the date of this annual report, we may require additional
cash resources due to changed business conditions or other future developments, including to make any investments or acquisitions we may decide to pursue
or to pay down loans from financial institutions. If these resources are insufficient to satisfy our cash requirements, we may seek to sell additional equity or
debt securities or obtain a credit facility. For example, in June 2014 and April 2015, we issued 36.8 million ordinary shares at the equivalent of US$20.00 per
ordinary share and 15.4 million ordinary shares at the equivalent of US$26.00 per ordinary share, respectively, to a holding vehicle of Tencent Holdings
Limited, or Tencent. The sale of additional equity securities could result in additional dilution to our shareholders. The incurrence of indebtedness would
result in increased debt service obligations and could result in operating and financing covenants that would restrict our operations. It is uncertain whether
financing will be available in amounts or on terms acceptable to us, if at all.
17
If we fail to implement and maintain an effective system of internal controls, we may be unable to accurately or timely report our results of
operations or prevent fraud, and investor confidence and the market price of our ADSs may be materially and adversely affected.
In connection with our independent registered public accounting firm’s audit of the effectiveness of our internal control over financial reporting as
of December 31, 2015, and our management’s assessment of the effectiveness of our internal control over financial reporting as of December 31, 2015, we
and our independent registered public accounting firm identified one “material weakness” in our internal control over financial reporting, as defined in the
standards established by the Public Company Accounting Oversight Board of the United States, or PCAOB. The material weakness identified related to the
lack of adequate resources with an appropriate level of knowledge in U.S. GAAP to properly account for significant complex transactions under U.S. GAAP.
As a result, certain significant complex transactions were not initially accounted for properly.
We have undertaken certain remedial measures to improve our internal control over financial reporting and disclosure controls to address the
material weakness. Our management has concluded that our internal control over financial reporting was effective as of December 31, 2016 after the
remediation. For details on these initiatives, please see “Item 15. Controls and Procedures —Remediation of Material Weaknesses in Internal Control over
Financial Reporting Reported in 2015.”
However, if we fail to maintain effective internal control over financial reporting in the future, our management may not be able to conclude that we
have effective internal control over financial reporting at a reasonable assurance level. In addition, the process of designing and implementing an effective
financial reporting system is a continuous effort that requires us to anticipate and react to changes in our business and the economic and regulatory
environments and to expend significant resources to maintain a financial reporting system that satisfies our reporting obligations. Our failure to discover and
address any other material weaknesses or deficiencies may result in inaccuracies in our financial statements or delay in the preparation of our financial
statements. This could in turn result in the loss of investor confidence in the reliability of our financial statements and negatively impact the trading price of
our ADSs. Ineffective internal control over financial reporting could also expose us to increased risk of fraud or misappropriations of corporate assets and
subject us to potential delisting from the stock exchange on which our ADSs are listed, regulatory investigations or civil or criminal sanctions.
We have granted employee share options and other share-based awards in the past and will continue to do so in the future. We recognize share-
based compensation expenses in our consolidated statement of comprehensive income/(loss) in accordance with U.S. GAAP. Any additional grant of
employee share options and other share-based awards in the future may have a material adverse effect on our results of operation.
We adopted an employee stock option plan in 2010, or the 2010 Plan, and a share incentive plan in 2013, or the 2013 Plan, for the purpose of
granting share-based compensation awards to employees, directors and consultants to incentivize their performance and align their interests with ours. Under
the 2010 Plan, we are permitted to issue options to purchase up to 20,173,225 ordinary shares. Under the 2013 Plan, we are authorized to grant options,
restricted shares, restricted share units or other awards to purchase up to 22,277,223 ordinary shares, consisting of 15,277,223 Class A ordinary shares and
7,000,000 Class B ordinary shares, including the automatic increase of 4,345,065 ordinary shares at the beginning of 2017 pursuant to the evergreen
provision of the 2013 Plan. As of March 31, 2017, restricted share units to receive and options to purchase an aggregate of 9,336,174 ordinary shares were
issued and outstanding under the 2013 Plan, and options to purchase an aggregate of 3,277,610 ordinary shares were issued and outstanding under the 2010
Plan. 58 Home, our significant investee accounted for under equity method, adopted a share incentive plan in 2015 and granted options and restricted shares
under that plan to certain employees of 58 Home and our company. See “Item 6. Directors, Senior Management and Employees — B. Compensation.” We
have granted and may grant substantial additional share-based awards in connection with our acquisition of or investment in Ganji and other companies. As a
result of these grants and potential future grants, we incurred in the past and expect to continue to incur in future periods significant share-based
compensation expenses. The amount of share-based compensation expenses is based on the fair value of the share-based awards. We account for
compensation costs for all share-based awards using a fair-value based method and recognize expenses in our consolidated statement of comprehensive
income/(loss) in accordance with U.S. GAAP. The expenses associated with share-based compensation will increase our net loss or decrease our net income,
perhaps materially, and the additional securities issued under share-based compensation plans will dilute the ownership interests of our shareholders,
including holders of our ADSs. However, if we limit the scope of our share-based compensation plan, we may not be able to attract or retain key personnel
who are expected to be compensated by incentive shares or options.
18
We have limited business insurance coverage.
Insurance companies in China currently do not offer as extensive an array of insurance products as insurance companies do in more developed
economies. Except for the property insurance and third-party liability insurance purchased by Beijing Chengshi Wanglin Information Technology Co., Ltd.,
or Wanglin, we do not have any business liability or disruption insurance to cover our operations. We have determined that the costs of insuring for these
risks and the difficulties associated with acquiring such insurance on commercially reasonable terms make it impractical for us to have such insurance. Any
uninsured occurrence of business disruption may result in our incurring substantial costs and the diversion of resources, which could have an adverse effect
on our results of operations and financial condition.
Failure to renew our current leases or locate desirable alternatives for our facilities could materially and adversely affect our business.
In September 2014, we entered into an agreement to purchase 44,915 square meters of office space in Chaoyang District, Beijing, which is used as
our company’s new corporate headquarters. All of the space had been put in use for occupancy as of December 31, 2016. We have purchased a smaller office
space in Tianjin as well. However, outside of Beijing and Tianjin, all of our offices in the other 53 cities and data centers were presently located on leased
premises as of December 31, 2016. At the end of each lease term, we may not be able to negotiate an extension of the lease and may therefore be forced to
move to a different location, or the rent we pay may increase significantly. This could disrupt our operations and adversely affect our profitability. We
compete with other businesses for premises with certain characteristics or in desirable locations and some landlords may have entered into long-term leases
with our competitors for such premises. As a result, we may not be able to obtain new leases at desirable locations or renew our existing leases on acceptable
terms or at all, which could materially and adversely affect our business.
Risks Related to Our Corporate Structure and Restrictions on Our Industry
Substantial uncertainties and restrictions exist with respect to the interpretation and application of PRC laws and regulations relating to online
commerce and the distribution of internet content in China. If the PRC government finds that the structure we have adopted for our business
operations does not comply with PRC laws and regulations, we could be subject to severe penalties, including the shutting down of our websites.
Foreign ownership of internet-based businesses is subject to significant restrictions under current PRC laws and regulations. The PRC government
regulates internet access, the distribution of online information and the conduct of online commerce through strict business licensing requirements and other
government regulations. These laws and regulations also include limitations on foreign ownership in PRC companies that provide internet content
distribution services. The State Council amended the Provisions on Administration of Foreign Invested Telecommunications Enterprises in February 2016.
Specifically, foreign investors are not allowed to own more than 50% of the equity interests in any entity providing value-added telecommunication services.
The Circular on Strengthening the Administration of Foreign Investment in and Operation of Value-added Telecommunications Business, or the MIIT
Circular, issued by the MIIT in July 2006, reiterated the regulations on foreign investment in telecommunications businesses, which require foreign investors
to set up foreign-invested enterprises and obtain business operating licenses for internet content provision to conduct any value-added telecommunications
business in China. Under the MIIT Circular, a domestic company that holds an internet content provision license, or ICP license, is prohibited from leasing,
transferring or selling the license to foreign investors in any form, and from providing any assistance, including providing resources, sites or facilities, to
foreign investors that conduct value-added telecommunications business illegally in China. Furthermore, the relevant trademarks and domain names that are
used in the value-added telecommunications business must be owned by the local ICP license holder or its shareholders. Due to a lack of interpretation from
MIIT, it is unclear what impact the MIIT Circular will have on us or the other PRC internet companies that have adopted the same or similar corporate and
contractual structures as ours. Beijing 58 and certain other consolidated affiliated entities of us hold ICP licenses, and own all domain names used in our
value-added telecommunications businesses. Beijing 58 and certain other consolidated affiliated entities of us are also the owners of all registered trademarks
used in our value-added telecommunications businesses and are the applicants of all our applications for registration of trademarks used for our value-added
telecommunications businesses.
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We are a Cayman Islands company and our PRC subsidiary, Wanglin, is considered a foreign invested enterprise. To comply with PRC laws and
regulations, we conduct our operations in China through a series of contractual arrangements entered into among Wanglin, Beijing 58 and Beijing 58’s
shareholders. As a result of these contractual arrangements, we exert control over our Beijing 58 and its subsidiaries and consolidate their financial results in
our financial statements under U.S. GAAP. In August 2015, 58 Home, through its PRC subsidiary, Beijing 58 Daojia Information Technology Co., Ltd., or
Beijing 58 Home, entered into contractual arrangements with Tianjin 58 Daojia Life Services Co., Ltd., or Tianjin 58 Home, which had previously been an
indirect subsidiary of Beijing 58, and the shareholders of Tianjin 58 Home. As a result of these contractual arrangements, 58 Home exert control over Tianjin
58 Home. In addition, Ganji operates online multi-content category classified advertising platforms in China through its PRC subsidiaries and consolidated
affiliated entities, including Beijing Shanjing Kechuang Network Technology Co., Ltd., or Shanjing Kechuang. For a detailed description of these contractual
arrangements, see “Item 4. Information on the Company — C. Organizational Structure — Our Contractual Arrangements.”
In the opinion of our PRC counsel, Han Kun Law Offices, our current ownership structure, the ownership structure of our PRC subsidiaries and our
consolidated affiliated entities, the contractual arrangements relating to our consolidated affiliated entities, and, except as otherwise disclosed in this annual
report, our business operations, are not in violation of any existing PRC laws, rules and regulations. There are, however, substantial uncertainties regarding
the interpretation and application of current or future PRC laws and regulations. In particular, in January 2015, the Ministry of Commerce published a
discussion draft of the proposed Foreign Investment Law for public review and comments. Among other things, the draft Foreign Investment Law expands
the definition of foreign investment and introduces the principle of “actual control” in determining whether a company is considered a foreign-invested
enterprise. Under the draft Foreign Investment Law, variable interest entities would also be deemed as foreign-invested enterprises, if they are ultimately
“controlled” by foreign investors, and be subject to restrictions on foreign investments. However, the draft law has not taken a position on what actions will
be taken with respect to the existing companies with the “variable interest entity” structure, whether or not these companies are controlled by Chinese parties.
It is uncertain when the draft would be signed into law and whether the final version would have any substantial changes from the draft. See “Item 4.
Information on the Company — B. Business Overview — Regulation — Regulations on PRC Foreign Investment” and “— Substantial uncertainties exist
with respect to the enactment timetable, interpretation and implementation of draft PRC Foreign Investment Law and how it may impact the viability of our
current corporate structure, corporate governance and business operations.” Accordingly, we cannot assure you that PRC government authorities will not
ultimately take a view contrary to the opinion of our PRC legal counsel.
Accordingly, if our ownership structure, contractual arrangements and businesses of our company, our PRC subsidiaries or our consolidated
affiliated entities are found to be in violation of any existing or future PRC laws or regulations, or we fail to obtain or maintain any of the required permits or
approvals, the relevant governmental authorities would have broad discretion in dealing with such violation, including levying fines, confiscating our income
or the income of our PRC subsidiaries or consolidated affiliated entities, revoking the business licenses or operating licenses of our PRC subsidiaries or
consolidated affiliated entities, shutting down our servers or blocking our websites, discontinuing or placing restrictions or onerous conditions on our
operations, requiring us to undergo a costly and disruptive restructuring, and taking other regulatory or enforcement actions that could be harmful to our
business. Any of these actions could cause significant disruption to our business operations and severely damage our reputation, which would in turn
materially and adversely affect our business, financial condition and results of operations. If any of these occurrences results in our inability to direct the
activities of any of our consolidated affiliated entities that most significantly impact its economic performance, and/or our failure to receive the economic
benefits from any of our consolidated affiliated entities, we may not be able to consolidate the entity in our consolidated financial statements in accordance
with U.S. GAAP.
We rely on contractual arrangements with our consolidated affiliated entities and their shareholders for the operation of our business, which may
not be as effective as direct ownership. If we are unable to maintain control, we would not be able to continue to consolidate the financial results of
these entities with our financial results. If our consolidated affiliated entities and their shareholders fail to perform their obligations under these
contractual arrangements, we may have to resort to litigation or arbitration to enforce our rights, which may be time-consuming, unpredictable,
expensive and damaging to our operations and reputation.
Because of PRC restrictions and qualification requirements on foreign ownership of value-added telecommunications services in China, we depend
on contractual arrangements with our consolidated affiliated entities, in which we have no ownership interest, to conduct our business. These contractual
arrangements are intended to provide us with control over these entities and allow us to obtain economic benefits from them. Although we have been advised
by our PRC counsel, Han Kun Law Offices, that these contractual arrangements are valid, binding and enforceable under current PRC laws, these contractual
arrangements may not be as effective in providing control as direct ownership. For example, our consolidated affiliated entities and their shareholders could
breach their contractual arrangements with us by, among other things, failing to conduct their operations, including maintaining our websites and using the
domain names and trademarks for which they have exclusive right to use, in an acceptable manner or taking other actions that are detrimental to our interests.
If we were the controlling shareholder of our consolidated affiliated entities with direct ownership, we would be able to exercise our rights as shareholders to
effect changes to their board of directors, which in turn could implement changes at the management and operational levels. Furthermore, each of our
consolidated affiliated entities’ company chops are held by each company’s legal or accounting department. Our ability to ensure the consolidated affiliated
entities’ performance under the contractual agreements may be limited if we were unable to secure control of the company chops in the event of a dispute
with the entity’s management or shareholders as many official documents require affixation of company chops to become fully effective. As a result, if our
consolidated affiliated entities or their shareholders fail to perform their obligations under these contractual arrangements we may have to incur substantial
costs to enforce such arrangements, and rely on legal remedies under PRC law, including contract remedies, which may not be sufficient or effective. If we
are unable to maintain control, we would not be able to continue to consolidate the financial results of these entities with our financial results.
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These contractual arrangements are governed by PRC law and provide for dispute resolution through arbitration in China. Accordingly, these
contracts would be interpreted in accordance with PRC law and any disputes would be resolved in accordance with PRC legal procedures. Under PRC law, if
parties to a contract have agreed to resolve disputes arising from the contract by arbitration, a PRC court will not accept a lawsuit initiated at the court by any
contract party, unless the agreement for arbitration is invalid. An arbitration award issued by the arbitration commission chosen in accordance with the
agreement is final, binding and enforceable against the parties. If any party fails to comply with the arbitration award, the other party has the right to apply
with a competent court for enforcement. However, the legal environment in China is not as developed as other jurisdictions such as the United States. As a
result, uncertainties in the PRC legal system could limit our ability to enforce these contractual arrangements, which may make it difficult to exert control
over our consolidated affiliated entities, and our ability to conduct our business may be negatively affected. In addition, a PRC court or arbitration tribunal
may refuse to enforce the contractual arrangements on the grounds that they are designed to circumvent PRC foreign investment restrictions and therefore are
against PRC public policy.
If we are unable to enforce these contractual arrangements, or if we suffer significant delay or other obstacles in the process of enforcing these
contractual arrangements, our business and operations could be severely disrupted, which could materially and adversely affect our results of operations and
damage our reputation. See “— Risks Related to Doing Business in China — Uncertainties in the interpretation and enforcement of PRC laws and
regulations could limit the legal protections available to you and us.”
The shareholders of our consolidated affiliated entities have potential conflicts of interest with us, which may adversely affect our business.
Mr. Jinbo Yao is the founder, chairman and chief executive officer of our company, having beneficial ownership of 10.9% of the total outstanding
shares of our company as of March 31, 2017. See “Item 7. Major Shareholders and Related Party Transactions — A. Major Shareholders.” He is also the sole
director, an executive officer and a shareholder of Beijing 58, our consolidated affiliated entity, holding a 37.8% equity interest in the entity. In addition, Mr.
Yao is the sole director and a 16.7% shareholder of Beijing Wanglintong Information Technology Co., Ltd., an entity that holds a 13.4% equity interest in
Beijing 58. Mr. Yao is also an executive director and a 1.4% shareholder of Tianjin 58 Home, 58 Home’s consolidated affiliated entity. Conflicts of interest
between his duties to our company, his duties to Beijing 58 or Tianjin 58 Home and his interests as a shareholder of Beijing 58 may arise. We cannot assure
you that he will act entirely in our interests when conflicts of interest arise or that conflicts of interest will be resolved in the favor of our company.
Furthermore, in the context of Mr. Yao’s acting as the director and an executive officer of Beijing 58 or a director of Tianjin 58 Home, PRC law would not
require him to consider our company’s best interests. We rely on Mr. Yao to abide by the laws of China, which provide that directors and executive officers
owe a duty of loyalty and duty of care to the company and require them to avoid conflicts of interest and not to take advantage of their positions for personal
gains, and the laws of Cayman Islands, which provide that directors owe a duty of care and duty of loyalty to the company. The respective legal framework
of China and the Cayman Islands does not provide guidance in the event of a conflict with another corporate governance regime. If we cannot resolve any
conflict of interest or dispute between us and the shareholders of our consolidated affiliated entities should one arise, we would have to rely on legal
proceedings, which could result in disruption of our business and subject us to substantial uncertainty as to the outcome of any such legal proceedings. In
addition, Mr. Yao could violate his non-competition or employment agreements with us or his legal duties by diverting business opportunities from us,
resulting in our loss of corporate opportunities. If we are unable to resolve any such conflicts, or if we suffer significant delays or other obstacles as a result
of such conflicts, our business and operations could be severely disrupted, which could materially and adversely affect our results of operations and damage
our reputation. See “— Risks Related to Doing Business in China — Uncertainties in the interpretation and enforcement of PRC laws and regulations could
limit the legal protections available to you and us.”
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We may lose the ability to use and enjoy assets held by our consolidated affiliated entities that are material to the operation of our business if any of
such entities goes bankrupt or becomes subject to a dissolution or liquidation proceeding.
As part of our contractual arrangements with Beijing 58 and other consolidated affiliated entities, these entities hold certain assets that are material
to the operation of our business, including the ICP license, and the domain names and trademarks for which Beijing 58 or any of the other consolidated
affiliated entities has exclusive right to use. If any of our consolidated affiliated entities goes bankrupt and all or part of its assets become subject to liens or
rights of third-party creditors, we may be unable to continue some or all of our business activities, which could materially and adversely affect our business,
financial condition and results of operations. Under the contractual arrangements, our consolidated affiliated entities may not, in any manner, sell, transfer,
mortgage or dispose of their assets or legal or beneficial interests in the business without our prior consent. If any of our consolidated affiliated entities
undergoes a voluntary or involuntary liquidation proceeding, the unrelated third-party creditors may claim rights to some or all of these assets, thereby
hindering our ability to operate our business, which could materially and adversely affect our business, financial condition and results of operations.
Our contractual arrangements with our consolidated affiliated entities may result in adverse tax consequences to us.
Under PRC laws and regulations, arrangements and transactions among related parties may be subject to audit or challenge by the PRC tax
authorities within ten years after the taxable year when the transactions are conducted. The PRC enterprise income tax law requires every enterprise in China
to submit its annual enterprise income tax return together with a report on transactions with its related parties to the relevant tax authorities. The tax
authorities may impose reasonable adjustments on taxation if they have identified any related party transactions that are inconsistent with arm’s length
principles. We may be subject to adverse tax consequences if the PRC tax authorities were to determine that the contracts between our PRC subsidiaries and
our consolidated affiliated entities were not on an arm’s length basis and therefore constitute favorable transfer pricing arrangements. If this occurs, the PRC
tax authorities could request that our consolidated affiliated entities adjust their taxable income, if any, upward for PRC tax purposes. Such a pricing
adjustment could adversely affect us by increasing our consolidated affiliated entities’ tax expenses without reducing our tax expenses, and by subjecting our
consolidated affiliated entities to late payment fees and other penalties for underpayment of taxes.
We may be adversely affected by the complexity, uncertainties and changes in China’s regulation of internet business and companies.
The internet industry in China is highly regulated by the PRC government and numerous regulatory authorities of the central PRC government are
empowered to issue and implement regulations governing various aspects of the internet industry including foreign ownership of and licensing and permit
requirements pertaining to companies in the internet industry. See “Item 4. Information on the Company — B. Business Overview — Regulation.” These
internet-related laws and regulations are relatively new and evolving, and their interpretation and enforcement involve significant uncertainty. As a result, in
certain circumstances, it may be difficult to determine what actions or omissions may be deemed to be in violation of applicable laws and regulations. Our
consolidated affiliated entities are required to obtain and maintain applicable licenses or approvals from different regulatory authorities in order to provide
their current services, including but not limited to the ICP license, the Surveying and Mapping Qualification Certificate for internet mapping, the
Employment Agency License and the Internet Culture Business Permit.
Pursuant to the relevant regulations promulgated by the State Administration of Press Publication, Radio, Film and Television, or the SAPPRFT,
any company engaged in internet broadcasting activities must obtain an Online Audio/Video Program Transmission License issued by the SAPPRFT and
operate in accordance with the scope as stipulated in such license. Since February 2008, only wholly state-owned or state-controlled enterprises are qualified
to apply for new Online Audio/Video Program Transmission License. Beijing 58 Auto Technology Co., Ltd. or Beijing 58 Auto (formerly known as Beijing
Leftbrain Network Technology Co., Ltd.), one of our consolidated affiliates, has not obtained an Online Audio/Video Program Transmission License and
provides on its website certain audio/video programs on third party websites, which have the Online Audio/Video Program Transmission Licenses. Beijing
58 Auto was imposed fines in an aggregate amount of RMB6,000 in August 2015 and June 2016 for providing internet broadcasting activities without an
Online Audio/Video Program Transmission License. Beijing 58 Auto may be subject to additional penalties and be required to change its way to provide
audio/video programs if the local authorities still consider the existing way that Beijing 58 Auto provides the audio/video programs to be an internet
broadcasting activity.
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In addition, we provide live online reality shows on our websites. Pursuant to the amended Interim Administrative Provisions on Internet Culture
promulgated by the Ministry of Culture in February 2011, or the Interim Administrative Provision, any company engaged in the commercial internet cultural
activities such as production, reproduction, import, release or broadcast of Internet culture products including online performance must obtain an Internet
Culture Business Permit. 58 Co., Ltd., one of our consolidated affiliates, has obtained an Internet Culture Business Permit with business scope of “operating
online game products.” However, the live online reality shows provided on our websites may be deemed as online performance, and thus we may be required
to apply for adding “online performance” to the business scope of the Internet Culture Business Permit that 58 Co., Ltd. has obtained. If we fail to add the
“online performance” business scope, we may be required to cease providing live online reality shows on our websites and may be subject to certain
penalties, including but not limited to fines.
Furthermore, our consolidated affiliated entities may be required to obtain additional licenses. If any of them fails to obtain or maintain any of the
required licenses or approvals, its continued business operations in the internet industry may subject it to various penalties, such as confiscation of illegal net
sales, fines and the discontinuation or restriction of its operations. Any such disruption in the business operations of our consolidated affiliated entities will
materially and adversely affect our business, financial condition and results of operations.
Regulation and censorship of information distribution over the internet in China may adversely affect our business, and we may be liable for
information displayed on, retrieved from or linked to our websites.
The PRC government has adopted regulations governing internet access and the distribution of information over the internet. Under these
regulations, internet content providers and internet publishers are prohibited from posting or displaying over the internet content that, among other things,
violates PRC laws and regulations, impairs the national dignity of China or the public interest, contains terrorism or extremism content, or is reactionary,
obscene, superstitious, fraudulent or defamatory. Failure to comply with these requirements may result in the revocation of licenses to provide internet
content and other licenses, the closure of the concerned websites and reputational harm. A website operator may also be held liable for such censored
information displayed on or linked to its website. For a detailed discussion, see “Item 4. Information on the Company — B. Business
Overview — Regulation — Regulations on Value-Added Telecommunication Services” and “Item 4. Information on the Company — B. Business
Overview — Regulation — Regulations on Information Security and Censorship.” We have a team within our data security department which implements
internal procedures to review the content in our system for compliance with applicable laws and regulations, aided by a program designed to periodically
sweep our websites and the data being conveyed in our system for sensitive keywords or questionable materials. In spite of this screening system, we may
have difficulty identifying and removing all illegal content or transactions involving illegal sales of goods and services, which could expose us to the
penalties described above.
Risks Related to Doing Business in China
Uncertainties in the interpretation and enforcement of PRC laws and regulations could limit the legal protections available to you and us.
The PRC legal system is based on written statutes. Unlike common law systems, it is a system in which legal cases have limited value as precedents.
In the late 1970s, the PRC government began to promulgate a comprehensive system of laws and regulations governing economic matters in general. The
overall effect of legislation over the past three decades has significantly increased the protections afforded to various forms of foreign or private-sector
investment in China. Our PRC subsidiaries, Wanglin and 58 Tongcheng Information Technology Co., Ltd., or 58 Technology, are foreign-invested
enterprises and are subject to laws and regulations applicable to foreign-invested enterprises as well as various PRC laws and regulations generally applicable
to companies in China. However, since these laws and regulations are relatively new and the PRC legal system continues to rapidly evolve, the
interpretations of many laws, regulations and rules are not always uniform and enforcement of these laws, regulations and rules involve uncertainties.
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From time to time, we may have to resort to administrative and court proceedings to enforce our legal rights. However, since PRC administrative
and court authorities have significant discretion in interpreting and implementing statutory and contractual terms, it may be more difficult to evaluate the
outcome of administrative and court proceedings and the level of legal protection we enjoy than in more developed legal systems. Furthermore, the PRC
legal system is based in part on government policies and internal rules (some of which are not published in a timely manner or at all) that may have
retroactive effect. As a result, we may not be aware of our violation of these policies and rules until sometime after the violation. Such uncertainties,
including uncertainty over the scope and effect of our contractual, property (including intellectual property) and procedural rights, and any failure to respond
to changes in the regulatory environment in China could materially and adversely affect our business and impede our ability to continue our operations.
Changes in China’s economic, political or social conditions or government policies could have a material adverse effect on our business and
operations.
Substantially all of our assets and almost all of our users are located in China. Accordingly, our business, financial condition, results of operations
and prospects may be influenced to a significant degree by political, economic and social conditions in China generally and by continued economic growth in
China as a whole.
China’s economy differs from the economies of most developed countries in many respects, including the level of government involvement, level of
development, growth rate, control of foreign exchange and allocation of resources. Although the PRC government has implemented measures since the late
1970s emphasizing the utilization of market forces for economic reform, the reduction of state ownership of productive assets, and the establishment of
improved corporate governance in business enterprises, a substantial portion of productive assets in China is still owned by the PRC government. In addition,
the PRC government continues to play a significant role in regulating industry development by imposing industrial policies. The PRC government also
exercises significant control over the PRC economic growth through allocating resources, controlling payment of foreign currency-denominated obligations,
setting monetary policy, and providing preferential treatment to particular industries or companies.
While China’s economy has experienced significant growth over the past decades, growth has been uneven, both geographically and among various
sectors of the economy, and may slow down in the future. Some of the government measures may benefit the overall Chinese economy, but may have a
negative effect on us. For example, our financial condition and results of operations may be adversely affected by government control over capital
investments or changes in tax regulations. Any stimulus measures designed to boost the Chinese economy may contribute to higher inflation, which could
adversely affect our results of operations and financial condition. For example, certain operating costs and expenses, such as employee compensation and
office operating expenses, may increase as a result of higher inflation.
Substantial uncertainties exist with respect to the enactment timetable, interpretation and implementation of draft PRC Foreign Investment Law and
how it may impact the viability of our current corporate structure, corporate governance and business operations.
The Ministry of Commerce published a discussion draft of the proposed Foreign Investment Law in January 2015 aiming to, upon its enactment,
replace the trio of existing laws regulating foreign investment in China, namely, the Sino-foreign Equity Joint Venture Enterprise Law, the Sino-foreign
Cooperative Joint Venture Enterprise Law and the Wholly Foreign-invested Enterprise Law, together with their implementation rules and ancillary
regulations. The draft Foreign Investment Law embodies an expected PRC regulatory trend to rationalize its foreign investment regulatory regime in line
with prevailing international practice and the legislative efforts to unify the corporate legal requirements for both foreign and domestic investments. While
the Ministry of Commerce solicited comments on this draft, substantial uncertainties exist with respect to its enactment timetable, interpretation and
implementation. The draft Foreign Investment Law, if enacted as proposed, may materially impact the viability of our current corporate structure, corporate
governance and business operations in many aspects.
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Among other things, the draft Foreign Investment Law expands the definition of foreign investment and introduces the principle of “actual control”
in determining whether a company is considered a foreign-invested enterprise, or an FIE. The draft Foreign Investment Law specifically provides that entities
established in China but “controlled” by foreign investors will be treated as FIEs, whereas an entity set up in a foreign jurisdiction would nonetheless be,
upon market entry clearance by the Ministry of Commerce, treated as a PRC domestic investor provided that the entity is “controlled” by PRC entities and/or
citizens. In this connection, “foreign investors” refers to the following subjects making investments within the PRC: (i) natural persons without PRC
nationality; (ii) enterprises incorporated under the laws of countries or regions other than China; (iii) the governments of countries or regions other than the
PRC and the departments or agencies thereunder; and (iv) international organizations. Domestic enterprises under the control of the subjects as mentioned in
the preceding sentence are deemed foreign investors, and “control” is broadly defined in the draft law to cover the following summarized categories: (i)
holding, directly or indirectly, not less than 50% of shares, equities, share of voting rights or other similar rights of the subject entity; (ii) holding, directly or
indirectly, less than 50% of the voting rights of the subject entity but having the power to secure at least 50% of the seats on the board or other equivalent
decision making bodies, or having the voting power to exert material influence on the board, the shareholders’ meeting or other equivalent decision making
bodies; or (iii) having the power to exert decisive influence, via contractual or trust arrangements, over the subject entity’s operations, financial matters or
other key aspects of business operations. Once an entity is determined to be an FIE, it will be subject to the foreign investment restrictions or prohibitions set
forth in a “catalogue of special administrative measures,” which is classified into the “catalogue of prohibitions” and “the catalogue of restrictions”, to be
separately issued by the State Council later. Foreign investors are not allowed to invest in any sector set forth in the catalogue of prohibitions. However,
unless the underlying business of the FIE falls within the catalogue of restrictions, which calls for market entry clearance by the Ministry of Commerce, prior
approval from the government authorities as mandated by the existing foreign investment legal regime would no longer be required for establishment of the
FIE.
The “variable interest entity” structure, or VIE structure, has been adopted by many PRC-based companies, including us, to obtain necessary
licenses and permits in the industries that are currently subject to foreign investment restrictions in China. See “— Risks Related to Our Corporate Structure
and Restrictions on Our Industry” and “Item 4. Information on the Company — C. Organizational Structure.” Under the draft Foreign Investment Law,
variable interest entities that are controlled via contractual arrangement would also be deemed as FIEs, if they are ultimately “controlled” by foreign
investors. Therefore, for any companies with a VIE structure in an industry category that is included in the “negative list” as restricted industry, the VIE
structure may be deemed legitimate only if the ultimate controlling person(s) is/are of PRC nationality (either PRC government authorities and its affiliates or
PRC citizens). Conversely, if the actual controlling person(s) is/are of foreign nationalities, then the variable interest entities will be treated as FIEs and any
operation in the industry category on the “negative list” without market entry clearance may be considered illegal.
It is uncertain whether we would be considered as ultimately controlled by Chinese parties. Besides, the draft Foreign Investment Law has not taken
a position on what actions shall be taken with respect to the existing companies with a VIE structure, whether or not these companies are controlled by
Chinese parties, while the Ministry of Commerce solicited comments from the public on this point. Moreover, it is uncertain whether the value-added
telecommunications services, in which our variable interest entities operate, will be subject to the foreign investment restrictions or prohibitions set forth in
the “negative list” to be issued. If the enacted version of the Foreign Investment Law and the final “negative list” mandate further actions, such as Ministry of
Commerce market entry clearance, to be completed by companies with existing VIE structure like us, we face uncertainties as to whether such clearance can
be timely obtained, or at all.
The draft Foreign Investment Law, if enacted as proposed, may also materially impact our corporate governance practice and increase our
compliance costs. For instance, the draft Foreign Investment Law imposes stringent ad hoc and periodic information reporting requirements on foreign
investors and the applicable FIEs.
Under the Enterprise Income Tax Law, we may be classified as a PRC “resident enterprise” for PRC enterprise income tax purposes. Such
classification would likely result in unfavorable tax consequences to us and our non-PRC shareholders and have a material adverse effect on our
results of operations and the value of your investment.
Under the PRC Enterprise Income Tax Law, an enterprise established outside the PRC with “de facto management bodies” within China is
considered a “resident enterprise” for PRC enterprise income tax purposes and is generally subject to a uniform 25% enterprise income tax rate on its
worldwide income. Under the implementation rules to the Enterprise Income Tax Law, a “de facto management body” is defined as a body that has material
and overall management and control over the manufacturing and business operations, personnel and human resources, finances and properties of an
enterprise. In addition, a circular known as SAT Circular 82, issued in April 2009 and amended in January 2014 by the State Administration of Taxation
specifies that certain offshore incorporated enterprises controlled by PRC enterprises or PRC enterprise groups will be classified as PRC resident enterprises
if the following are located or resident in China: senior management personnel and departments that are responsible for daily production, operation and
management; financial and personnel decision making bodies; key properties, accounting books, company seal, and minutes of board meetings and
shareholders’ meetings; and half or more of the senior management or directors having voting rights. Further to SAT Circular 82, the State Administration of
Taxation issued a bulletin, known as SAT Bulletin 45, which took effect in September 2011, to provide more guidance on the implementation of SAT
Circular 82 and clarify the reporting and filing obligations of such “Chinese-controlled offshore incorporated resident enterprises.” SAT Bulletin 45 provides
procedures and administrative details for the determination of resident status and administration on post-determination matters. Although both SAT Circular
82 and SAT Bulletin 45 only apply to offshore enterprises controlled by PRC enterprises or PRC enterprise groups, not those controlled by PRC individuals
or foreign individuals, the determining criteria set forth in SAT Circular 82 and SAT Bulletin 45 may reflect the State Administration of Taxation’s general
position on how the “de facto management body” test should be applied in determining the tax resident status of offshore enterprises, regardless of whether
they are controlled by PRC enterprises, PRC enterprise groups or by PRC or foreign individuals.
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We do not believe that 58.com Inc., China Classified Network Corporation, China Classified Information Corporation Limited, or any of our other
offshore subsidiaries meet all of the conditions above and thus we do not believe that 58.com Inc., China Classified Network Corporation, China Classified
Information Corporation Limited or any of our other offshore subsidiaries is a PRC resident enterprise, although some of the members of our management
team as well as the management team of our offshore holding companies are located in China. However, if the PRC tax authorities determine that 58.com
Inc., China Classified Network Corporation, China Classified Information Corporation Limited or any of our other offshore subsidiaries is a PRC resident
enterprise for PRC enterprise income tax purposes, a number of unfavorable PRC tax consequences could follow. First, we and/or our offshore subsidiaries
will be subject to the uniform 25% enterprise income tax on our world-wide income, which could materially reduce our net income. In addition, we will also
be subject to PRC enterprise income tax reporting obligations.
Furthermore, although dividends paid by one PRC tax resident enterprise to an offshore incorporated PRC resident enterprise controlled by PRC
enterprises or PRC enterprise groups should qualify as “tax-exempt income” under the Enterprise Income Tax Law and Bulletin 45, we cannot assure you
that dividends paid by any of our PRC subsidiaries to their shareholder in Hong Kong such as China Classified Information Corporation Limited will not be
subject to a PRC withholding tax, as the PRC foreign exchange control authorities, which enforce the withholding tax on dividends, and the PRC tax
authorities have not yet issued guidance with respect to the processing of outbound remittances to entities that are treated as resident enterprises for PRC
enterprise income tax purposes but not controlled by PRC enterprises or PRC enterprise groups.
Finally, dividends payable by us to our investors and gains on the sale of our shares may become subject to PRC withholding tax, each at a rate of
10% for foreign enterprise holders and at a rate of 20% for foreign individual holders of the ADSs or ordinary shares.
We may not be able to obtain certain benefits under relevant tax treaty on dividends paid by our PRC subsidiaries to us through China Classified
Information Corporation Limited or other Hong Kong subsidiaries.
We are a holding company incorporated under the laws of the Cayman Islands and as such rely on dividends and other distributions on equity from
our PRC subsidiaries to satisfy part of our liquidity requirements. Pursuant to the Enterprise Income Tax Law, a withholding tax rate of 10% currently
applies to dividends paid by a PRC “resident enterprise” to a foreign enterprise investor, unless any such foreign investor’s jurisdiction of incorporation has a
tax treaty with China that provides for preferential tax treatment. Pursuant to a Notice 112 issued by the State Administration of Taxation in January 2008
and the Arrangement between the Mainland China and the Hong Kong Special Administrative Region on the Avoidance of Double Taxation and Prevention
of Fiscal Evasion, or the Double Taxation Arrangement (Hong Kong), such withholding tax rate may be lowered to 5% if the PRC enterprise is at least 25%
held by a Hong Kong enterprise at all times within the 12-month period immediately prior to distribution of the dividends and is determined by the relevant
PRC tax authority to have satisfied other conditions and requirements under the Double Tax Avoidance Arrangement (Hong Kong) and other applicable PRC
laws. Pursuant to SAT Circular 601 issued by the State Administration of Taxation in October 2009, non-resident enterprises that cannot provide valid
supporting documents as “beneficial owners” may not be approved to enjoy tax treaty benefits. “Beneficial owners” are individuals, enterprises or other
organizations which are normally engaged in substantive operations. These rules also set forth certain adverse factors against the recognition of a “beneficial
owner.” Specifically, they expressly exclude a “conduit company,” or any company established for the purposes of avoiding or reducing tax obligations or
transferring or accumulating profits and not engaged in actual operations such as manufacturing, sales or management, from being a “beneficial owner.”
Whether a non-resident company may obtain tax benefits under the relevant tax treaty will be subject to approval of the relevant PRC tax authority and will
be determined by the PRC tax authority on a case-by-case basis. In June 2012, the State Administration of Taxation further provided in an announcement that
a comprehensive analysis should be made when determining the beneficial owner status based on various factors supported by documents including the
articles of association, financial statements, records of cash movements, board meeting minutes, board resolutions, staffing and materials, relevant
expenditures, functions and risk assumption as well as relevant contracts and other information. In August 2015, the State Administration of Taxation
promulgated the Administrative Measures for Non-Resident Taxpayers to Enjoy Treatments under Tax Treaties, or SAT Circular 60, which became effective
on November 1, 2015. SAT Circular 60 provides that non-resident enterprises are not required to obtain pre-approval from the relevant tax authority in order
to enjoy the reduced withholding tax rate. Instead, non-resident enterprises and their withholding agents may, by self-assessment and upon their confirmation
that the prescribed criteria are met, directly apply the reduced withholding tax rate, and file necessary forms and supporting documents when conducting tax
filings, which will be subject to post-filing examinations by the relevant tax authorities. None of our Hong Kong subsidiaries has applied for the approval for
a withholding tax rate of 5% from the local tax authority prior to SAT Circular 60, nor has any of our PRC subsidiaries applied the 5% tax rate directly to any
dividend payment after the SAT Circular 60, as our PRC subsidiaries have not paid dividends to us. We plan to have our Hong Kong subsidiaries assume
some managerial and administrative functions, as well as conduct other business functions in the future. Once we implement such a plan, we do not believe
that any of our Hong Kong subsidiaries will be considered a conduit company as defined under SAT Circular 601. However, our Hong Kong subsidiaries as
currently situated may be considered conduit companies and we cannot assure you that the relevant PRC tax authority will agree with our view when any of
our PRC subsidiaries directly applies reduced withholding tax rate under the relevant tax treaty in the future. As a result, we may not be able to enjoy the
preferential withholding tax rate of 5% under the Double Taxation Arrangement (Hong Kong) and therefore be subject to withholding tax at a rate of 10%
with respect to dividends to be paid by our PRC subsidiaries to their shareholders in Hong Kong such as China Classified Information Corporation Limited.
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Enhanced scrutiny over acquisition transactions by the PRC tax authorities may have a negative impact on potential acquisitions we may pursue in
the future.
In connection with the Enterprise Income Tax Law, the Ministry of Finance and the State Administration of Taxation jointly issued SAT Circular 59
in April 2009, and the State Administration of Taxation issued SAT Circular 698 in December 2009. Both SAT Circular 59 and SAT Circular 698 became
effective retroactively on January 1, 2008.
According to SAT Circular 698, where a non-resident enterprise transfers the equity interests of a PRC “resident enterprise” indirectly by
disposition of the equity interests of an overseas holding company, the non-resident enterprise, being the transferor, may be subject to PRC enterprise income
tax, if the indirect transfer is considered to be an abusive use of company structure without reasonable commercial purposes. As a result, gains derived from
such Indirect Transfer may be subject to PRC withholding tax at a rate of up to 10%. In addition, the PRC “resident enterprise” is supposed to provide
necessary assistance to support the enforcement of SAT Circular 698.
On February 3, 2015, the State Administration of Tax issued a Public Notice Regarding Certain Corporate Income Tax Matters on Indirect Transfer
of Properties by Non-Tax Resident Enterprises, or Public Notice 7. Public Notice 7 has introduced a new tax regime that is significantly different from that
under Circular 698. Public Notice 7 extends its tax jurisdiction to not only indirect transfers set forth under Circular 698 but also transactions involving
transfer of other taxable assets, through the offshore transfer of a foreign intermediate holding company. In addition, Public Notice 7 provides clearer criteria
than Circular 698 on how to assess reasonable commercial purposes and has introduced safe harbors for internal group restructurings and the purchase and
sale of equity through a public securities market. Public Notice 7 also brings challenges to both the foreign transferor and transferee (or other person who is
obligated to pay for the transfer) of the taxable assets. Where a non-resident enterprise conducts an “indirect transfer” by transferring the taxable assets
indirectly by disposing of the equity interests of an overseas holding company, the non-resident enterprise being the transferor, or the transferee, or the PRC
entity which directly owned the taxable assets may report to the relevant tax authority such indirect transfer. Using a “substance over form” principle, the
PRC tax authority may re-characterize such indirect transfer as a direct transfer of the equity interests in the PRC tax resident enterprise and other properties
in China. As a result, gains derived from such indirect transfer may be subject to PRC enterprise income tax, and the transferee or other person who is
obligated to pay for the transfer is obligated to withhold the applicable taxes, currently at a rate of up to 10% for the transfer of equity interests in a PRC
resident enterprise. Both the transferor and the transferee may be subject to penalties under PRC tax laws if the transferee fails to withhold the taxes and the
transferor fails to pay the taxes.
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We face uncertainties on the reporting and consequences of private equity financing transactions, share exchange or other transactions involving the
transfer of shares in our company by investors that are non-PRC resident enterprises outside a public securities market, which means that an investor obtains
or sells our shares outside a public securities market, or sale or purchase of shares in other non-PRC resident companies or other taxable assets by us. Our
company and other non-resident enterprises in our group may be subject to filing obligations or taxation if our company or other non-resident enterprises in
our group are transferors in such transactions, and may be subject to withholding obligations if our company or other non-resident enterprises in our group
are transferees in such transactions, under Circular 698 and Public Notice 7. For the transfer of shares in our company by investors that are non-PRC resident
enterprises outside a public securities market, our PRC subsidiaries may be requested to assist in the filing under Circular 698 and Public Notice 7. As a
result, we may be required to expend valuable resources to comply with Circular 698 and Public Notice 7 or to request the relevant transferors from whom
we purchase taxable assets to comply with these circulars, or to establish that our company and other non-resident enterprises in our group should not be
taxed under these circulars, which may have a material adverse effect on our financial condition and results of operations.
The PRC tax authorities have the discretion under Circular 698 and Public Notice 7 to make adjustments to the taxable capital gains based on the
difference between the fair value of the taxable assets transferred and the cost of investment. If the PRC tax authorities make adjustments to the taxable
income of the transactions under Circular 698 and Public Notice 7, our income tax costs associated with such potential sales or acquisitions will be increased,
which may have an adverse effect on our financial condition and results of operations. We have conducted acquisitions or sales in the past and may conduct
additional acquisitions or sales in the future. We cannot assure you that the PRC tax authorities will not, at their discretion, adjust any capital gains and
impose tax return filing obligations on us or require us to provide assistance for the investigation by PRC tax authorities with respect thereto. Heightened
scrutiny over acquisition transactions by the PRC tax authorities may have a negative impact on potential acquisitions we may pursue in the future.
PRC regulations establish complex procedures for mergers and acquisitions, including acquisitions of PRC companies by foreign investors, which
could make it more difficult for us to pursue growth through acquisitions in China.
Six PRC regulatory agencies promulgated regulations effective on September 8, 2006 with subsequent amendment in June 2009, which are
commonly referred to as the M&A Rules. See “Item 4. Information on the Company — B. Business Overview — Regulation.” The M&A Rules establish
procedures and requirements that could make some acquisitions of PRC companies by foreign investors more time-consuming and complex, including
requirements in some instances that the Ministry of Commerce be notified in advance of any change-of-control transaction in which a foreign investor takes
control of a PRC domestic enterprise. In addition, national security review rules issued by the PRC governmental authorities in 2011 require acquisitions by
foreign investors of domestic companies engaged in military-related or certain other industries that are crucial to national security to be subject to prior
security review. Moreover, the Anti-Monopoly Law requires that the Ministry of Commerce shall be notified in advance of any concentration of undertaking,
occurring inside or outside China, if certain thresholds are triggered. We may expand our business in part by acquiring complementary businesses.
Complying with the requirements of the M&A Rules, security review rules and other PRC regulations to complete such transactions could be time-
consuming, and any required approval processes, including obtaining approval from the Ministry of Commerce, may delay or inhibit our ability to complete
such transactions, which could affect our ability to expand our business or maintain our market share. In addition, due to lack of clarity under some PRC laws
and regulations, it is unclear in some circumstances whether an approval is required for a merger or acquisition transaction and we cannot assure you that the
PRC governmental authorities will agree with our view on whether the approval is required for transactions conducted or to be conducted by us.
PRC regulations relating to offshore investment activities by PRC residents may limit our PRC subsidiaries’ ability to increase their registered
capital or distribute profits to us, limit our ability to inject capital into our PRC subsidiaries, or otherwise expose us to liability and penalties under
PRC law.
SAFE promulgated the Circular on Relevant Issues Relating to Domestic Resident’s Investment and Financing and Roundtrip Investment through
Special Purpose Vehicles, or SAFE Circular 37, in July 2014, to replace the Notice on Relevant Issues Concerning Foreign Exchange Administration for
PRC Residents Engaging in Financing and Roundtrip Investments via Overseas Special Purpose Vehicles, or SAFE Circular 75. SAFE Circular 37 requires
PRC residents, including PRC individuals and entities, to register with SAFE or its local branch in connection with their establishment or control of an
offshore entity established for the purpose of overseas investment or financing. In addition, such PRC residents must update their SAFE registrations when
the offshore special purpose vehicle undergoes material events relating to any change of basic information (including change of such PRC residents, name
and operation term), increases or decreases in investment amount, transfers or exchanges of shares, or mergers or divisions. In February 2015, SAFE
promulgated the Notice on Further Simplifying and Improving Foreign Exchange Administration Policy on Direct Investment, or SAFE Notice 13, which
became effective on June 1, 2015. Pursuant to SAFE Notice 13, instead of applying for approvals regarding foreign exchange registrations of foreign direct
investment and overseas direct investment from SAFE as required under current laws, entities and individuals are required to apply for such foreign
exchange registrations, including those required under the SAFE Circular 37, from qualified banks. The qualified banks, under the supervision of SAFE, will
examine the applications and conduct the registration. If a PRC resident fails to make the required SAFE registration with the local SAFE branches, the PRC
subsidiaries of such offshore company may be prohibited from distributing their profits and proceeds from any reduction in capital, share transfer or
liquidation to the offshore company, and the offshore company may be restricted in its ability to contribute additional capital to its PRC subsidiaries.
Moreover, failure to comply with SAFE registration and amendment requirements described above could result in liability under PRC law for evasion of
applicable foreign exchange restrictions.
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Furthermore, it is unclear how these regulations, and any future regulation concerning offshore or cross-border transactions, will be interpreted,
amended and implemented by the relevant government authorities. We cannot predict how these regulations will affect our business operations or future
strategy. For example, we may be subject to a more stringent review and approval process with respect to our foreign exchange activities, such as remittance
of dividends and foreign-currency-denominated borrowings, which may adversely affect our financial condition and results of operations. In addition, if we
decide to acquire a PRC domestic company, either we or the owners of such company, as the case may be, may not be able to obtain the necessary approvals
or complete the necessary filings and registrations required by the foreign exchange regulations. This may restrict our ability to implement our acquisition
strategy and could adversely affect our business and prospects.
Failure to comply with PRC regulations regarding the registration requirements for employee share ownership plans or share option plans may
subject the PRC plan participants or us to fines and other legal or administrative sanctions.
In February 2012, SAFE promulgated the Notices on Issues Concerning the Foreign Exchange Administration for Domestic Individuals
Participating in Stock Incentive Plans of Overseas Publicly-Listed Companies, or the Stock Option Rules, replacing the previous rules issued by SAFE in
March 2007. Under the Stock Option Rules and other relevant rules and regulations, PRC residents who participate in stock incentive plan in an overseas
publicly-listed company are required to register with SAFE or its local branches and complete certain other procedures. Participants of a stock incentive plan
who are PRC residents must retain a qualified PRC agent, which could be a PRC subsidiary of the overseas publicly listed company or another qualified
institution selected by the PRC subsidiary, to conduct the SAFE registration and other procedures with respect to the stock incentive plan on behalf of its
participants. The participants must also retain an overseas entrusted institution to handle matters in connection with their exercise of stock options, the
purchase and sale of corresponding stocks or interests and fund transfers. In addition, the PRC agent is required to amend the SAFE registration with respect
to the stock incentive plan if there is any material change to the stock incentive plan, the PRC agent or the overseas entrusted institution or other material
changes. See “Item 4. Information on the Company — B. Business Overview — Regulation —Regulations on Employee Stock Option Plans.” We and our
PRC employees who have been granted share options and restricted shares are subject to these regulations. Failure of our PRC share option holders or
restricted shareholders to complete their SAFE registrations may subject these PRC residents to fines and legal sanctions and may also limit our ability to
contribute additional capital into our PRC subsidiaries, limited our PRC subsidiaries’ ability to distribute dividends to us, or otherwise materially adversely
affect our business.
PRC regulation of direct investment and loans by offshore holding companies to PRC entities and governmental control of currency conversion may
delay or limit us from using the proceeds of our securities offering to make additional capital contributions or loans to our PRC subsidiaries.
Any capital contributions or loans that we, as an offshore entity, make to our PRC subsidiaries, including from the proceeds of our securities
offerings, are subject to PRC regulations. Under PRC laws and regulations, we are permitted to utilize the proceeds from our securities offerings to fund our
PRC subsidiaries only through loans or capital contributions, subject to applicable government registration and approval requirements. None of our loans to a
PRC subsidiary can exceed the maximum amount that such PRC subsidiary is allowed to borrow from foreign creditors under relevant PRC laws, and the
loans must be registered with the local branch of SAFE. Our capital contributions to our PRC subsidiaries must be approved by the Ministry of Commerce or
its local counterpart. We cannot assure you that we will be able to complete the necessary registration or obtain the necessary approval on a timely basis, or
at all. If we fail to complete the necessary registration or obtain the necessary approval, our ability to make loans or equity contributions to our PRC
subsidiaries may be negatively affected, which could adversely affect our PRC subsidiaries’ liquidity and their ability to fund their working capital and
expansion projects and meet their obligations and commitments.
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In March 2015, SAFE promulgated SAFE Circular 19, which took effective and replaced SAFE Circular 142 from June 1, 2015. Although SAFE
Circular 19 removed certain restrictions previously provided under SAFE Circular 142 for conversion by a foreign-invested enterprise of foreign currency
registered capital into RMB and use of such RMB capital, it continues to prohibit foreign-invested enterprises from, among other things, using RMB fund
converted from its foreign exchange capital for expenditure beyond its business scope, providing entrusted loans or repaying loans between non-financial
enterprises. In addition, SAFE Circular 19 is still unclear whether a foreign-invested enterprise whose business scope does not include equity investment or
similar activities may use Renminbi converted from the foreign currency-denominated capital for equity investments in the PRC. For example, the business
scopes of Wanglin and 58 Technology include, among others, research and development of online classified information technology and software systems,
information technology consulting, technical services and marketing and promotional services. Each of Wanglin, 58 Technology and our other PRC
subsidiaries that are foreign-invested enterprises may only use Renminbi converted from foreign exchange capital contribution for activities within its
approved business scope. In addition, the use of such Renminbi capital may not be altered without SAFE approval, and such Renminbi capital may not in any
case be used to repay Renminbi loans if the proceeds of such loans have not been used. Violations of these circulars and rules could result in severe monetary
or other penalties. If we convert the net proceeds we receive from our securities offerings into Renminbi pursuant to the applicable laws and regulations, our
use of Renminbi funds for general corporate purposes will be within the business scope of our PRC subsidiaries.
PRC regulation of loans by offshore holding companies to PRC entities and governmental control of currency conversion may limit our ability to
fund the operations of our consolidated affiliated entities.
Due to the restrictions imposed on loans in foreign currencies extended to any PRC domestic companies, any loans from our Cayman Islands
holding company or other offshore entities to PRC domestic company are required to be registered with local SAFE and cannot exceed the maximum amount
that such company is allowed to borrow from foreign creditors under the applicable PRC laws and complete record-filling procedures with local SAFE on an
item-by-item basis. In addition, loans to a PRC domestic company with a term of one year or a longer term are also subject to filings with the National
Development and Reform Commission and/or its local branches. Therefore, we are not likely to have our Cayman Islands holding company or other offshore
entities to use the proceeds from our securities offerings to extend loans to our consolidated affiliated entities or their subsidiaries, each of which is a PRC
domestic company. Meanwhile, we are not likely to finance the activities of our consolidated affiliated entities by means of capital contributions due to
regulatory restrictions relating to foreign investment in PRC domestic enterprises engaged in value-added telecommunications services. In addition, due to
the restrictions on a foreign-invested enterprise’s use of Renminbi converted from foreign-currency registered capital under PRC regulations, including
SAFE Circular 19, as described under the foregoing risk factor, our PRC subsidiaries may be unable to use the Renminbi converted from their registered
capital to provide loans or financial support to our consolidated affiliated entities. We currently do not plan to use the proceeds from our securities offering to
fund the operations of our consolidated affiliated entities and their subsidiaries. Additionally, our PRC subsidiaries are not prohibited under PRC laws and
regulations from using their capital generated from their operating activities to provide entrusted loans or other forms of financial support to consolidated
affiliated entities. We will assess the working capital requirements of our consolidated affiliated entities on an ongoing basis and, if needed, may have our
PRC subsidiaries to use their capital from operating activities to provide financial support to our consolidated affiliated entities.
Our PRC subsidiaries are subject to restrictions on paying dividends or making other payments to us, which may restrict our ability to satisfy our
liquidity requirements.
We are a holding company incorporated in the Cayman Islands. We may need dividends and other distributions on equity from our PRC subsidiaries
to satisfy our liquidity requirements. Current PRC regulations permit our PRC subsidiaries to pay dividends to us only out of their accumulated profits, if
any, determined in accordance with PRC accounting standards and regulations. In addition, our PRC subsidiaries are required to set aside at least 10% of
their respective accumulated profits each year, if any, to fund certain reserve funds until the total amount set aside reaches 50% of their respective registered
capital. Our PRC subsidiaries may also allocate a portion of its after-tax profits based on PRC accounting standards to employee welfare and bonus funds at
their discretion. These reserves are not distributable as cash dividends. As of the date of this annual report, our PRC subsidiaries have not paid dividends to
us. Further, if any of our PRC subsidiaries incurs debt on its own behalf in the future, the instruments governing the debt may restrict its ability to pay
dividends or make other payments to us, which may restrict our ability to satisfy our liquidity requirements. As of March 31, 2017, the registered capital of
our PRC subsidiaries Wanglin and 58 Technology was US$280 million and approximately US$107 million, respectively. See “Item 4. Information on the
Company — B. Business Overview — Regulation — Regulations on Foreign Currency Exchange.”
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Discontinuation of any of the preferential tax treatments and government subsidies or imposition of any additional taxes and surcharges could
adversely affect our financial condition and results of operations.
The Enterprise Income Tax Law and its implementing rules impose a uniform statutory enterprise income tax rate of 25% on all enterprises in
China. The Enterprise Income Tax Law and its implementing rules also permit qualified “high and new technology enterprises” to enjoy a preferential
enterprise income tax rate of 15% upon filing with relevant tax authorities. This qualification generally has a valid term of three years and the renewal of the
qualification is subject to review by the relevant authorities in China. Beijing 58, one of our consolidated affiliated entities, first obtained its certificate as a
“high and new technology enterprise” in May 2009 and renewed the certificate in May 2012 and again in July 2015, each time valid for a period of three
years. Beijing 58 Auto, one of our consolidated affiliated entities, first obtained its certificate as a “high and new technology enterprise” in November 2013
and renewed its certificate in December 2016, each time valid for a period of three years. Wanglin, one of our PRC subsidiaries, obtained its certificate as a
“high and new technology enterprise” in November 2012 and renewed its certificate in July 2015, each time valid for a period of three years. Ruiting
Network Technology (Shanghai) Co., Ltd., or Shanghai Ruiting, one of our PRC subsidiaries, obtained its certificate as a “high and new technology
enterprise” in December 2010 and renewed its certificate in November 2013 and again in November 2016, each time valid for a period of three years. Beijing
58, Beijing 58 Auto, Wanglin and Shanghai Ruiting are each eligible to enjoy a preferential tax rate of 15% when they have taxable income under the
Enterprise Income Tax Law, as long as they maintain such qualification and obtain approval from the relevant tax authorities. Wanglin also obtained
qualification as a “software enterprise” in July 2014. In April 2015, the local tax authority granted Wanglin a two-year exemption followed by a three-year
50% reduction on its taxable income under the Enterprise Income Tax Law, effective retroactively from January 1, 2014. 58 Technology, one of our PRC
subsidiaries, qualified as a “software enterprise” in December 2014. In March 2016, the local tax authority granted 58 Technology a two-year exemption
followed by a three-year 50% reduction on its taxable income under the Enterprise Income Tax Law, effective retroactively from January 1, 2015. If any of
Beijing 58, Beijing 58 Auto, Wanglin, Shanghai Ruiting or 58 Technology fails to maintain its qualification as a “high and new technology enterprises” or a
“software enterprise,” as the case may be, or if any of them fails to renew its qualification when its current term expires, its applicable enterprise income tax
rate may increase to 25%, which could have an adverse effect on our financial condition and results of operations.
In addition, our PRC subsidiaries and consolidated affiliated entities have received various financial subsidies from PRC local government
authorities. The financial subsidies are discretionary incentives and policies adopted by PRC local government authorities. Local governments may decide to
change or discontinue such financial subsidies at any time. The discontinuation of such financial subsidies or imposition of any additional taxes could
adversely affect our financial condition and results of operations.
Fluctuations in exchange rates could have a material adverse effect on our results of operations and the value of your investment.
As the functional currency for our PRC subsidiaries and consolidated affiliated entities is Renminbi, fluctuations in the exchange rate may cause us
to incur foreign exchange losses on any foreign currency holdings they may have. If we decide to convert our Renminbi into U.S. dollars for the purpose of
making payments for dividends on our ordinary shares or for repayment of our bank loans denominated in U.S. dollars, appreciation of the U.S. dollar
against the Renminbi would increase our amount of repayment in Renminbi.
The value of the Renminbi against the U.S. dollar and other currencies is affected by changes in China’s political and economic conditions and by
China’s foreign exchange policies, among other things. In July 2005, the PRC government changed its decades-old policy of pegging the value of the
Renminbi to the U.S. dollar, and the Renminbi appreciated more than 20% against the U.S. dollar over the following three years. Between July 2008 and
June 2010, this appreciation halted and the exchange rate between the Renminbi and the U.S. dollar remained within a narrow band. Since June 2010, the
Renminbi has fluctuated against the U.S. dollar, at times significantly and unpredictably, and in recent years the Renminbi has depreciated significantly
against the U.S. dollar. Since October 1, 2016, the Renminbi has joined the International Monetary Fund (IMF)’s basket of currencies that make up the
Special Drawing Right (SDR), along with the U.S. dollar, the Euro, the Japanese yen and the British pound. In the fourth quarter of 2016, the Renminbi has
depreciated significantly in the backdrop of a surging U.S. dollar and persistent capital outflows of China. With the development of the foreign exchange
market and progress towards interest rate liberalization and Renminbi internationalization, the PRC government may in the future announce further changes
to the exchange rate system and there is no guarantee that the Renminbi will not appreciate or depreciate significantly in value against the U.S. dollar in the
future. It is difficult to predict how market forces or PRC or U.S. government policy may impact the exchange rate between the Renminbi and the U.S. dollar
in the future.
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Any significant appreciation or depreciation of the Renminbi may materially and adversely affect our earnings and financial position, and the value
of, and any dividends payable on, our ADSs in U.S. dollars. For example, to the extent that we need to convert U.S. dollars we receive from our initial public
offering into Renminbi to pay our operating expenses, appreciation of the Renminbi against the U.S. dollar would have an adverse effect on the Renminbi
amount we would receive from the conversion. Conversely, a significant depreciation of the Renminbi against the U.S. dollar may significantly reduce the
U.S. dollar equivalent of our earnings, which in turn could adversely affect the price of our ADSs.
Very limited hedging options are available in China to reduce our exposure to exchange rate fluctuations. To date, we have not entered into any
hedging transactions in an effort to reduce our exposure to foreign currency exchange risk. While we may decide to enter into hedging transactions in the
future, the availability and effectiveness of these hedges may be limited and we may not be able to adequately hedge our exposure or at all. In addition, our
currency exchange losses may be magnified by PRC exchange control regulations that restrict our ability to convert Renminbi into foreign currency. As a
result, fluctuations in exchange rates may have a material adverse effect on your investment.
Our failure to make adequate contributions to various employee benefit plans as required by PRC regulations may subject us to penalties.
Companies operating in China are required to participate in social insurance and housing fund plans. We have not fully contributed to such plans as
required by applicable PRC regulations. As of December 31, 2016, with regards to the outstanding contributions, including historical underpayments to such
plans, we made a provision of RMB130.1 million, which is reflected in our audited financial statements included in this annual report. While we believe this
provision is adequate, our failure to make sufficient payments to such plans does not fully comply with applicable PRC laws and regulations and we may be
required to make up the contributions for such plans as well as to pay late fees and fines.
Registered public accounting firms in China, including our independent registered public accounting firm, are not inspected by the U.S. Public
Company Accounting Oversight Board, which deprives us and our investors of the benefits of such inspection.
Auditors of companies whose shares are registered with the U.S. Securities and Exchange Commission, or the SEC and traded publicly in the
United States, including our independent registered public accounting firm, must be registered with the U.S. Public Company Accounting Oversight Board,
or PCAOB, and are required by the laws of the United States to undergo regular inspections by the PCAOB to assess their compliance with the laws of the
United States and professional standards applicable to auditors. Our independent registered public accounting firm is located in, and organized under the laws
of the Peoples’ Republic of China, or the PRC, which is a jurisdiction where the PCAOB, notwithstanding the requirements of U.S. law, is currently unable
to conduct inspections without the approval of the Chinese authorities. In May 2013, PCAOB announced that it had entered into a Memorandum of
Understanding on Enforcement Cooperation with the China Securities Regulatory Commission, or the CSRC and the PRC Ministry of Finance, which
establishes a cooperative framework between the parties for the production and exchange of audit documents relevant to investigations undertaken by
PCAOB, the CSRC or the PRC Ministry of Finance in the United States and the PRC, respectively. PCAOB continues to be in discussions with the CSRC
and the PRC Ministry of Finance to permit joint inspections in the PRC of audit firms that are registered with PCAOB and audit Chinese companies that
trade on U.S. exchanges.
This lack of PCAOB inspections in China prevents the PCAOB from fully evaluating audits and quality control procedures of any auditors
operating in China, including our independent registered public accounting firm. As a result, we and investors in our common stock are deprived of the
benefits of such PCAOB inspections. The inability of the PCAOB to conduct inspections of auditors in China makes it more difficult to evaluate the
effectiveness of our independent registered public accounting firm’s audit procedures or quality control procedures as compared to auditors outside of China
that are subject to PCAOB inspections, which could cause investors and potential investors in our common stock to lose confidence in our audit procedures
and reported financial information and the quality of our financial statements.
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If additional remedial measures are imposed on the Big Four PRC-based accounting firms, including our independent registered public accounting
firm, in administrative proceedings brought by the SEC alleging the firms’ failure to meet specific criteria set by the SEC, we could unable to timely
file future financial statements in compliance with the requirements of the Securities Exchange Act of 1934, as amended, or the Exchange Act.
In December 2012, the SEC instituted administrative proceedings against the Big Four PRC-based accounting firms, including our independent
registered public accounting firm, alleging that these firms had violated U.S. securities laws and the SEC’s rules and regulations thereunder by failing to
provide to the SEC the firms’ audit work papers with respect to certain PRC-based companies that are publicly traded in the United States. On January 22,
2014, an initial administrative law decision was issued, censuring that each of the firms had violated the SEC’s rules of practice by failing to produce audit
work papers to the SEC. The initial decision censured each of the firms and barred them from practicing before the SEC for a period of six months. The
decision is not effective unless and until it is endorsed by the SEC. On February 12, 2014, the four PRC-based accounting firms appealed to the SEC against
this sanction. On February 6, 2015, the four PRC-based accounting firms each agreed to a censure and to pay a fine to the SEC to settle the dispute and avoid
suspension of their ability to practice before the SEC and audit U.S. listed companies. The settlement required the firms to follow detailed procedures to seek
to provide the SEC with access to Chinese firms’ audit documents via the CSRC. If future document productions fail to comply with the documentation
production procedures that are in the settlement agreement or if there is a failure of the process between the SEC and the CSRC, the SEC retains authority to
impose a variety of additional remedial measures on the firms depending on the nature of the failure. If the accounting firms are subject to additional
remedial measures, our ability to file our financial statements in compliance with SEC requirements could be impacted. A determination that we have not
timely filed financial statements in compliance with SEC requirements could ultimately lead to the delisting of our common stock from the NYSE or the
termination of the registration of our common stock under the Securities Exchange Act of 1934, or both, which would substantially reduce or effectively
terminate the trading of our common stock in the United States.
Risks Related to Our ADSs
The trading prices of our ADSs have fluctuated and may be volatile.
The trading prices of our ADSs have fluctuated since we first listed our ADSs. Since our ADSs became listed on the NYSE on October 31, 2013,
the trading price of our ADSs has ranged from US$17.00 to US$83.71 per ADS, and the last reported trading price on April 27, 2017 was US$39.37 per
ADS. The prices for our ADSs may continue to fluctuate because of broad market and industry factors, like the performance and fluctuation of the market
prices of other companies with business operations located mainly in China that have listed their securities in the United States. In recent years, the
widespread negative publicity of alleged fraudulent accounting practices and poor corporate governance of certain U.S. public companies with operations in
China were believed to have negatively affected investors’ perception and sentiment towards companies with connection with China, which significantly and
negatively affected the trading prices of some companies’ securities listed in the United States. Any similar negative publicity or sentiment may affect the
performances of our ADSs. The securities of some PRC companies that have listed their securities on U.S. stock markets have experienced significant
volatility. The trading performances of these PRC companies’ securities after their offerings may affect the attitudes of investors toward PRC companies
listed in the United States in general and consequently may impact the trading performance of our ADSs, regardless of our actual operating performance.
In addition to market and industry factors, the price and trading volume for our ADSs may be highly volatile for factors specific to our own
operations, including the following:
(cid:120)
(cid:120)
(cid:120)
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the financial projections that we may choose to provide to the public, any changes in those projections or our failure for any reason to meet those
projections;
variations in our net sales, earnings and cash flow;
announcements of new investments, acquisitions, strategic partnerships, or joint ventures;
announcements of new services and expansions by us or our competitors;
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(cid:120)
(cid:120)
(cid:120)
(cid:120)
(cid:120)
(cid:120)
(cid:120)
changes in financial estimates by securities analysts;
additions or departures of key personnel;
release of lock-up or other transfer restrictions on our outstanding equity securities or sales of additional equity securities;
detrimental negative publicity about us, our competitors or our industry;
potential litigation or regulatory investigations or other proceedings involving us;
fluctuations in market prices for our products; and
proceedings instituted recently by the SEC against five PRC-based accounting firms, including our independent registered public accounting firm.
Any of these factors may result in large and sudden changes in the volume and price at which our ADSs will trade.
If securities or industry analysts do not publish research or reports about our business, or if they adversely change their recommendations regarding
our ADSs, the market price for our ADSs and trading volume could decline.
The trading market for our ADSs will be influenced by research or reports that industry or securities analysts publish about our business. If one or
more analysts who cover us downgrade our ADSs, or publish unfavorable research about us, the market price for our ADSs would likely decline. If one or
more of these analysts cease to cover us or fail to regularly publish reports on us, we could lose visibility in the financial markets, which, in turn, could cause
the market price or trading volume for our ADSs to decline.
Our dual class share structure with different voting rights will limit your ability to influence corporate matters and could discourage others from
pursuing any change of control transactions that holders of our Class A ordinary shares and ADSs may view as beneficial.
Our ordinary shares are divided into Class A ordinary shares and Class B ordinary shares. Holders of Class A ordinary shares are entitled to one
vote per share, while holders of Class B ordinary shares are entitled to ten votes per share, with Class A and Class B ordinary shares voting together as one
class on all matters subject to a shareholders’ vote. As of March 31, 2017, holders of our Class B ordinary shares collectively owned approximately 16.7% of
our outstanding ordinary shares, representing 66.8% of our total voting power. As of March 31, 2017, our founder, chairman and chief executive officer, Mr.
Jinbo Yao and Tencent beneficially owned an aggregate of 34.0% of our outstanding shares.
As a result of the dual class share structure and the concentration of ownership, holders of our Class B ordinary shares have substantial influence
over our business, including decisions regarding mergers, consolidations and the sale of all or substantially all of our assets, election of directors and other
significant corporate actions. They may take actions that are not in the best interest of us or our other shareholders. This concentration of ownership may
discourage, delay or prevent a change in control of our company, which could deprive our shareholders of an opportunity to receive a premium for their
shares as part of a sale of our company and may reduce the price of our ADSs. This concentrated control will limit your ability to influence corporate matters
and could discourage others from pursuing any potential merger, takeover or other change of control transactions that holders of Class A ordinary shares and
ADSs may view as beneficial. For more information regarding our principal shareholders and their affiliated entities, see “Item 7. Major Shareholders and
Related Party Transactions.”
The sale or availability for sale of substantial amounts of our ADSs could adversely affect their market price.
Sales of substantial amounts of our ADSs in the public market, or the perception that these sales could occur, could adversely affect the market price
of our ADSs and could materially impair our ability to raise capital through equity offerings in the future. We cannot predict what effect, if any, market sales
of securities held by our significant shareholders or any other shareholder or the availability of these securities for future sale will have on the market price of
our ADSs.
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We may be classified as a passive foreign investment company for United States federal income tax purposes, which could result in adverse United
States federal income tax consequences to United States investors in the ADSs or Class A ordinary shares.
Depending upon the value of our assets, which may be determined based, in part, on the market value of our Class A ordinary shares and ADSs, and
the nature of our assets and income over time, we could be classified as a “passive foreign investment company,” or PFIC, for United States federal income
tax purposes. Under United States federal income tax law, we will be classified as a PFIC for any taxable year if either (i) at least 75% of our gross income
for the taxable year is passive income or (ii) at least 50% of the value of our assets (based on the average quarterly value of our assets during the taxable
year) is attributable to assets that produce or are held for the production of passive income. Based on our income and assets and the value of our ADSs and
Class A ordinary shares, we do not believe that we were a PFIC for the taxable year ended December 31, 2016 and, although no assurances can be made in
this regard, we do not expect to be a PFIC for the current taxable year or any subsequent taxable year. While we do not anticipate being a PFIC, changes in
the nature of our income or assets or the value of our assets may cause us to become a PFIC for the current or any subsequent taxable year.
Although the law in this regard is not entirely clear, we treat Beijing 58 and other consolidated affiliated entities as being owned by us for United
States federal income tax purposes, because we control their management decisions and we are entitled to substantially all of the economic benefits
associated with them, and, as a result, we consolidate their results of operations in our consolidated U.S. GAAP financial statements. If it were determined,
however, that we are not the owner of Beijing 58 and other consolidated affiliated entities for United States federal income tax purposes, we would likely be
treated as a PFIC for our taxable year ending December 31, 2016 and for subsequent taxable years. Because of the uncertainties in the application of the
relevant rules and because PFIC status is a factual determination made annually after the close of each taxable year on the basis of the composition of our
income and the value of our active versus passive assets, there can be no assurance that we will not be a PFIC for our taxable year ending December 31, 2016
or any future taxable year. Under circumstances where revenues from activities that produce passive income significantly increase relative to our revenues
from activities that produce non-passive income or where we determine not to deploy significant amounts of cash for active purposes, our risk of becoming
classified as a PFIC may substantially increase.
If we were to be or become a PFIC, a U.S. Holder (as defined in “Item 10. Additional Information — E. Taxation — United States Federal Income
Tax Considerations” ) may incur significantly increased United States federal income tax on gain recognized on the sale or other disposition of the ADSs or
Class A ordinary shares and on the receipt of distributions on the ADSs or Class A ordinary shares to the extent such gain or distribution is treated as an
“excess distribution” under the United States income tax rules. Further, if we were a PFIC for any year during which a U.S. Holder held our ADSs or Class A
ordinary shares, we generally would continue to be treated as a PFIC with respect to such U.S. Holder for all succeeding years during which such U.S.
Holder held our ADSs or Class A ordinary shares. Each U.S. Holder is urged to consult its tax advisor concerning the United States federal income tax
consequences of purchasing, holding and disposing of ADSs or Class A ordinary shares if we are or become treated as a PFIC.
The voting rights of holders of ADSs are limited by the terms of the deposit agreement, and you may not be able to exercise your right to vote your
Class A ordinary shares.
As a holder of our ADSs, you will only be able to exercise the voting rights with respect to the underlying Class A ordinary shares in accordance
with the provisions of the deposit agreement. Under the deposit agreement, you must vote by giving voting instructions to the depositary. Upon receipt of
your voting instructions, the depositary will vote the underlying Class A ordinary shares in accordance with these instructions. You will not be able to
directly exercise your right to vote with respect to the underlying shares unless you withdraw the shares. Under our amended and restated memorandum and
articles of association, the minimum notice period required for convening a general meeting is ten clear days. When a general meeting is convened, you may
not receive sufficient advance notice to withdraw the shares underlying your ADSs to allow you to vote with respect to any specific matter. If we ask for your
instructions, the depositary will notify you of the upcoming vote and will arrange to deliver our voting materials to you. We cannot assure you that you will
receive the voting materials in time to ensure that you can instruct the depositary to vote your shares. In addition, the depositary and its agents are not
responsible for failing to carry out voting instructions or for their manner of carrying out your voting instructions. This means that you may not be able to
exercise your right to vote and you may have no legal remedy if the shares underlying your ADSs are not voted as you requested.
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We are a foreign private issuer within the meaning of the rules under the Exchange Act, and as such we are exempt from certain provisions
applicable to United States domestic public companies.
Because we qualify as a foreign private issuer under the Exchange Act, we are exempt from certain provisions of the securities rules and regulations
in the United States that are applicable to U.S. domestic issuers, including:
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(cid:120)
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the rules under the Exchange Act requiring the filing with the Securities and Exchange Commission, or the SEC, of quarterly reports on Form 10-Q
or current reports on Form 8-K;
the sections of the Exchange Act regulating the solicitation of proxies, consents, or authorizations in respect of a security registered under the
Exchange Act;
the sections of the Exchange Act requiring insiders to file public reports of their share ownership and trading activities and liability for insiders who
profit from trades made in a short period of time; and
the selective disclosure rules by issuers of material nonpublic information under Regulation FD.
We are required to file an annual report on Form 20-F within four months of the end of each fiscal year. In addition, we intend to publish our results
on a quarterly basis as press releases, distributed pursuant to the rules and regulations of the NYSE. Press releases relating to financial results and material
events will also be furnished to the SEC on Form 6-K. However, the information we are required to file with or furnish to the SEC are less extensive and less
timely as compared to that required to be filed with the SEC by United States domestic issuers. As a Cayman Islands company listed on the NYSE, we are
subject to the NYSE corporate governance listing standards. Among other things, Section 303A.08 of the NYSE Listed Company Manual requires
shareholder approval of material revisions to equity-compensation plans and Section 312.03(c) of the NYSE Listed Company Manual requires shareholder
approval of new share issuances above the 20% threshold specified therein. However, NYSE rules permit a foreign private issuer like us to follow the
corporate governance practices of its home country. We have elected to follow the Cayman Islands practices with respect to the amendment of our 2013
share incentive plan to increase the total number of ordinary shares that may be issued pursuant to awards granted under the plan. In addition, we have also
elected to follow the Cayman Islands practices with respect to the issuance of new ordinary shares above the 20% threshold as specified in Section 312.03(c).
You may not receive dividends or other distributions on our ordinary shares and you may not receive any value for them, if it is illegal or impractical
to make them available to you.
The depositary of our ADSs has agreed to pay to you the cash dividends or other distributions it or the custodian receives on Class A ordinary shares
or other deposited securities underlying our ADSs, after deducting its fees and expenses. You will receive these distributions in proportion to the number of
Class A ordinary shares your ADSs represent. However, the depositary is not responsible if it decides that it is unlawful or impractical to make a distribution
available to any holders of ADSs. For example, it would be unlawful to make a distribution to a holder of ADSs if it consists of securities that require
registration under the Securities Act but that are not properly registered or distributed under an applicable exemption from registration. The depositary may
also determine that it is not feasible to distribute certain property through the mail. Additionally, the value of certain distributions may be less than the cost of
mailing them. In these cases, the depositary may determine not to distribute such property. We have no obligation to register under U.S. securities laws any
ADSs, ordinary shares, rights or other securities received through such distributions. We also have no obligation to take any other action to permit the
distribution of ADSs, ordinary shares, rights or anything else to holders of ADSs. This means that you may not receive distributions we make on our ordinary
shares or any value for them if it is illegal or impractical for us to make them available to you. These restrictions may cause a material decline in the value of
our ADSs.
You may not be able to participate in rights offerings and may experience dilution of your holdings.
We may, from time to time, distribute rights to our shareholders, including rights to acquire securities. Under the deposit agreement, the depositary
will not distribute rights to holders of ADSs unless the distribution and sale of rights and the securities to which these rights relate are either exempt from
registration under the Securities Act with respect to all holders of ADSs, or are registered under the provisions of the Securities Act. The depositary may, but
is not required to, attempt to sell these undistributed rights to third parties, and may allow the rights to lapse. We may be unable to establish an exemption
from registration under the Securities Act, and we are under no obligation to file a registration statement with respect to these rights or underlying securities
or to endeavor to have a registration statement declared effective. Accordingly, holders of ADSs may be unable to participate in our rights offerings and may
experience dilution of their holdings as a result.
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You may be subject to limitations on transfer of your ADSs.
Your ADSs are transferable on the books of the depositary. However, the depositary may close its books at any time or from time to time when it
deems expedient in connection with the performance of its duties. The depositary may close its books from time to time for a number of reasons, including in
connection with corporate events such as a rights offering, during which time the depositary needs to maintain an exact number of ADS holders on its books
for a specified period. The depositary may also close its books in emergencies, and on weekends and public holidays. The depositary may refuse to deliver,
transfer or register transfers of our ADSs generally when our share register or the books of the depositary are closed, or at any time if we or the depositary
thinks it is advisable to do so because of any requirement of law or of any government or governmental body, or under any provision of the deposit
agreement, or for any other reason.
We incur increased costs as a result of being a public company.
As a public company, we incur significant legal, accounting and other expenses that we did not incur as a private company. The Sarbanes-Oxley Act
of 2002, as well as rules subsequently implemented by the SEC and NYSE, imposes various requirements on the corporate governance practices of public
companies. For example, as a public company, we need to increase the number of independent directors and adopt policies regarding internal controls and
disclosure controls and procedures. We have incurred additional costs in obtaining director and officer liability insurance. In addition, we also incur
additional costs associated with our public company reporting requirements. It may also be more difficult for us to find qualified persons to serve on our
board of directors or as executive officers. We expect these rules and regulations to increase our legal and financial compliance costs and to make some
corporate activities more time-consuming and costly. We are currently evaluating and monitoring developments with respect to these rules and regulations,
and we cannot predict or estimate with any degree of certainty the amount of additional costs we may incur or the timing of such costs.
In addition, we have ceased to be an “emerging growth company” as of December 31, 2014, and therefore are no longer able to take advantage of
certain exemptions from various requirements applicable to other public companies that are not emerging growth companies including, most significantly,
not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act of 2002. We have incurred significant
expenses and devoted substantial management effort, and expect to continue to do so to ensure compliance with the requirements of Section 404 of the
Sarbanes-Oxley Act of 2002 and the other rules and regulations of the SEC.
In the past, shareholders of a public company often brought securities class action suits against the company following periods of instability in the
market price of that company’s securities. If we were involved in a class action suit, it could divert a significant amount of our management’s attention and
other resources from our business and operations, which could harm our results of operations and require us to incur significant expenses to defend the suit.
Any such class action suit, whether or not successful, could harm our reputation and restrict our ability to raise capital in the future. In addition, if a claim is
successfully made against us, we may be required to pay significant damages, which could have a material adverse effect on our financial condition and
results of operations.
ITEM 4.
INFORMATION ON THE COMPANY
A.
History and Development of the Company
We began our operations in China in 2005 through Beijing 58, a PRC limited liability company, which has become our consolidated affiliated entity
through a series of contractual arrangements. Our current holding company, 58.com Inc., was incorporated in May 2011 as a limited liability company in the
Cayman Islands.
On November 5, 2013, we raised US$200.0 million in net proceeds from the initial public offering of our ADSs and another US$15.0 million from a
concurrent private placement of Class A ordinary shares to DCM Hybrid RMB Fund, L.P., a fund affiliated with DCM V, L.P., one of our existing
shareholders. Our ADSs trade on the New York Stock Exchange under the symbol “WUBA.”
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On April 2, 2014, we and certain selling shareholders completed a follow-on public offering of ADSs. Our net proceeds, after deducting
underwriting commissions, amounted to approximately US$73.0 million. We did not receive any proceeds from the sale of the ADSs by the selling
shareholders.
In June 2014, Tencent invested US$736.1 million in our company and acquired 36.8 million Class A and Class B ordinary shares, representing a
19.9% equity interest in our company on a fully-diluted basis at that time. We applied part of the proceeds from this transaction to repurchase 27.6 million
ordinary shares of our company from certain pre-IPO shareholders.
In March 2015, we acquired Anjuke, a major online real estate listing platform in China, through the purchase of a 100% equity interest in Anjuke
Inc., a company incorporated under the laws of the Cayman Islands, for 4.8 million newly issued Class A ordinary shares of our company and US$160.2
million in cash. We also issued 0.2 million fully vested restricted share units of our company to former Anjuke employees as part of the share consideration.
In April 2015, we acquired a less than 50% equity stake in Falcon View Technology, or Ganji, the holding company of the PRC entities operating
Ganji.com, a major online local services platform in China, for 34.0 million newly issued Class A ordinary shares of our company and US$412.2 million in
cash. Concurrent with this acquisition, Tencent purchased 15.4 million additional newly issued Class A ordinary shares of our company from us for
US$400.0 million.
Later in 2015, our company, as a limited partner, committed an aggregate of 46.5 million newly issued ordinary shares and US$406.7 million in
cash to several private equity funds, of which all the ordinary shares and US$272.4 million in cash were contributed to the funds in August 2015. These
funds are dedicated to investing in businesses in China and separately managed by different investment entities, as general partners, which are unaffiliated
with each other and unaffiliated with us. These funds, together with Tencent, acquired all the remaining equity interests in Ganji in August 2015. We also
transferred an aggregate of 4.4 million fully vested restricted share units of our company and approximately US$51.0 million in cash to former Ganji
employees as part of the total consideration of step acquisition of Ganji. We considered that we have a controlling financial interest over the equity funds
under the voting interest model, and as a result have consolidated Ganji since August 6, 2015.
On November 27, 2015, 58 Home raised US$300.0 million in a Series A preferred shares equity funding round, with participation from Alibaba
Group Holding Limited, global investment firm KKR, and Ping An Group, among which US$10.0 million was contributed by 58.com Inc. Following the
closing of the series A financing of 58 Home, 58.com Inc. holds 87.9% of the total outstanding ordinary shares of 58 Home and 61.7% of the total
outstanding shares of 58 Home on an as-converted basis. As certain rights provided to the non-controlling Series A preferred shareholders of 58 Home would
be viewed as substantive participating rights under U.S. GAAP, we have ceased consolidating the financial results of 58 Home in our consolidated financial
statements in accordance with U.S. GAAP since November 27, 2015.
On December 11, 2015, we issued 4.3 million Class A ordinary shares at a price of US$31.0 per share to Tencent for the early repayment of
US$125.0 million principal amount of a loan from Tencent, together with accrued interest payable of US$7.3 million as of December 11, 2015.
On December 31, 2015, we divested our controlling ownership stake in Guazi, a subsidiary that operated our consumer-to-consumer (C2C) used car
trading platform, to Mr. Mark Haoyong Yang, co-chairman of our board of directors at the time. We had a 45.6% stake in Guazi immediately following the
spin-off, and currently have approximately 34.6% stake in Guazi following their subsequent private equity financing.
On June 20, 2016, we sold all of our equity interests in Mayi, a majority-owned subsidiary that operates online consumer-to-consumer (C2C) short
stay rental business for minority equity interests in Tujia, one of the leading Chinese online booking platforms for apartment rentals and home-stays.
Concurrently with the sale of Mayi, we acquired additional equity interests in Tujia by paying US$10.0 million in cash and committing future services to
Tujia. As a result of these transactions, we hold less than 5% equity interest in Tujia.
In April 2017, we entered into definitive agreements with Tencent, under which we agree to inject the Zhuan Zhuan app and certain used goods
related listing channels from the 58 and Ganji classified platforms into a separate group of entities, or the Zhuan Zhuan Entities, and Tencent agrees to invest
US$200 million in cash and additional business resources into the Zhuan Zhuan Entities for a minority equity ownership. We will continue our direct traffic
and other business support to the Zhuan Zhuan Entities. The transaction was closed on April 28, 2017, and we currently own a majority of equity stake in the
Zhuan Zhuan Entities.
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Our principal executive offices are located at Building 105, 10 Jiuxianqiao North Road Jia, Chaoyang District, Beijing 100015, the People’s
Republic of China. Our telephone number at this address is +86 10 5956-5858. Our registered office in the Cayman Islands is located at the offices of
Conyers Trust Company (Cayman) Limited, Cricket Square, Hutchins Drive, PO Box 2681, Grand Cayman, KY1-1111, Cayman Islands. Our agent for
service of process in the United States is Law Debenture Corporate Services Inc., located at 400 Madison Avenue, 4th Floor, New York, New York 10017.
B.
Business Overview
Our business is comprised principally of our online classifieds and listing platforms. Our online classifieds and listings platforms enable local
merchants and consumers to connect, share information and conduct business in China. These platforms mainly include 58, Ganji and Anjuke. 58 and Ganji
are online multi-content category-classified advertising platforms, while Anjuke is an online real estate listing platform.
In addition, 58 Home, our significant investee accounted for under equity method, operates a mobile-based closed-loop transactional platform for
home services, which directly connects consumers and individual service providers for local services such as domestic services, ad-hoc delivery services and
platform services provided at home.
Our Classifieds and Listing Platforms
Our classifieds and listing platforms contain local information for over 500 cities or towns across diverse content categories, including jobs, real
estate, used goods, automotive and yellow pages. Users can browse and search for free local information that they need. Users, including both consumers and
merchants, can also post content for free. The content includes job resumes, real estate rental and sales listings, and used vehicles and used goods for sale,
among others.
To improve user experience, our teams design and provide templates to users to make listings easier to post and more informative and relevant. We
conduct automatic and manual screening using proprietary technology and processes to improve the information quality on our online platforms. Our
information quality teams leverage our years of experience and continue to strengthen processes to certify local merchants offline, detect spam, and collect
and respond to user feedback online.
On our online classifieds and listing platforms, merchants can post content to attract potential customer leads for free. For paying merchants we
provide subscription-based membership services to improve the effectiveness of lead generation. For further enhanced marketing effectiveness, merchants
can purchase various additional online marketing services such as real-time bidding and priority listing. Merchants can pay for these services online,
including through their smart phones.
We have field direct sales teams in 45 cities in China. In approximately 360 other cities or towns where we do not have field direct sales teams, we
work with sales agencies to market locally. Our field direct sales and sales agency teams educate local merchants about online marketing and how the
subscription-based membership services on our classifieds and listing platforms can help them do better business. We also have centralized customer service
teams, who maintain regular contact with our customers and help with renewing membership subscription and upselling various online marketing services to
optimize marketing effectiveness for our paying customers.
In 2016, approximately 78.1% of our total detail page views were on mobile applications. Our business model is highly compatible with mobile
internet. We believe user experience of browsing or listing information on our mobile applications is better than on PC applications overall, given the smart
phone features such as location based services and more convenient photo shooting and communication tools. The enhanced mobile user experience also
significantly increases user engagement.
We also have other category-specific consumer-facing platforms we acquired or developed in-house that are relatively smaller than the 58, Ganji
and Anjuke platforms in terms of user traffic or revenue generation. For instance, Zhuan Zhuan (“转转”) is an online used goods trading platform that mainly
focuses on C2C used goods transactions. ChinaHR is an online recruitment platform that mainly focuses on white collar jobs. Jia Xiao Yi Dian Tong (“驾校
一点通”) is an online platform for drivers' license examination preparation and other related services. 58che (“58车”) is a platform that mainly focuses on
new car information.
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Other than the above mentioned consumer-facing platforms, we also have some category-specific merchant mobile applications, such as Zhao Cai
Mao (“招才猫”) for small business owners or HR professionals, Mobile Agent (“移动经纪人”) for real estate agents and Che Shang Tong (“车商通”) for
used car dealers. These merchant tools enable merchants to manage content, interact with consumers, conduct and track online marketing or hiring activities
including purchasing online marketing services better than they could on PC or through the 58, Ganji and Anjuke platforms. These merchant applications not
only enhance user experience and engagement through better connections between consumers and merchants, but also help our platforms accumulate a huge
amount of user behavior data, with which our platforms can more proactively help match the supply and demand using big data and targeted marketing. The
return of investment (ROI) in online marketing can also become clearer, which provides the platforms with additional options to develop an additional
performance based revenue model. These mobile applications were developed as value-added features or extensions of our products and services primarily
aimed to attract more users to our platforms and increase user engagement.
58 Home
The home services industry in China is a massive but fragmented industry. China has over one hundred cities with a population of a million or more.
These cities create a strong demand for home services such as home cleaning, cooking, laundry, automotive maintenance and cleaning, tutoring, healthcare
and ad-hoc delivery services. On the supply side, China has a sufficient labor pool to provide these services. These service providers typically form small or
micro-scale businesses or attach themselves to middleman agency companies. These businesses are generally small and local, and do not have strong brand
names. As a result, Chinese consumers generally have difficulty in searching for these service providers, let alone those who can provide high-quality and
consistent services.
In the second half of 2014, 58 Home launched its first mobile application. The search, reservation, payment, rating and review of home services can
be done on the mobile application. 58 Home finds and certifies individual service providers and trains them to use the merchant version of the mobile
application. There are no middleman agency companies on 58 Home. Consumers can select individual service providers or leave the selection of the service
providers to the system, which recommends service providers based on location, availability and other criteria specified by the consumers. Other than online
efforts, 58 Home also conducts regular training for services providers in an effort to raise the quality of their services, which is a key aspect of user
experience. 58 Home also has customer service call center teams that collect customer feedback to enhance our operations. Currently 58 Home focuses on
the core categories of domestic services, ad-hoc delivery services and platform services provided at home or merchant locations. 58 Home also partners with
third-party companies that provide home services in a single vertical category in order to widen the content categories on 58 Home. The 58 Home
applications facilitate the matching of supply and demand for local services and help raise the quality of these services provided in China. Currently, there are
over 60 cities in China where most of 58 Home services are available. 58 Home is still in an early stage and 58 Home plans to roll out services to more cities
and categories in 2017.
Our Revenue Model
We generate revenues primarily from memberships and online marketing services. A membership is a basic service package mainly consisting of
merchant certification, display of an online storefront on our platforms, preferential listing benefits such as daily priority listings, higher quota for daily
listings, as well as access to our dedicated customer service support team and online account management system. Our online marketing services include
listing services, such as real-time bidding, other bidding services and priority listing, as well as marketing services through collaboration with third-party
internet companies in China. Merchants can use our real-time bidding services to bid for the most prominent placement of their listings in specific categories
and locations on a daily or a cost per click (CPC) basis. Merchants can also purchase our priority listing services, which place their listings below real-time
bidding listings and above paying merchant members’ listings.
Our revenues were RMB1.6 billion, RMB4.5 billion and RMB7.6 billion in 2014, 2015 and 2016, respectively. We had net income of RMB139.4
million in 2014 and incurred net loss of RMB1.6 billion and RMB773.0 million in 2015 and 2016, respectively.
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Our Users
Our users refer to all participants on our platforms, including consumers and local merchants. Users may browse and search information on our
online platforms without the need to register an account with us. After completing a user registration process, a user can post information and use our
communication tools and other services.
Our paying merchant members refer to the registered accounts through which our users have purchased our membership services. Users who have
purchased our membership are entitled to additional services and benefits after paying membership fees to us. See also “— Service
Offerings — Membership.” Our online marketing customers refer to users who have purchased our various online marketing services to enhance their
marketing effectiveness. Our paying merchant members can also purchase online marketing services in addition to membership subscriptions. Online
marketing customers also include third-party internet companies who collaborate with us on performance-based online marketing services for their own
advertisers.
Content Categories
Our users post a massive number of listings on our platforms covering a wide range of services and products. We organize the listings on our
platforms by content categories in an intuitive and easy-to-use directory to facilitate the browsing and viewing of listings. Within each main content category,
information is further sorted into subcategories with various search criteria and parameters to allow users to further refine their information search and
increase the relevancy of their search results. Currently, listings on our platforms cover major categories such as jobs, real estate, used goods, automotive and
yellow pages.
Key features of the main content categories are summarized as follows:
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Jobs. Jobs currently covers a wide range of job categories such as sales people, skilled workers, food and beverage staff, delivery staff, and
homecare and cleaning staff. Our 58 and Ganji platforms have largely mid- to lower-level income job listings and resumes. Job applicants can
prepare a resume online. Employers can search and review resumes on our database. In addition, this content category contains other tools that
enable employers to manage, organize and streamline the recruitment and hiring process.
Real estate. Real estate is sorted into sub-groups of residential leasing, secondary and primary property sales, office space, retail space and industrial
real estate leasing. Our 58 and Ganji platforms have mainly rental and secondary property sales listings, while our Anjuke platform has mainly
secondary and primary property sales listings. Listings are uploaded by either real estate agents or individual consumers. We further facilitate users’
decision making by providing property pricing indices, generated from our listing database, and other relevant content and tools for different areas
and property categories. Our PC and mobile applications enable real estate agents to conveniently upload new listings, manage their listings,
communicate with consumers and monitor marketing effectiveness.
(cid:120) Used goods. Used goods covers a wide selection of used consumer products such as computers and peripherals, mobile phones, digital cameras,
furniture, household appliances and goods, books, artwork, sporting goods and musical instruments. Listings are uploaded by either used goods buy-
sell merchants or individual consumers. In addition to the exchange of information, we also facilitate online transactions through Zhuan Zhuan (“转
转”), an internally-developed used goods mobile application or through our main 58 mobile application.
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(cid:120)
Automotive. Automotive includes listings of used and new cars, car leasing, driving school services, automotive repairs and maintenance services,
and other car-related services. Listings are uploaded by either used car dealers or individual consumers. The platforms also contain automotive
manufacturers’ brand advertising for their new and used car businesses. For selected vehicles, we also provide vehicle inspection information as
well as financial services, mostly through qualified third-party partners, in an effort to better facilitate the automotive transaction. We also have
mobile applications that help users to prepare for driving license examinations, find driving tutors or access other information or services needed by
car owners.
Yellow pages local services. This business directory covers a variety of general yellow page local services, which include homecare, business
services, renovation, education and training, vehicle rental, franchise licensing services, wedding and filming, and travel services. In some relevant
sub-content categories, we facilitate commerce by providing online user reviews, reservations, and transaction and payment tools. These
functionalities further enhance user engagement and bring a higher level of convenience to users.
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Our Websites and Mobile Applications
Our Websites
Our key websites include www.58.com, www.ganji.com and www.anjuke.com. Website layouts are designed to ensure a smooth user experience.
Users are typically brought to one of the over 500 city or town websites, or they can manually select the city they are interested in. Within each city website,
listings are grouped by content categories and subcategories. Users can further select a specific neighborhood within the city, leading users to information
that is only relevant to the selected neighborhood. In each content category, we provide customized parameters to allow users to further filter their search
queries.
From the home page, once users select the location and category, users will access a listing page, where numerous listings are displayed. The listings
on this page typically include brief information on merchants and their services. When users click on an individual listing, a landing page will show more
detailed information about the merchant and the product and service the merchant provides. These subcategories and additional parameters are regularly
reviewed and optimized for each content category based on user feedback and user traffic data to ensure we continue to provide a superior user experience.
Our Mobile Applications
In 2016, approximately 78.1% of our total detail page views were on mobile applications. Our listing-based content is easily accessible through our
different mobile applications. We mainly offer three types of mobile applications: downloadable applications developed for Android and iOS platforms,
browser-adapted applications for users accessing our websites through their smartphone browsers and tailor-made mobile applications for merchants.
The mobile application content layout for classifieds and listings is intuitive and easy to use. Once users select a location and a main content
category, they are presented with the listings results. Users can further narrow the search by selecting more detailed search parameters, customized for
different content categories.
Mobile functions further enhance user experience on mobile phones. For example, a direct dial feature on our mobile-enabled platform allows users
to call the phone numbers displayed on a listing with one simple touch. Mobile users can send messages or use instant messaging software from our mobile
applications at any time. We designed additional features for users to upload photos from mobile phones to update the listing content, which is immediately
synchronized with our web content. The multi-media functionalities of mobile phones further enrich the listing content on our platforms. Furthermore,
location-based functionalities of mobile phones enable us to provide information that is more geographically relevant to users on a real-time basis. We have
also developed technologies to recommend content based on users’ past browsing history. Our merchant mobile applications simplify the processes for
merchants to manage their listings, such as uploading, modifying, searching and prioritizing the listings and also purchasing online marketing services to
enhance their marketing effectiveness. Our mobile applications also allow merchants to communicate in real time with users and manage their customer
relationships on our applications. We also leverage big data ability to better match consumers who look for local services information with those merchants
who can provide the most relevant services. We continually work on developing additional features to better utilize mobile device functionalities to enhance
user experience.
In the case of 58 Home (the home services app) or Zhuan Zhuan (“转转”, our used goods app), mobile payment technology has made closed-loop
services, from searching to paying for services, not only possible but convenient.
The 58 Home mobile applications, launched in the second half of 2014, currently contain content categories such as domestic services, ad-hoc
delivery services and platform services. These mobile applications focus on services that generally require service providers to go to the consumer’s home to
render the services. Users can easily book services through the application after identifying the services they need, the location and the expected timing.
Users can use a system recommended service provider or select service providers through browsing the available service providers and reading their rating
and reviews from other consumers on the app. When the services are rendered, users can pay online or with cash in person. They can also pay a lump sum to
become members, which entitles them to better discounts for booking future services from the platform.
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Apart from the user versions of the 58 Home PC and mobile applications, 58 Home has also launched separate applications for service providers.
They enable service providers to receive and act on incoming orders, communicate with the consumers, receive payments and track service remuneration.
These applications simplify the process for users to find local services and enable them to make more informed decisions about selecting service
providers. They also enable the service providers who were previously typically affiliated with offline service agencies to gain direct access to consumers
and over time create a reputation by providing high-quality services and accumulating good reviews. 58 Home services, by connecting increasingly more
consumers and service providers, aim to become a more efficient platform in matching supply and demand for local services. By making the booking,
communication and payment process more transparent and conducting regular training for the service providers, 58 Home expects to help raise the quality
standards of the local services and increase the satisfaction rate of consumers and service providers.
The Zhuan Zhuan (“转转”) mobile application, which we launched in the fourth quarter of 2015, allows users to search and trade used goods such
as computers and peripherals, mobile phones, digital cameras, furniture, household appliances and goods, books, artwork, sporting goods and musical
instruments. It is very easy to upload used goods information using mobile features such as picture-taking and video-shooting. Payment solution for Zhuan
Zhuan (“转转”) is supported by WeChat payment, which is a convenient and secure payment method. Funds transferred through online payment will not be
released to the sellers until the buyers confirm receipt. Users can opt to transact offline face-to-face as well. The use of WeChat account log-on and exclusive
WeChat friends relations data has given the platform an extra level of security and social interest. To further increase user engagement, we continue to
innovate on the mobile functions and operational design of the application. We encourage users to form interest groups online and share experiences and tips
of certain types of goods. We collaborate with some nation-wide suppliers that provide moving, repairs, installation and de-installation services to facilitate
transactions of goods that will require such services. For some specific product categories, such as iPhones, we have hired a team that specializes in iPhone
authentication and maintenance. Given the increasing knowledge of the marketplace we also recommend price ranges for iPhones. These services have
greatly reduced the information asymmetry and lack of trust among users and contributed to the rapidly growing transaction volumes on the platform in
2016.
The Zhao Cai Mao (“招才猫”) mobile application, which we launched in July 2015, is a merchant tool that helps to move the hiring process online,
particularly for small businesses. This application allows employers to upload description of their business, post jobs and search for and chat with potential
job seekers. Smart phones’ location-based services can help identify job seekers that are more geographically suitable for the open positions. Smart phones’
chat function provides a convenient alternative to phone calls with respect to prospective job search communication. Job seekers on 58 or Ganji jobs category
can initiate chat communication, and via an integrated backend system, messages will be pushed to Zhao Cai Mao, for employers to review and respond.
Employers can also initiate a chat on Zhao Cai Mao and job seekers can see that and respond on 58 and Ganji applications. Employers can also delegate the
hiring responsibility to those within the organization that need to directly communicate with job seekers on the application. They can archive their past
communications and resumes of the job seekers, schedule or even conduct interviews on Zhao Cai Mao application. These features make the hiring process
more efficient and help employers recruit on the go. While all these hiring actions are carried out on the platform now as opposed to offline in the past, we
are accumulating an increasing amount of data and information about user behavior, background and preferences of the employers and job seekers. This not
only helps us better control the quality of the information, and streamline the process by providing necessary support when needed, but also enables the
platform to become more intelligent in better matching employers and job applications leveraging big data capability. From a business perspective, while we
continue to explore these innovative services, we can increasingly diversify our revenue model to more performance-based services rather than marketing
services. Revenues generated from these new business models were minimal as of December 31, 2016.
Functionalities of Our Platforms
All users can use our platforms to:
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Browse and search. Users can browse and search our large database of listings to retrieve specific listings relevant to their needs for free and
without the need of registering an account with us. Users are able to obtain search results based on keyword searches as well as recommended
results based on the algorithm of the platform.
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(cid:120)
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Post listings. Users who register with us enjoy the basic services of listing information on our online platforms for free as well as other additional
benefits. A registered user can choose to go through our certification process by providing personal identification information, a mobile phone
number and an email address for an individual, or business license and contact information for an enterprise. Listings by a registered user that has
passed the merchant certification process will be identified with a trust rating score on our online platforms.
Communicate. Other than traditional phone communication, most of our websites and mobile applications offer instant messaging tools enabling
users to maintain a “friends list” and communicate online. In addition to the instant messaging tools, our mobile site and mobile applications contain
a direct dial feature which allows users to call or send text messages to phone numbers displayed on the listings with one simple touch. Some
features are designed specifically for merchants, such as instant notification when users visit their listings, which promotes real-time interaction
between merchants and consumers, and recommending users to merchants based on our system’s intelligent matching capability after analyzing a
merchant’s listing content and a user’s viewing and communication history.
(cid:120) Make reservation and purchase. In addition to providing a local information directory, our online platforms also facilitate online reservations and
transactions between consumers and local merchants or among consumers. For example, users can book domestic services, ad-hoc delivery services
and platform services on 58 Home or buy and sell used goods on Zhuan Zhuan (“转转”). We partner with well-known third parties to provide
mobile payment interfaces and escrow payment ability.
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Review and report. Users can post reviews on listings on our platforms, which provides transparency on merchant credibility. Reviews and ratings
are most common in 58 Home and Zhuan Zhuan (“转转”) used goods categories. Consumers can also easily report fraud if they come across
suspicious content.
Service Offerings
Membership
A subscription-based membership is a basic service package consisting mainly of merchant certification, display of an online storefront on our
platforms, preferential listing benefits such as daily priority listings and a higher quota for daily listings, and access to our dedicated customer service support
team and online account management system. Merchants who subscribe to our membership can enjoy more services and obtain more effective marketing
than non-paying merchants on our platforms. 58, Ganji and Anjuke offer subscription-based merchant membership packages that include similar types of
services although the specific details of the services, such as the quotas for daily listings and downloadable resumes, may vary from platform to platform.
We offer memberships of varying lengths across different content categories. Memberships in the yellow pages and jobs categories are primarily 12-
month packages. In China, due to relatively high employee turnover among migrant workers, many businesses have ongoing hiring needs. Memberships in
the real estate category are primarily one- to three-month packages due to the higher turnover of real estate agents. We acquire a majority of paying merchant
members through our field sales teams. Our centralized and dedicated tele-customer service team supports our paying merchant members during their
membership to enhance the effectiveness of the paying merchant members’ marketing efforts and improve the likelihood of membership renewals. A
majority of our paying merchant members are small and medium-sized local merchants.
The following table sets forth the number of subscription-based paying membership accounts for the periods indicated:
Mar. 31,
2014
June 30,
2014
Sept. 30,
2014
Dec. 31,
2014
Mar. 31,
2015
June 30,
2015
Sept. 30,
2015
Dec. 31,
2015
Mar. 31,
2016
June 30,
2016
Sept. 30,
2016
Dec. 31,
2016
(in thousands)
Subscription-
based Paying
Membership
Accounts
441.0
510.3
560.1
604.5
797.6
990.0
1,682.0
1,754.8
1,817.8
1,974.0
2,067.2
2,069.7
Note: We define subscription-based paying membership accounts as the registered accounts through which our users have purchased our membership
subscriptions. The number of paying membership accounts in a given period represents the paying merchant members whose membership subscriptions are
in their service period at any point during such given period.
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Since the first quarter of 2015, the number of subscription-based paying membership accounts has included that from the 58 and Anjuke platforms,
and since the third quarter of 2015, the number of subscription-based paying membership accounts has included that from the 58, Ganji and Anjuke
platforms.
Our membership services package includes the following services:
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Certification services. We require merchant certification for local merchants who intend to become our paying merchant members. We require
membership applicants to provide us with copies of their business licenses and we check the authenticity of details included in the business licenses
against those available in third-party databases, such as the publicly available database of the local administration of industry and commerce. We
have also developed various other certification processes and requirements that are specific to different content categories based on our years of
experience. Each member that has passed the merchant certification process will be identified as a certified merchant on our platforms.
(cid:120) Online storefront. Paying merchant members can set up online storefronts by utilizing standard website templates that we have developed in-house
and that can be customized for different service sectors. A member may include a brief company profile containing the member’s contact
information and a virtual showroom of the member’s products and services. The online storefront also includes online reservation, transaction and
payment functions.
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(cid:120)
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Preferential listing benefits. Paying merchant members’ listings and online storefronts have priority placement in the listings and search results over
those of our non-member registered users. In addition, paying merchant members can designate time intervals throughout a day to refresh their
listings up to a pre-set number of times a day without additional fees. Other benefits include higher daily quotas to upload listings, higher discounts
to purchase other online marketing services, dedicated telephone numbers through which users can contact merchants for customer services and
statistical reports to track marketing effectiveness and participation opportunity in our marketing events.
Customer service. We provide our paying merchant members with a dedicated and experienced customer support team that attends to their inquiries,
assists them with setting up their online storefronts, and follows up with them to help optimize their listings and marketing effectiveness. In addition
to general customer service, we also provide industry specific online marketing know-how to help merchants maximize their market effectiveness.
Account management system. We have developed a comprehensive account management system which serves as a one-stop shop for our paying
merchant members. Our account management system allows paying merchant members to conduct various activities, including managing listings,
tracking and evaluating the marketing effectiveness of listings, managing business operations, and purchasing our online marketing services, via a
user-friendly interface. Our account management interface is tailored in design and functions for the varying needs and requirements of our paying
merchant members in different sectors. Increasingly we have put more resources in developing mobile merchant applications to better leverage
mobile features and enhance user engagement. These applications mainly include Zhao Cai Mao (“招才猫”) for small business owners or HR
professionals, Mobile Agent (“移动经纪人”) for real estate agents, and Che Shang Tong (“车商通”) for used car dealers. In addition to enabling
listings with increased relevance of information through location-based services, the mobile applications also allow merchants to communicate in
real time with users. These tools are also available for non-paying merchants, but they are only able to access certain limited functions.
Membership revenues from customers are mostly collected by our field sales teams, while customers can also opt to request and subscribe to
memberships through our online interface.
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Online Marketing Services
Our online marketing services primarily include listing services, such as real-time bidding and priority listing, display advertising and online
marketing services through collaboration with third-party internet companies in China. All of our 58, Ganji and Anjuke platforms offer some forms of online
marketing services. 58’s and Ganji’s online marketing services are mainly listing services that customers purchase to enhance the exposure of their listings.
Anjuke’s marketing services relate to both listing services for secondary real estate properties and advertising services for primary real estate properties. On
average, approximately 54.1% of our quarterly paying membership accounts purchased our online marketing services in 2016.
Merchants can use our real-time bidding services to bid for the most prominent placement of their listings in specific categories and locations on a
cost per click basis, also known as CPC. We have developed a user-friendly bidding system through which merchants can create text- and graphic-based
descriptions for their listings and bid on the placements of their listings. We set minimum bidding prices which are based on metrics such as traffic and
number of clicks generated by precedent placements. We launched our real-time bidding services, mainly for daily listings, in selected categories and
locations in the first quarter of 2013. We upgraded the daily bidding systems to a CPC basis for major categories in first quarter of 2015. In 2016, in some
categories, instead of a dynamic bidding pricing system, the platform sets fixed CPC price that is subject to regular reviews and adjustment. We made
decisions as to which bidding systems to use based on our experience and knowhow about each specific content category. The bidding services enable
merchants to market their services to broader and more precise consumer populations. We generate much higher revenues than we otherwise could with the
same amount of listing space by attracting more customers and monetize the traffic to their market value.
Merchants can also purchase our priority listing services, which place their listings below real-time bidding listings and above paying merchant
members’ listings. Merchants can purchase listing placements of varying durations from several hours to several days to several weeks.
We provide display advertisement mainly for primary real estate developers on our Anjuke platform. The customers use these services to enhance
their brand recognition and attract consumer attention to the primary real estate projects that are on the market. They can be text-or graphic-based displays
for varying time periods ranging from several days to several months.
We collaborate with third-party internet companies by placing the marketing links of their marketing customers on the relevant listing pages on our
online platforms. We generate revenues based on the number of clicks or cost-per-thousand impressions at pre-determined prices.
In most cases customers are required to make payment in advance before purchasing our online marketing services, in the form of purchasing virtual
online currencies of our platforms. Paying merchant members can log into our account management webpage or mobile application and purchase various
online marketing services through an easy-to-use interface. Our account management system enables paying merchant members to review and optimize the
performance of their existing listings and to upload and market new listings.
Our field sales and customer service teams stay in regular contact with our customers and play an essential role in promoting our online marketing
services to our paying merchant members. Leveraging our expertise in online marketing services, we help our paying merchant members to select the most
suitable services to maximize their marketing effectiveness.
E-commerce services
Our e-commerce services are mainly related to Anjuke’s primary real estate business. Our e-commerce services for new residential properties take
place in the form of selling discount coupons to consumers. We promote developers’ properties on the Anjuke platform and facilitate physical property visits
and pre-sale customer support. We earn revenue when the discount coupons are used for actual property purchases.
Technology
We have made significant investments in different technologies to ensure superior user experience and information quality. We have built strong
capabilities in real-time search, anti-fraud protection and information quality assurance, large-scale systems and scalable infrastructure, account management
and real-time bidding technology, mobile technologies, and big data. We have taken over and integrated systems and technologies in our newly acquired and
consolidated internet businesses such as Ganji and Anjuke. As of December 31, 2016, we had a team of 3,332 highly skilled product development personnel
and engineers with expertise in a broad range of technical areas.
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Real-time Search
To accomplish the timely display of information, we have developed a proprietary search engine with high levels of performance, reliability and
scalability.
(cid:120) High performance levels. We have implemented an advanced search indexing system through which all new data are stored immediately after they
are posted. Our new postings are typically available for search within three seconds after they are posted.
(cid:120) Highly reliable. We have developed a load balancing mechanism in the search engine to ensure that our overall searching system will be unaffected
by server failure.
(cid:120) Highly scalable. Our search system is implemented on a distributed and clustered infrastructure which enables the storage and processing of large
datasets and facilitates deployment of resources on a larger scale.
Anti-fraud Protection and Information Quality Assurance
We have built a framework in which we measure information quality and classify quality issues into different levels such as fraud risk, authenticity,
clarity and relevance. Based on the results of the initial information quality measurement, we deploy information screening technologies according to the
level of quality issues we identify. To maximize the efficiency of our system, if we identify a listing as involving a higher level of risk, we do not proceed
further with the lower level of screening procedures. Our strong anti-fraud capabilities include:
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Content analysis technology. Our system screens every listing for fraud risk before a listing can be displayed on our online platforms by using
various specific technologies such as watermark identification, information retrieval and machine learning technologies. Our system is designed to
sweep the data being transmitted on our platforms on a real-time basis for sensitive keywords, questionable content and unusual levels of activity.
(cid:120) User behavior analysis technology. Equipped with data mining technology to track and analyze a wide range of anonymous user information, our
system can detect and flag potential irregularities and initiate the relevant procedures to quickly identify and fix any potential problems.
(cid:120) Manual review and feedback adopting system. We use a manual review process to screen information that is flagged by our system, requiring a
more detailed follow-up. We have built a mechanism through which our system can “learn” from the results if a listing is checked and validated to
be accurate through our manual review process, by incorporating the manual review results in our system database. Thus we are able to continue to
update our system and enhance the system’s screening capability and efficiency.
Large-Scale Systems and Scalable Infrastructure
We have built a system infrastructure that is easily scalable, supports a massive number of software and systems and has large data storage capacity.
Our entire system is built on a distributed, load-balanced computing infrastructure, which is both highly scalable and reliable. The infrastructure can be
expanded easily as data storage and user visits increase. We have designed a unified platform, which administrates all systems and servers and can
reconfigure or redeploy systems or servers automatically whenever needed. We continue to upgrade our system infrastructure so that it can support the mid-
to long-term growth of the platform in a more cost effective and efficient manner.
Account Management System
We have developed a comprehensive account management system, which serves as a one-stop shop for our paying merchant members. Our account
management system allows paying merchant members to conduct various activities, including managing listings, tracking and evaluating the marketing
effectiveness of listings, managing business operations, and purchasing our online marketing services, via a user-friendly online interface.
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Listing management. Paying merchant members can generate, upload and delete both text- and graphic-based listings via an easy-to-navigate online
interface. Our account management system provides search functions with category-specific search criteria to help our paying merchant members to
access and utilize our listing database more effectively and efficiently. The system is also equipped with additional analytic tools for listings in
different content categories.
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(cid:120)
(cid:120)
(cid:120)
Tracking and evaluation of marketing effectiveness. Paying merchant members can log into our account management webpage to review and
optimize performance of their listings. The system keeps track of traffic brought to their listings, and provides further detail on traffic by listing or
by time period. Our paying merchant members are therefore able to evaluate their marketing effectiveness by analyzing traffic to their listings
compared to that of other listings in similar content subcategories and locations.
Business operations management. Paying merchant members can manage part of their business operations using our account management system.
Purchasing online marketing services. We have placed links to purchase our various online marketing services on our account management
webpage, as we believe these services can help our customers achieve better marketing performance. Our paying merchant members can also
participate in real-time bidding for priority listings through a simple interface that we provide.
Mobile Technologies
Page views from mobile applications represented 78.1% of total detail page views in 2016. We use native web development capabilities to ensure
our applications can be upgraded rapidly and third-party applications can be integrated.
In addition, our mobile applications allow us to collect more detailed user behavior data, leverage our data mining capabilities and introduce new
user features, such as personalized content, to enhance user experience.
Big Data Platform and Data Intelligence
We have developed our own big data platform due to the increasing need for large scale and real time data analysis to enhance our operation and
user experience.
We have built our big data platform based on existing open source architecture such as Hadoop, which we have modified and customized for our
business scenario, to create a reliable and high performance system. We have also built real time data analysis capabilities on top of the big data platform.
We have built a recommendation platform that uses machine learning and data intelligence technologies and gives us fast customization capabilities
for different business scenarios. We have customized recommendation systems for different business sectors such as housing, cars and used goods.
Content Management and Monitoring
We have dedicated personnel reviewing content on our platforms for compliance with applicable laws and regulations, aided by a program designed
to sweep our platforms and the data being transmitted on our system on a real-time basis for sensitive keywords, questionable content and unusual levels of
activity. Content that contains certain keywords is automatically filtered by our program and cannot be successfully posted on our online platforms.
Apart from ensuring our content is compliant with applicable laws and regulations, we believe information quality is critical to superior user
experience. We utilize proprietary technology such as text- or picture-based content screening analysis technologies together with manual screening to ensure
the relevance, accuracy and credibility of the content on our online platforms. Through the combination of manual review and our system’s self-learning
ability, we have been increasingly able to identify spam and fraudulent listings. Consumers can also post reviews on merchant listings, which provide
transparency on merchant credibility. We also encourage consumers to report fraud if they come across suspicious content by making the fraud report
process easy.
We encourage users and merchants to further increase their credibility by going through our merchant certification procedure, which is mandatory
for our subscription-based paying merchant members. The increased quality of our merchant network increases the quality of information on our platforms.
In addition, we have rolled out a consumer protection program, which contains various measures to help improve information credibility and promote safer
online transactions.
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We continue to work with other internet companies to share knowledge and practices with respect to information quality management as well as
whitelists and blacklists in this area.
Our corporate policy requires a user to enter into a user agreement in the registration process before posting any content on our online platforms. In
the user agreement, the user makes certain representations and warranties, including, among other things, that (1) all information submitted for registration
purposes and all user-generated content are true, (2) none of the user-generated content infringes on third-party rights or properties, (3) the user-generated
content is in compliance with relevant PRC laws and regulations, (4) the user alone is responsible for any losses, injuries, liabilities or expenses arising from
or caused by the user-generated content, and (5) the user will not hold us liable for any losses arising from intellectual property right infringement by using
our online platforms. However, we may be subject to intellectual property infringement claims or other allegations by third parties for services provided or
content displayed on our online platforms. Although we believe that we will have recourse to indemnification from alleged infringing users on the basis of
the user agreement, such right to recourse is subject to enforcement mechanisms of the PRC legal system which may not be effective. See “Item 3. Key
Information — D. Risk Factors — Risks Related to Our Business — We may be subject to intellectual property infringement claims or other allegations by
third parties for services we provide or for information or content displayed on, retrieved from or linked to our websites, or distributed to our users, which
may materially and adversely affect our business, financial condition and prospects.”
Sales and Customer Service
Sales
Our field direct sales force provides us with direct access to local merchants and helps us better understand local needs. They help to certify our
paying merchant members in person, organize focused workshops or seminars with interested merchants to promote basic concepts of online marketing,
promote our services and develop paying merchant members.
As of December 31, 2016, we established branches in 35 major cities and maintained field direct sales teams and sales support teams consisting of
16,437 employees. The coverage of field direct sales teams varies slightly by content category managed by our different business units. This includes our
teams from Ganji and Anjuke in addition to our 58 field sales teams and support teams. Our field direct sales teams have directly contributed to the revenue
growth of our subscription-based membership services. They also lay the foundation for our online marketing services growth by selling packages that
combine subscription-based packages and virtual currencies which customers can later use to purchase various forms of online marketing services.
The compensation package for our sales teams includes fixed basic salaries and commissions based on the revenues or collection they achieve. We
provide regular in-house and external education and training, internally developed customer relationship management, call center and other business
intelligence systems to our field sales and sales management teams to help them keep up-to-date on new products and services of our company and increase
their efficiency in developing new subscription-based paying merchants.
Through 2016, in order to improve the sales efficiency, we have made several changes in how we sell different 58, Ganji and Anjuke subscription-
based membership services. The strategy varies by content category which is managed by our different business units. In yellow pages and used goods
categories, we have merged the membership products for 58 and Ganji and therefore we have merged the field direct sales teams and replaced some Ganji
sales agencies teams with field direct sales teams. In housing category, to a large extent, we have separate teams selling separate services for our 58, Ganji
and Anjuke platforms and also replaced some 58 and Ganji sales agencies teams with field direct sales teams. In jobs category, we did not change the
geographic coverage between sales agencies and field direct sales teams. Overall our field direct sales teams cover 45 cities. In cities other than those cities
where we have field direct sales teams, we utilize sales agencies to grow our business. As of December 31, 2016, we had relationships with about 400 sales
agencies. We will continue to evaluate our strategies with respect to the use of field sales teams or sales agencies as well as the uses of separate sales or sales
agencies to sell different brands or the same teams to sell multiple brands.
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We have been developing interfaces for merchants to purchase and pay for marketing services online on 58, Ganji or Anjuke platforms or through
merchant-end mobile applications such as Zhao Cai Mao (“招才猫”). As smart phone usage and mobile payment technology and awareness become more
developed in China, we anticipate that the percentage of online purchase and payment of our subscription-based membership services and online marketing
services will increase.
Customer Service
General user service. We have centralized dedicated teams who are committed to address general users’ queries within 24 hours through online
messages or emails. In addition, we closely monitor user feedback from various other channels, such as popular social network services platforms and
promptly elevate issues internally and respond to valuable user feedback we collect.
Member service. For our paying merchant members, we have a dedicated customer service center in Tianjin, China, which supports our paying
merchant members through our paying merchant members-only toll-free phone number and other online communication channels. Our customer service
team employed 1,483 customer service personnel as of December 31, 2016. Our dedicated customer service team is well trained on our membership services
functionalities and online marketing services offerings. Using our internally developed customer services systems, our customer service teams analyze data
on the performance of the marketing services and help paying merchant members to optimize their online marketing strategies and performance.
New Member Generation. In some cases, we utilize our centralized customer service team to develop new paying merchant members through tele-
sales activities. In the industries where local merchants are more familiar with online marketing, we find this to be more cost-effective to promote our online
marketing services on the phone, as opposed to having in-person demonstrations of our service offerings. We also use our tele-sales teams to cover remote
areas where it is not economical to cover through our field sales teams or sales agent network.
Marketing and Brand Promotion
We believe that there is still lots of room in China for user growth for our platforms, particularly on mobile applications, as smart phones continue
to proliferate. Other than continuing enhancing user experience, which drives word-of-mouth and repeat usage, it is also critical to continue to promote our
brand and attract more users through various forms of online and offline marketing. Our online marketing activities consist of paid marketing through
internet navigation sites and various popular search engines in China and display advertisements. It also includes traffic acquisition on mobile browsers,
mobile application stores and selected smart phone application pre-installation. Our offline marketing activities include traditional mainstream media such as
television, billboard, direct mailing advertisements, public relations activities, as well as sponsored events to increase our visibility and promote our brand.
Our branding efforts cover major brands, such as “58,” “Ganji” and “Anjuke.” We continue to evaluate the return on investment of various advertising
channels and among our various platforms. We adjust the focus of our advertising campaign according to this evaluation and our assessment of the external
market environment. Although majority of the advertising expenses are incurred to attract consumer users, we also conduct merchant related marketing
events, such as seminars and workshops, where we meet with local merchants to share insights in the industries, introduce and promote our various online
marketing services to deepen our relationship with the merchant network.
Intellectual Property
Our success and ability to compete depend, in part, upon our ability to establish and adequately protect our intellectual property rights. In this
regard, we rely primarily on a combination of patent, copyright, software registration, trademark, trade secret and unfair competition laws and contractual
rights, such as confidentiality and license agreements with our employees, partners and others. We hold 47 patents and have applied for the registration of
195 other patents, which cover a variety of technologies, including those relating to data processing, search, distribution and publishing. As of March 31,
2017, we had registered 219 computer software copyrights and 53 artwork copyrights in China, and had registered 37 domain names that are material to our
business, including www.58.com, www.58.com.cn, www.ganji.com , www.ganji.com.cn, www.anjuke.com and www.anjuke.cn, and 848 trademarks, including
,
and
, in China, excluding those relating to 58 Home.
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Competition
Our competitors in the online marketing space include smaller or regional online classifieds websites as well as industry-or content-specific vertical
websites, whose information serve the same underlying industries as certain content categories of our online platforms. We may also face competition from
major internet companies, who may enter the online classifieds market in China. We compete primarily with our user traffic, effectiveness of services in
reaching targeted users, ability to demonstrate marketing results and customer service capabilities. In some cases, we partner with other internet companies to
provide better user experiences and achieve win-win collaborations.
Regulation
This section sets forth a summary of the significant regulations or requirements that affect our business activities in China or our shareholders’
rights to receive dividends and other distributions from us.
Regulations on Value-Added Telecommunication Services
The PRC government extensively regulates the telecommunications industry, including the internet sector. The PRC State Council, the MIIT, the
Ministry of Commerce, the State Administration for Industry and Commerce, the State Administration of Press, Publication, Radio, Film and Television
(formerly the General Administration of Press and Publication) and other relevant government authorities have promulgated an extensive regulatory scheme
governing telecommunications, internet-related services and e-commerce. However, the PRC telecommunications industry and internet-related industry are
at an early stage of development. New laws and regulations may be adopted from time to time that will require us to obtain additional licenses and permits in
addition to those that we currently have, and will require us to address new issues that arise from time to time. As a result, substantial uncertainties exist
regarding the interpretation and implementation of current and any future Chinese laws and regulations applicable to the telecommunications, internet-related
services and e-commerce. See “Item 3. Key Information — D. Risk Factors — Risks Related to Doing Business in China — Uncertainties in the
interpretation and enforcement of PRC laws and regulations could limit the legal protections available to you and us.”
Licenses for Value-Added Telecommunication Services
The Catalogue for the Guidance of Foreign Investment Industries, or the Catalogue, as promulgated and amended from time to time by the Ministry
of Commerce and the National Development and Reform Commission, is the principal guide to foreign investors’ investment activities in China. The most
recent version of the Catalogue, which was promulgated in 2015, divides the industries into three categories: encouraged, restricted and prohibited. Industries
not listed in the Catalogue are generally open to foreign investment unless specifically restricted by other PRC laws and regulations. A wholly foreign-owned
enterprise is generally permitted for encouraged industries, while for restricted industries, such as value-added telecommunications service industry, there are
some limitations to the ownership and/or corporate structure of the foreign-invested companies that operate in such industries. Industries in the prohibited
category are not open to foreign investors.
The Telecommunications Regulations issued by the PRC State Council in September 2000 and amended subsequently are the primary regulations
governing telecommunication services. The Telecommunications Regulations set out the general framework for the provision of telecommunication services
by PRC companies. Under the Telecommunications Regulations, it is a requirement that telecommunications service providers procure operating licenses
prior to their commencement of operations. The Telecommunications Regulations draw a distinction between “basic telecommunications services” and
“value-added telecommunications services.” Information services such as content service, entertainment and online games services are classified as value-
added telecommunications services.
Pursuant to the Administrative Measures for Telecommunications Business Operating Permit promulgated by the MIIT in March 2009, there are
two types of telecom operating licenses for operators in China, namely, licenses for basic telecommunications services and licenses for value-added
telecommunications services. The operation scope of the license will detail the permitted activities of the enterprise to which it is granted. An approved
telecommunication services operator must conduct its business in accordance with the specifications recorded on its value-added telecommunications
services operating license.
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Pursuant to the Administrative Measures on Internet Information Services, promulgated by the PRC State Council in September 2000 and amended
subsequently, commercial internet information services operators must obtain an ICP License, from the relevant government authorities before engaging in
any commercial internet information services operations within China. Beijing 58, our consolidated affiliated entity, obtained an ICP License issued by
Beijing Administration of Telecommunication in May 2006, which was renewed in May 2011 and again in May 2016, and will expire in April 2021.
Foreign Investment in Value-Added Telecommunications Services
Pursuant to the Provisions on Administration of Foreign-Invested Telecommunications Enterprises, promulgated by the State Council in December
2001 and amended subsequently, the ultimate foreign equity ownership in a value-added telecommunications services provider may not exceed 50%, except
for e-commerce business, in which foreign investors are allowed to have 100% ownership in accordance with the Guidance Catalog of Industries for Foreign
Investment amended in March 2015, and an announcement by the MIIT in June 2015. Moreover, for a foreign investor to acquire any equity interest in a
value-added telecommunication business in China, it must satisfy a number of stringent performance and operational experience requirements, including
demonstrating good track records and experience in operating value-added telecommunication business overseas. Foreign investors that meet these
requirements must obtain approvals from the MIIT and the Ministry of Commerce or its authorized local counterparts, which retain considerable discretion in
granting approvals. Pursuant to publicly available information, the PRC government has issued telecommunications business operating licenses to only a
limited number of foreign-invested companies, all of which are Sino-foreign joint ventures engaging in the value-added telecommunication business.
The MIIT Circular issued in July 2006, reiterated the regulations on foreign investment in telecommunications businesses, which require foreign
investors to set up foreign-invested enterprises and obtain a business operating license for internet content provision to conduct any value-added
telecommunications business in China. Pursuant to the circular, a domestic company that holds an ICP license is prohibited from leasing, transferring or
selling the license to foreign investors in any form, and from providing any assistance, including providing resources, sites or facilities, to foreign investors
that conduct value-added telecommunications business illegally in China. Furthermore, the relevant trademarks and domain names that are used in the value-
added telecommunications business must be owned by the local ICP license holder or its shareholders. The MIIT Circular further requires each ICP license
holder to have the necessary facilities for its approved business operations and to maintain such facilities in the regions covered by its license. In addition, all
value-added telecommunications service providers are required to maintain network and information security in accordance with the standards set forth under
relevant PRC regulations.
In light of the aforesaid restrictions, we rely on Beijing 58, our consolidated affiliated entity, to hold and maintain the licenses necessary to provide
online marketing services and other value-added telecommunications services in China. For a detailed discussion of our contractual arrangement, please refer
to “— C. Organizational Structure.” To comply with these PRC regulations, we operate our websites and value-added telecommunications services through
Beijing 58. Beijing 58 holds an ICP license and owns all domain names used in our value-added telecommunications businesses. Beijing 58, together with its
subsidiaries, is also the owner of all registered trademarks which are used in our value-added telecommunications businesses and is the applicant of all
registered trademark applications we are currently making.
Regulations on Advertising Services
According to relevant laws and regulations, companies that engage in advertising activities must obtain a business license from the SAIC or its local
branches which specifically include operating an advertising business within its business scope. Advertisers, advertising operators and advertising
distributors are required by PRC advertising laws and regulations to ensure that the content of the advertisements they prepare or distribute are true and in
full compliance with applicable laws and regulations. In addition, where a special government review is required for certain categories of advertisements
before publishing, the advertisers, advertising operators and advertising distributors are obligated to confirm that such review has been performed and the
relevant approval has been obtained. Where internet information service providers know or should know that illegal advertisements are distributed using their
services, they should prevent such advertisements from being distributed.
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The Interim Measures, also sets forth certain compliance requirements for online advertising businesses. For example, paid search results must be
indicated as an advertisement and distinguished from natural search results. Advertising operators and distributors of internet advertisement must examine,
verify and record identity information, such as name, address and contact information, of advertisers, and maintain an updated verification record on a
regular basis. Moreover, advertising operators and advertising distributors must examine supporting documentation provided by advertisers and verify the
content of the advertisements against supporting documents before publishing. If the content of advertisements are inconsistent with the supporting
documentation, or the supporting documentation is incomplete, advertising operators and distributors must refrain from providing design, production, agency
or publishing services.
Violation of these regulations may result in penalties, including fines, confiscation of advertising income, orders to cease dissemination of the
advertisements and orders to publish an advertisement correcting the misleading information. In the case of serious violations, the SAIC or its local branches
may force the violator to terminate its advertising operation or even revoke its business license. Furthermore, advertisers, advertising operators or advertising
distributors may be subject to civil liability if they infringe on the legal rights and interests of third parties. We have adopted policies and procedures and
have provided training to our content review team to ensure our compliance with these laws and regulations.
Regulations on Mobile Internet Applications
In August, 2016, the State Internet Information Office promulgated the Administrative Provisions on Mobile Internet Application Information
Services, or the Mobile Application Administrative Provisions. Pursuant to the Mobile Application Administrative Provisions, mobile internet applications
refer to application software that run on smart mobile devices providing information services after being pre-installed, downloaded or embedded through
other means. Mobile internet application providers refer to the owners or operators of mobile internet applications.
Pursuant to the Mobile Application Administrative Provisions, an internet application provider must verify a user’s mobile phone number and other
identity information following the principle of mandatory real name registration at the back-office end and voluntary real name display at the front-office
end. An internet application provider must not enable functions that can collect a user’s geographical location information, access user’s contact list, activate
the camera or recorder of the user’s smart mobile device or other functions irrelevant to its services, nor is it allowed to conduct bundle installations of
irrelevant application programs, unless it has clearly indicated to the user and obtained the user’s consent to such functions and application programs. If an
application provider violates the regulations, the internet application store service provider must take measures to stop the violations, including warning,
suspending the release, withdrawing the application from the platform, keeping a record and reporting the incident to the relevant governmental authorities.
In December 2016, the MIIT promulgated the Interim Measures on the Administration of Pre-Installation and Distribution of Applications for Smart
Mobile Terminals, or the Pre-Installed Application Interim Measures, to enhance the administration of mobile applications. The Pre-Installed Application
Interim Measures require, among others, that mobile phone manufacturers and internet information service providers ensure that a mobile application,
together with its ancillary resource files, configuration files and user data, can be uninstalled by a user on a convenient basis, unless it is a basic function,
which supports the normal functioning of hardware and operating system of a smart mobile device. The Pre-Installed Application Interim Measures will
come into effect on July 1, 2017.
We are subject to these measures as we provide listing-based information services through different mobile applications such as 58 Home, and we
have adopted policies and measures regarding the collection, verification, use, storage, transmission and security of user’s information to comply with the
relevant laws and regulations.
Regulations on Information Security and Censorship
The PRC government regulates and restricts internet content in China to protect state security and ensure the legality of the internet content. The
Standing Committee of the National People’s Congress, the PRC national legislative body, enacted a law in December 2000, as subsequently amended,
among other things, makes it unlawful to: (1) gain improper entry into a computer or system of strategic importance; (2) disseminate politically disruptive
information; (3) leak state secrets; (4) spread false commercial information; or (5) infringe intellectual property rights. Pursuant to the Administrative
Measures on Internet Information Services and other applicable laws, internet content providers and internet publishers are prohibited from posting or
displaying over the internet content which violates PRC laws and regulations, impairs the national dignity of China, or is reactionary, obscene, superstitious,
fraudulent or defamatory. Internet service providers are required to monitor their websites, including electronic bulletin boards. They may not post or
disseminate any content that falls within these prohibited categories and must remove any such content from their websites. The PRC government may shut
down the websites of ICP license holders that violate any of the above-mentioned content restrictions and revoke their ICP licenses. In addition, the MIIT has
published regulations that subject ICP operators to potential liability for content displayed on their websites and the actions of users and others using their
systems, including liability for violations of PRC laws and regulations prohibiting the dissemination of content deemed to be socially destabilizing. The
Ministry of Public Security has the authority to order any local internet service provider to block any internet website at its sole discretion. From time to time,
the Ministry of Public Security has stopped the dissemination over the internet of information which it believes to be socially destabilizing.
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The Ministry of Public Security has promulgated measures in December 1997 that prohibit the use of the internet in ways which, among other
things, result in a leakage of State secrets or the distribution of socially destabilizing content. Socially destabilizing content includes any content that incites
defiance or violations of PRC laws or regulations or subversion of the PRC government or its political system, spreads socially disruptive rumors or involves
cult activities, superstition, obscenities, pornography, gambling or violence. Under PRC law, state secrets are defined broadly to include information
concerning PRC national defense, state affairs and other matters as determined by the PRC authorities.
In December 2005, the Ministry of Public Security promulgated Provisions on Technological Measures for Internet Security Protection. These
measures and the Administrative Measures on Internet Information Services require all ICP operators to keep records of certain information about their users
(including user registration information, log-in and log-out time, IP address, content and time of listings by users) for at least 60 days and submit the above
information as required by laws and regulations. The ICP operators must regularly update information security and censorship systems for their websites with
local public security authorities, and must also report any public dissemination of prohibited content. If an ICP operator violates these measures, the PRC
government may revoke its ICP license and shut down its websites. Pursuant to the Decision on Strengthening Network Information Protection issued by the
Standing Committee of the PRC National People’s Congress in December 2012, ICP operators must request identity information from users when ICP
operators provide information publication services to the users. If ICP operators come across prohibited information, they must immediately cease the
transmission of such information, delete the information, keep relevant records, and report to relevant government authorities. In July 2013, the MIIT
promulgated the Regulation on Protection of Personal Information of Telecommunication and Internet Users to provide for more detailed rules in this
respect. In November, 2016, the Standing Committee of the National People’s Congress promulgated the Cyber Security Law, which will become effective
on June 1, 2017. In accordance with the Cyber Security Law, network operators must comply with applicable laws and regulations and fulfill their
obligations to safeguard network security in conducting business and providing services. Network service providers must take technical and other necessary
measures as required by laws, regulations and mandatory requirements to safeguard the operation of networks, respond to network security effectively,
prevent illegal and criminal activities, and maintain the integrity, confidentiality and usability of network data.
In addition, the State Secrecy Bureau has issued provisions authorizing the blocking of access to any website it deems to be leaking state secrets or
failing to comply with the relevant legislation regarding the protection of state secrets.
The Standing Committee of the National People’s Congress promulgated Anti-Terrorism Law in December, 2015, which took effect on January 1,
2016. According to the Anti-Terrorism Law, telecommunication service operators or internet service providers must, among others, (i) provide technical
support and assistance to the relevant government authorities in preventing and investigating terrorist activities, (ii) implement network security and
information monitoring systems and take safety and prevention measures to prevent the dissemination of terrorism information, delete the terrorism
information, immediately stop its dissemination, and keep record and report to the relevant government authorities once the terrorism information is
discovered, and (iii) examine the identity of customers before providing services. Any violation of the Anti-Terrorism Law may result in severe penalties,
including substantial fines.
As Beijing 58 is an ICP operator, it is subject to the laws and regulations relating to information security. To comply with these laws and
regulations, it has completed the mandatory security filing procedures with the local public security authorities, regularly update their information security
and content-filtering systems with newly issued content restrictions, and maintains records of users’ information as required by the relevant laws and
regulations. Beijing 58 has also taken measures to delete or remove links to content that to its knowledge contains information violating PRC laws and
regulations. The majority of the content posted on our online platforms is first screened by our filtering systems. Content containing prohibited words or
images is then manually screened by employees who are dedicated to screening and monitoring content published on our online platforms and removing
prohibited content. Furthermore, Beijing 58 has adopted and maintained system controls, protocols and policies that are designed to ensure its compliance
with the requirements of the new Cyber Security Law. We believe that with these measures in place, no prohibited content under PRC information security
laws and regulations should have been publicly disseminated through our online platforms in the past. However, there is significant amount of content posted
on our online platforms by our users on a daily basis. If any prohibited content is publicly disseminated in the future and we become aware of it, we will
report it to the relevant government authority. We believe these measures taken by us are generally in compliance with the relevant laws and regulations.
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If, despite the precautions, we fail to identify and prevent illegal or inappropriate content from being displayed on or through our online platforms,
we may be subject to liability. In addition, these laws and regulations are subject to interpretation by the relevant authorities, and it may not be possible to
determine in all cases the types of content that could result in liability. To the extent that PRC regulatory authorities find any content displayed on or through
our online platforms objectionable, they may require us to limit or eliminate the dissemination or availability of such content or impose penalties, including
the revocation of our operating licenses or the suspension or shutdown of our online operations. In addition, the costs of compliance with these regulations
may increase as the volume of content and users on our online platforms increases.
Regulations on Internet Privacy
The PRC Constitution states that PRC law protects the freedom and privacy of communications of citizens and prohibits infringement of these
rights. In recent years, PRC government authorities have promulgated laws and regulations on internet use to protect personal information from any
unauthorized disclosure. The Decision on Strengthening Network Information Protection and the Regulation on Protection of Personal Information of
Telecommunication and Internet Users provide that information that identifies a citizen, the time or location for his use of telecommunication and internet
services, or involves privacy of any citizen such as his birth date, ID card number, and address is protected by law and must not be unlawfully collected or
provided to others. ICP operators collecting or using personal electronic information of citizens must specify the purposes, manners and scopes of
information collection and uses, obtain consent of the relevant citizens, and keep the collected personal information confidential. ICP operators are prohibited
from disclosing, tampering with, damaging, selling or illegally providing others with, collected personal information. ICP operators are also prohibited from
collection and use of personal information after a user has stopped using the services. ICP operators are required to take technical and other measures to
prevent the collected personal information from any unauthorized disclosure, damage or loss as well as conducting a self-examination of their protection of
personal information at least once a year. The Administrative Measures on Internet Information Services prohibit an ICP operator from insulting or
slandering a third party or infringing upon the lawful rights and interests of a third party. In accordance with the Cyber Security Law, network operators must
not collect personal information irrelevant to their services. In the event of any unauthorized disclosure, damage or loss of collected personal information,
network operators must take immediate remedial measures, notify the affected users and report the incidents to the relevant authorities in a timely manner. If
any user knows that a network operator illegally collects and uses his or her personal information in violation of laws, regulations or any agreement with the
user, or the collected and stored personal information is inaccurate or wrong, the user has the right to request the network operator delete or correct the
relevant collected personal information.
The relevant telecommunications authorities are further authorized to order ICP operators to rectify unauthorized disclosure. ICP operators are
subject to legal liability, including warnings, fines, confiscation of illegal gains, revocation of licenses or filings, closing of the relevant websites,
administrative punishment, criminal liabilities, or civil liabilities, if they violate relevant provisions on internet privacy. Pursuant to the Ninth Amendment to
the Criminal Law issued by the Standing Committee of the National People’s Congress in August 2015 and becoming effective in November, 2015, any ICP
provider that fails to fulfill its obligations relating to internet information security administration under applicable law and refuses to rectify upon an order
will be subject to criminal liability for (i) any dissemination of illegal information on a large scale, (ii) any severe effect due to the leakage of client
information, (iii) any serious loss of evidence of criminal activities, or (iv) other severe situations, while any individual or entity that sells or provides
personal information to others unlawfully, or steals or otherwise unlawfully obtains any personal information will be subject to criminal liability in severe
situations. The PRC government, however, has the power and authority to order ICP operators to turn over personal information if an internet user posts any
prohibited content or engages in illegal activities on the internet.
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Regulations on Internet Mapping Services
Pursuant to the PRC regulations applicable to internet mapping services issued by the National Administration of Surveying, Mapping and Geo
information (formerly known as the State Bureau of Surveying and Mapping), maps transmitted through internet are internet maps. To provide internet
mapping services, the provider shall apply for a Surveying and Mapping Qualification Certificate for internet mapping with the competent surveying and
mapping bureau. The PRC regulations also provide for certain conditions and requirements for issuing the Surveying and Mapping Qualification Certificate,
such as the number of technical personnel and map security verification personnel, security facilities, and approval from relevant provincial or municipal
surveying and mapping bureau on security system, qualification management and filing management. Internet maps must be approved by relevant
government authority before they can be publicized on internet. Further, the State Bureau of Surveying and Mapping and other seven PRC government
authorities jointly issued a notice in 2008, to investigate and punish the illegal and non-compliance activities with respect to the internet mapping services or
geography information services. We currently provide location information in our real estate directory by using maps provided by a third-party internet map
operator, which may be deemed as one type of internet mapping services. Our consolidated affiliated entity, Beijing 58, obtained a Surveying and Mapping
Qualification Certificate for internet map search and location services in May 2012, which was renewed in January 2015 and will expire in December 2019.
Shanghai Ruijia, a subsidiary of Beijing 58, is in the process of applying for the Surveying and Mapping Qualification Certificate.
Regulations on Employment Agency Services
In accordance with the Employment Promotion Law promulgated by the Ministry of Human Resources and Social Security and the Regulations on
Employment Service and Employment Administration promulgated by the Ministry of Human Resources and Social Security, both with effect from January
1, 2008, an employment agency, which provides intermediary and other services for recruitment by employers and job seeking by employees, must obtain an
Employment Agency License from the relevant labor authority and be subject to annual inspection by such authority. An employment agency may engage in
collecting and publishing job seeking and recruitment information and providing internet employment information services in accordance with relevant laws
and regulations. An employment agency is prohibited from providing services for individuals without legal identity certifications or enterprises without legal
licenses. A wholly foreign-owned enterprise (other than owned by Hong Kong and Macau service providers) is prohibited from conducting employment
agency business. Our jobs and resumes directory provides an online platform for job seekers and employers to post resumes and job opportunities. Our
consolidated affiliated entity, Beijing 58, initially obtained an Employment Agency License in March 2012 and recently had it renewed in April 2016. The
renewed Employment Agency License will expire in March 2019.
Regulations on E-commerce
The PRC e-commerce industry is at an early stage of development and there are few PRC laws or regulations specifically regulating e-commerce
business. In December 2007, the Standing Committee of Beijing Municipal People’s Congress adopted the Beijing Municipal Regulations on Promotion of
Informatization, which provide that any individual or enterprise that conducts business operations through the internet must obtain a business license and/or
other necessary licenses prior to operation. The operator of an online platform is responsible for checking such individuals’ or enterprises’ licenses. In July
2008, the Beijing AIC promulgated certain rules for implementing the above-mentioned regulation. Pursuant to these rules, any individual or enterprise
failing to obtain a business license may be prohibited from doing business on an e-commerce platforms operating in Beijing, and violation of these rules may
lead to penalties on either the individual/enterprise or the operator of the e-commerce platforms. On January 26, 2014, the State Administration for Industry
and Commerce adopted the Administrative Measures for Online Trading, or the Online Trading Measures, which became effective on March 15, 2014 and
repealed the Interim Measures for the Administration of Online Products Sales and Relevant Services previously issued in May 2010. Pursuant to the Online
Trading Measures, enterprises or other operators that engage in online product sales and other services and have been registered with the State
Administration for Industry and Commerce or its local branch must make available to the public the information stated in their business licenses or the link to
their business licenses online on their websites; individuals that engage in online product sales and other services must submit actual identification
information such as name and address to the operator of the e-commerce platforms. The Online Trading Measures, however, allow individuals to engage in
online product sales and other services without obtaining a business license. Under the Online Trading Measures, a consumer is entitled to return the
products (other than customized products, fresh and perishable goods, audio or visual products, computer software and other digital products downloaded
online or unpackaged by consumers, and newspapers and journals that have been delivered) within seven days from the date after receipt of the products
without giving any reason. The online sellers must, within seven days upon receipt of the returned products, refund the prices paid by consumers for relevant
products. In addition, sellers are prohibited from using contract terms or other means setting out provisions that are unfair or unreasonable to consumers such
as those excluding or restricting consumers’ rights, reducing or exempting operators’ responsibilities, and increasing the consumers’ responsibilities, and are
prohibited from forcing consumers to enter into transactions by using contract terms and technical means.
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Beijing 58 has obtained a business license from a branch of the Beijing AIC with a term from December 2005 to December 2025. Based our verbal
consultation with the Beijing AIC, we believe that, except for merchants who conduct transactions on our online platforms, our other users who list
information on our platforms and conduct the product sales and other services offline are not subject to the provisions regarding online platforms. As for
merchants who conduct transactions on our online platforms, we check their business licenses before allowing them to post listings on our platforms to
ensure compliance with license requirements under PRC laws and regulations. However, uncertainties exist in terms of the implementation of these national
and Beijing local rules due to the lack of practical guidance. We cannot predict with certainty to what extent these rules will affect our business operations or
future strategies.
Regulations on Internet Information Search Service
In June 2016, the State Internet Information Office promulgated the Administrative Provisions on Internet Information Search Services, or the
Search Services Administrative Provisions, which took effect on August 1, 2016. Pursuant to the Search Services Administrative Provisions, internet
information search service refers to the service whereby users can search for information that is collected from the internet and processed by computer
technology. The Search Services Administrative Provisions require that an internet information search service provider must not publish any information or
contents prohibited by law in the form of links, abstracts, snapshots, associative words, related search or recommendations or otherwise. If an internet
information search service provider identifies any search results that contain any information, website or application that is prohibited by law, it must stop
displaying the search results, and record and report it to the relevant governmental authority. In addition, an internet information search service provider is
prohibited from seeking illegitimate interest by means of unauthorized disconnection of links, or provision of search results containing false information. If
an internet information search service provider engages in paid search services, it must examine and verify the qualifications of its customers of the paid
search services, specify the maximum percentage of search results as paid search results on a webpage, clearly distinguish paid search results from natural
search results, and notably identify the paid search information item by item. We may be found as an internet information search service provider. We have
adopted policies and have maintained procedures designed to ensure the compliance of our operation with these regulations. For example, we monitor the
content in our search results and remove any questionable search listings.
Regulations on Software Products
The State Copyright Bureau issued the Computer Software Copyright Registration Procedures in February 2002, which apply to software copyright
registration, exclusive licensing contract registration and transfer contract registration. Although registration is not mandatory under PRC law, software
copyright owners are encouraged to go through the registration process and registered software may receive better protection. As of March 31, 2017, we had
registered 219 computer software copyrights in China, excluding those relating to 58 Home.
Regulations on Trademarks
Trademarks are protected by the PRC Trademark Law adopted in 1982 and subsequently amended as well as the Implementation Regulation of the
PRC Trademark Law adopted by the State Council in 2002 and subsequently amended. The Trademark Office under the State Administration for Industry
and Commerce handles trademark registrations. Trademarks can be registered for a term of ten years and can be extended for another ten years if requested
upon expiry of the first or any renewed ten-year term. The PRC Trademark Law has adopted a “first-to-file” principle with respect to trademark registration.
Where a trademark for which a registration application has been made is identical or similar to another trademark which has already been registered or been
subject to a preliminary examination and approval for use on the same type of or similar commodities or services, the application for such trademark
registration may be rejected. Any person applying for the registration of a trademark may not prejudice the existing right first obtained by others, nor may
any person register in advance a trademark that has already been used by another party and has already gained a “sufficient degree of reputation” through
such another party’s use. Trademark license agreements must be filed with the Trademark Office or its regional offices. As of March 31, 2017, we had
registered 848 trademarks in China, excluding those relating to 58 Home.
Regulations on Patent
The PRC Patent Law provides for patentable inventions, utility models and designs, which must meet three conditions: novelty, inventiveness and
practical applicability. The State Intellectual Property Office is responsible for examining and approving patent applications. A patent is valid for a term of
twenty years in the case of an invention and a term of ten years in the case of utility models and designs. As of March 31, 2017, we held 47 patents and had
applied for the registration of 195 other patents, all of which are in the process of examination by the State Intellectual Property Office.
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Tort Liability Law
In accordance with the Tort Liability Law, internet users and internet service providers bear tortious liabilities in the event they infringe other
persons’ rights and interests through the internet. Where an internet user conducts tortious acts through internet services, the infringed person has the right to
request the internet service provider to take necessary actions such as deleting contents, screening and delinking. The internet service provider, failing to take
necessary actions after being informed, will be subject to joint and several liabilities with the internet user with regard to the additional damages incurred. If
an internet service provider knows an internet user is infringing other persons’ rights and interests through its internet service but fails to take necessary
action, it shall be jointly and severally liable with the internet user. We have internal policy designed to reduce the likelihood that user content may be used
without proper licenses or third-party consents. When we are approached and requested to remove content uploaded by users on the grounds of infringement,
we investigate the claims and remove any uploads that appear to infringe the rights of a third party after our reasonable investigation and determination.
However, such policy may not be effective in preventing the unauthorized listing of copyrighted materials or materials infringing other rights of third parties.
See “Item 3. Key Information — D. Risk Factors — Risks Related to Doing Business in China — We may be held liable to third parties for information or
content displayed on, retrieved from or linked to our website, or distributed to website users, which could harm our reputation and business.”
Regulations on Foreign Currency Exchange
Pursuant to the Foreign Exchange Administration Regulations, as amended in August 2008, the Renminbi is freely convertible for current account
items, including the distribution of dividends, interest payments, trade and service-related foreign exchange transactions, but not for capital account items,
such as direct investments, loans, repatriation of investments and investments in securities outside of China, unless SAFE’s prior approval is obtained and
prior registration with SAFE is made. In May, 2013 SAFE promulgated SAFE Circular 21 which provides for and simplifies the operational steps and
regulations on foreign exchange matters related to direct investment by foreign investors, including foreign exchange registration, account opening and use,
receipt and payment of funds, and settlement and sales of foreign exchange. In February 2015, SAFE promulgated the Notice on Further Simplifying and
Improving Foreign Exchange Administration Policy on Direct Investment, or the SAFE Notice 13, which became effective on June 1, 2015. Pursuant to
SAFE Notice 13, instead of applying for approvals regarding foreign exchange registrations of foreign direct investment and overseas direct investment from
SAFE as required under current laws, entities and individuals will be required to apply for such foreign exchange registrations from qualified banks. The
qualified banks, under the supervision of SAFE, will directly examine the applications and conduct the registration. We generally follow the regulations and
apply to obtain the approval of SAFE and other relevant PRC government authorities. However, we may not be able to obtain these government registrations
or approvals on a timely basis, if at all. If we fail to receive such registrations or approvals, our ability to provide loans or capital contributions to our PRC
subsidiaries and our consolidated affiliated entities may be negatively affected, which could adversely affect our liquidity and our ability to fund and expand
our business.
In August 2008, SAFE promulgated a SAFE Circular 142 regulating the conversion, by a foreign-invested enterprise, of foreign currency into
Renminbi by restricting how the converted Renminbi may be used. The SAFE Circular 142 requires that the registered capital of a foreign-invested
enterprise settled in Renminbi converted from foreign currencies may only be used for purposes within the business scope approved by the applicable
government authority and may not be used for equity investments within China. In July 2014, SAFE promulgated the SAFE Circular 36 regarding the pilot
administration on the settlement of the foreign currency-denominated capital of foreign-invested enterprises in certain designated areas and removed some of
the restrictions provided under SAFE Circular 142 in these areas. In March 2015, SAFE promulgated SAFE Circular 19, which came into force replacing
both SAFE Circular 142 and SAFE Circular 36 on June 1, 2015. Although SAFE Circular 19 allows for the use of Renminbi converted from the foreign
currency-denominated capital for equity investments in the PRC, the restrictions will continue to apply as to foreign-invested enterprises’ use of the
converted Renminbi for purposes beyond the business scope, for entrusted loans or for inter-company Renminbi loans. In addition, SAFE Circular 19 is still
unclear whether a foreign-invested enterprise whose business scope does not include equity investment or similar activities may use Renminbi converted
from the foreign currency-denominated capital for equity investments in the PRC. Violations of these circulars and rules will result in severe penalties, such
as heavy fines. These circulars may significantly limit our ability to use Renminbi converted from net proceeds of our securities offerings to provide financial
support to our consolidated variable interest entitles in China through our PRC subsidiaries.
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The principal regulations governing distribution of dividends of foreign-invested enterprises include the Foreign-Invested Enterprise Law and the
Implementation Rules of the Foreign-invested Enterprise Law, as amended from time to time. Pursuant to these laws and regulations, foreign-invested
enterprises in China may pay dividends only out of their accumulated profits, if any, determined in accordance with PRC accounting standards and
regulations. In addition, foreign-invested enterprises in China are required to allocate at least 10% of their respective accumulated profits each year, if any, to
fund certain reserve funds unless these reserves have reached 50% of the registered capital of the enterprises. In addition, these companies may allocate a
portion of their after-tax profits based on PRC accounting standards to employee welfare and bonus funds at their discretion. These reserves are not
distributable as cash dividends.
Regulations on Offshore Financing
Pursuant to a SAFE Circular 37 issued by SAFE in July 2014, prior registration with the local SAFE branch is required for PRC residents, including
PRC individuals and PRC entities, to establish or control an offshore company for the purposes of overseas investment or financing with legitimate assets or
equity interests in an onshore enterprise or offshore assets or interests located in China. The PRC residents are also required to amend the registration or
filing with the local SAFE branch any material change in the offshore company, such as any change of basic information (including change of such PRC
residents, name and operation term), increase or decreases in investment amount, transfers or exchanges of shares, or merger or divisions. On February 28,
2015, SAFE promulgated the Notice on Further Simplifying and Improving Foreign Exchange Administration Policy on Direct Investment, or SAFE Notice
13, which became effective on June 1, 2015. Pursuant to SAFE Notice 13, instead of applying for approvals regarding foreign exchange registrations of
foreign direct investment and overseas direct investment from SAFE as required under current laws, entities and individuals will be required to apply for
such foreign exchange registrations, including those required under the SAFE Circular 37, from qualified banks. The qualified banks, under the supervision
of SAFE, will directly examine the applications and conduct the registration.
Failure to comply with the registration procedures set forth in the SAFE Circular 37, or making misrepresentation on or failure to disclose
controllers of foreign-invested enterprise that is established through round-trip investment, may result in restrictions being imposed on the foreign exchange
activities of the relevant onshore company, including the increase of its registered capital, the payment of dividends and other distributions to its offshore
parent or affiliate and the capital inflow from the offshore entities, and may also subject relevant PRC residents to penalties under PRC foreign exchange
administration regulations. PRC residents who directly or indirectly hold any shares in our company from time to time are required to register with SAFE in
connection with their investments in us. We have requested PRC residents holding direct or indirect interest in our company to our knowledge to make the
necessary applications, filings and amendments as required under the SAFE Circular 37 and other related rules. To our knowledge, all of our shareholders
who are PRC citizens and hold interest in us, have registered with the local SAFE branch as required under the SAFE Circular 37 and are in the process of
amending certain applicable registrations with the local SAFE pursuant to the SAFE Circular 37. See “Item 3. Key Information — D. Risk Factors — Risks
Related to Doing Business in China — PRC regulations relating to offshore investment activities by PRC residents may limit our PRC subsidiaries’ ability to
increase their registered capital or distribute profits to us, limit our ability to inject capital into our PRC subsidiaries, or otherwise expose us to liability and
penalties under PRC law.”
Regulations on Employee Stock Option Plans
In February 2012, SAFE promulgated the Stock Option Rules, replacing the previous rules issued by SAFE in March 2007. Under the Stock Option
Rules and other relevant rules and regulations, PRC residents who participate in stock incentive plan in an overseas publicly-listed company are required to
register with SAFE or its local branches and complete certain other procedures. Participants of a stock incentive plan who are PRC residents must retain a
qualified PRC agent, which could be a PRC subsidiary of the overseas publicly listed company or another qualified institution selected by the PRC
subsidiary, to conduct the SAFE registration and other procedures with respect to the stock incentive plan on behalf of its participants. The participants must
also retain an overseas entrusted institution to handle matters in connection with their exercise of stock options, the purchase and sale of corresponding stocks
or interests and fund transfers. In addition, the PRC agent is required to amend the SAFE registration with respect to the stock incentive plan if there is any
material change to the stock incentive plan, the PRC agent or the overseas entrusted institution or other material changes. The PRC agents must, on behalf of
the PRC residents who have the right to exercise the employee share options, apply to SAFE or its local branches for an annual quota for the payment of
foreign currencies in connection with the PRC residents’ exercise of the employee share options. The foreign exchange proceeds received by the PRC
residents from the sale of shares under the stock incentive plans granted and dividends distributed by the overseas listed companies must be remitted into the
bank accounts in China opened by the PRC agents before distribution to such PRC residents.
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We adopted an employee stock option plan in 2010 and a share incentive plan in 2013. Pursuant to these two plans, we may issue options, restricted
shares, restricted share units or other type of awards to our qualified employees and directors and consultants on a regular basis. We have advised our
employees and directors participating in the employee stock option plan to handle foreign exchange matters in accordance with the Stock Option Rules.
However, we cannot assure you that our PRC individual beneficiary owners and the share options holders can successfully register with SAFE in full
compliance with the Stock Option Rules. The failure of our PRC individual beneficiary owners and the share options holders to complete their registration
pursuant to the Stock Option Rules and other foreign exchange requirements may subject these PRC individuals to fines and legal sanctions, and may also
limit our ability to contribute additional capital to our PRC subsidiaries, limit our PRC subsidiaries’ ability to distribute dividends to us or otherwise
materially adversely affect our business. See “Item 3. Key Information — D. Risk Factors — Risks Related to Doing Business in China — Failure to comply
with PRC regulations regarding the registration requirements for employee share ownership plans or share option plans may subject the PRC plan
participants or us to fines and other legal or administrative sanctions”
In addition, the State Administration for Taxation has issued circulars concerning employee share options, under which our employees working in
China who exercise share options will be subject to PRC individual income tax. Our PRC subsidiaries have obligations to file documents related to employee
share options with relevant tax authorities and to withhold individual income taxes of those employees who exercise their share options. If our employees fail
to pay or if we fail to withhold their income taxes as required by relevant laws and regulations, we may face sanctions imposed by the PRC tax authorities or
other PRC government authorities.
PRC Enterprise Income Tax Law and Individual Income Tax Law
Under the Enterprise Income Tax Law, enterprises are classified as resident enterprises and non-resident enterprises. PRC resident enterprises
typically pay an enterprise income tax at the rate of 25%. An enterprise established outside of the PRC with its “de facto management bodies” located within
China is considered a “resident enterprise,” meaning that it can be treated in a manner similar to a PRC domestic enterprise for enterprise income tax
purposes. The implementation rules of the Enterprise Income Tax Law define “de facto management body” as a managing body that in practice exercises
“substantial and overall management and control over the production and operations, personnel, accounting, and properties” of the enterprise.
SAT Circular 82, issued by the State Administration of Taxation in April 2009 and amended in January 2014, provides certain specific criteria for
determining whether the “de facto management body” of a PRC-controlled offshore incorporated enterprise is located in China. Pursuant to SAT Circular 82,
a PRC-controlled offshore incorporated enterprise has its “de facto management body” in China only if all of the following conditions are met: (a) the senior
management and core management departments in charge of its daily operations function have their presence mainly in China; (b) its financial and human
resources decisions are subject to determination or approval by persons or bodies in China; (c) its major assets, accounting books, company seals, and
minutes and files of its board and shareholders’ meetings are located or kept in China; and (d) more than half of the enterprise’s directors or senior
management with voting rights habitually reside in China. SAT Bulletin 45, which took effect from September 2011, provides more guidance on the
implementation of SAT Circular 82 and provides for procedures and administration details of determination on resident status and administration on post-
determination matters. Although SAT Circular 82 and SAT Bulletin 45 only apply to offshore enterprises controlled by PRC enterprises or PRC enterprise
groups, not those controlled by PRC individuals or foreign individuals, the determining criteria set forth there may reflect the State Administration of
Taxation’s general position on how the “de facto management body” test should be applied in determining the tax resident status of offshore enterprises,
regardless of whether they are controlled by PRC enterprises or PRC enterprise groups or by PRC or foreign individuals.
Due to the lack of applicable legal precedents, it remains unclear how the PRC tax authorities will determine the PRC tax resident treatment of a
foreign company controlled by individuals like us. We do not believe 58.com Inc., China Classified Network Corporation, China Classified Information
Corporation Limited or any of our other offshore subsidiaries meet all the criteria provided by the implementation rules, thus we do not believe 58.com Inc.,
China Classified Network Corporation, China Classified Information Corporation Limited or any of our other offshore subsidiaries is a PRC “resident
enterprise.” If the PRC tax authorities determine that 58.com Inc., China Classified Network Corporation, China Classified Information Corporation Limited
or any of our other offshore subsidiaries is a “resident enterprise” for PRC enterprise income tax purposes, a number of unfavorable PRC tax consequences
could follow. See “Item 3. Key Information — D. Risk Factors — Risks Related to Doing Business in China — Under the Enterprise Income Tax Law, we
may be classified as a PRC “resident enterprise” for PRC enterprise income tax purposes. Such classification would likely result in unfavorable tax
consequences to us and our non-PRC shareholders and have a material adverse effect on our results of operations and the value of your investment.”
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The Enterprise Income Tax Law and its implementation rules permit certain “high and new technology enterprises strongly supported by the state”
that hold independent ownership of core intellectual property and simultaneously meet a list of other criteria, financial or non-financial, as stipulated in the
implementation rules and other regulations, to enjoy a reduced 15% enterprise income tax rate subject to certain new qualification criteria. The State
Administration of Taxation, the Ministry of Science and Technology and the Ministry of Finance jointly issued the Administrative Rules for the Certification
of High and New Technology Enterprises delineating the specific criteria and procedures for the “high and new technology enterprises” certification in April
2008. Enterprises recognized as “high and new technology enterprises” will enjoy a reduced 15% enterprise income tax rate after they go through tax
reduction application formalities with relevant tax authorities. Beijing 58 and Beijing 58 Auto, our consolidated affiliated entities, and Wanglin and Shanghai
Ruiting, our PRC subsidiaries, renewed their “high and new technology enterprise” certificates in 2015 and 2016, respectively, and will be eligible for a
preferential tax rate of 15% when they have taxable income under the Enterprise Income Tax Law, as long as they maintain the “high and new technology
enterprise” status.
In addition, qualified software enterprises are exempt from the enterprise income tax for two years beginning from their first profitable year and are
entitled to a 50% tax rate reduction for the subsequent three years. The software enterprise qualification is subject to an annual assessment. Wanglin was
determined to be a qualified software enterprise in July 2014 and was granted a two-year exemption followed by a 50% reduction on its taxable income
under the Enterprise Income Tax Law for the subsequent three years, effective retroactively from January 1, 2014. Therefore, Wanglin is entitled to an
exemption in 2014 and 2015 and a 50% tax rate deduction from 2016 to 2018 as long as it is able to pass the annual assessment for software enterprise
qualification for each of the respective years. 58 Technology, one of our PRC subsidiaries, also qualified as a software enterprise in March 2016 and was
granted a two-year exemption followed by a 50% reduction on its taxable income under the Enterprise Income Tax Law for the subsequent three years,
effective retroactively from January 1, 2015. Therefore, 58 Technology is entitled to an exemption in 2015 and 2016 and a 50% tax rate deduction from 2017
to 2019 for so long as it maintains this qualification.
Regulation on PRC Business Tax and VAT
Prior to January 1, 2012, pursuant to the Provisional Regulation of China on Business Tax and its implementing rules, any entity or individual
rendering services in the territory of PRC was generally subject to a business tax at the rate of 5% on the revenues generated from provision of such services.
Our PRC subsidiaries and consolidated affiliated entities were subject to business tax at the rate of 5% for the membership and online marketing services.
Since January 1, 2012, the PRC Ministry of Finance and the State Administration of Taxation have been implementing the VAT Pilot Program,
which imposes VAT in lieu of business tax for certain industries in Shanghai, and since September 1, 2012, this Pilot Program has been expanded to other
regions. In August 2013, the program was further expanded nationwide.
VAT is applicable at a rate of 6% in lieu of business tax for the membership, online marketing services and e-commerce services rendered by all of
our PRC subsidiaries and consolidated affiliated entities. VAT payable on goods sold or taxable services provided by a general VAT taxpayer for a taxable
period is the net balance of the output VAT for the period after crediting the input VAT for the period. With the adoption of the Pilot Program, our revenues
are subject to VAT payable on goods sold or taxable labor services provided by a general VAT taxpayer for a taxable period. VAT payable is the net balance
of the output VAT for the period after deducting the input VAT for the period. Hence, the amount of VAT payable does not result directly from output VAT
generated from goods sold or taxable labor services provided. Accordingly, we have adopted the net presentation of VAT.
Employment Laws
In accordance with the PRC National Labor Law, which became effective in January 1995, and the PRC Labor Contract Law, which became
effective in January 2008, as amended subsequently, employers must execute written labor contracts with full-time employees in order to establish an
employment relationship. All employers must compensate their employees equal to at least the local minimum wage standards. All employers are required to
establish a system for labor safety and sanitation, strictly abide by state rules and standards and provide employees with appropriate workplace safety
training. In addition, employers in China are obliged to pay contributions to the social insurance plan and the housing fund plan for employees.
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We have entered into employment agreements with all of our full-time employees. We have not fully contributed to the social insurance plan and
the housing fund plan as required by applicable PRC regulations. As of December 31, 2016, with regards to the outstanding contributions to such plans, we
made provisions of approximately RMB130.1 million. While we believe we have made adequate provision of such outstanding amounts of contributions to
such plans in our audited financial statements, our failure to make sufficient payments to such plans does not fully comply with applicable PRC laws and
regulations and we may be required to make up the contributions for such plans as well as to pay late fees and fines. See “Item 3. Key Information — D. Risk
Factors — Risks Related to Doing Business in China — Our failure to make adequate contributions to various employee benefit plans as required by PRC
regulations may subject us to penalties.”
The draft is now open for public review and comments. It is still uncertain when the draft would be signed into law and whether the final version
would have any substantial changes from the draft. When the Foreign Investment Law becomes effective, the trio of existing laws regulating foreign
investment in China, namely, the Sino-foreign Equity Joint Venture Enterprise Law, the Sino-foreign Cooperative Joint Venture Enterprise Law and the
Wholly Foreign-invested Enterprise Law, together with their implementation rules and ancillary regulations, will be abolished.
C.
Organizational Structure
The following diagram illustrates our corporate structure, including our principal subsidiaries and consolidated affiliated entities as of the date of
this annual report:
Notes:
* We have omitted from this diagram other consolidated entities of 58.com Inc. that, in the aggregate, would not constitute a significant subsidiary as
defined in Rule 1-02(w) of Regulation S-X as of December 31, 2016.
(1) Jinbo Yao, Lianqing Zhang, Jianbo Su and Beijing Wanglintong Information Technology Co., Ltd. hold 37.8%, 39.8%, 9.0% and 13.4% equity interests
in Beijing 58, respectively. Among the shareholders of Beijing 58, Jinbo Yao and Jianbo Su are shareholders of our company. Lianqing Zhang is not
affiliated to us. Jinbo Yao is the sole director and holds a 16.7% equity interest in Beijing Wanglintong which is jointly owned by Jinbo Yao, Xiaohua
Chen, holding 15.92% equity interest, Jiandong Zhuang, holding 15.8% equity interest, and five other individuals who are employees or ex-employees
of our company. Beijing Wanglintong, a PRC domestic company, does not have any business operations or assets other than its equity interest in Beijing
58. The registered business scope of Beijing Wanglintong includes technology promotional services, software development and computer technology
training.
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(2) Falcon View Technology, or Ganji, is the holding company of the PRC entities operating Ganji.com, a major online local services platform in China. In
April 2015, we acquired a less than 50% equity stake in Ganji. Later in 2015, our company, as a limited partner, contributed newly issued Class A
ordinary shares and cash to several private equity funds that are dedicated to investing in businesses in China. These funds are managed by investment
entities unaffiliated with each other and unaffiliated with us. These funds, together with Tencent, acquired all the remaining equity interest in Ganji in
August 2015. Since August 2015, we have consolidated the financial results of Ganji in our consolidated financial statements. See “Item 4. Information
on the Company — A. History and Development of the Company.”
(3) 58 Co., Ltd., Mark Haoyong Yang, one Ganji employee and one 58 employee hold 49.00%, 0.31%, 30.69% and 20.00% equity interests in Shanjing
Kechuang, respectively. Mark Haoyong Yang is our former co-chairman of board of directors and former co-chief executive officer, and he currently
serves as chairman and chief executive officer of Guazi.
(4) 58 Daojia Inc., or 58 Home, is the holding company of the PRC entities that operate 58 Home business. On November 27, 2015, 58 Home completed a
Series A equity funding round, with participation from Alibaba Group Holding Limited, global investment firm KKR, and Ping An Group. Following
the closing of the Series A financing of 58 Home, 58.com Inc. holds 87.9% of the total outstanding ordinary shares of 58 Home and 61.7% of the total
outstanding shares of 58 Home on an as-converted basis. As certain rights provided to the non-controlling Series A preferred shareholders of 58 Home
would be viewed as substantive participating rights under U.S. GAAP, we have ceased consolidating the financial results of 58 Home in our
consolidated financial statements in accordance with U.S. GAAP since November 27, 2015.
(5) 58 Co., Ltd., Jinbo Yao and Xiaohua Chen hold 94.1%, 1.4% and 4.5% equity interest in Tianjin 58 Home, respectively. Jinbo Yao is our chairman and
chief executive officer, and Xiaohua Chen is our chief strategic officer and the chief executive officer of 58 Home.
(6) The other shareholders of Beijing 58 Auto Technology Co., Ltd. include its chief executive officer and certain third party investors, who hold 15.0% and
25.5% of equity interests in this company, respectively.
Our Contractual Arrangements
Prior to 2012, we conducted substantially all of our business operations through Beijing 58. Since 2012, we have started to conduct our business
operations that are not subject to PRC legal restrictions on foreign ownership through our wholly owned subsidiaries, Wanglin and 58 Technology, to address
risks related to the contractual arrangements discussed above and under “Item 3. Key Information — D. Risk Factors — Risks Related to Our Corporate
Structure and Restrictions on Our Industry.” Currently, we primarily use Wanglin and 58 Technology, rather than Beijing 58, to provide services to our
customers, and we have transferred a significant portion of our personnel, including substantially all of our administrative and product development
personnel, from Beijing 58 to Wanglin and 58 Technology. As of December 31, 2015, a majority of our assets were held by Wanglin, 58 Technology and
Shanghai Ruiting. Wanglin, 58 Technology and Shanghai Ruiting collectively generated a majority of our revenues in 2015 and we currently expect that they
will continue to generate a majority of our revenues going forward. We further expect Beijing 58’s business to be limited primarily to services that are legally
required to be conducted through a PRC domestic entity.
We acquired a less than 50% equity stake in Ganji in April 2015, and have consolidated the financial results of Ganji in our consolidated financial
statements since August 2015. Ganji operates online multi-content category classified advertising platforms in China through its PRC subsidiaries and
consolidated affiliated entities, including Shanjing Kechuang.
In August 2015, Tianjin 58 Home, which had previously been an indirect subsidiary of Beijing 58, became 58 Home’s consolidated affiliated entity.
In the opinion of our PRC counsel, Han Kun Law Offices, the contractual arrangements described below are valid, binding and enforceable under
current PRC laws. However, these contractual arrangements may not be as effective in providing control as direct ownership. There are substantial
uncertainties regarding the interpretation and application of current or future PRC laws and regulations. For a description of the risks related to our corporate
structure, please see “Item 3. Key Information — D. Risk Factors — Risks Related to Our Corporate Structure and Restrictions on Our Industry.”
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Contractual Arrangements with Beijing 58
We have entered into contractual arrangements with Beijing 58 and its shareholders described below, which we refer to as the Beijing 58
Agreements. Through the Beijing 58 Agreements, we exercise control over the operations of Beijing 58 and receive substantially all its economic benefits
and residual returns. Through the amended and restated exclusive business cooperation agreement between Beijing 58 and Wanglin, Wanglin agrees to
provide certain technical and business support and related consulting services to Beijing 58 in exchange for service fees. In addition, pursuant to the amended
and restated exclusive option agreement, Beijing 58 is prohibited from declaring and paying any dividends without Wanglin’s prior consent and Wanglin
enjoys an irrevocable and exclusive option to purchase Beijing 58 shareholders’ equity interests, to the extent permitted by applicable PRC laws, at a nominal
price from Beijing Wanglintong Information Technology Co., Ltd., or Beijing Wanglintong, which is one of the shareholders of Beijing 58, or at a specified
price equal to the loan provided by Wanglin to the individual shareholders. If the lowest price permitted under PRC law is higher than the above price, the
lowest price permitted under PRC law shall apply. Through the arrangements, we can obtain all of Beijing 58’s income and all of its residual interests, such
as undistributed earnings, either through dividend distribution or purchase of Beijing 58’s equity interests from its existing shareholders. As a result of the
contractual arrangements, we consolidate Beijing 58’s financial results in our consolidated financial statements in accordance with U.S. GAAP.
Exclusive Business Cooperation Agreement. Under the exclusive business cooperation agreement between Beijing 58 and Wanglin, as amended
and restated, Wanglin has the exclusive right to provide, among other things, technical support and business support and related consulting services to
Beijing 58 and Beijing 58 agrees to accept all the consultation and services provided by Wanglin. Without Wanglin’s prior written consent, Beijing 58 is
prohibited from engaging any third party to provide any of the services under this agreement. In addition, Wanglin exclusively owns all intellectual property
rights arising out of or created during the performance of this agreement. Beijing 58 agrees to pay a quarterly service fee to Wanglin at an amount determined
solely by Wanglin after taking into account factors including the complexity and difficulty of the services provided, the time consumed, the seniority of the
Wanglin employees providing services to Beijing 58, the value of services provided, the market price of comparable services and the operating conditions of
Beijing 58. This agreement will remain effective unless Wanglin terminates the agreement in writing or a competent governmental authority rejects the
renewal applications by either Beijing 58 or Wanglin to renew its respective business license upon expiration. Beijing 58 is not permitted to terminate this
agreement in any event unless required by applicable laws. In 2016, Wanglin provided technical support services to Beijing 58 and its subsidiaries and
collected service fee payments of approximately RMB41.3 million.
Powers of Attorney. Pursuant to the powers of attorney, the shareholders of Beijing 58 each irrevocably appointed Wanglin as the attorney-in-fact
to act on their behalf on all matters pertaining to Beijing 58 and to exercise all of their rights as a shareholder of Beijing 58, including but not limited to
attend shareholders’ meetings, vote on their behalf on all matters of Beijing 58 requiring shareholders’ approval under PRC laws and regulations and the
articles of association of Beijing 58, designate and appoint directors and senior management members. Wanglin may authorize or assign its rights under this
appointment to any other person or entity at its sole discretion without prior notice to the shareholders of Beijing 58. Each power of attorney will remain in
force until the shareholder ceases to hold any equity interest in Beijing 58.
Equity Interest Pledge Agreements. Under the equity interest pledge agreements between Wanglin, Beijing 58 and the shareholders of Beijing 58,
as amended and restated, the shareholders pledged all of their equity interests in Beijing 58 to Wanglin to guarantee Beijing 58’s and Beijing 58’s
shareholders’ performance of their obligations under the contractual arrangements including, but not limited to, the payments due to Wanglin for services
provided. If Beijing 58 or any of Beijing 58’s shareholders breaches its contractual obligations under the contractual arrangements, Wanglin, as the pledgee,
will be entitled to certain rights and entitlements, including receiving proceeds from the auction or sale of whole or part of the pledged equity interests of
Beijing 58 in accordance with legal procedures. Wanglin has the right to receive dividends generated by the pledged equity interests during the term of the
pledge. If any event of default as provided in the contractual arrangements occurs, Wanglin, as the pledgee, will be entitled to dispose of the pledged equity
interests in accordance with PRC laws and regulations. The pledge will become effective on the date when the pledge of equity interests contemplated in
these agreements are registered with the relevant local administration for industry and commerce and will remain binding until Beijing 58 and its
shareholders discharges all their obligations under the contractual arrangements. We registered these equity interest pledge agreements with Chaoyang
Branch of Beijing Administration for Industry and Commerce in July 2013.
Exclusive Option Agreements. Under the exclusive option agreements between Wanglin, as amended and restated, each of the shareholders of
Beijing 58 and Beijing 58, each of the shareholders irrevocably granted Wanglin or its designated representative(s) an exclusive option to purchase, to the
extent permitted under PRC law, all or part of his, her or its equity interests in Beijing 58. In addition, Wanglin has the option to acquire all the equity
interests of Beijing 58 for either a nominal price from Beijing Wanglintong or a specified price equal to the loan provided by Wanglin to the individual
shareholders. If the lowest price permitted under PRC law is higher than the above price, the lowest price permitted under PRC law shall apply. Wanglin or
its designated representative(s) have sole discretion as to when to exercise such options, either in part or in full. Without Wanglin’s prior written consent,
Beijing 58’s shareholders shall not transfer, donate, pledge, or otherwise dispose any equity interests in Beijing 58. These agreements will remain effective
until all equity interests held in Beijing 58 by the Beijing 58’s shareholders are transferred or assigned to Wanglin or Wanglin’s designated representatives.
At the moment, we cannot exercise the exclusive option to purchase the current shareholders’ equity interests in Beijing 58 due to the PRC regulatory
restrictions on foreign ownership in the value-added telecommunications services. We intend to exercise such option once China opens up these industries to
foreign investment.
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Loan Agreements. Pursuant to the loan agreements between Wanglin and each individual shareholder of Beijing 58, Wanglin provided interest-free
loans with an aggregate amount of approximately RMB7.8 million to the individual shareholders of Wanglin for the sole purpose of funding the capital
increase of Beijing 58. The loans can be repaid by transferring the individual shareholders’ equity interest in Beijing 58 to Wanglin or its designated person
pursuant to Exclusive Option Agreements. The term of each loan agreement is ten years from the date of the agreement expiring on December 1, 2021 and
can be extended with the written consent of both parties before expiration.
Contractual Arrangements with Shanjing Kechuang
Ganji, through its PRC subsidiary, Beijing Yangguang Gudi Science Development Co., Ltd., or Yangguang Gudi, has entered into contractual
arrangements with Shanjing Kechuang and its shareholders described below, which we refer to as the Shanjing Kechuang Agreements. Through the Shanjing
Kechuang Agreements, Ganji exercises control over the operations of Shanjing Kechuang and receives substantially all its economic benefits and residual
returns. Through the exclusive business cooperation agreement between Yangguang Gudi and Shanjing Kechuang, Yangguang Gudi agrees to provide
certain technical and business support and related consulting services to Shanjing Kechuang in exchange for service fees. In addition, pursuant to the
exclusive option agreements, Shanjing Kechuang is prohibited from declaring and paying any dividends without Yangguang Gudi’s prior consent and
Yangguang Gudi enjoys an irrevocable and exclusive option to purchase Shanjing Kechuang shareholders’ equity interests, to the extent permitted by
applicable PRC laws, at a specified price equal to the loan amount provided by Yangguang Gudi to the shareholders. If the lowest price permitted under PRC
law is higher than the above price, the lowest price permitted under PRC law shall apply. Through these arrangements, Ganji can obtain all of the income and
the residual interests of Shanjing Kechuang, such as undistributed earnings, either through dividend distributions or purchase of equity interests of Shanjing
Kechuang from its existing shareholders. As a result of the contractual arrangements, we, through Ganji, consolidate the financial results of Shanjing
Kechuang in our consolidated financial statements in accordance with U.S. GAAP.
Exclusive Business Cooperation Agreement. The terms and arrangements of the exclusive business cooperation agreement between Yangguang
Gudi and Shanjing Kechuang are substantially similar to those under the Beijing 58 Agreements. In 2016, Yangguang Gudi did not collect any service fee
payments from Shanjing Kechuang.
Powers of Attorney. Each shareholder of Shanjing Kechuang has executed a power of attorney to irrevocably appoint Yangguang Gudi as the
attorney-in-fact to act on the shareholder’s behalf. The terms of the powers of attorney are substantially similar to those under the Beijing 58 Agreements.
Equity Interest Pledge Agreements. Yangguang Gudi, Shanjing Kechuang and each of the shareholders of Shanjing Kechuang have entered into
equity interest pledge agreements with terms and arrangements that are substantially similar to those under the Beijing 58 Agreements. We registered these
equity interest pledge agreements with Shunyi Branch of Beijing Administration for Industry and Commerce Bureau on March 18, 2016 for the three
individual shareholders and April 1, 2016 for 58 Co., Ltd.
Exclusive Option Agreements. Yangguang Gudi, Shanjing Kechuang and each of the shareholders of Shanjing Kechuang have entered into
exclusive option agreements with terms and arrangements that are substantially similar to those under the Beijing 58 Agreements. At the moment, Ganji
cannot exercise the exclusive options to purchase the current shareholders’ equity interests in Shanjing Kechuang due to the PRC regulatory restrictions on
foreign ownership in the value-added telecommunications services. Ganji may exercise the options if China opens up these industries to foreign investment.
Loan Agreements. Yangguang Gudi and each shareholder of Shanjing Kechuang have entered into loan agreements with an aggregate amount of
interest-free loans of approximately RMB38.7 million. The terms of the loan agreements are substantially similar to those under the Beijing 58 Agreements
and each loan agreement expires on August 6, 2025 and can be extended with the written consent of both parties before expiration.
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58 Home’s Contractual Arrangements with Tianjin 58 Home
58 Home has through Beijing 58 Home entered into contractual arrangements with Tianjin 58 Home and its shareholders described below, which we
refer to as the Tianjin 58 Home Agreements. Through the Tianjin 58 Home Agreements, Beijing 58 Home exercises control over the operations of Tianjin 58
Home and receives substantially all its economic benefits and residual returns. Through the exclusive business cooperation agreement between Beijing 58
Home and Tianjin 58 Home, Beijing 58 Home agrees to provide certain technical and business support and related consulting services to Tianjin 58 Home in
exchange for service fees. In addition, pursuant to the exclusive option agreements, Tianjin 58 Home is prohibited from declaring and paying any dividends
without Beijing 58 Home’s prior consent and Beijing 58 Home enjoys an irrevocable and exclusive option to purchase Tianjin 58 Home shareholders’ equity
interests, to the extent permitted by applicable PRC laws, at a specified price equal to the loan amount provided by Beijing 58 Home to the shareholders. If
the lowest price permitted under PRC law is higher than the above price, the lowest price permitted under PRC law shall apply. Through these arrangements,
58 Home can obtain all of the income and the residual interests of Tianjin 58 Home, such as undistributed earnings, either through dividend distributions or
purchase of equity interests of Tianjin 58 Home from its existing shareholders. As a result of the contractual arrangements, 58 Home consolidates the
financial results of Tianjin 58 Home in accordance with U.S. GAAP. In July 2016, one shareholder and also employee of Tianjin 58 Home left Tianjin 58
Home and transferred his equity interest in Tianjin 58 Home to 58 Co., Ltd. As a result, Beijing 58 Home amended its contractual arrangements with Tianjin
58 Home to reflect the change in shareholding of Tianjin 58 Home. Beijing 58 Home continues to maintain the following contractual arrangements with
Tianjin 58 Home.
Exclusive Business Cooperation Agreement. The terms and arrangements of the exclusive business cooperation agreement between Tianjin 58
Home and Beijing 58 Home under the Tianjin 58 Home Agreements are substantially similar to those under the Beijing 58 Agreements, except that Tianjin
58 Home agrees to pay a monthly service fee to Beijing 58 Home in an amount determined by both parties after taking into account factors similar to those
provided under the Beijing 58 Agreements. Beijing 58 Home did not collect any service fee payments from Tianjin 58 Home in 2016.
Powers of Attorney. Each shareholder of Tianjin 58 Home has executed a power of attorney to irrevocably appoint Beijing 58 Home as the attorney-
in-fact to act on the shareholder’s behalf. The terms of the powers of attorney are substantially similar to those under the Beijing 58 Agreements.
Equity Interest Pledge Agreements. Beijing 58 Home, Tianjin 58 Home and each of the shareholders of Tianjin 58 Home have entered into equity
interest pledge agreements with terms and arrangements that are substantially similar to those under the Beijing 58 Agreements. We registered these equity
interest pledge agreements with the Tianjin Binhai New Area Market and Quality Supervision and Administration Bureau on September 8, 2015.
Exclusive Option Agreements. Beijing 58 Home, Tianjin 58 Home and each of the shareholders of Tianjin 58 Home have entered into exclusive
option agreements with terms and arrangements that are substantially similar to those under the Beijing 58 Agreements, except that the purchase price to be
paid by Beijing 58 Home to each shareholder by exercising its option to purchase all the equity interests held by the shareholder in Tianjin 58 Home equal to
the loan amount provided by Beijing 58 Home to the shareholder. At the moment, 58 Home cannot exercise the exclusive options to purchase the current
shareholders’ equity interests in Tianjin 58 Home due to the PRC regulatory restrictions on foreign ownership in the value-added telecommunications
services. 58 Home may exercise the options if China opens up these industries to foreign investment.
Loan Agreements. Beijing 58 Home and each shareholder of Tianjin 58 Home have entered into loan agreements with an aggregate amount of
interest-free loans of approximately RMB100 million. The terms of the loan agreements are substantially similar to those under the Beijing 58 Agreements
and each loan agreement expires on August 5, 2025 and can be extended with the written consent of both parties before expiration.
D.
Property, Plants and Equipment
Our principal headquarter offices are located on 44,915 square meters of our purchased office space at Building 105 and Building 101, 10
Jiuxianqiao North Road Jia, Chaoyang District, Beijing, China. In September 2014, we entered into an agreement with Beijing Electronics Zone Investment
and Development Co., Ltd. to purchase 44,915 square meters of office space in Chaoyang District, Beijing, for RMB1.0 billion, to accommodate our
business expansion and increase in headcount. Building 105 and Building 101 were ready for occupancy in October 2015 and August 2016, respectively. We
purchased a smaller office space located in Tianjin with 29,823 square meters in 2015 and it was ready for occupancy in 2016. We also lease an additional
41,178 square meters office spaces in other locations in Beijing and Tianjin, China, excluding the office spaces for 58 Home. We maintain leased offices in
53 additional cities in China totaling 108,649 square meters, excluding those for 58 Home. We lease our premises from unrelated third parties under non-
cancelable operating lease agreements. The leases typically have terms of one to eight years, some of which are due to expire during 2017 or 2018.
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Our servers are primarily hosted at internet data centers owned by major domestic internet data center providers. The hosting services agreements
typically have one-year terms and are renewed automatically upon expiration. We believe that we will be able to obtain adequate facilities, principally
through leasing, to accommodate our future expansion plans.
ITEM 4A.
UNRESOLVED STAFF COMMENTS
None.
ITEM 5.
OPERATING AND FINANCIAL REVIEW AND PROSPECTS
The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our consolidated
financial statements and the related notes included elsewhere in this annual report on Form 20-F. This discussion and analysis may contain forward-looking
statements based upon current expectations that involve risks and uncertainties. Our actual results may differ materially from those anticipated in these
forward-looking statements as a result of various factors, including those set forth under “Item 3. Key Information — D. Risk Factors” or in other parts of
this annual report on Form 20-F.
A.
Operating Results
Overview
Our business is comprised principally of our online classifieds and listing platforms. Our online classifieds and listings platforms enable local
merchants and consumers to connect, share information and conduct business in China. These platforms include 58, Ganji and Anjuke. 58 and Ganji are
online multi-content category-classified advertising platforms, while Anjuke is an online real estate listing platform. We have consolidated Anjuke since
March 2015 and Ganji since August 2015.
58 Home, a subsidiary that operates a mobile-based closed-loop transactional platform for home services, was de-consolidated from our
consolidated financial results following its series A financing on November 27, 2015. After the de-consolidation, we treat 58 Home as an equity investee.
Guazi, a subsidiary that operates our consumer-to-consumer (C2C) used car trading platform, was de-consolidated on December 31, 2015. As our investment
in Guazi was accounted for using cost method, we did not recognize a proportionate share of the reported earnings or losses of Guazi for the years ended
December 31, 2015 and 2016.
Our revenues are mainly generated from subscription-based merchant memberships and online marketing services on our online classifieds and
listing platforms. The number of average quarterly paying membership accounts on our 58 platform was approximately 529,000 in 2014. As a result of
consolidation of Anjuke and Ganji, the number of our average quarterly paying membership accounts on our 58, Ganji and Anjuke platforms increased
significantly to approximately 1,306,000 in 2015 and 1,982,000 in 2016. We continue to make progress in upselling additional online marketing services,
such as real time bidding services, to our merchant members.
The significant increase in our operating expenses in 2016 was driven by the organic growth on our 58 platform as well as the consolidation of
Ganji’s and Anjuke’s financial results. Following the integration of 58 and Ganji, we anticipate less sequential growth in operating expenses and bigger
improvements in the operating efficiency of our sales and customer service teams as well as the efficiency of advertising spending. We expect to continue to
increase our investment in research and development for innovations and enhancement of our user experience and other areas necessary for the long-term
value of our company.
Our revenues increased from RMB1.6 billion in 2014 to RMB4.5 billion in 2015 and further to RMB7.6 billion in 2016. The increase was driven by
the increased revenues from consolidated businesses such as Ganji and Anjuke, as well as the organic growth of the 58 platform. We had net income of
RMB139.4 million in 2014 and incurred a net loss of RMB1.6 billion in 2015 and a net loss of RMB773.0 million in 2016.
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How We Generate Revenues
While many of our users browse and post information on our online platforms for free, we generate revenues from the following services:
Membership
A subscription-based membership is a basic service package consisting mainly of merchant certification, display of an online storefront on our
platforms, preferential listing benefits such as daily priority listings and higher quota for daily listings, and access to our dedicated customer service support
team and online account management system. Merchants who subscribe to a membership with us can enjoy more services and achieve more effective
marketing than non-paying merchants on our platforms. 58, Ganji and Anjuke offer subscription-based merchant membership packages that include similar
types of services, although the specific details of the services, such as the quotas for daily listings and downloadable resumes, may vary from platform to
platform.
We offer memberships of varying lengths across different content categories. Memberships in the yellow pages and jobs categories are primarily 12-
month packages. In China, due to relatively high employee turnover among migrant workers, many businesses have ongoing hiring needs. Memberships in
the real estate category are primarily one- to three-month packages due to the higher turnover of real estate agents. We acquire the majority of our paying
merchant members through our field direct sales teams. In cities where we do not have field direct sales teams on the ground, we work with sales agency
companies to grow our paying merchant network locally. Our centralized and dedicated tele-customer service team supports our paying merchant members
during their membership to enhance the effectiveness of their marketing efforts and improve the likelihood of membership renewal. A majority of our paying
merchant members are small and medium-sized local merchants. We believe that our field sales, sales agency network and customer service teams have been
effective in increasing the number of our paying merchant members, retaining high-quality existing paying merchant members and increasing spending by
our existing paying merchant members, all of which are important to the growth of our revenues. We have also been developing interfaces for merchants to
purchase and pay for subscription-based membership services online. See “Item 4. Information on the Company — B. Business Overview — Service
offerings — Memberships” for details of the number of subscription-based paying membership accounts. See “Item 4. Information on the Company — B.
Business Overview — Sales and Customer Services” for details of the sales and customer service teams operation.
Most paying merchant members pay their membership fees in advance. These advance payments are made to our field sales teams, sales agency
companies or through other online interfaces and are recorded as customer advances and deposits. Once a member completes the purchase of membership,
we deduct that amount from the customer advances and deposits account and record it as deferred revenues. Revenues are recognized ratably over the
contract period for the membership services.
Online Marketing Services
Our online marketing services primarily include listing services, such as real-time bidding and priority listing, display advertising and marketing
services through collaboration with third-party internet companies in China. All of our 58, Ganji and Anjuke platforms offer some forms of online marketing
services. Online marketing services of 58 and Ganji are mainly listing services that customers purchase to enhance the exposure of their listings. Anjuke’s
marketing services relate to both listing services for secondary real estate properties and advertising services for primary real estate properties. On average,
approximately 54.1% of our quarterly paying membership accounts purchased our online marketing services in 2016.
Merchants can use our real-time bidding services to bid for the most prominent placement of their listings in specific categories and locations on a
cost per click (CPC) basis. We have developed a user-friendly bidding system, through which merchants can create text- and graphic-based descriptions for
their listings and bid on placements of their listings. We set minimum bidding prices which are based on metrics such as traffic and number of clicks
generated by precedent placements. We generate much higher revenues than we otherwise could with the same amount of listing space by attracting more
customers and monetize the traffic to their market value.
Merchants can also purchase our priority listing services, which place their listings below real-time bidding listings and above paying merchant
members’ listings. Merchants can purchase listing placements of varying duration from several hours to several days to several weeks.
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We provide display advertisement mainly for primary real estate developers on our Anjuke platform. The customers use these services to enhance
their brand recognition and attract consumer attention to the primary real estate projects that are on the market. They can be text- or graphic-based displays
for varying time periods ranging from several days to several months.
We collaborate with third-party internet companies by placing the marketing links of their marketing customers on the relevant listing pages on our
online platforms. We generate revenues based on the number of clicks or cost-per-thousand impressions at pre-determined prices.
In most cases customers are required to make payment in advance before purchasing our online marketing services, in the form of purchasing virtual
online currencies of our platforms. Paying merchant members can log into our account management webpage or mobile application and purchase various
online marketing services through an easy-to-use interface. Our account management system enables paying merchant members to review and optimize the
performance of their existing listings and to upload and market new listings.
Our field sales and customer service teams stay in regular contact with our customers and play an essential role in promoting our online marketing
services to our paying merchant members. Leveraging our expertise in online marketing services, we help our paying merchant members to select the most
suitable services to maximize their marketing effectiveness.
E-Commerce Services
We enter into promotional service agreements with real estate developers pursuant to which we are authorized to sell discount coupons with face
value ranging from RMB2,000 to RMB100,000 to prospective home buyers. The home buyers are required to prepay the full face value of the coupon to us
before they can use the coupon to purchase specified properties from the real estate developers at a discount significantly greater than the coupon value. The
coupons purchased by prospective home buyers are refundable before a purchase of the specified properties prior to the expiry date of the coupon. We
recognize revenues when home buyers apply the discount coupons to pay for the purchase price of the specified properties from real estate developers. Cash
received in advance of the purchase of specified properties is recorded as customer advances.
Other Services
Revenues from other services are derived from various off-line services we provide. In 2014, revenues from other services were mainly derived
from group buying services. We exited from the group buying services in second half 2014. In 2015, other services revenues were mainly contributed by
Guazi C2C services and offline recruitment services. In 2016, other services were mainly contributed by offline recruitment services.
Taxation
Cayman Islands
We are incorporated in the Cayman Islands. Under the current laws of the Cayman Islands, we are not subject to tax on income or capital gains.
Additionally, upon payments of dividends to our shareholders, no Cayman Islands withholding tax will be imposed.
British Virgin Islands
We are exempted from income tax in the British Virgin Islands on our foreign-derived income. There are no withholding taxes in the British Virgin
Islands.
Hong Kong
The operations in Hong Kong have incurred net accumulated operating losses for income tax purposes. The corporate income tax rate in Hong Kong
is 16.5%.
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PRC
Pursuant to the Enterprise Income Tax Law, foreign-invested enterprises and domestic companies are subject to enterprise income tax at a uniform
rate of 25%. In addition, “high and new technology enterprises” will enjoy a preferential enterprise income tax rate of 15%. Beijing 58, our consolidated
affiliated entity, is qualified as a “high and new technology enterprise” under the Enterprise Income Tax Law and is eligible for a preferential enterprise
income tax rate of 15% for the period from 2009 to 2017, so long as it obtains approval from the relevant tax authority and if it is profitable during the
period.
Beijing 58 Auto, one of our consolidated affiliated entities, is qualified as a “high and new technology enterprise” and is eligible for preferential
enterprise income tax rate of 15% from 2013 to 2018, so long as it obtains approval from the relevant tax authority and maintains the “high and new
technology enterprise” status and if it is profitable during that period.
Wanglin, one of our PRC subsidiaries, was qualified as a “high and new technology enterprise” from 2012 to 2017 and obtained its “software
enterprise” status in July 2014. The local tax authority granted Wanglin a two-year tax holiday effective from January 1, 2014 followed by a three-year 50%
tax rate reduction from January 1, 2016 to December 31, 2018. For the year ended December 31, 2014, Wanglin had taxable income and accrued
approximately RMB38.1 million income tax expense. Wanglin paid approximately RMB7.3 million in income tax in 2014 and received a RMB7.3 million
refund in the second half of 2015. Wanglin incurred loss and was not required to pay income tax in 2016.
Shanghai Ruiting, one of our PRC subsidiaries, was qualified as a “high and new technology enterprise” in 2010 and is eligible for preferential
enterprise income tax rate of 15% from 2010 to 2018, so long as it obtains approval from the relevant tax authority and maintains the “high and new
technology enterprise” status and if it is profitable during that period.
58 Technology, one of our PRC subsidiaries, was qualified as a “software enterprise” in December 2014. In March 2016, the local tax authority
granted 58 Technology a two-year exemption followed by a three-year 50% reduction on its taxable income under the Enterprise Income Tax Law, effective
retroactively from January 1, 2015.
Effective January 1, 2012, the PRC Ministry of Finance and the State Administration of Taxation launched a Business Tax to Value-Added Tax
Transformation Pilot Program, or the VAT Pilot Program, which imposes VAT in lieu of business tax for certain “modern service industries” in certain
regions. According to the implementation circulars released by the Ministry of Finance and the State Administration of Taxation on the VAT Pilot Program,
the “modern service industries” include research, development and technology services, information technology services, cultural innovation services,
logistics support, lease of corporeal properties, attestation and consulting services. In August 2013, the program was further expanded nationwide. With the
adoption of the program, our revenues are subject to VAT. VAT payable on goods sold or taxable services provided by a general VAT taxpayer for a taxable
period is the net balance of the output VAT for the period after crediting the input VAT for the period. Hence, the amount of VAT payable does not result
directly from output VAT generated from goods sold or taxable services provided. Therefore, we have adopted the net presentation of VAT. From May 1,
2016, the program has been further expanded to cover all industries.
Critical Accounting Policies
We prepare our financial statements in conformity with U.S. GAAP, which requires us to make judgments, estimates and assumptions. We
continually evaluate these estimates and assumptions based on the most recently available information, our own historical experience and various other
assumptions that we believe to be reasonable under the circumstances. Since the use of estimates is an integral component of the financial reporting process,
actual results could differ from our expectations as a result of changes in our estimates.
An accounting policy is considered critical if it requires an accounting estimate to be made based on assumptions about matters that are highly
uncertain at the time such estimate is made, and if different accounting estimates that reasonably could have been used, or changes in the accounting
estimates that are reasonably likely to occur periodically, could materially impact the consolidated financial statements. The selection of critical accounting
policies, the judgments and other uncertainties affecting application of those policies, and the sensitivity of reported results to changes in conditions and
assumptions are factors that should be considered when reviewing our consolidated financial statements. We believe that the following accounting policies
involve a higher degree of judgment and complexity in their application and require us to make significant accounting estimates. The following descriptions
of critical accounting policies, judgments and estimates should be read in conjunction with our consolidated financial statements and other disclosures
included in this annual report.
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Consolidation
Our consolidated financial statements include the accounts of 58.com Inc. and its wholly-owned and majority owned subsidiaries and consolidated
variable interest entities in which our company has a controlling financial interest. All intercompany transactions are eliminated.
Our variable interest entities are wholly or partially owned by certain of our employees as shareholders. For consolidated variable interest entities,
our management made evaluations of our relationships with the variable interest entities and the economic benefit flow of contractual arrangements with the
variable interest entities. In connection with such evaluation, we also take into account the fact that, as a result of such contractual arrangements, we control
the shareholders’ voting interests in these variable interest entities. As a result of such evaluation, we concluded that we are the primary beneficiary of these
consolidated variable interest entities.
Deconsolidation
We deconsolidate our subsidiaries in accordance with ASC 810-10-40-4 as of the date we ceased to have a controlling financial interest in the
subsidiaries.
We account for the deconsolidation of our subsidiaries by recognizing a gain or loss in net income/(loss) attributable to us in accordance with ASC
810-10-40-5. This gain or loss is measured at the date the subsidiaries are deconsolidated as the difference between (a) the aggregate of the fair value of any
consideration received, the fair value of any retained noncontrolling interest in the subsidiaries being deconsolidated, and the carrying amount of any
noncontrolling interest in the subsidiaries being deconsolidated, including any accumulated other comprehensive income/(loss) attributable to the
noncontrolling interest, and (b) the carrying amount of the assets and liabilities of the subsidiaries being deconsolidated.
Business Combination, Noncontrolling Interests and Mezzanine Classified Noncontrolling Interests
We account for our business combinations using the acquisition method of accounting in accordance with Accounting Standards Codification
(“ASC”) 805 “Business Combinations” (“ASC 805”). The cost of an acquisition is measured as the aggregate of the acquisition date fair values of the assets
transferred and liabilities incurred by us to the sellers and equity instruments issued. Transaction costs directly attributable to the acquisition are expensed as
incurred. Identifiable assets and liabilities acquired or assumed are measured separately at their fair values as of the acquisition date. The excess of (i) the
total costs of acquisition, fair value of the noncontrolling interests and acquisition date fair value of any previously held equity interests in the acquiree over
(ii) the fair value of the identifiable net assets of the acquiree is recorded as goodwill. If the cost of acquisition is less than the fair value of the net assets of
the subsidiary acquired, the difference is recognized directly in the consolidated statements of comprehensive income/(loss). The determination and
allocation of fair values to the identifiable assets acquired, liabilities assumed and non-controlling interests is based on various assumptions and valuation
methodologies requiring considerable judgment from management. The most significant variables in these valuations are discount rates, terminal values, the
number of years on which to base the cash flow projections, as well as the assumptions and estimates used to determine the cash inflows and outflows. We
determine discount rates to be used based on the risk inherent in the related activity’s current business model and industry comparisons. Terminal values are
based on the expected life of assets, forecasted life cycle and forecasted cash flows over that period.
During the measurement period, which can be up to one year from the acquisition date, we may record adjustments to the assets acquired and
liabilities assumed with the corresponding offset to goodwill. Upon the conclusion of the measurement period or final determination of the values of assets
acquired or liabilities assumed, whichever comes first, any subsequent adjustments are recorded to the consolidated statements of operations.
In a business combination achieved in stages, we re-measure the previously held equity interests in the acquiree immediately before obtaining
control at its acquisition-date fair value and the re-measurement gain or loss, if any, is recognized in the consolidated statements of comprehensive income/
(loss).
For our majority-owned subsidiaries and VIEs, a noncontrolling interest is recognized to reflect the portion of their equity which is not attributable,
directly or indirectly, to us. When the noncontrolling interest is contingently redeemable upon the occurrence of a conditional event, which is not solely
within our control, the noncontrolling interest is classified as mezzanine classified noncontrolling interest. Consolidated net income/(loss) on the consolidated
income statements includes the net income/(loss) attributable to noncontrolling interests and mezzanine equity holders when applicable. The cumulative
results of operations attributable to noncontrolling interests are also recorded as noncontrolling interests in our consolidated balance sheets. Cash flows
related to transactions with noncontrolling interests are presented under financing activities in the consolidated statements of cash flows.
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Goodwill
Goodwill represents the excess of the purchase consideration over the fair value of the identifiable tangible and intangible assets acquired and
liabilities assumed of the acquired entity as a result of our acquisitions of interests in its subsidiaries and VIEs. Goodwill is not amortized but is tested for
impairment on an annual basis, or more frequently if events or changes in circumstances indicate that it might be impaired. We first assess qualitative factors
to determine whether it is necessary to perform the two-step quantitative goodwill impairment test. In the qualitative assessment, we consider primary factors
such as industry and market considerations, overall financial performance of the reporting unit, and other specific information related to the operations.
Based on the qualitative assessment, if it is more likely than not that the fair value of each reporting unit is less than the carrying amount, the quantitative
impairment test is performed.
In performing the two-step quantitative impairment test, the first step compares the fair values of each reporting unit to its carrying amount,
including goodwill. If the fair value of each reporting unit exceeds its carrying amount, goodwill is not considered to be impaired and the second step will not
be required. If the carrying amount of a reporting unit exceeds its fair value, the second step compares the implied fair value of goodwill to the carrying value
of a reporting unit’s goodwill. The implied fair value of goodwill is determined in a manner similar to accounting for a business combination with the
allocation of the assessed fair value determined in the first step to the assets and liabilities of the reporting unit. The excess of the fair value of the reporting
unit over the amounts assigned to the assets and liabilities is the implied fair value of goodwill. This allocation process is only performed for the purposes of
evaluating goodwill impairment and does not result in an entry to adjust the value of any assets or liabilities. Application of a goodwill impairment test
requires significant management judgment, including the identification of reporting units, assigning assets, liabilities and goodwill to reporting units, and
determining the fair value of each reporting unit.
We perform impairment tests in the fourth quarter of each year. No impairment loss was recognized for all periods presented.
Long-lived Assets
Intangible assets acquired through business acquisitions are recognized as assets separate from goodwill if they satisfy either the “contractual-legal”
or “separability” criterion. Purchased intangible assets and intangible assets arising from the acquisitions of subsidiaries and VIE subsidiaries are recognized
and measured at fair value upon acquisition. Separately identifiable intangible assets that have determinable lives continue to be amortized over their
estimated useful lives using the straight-line method. Separately identifiable intangible assets to be held and used are reviewed for impairment whenever
events or changes in circumstances indicate that the carrying amount of such assets may not be recoverable. Determination of recoverability is based on an
estimate of undiscounted future cash flows resulting from the use of the asset and its eventual disposition. Measurement of any impairment loss for
identifiable intangible assets is based on the amount by which the carrying amount of the assets exceeds the fair value of the asset. Changes in these estimates
and assumptions could materially impact our financial condition and results of operations.
Property and equipment are stated at cost less accumulated depreciation and impairment. Property and equipment are depreciated on a straight-line
basis over the estimated useful lives, which is generally from 30 to 50 years for buildings and 3 to 5 years for the other properties and equipment. Judgment
is required to determine the estimated useful lives, including determining how long existing properties and equipment can function and when new
technologies will be introduced at cost-effective price points to replace existing equipment. Changes in these estimates and assumptions could materially
impact our financial condition and results of operations. Expenditures for maintenance and repairs are expensed as incurred. The gain or loss on the disposal
of property and equipment is the difference between the net sales proceeds and the carrying amount of the relevant assets and is recognized in the
consolidated statements of comprehensive income/(loss).
Long-term Investments
Long-term investments represent our investments in privately held companies. In accordance with ASC 323 “Investment-Equity Method and Joint
Ventures”, we apply the equity method of accounting to equity investments, in common stock or in-substance common stock, over which it has significant
influence but does not own a majority equity interest or otherwise control.
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An investment in in-substance common stock is an investment that has risk and reward characteristics that are substantially similar to those involved
in an investment in an entity’s common stock. We consider subordination, risks and rewards of ownership and obligation to transfer value when determining
whether an investment in an entity is substantially similar to an investment in that entity’s common stock.
Under the equity method, we initially record our investment at cost. The difference between the cost of the equity investment and the amount of the
underlying equity in the net assets of the equity investee is recognized as equity method goodwill or as an intangible asset as appropriate, which is included
in the equity method investment on the consolidated balance sheets. We subsequently adjust the carrying amount of the investment and recognize our
proportionate share of each equity investee’s net income or loss as “share of results of equity investees” in the consolidated statements of comprehensive
income/(loss) after the date of acquisition. When our share of losses in the equity investee equals or exceeds our interests in the equity investee, we do not
recognize further losses, unless we have incurred obligations or made payments or guarantees on behalf of the equity investee.
For long-term investments in equity securities that are not accounted for using equity method of accounting and have no readily determinable fair
value, the cost method accounting is used.
We assess our long-term investments accounted for using the cost method and equity method for other-than-temporary impairment by considering
factors including, but not limited to, current economic and market conditions, operating performance of the companies, which includes current earnings
trends and undiscounted cash flows, and other company-specific information, such as recent rounds of financing. If any impairment is considered other-than-
temporary, we will write down the asset to its fair value and take the corresponding charge to the consolidated statements of comprehensive income/(loss).
Revenue Recognition
We generate revenues primarily from membership, online marketing services and E-commerce services. We sell these services through our direct
sales teams and third party sales agencies. Under the terms of the agreement with the sales agencies, the sales agencies remit to us a certain percentage of our
listed sales price. We recognize revenue net of the amounts retained by the sales agencies because the sales agencies will offer discretionary discount to the
customer. Additionally, we do not receive information from the sales agencies indicating the amount of such discounts offered to the customers or regarding
the actual cash paid by the customers to the sales agencies. As such, we are unable to determine the gross amounts paid by the customers to the sales
agencies. Accordingly, we believe that it is more appropriate to recognize revenue net of the amounts retained by the sale agencies. Revenue is recognized
when persuasive evidence of an arrangement exists, the price is fixed or determinable, service is performed and collectability of the related fee is reasonably
assured.
We have adopted the gross presentation for business tax and related surcharges pursuant to ASC 605-45, “Revenue Recognition: Principal Agent
Considerations.” The amount of business tax and related surcharges included in cost of revenues were RMB10.0 million, RMB23.1 million and RMB37.1
million for the years ended December 31, 2014, 2015 and 2016, respectively. Effective January 1, 2012, the PRC Ministry of Finance and the State
Administration of Taxation launched the Value Added Tax Pilot Program for certain industries in certain regions. According to the implementation circulars
released by the Ministry of Finance and the State Administration of Taxation on the Pilot Program, the “Modern Service Industries” includes research,
development and technological services, information technology services, cultural innovation services, logistics support, lease of corporeal properties,
attestation and consulting services. Subsidiaries in different regions were affected at different times as the program was rolled out. All of our entities were
subject to the VAT Pilot Program as of December 31, 2016. With the adoption of the Pilot Program, our revenues are subject to VAT payable on goods sold
or taxable labor services provided by a general VAT taxpayer for a taxable period. VAT payable is the net balance of the output VAT for the period after
crediting the input VAT for the period. Hence, the amount of VAT payable does not result directly from output VAT generated from goods sold or taxable
labor services provided. Accordingly, we have adopted the net presentation of VAT.
Membership. A membership is a basic services package mainly consisting of the following services: customer certification, display of an online
storefront on our platforms, preferential listing benefits such as limited daily priority listings and higher quota for free daily listings and access to our
dedicated customer service support team and online account management system. Membership revenues are recognized ratably over the contract period when
membership services are provided.
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Online marketing services. Our online marketing services include time-based services and performance-based services. Revenues from time-based
services are recognized ratably over the service period. Revenues from performance-based services are recognized when the agreed performance criteria are
achieved. For service arrangements that include multiple deliverables, revenues are allocated to each unit of accounting based on relative selling price of each
unit of accounting according to the selling price hierarchy established by Accounting Standards Update (“ASU”) No. 2009-13. We use (a) vendor-specific
objective evidence of selling price, if it exists, (b) otherwise, third-party evidence of selling price. If neither (a) nor (b) exists, we will use (c) the
management’s best estimate of the selling price for that deliverable. Selling price is generally determined by vendor specific objective evidence.
E-commerce services. We enter into promotional service agreements with real estate developers pursuant to which we are authorized to sell discount
coupons with face value ranging from RMB2,000 to RMB100,000 to prospective home buyers. The home buyers are required to prepay the full face value of
the coupon to us before they can use the coupon to purchase specified properties from the real estate developers at a discount significantly greater than the
coupon value. The coupons purchased by prospective home buyers are refundable before a purchase of the specified properties prior to the expiry date of the
coupon. We recognize revenues when home buyers apply the discount coupons to pay for the purchase price of the specified properties from real estate
developers. Cash received in advance of the purchase of specified properties is recorded as customer advances.
Other services. Other services mainly include offline recruitment services provided. We recognize other service revenue when the related services
are rendered.
Income Taxes
Current income taxes are provided on the basis of net income for financial reporting purposes, adjusted for income and expense items which are not
assessable or deductible for income tax purposes, in accordance with the regulations of the relevant tax jurisdictions. Deferred income taxes are provided
using the liability method. Under this method, deferred income taxes are recognized for the tax consequences of temporary differences by applying enacted
statutory rates applicable to future years to differences between the financial statement carrying amounts and the tax bases of existing assets and liabilities.
The tax base of an asset or liability is the amount attributed to that asset or liability for tax purposes. The effect on deferred taxes of a change in tax rates is
recognized in the statement of comprehensive loss in the period of change. A valuation allowance is provided to reduce the amount of deferred tax assets if it
is considered more likely than not that some portion of, or all of the deferred tax assets will not be realized.
The guidance prescribes a more likely than not threshold for financial statement recognition and measurement of a tax position taken or expected to
be taken in a tax return. Guidance was also provided on derecognition of income tax assets and liabilities, classification of current and deferred income tax
assets and liabilities, accounting for interest and penalties associated with tax positions, accounting for income taxes in interim periods, and income tax
disclosures. Significant judgment is required in evaluating our uncertain tax positions and determining its provision for income taxes. We recognize interests
and penalties, if any, under accrued expenses and other current liabilities on our balance sheet and under other expenses in our statement of comprehensive
income/(loss). We did not have any interest or penalties associated with tax positions as of December 31, 2014, 2015 and 2016. As of December 31, 2014,
2015 and 2016, we did not have any significant unrecognized uncertain tax positions.
In order to assess uncertain tax positions, we apply a more likely than not threshold and a two-step approach for the tax position measurement and
financial statement recognition. Under the two-step approach, the first step is to evaluate the tax position 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 more than 50% likely of being realized upon settlement.
Share-Based Compensation
All share-based awards to employees and directors, including share options, restricted share units, or RSUs, and restricted shares are measured at the
grant date based on the fair value of the awards. Share-based compensation, net of forfeitures, is recognized as expense on a straight-line basis over the
requisite service period, which is the vesting period.
74
Share options
We use the Binominal option pricing model to determine the fair value of share options. We account for share-based compensation expenses using
an estimated forfeiture rate at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from initial estimates. Share-based
compensation expenses were recorded net of estimated forfeitures such that expense was recorded only for those share-based awards that are expected to
vest. Historically, our share-based compensation expenses were relatively low.
We adopted an employee stock option plan in March 2010. We refer to this as the 2010 Plan. The maximum number of shares in respect of which
share awards may be granted under the 2010 Plan is 20,173,225. The 2010 Plan will terminate automatically 10 years after its adoption, unless terminated
earlier by our shareholders’ approval.
We also adopted a share incentive plan in September 2013. We refer to this as the 2013 Plan. The maximum aggregate number of shares which may
be issued pursuant to all awards under the 2013 Plan was 2,800,000 shares as of the date of its adoption. The number of shares reserved for future issuances
under the 2013 Plan will be increased by a number equal to 1.5% of the total number of outstanding shares on the last day of the immediately preceding
calendar year, on the first day of each calendar year during the term of the 2013 Plan beginning in 2015, or such lesser number of ordinary shares as
determined by our board of directors. In addition, in April 2015, in connection with our acquisition of a strategic stake in Ganji, we further increased such
number of maximum aggregate number of shares which may be issued by an additional 7,000,000 ordinary shares, reserved for future grants. The annual
general meeting of our shareholders held on December 17, 2015, further increased the maximum aggregate number of shares that may be issued pursuant to
all awards under the 2013 Plan to a total of 13,686,128 ordinary shares (consisting of 6,686,128 Class A ordinary shares and 7,000,000 Class B ordinary
shares), plus any applicable annual increase beginning in 2016. In 2016 and 2017, an annual increase of 4,246,030 and 4,345,065 ordinary shares,
respectively, were added to the aggregate number of shares that may be issued pursuant to all awards under the 2013 Plan which increased the maximum
aggregate number to 22,277,223.
58 Home adopted its 2015 Share Incentive Plan, which we refer to as the 58 Home 2015 Plan, in February 2015. The maximum aggregate number
of shares which may be issued pursuant to all awards under the 58 Home 2015 Plan is 20,000,000 ordinary shares of 58 Home. In connection with the Series
A round of equity financing closed on November 27, 2015, the maximum aggregate number of shares which may be issued under the 58 Home 2015 Plan
was increased by 2,000,000 ordinary shares of 58 Home.
A summary of the share option grants under our 2010 Plan and 2013 Plan since January 1, 2014, is presented below (share and per share
information is presented to give retroactive effect to the share splits that we have conducted so far).
February 27, 2014
May 14, 2014
June 25, 2014
November 3, 2014
February 27, 2015
April 13, 2015
May 22, 2015
August 24, 2015
August 24, 2015
Number of
Options
Granted
Exercise
Price
US$
Fair Value of
the Options
as of the
Grant Date
US$
15.950
18.460
20.000
17.770
18.675
22.030
38.140
20.980
20.980
138,200
109,200
217,000
257,200
201,600
7,000
1,600
2,400
1,426,000
75
12.060
10.250
12.440
10.740
12.060
16.520
24.850
10.930
12.010
Fair Value of
the
Underlying
Ordinary
Shares
as of the
Grant Date
US$
21.000
19.260
22.950
19.840
20.840
25.415
39.555
21.400
21.400
Intrinsic
Value
as of the
Grant Date
US$
5.05
0.8
2.95
2.07
2.165
3.385
1.415
0.42
0.42
A summary of the share option grants under the 58 Home 2015 Plan since January 1, 2015 to November 27, 2015, the date on which 58 Home was
deconsolidated from our consolidated results of operations, is presented below.
Number of
Options
Granted
2,000,000
2,671,000
1,700,000
1,400,000
1,000,000
150,000
Exercise
Price
US$
0.010
0.100
0.170
0.170
0.170
0.170
Fair Value of
the Options
as of the
Grant Date
US$
0.170
0.120
0.110
0.100
0.270
0.250
Fair Value of
the
Underlying
Ordinary
Shares
as of the
Grant Date
US$
0.176
0.176
0.176
0.176
0.200
0.200
Intrinsic
Value
as of the
Grant Date
US$
0.166
0.076
0.006
0.006
0.030
0.030
February 10, 2015
February 10, 2015
February 10, 2015
February 10, 2015
April 1, 2015
April 30, 2015
We estimated the fair value of share options using the binominal option-pricing model with the assistance from an independent valuation firm.
The fair value of each option grant under the 2013 Plan is estimated on the date of grant with the following assumptions:
Feb. 27,
2014
May 14,
2014
June 25,
2014
Nov. 3,
2014
Feb. 27,
Apr. 13,
and
May 22,
2015
Aug. 24,
2015
Expected volatility(1)
Risk-free interest rate (per annum)(2)
Exercise multiple(3)
Expected dividend yield(4)
Expected term (in years)(5)
Expected forfeiture rate (post-vesting)(6)
53.3%
3.730%
2
0.00%
10
0.4%
52.8%
3.170%
2
0.00%
10
0.4%
52.5%
3.200%
2
0.00%
10
0.4%
50.8%
3.010%
2
0.00%
10
0.3%
49.0%
2.760%
48.5%
2.670%
2 or 2.8
2 or 2.8
0.00%
10
0.25%
0.00%
10
0.17%
The fair value of each option grant under the 58 Home 2015 Plan before its deconsolidation was estimated on the date of grant with the following
assumptions:
Expected volatility(1)
Risk-free interest rate (per annum)(2)
Exercise multiple(3)
Expected dividend yield(4)
Expected term (in years)(5)
Expected forfeiture rate (post-vesting)(6)
Feb. 10,
2015
Apr. 1,
2015
Apr. 30,
2015
59.7%
2.600%
2 or 2.8
0.00%
10
0.25%
59.4%
2.460%
2.8
0.00%
10
0.25%
60.0%
2.630%
2
0.00%
10
0.25%
Notes:
(1) We estimated expected volatility based on the annualized standard deviation of the daily return embedded in historical share prices of comparable
companies with a time horizon close to the expected expiry of the term.
76
(2) We estimated risk-free interest rate based on the yield to maturity of US$ denominated Chinese Government bonds with a maturity similar to the
expected expiry of the term.
(3) The exercise multiple is estimated as the ratio of fair value of underlying shares over the exercise price as at the time the option is exercised, based on a
consideration of research study regarding exercise pattern based on historical statistical data.
(4) Expected dividend yield: We have never declared or paid any cash dividends on our capital stock, and we do not anticipate any dividend payments on
our ordinary shares in the foreseeable future.
(5) Expected term (in years): Expected term is the contract life of the option.
(6) Expected forfeiture rate (post-vesting): Estimated based on historical employee turnover rate after each option grant.
Determining the fair value of our ordinary shares required us to make complex and subjective judgments, assumptions and estimates, which
involved inherent uncertainty. Had our management used different assumptions and estimates, the resulting fair value of our ordinary shares and the resulting
share-based compensation expenses could have been different.
Restricted share units
RSUs issued to our employees are measured based on the grant date fair value of the award and recognized as compensation expense based on the
straight-line vesting method, net of estimated forfeitures, over the requisite service period, with a corresponding impact reflected in additional paid-in capital.
The fair value of RSUs was based on the fair value of our underlying ordinary shares on the grant date. We granted no RSUs prior to 2014.
The following table sets forth certain information regarding the RSUs granted to our employees since January 1, 2014, with share and per share
information.
February 27, 2014
May 14, 2014
June 25, 2014
November 3, 2014
February 27, 2015
April 13, 2015
May 22, 2015
August 6, 2015
August 24, 2015
November 23, 2015
February 22, 2016
May 18, 2016
September 21, 2016
October 1, 2016
November 9, 2016
Fair Value
per
Ordinary
Share as of
the Grant
Date
US$
21.000
19.260
22.950
19.840
20.840
25.415
39.555
28.570
21.400
26.530
28.065
25.080
24.680
23.830
20.100
Number of
RSUs
Granted
59,400
113,800
383,000
392,400
392,308
432,000
143,986
1,050,578
3,427,590
225,598
152,240
468,926
2,394,600
482,356
99,600
Type/Methodology
of Valuation
Contemporaneous/ Stock Price (1)
Contemporaneous/ Stock Price (1)
Contemporaneous/ Stock Price (1)
Contemporaneous/ Stock Price (1)
Contemporaneous/ Stock Price (1)
Contemporaneous/ Stock Price (1)
Contemporaneous/ Stock Price (1)
Contemporaneous/ Stock Price (1)
Contemporaneous/ Stock Price (1)
Contemporaneous/ Stock Price (1)
Contemporaneous/ Stock Price (1)
Contemporaneous/ Stock Price (1)
Contemporaneous/ Stock Price (1)
Contemporaneous/ Stock Price (1)
Contemporaneous/ Stock Price (1)
Note:
(1) The fair values of restricted share units are based on stock price of our company on grant dates.
In March 2015, in connection with our acquisition of Anjuke, we issued 248,216 fully vested RSUs of our company to former Anjuke employees as
part of the share consideration. In August 2015, in connection with our strategic investment in Ganji, we issued approximately 4,449,002 fully vested RSUs
of our company to former Ganji employees as part of the share consideration.
77
In February 2017, our board of directors approved the grant of 1.3 million restricted share units to employees of our company under the 2013 Plan.
Restricted shares of 58 Home
In February 2015, 58 Home granted 9,100,000 restricted shares to selected management members of 58 Home. In April 2015, 58 Home further
granted 1,880,000 restricted shares to an executive officer of our company. All these restricted shares were granted under the 58 Home 2015 Plan and were
fully vested on the respective grant dates. The foregoing disclosure of awards by 58 Home under its 2015 Plan only relates to the period prior to November
27, 2015, when 58 Home was deconsolidated from our consolidated financial results.
Recent Accounting Pronouncements
In May 2014, the FASB issued ASU No. 2014-09, “Revenue from Contracts with Customers (Topic 606).” This guidance supersedes current
guidance on revenue recognition in Topic 605, “Revenue Recognition”. In addition, there are disclosure requirements related to the nature, amount, timing,
and uncertainty of revenue recognition. In August 2015, the FASB issued ASU No. 2015-14 to defer the effective date of ASU No. 2014-09 for all entities by
one year. For publicly-traded business entities that follow U.S. GAAP, the deferral results in the new revenue standards’ being effective for fiscal years, and
interim periods within those fiscal years, beginning after December 15, 2017, with early adoption permitted for interim and annual periods beginning after
December 15, 2016. We will apply the new revenue standard under the modified retrospective approach, effective January 1, 2018. The cumulative effect of
initially applying the guidance will be recognized at the date of initial application. We are currently in the process of analyzing revenue recognition in
accordance with the new revenue standard to determine the impact on our consolidated financial statements and related disclosures.
In November 2015, the FASB issued ASU No. 2015-17, “Income Taxes (Topic 740): Balance Sheet Classification of Deferred Taxes”, which
simplifies the presentation of deferred income taxes by requiring deferred tax assets and liabilities to be classified as noncurrent on the balance sheet. The
amendments in this update are effective for financial statements issued for annual periods beginning after December 15, 2016, and interim periods within
those annual periods. We are currently evaluating the impacts the adoption of this updates will have on its consolidated financial statements as current
deferred tax assets were approximately RMB609,000 and non-current deferred tax liabilities were RMB373.8 million as of December 31, 2016.
In January 2016, the FASB issued ASU No. 2016-01, “Recognition and Measurement of Financial Assets and Financial Liabilities”, which provides
guidance for the recognition, measurement, presentation, and disclosure of financial assets and liabilities. The guidance will be effective for the fiscal year
beginning after December 15, 2017, including interim periods within that year. We are in the process of evaluating the impacts the adoption of this updates
will have on our consolidated financial statements.
In February 2016, the FASB issued ASU No. 2016-02, “Leases (Topic 842)”, which amends the existing accounting standards for lease accounting.
For operating leases, ASU No. 2016-02 requires a lessee to recognize a right-of-use asset and a lease liability, initially measured at the present value of the
lease payments, in its balance sheet with terms of more than twelve months. Lessees are permitted to make an accounting policy election to not recognize the
asset and liability for leases with a term of twelve months or less. The standard also requires a lessee to recognize a single lease cost, calculated so that the
cost of the lease is allocated over the lease term, on a generally straight-line basis. In addition, this standard requires both lessees and lessors to disclose
certain key information about lease transactions. The amendments in this Update are effective for fiscal years beginning after December 15, 2018, including
interim periods within those fiscal years. We are currently assessing the potential effects the adoption of this update may have on our consolidated financial
statements and related disclosures.
In March 2016, the FASB issued ASU No. 2016-09, “Compensation—Stock Compensation (Topic 718),” which intends to improve the accounting
for employee share-based payments. This standard addresses several aspects of the accounting for share-based payment award transactions, including: (a)
income tax consequences; (b) classification of awards as either equity or liabilities; and (c) classification on the statement of cash flows; (d) accounting for
forfeitures of share-based payments. This standard will be effective for annual periods beginning after December 15, 2016, and interim periods within those
annual periods, with early adoption permitted. We are currently assessing the potential effects the adoption of this update may have on our consolidated
financial statements and related disclosures.
78
In June 2016, the FASB issued ASU No. 2016-13, “Financial Instruments-Credit Losses (Topic 326),” which requires entities to measure all
expected credit losses for financial assets held at the reporting date. This replaces the existing incurred loss model and is applicable to the measurement of
credit losses on financial assets measured at amortized cost. For available-for-sale debt securities, entities will be required to record allowances rather than
reduce the carrying amount, as they do today under other-than-temporary impairment model. the For public business entities, the amendments in this Update
are effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. We are currently evaluating the impact
that the adoption of this update will have on our consolidated financial statements and related disclosures.
In August 2016, the FASB issued ASU No. 2016-15, “Statement of Cash Flows – Classification of Certain Cash Receipts and Cash Payments,”
which addresses the following eight specific cash flow issues: debt prepayment or debt extinguishment costs; settlement of zero-coupon debt instruments or
other debt instruments with coupon interest rates that are insignificant in relation to the effective interest rate of the borrowing; contingent consideration
payments made after a business combination; proceeds from the settlement of insurance claims; proceeds from the settlement of corporate-owned life
insurance policies (COLIs) (including bank-owned life insurance policies (BOLIs)); distributions received from equity method investees; beneficial interests
in securitization transactions; and separately identifiable cash flows and application of the predominance principle. The amendments in this Update are
effective for public business entities for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. Early adoption is
permitted. We are currently evaluating the impact that the adoption of this update will have on our consolidated financial statements and related disclosures.
In November 2016, the FASB issued ASU No. 2016-18, “Statement of Cash Flows (Topic 230): Restricted Cash.” The guidance requires that a
statement of cash flows explain the change during the period in the total of cash, cash equivalents, and amounts generally described as restricted cash or
restricted cash equivalents. Therefore, amounts generally described as restricted cash and restricted cash equivalents should be included with cash and cash
equivalents when reconciling the beginning-of-period and end-of-period total amounts shown on the statement of cash flows. The amendments in this Update
are effective for public business entities for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. Early adoption is
permitted, including adoption in an interim period. The standard should be applied using a retrospective transition method to each period presented. We are
currently evaluating the impact the adoption of this update will have on our consolidated financial statements.
In January 2017, the FASB issued ASU No. 2017-01, “Business Combinations (Topic 805): Clarifying the Definition of a Business,” which clarifies
the definition of a business with the objective of adding guidance to assist entities with evaluating whether transactions should be accounted for as
acquisitions or disposals of assets or businesses. Public business entities should apply the amendments in this Update to annual periods beginning after
December 15, 2017, including interim periods within those periods. Early application of the amendments in this Update is allowed as follows: 1. For
transactions for which the acquisition date occurs before the issuance date or effective date of the amendments, only when the transaction has not been
reported in financial statements that have been issued or made available for issuance; 2. For transactions in which a subsidiary is deconsolidated or a group of
assets is derecognized that occur before the issuance date or effective date of the amendments, only when the transaction has not been reported in financial
statements that have been issued or made available for issuance. The standard should be applied prospectively on or after the effective date. We will evaluate
the impact of adopting this standard prospectively upon any transactions of acquisitions or disposals of assets or businesses.
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 will now be the amount by which a reporting
unit’s carrying value exceeds its fair value, not to exceed the carrying amount of goodwill. The guidance should be adopted on a prospective basis for the
annual or any interim goodwill impairment tests beginning after December 15, 2019. Early adoption is permitted for interim or annual goodwill impairment
tests performed on testing dates after January 1, 2017. We are currently evaluating the impact the adoption of this update will have on our consolidated
financial statements.
79
Results of Operations
The following table sets forth our consolidated results of operations for the periods indicated. Our business has experienced rapid growth since
inception. We expect our growth to continue as we grow our user base and explore new market opportunities. However, due to our limited operating history,
our historical growth rate may not be indicative of our future performance. Therefore, we believe that period-to-period comparison of our results of operation
should not be relied upon as indicative of future performance.
We have consolidated Anjuke since March 2015 and Ganji since August 2015.
58 Home, a subsidiary that operates a mobile-based transactional platform for home services, was de-consolidated from our consolidated financial
results following its series A financing on November 27, 2015. Since then, we pick up 58 Home’s losses in the investment income and loss line based on our
ordinary share ownership percentage. Guazi, a subsidiary that operates our C2C used car trading platform, was de-consolidated on December 31, 2015. As
our investment in Guazi was accounted for using cost method, we did not recognize a proportionate share of the reported earnings or losses of Guazi for the
years ended December 31, 2015 and 2016. Prior to the dates when these businesses were de-consolidated, their financial results were part of our consolidated
financial results.
Revenues
Cost of revenues(1)
Gross profit
Operating expenses(1):
Sales and marketing expenses
Research and development expenses
General and administrative expenses
Total operating expenses
Income/(loss) from operations
Other income/(expenses), net
Income/(loss) before tax
Income taxes benefits/(expenses)
Net income/(loss)
For the Year Ended December 31,
2014
RMB
2015
RMB
2016
RMB
US$
(in thousands)
1,628,120
(85,081)
1,543,039
(1,106,689)
(268,336)
(126,709)
(1,501,734)
41,305
136,216
177,521
(38,088)
139,433
4,478,098
(322,016)
4,156,082
(4,316,217)
(760,796)
(659,284)
(5,736,297)
(1,580,215)
(117,154)
(1,697,369)
48,786
(1,648,583)
7,592,127
(707,237)
6,884,890
(4,941,380)
(1,107,897)
(601,906)
(6,651,183)
233,707
(1,057,650)
(823,943)
50,980
(772,963)
1,094,439
(101,951)
992,488
(712,322)
(159,708)
(86,767)
(958,797)
33,691
(152,465)
(118,774)
7,349
(111,425)
Note:
(1) Share-based compensation expenses were allocated in cost of revenues and operating expenses as follows:
Cost of revenues
Sales and marketing expenses
Research and development expenses
General and administrative expenses
Total
For the Year Ended December 31,
2014
RMB
2015
RMB
2016
RMB
US$
109
8,579
14,772
14,473
37,933
(in thousands)
760
44,049
59,314
72,482
176,605
490
59,017
98,515
108,553
266,575
71
8,508
14,201
15,648
38,428
80
The following table sets forth the results of operations for the periods indicated, as percentages of revenues.
Revenues
Cost of revenues
Gross profit
Operating expenses:
Sales and marketing expenses
Research and development expenses
General and administrative expenses
Total operating expenses
Income/(loss) from operations
Other income/(expenses), net
Income/(loss) before tax
Income taxes benefits/(expenses)
Net income/(loss)
2014
For the Year Ended December 31,
2015
(% of revenues)
2016
100.0%
(5.2)
94.8
(68.0)
(16.5)
(7.8)
(92.3)
2.5
8.4
10.9
(2.3)
8.6
100.0%
(7.2)
92.8
(96.4)
(17.0)
(14.7)
(128.1)
(35.3)
(2.7)
(38.0)
1.1
(36.9)
100.0%
(9.3)
90.7
(65.1)
(14.6)
(7.9)
(87.6)
3.1
(13.9)
(10.8)
0.6
(10.2)
Comparison of the Years Ended December 31, 2014, 2015 and 2016
Revenues
The following table sets forth the principal components of our revenues, both as absolute amounts and as percentages of total revenues, for the
periods indicated.
2014
2015
For the Year Ended December 31,
Membership
Online marketing services
E-commerce services
Other services
Total revenues
Membership
RMB
857,017
768,316
—
2,787
1,628,120
% of
revenues
RMB
% of
revenues
(in thousands, except for % data)
RMB
52.6
47.2
—
0.2
100.0
1,859,987
2,414,906
144,930
58,275
4,478,098
41.6
53.9
3.2
1.3
100.0
2,951,135
4,363,777
166,753
110,462
7,592,127
2016
US$
425,419
629,058
24,038
15,924
1,094,439
% of
revenues
38.9
57.5
2.2
1.4
100.0
Membership revenues were RMB857.0 million, RMB1.9 billion and RMB3.0 billion, representing 52.6%, 41.6% and 38.9% of revenues in 2014,
2015 and 2016, respectively. The increase in our membership revenues was primarily attributable to the increase in the number of our paying merchant
members, as a result of our stronger focus on acquiring and serving paying merchant members. The number of average quarterly paying membership
accounts on our 58 platform was approximately 529,000 in 2014. As a result of the Anjuke and Ganji transactions, the number of our average quarterly
paying membership accounts on our 58, Ganji and Anjuke platforms increased significantly to approximately 1,306,000 in 2015 and 1,982,000 in 2016. See
“Item 4. Information on the Company — B. Business Overview — Service offerings – Memberships” for details of subscription-based paying membership
accounts. We expect our membership revenues will continue to grow as we continue to expand our paying merchant member base in the existing and new
cities. Our field sales teams, who cover 45 cities for different content categories, and our sales agency network, who cover another approximately 360 cities,
will continue to attract new paying merchant members. Our dedicated customer service team will continue to contribute to membership revenues by retaining
existing merchants through helping them to optimize their marketing effectiveness.
81
2016 compared to 2015. Our membership revenues increased from RMB1.9 billion in 2015 to RMB3.0 billion in 2016, representing an increase of
58.7%. The increase was driven by an increase in the number of paying membership accounts. On our 58, Ganji and Anjuke platforms, the increase in
membership revenues was primarily due to the increase in average quarterly paying membership accounts from approximately 1,306,000 in 2015 to
approximately 1,982,000 in 2016. We experienced significant growth across multiple content categories, particularly in our real estate and jobs categories, in
2015 and 2016. Subsequent to the Ganji transaction, we reduced discounts for both brands, which contributed to the increase in net price of membership
across all categories. We also raised listing prices for real estate membership packages as our traffic grow rapidly and real estate market sentiment was
overall positive throughout most of 2016.
2015 compared to 2014. Our membership revenues increased from RMB857.0 million in 2014 to RMB1.9 million in 2015, representing an increase
of 117.0%. The increase was driven by the addition of revenues from Ganji and Anjuke as well as the organic growth of our 58 platform. On our 58, Ganji
and Anjuke platforms, the increase in membership revenues was primarily due to the increase in average quarterly paying membership accounts from
approximately 529,000 in 2014 to approximately 1,306,000 in 2015. We experienced significant growth across multiple content categories, particularly in
our real estate and jobs categories, in 2014 and 2015. We did not experience significant price increases for the membership packages during the same
periods.
Online Marketing Services
Revenues from online marketing services were RMB768.3 million, RMB2.4 billion and RMB4.4 billion, representing 47.2%, 53.9% and 57.5% of
our revenues in 2014, 2015 and 2016, respectively. Although online marketing services are available to all merchants, the members who have purchased the
subscription-based membership services contributed the majority of our online marketing services revenues. In addition, we continue to enhance our ability
to more efficiently monetize our substantial traffic. For instance, in early 2015, we upgraded our real-time bidding system from a time-based (daily) bidding
to click-based bidding (CPC), which allows merchants to bid more extensively on our platforms. This also enables us to generate higher revenues from the
same amount of listings. In 2016, in some categories, the platforms set fixed CPC price that is subject to regular reviews and adjustment, instead of a
dynamic bidding pricing system. We made decisions as to which bidding system should be used based on our experience and knowhow about each specific
content category. These services have continued to attract more merchants and increase average spending per merchant. We expect our online marketing
services will continue to grow as we further develop the paying merchant network, diversify our services and increase the marketing effectiveness and
engagement of our customers.
2016 compared to 2015. Our online marketing services revenues increased from RMB2.4 billion in 2015 to RMB4.4 billion in 2016, representing an
increase of 80.7%. The increase was mostly driven by increased revenues from Ganji and Anjuke, as well as the organic growth of our 58 platform. The
increase of our subscription-based paying merchant members, increased traffic and more diversified products help grow the online marketing services
revenues.
2015 compared to 2014. Our online marketing services revenues increased from RMB768.3 million in 2014 to RMB2.4 billion in 2015,
representing an increase of 214.3%. The increase was mostly driven by the organic growth of our 58 platform, as well as the consolidation of Ganji’s and
Anjuke’s financial results. The newly consolidated Ganji and Anjuke platforms also have online marketing services, but a lower percentage of their paying
customers purchase bidding services due to their lack of experience in this area. We have been working to transfer the requisite knowledge and systems to the
Ganji and Anjuke platforms.
E-commerce Services
Revenues from e-commerce services were RMB144.9 million and RMB166.8 million, representing approximately 3.2% and 2.2% of our revenues
in 2015 and 2016, respectively, all of which was contributed by the Anjuke business that we acquired in March 2015. It mainly related to our sale of discount
coupons for primary real estate projects.
Other Services
Revenues from other services were RMB2.8 million, RMB58.3 million and RMB110.5 million, representing approximately 0.2%, 1.3% and 1.4%
of our revenues in 2014, 2015 and 2016, respectively. In 2014, revenues from other services mainly related to group buying services. We exited from the
group buying services in the second half of 2014. In 2015, revenues from other services mainly related to Guazi C2C services and offline recruitment
services. In 2016, revenues from other services mainly related to offline recruitment services.
82
Cost of Revenues
Cost of revenues consists primarily of bandwidth costs, rental costs, equipment depreciation associated with website operation, and salaries, benefits
and share-based compensation for our personnel responsible for website maintenance and operation. It also includes the traffic acquisition costs (TAC) paid
to our advertising union partners who displayed our merchants’ marketing information on their websites or mobile applications. We expect that our cost of
revenues will increase in absolute amounts as we further grow our user base and expand our revenue-generating services. For the share-based compensation
charges included in cost of revenues, see “— Critical Accounting Policies — Share-Based Compensation” for more information.
2016 compared to 2015. Our cost of revenues was RMB707.2 million in 2016, an increase of 119.6% from RMB322.0 million in 2015. The
increase in cost of revenues was primarily driven by increased TAC paid to our 58 platform’s advertising union partners as well as other types of website
maintenance-related costs such as short message service (SMS) costs, bandwidth fees and depreciation expenses.
2015 compared to 2014. Our cost of revenues was RMB322.0 million in 2015, an increase of 278.5% from RMB85.1 million in 2014. The increase
in cost of revenues was primarily driven by our consolidation of Ganji’s and Anjuke’s financial results, the organic growth of our 58 platform and an increase
in traffic acquisition costs paid to our 58 platform’s advertising union partners, as well as other types of PC and mobile platform maintenance related costs
such as SMS costs, bandwidth fees and depreciation expenses.
Gross Profit
We expect our gross profit to increase as our revenues grow. The following table sets forth our gross profit and gross margin for the periods
indicated.
Gross profit
Gross margin
For the Year Ended December 31,
2014
RMB
2015
RMB
(in thousands, except for % data)
2016
RMB
US$
1,543,039
94.8%
4,156,082
92.8%
6,884,890
90.7%
992,488
90.7%
2016 compared to 2015. Our gross profit increased from RMB4.2 billion in 2015 to RMB6.9 billion in 2016, representing an increase of 65.7%.
The increase in gross profit was primarily attributable to the significant increase in membership revenues as well as online marketing services revenues from
our core classified business and the consolidation of financial results of Ganji and Anjuke. Gross margin decreased from 92.8% to 90.7% during the same
period. The decrease in gross margin was primarily due to the increase in TAC paid to our 58 platform’s advertising union partners.
2015 compared to 2014. Our gross profit increased from RMB1.5 billion in 2014 to RMB4.2 billion in 2015, representing an increase of 169.3%.
The increase in gross profit was primarily attributable to the significant increase in membership revenues as well as online marketing services revenues from
our core classified business and the consolidation of financial results of Ganji and Anjuke. Gross margin decreased from 94.8% to 92.8% during the same
period. The decrease in gross margin was primarily due to the growth of our advertising union business, which has a lower gross margin than our core
classifieds business.
Operating Expenses
Our operating expenses consist of sales and marketing expenses, research and development expenses and general and administrative expenses. The
following table sets forth our operating expenses, both as absolute amounts and as percentages of our revenues, for the periods indicated.
Sales and marketing expenses
Research and development
expenses
General and administrative
expenses
Total operating expenses
RMB
1,106,689
268,336
126,709
1,501,734
% of
revenues
68.0
16.5
7.8
92.3
2014
2015
For the Year Ended December 31,
RMB
% of
revenues
(in thousands, except for % data)
RMB
2016
US$
% of
revenues
96.4
17.0
14.7
128.1
4,941,380
712,322
1,107,897
159,708
601,906
6,651,183
86,767
958,797
65.1
14.6
7.9
87.6
4,316,217
760,796
659,284
5,736,297
83
Our sales and marketing expenses, research and development expenses and general and administrative expenses include share-based compensation
charges. See “— Critical Accounting Policies — Share-Based Compensation” for more information.
Sales and Marketing Expenses
Sales and marketing expenses consist primarily of offline brand advertising, PC and mobile traffic acquisition expenses, salaries, benefits,
commissions and share-based compensation for our sales, sales support, customer service and marketing personnel, promotion expenses and other operating
expenses that are associated with sales and marketing activities.
The following table sets forth our advertising expenses, sales and marketing expenses excluding advertising expenses and total sales and marketing
expenses, both as absolute amounts and as percentages of our revenues, for the periods indicated.
Advertising expenses
Sales and marketing expenses
excluding advertising expenses
Total sales and marketing expenses
RMB
451,172
655,517
1,106,689
2014
2015
For the Year Ended December 31,
% of
revenues
RMB
% of
revenues
(in thousands, except for % data)
RMB
2016
US$
% of
revenues
27.7
40.3
68.0
1,811,852
2,504,365
4,316,217
40.5
55.9
96.4
2,040,020
294,078
2,901,360
4,941,380
418,244
712,322
26.9
38.2
65.1
In 2014, in order to grow user base and compete with Ganji, our advertising expenses grew rapidly as compared to previous years. Since the
consolidation of Ganji in August 2015, as competition in online classifieds space subsided, we have been reducing our advertising spending on various
platforms and trying to optimize the efficiency of this spending. However, we continue to maintain a reasonable level of advertising investment in areas
where we still see user growth or promising new models such as Guazi, a consumer to consumer used car trading platform, and Zhuan Zhuan (“转转”)
especially during the initial brand launch stage. During 2016, we also invested in traffic acquisition for our Anjuke platform to gain greater market share
while the underlying real estate market continued to remain strong until the end of the third quarter. See “Item 4. Information on the Company — B.
Business Overview — Market and Brand Promotion” for details of the operation.
Similarly, during 2014 and the period until our consolidation of Ganji, in order to grow paying merchant base and revenues and to compete with
Ganji, the headcount of our sales and service teams grew rapidly, which contributed to the rapid increase of the sales and marketing expenses excluding
advertising expenses during that period. Since the consolidation of Ganji in August 2015, as competition in online classifieds space subsided, we have been
exercising tighter control on sales and services headcount increase and focusing more on providing better tools and management guidance to optimize the
efficiency of the teams. However, we continue to invest in areas where we anticipate satisfactory return on our sales and services investment. For example, in
Anjuke we have seen market share gains against competitors while the underlying real estate market continued to remain strong until the end of the third
quarter. See “Item 4. Information on the Company — B. Business Overview — Sales and Customer Service” for details of the operation.
84
Expenses related to Anjuke in 2015 only included the period from March 2015 to the end of the year and expenses related to Ganji in 2015 only
included the period from August 2015 to the end of the year. During the initial launch phase of 58 Home’s business, we provided subsidies to the individual
service providers on the 58 Home platform. After the de-consolidation of 58 Home in November 2015, its expense were no longer included in our
consolidated expenses. The advertising expenses charged by Tencent, a related party of our company, amounted to RMB9.1 million, RMB 152.1 million and
RMB351.1 million for the years ended December 31, 2014, 2015 and 2016, respectively.
We expect that our sales and marketing expenses will increase going forward as we continue to see opportunities in attracting more users,
particularly on mobile internet, and merchants through our advertising campaign and sales and customer service teams. We also expect to continue to
improve the efficiency of these investments.
2016 compared to 2015. Our sales and marketing expenses increased from RMB4.3 billion in 2015 to RMB4.9 billion in 2016, representing an
increase of 14.5%. Our advertising expenses increased from RMB1.8 billion in 2015 to RMB2.0 billion in 2016, representing an increase of 12.6%. The
increase in advertising expense was primarily a result of increase from the consolidation of Anjuke’s financial results since March 2015 and Ganji’s financial
results since August 2015, which was partially offset by the deconsolidation of Guazi since December 2015. The advertising expenses for our 58 brand in
2016 was less than that in 2015, but we allocated advertising expenses to newly launched ChinaHR and Zhuan Zhuan (“转转”). Our other sales and
marketing expenses increased from RMB2.5 billion in 2015 to RMB2.9 billion in 2016, representing an increase of 15.9%. The increase in other sales and
marketing expenses was primarily a result of the consolidation of Anjuke’s financial results since March 2015 and Ganji’s financial results since August
2015, which was partially offset by the deconsolidation of 58 Home since November 2015. The increase in other sales and marketing expenses was also
driven by a modest increase of sales and service headcount and sales commissions and local marketing expenses associated with increased revenues.
2015 compared to 2014. Our sales and marketing expenses increased from RMB1.1 billion in 2014 to RMB4.3 billion in 2015, representing an
increase of 290.0%. Our advertising expenses increased from RMB451.2 million in 2014 to RMB1.8 billion in 2015, representing an increase of 301.6%.
The increase in advertising expense was primarily a result of increase from the consolidation of Ganji’s and Anjuke’s financial results. Within Ganji’s
financial results, Guazi contributed more of the increase in advertising expenses than Ganji’s own core classifieds business. We also stepped up Anjuke’s
advertising expenses after the acquisition along with what we perceived as the recovering China real estate market. The increase in advertising expenses for
our 58 platform in response to increasing competition was also very significant, especially during the first half of 2015, but following the consolidation of
Ganji that took place in August 2015, the expenses have been scaled back. The increase in other sales and marketing expenses excluding advertising
expenses was driven by both the consolidation of Ganji’s and Anjuke’s financial results and the organic growth of our 58 platform. The increase associated
with the 58 platform was attributable to subsidies paid to service providers on the 58 Home platform, as well as increased salaries, benefits and commissions
as a result of the increased headcount of sales and marketing personnel in response to increased competition with Ganji prior to our consolidation of Ganji.
Research and Development Expenses
Research and development expenses mainly consist of salaries, benefits and share-based compensation for product development and engineering
personnel and other operating expenses such as rental and depreciation of equipment that are associated with product development and engineering activities.
We expect our research and development expenses to increase as we intend to hire additional research and development personnel to develop new features,
applications and services for our online platforms and further improve our technologies and infrastructure. See “Item 4. Information on the Company — B.
Business Overview — Technology” for details of the technology aspect of the business.
2016 compared to 2015. Research and development expenses increased from RMB760.8 million in 2015 to RMB1.1 billion in 2016, representing
an increase of 45.6%. The increase was primarily a result of the consolidation of Anjuke’s financial results since March 2015 and Ganji’s financial results
since August 2015 and the organic increase of research and development expenses associated with our 58 platform. The increase was also attributable to
increased costs associated with the hiring of additional research and development personnel for the development of new features and services.
85
2015 compared to 2014. Research and development expenses increased from RMB268.3 million in 2014 to RMB760.8 million in 2015,
representing an increase of 183.5%. The increase was primarily due to an increase in research and development expenses associated with our 58 platform, as
well as those from our Ganji and Anjuke platforms. The increase was also attributable to increased costs associated with the hiring of additional research and
development personnel for the development of new features and services.
General and Administrative Expenses
General and administrative expenses consist primarily of salaries, benefits and share-based compensation for our general and administrative
personnel, general office expenses and fees and expenses for third-party professional services. We expect our general and administrative expenses to increase
in the future as our business grows.
2016 compared to 2015. Our general and administrative expenses decreased from RMB659.3 million in 2015 to RMB601.9 million in 2016,
representing a decrease of 8.7%. This decrease was primarily due to financial advisory and professional service fees incurred in connection with the strategic
investment in Ganji and RMB77.3 million in compensation to noncontrolling shareholders resulting from a waiver of receivables from 58 Home in 2015,
which was partially offset by increases in share-based compensation expenses, administrative staff salaries and benefits, and depreciation and amortization
expenses in 2016.
2015 compared to 2014. Our general and administrative expenses increased from RMB126.7 million in 2014 to RMB659.3 million in 2015,
representing an increase of 420.3%. This increase was primarily due to share-based compensation expenses and approximately RMB216.5 million in
professional fees associated with our strategic investment in Ganji in 2015. The increase was also partially due to an increase in the number of support staff
hired to support the expansion of our sales teams in 2015.
Seasonality
Our results of operations are subject to seasonal fluctuations. For example, our revenues are typically lower during the holidays in China,
particularly during the Chinese New Year period, which occurs in the first quarter of the year. Many businesses are either closed or substantially reduce their
activities, including hiring and marketing, during the Chinese New Year holiday. However, we typically concentrate brand advertising in the first quarter of
the year, especially during and after the Chinese New Year period, as advertisers seek to reach a broader audience during the holiday season. Aside from the
impact of seasonality on the first quarter, certain business activities such as recruitment tend to slow down towards the year end, which might impact our
revenues in the fourth quarter of the year. In real estate category, while we increase our market share in online marketing, government policies that either
loosen or tighten the real estate market might impact our customer transactions volume, which will in turn indirectly impact their marketing investment on
our platforms. Historically, seasonality has not been readily apparent in our results of operations due to the rapid growth in revenues that we experienced in
recent years and also the multiple sources of our revenues from different content categories, but we may experience reductions in growth on a successive
quarter basis due to these seasonal factors or other factors.
Our results of operations for the first quarter of 2017 may be affected by similar trends and key factors that affected our previous first quarters in the
past. For the first quarter of 2017, we expect to experience similar seasonal impact on our estimated revenues and incur increased sales and marketing
expenses due to marketing campaigns conducted during this period.
Inflation
Since our inception, inflation in China has not materially impacted our results of operations. According to the National Bureau of Statistics of
China, the year-over-year percent changes in the consumer price index for December 2014, 2015 and 2016 were increases of 1.5%, 1.6% and 2.1%,
respectively. Although we have not been materially affected by inflation in the past, we can provide no assurance that we will not be affected in the future by
higher rates of inflation in China. For example, certain operating costs and expenses such as employee compensation and office operating expenses may
increase as a result of higher inflation. Additionally, because a substantial portion of our assets consists of cash and cash equivalents, term deposits and short-
term investments, high inflation could significantly reduce the value and purchasing power of these assets. We are not able to hedge our exposure to higher
inflation in China.
86
Impact of Foreign Currency Fluctuation
See “Item 3. Key Information — D. Risk Factors — Risks Related to Doing Business in China — Fluctuations in exchange rates could have a
material adverse effect on our results of operations and the value of your investment.” and “Item 11. Quantitative and Qualitative Disclosures About Market
Risk — Foreign Exchange Risk.”
Impact of Governmental Policies
See “Item 3. Key Information — D. Risk Factors — Risks Related to Doing Business in China” and “Item 4. Information on the Company — B.
Business Overview — Regulation.”
B.
Liquidity and Capital Resources
Cash Flows and Working Capital
Our principal sources of liquidity have been financing activities and operating activities.
Our financing activities include issuance of shares and various loan borrowings from commercial banks and Tencent. In November 2013, we raised
an aggregate of approximately US$215.0 million in net proceeds from our initial public offering and concurrent private placement. In April 2014, we raised
an additional US$73.0 million from a follow-on public offering of ADSs by us and certain selling shareholders. In June 2014, Tencent invested US$736.1
million in our company, of which we used US$552.1 million to repurchase our ordinary shares from certain pre-IPO shareholders. In April 2015, Tencent
purchased an additional US$400.0 million of newly issued ordinary shares from us. In July 2015, we obtained a loan from Tencent in an aggregate principal
amount of US$400.0 million. In December 2015, we and Tencent entered into an amendment to the loan agreement, pursuant to which we issued
approximately 4.3 million Class A ordinary shares to Tencent and the principal amount of the loan under the loan agreement was reduced to US$275 million.
Our bank borrowings included a loan of US$275.0 million obtained in April 2016 from China Merchants Bank Co., Ltd., or CMB Bank, which was secured
by 12.4 million Class B ordinary shares personally owned by Mr. Jinbo Yao, the chief executive officer of our company, and used the proceeds from this
loan to repay our amended loan from Tencent. We have fully repaid this US$275.0 million loan from CMB Bank as of the date of this annual report.
Additionally, in November 2015, 58 Home raised US$300.0 million in a Series A equity funding round, of which US$10.0 million was contributed by
58.com Inc.
We had net cash provided by operating activities of RMB606.7 million, RMB198.5 million and RMB1.9 billion in 2014, 2015 and 2016,
respectively. The increase in net cash provided by operating activities in 2016 was primarily contributed by increased revenues and improved cost control
after Anjuke’s and Ganji’s businesses were fully integrated into our own.
As of December 31, 2016, we had cash and cash equivalents, term deposits and short-term investments totaling RMB2.1 billion. These included (i)
RMB1.2 billion in cash and cash equivalents, which primarily consisted of cash, demand deposits and highly liquid investments placed with banks or other
financial institutions that have original maturities of three months or less, (ii) RMB26.4 million in term deposits, placed with banks with terms longer than
three months but shorter than or equal to one year and (iii) RMB833.5 million in short-term investments, placed with banks with terms shorter than three
months. As of December 31, 2016, our current liabilities exceeded our current assets by RMB2.8 billion, and we had an accumulated deficit of RMB3.1
billion. For the year ended December 31, 2016, we had a net loss attributable to 58.com of RMB783.8 million. Our ability to continue as a going concern is
dependent on our ability to successfully execute our business plan, which includes increasing revenues while controlling operating expenses, as well as
generating cash flows from operating activities. We believe our current cash and cash equivalents and anticipated cash flow from operations provide
sufficient funds to meet the working capital requirements to fund planned operations and other commitments for at least the next twelve months from the date
of this annual report.
We obtained a two-year interest-bearing loan in U.S. dollars amounted to US$107.5 million from CMB Bank on April 21, 2017. This bank loan was
secured by two-year term deposits in Renminbi amounted to RMB792.0 million. We used the proceeds from this loan to repay the remaining outstanding
balance under our April 2016 short-term loan from CMB Bank.
Although we consolidate the results of our consolidated affiliated entities and their subsidiaries, our access to cash balances or future earnings of
these entities is only through our contractual arrangements with them and their shareholders. See “Item 4. Information on the Company — C. Organizational
Structure — Our Contractual Arrangements.”
87
Cash Flow
The following table sets forth a summary of our cash flows for the periods indicated.
Net cash provided by/(used in):
Operating activities
Investing activities
Financing activities
Effect of exchange rate changes on cash and cash equivalents
Net increase/(decrease) in cash and cash equivalents
Operating Activities
For the Year Ended December 31,
2014
RMB
2015
RMB
2016
RMB
US$
(in thousands)
606,717
(1,884,031)
1,584,885
5,113
312,684
198,538
(2,781,242)
4,930,710
108,872
2,456,878
1,887,849
(3,948,027)
58,631
63,617
(1,937,930)
272,143
(569,126)
8,452
9,170
(279,361)
Net cash provided by operating activities was RMB1.9 billion in 2016. Our net cash provided by operating activities in 2016 reflected a net loss of
RMB773.0 million, adjusted for non-cash items of RMB1.8 billion and changes in operating assets and liabilities net of acquisitions and disposals of
RMB824.7 million. Non-cash reconciling items mainly included share of results of equity investees of RMB926.7 million, depreciation and amortization
expenses of RMB406.8 million, share-based compensation expenses of RMB266.6 million, impairment loss of long-term investments and other non-current
assets of RMB172.1 million, loss upon conversion of Guazi Convertible Note of RMB84.2 million and gain on deconsolidation and disposal of businesses of
RMB79.6 million. Changes in operating assets and liabilities mainly represented an increase in deferred revenues of RMB420.9 million, an increase in
accrued expenses and other liabilities of RMB269.1 million, an increase in customer advances of RMB233.4 million, partially offset by an increase in
accounts receivable of RMB87.8 million. Deferred revenues and customer advances increased as the collection of our membership services and online
marketing services grew rapidly as a result of rapid growth in the number of paying membership accounts. The increase in accrued expenses and other
liabilities was primarily due to the growth in accruals primarily associated with the increase in our headcount, and the growth in our online
marketplace business resulting in an increase of deposits by sales agents. The increase in accounts receivable was in line with revenue growth.
Net cash provided by operating activities was RMB198.5 million in 2015. Our net cash provided by operating activities in 2015 reflected a net loss
of RMB1.6 billion, adjusted for non-cash items of RMB686.2 million and changes in operating assets and liabilities net of acquisitions and disposals of
RMB1.2 billion. Non-cash reconciling items mainly included investment loss of RMB230.6 million, share of results of equity investees of RMB717.6
million, gain on deconsolidation and disposal of businesses of RMB765.1 million, depreciation and amortization expenses of RMB209.1 million and share-
based compensation expenses of RMB176.6 million. Changes in operating assets and liabilities mainly represented an increase in customer advances of
RMB484.0 million, an increase in deferred revenues of RMB363.2 million, an increase in accounts payable of RMB304.9 million, an increase in accrued
expenses and other liabilities of RMB162.1 million and an increase in salary and welfare payable of RMB167.7 million, partially offset by an increase in
accounts receivable of RMB166.2 million and an increase in prepayments and other assets of RMB158.7 million. Deferred revenues and customer advances
increased as the collection of our membership services and online marketing services grew rapidly as a result of rapid growth in the number of paying
membership accounts. The increase in accounts payable was primarily due to our consolidation of the financial statements of Ganji and Anjuke, and the year-
over-year increase in advertising expenses for the 58 platforms primarily resulted from increasing competition. The increase in accounts receivable was
primarily due to our consolidation of Anjuke’s financials.
Net cash provided by operating activities was RMB606.7 million in 2014. Our net cash provided by operating activities in 2014 reflected a net
income of RMB139.4 million, adjusted for non-cash items of RMB74.8 million and changes in operating assets and liabilities of RMB392.5 million. Non-
cash reconciling items mainly included depreciation and amortization expenses of RMB34.4 million and share-based compensation expenses of RMB37.9
million. Changes in operating assets and liabilities mainly represented an increase in deferred revenues of RMB247.4 million, increase in customer advances
and deposits of RMB89.9 million, increase in salary and welfare payable of RMB66.4 million, an increase in accounts payable of RMB37.0 million and an
increase in accrued expenses and other current liabilities of RMB31.2 million, partially offset by an increase in prepayments and other assets of RMB98.5
million. Deferred revenues and customer advances and deposits increased as the collection of our membership services and online marketing services grew
rapidly.
88
Investing Activities
Net cash used in investing activities primarily consists of long-term investments and business acquisitions, purchase of office space, investment in
short-term financial instruments and term deposits to increase the interest income for our excess cash. We expect that our capital expenditures will increase
as we purchase additional equipment and servers and expand our technology infrastructure to support the growth of our business.
Our net cash used in investing activities in 2016 was RMB3.9 billion, primarily due to cash payments of RMB1.5 billion related to our investment
in Ganji, RMB190.9 million related to our acquisition of Anjuke and increase in restricted cash of RMB1.1 billion as collateral for the RMB 1.1 billion short-
term bank loan borrowed from CMB Bank in 2016. We purchased RMB9.7 billion short-term investment, which was partially offset by RMB9.1 billion of
proceeds from maturity of short-term investment in 2016.
Our net cash used in investing activities in 2015 was RMB2.8 billion, primarily due to cash paid for investment in Ganji of RMB3.3 billion and
acquisition of Anjuke of RMB766.5 million. Our net cash used in investing activities in 2015 also included RMB1.3 billion we paid for purchase of office
space in Beijing and Tianjin headquarters as well as other property and equipment, and RMB3.0 billion we used to purchase short-term financial instruments,
which were partially offset by RMB4.4 billion of proceeds from maturity of short-term investments.
Our net cash used in investing activities in 2014 was RMB1.9 billion, including RMB199.6 million we paid for the purchase of office space in
Beijing and Tianjin headquarters and other property and equipment, and RMB4.0 billion we used to purchase short-term financial instruments, which were
partially offset by RMB3.3 billion of proceeds from maturity of short-term investments.
Financing Activities
Net cash provided by financing activities primarily consists of net proceeds from the issuance of ordinary and preference shares as well as
borrowing from an existing shareholder.
Our net cash provided by financing activities in 2016 was RMB58.6 million, primarily consisted of proceeds from short-term bank borrowing of
RMB2.9 billion from CMB Bank, repayment of RMB1.2 billion short-term bank borrowing from CMB Bank, cash paid by employees for their exercise of
share options of RMB21.1 million and cash contributed by noncontrolling shareholders of affiliated PRC companies of RMB28.2 million, which were
partially offset by proceeds from long-term bank borrowing of RMB150 million from Shanghai Pudong Development Bank, and repayment of RMB1.8
billion short-term borrowing from Tencent.
Our net cash provided by financing activities in 2015 was RMB4.9 billion, primarily attributable to the proceeds from borrowing of short-term loans
of RMB2.5 billion, and the proceeds from issuance of ordinary shares to Tencent of RMB2.5 billion.
Our net cash provided by financing activities in 2014 was RMB1.6 billion, primarily attributable to the net proceeds from our follow-on public
offering and the investment by Tencent.
89
Holding Company Structure
We are a holding company with no material operations of our own. We conduct our operations primarily through our wholly owned subsidiaries and
consolidated affiliated entities in China. As a result, our ability to pay dividends to our shareholders depends upon dividends paid by our PRC subsidiaries. If
our PRC subsidiaries incur debt on their own behalf in the future, the instruments governing their debt may restrict their ability to pay dividends to us. In
addition, our PRC subsidiaries are permitted to pay dividends to us only out of their retained earnings, if any, as determined in accordance with PRC
accounting standards and regulations. Under PRC law, each of our subsidiaries and our consolidated variable interest entities in China is required to set aside
at least 10% of its after-tax profits each year, if any, to fund certain statutory reserve funds until such reserve funds reach 50% of its registered capital. In
addition, each of our subsidiaries and consolidated affiliated entities in China may allocate a portion of its after-tax profits based on PRC accounting
standards to staff welfare and bonus funds at its discretion. These reserve funds and staff welfare and bonus funds are not distributable as cash dividends.
Most of our PRC subsidiaries and consolidated affiliated entities have incurred accumulated losses. Our PRC subsidiaries have never paid dividends and do
not plan to pay dividends until they generate accumulated profits and meet the requirements for statutory reserve funds.
Capital Expenditures
We had capital expenditures of RMB199.6 million, RMB1.3 billion and RMB213.1 million in 2014, 2015 and 2016, respectively, representing
12.3%, 28.2% and 2.8% of our total revenues for such years. Our capital expenditures were primarily for the purchase of servers, other equipment and office
buildings. In 2014, 2015 and 2016, we prepaid RMB103.3 million, RMB1.1 billion and nil, respectively, for the purchase of new office spaces. Our capital
expenditures have been primarily funded by net cash provided by financing activities and net cash provided by operating activities.
C.
Research and Development
As of December 31, 2016, we had 3,332 product development and engineering professionals who focus on developing products to deliver and
enhance user experience. We have developed a robust technology platform capable of efficiently processing large amounts of data, screening the relevance
and credibility of information, and delivering a superior search indexing function. Our system is built on a distributed, load balanced computing
infrastructure, which is highly scalable and reliable. This allows us to expand processing capacity and add new features and functionalities efficiently without
incurring significant additional costs.
Our success and ability to compete depend, in part, upon our ability to establish and adequately protect our intellectual property rights. In this
regard, we rely primarily on a combination of patent, copyright, software registration, trademark, trade secret and unfair competition laws and contractual
rights, such as confidentiality and license agreements with our employees, partners and others. As of March 31, 2017, we held 47 patents and had applied for
the registration of 195 other patents, which cover a variety of technologies, including those relating to data processing, search, distribution and publishing. As
of March 31, 2017, we had registered 219 computer software copyrights and 53 artwork copyrights in China, and had registered 37 domain names that are
material to our business, including www.58.com, www.58.com.cn, www.ganji.com, www.ganji.com.cn, www.anjuke.com and www.anjuke.cn, and 848
trademarks, including
,
and
, in China, excluding those relating to 58 Home.
D.
Trend Information
Other than as disclosed elsewhere in this annual report, we are not aware of any trends, uncertainties, demands, commitments or events for the
period since January 1, 2016 that are reasonably likely to have a material adverse effect on our net revenues, income, profitability, liquidity or capital
resources, or that would cause the disclosed financial information to be not necessarily indicative of future operating results or financial conditions.
E.
Off-Balance Sheet Arrangements
We have not entered into any financial guarantees or other commitments to guarantee the payment obligations of any third parties. We have not
entered into any derivative contracts that are indexed to our shares and classified as shareholder’s equity or that are not reflected in our consolidated financial
statements. Furthermore, we do not have any retained or contingent interest in assets transferred to an unconsolidated entity that serves as credit, liquidity or
market risk support to such entity. We do not have any variable interest in any unconsolidated entity that provides financing, liquidity, market risk or credit
support to us or engages in leasing, hedging or product development services with us.
90
F.
Tabular Disclosure of Contractual Obligations
We lease our facilities and offices under non-cancelable operating lease agreements. Certain of these arrangements have renewal or expansion
options and adjustments-for-market provisions, such as free or escalating base monthly rental payments.
We use third-party services for server custody and bandwidth. The contracts are typically 12 months in duration. We typically contract these
services according to the traffic level of our online platforms and the respective server storage and bandwidth required to support the traffic.
The following table sets forth our contractual obligations and commercial commitments as of December 31, 2016:
Operating lease commitment
Server custody and bandwidth fee commitment
Advertising commitment
Bank loans and accrued interest payable
Total
Payment Due by Period
Total
484,599
95,216
212,495
2,049,444
2,841,754
Less than
1 year
175,552
67,216
212,495
1,890,538
2,345,801
2–3 years
(in thousands of RMB)
4–5 years
228,102
28,000
—
158,906
415,008
78,003
—
—
—
78,003
More than
5 years
2,942
—
—
—
2,942
In April 2016, we obtained a secured loan of US$275.0 million from CMB Bank. The loan is interest bearing and has a 13-month tenor. The
proceeds from this loan have been used to repay our amended loan from Tencent.
In September and December 2016, we obtained new interest-bearing loans amounted to US$157.5 million from CMB Bank, which will be due in
September and December 2017, respectively. The new bank borrowings were secured by term deposits amounted to US$165.6 million, which was classified
as restricted cash in our consolidated balance sheets. We used proceeds from these new loans to finance the repayment of our April 2016 loan from CMB
Bank and repaid US$167.5 million principal and US$6.3 million accrued interest expense in 2016. On April 21, 2017, the remaining outstanding principal of
US$107.5 million under our April 2016 CMB Bank loan was fully repaid.
As of December 31, 2016, outstanding principal amount and accrued interest of the loans from CMB Bank amounted to US$265.6 million.
In November 2016, we obtained a three-year interest bearing loan of RMB150 million from Shanghai Pudong Development Bank, which was
secured by an office building of the Company as collateral. The proceeds from this loan will be used to build a local life information cloud platform based on
big data. According to the loan agreement, the principal amount will be repaid in four installments, with two installments totaling RMB75 million due in
2018 and the other two installments of RMB75 million due in 2019.
G.
Safe Harbor
This annual report on Form 20-F contains forward-looking statements. These statements are made under the “safe harbor” provisions of Section 21E
of the Securities Exchange Act of 1934, as amended. These forward-looking statements can be identified by terminology such as “will,” “expects,”
“anticipates,” “future,” “intends,” “plans,” “believes,” “estimates,” “confident” and similar statements. Among other things, the sections titled “Item 3. Key
Information — D. Risk Factors,” “Item 4. Information on the Company,” and “Item 5. Operating and Financial Review and Prospects” in this annual report
on Form 20-F, as well as our strategic and operational plans, contain forward-looking statements. We may also make written or oral forward-looking
statements in our filings with the SEC, in our annual report to shareholders, in press releases and other written materials and in oral statements made by our
officers, directors or employees to third parties. Statements that are not historical facts, including statements about our beliefs and expectations, are forward-
looking statements and are subject to change, and such change may be material and may have a material and adverse effect on our financial condition and
results of operations for one or more prior periods.
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Forward-looking statements involve inherent risks and uncertainties. A number of important factors could cause actual results to differ materially
from those contained, either expressly or impliedly, in any of the forward-looking statements in this annual report on Form 20-F. Potential risks and
uncertainties include, but are not limited to, our goals and strategies, our future business development, financial condition and results of operations, ability to
retain and grow our user base and network of local merchants for our online platforms, the growth of, and trends in, the markets for our services in China, the
demand for and market acceptance of our brand and services, competition in our industry in China, our ability to maintain the network infrastructure
necessary to operate our websites and mobile applications, relevant government policies and regulations relating to the corporate structure, business and
industry, and our ability to protect its users’ information and adequately address privacy concerns. All information provided in this annual report on Form
20-F and in the exhibits is as of the date of this annual report on Form 20-F, and we do not undertake any obligation to update any such information, except
as required under applicable law.
ITEM 6.
DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES
A.
Directors and Senior Management
The following table sets forth information regarding our executive officers and directors as of the date of this annual report.
Directors and Executive
Officers
Jinbo Yao
Xiaoguang Wu
Frank Lin
Herman Yu
Chi (Eric) Zhang
Xiaohua Chen
Hao Zhou
Hongyu Xing
Jiandong Zhuang
Mingke He
Age
40
41
52
46
41
35
40
44
48
38
Position/Title
Chairman and Chief Executive Officer
Director
Independent Director
Independent Director
Independent Director
Chief Strategic Officer; Chief Executive Officer of 58 Home
Chief Financial Officer
Chief Technology Officer
Executive Vice President of Housing and Auto Business Group (HBG & ABG)
Senior Vice President of Sales
Mr. Jinbo Yao is our founder and has served as chairman of our board of directors and chief executive officer of our company since our inception.
Mr. Yao is a pioneer in the PRC internet industry. Before founding our company, in 2000, Mr. Yao founded domain.cn, a domain name transaction and
value-added service website in China. After domain.cn was acquired by net.cn in September 2000, Mr. Yao served various managerial roles at net.cn
including vice president of sales until 2005. Mr. Yao currently serves on the board of directors of Xueda Education Group, a company he co-founded and
Noah Holdings Limited, a company listed on the NYSE. Mr. Yao received bachelor’s degrees in computer science and chemistry from Ocean University of
China (formerly known as Ocean University of Qingdao) in 1999.
Mr. Xiaoguang Wu has served as our director since August 2014. Mr. Wu has served as a senior executive vice president at Tencent. Mr. Wu joined
Tencent in 1999 to lead development and product planning for Tencent’s core product QQ instant messaging. He served successively as project manager for
QQ’s research and development team, general manager for IM Products, and general manager for internet business division. Mr. Wu was promoted to senior
vice president of Internet Services Division and chief executive officer of Tencent E-Commerce Holdings Limited. Mr. Wu also serves on the board of
directors of eLong, Inc., Wanda Electronic Commerce Technology Co., Ltd., Shanghai New Feifan E-commerce Co., Ltd., Okay Buy (China) Holding Inc.,
Nanjing Wangdian Technology Co., Ltd. and Yixun.com. Mr. Wu received his bachelor’s degree in weather dynamics from Nanjing University in 1996 and
an EMBA degree from China Europe International Business School (CEIBS) in 2008.
Mr. Frank Lin has served as our director since March 2010. Mr. Lin is a general partner of DCM, an early stage technology venture capital firm.
Prior to joining DCM in 2006, Mr. Lin was chief operating officer of SINA Corporation, a NASDAQ-listed company. He co-founded sina.com’s predecessor
company, SinaNet, in 1995 and later guided the company through its listing on NASDAQ. Prior to founding SinaNet, Mr. Lin was a consultant at Ernst &
Young Management Consulting Group. He had also held various marketing, engineering and managerial positions at Octel Communication Inc. and
NYNEX. Mr. Lin currently serves on the board of directors of numerous companies invested by DCM, including Vipshop Holdings Limited, a NYSE-listed
company, and Tuniu Corporation, a NASDAQ-listed company. Mr. Lin received his bachelor’s degree in engineering from Dartmouth College and a
master’s degree in business administration from Stanford University.
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Mr. Herman Yu has served as our director and chair of the audit committee of our board of directors since October 2013. Mr. Yu has been the chief
financial officer of Weibo Corporation (Weibo), a NASDAQ-listed company, since March 2015. Prior to that, Mr. Yu worked at SINA Corporation (SINA),
which is listed on NASDAQ, as chief financial officer from August 2007 to March 2015, as acting chief financial officer from May 2006 to August 2007 and
as vice president and corporate controller from September 2004 to May 2006. Prior to joining SINA, Mr. Yu worked at Adobe Systems from January 1999 to
September 2004, in the positions of chief auditor and corporate marketing controller. Mr. Yu also held various finance and accounting management positions
at Cadence Design Systems, Inc. and VeriFone, Inc. Mr. Yu began his career with Arthur Andersen and is a California Certified Public Accountant. Mr. Yu
is currently a director of ZTO Express Inc., an express delivery company listed on the New York Stock Exchange, and Tiange, a live, social video platform
company listed on the HKSE. Mr. Yu received a bachelor’s degree in economics from the University of California, Santa Cruz and a master’s degree in
Accountancy from the University of Southern California.
Mr. Chi (Eric) Zhang has served as our director and a member of the nominating and corporate governance committee of our board of directors
since November 2015. From 2006 to May 2016, Mr. Zhang served as a managing director of Carlyle where he focused on Asia buyout opportunities. Mr.
Zhang also serves as Co-Chairman of Crystal Orange Hotel Group and as Vice Chairman of Plateno Group Holdings (previously 7 Days Group Holdings
Limited), and is a member of the board of directors of Fang Holdings Ltd., a NYSE-listed company, China Reading Group Limited, AnNeng Logistics
Group, Kaiyuan Hotel Group, and New Century Asset Management Co. Ltd. Before joining Carlyle, Mr. Zhang was a vice president in the M&A group at
Credit Suisse in Hong Kong. Prior to that, he was a vice president of the investment banking department at China International Capital Corporate Limited
(CICC) in Beijing where he worked for six years. Mr. Zhang received his master’s degree in economics from the Shanghai University of Finance and
Economics in China.
Mr. Xiaohua Chen has served as our chief strategic officer since August 2014 and the chief executive officer of 58 Home since May 2014. Mr. Chen
served as our senior vice president of product management and website operation from December 2007 to August 2014. From June to December 2007, Mr.
Chen served as head of product department at ganji.com responsible for product management and customer experience. Prior to joining ganji.com, he was the
senior project manager and chief editor at Xiamen Haowei Network Technology Co., Ltd. Mr. Chen is a co-founder of dunsh.org, a nonprofit search engine
optimization website in China. While in college, Mr. Chen co-founded 0755.org.cn, one of the earliest online classifieds providers in China. Mr. Chen
received a bachelor’s degree in material formation from Xiangtan University in 2004.
Mr. Hao Zhou has served as our chief financial officer since May 2011. Prior to joining our company, Mr. Zhou was chief financial officer in CITIC
Pharmaceutical Co., Ltd. since September 2010. From May 2009 to September 2010, Mr. Zhou held two senior management positions at Wuxi PharmaTech
(Cayman) Inc., with the latest position as the chief financial officer. From 1998 to 2009, Mr. Zhou held various senior finance managerial positions at
General Electric Company and served as the senior finance manager of Greater China from 2007 to 2009. Mr. Zhou received his bachelor’s degree from
Shanghai International Studies University in 1998.
Mr. Hongyu Xing has served as our chief technology officer since March 2016. Mr. Xing has more than 10 years of experience in the internet
industry. Mr. Xing joined us in February 2015 as a senior vice president. Prior to joining us, Mr. Xing held various positions at Tencent including general
manager in charge of search products, network and media products and microblogs from June 2005 to February 2015. Prior to that, Mr. Xing worked at IBM
China’s Research Center from April 1999 to March 2000. Mr. Xing received a master’s degree in electronics engineering from Tsinghua University in 1999.
Mr. Jiandong Zhuang has served as the Executive Vice President of Housing Business Group (HBG) since March 2015. Prior to that, Mr. Zhuang
served as our senior vice president of sales from September 2007. From January 2005 to January 2007, Mr. Zhuang founded and managed Beijing Yingpu
Bailian Technology Trading Co., Ltd., a SMS website and wireless service operator. Prior to founding his own company, Mr. Zhuang managed the China
Unicom CDM operation and sales at Beijing Lianyin Investment Co., Ltd from May 2003 to December 2004. Mr. Zhuang received a bachelor’s degree in
chemistry from Capital Normal University in 1991.
Mr. Mingke He has served as our senior vice president of sales in charge of the jobs category and our local service business since July 2015. Prior to
joining us, Mr. He was the founder and chief executive officer of Yimian Data from May 2014 to July 2015, senior vice president of QVOD Technologies
from May 2013 to April 2014, vice president of SAIF Partners (Softbank Asia Investment Fund) from July 2008 to May 2012. Mr. He received a master’s
degree in business administration from Stanford University in 2008, and a bachelor’s degree in automotive engineering and a master’s degree in management
science from Tsinghua University in 2001 and 2003, respectively.
93
B.
Compensation
In 2016, we paid an aggregate of approximately RMB11.8 million in cash to our executive officers as of the date of this annual report, which
exclude the compensation 58 Home paid to Mr. Xiaohua Chen as chief executive officer of 58 Home, and approximately RMB423,000 cash compensation to
our independent directors as of the date of this annual report.
Employment Agreements and Indemnification Agreements
We have entered into employment agreements with each of our executive officers. We may terminate an executive officer’s employment for cause
at any time without advance notice or remuneration for certain acts of the officer, such as conviction or guilty plea to a felony or any crime involving moral
turpitude, negligent or dishonest acts to our detriment, or misconduct or a failure to perform agreed duties. We may also terminate an executive officer’s
employment without cause by giving one-month advance written notice. In such case of termination by us, we will provide severance payments to the
executive officer as expressly required by applicable law of the jurisdiction where the executive officer is based. An executive officer may resign at any time
by giving one-month advance written notice.
Each executive officer has agreed to hold, both during and after the termination or expiry of his or her employment agreement, in strict confidence
and not to use, except as required in the performance of his or her duties in connection with the employment or pursuant to applicable law, any of our
confidential information or trade secrets, any confidential information or trade secrets of our clients or prospective clients, or the confidential or proprietary
information of any third party received by us and for which we have confidential obligations. The executive officers have also agreed to disclose in
confidence to us all inventions, designs and trade secrets which they conceive, develop or reduce to practice during the executive officer’s employment with
us and to assign all right, title and interest in them to us, and assist us in obtaining and enforcing patents, copyrights and other legal rights for these
inventions, designs and trade secrets.
In addition, each executive officer has agreed to be bound by non-competition and non-solicitation restrictions during the term of his or her
employment and typically for one year following the last date of employment. Specifically, each executive officer has agreed not to (i) approach our
suppliers, clients, customers or contacts or other persons or entities introduced to the executive officer in his or her capacity as a representative of us for the
purpose of doing business with such persons or entities that will harm our business relationships with these persons or entities; (ii) assume employment with
or provide services to any of our competitors, or engage, whether as principal, partner, licensor or otherwise, any of our competitors, without our express
consent; or (iii) seek directly or indirectly, to solicit the services of any of our employees who is employed by us on or after the date of the executive officer’s
termination, or in the year preceding such termination, without our express consent.
We have also entered into indemnification agreements with each of our directors and executive officers. Under these agreements, we agree to
indemnify our directors and executive officers against certain liabilities and expenses incurred by such persons in connection with claims made by reason of
their being a director or officer of our company.
Share Incentive Plans
We have adopted two share incentive plans, namely, the 2010 Plan and the 2013 Plan. The purpose of these two share incentive plans is to attract,
motivate and retain the best available personnel by linking their personal interests to the success of our business. As of March 31, 2017, options and restricted
share units to purchase 3,277,610 ordinary shares were issued and outstanding under the 2010 Plan, and 9,336,174 ordinary shares were issued and
outstanding under the 2013 Plan.
The 2010 Employee Stock Option Plan
The maximum number of shares in respect of which share awards may be granted under the 2010 Plan is 20,173,225. The following paragraphs
summarize the terms of the 2010 Plan.
Plan Administration. The plan administrator is our board of directors, or one or more committees designated by our board of directors. The plan
administrator will determine the provisions and terms and conditions of each grant.
94
Award Agreement. Options granted under the plan are evidenced by an award agreement that sets forth the terms, conditions and limitations for
each grant.
Option Exercise Price. The exercise price subject to an option shall be determined by the plan administrator and set forth in the award agreement.
The exercise price may be amended or adjusted by the administrator for the benefit of any eligible person.
Eligibility. We may grant awards to our directors, officers, employees and consultants of our company or any of our subsidiaries.
Term of the Awards. The term of each option grant shall not exceed 10 years from the date of the grant.
Vesting Schedule. In general, the plan administrator determines the vesting schedule or conditions, which is set forth in the award agreement.
Transfer Restrictions. Awards for options may not be transferred in any manner by the award holders and may be exercised only by such holders,
subject to limited exceptions. However, the award holder shall be permitted to transfer options to a trust controlled by such award holder during his or her
lifetime for estate planning purposes.
Termination of Employment or Service. In the event that an award recipient ceases employment with us or ceases to provide services to us, any
vested options will generally terminate after a period of time following the termination of employment if the award recipient does not exercise the options
during this period.
Termination and Amendment of the Plan. Unless terminated earlier, the 2010 Plan will terminate automatically in 2020. Our board of directors
has the authority to amend or terminate the plan subject to shareholder approval with respect to certain amendments. However, no such action may adversely
affect in any material way any awards previously granted unless agreed by the recipient.
The 2013 Share Incentive Plan
We adopted the 2013 Plan in September 2013. The maximum aggregate number of shares which may be issued pursuant to all awards under the
2013 Plan was 2,800,000 Class A ordinary shares as of the date of its adoption. The 2013 Plan contains an evergreen provision, pursuant to which the
number of shares reserved for future issuances under the 2013 Plan will be increased by a number equal to 1.5% of the total number of outstanding shares on
the last day of the immediately preceding calendar year, on the first day of each calendar year during the term of the 2013 Plan beginning in 2015, or such
lesser number of Class A ordinary shares as determined by our board of directors. Taking into account the automatic increase of 4,345,065 ordinary shares at
the beginning of 2017 pursuant to the evergreen provision of the 2013 Plan, the maximum aggregate number of shares which may be issued pursuant to all
awards under the 2013 Plan is 22,277,223 ordinary shares, consisting of 15,277,223 Class A ordinary shares and 7,000,000 Class B ordinary shares, as of the
date of this annual report.
The following paragraphs describe the principal terms of the 2013 Plan.
Types of Awards. The 2013 Plan permits the awards of options, restricted shares, restricted share units or any other type of awards that the
committee or the board decides.
Plan Administration. Our board of directors, our compensation committee or a committee designated by our board will administer the 2013 Plan.
The committee or the full board of directors, as applicable, will determine the participants to receive awards, the type and number of awards to be granted to
each participant, and the terms and conditions of each award grant.
Award Agreement. Awards granted under the 2013 Plan are evidenced by an award agreement that sets forth terms, conditions and limitations for
each award, which may include the term of the award, the provisions applicable in the event of the grantee’s employment or service terminates, and our
authority to unilaterally or bilaterally amend, modify, suspend, cancel or rescind the award.
Eligibility. We may grant awards to our employees, directors and consultants of our company. However, we may grant options that are intended to
qualify as incentive share options only to our employees and employees of our parent companies and subsidiaries.
95
Acceleration of Awards upon Change in Control. If a change in control of our company occurs, the plan administrator may, in its sole discretion,
provide for (i) all awards outstanding to terminate at a specific time in the future and give each participant the right to exercise the vested portion of such
awards during a specific period of time, or (ii) the purchase of any award for an amount of cash equal to the amount that could have been attained upon the
exercise of such award, or (iii) the replacement of such award with other rights or property selected by the plan administrator in its sole discretion, or (iv)
payment of award in cash based on the value of ordinary shares on the date of the change-in-control transaction plus reasonable interest.
Vesting Schedule. In general, the plan administrator determines the vesting schedule, which is specified in the relevant award agreement.
Exercise of Options. The plan administrator determines the exercise price for each award, which is stated in the award agreement. The vested
portion of option will expire if not exercised prior to the time as the plan administrator determines at the time of its grant. However, the maximum
exercisable term is the tenth anniversary after the date of a grant.
Transfer Restrictions. Awards may not be transferred in any manner by the recipient other than by will or the laws of descent and distribution,
except as otherwise provided by the plan administrator.
Termination of the 2013 Plan. Unless terminated earlier, the 2013 Plan will terminate automatically in 2023. Our board of directors has the
authority to amend or terminate the plan subject to shareholder approval or home country practice.
The following table summarizes, as of March 31, 2017, outstanding options and restricted share units held by our executive officers and directors
under our 2010 Plan and 2013 Plan.
Name
Jinbo Yao
Xiaohua Chen
Hao Zhou
Jiandong Zhuang
Hongyu Xing
Mingke He
Herman Yu
Ordinary shares
Underlying
Options Awarded
and Restricted
Share Units
*
*
*
*
*
*
*
*
*
*
*
*
*
*
*
*
*
*
*
*
*
*
*
*
*
Exercise
Price
(US$/Share)
0
0
2.500
5.600
2.220
2.500
5.600
0
20.980
0
0
0
0
0
0
0
0
18.675
20.980
0
0
0
0
0
8.500
Date of Grant
August 24, 2015
March 24, 2017
July 31, 2013
October 14, 2013
May 31, 2011
July 31, 2013
October 14, 2013
August 24, 2015
August 24, 2015
September 21, 2016
February 24, 2017
April 13, 2015
August 24, 2015
September 21, 2016
February 24, 2017
March 24, 2017
February 27, 2015
February 27, 2015
August 24, 2015
September 21, 2016
February 24, 2017
August 24, 2015
September 21, 2016
February 24, 2017
October 30, 2013
Date of Expiration
August 23, 2025
March 23, 2027
July 30, 2023
October 13, 2023
May 30, 2021
July 30, 2023
October 13, 2023
August 23, 2025
August 23, 2025
September 20, 2026
February 23, 2027
April 13, 2025
August 23, 2025
September 20, 2026
February 23, 2027
March 23, 2027
February 26, 2025
February 26, 2025
August 23, 2025
September 20, 2026
February 23, 2027
August 23, 2025
September 20, 2026
February 23, 2027
October 29, 2023
*
Less than one percent of our total outstanding share capital.
96
As of March 31, 2017, other employees as a group held options and restricted share units to purchase 8,053,946 ordinary shares of our company,
with exercise prices ranging from US$ nil to US$38.14 per ordinary share.
The 58 Home 2015 Share Incentive Plan
58 Home adopted the 58 Home 2015 Plan in February 2015. The maximum aggregate number of shares which may be issued pursuant to all awards
under the 58 Home 2015 Plan is 22 million ordinary shares of 58 Home as of the date of this annual report. The 58 Home 2015 Plan permits the awards of
options, restricted shares and restricted share units. Unless terminated earlier, the 58 Home 2015 Plan will terminate automatically in 2025.
In February and April 2015, 58 Home granted options to purchase an aggregate of approximately 8.9 million ordinary shares of 58 Home to its
employees and to the employees of certain other subsidiaries and affiliated companies of our company. In February 2015, 58 Home granted 9.1 million
restricted shares to selected management members of 58 Home. In April 2015, 58 Home further granted approximately 1.9 million restricted shares of 58
Home to an executive officer of our company. The foregoing disclosure of awards granted by 58 Home under its 2015 Plan only relates to the period prior to
November 27, 2015 when 58 Home was deconsolidated from our consolidated results of operations.
C.
Board Practices
Our board of directors currently consists of five directors. A director is not required to hold any shares in our company to qualify to serve as a
director. A director may vote with respect to any contract, proposed contract, or arrangement in which he or she is materially interested. A director may
exercise all the powers of the company to borrow money, mortgage its business, property and uncalled capital and issue debentures or other securities
whenever money is borrowed or as security for any obligation of the company or of any third party.
Committees of the Board of Directors
We have three committees of the board of directors: the audit committee, the compensation committee and the nominating and corporate governance
committee. We have adopted a charter for each of the three committees. Each committee’s members and functions are described below.
Audit Committee. Our audit committee consists of Herman Yu, Frank Lin and Chi (Eric) Zhang, and is chaired by Herman Yu. Messrs. Yu, Lin
and Zhang satisfy the “independence” requirements of Section 303A of the Corporate Governance Rules of the New York Stock Exchange and meet the
independence standards under Rule 10A-3 under the Exchange Act. We have determined that Herman Yu qualifies as an “audit committee financial expert.”
The audit committee oversees our accounting and financial reporting processes and the audits of the financial statements of our company. The audit
committee is responsible for, among other things:
(cid:120)
(cid:120)
(cid:120)
(cid:120)
(cid:120)
(cid:120)
selecting the independent registered public accounting firm and pre-approving all auditing and non-auditing services permitted to be performed by
the independent registered public accounting firm;
reviewing with the independent registered public accounting firm any audit problems or difficulties and management’s response;
reviewing and approving all proposed related party transactions;
discussing the annual audited financial statements with management and the independent registered public accounting firm;
reviewing and discussing our company’s earnings press releases;
reviewing major issues as to the adequacy of our internal controls and any special audit steps adopted in light of material control deficiencies;
(cid:120) meeting separately and periodically with management and the independent registered public accounting firm; and
97
(cid:120) monitoring compliance with our code of business conduct and ethics, including reviewing the adequacy and effectiveness of our procedures to
ensure proper compliance.
Compensation Committee. Our compensation committee consists of Chi (Eric) Zhang, Herman Yu and Frank Lin, and is chaired by Chi (Eric)
Zhang. Messrs. Zhang, Yu and Lin satisfy the “independence” requirements of Section 303A of the Corporate Governance Rules of the New York Stock
Exchange. The compensation committee assists the board in reviewing and approving the compensation structure, including all forms of compensation,
relating to our directors and executive officers. Our chief executive officer may not be present at any committee meeting during which his compensation is
deliberated upon. The compensation committee is responsible for, among other things:
(cid:120)
(cid:120)
(cid:120)
(cid:120)
reviewing and approving, or recommending to the board for its approval, the compensation for our chief executive officer and other executive
officers;
reviewing and recommending to the board for determination with respect to the compensation of our non-employee directors;
reviewing periodically and approving any incentive compensation or equity plans, programs or similar arrangements; and
selecting compensation consultant, legal counsel or other adviser only after taking into consideration all factors relevant to that person’s
independence from management.
Nominating and Corporate Governance Committee. Our nominating and corporate governance committee consists of Frank Lin, Herman Yu and
Chi (Eric) Zhang, and is chaired by Frank Lin. Messrs. Lin, Yu and Zhang satisfy the “independence” requirements of Section 303A of the Corporate
Governance Rules of the New York Stock Exchange. The nominating and corporate governance committee assists the board in selecting individuals qualified
to become our directors and in determining the composition of the board and its committees. The nominating and corporate governance committee is
responsible for, among other things:
(cid:120)
(cid:120)
(cid:120)
(cid:120)
(cid:120)
recommending nominees to the board for election or re-election to the board, or for appointment to fill any vacancy on the board;
reviewing annually with the board the current composition of the board with regards to characteristics such as independence, skills, experience,
expertise and diversity;
selecting and recommending to the board the names of directors to serve as members of the audit committee and the compensation committee, as
well as of the nominating and corporate governance committee itself;
developing and reviewing the corporate governance principles adopted by the board and advising the board with respect to significant developments
in the law and practice of corporate governance and our compliance with such laws and practices; and
evaluating the performance and effectiveness of the board as a whole.
Duties of Directors
Under Cayman Islands law, our directors have a duty of loyalty to act honestly in good faith with a view to our best interests. Our directors also
have a duty to exercise the skill they actually possess and such care and diligence that a reasonably prudent person would exercise in comparable
circumstances. In fulfilling their duty of care to us, our directors must ensure compliance with our memorandum and articles of association. A shareholder
may have the right to seek damages in our name if a duty owed by our directors is breached.
98
Terms of Directors and Officers
Our officers are elected by and serve at the discretion of the board. Our directors are not subject to a term of office and hold office until such time as
they resign or are removed from office by an ordinary resolution of our shareholders. A director will vacate office automatically if, among other things, the
director (1) becomes bankrupt or suspends payments or compounds with his creditors; or (2) dies or becomes of unsound mind.
D.
Employees
The following table sets forth the numbers of our employees, categorized by function, as of December 31, 2014, 2015 and 2016, which exclude the
employees of 58 Home:
Function
Sales, customer service and marketing
Research and development
Website operations
Management and administrative positions
Total
2014
As of December 31,
2015
2016
7,485
1,354
93
467
9,399
16,323
2,744
533
1,105
20,705
17,920
3,332
673
1,207
23,132
Our success depends on our ability to attract, retain and motivate qualified personnel. We believe we offer our employees competitive compensation
packages and an environment that encourages initiative and meritocracy, and as a result, we have generally been able to attract and retain qualified personnel
and maintain a stable core management team. We design and implement in-house training programs tailored to each job function and a set of responsibilities
to enhance performance. Specific training is provided to new employees at orientation to familiarize them with our working environment and operational
procedures.
As required by PRC regulations, we participate in various statutory employee benefit plans, including pension, unemployment insurance, childbirth
insurance, work-related injury insurance, medical insurance and housing insurance. We are required under PRC law to make contributions to employee
benefit plans at specified percentages of the salaries, bonuses and certain allowances of our employees, up to a maximum amount specified by the local
government from time to time.
E.
Share Ownership
Please refer to “Item 7. Major Shareholders and Related Party Transactions — A. Major Shareholders.”
ITEM 7.
MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS
A.
Major Shareholders
The following table sets forth information concerning the beneficial ownership of our ordinary shares as of the date of this annual report by:
(cid:120)
(cid:120)
each of our directors and executive officers; and
each person known to us to beneficially own more than 5% of our ordinary shares.
The calculations in the table below are based on 290,570,395 ordinary shares outstanding as of March 31, 2017, comprising 241,930,135 Class A
ordinary shares and 48,640,260 Class B ordinary shares and excluding 5,983,928 Class A ordinary shares issued to our depositary and reserved for future
exercise of vested options and RSUs under our share incentive plans by our management and other employees, which are not deemed as outstanding for the
purpose of calculating the beneficial ownership in the following table.
Beneficial ownership is determined in accordance with the rules and regulations of the SEC. In computing the number of shares beneficially owned
by a person and the percentage ownership of that person, we have included shares that the person has the right to acquire within 60 days, including through
the exercise of any option, warrant, or other right or the conversion of any other security. These shares, however, are not included in the computation of the
percentage ownership of any other person.
99
Directors and Executive Officers:**
Jinbo Yao
Xiaoguang Wu(3)
Frank Lin(4)
Herman Yu(5)
Eric Zhang(6)
Hao Zhou
Xiaohua Chen(7)
Jiandong Zhuang(8)
Hongyu Xing
Mingke He
All directors and executive officers as a group
Principal Shareholders:
Tencent Holdings Limited
Nihao China Corporation
T. Rowe Price Associates, Inc.
FMR LLC
Notes:
*
Less than one percent of our total outstanding capital.
Number
%(1)
31,591,906(2)
—
—
*
—
*
*
*
*
—
33,380,138
67,272,136(9)
29,418,640(10)
20,944,602(11)
19,578,332(12)
10.87
—
—
*
—
*
*
*
*
—
11.42
23.15
10.12
7.21
6.74
** Except for Mr. Xiaoguang Wu, Mr. Frank Lin, Mr. Herman Yu and Mr. Eric Zhang, the business address of our directors and executive officers is c/o
Block E, the North American International Business Center, Yi 108 Beiyuan Road, Chaoyang District, Beijing 100101, the People’s Republic of China.
(1) The number of ordinary shares outstanding in calculating the percentages for each listed person or group includes the ordinary shares underlying the
options held by such person or group exercisable within 60 days of March 31, 2017. Percentage of beneficial ownership of each listed person or group is
based on (1) 290,570,395 ordinary shares outstanding as of March 31, 2017, and (2) the number of ordinary shares underlying options exercisable by
such person or group within 60 days of March 31, 2017.
(2) Consists of (i)28,587,204 Class B ordinary shares and 415,718 ADSs (representing 831,436 Class A ordinary shares) held by Nihao China Corporation,
a British Virgin Islands company beneficially owned by Mr. Yao through a trust; (ii) 2,172,960 Class B ordinary shares beneficially owned by certain of
our executive officers and employees who acquired the ownership of these shares pursuant to our employee stock option plan and who authorize Mr.
Yao to vote these shares on their behalf under power of attorney. Such individuals include all executive officers and employees who became our
ordinary shareholders through our employee stock option plan; and (iii) 306 vested restricted share units (representing 306 Class A ordinary shares) held
by Mr. Yao.
(3) The business address of Mr. Wu is 39/F, Tencent Building, Kejizhong Avenue, High Tech Park, Nanshan District, Shenzhen, P. R. China.
(4) The business address of Mr. Lin is Unit 1, Level 10, Tower W2, Oriental Plaza, Dong Cheng District, Beijing 100738, P. R. China.
(5) The business address of Mr. Yu is #8 Sina Plaza, Courtyard 10, the West, Xibeiwang E. R., Haidian, Beijing 100093, P. R. China.
(6) The business address of Mr. Zhang is Suite 2801, Two Pacific Place, Hong Kong.
(7) Mr. Chen has authorized Mr. Jinbo Yao under power of attorney to vote the ordinary shares that Mr. Chen currently owns through Trumpway Limited, a
British Virgin Islands company wholly owned by Mr. Chen.
100
(8) Mr. Zhuang has authorized Mr. Jinbo Yao under power of attorney to vote the ordinary shares that Mr. Zhuang currently owns through Magic Mirror
Holdings Limited, a British Virgin Islands company wholly owned by Mr. Zhuang.
(9) Consists of (i) 41,419,336 Class A ordinary shares and 14,722,000 Class B ordinary shares directly held by Ohio River Investment Limited, (ii)
4,377,326 ADSs (representing 8,754,652 Class A ordinary shares) directly held by THL E Limited and (iii) 1,188,074 ADSs, representing 2,376,148
Class A ordinary shares, directly held by Huang River Investment Limited. Tencent Holdings Limited is reported as the beneficial owner of the
aforementioned shares. The business address of Ohio River Investment Limited and THL E Limited is c/o Tencent Holdings Limited, 29/F., Three
Pacific Place, No. 1 Queen’s Road East, Wanchai, Hong Kong, a as reported in a Schedule 13D/A filed on November 22, 2016.
(10) Consists of 28,587,204 Class B ordinary shares and 415,718 ADSs (representing 831,436 Class A ordinary shares) held by Nihao China Corporation, a
British Virgin Islands company beneficially owned by Mr. Yao through a trust. Nihao China Corporation has pledged 9,080,004 Class B ordinary shares
as security for a loan extended to Mr. Yao by UBS AG, London Branch in December 2015, and pledged 12,400,000 Class B ordinary shares as security
for a loan extended to us by CMB Bank in April 2016.
(11) Consists of 20,944,602 Class A ordinary shares beneficially owned by T. Rowe Price Associates, Inc., as reported on Schedule 13G filed by it on
February 7, 2017. The percentage of beneficial ownership was calculated based on the total number of our ordinary shares outstanding as of March 31,
2017. The address of T. Rowe Price Associates, Inc. is 100 E. Pratt Street, Baltimore, Maryland 21202, as reported on the same Schedule 13G.
(12) Consists of 19,578,332 Class A ordinary shares beneficially owned by FMR LLC, as reported on Schedule 13G filed by FMR LLC on February 13,
2017. The percentage of beneficial ownership was calculated based on the total number of our ordinary shares outstanding as of March 31, 2017. The
address of FMR LLC is 245 Summer Street, Boston, Massachusetts 02210, U.S.A., as reported on the same Schedule 13G.
To our knowledge, as of March 31, 2017, a total of 198,705,757 Class A ordinary shares were held by three record holders in the United States,
representing approximately 68.4% of our total outstanding shares on an as-converted basis. One of these holders is the depositary of our ADS program,
which held 197,823,404 Class A ordinary shares on record (including the 5,983,928 Class A ordinary shares issued to our depositary and reserved for future
exercise of vested options and RSUs under our share incentive plans by our management and other employees), representing approximately 68.1% of our
total outstanding shares on record as of March 31, 2017. None of our outstanding Class B ordinary shares were held by record holders in the United States as
of March 31, 2017. The number of beneficial owners of our ADSs in the United States is likely to be much larger than the number of record holders of our
ordinary shares in the United States.
Our ordinary shares are divided into Class A ordinary shares and Class B ordinary shares. Holders of Class A ordinary shares are entitled to one
vote per share, while holders of Class B ordinary shares are entitled to ten votes per share. Holders of Class A and Class B ordinary shares vote together as
one class on all matters subject to a shareholders’ vote. Each Class B ordinary share is convertible into one Class A ordinary share at any time by the holder
thereof, while Class A ordinary shares are not convertible into Class B ordinary shares under any circumstance. All options, regardless of grant dates, will
entitle holders to the equivalent number of Class A ordinary shares once the vesting and exercising conditions on such share-based compensation awards are
met. We are not aware of any arrangement that may, at a subsequent date, result in a change of control of our company.
B.
Related Party Transactions
Contractual Arrangements with Our Consolidated Variable Interest Entities
PRC law currently limits direct foreign equity ownership of business entities providing value-added telecommunications services. As a result of
these foreign ownership restrictions requirements, we conduct substantially all of our businesses in China through a series of contractual arrangements with
our consolidated affiliated entities and their shareholders. For a description of these contractual arrangements, see “Item 4. Information on the
Company — C. Organizational Structure — Our Contractual Arrangements.”
101
Registration Rights
Pre-IPO Shareholders Agreement
Pursuant to our shareholders agreement dated August 4, 2011 that we entered into with all our then shareholders in connection with our issuance of
preference shares prior to our initial public offering, we have granted certain registration rights to our shareholders. Set forth below is a description of the
registration rights granted under the agreement.
Demand Registration Rights. At any time beginning six months after the completion of our initial public offering on November 5, 2013, upon a
written request from the holders of at least 20% of the registrable securities held by holders of our ordinary shares converted from preference shares, we must
file a registration statement covering the offer and sale of the registrable securities held by the requesting shareholders and other holders of registrable
securities who choose to participate in the offering. Registrable securities include, among others, our ordinary shares not previously sold to the public and
ordinary shares issued upon conversion of the preference shares.
However, we are not obligated to proceed with a demand registration if we have, within the six-month period preceding the date of such request,
already effected a registration under the Securities Act pursuant to the exercise of the holders’ demand registration rights. We have the right to defer filing of
a registration statement for up to 90 days if our board of directors determines in good faith that the filing of a registration statement would be materially
detrimental to us, but we cannot exercise the deferral right more than once in any 12-month period.
Form F-3 Registration Rights. When we are eligible for registration on Form F-3, upon a written request from our the holders of at least 20% of the
registrable securities held by holders of our ordinary shares converted from preference shares, we must file a registration statement on Form F-3 covering the
offer and sale of the registrable securities.
We are not obligated to effect a Form F-3 registration, among other things, if we have already effected two registrations on Form F-3 in any 12-
month period. We have the right to defer filing of a registration statement for up to 90 days if our board of directors determines in good faith that the filing of
a registration statement would be materially detrimental to us, but we cannot exercise the deferral right more than once in any 12-month period.
Piggyback Registration Rights. If we propose to file a registration statement for a public offering of our ordinary shares on a form that would be
suitable only for registrable securities, we must offer holders of registrable securities an opportunity to include in that registration all or any part of their
registrable securities. The underwriters of any underwritten offering have the right to limit the number of shares with registration rights to be included in the
registration statement, subject to certain limitations.
Expenses of Registration. We will pay all expenses relating to any demand, Form F-3, or piggyback registration.
Termination of Obligations. We shall have no obligation to effect any demand, Form F-3, or piggyback registration on the earlier of (a) the date that
is five years after the completion of our initial public offering on November 5, 2013, or (b) as to any holder of registrable securities, the time when all
registrable securities held by such holder may be sold in any three-month period without registration pursuant to Rule 144 under the Securities Act.
Investor Rights Agreement with Tencent
Pursuant to an investor rights agreement dated June 30, 2014 that we entered into with Tencent, we have granted certain registration rights to
Tencent. Set forth below is a description of the registration rights granted under the agreement.
Demand Registration Rights. Upon a written request from Tencent, we must use all reasonable efforts to effect the registration under the Securities
Act of all registrable securities Tencent requests to be registered. Registrable securities include, subject to limitation, ordinary shares of our company Tencent
acquired in June 2014 and any other ordinary shares of our company owned or acquired by Tencent thereafter.
However, we are not obligated to proceed with a demand registration if we have, within the six-month period preceding the date of such request,
already effected a registration under the Securities Act pursuant to the exercise of the holders’ demand registration rights. We have the right to defer filing of
a registration statement for up to 90 days if our board of directors determines in good faith that the filing of a registration statement would be materially
detrimental to us, but we cannot exercise the deferral right more than once in any 12-month period.
102
Form F-3 Registration Rights. When we are eligible for registration on Form F-3, upon a written request from an investor party to the agreement,
we must effect such registration to permit or facilitate the sale and distribution of all or such portion of the investor’s registrable securities as are specified in
such request.
We are not obligated to effect a Form F-3 registration, among other things, if we have already effected two registrations on Form F-3 in any 12-
month period. We have the right to defer filing of a registration statement for up to 90 days if our board of directors determines in good faith that the filing of
a registration statement would be materially detrimental to us, but we cannot exercise the deferral right more than once in any 12-month period.
Piggyback Registration Rights. If we propose to file a registration statement for a public offering of our securities, we must offer Tencent an
opportunity to include in that registration all or any part of its registrable securities. The underwriters of any underwritten offering have the right to limit the
number of shares with registration rights to be included in the registration statement, subject to certain limitations.
Expenses of Registration. We will pay all expenses relating to any demand, Form F-3, or piggyback registration.
Termination of Obligations. We shall have no obligation to effect any demand, Form F-3, or piggyback registration on the earlier of (a) the date that
is five years after the date of the agreement, or (b) as to any holder of registrable securities, the time when all registrable securities held by such holder may
be sold in any ninety-day period without registration pursuant to Rule 144 under the Securities Act.
Registration Rights Agreement with Former Ganji Shareholders
Pursuant to a registration rights agreement dated April 20, 2015 that we entered into with certain new shareholders in connection with our issuance
of new Class A ordinary shares as share portion of the purchase price for our acquisition of Ganji shares from the selling shareholders, we have granted
certain registration rights to such new shareholders. Set forth below is a description of the registration rights granted under the agreement.
Demand Registration Rights. Upon a written request from the holders of at least a majority of the registrable securities held by holders of the
registrable securities, we must use all reasonable efforts to effect the registration under the Securities Act of all registrable securities held by the requesting
shareholders and other holders of registrable securities who choose to participate in the offering. Registrable securities include, subject to limitation, new
Class A ordinary shares as share portion of the purchase price for our acquisition of Ganji.com shares from the selling shareholders.
However, we are not obligated to proceed with a demand registration if we have, within the six-month period preceding the date of such request,
already effected a registration under the Securities Act pursuant to the exercise of the holders’ demand registration rights. We have the right to defer filing of
a registration statement for up to 90 days if our board of directors determines in good faith that the filing of a registration statement would be materially
detrimental to us, but we cannot exercise the deferral right more than once in any 12-month period.
Form F-3 Registration Rights. When we are eligible for registration on Form F-3, upon a written request from an investor party to the agreement,
we must effect such registration to permit or facilitate the sale and distribution of all or such portion of the investor’s registrable securities as are specified in
such request, together with all or such portion of the registrable securities of any other investor or investors joining such request.
We are not obligated to effect a Form F-3 registration, among other things, if we have already effected two registrations on Form F-3 in any 12-
month period. We have the right to defer filing of a registration statement for up to 90 days if our board of directors determines in good faith that the filing of
a registration statement would be materially detrimental to us, but we cannot exercise the deferral right more than once in any 12-month period.
Piggyback Registration Rights. If we propose to file a registration statement for a public offering of our ordinary shares on a form that would be
suitable only for registrable securities, we must offer holders of registrable securities an opportunity to include in that registration all or any part of their
registrable securities. The underwriters of any underwritten offering have the right to limit the number of shares with registration rights to be included in the
registration statement, subject to certain limitations.
103
Expenses of Registration. We will pay all expenses relating to any demand, Form F-3, or piggyback registration.
Termination of Obligations. We shall have no obligation to effect any demand, Form F-3, or piggyback registration on the earlier of (a) the date that
is five years after the date of the agreement, or (b) as to any holder of registrable securities, the time when all registrable securities held by such holder may
be sold in any ninety-day period without registration pursuant to Rule 144 under the Securities Act.
Investment by Tencent and Share Repurchase from Certain Pre-IPO Shareholders
In June 2014, we entered into an investment agreement with Tencent, pursuant to which Tencent invested US$736.1 million in exchange for
approximately 19.9% equity interest in 58.com Inc. on a fully-diluted basis. Tencent purchased 36,805,000 Class A and B ordinary shares of our company at
a purchase price of US$20.00 per ordinary share, corresponding to US$40.00 per ADS. We applied US$552.1 million of the proceeds from this transaction to
repurchase 27,603,750 Class B ordinary shares of our company from certain pre-IPO shareholders. Participants in the share repurchase include DCM
Affiliates Fund V, L.P., DCM V, L.P., SB Asia Investment Fund II L.P., Dong Yang, and WP X Asia Online Investment Holdings Limited, from which we
purchased 186,720, 7,652,229, 8,537,341, 862,291 and 10,365,169 Class B ordinary shares, respectively. Mr. Dong Yang is a director and a member of the
audit committee of our board of directors.
Concurrent with our acquisition of a strategic stake in Ganji in April 2015 and incremental to its then existing share ownership of our company,
Tencent purchased an additional approximately US$400.0 million of newly issued ordinary shares from us at a purchase price of US$26.00 per ordinary
share, equivalent to US$52.00 per ADS. In July 2015, we entered into a loan agreement with Tencent whereby we obtained a loan from Tencent in an
aggregate principal amount of US$400.0 million. The loan bore interest at a base rate of 5% per annum and had a maturity date of December 20, 2015. If we
had failed to repay the loan together with all interest accrued but unpaid thereon by the maturity date, Tencent would have had the right to deliver a
conversion notice to us requiring us to convert all or a portion of the amount due and payable under the loan agreement into a corresponding number of our
Class A ordinary shares. In December 2015, we and Tencent entered into an amendment to the loan agreement, pursuant to which we issued and allotted
4,267,344 Class A ordinary shares to Tencent to early repay US$125 million principal amount and accrued but unpaid interest expense amounting to US$7.3
million. The principal amount of the amended loan agreement was US$275 million, the interest rate of the amended loan was 6% per annum and the maturity
date of the amended loan was June 20, 2016. The amended loan was fully paid off in April 2016.
We have not entered into any significant transaction with Tencent outside of the ordinary course of business.
Spin-off of Guazi
On December 31, 2015, following an independent third-party valuation assessment, we divested a controlling ownership stake in Guazi to Mr. Mark
Haoyong Yang, co-chairman of our board of directors at the time, in exchange for US$50 million in cash from Mr. Yang. We concurrently used the proceeds
to invest in a US$50 million non-interest bearing convertible note issued by Guazi. The note was convertible into preference shares of Guazi to be issued in
Guazi’s subsequent round of financing at the same price to be paid by other investors. Immediately after the spinoff was closed on December 31, 2015, we
had approximately a 45.6% stake in Guazi. Mr. Yang resigned from his position as our co-chief executive officer and serves as chairman and chief executive
officer of Guazi.
Convertible Notes of Guazi
In March 2016, Guazi closed a US$204.5 million round of equity financing with participation from a number of globally recognized institutional
investors and we converted our US$50 million non-interest bearing convertible note into series B preference shares of Guazi. We currently have
approximately 34.6% stake in Guazi following their subsequent private equity financing.
104
Short-term Bank Borrowing Secured by Ordinary Shares Held by Our Chief Executive Officer
In April 2016, we obtained an interest-bearing loan of US$275.0 million denominated in U.S. dollars from CMB Bank. The loan was secured by
12.4 million Class B ordinary shares personally owned by Mr. Jinbo Yao, the chief executive officer of our company. Based on the covenant of the loan
agreement, if the aggregate fair value of the pledged shares on any trading date was less than 120% of the outstanding amount of the corresponding loan and
accrued interest payable, we were required to pledge sufficient amount of cash or the chief executive officer of the company can pledge additional number of
shares to cover the shortfall in the fair value of the pledged shares. We used the proceeds from this loan to prepay the principal and accrued interest of the
amended loan from Tencent. As of the date of this annual report, the loan has been fully repaid and CMB Bank has agreed to release the shares pledged
accordingly.
Investment in Zhuan Zhuan (“转转”)
In April 2017, we entered into definitive agreements with Tencent, under which we agree to inject the Zhuan Zhuan app and certain used goods
related listing channels from the 58 and Ganji classified platforms into a separate group of entities, or the Zhuan Zhuan Entities, and Tencent agrees to invest
US$200.0 million in cash and additional business resources into the Zhuan Zhuan Entities for a minority equity ownership. We will continue our direct
traffic and other business support to the Zhuan Zhuan Entities. The transaction was closed on April 28, 2017, and we currently own a majority of equity stake
in the Zhuan Zhuan Entities.
Employment Agreements and Indemnification Agreements
See “Item 6. Directors, Senior Management and Employees — B. Compensation — Employment Agreements and Indemnification Agreements.”
Stock Incentive Plans
See “Item 6. Directors, Senior Management and Employees — B. Compensation — Share Incentive Plans.”
C.
Interests of Experts and Counsel
Not applicable.
ITEM 8.
FINANCIAL INFORMATION
A.
Consolidated Statements and Other Financial Information
Please refer to Item 18.
Legal Proceedings
From time to time, we have become and may in the future become a party to various legal or administrative proceedings arising in the ordinary
course of our business. Internet companies are frequently involved in litigation based on allegations of infringement or other violations of intellectual
property rights and other allegations in connection with the content available on their websites or services they provide. We are currently not involved in any
legal or administrative proceedings that would materially and adversely affect our business.
On October 19, 2013, Mr. Xuanfu Liu filed a complaint with a local court in Hubei Province in China against (1) Mr. Handong Cheng, legal
representative of Business Opportunity Online (Beijing) Network Technology Co., Ltd., or Shangji, a PRC company, (2) Shangji, and (3) Mr. Jinbo Yao, our
chairman and chief executive officer. Mr. Liu purported to be a 36% minority shareholder of Shangji. The complaint claimed that Shangji had enjoyed a right
to 17.5% of the equity interests in Beijing 58 held by Mr. Yao as Shangji’s nominee prior to December 2009, and alleged that Mr. Cheng had entered into an
agreement on behalf of Shangji with Mr. Yao in December 2009 terminating Shangji’s right to the 17.5% equity interest in Beijing 58 without prior
consultation with or notice to Mr. Liu. Mr. Liu sought the court’s ruling that the termination agreement was invalid and that Mr. Liu be entitled to a 6.3%
equity interest in Beijing 58, equivalent to what he believed was his indirect pro rata share of Beijing 58. After contestation and appeal by Mr. Yao to the
appellate court in Hubei for lack of jurisdiction of the local court, the appellate court ruled in favor of Mr. Yao and ruled that the case should be transferred to
a local court in Beijing. After the case was transferred to the local court in Beijing, Mr. Liu filed a motion to withdraw the lawsuit, and the court granted the
motion to dismiss in December 2014. Since Mr. Liu withdrew his complaint, he has not initiated any new proceeding relating to the same matter. However,
there is uncertainty as to whether Mr. Liu will file a new complaint.
105
We and Mr. Yao believe that Mr. Liu’s claim that the termination agreement is invalid and his claim to be registered as a shareholder of Beijing 58
are baseless and without merit and intend to continue to contest new claims, if any, vigorously. Our PRC counsel, Han Kun Law Offices, advises us that
based on the evidence presented in the aforementioned complaint, and applicable PRC law, including the PRC judicial interpretation, there are meritorious
defenses to Mr. Liu’s claims.
On October 21, 2015, Shangji filed a complaint with a local district court in Beijing against Beijing 58, with Mr. Jinbo Yao and other shareholders
of Beijing 58 being joined as third parties. Shangji sought the court’s ruling that Shangji is a shareholder of Beijing 58 owning 17.5% equity interest in
Beijing 58, and Beijing 58 has the 17.5% equity interest registered under the name of Mr. Jinbo Yao transferred to and registered under Shangji. Beijing 58
and the third parties, including Mr. Yao, contested these claims before the district court. On January 20, 2016, the district court dismissed all of Shangji’s
claims. Shangji subsequently appealed to the appellate court in Beijing. On May 30, 2016, the appellate court in Beijing dismissed all of Shangji’s claims.
This legal proceeding has been closed.
Dividend Policy
We have not previously declared or paid cash dividends and we have no plan to declare or pay any dividends in the near future on our shares or
ADSs. We currently intend to retain most, if not all, of our available funds and any future earnings to operate and expand our business.
We are a holding company incorporated in the Cayman Islands. We rely principally on dividends from our PRC subsidiaries for our cash
requirements, including any payment of dividends to our shareholders. PRC regulations may restrict the ability of our PRC subsidiaries to pay dividends to
us. See “Item 4. Information on the Company — B. Business Overview — Regulation — Regulations on Foreign Currency Exchange.”
Our board of directors has discretion as to whether to distribute dividends, subject to applicable laws. Even if our board of directors decides to pay
dividends, the form, frequency and amount will depend on our future operations and earnings, capital requirements and surplus, general financial condition,
contractual restrictions and other factors that our board of directors may deem relevant. If we pay any dividends, we will pay our ADS holders to the same
extent as holders of our ordinary shares, subject to the terms of the deposit agreement, including the fees and expenses payable thereunder. Cash dividends on
our ordinary shares, if any, will be paid in U.S. dollars.
B.
Significant Changes
We have not experienced any significant changes since the date of our audited consolidated financial statements included in this annual report.
ITEM 9.
THE OFFER AND LISTING
A.
Offering and Listing Details
See “— C. Markets.”
B.
Plan of Distribution
Not applicable.
C.
Markets
Our ADSs, each representing two of our Class A ordinary shares, have been listed on the NYSE since October 31, 2013. Our ADSs trade under the
symbol “WUBA.” The following table provides the high and low trading prices for our ADSs on the NYSE since the date of our initial public offering.
106
Market Price
(US$)
High
Low
39.83
58.89
83.71
65.33
54.39
83.71
69.00
70.27
65.33
61.59
55.28
48.58
38.95
40.00
48.58
42.92
33.89
30.97
37.98
38.95
40.00
21.00
31.60
37.15
27.72
37.15
49.80
37.72
43.82
42.57
43.94
43.98
27.72
27.58
34.84
41.46
30.66
27.72
28.02
27.58
34.55
34.84
The last reported trading price for our ADSs on April 27, 2017 was US$39.37 per ADS.
Annual High and Low
Fiscal Year 2013 (from October 31, 2013)
Fiscal Year 2014
Fiscal Year 2015
Fiscal Year 2016
Quarterly Highs and Lows
First Fiscal Quarter of 2015
Second Fiscal Quarter of 2015
Third Fiscal Quarter of 2015
Fourth Fiscal Quarter of 2015
First Fiscal Quarter of 2016
Second Fiscal Quarter of 2016
Third Fiscal Quarter of 2016
Fourth Fiscal Quarter of 2016
First Fiscal Quarter of 2017
Second Fiscal Quarter of 2017 (through April 27, 2017)
Monthly Highs and Lows
October 2016
November 2016
December 2016
January 2017
February 2017
March 2017
April 2017 (through April 27, 2017)
D.
Selling Shareholders
Not applicable.
E.
Dilution
Not applicable.
F.
Expenses of the Issue
Not applicable.
ITEM 10.
ADDITIONAL INFORMATION
A.
Share Capital
Not applicable.
B.
Memorandum and Articles of Association
We are a Cayman Islands company and our affairs are governed by our amended and restated memorandum and articles of association, as amended
from time to time, and the Companies Law of the Cayman Islands, which is referred to below as the Companies Law.
The following are summaries of the material provisions of our amended and restated memorandum and articles of association and the Companies
Law insofar as they relate to the material terms of our ordinary shares. This summary is not complete, and you should read our third amended and restated
memorandum and articles of association, which has been filed as Exhibit 3.2 to our Form F-1 (File No. 333-191424) filed with the SEC on September 27,
2013.
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Registered Office and Objects
Our registered office in the Cayman Islands is located at Conyers Trust Company (Cayman) Limited, Cricket Square, Hutchins Drive, P.O. Box
2681, Grand Cayman KY1-1111, Cayman Islands. As set forth in clause 3 of our amended and restated memorandum of association, the objects for which
our company is established are unrestricted.
Board of Directors
See “Item 6. Directors, Senior Management and Employees — C. Board Practices — Committees of the Board of Directors” and “Item 6. Directors,
Senior Management and Employees — C. Board Practices — Terms of Directors and Officers.”
Ordinary Shares
General. Holders of Class A ordinary shares and Class B ordinary shares have the same rights except for voting and conversion rights. All of our
outstanding ordinary shares are fully paid and non-assessable. Certificates representing the ordinary shares are issued in registered form. Our shareholders
who are non-residents of the Cayman Islands may freely hold and transfer their ordinary shares.
Dividends. The holders of our ordinary shares are entitled to such dividends as may be declared by our board of directors. Our articles of
association provide that dividends may be declared and paid out of our profits, realized or unrealized, or from any reserve set aside from profits which our
board of directors determine is no longer needed. Dividends may also be declared and paid out of share premium account or any other fund or account which
can be authorized for this purpose in accordance with the Companies Law. Holders of Class A ordinary shares and Class B ordinary shares will be entitled to
the same amount of dividends, if declared.
Voting Rights. In respect of all matters subject to a shareholders’ vote, each Class A ordinary share is entitled to one vote, and each Class B
ordinary share is entitled to ten votes, voting together as one class. Voting at any meeting of shareholders is by show of hands unless a poll is demanded. A
poll may be demanded by the chairman of such meeting or any one or more shareholders who together hold not less than 10% of the nominal value of the
total issued voting shares of our company present in person or by proxy.
A quorum required for a meeting of shareholders consists of one or more shareholders who hold at least one-third of all voting power of our share
capital in issue at the meeting present in person or by proxy or, if a corporation or other non-natural person, by its duly authorized representative.
Shareholders’ meetings may be held annually. Each general meeting, other than an annual general meeting, shall be an extraordinary general meeting.
Extraordinary general meetings may be called by a majority of our board of directors or our chairman or upon a requisition of shareholders holding at the
date of deposit of the requisition not less than one-third of the aggregate voting power of our company. Advance notice of at least ten clear days is required
for the convening of our annual general meeting and other general meetings.
An ordinary resolution to be passed at a meeting by the shareholders requires the affirmative vote of a simple majority of the votes attaching to the
ordinary shares cast at a meeting, while a special resolution requires the affirmative vote of no less than two-thirds of the votes cast attaching to the
outstanding ordinary shares at a meeting. A special resolution will be required for important matters such as a change of name or making changes to our
memorandum and articles of association.
Conversion. Each Class B ordinary share is convertible into one Class A ordinary share at any time by the holder thereof. Class A ordinary shares
are not convertible into Class B ordinary shares under any circumstances. Upon any transfer of Class B ordinary shares by a holder to any person or entity
which is not an affiliate of such holder, such Class B ordinary shares shall be automatically and immediately converted into the equivalent number of Class A
ordinary shares. In addition, if at any time, Mr. Jinbo Yao and his affiliates collectively own less than 5% of the total number of the issued and outstanding
Class B ordinary shares, each issued and outstanding Class B ordinary share will be automatically and immediately converted into one Class A ordinary
share, and we will not issue any Class B ordinary shares thereafter.
Transfer of Ordinary Shares. Subject to the restrictions set out below and the provisions above in respect of Class B ordinary shares, any of our
shareholders may transfer all or any of his or her ordinary shares by an instrument of transfer in the usual or common form or any other form approved by
our board of directors.
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Our board of directors may, in its absolute discretion, decline to register any transfer of any ordinary share which is not fully paid up or on which we
have a lien. Our board of directors may also decline to register any transfer of any ordinary share unless:
(cid:120)
(cid:120)
(cid:120)
(cid:120)
(cid:120)
the instrument of transfer is lodged with us, accompanied by the certificate for the ordinary shares to which it relates and such other evidence as our
board of directors may reasonably require to show the right of the transferor to make the transfer;
the instrument of transfer is in respect of only one class of ordinary shares;
the instrument of transfer is properly stamped, if required;
in the case of a transfer to joint holders, the number of joint holders to whom the ordinary share is to be transferred does not exceed four; and
a fee of such maximum sum as the NYSE may determine to be payable or such lesser sum as our directors may from time to time require is paid to
us in respect thereof.
If our directors refuse to register a transfer they shall, within three months after the date on which the instrument of transfer was lodged, send to
each of the transferor and the transferee notice of such refusal.
The registration of transfers may, after compliance with any notice required of the NYSE, be suspended and the register closed at such times and for
such periods as our board of directors may from time to time determine, provided, however, that the registration of transfers shall not be suspended nor the
register closed for more than 30 days in any year as our board may determine.
Liquidation. On a return of capital on winding up or otherwise (other than on conversion, redemption or purchase of ordinary shares), assets
available for distribution among the holders of ordinary shares shall be distributed among the holders of the ordinary shares on a pro rata basis. If our assets
available for distribution are insufficient to repay all of the paid-up capital, the assets will be distributed so that the losses are borne by our shareholders
proportionately. Any distribution of assets or capital to a holder of a Class A ordinary share and a holder of a Class B ordinary share will be the same in any
liquidation event.
Calls on Ordinary Shares and Forfeiture of Ordinary Shares. Our board of directors may from time to time make calls upon shareholders for any
amounts unpaid on their ordinary shares in a notice served to such shareholders at least 14 clear days prior to the specified time of payment. The ordinary
shares that have been called upon and remain unpaid are subject to forfeiture.
Redemption of Ordinary Shares. The Companies Law and our articles of association permit us to purchase our own shares. In accordance with our
articles of association and provided the necessary shareholders or board approval have been obtained, we may issue shares on terms that are subject to
redemption, at our option or at the option of the holders of these shares, on such terms and in such manner, including out of capital, as may be determined by
our board of directors.
Variations of Rights of Shares. All or any of the special rights attached to any class of shares may, subject to the provisions of the Companies Law,
be varied with the written consent of the holders of a majority of the issued shares of that class or with the sanction of a special resolution passed at a general
meeting of the holders of the shares of that class. The rights conferred upon the holders of the shares of any class issued shall not, unless otherwise expressly
provided by the terms of issue of the shares of that class, be deemed to be varied by the creation or issue of further shares ranking pari passu with such
existing class of shares.
Inspection of Books and Records. Holders of our ordinary shares have no general right under Cayman Islands law to inspect or obtain copies of
our list of shareholders or our corporate records. However, we will provide our shareholders with annual audited financial statements. See “— H. Documents
on Display.”
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Issuance of Additional Shares. Our memorandum of association authorizes our board of directors to issue additional ordinary shares from time to
time as our board of directors shall determine, to the extent of available authorized but unissued shares.
Our memorandum of association also authorizes our board of directors to establish from time to time one or more series of preference shares and to
determine, with respect to any series of preference shares, the terms and rights of that series, including:
(cid:120)
(cid:120)
(cid:120)
(cid:120)
the designation of the series;
the number of shares of the series;
the dividend rights, dividend rates, conversion rights, voting rights; and
the rights and terms of redemption and liquidation preferences.
Our board of directors may issue preference shares without action by our shareholders to the extent authorized but unissued. Issuance of these shares
may dilute the voting power of holders of ordinary shares.
Anti-Takeover Provisions. Some provisions of our memorandum and articles of association may discourage, delay or prevent a change of control
of our company or management that shareholders may consider favorable, including provisions that authorize our board of directors to issue preference
shares in one or more series and to designate the price, rights, preferences, privileges and restrictions of such preference shares without any further vote or
action by our shareholders.
Exempted Company. We are an exempted company with limited liability under the Companies Law. The Companies Law distinguishes between
ordinary resident companies and exempted companies. Any company that is registered in the Cayman Islands but conducts business mainly outside of the
Cayman Islands may apply to be registered as an exempted company. The requirements for an exempted company are essentially the same as for an ordinary
company except that an exempted company:
(cid:120)
(cid:120)
(cid:120)
does not have to file an annual return of its shareholders with the Registrar of Companies;
is not required to open its register of members for inspection;
does not have to hold an annual general meeting;
(cid:120) may issue negotiable or bearer shares or shares with no par value;
(cid:120) may obtain an undertaking against the imposition of any future taxation (such undertakings are usually given for 20 years in the first instance);
(cid:120) may register by way of continuation in another jurisdiction and be deregistered in the Cayman Islands;
(cid:120) may register as a limited duration company; and
(cid:120) may register as a segregated portfolio company.
“Limited liability” means that the liability of each shareholder is limited to the amount unpaid by the shareholder on the shares of the company.
Limitations on the Right to Own Shares. There are no limitations on the right to own our ordinary shares.
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C.
Material Contracts
We have not entered into any material contracts other than in the ordinary course of business and other than those described in “Item 4. Information
on the Company” or elsewhere in this annual report.
D.
Exchange Controls
The Cayman Islands currently has no exchange control restrictions. See also “Item 4. Information on the Company — B. Business Overview —
Regulation — Regulations on Foreign Currency Exchange” and “Item 4. Information on the Company — B. Business
Overview — Regulation — Regulations on Offshore Financing.”
E.
Taxation
The following summary of the material Cayman Islands, People’s Republic of China and United States federal income tax consequences of an
investment in our ADSs or ordinary shares is based upon laws and relevant interpretations thereof in effect as of the date of this annual report, all of which
are subject to change. This summary does not deal with all possible tax consequences relating to an investment in our ADSs or ordinary shares, such as the
tax consequences under state, local and other tax laws.
Cayman Islands Taxation
The Cayman Islands currently levies no taxes on individuals or corporations based upon profits, income, gains or appreciation and there is no
taxation in the nature of inheritance tax or estate duty. There are no other taxes levied by the Government of the Cayman Islands that are likely to be material
to holders of ADSs or ordinary shares. The Cayman Islands is not party to any double tax treaties except for a double tax treaty entered into with the United
Kingdom in 2010. There are no exchange control regulations or currency restrictions in the Cayman Islands.
Pursuant to Section 6 of the Tax Concessions Law (1999 Revision) of the Cayman Islands, we have obtained an undertaking from the Governor-in-
Council:
(i) that no law which is enacted in the Cayman Islands imposing any tax to be levied on profits or income or gains or appreciation shall apply to us
or our operations; and
(ii) that the aforesaid tax or any tax in the nature of estate duty or inheritance tax shall not be payable on our shares, debentures or other obligations.
The undertaking for us is for a period of twenty years from June 14, 2011.
People’s Republic of China Taxation
Under the Enterprise Income Tax Law, an enterprise established outside the PRC with “de facto management bodies” within China is considered a
“resident enterprise” for PRC enterprise income tax purposes and is generally subject to a uniform 25% enterprise income tax rate on its worldwide income.
Under the implementation rules to the Enterprise Income Tax Law, a “de facto management body” is defined as a body that has material and overall
management and control over the manufacturing and business operations, personnel and human resources, finances and properties of an enterprise. In
addition, SAT Circular 82, issued by the State Administration of Taxation in April 2009 and amended in January 2014, specifies that certain offshore
incorporated enterprises controlled by PRC enterprises or PRC enterprise groups will be classified as PRC resident enterprises if the following are located or
resident in China: senior management personnel and departments that are responsible for daily production, operation and management; financial and
personnel decision making bodies; key properties, accounting books, company seal, minutes of board meetings and shareholders’ meetings; and half or more
of the senior management or directors having voting rights. Further to SAT Circular 82, the State Administration of Taxation issued the SAT Bulletin 45,
which took effect in September 2011, to provide more guidance on the implementation of SAT Circular 82. SAT Bulletin 45 provides for procedures and
administration details of determination on resident status and administration on post-determination matters. We do not believe that 58.com Inc., or China
Classified Network Corporation or China Classified Information Corporation Limited meet all of the conditions above or are PRC resident enterprises. If the
PRC tax authorities determine that our Cayman Islands holding company is a PRC resident enterprise for PRC enterprise income tax purposes, a number of
unfavorable PRC tax consequences could follow. One example is that a 10% withholding tax would be imposed on dividends we pay to our non-PRC
enterprise shareholders and with respect to gains derived by our non-PRC enterprise shareholders from transferring our shares or ADSs and potentially a 20%
of withholding tax would be imposed on dividends we pay to our non-PRC individual shareholders and with respect to gains derived by our non-PRC
individual shareholders from transferring our shares or ADSs.
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It is unclear whether, if we are considered a PRC resident enterprise, holders of our shares or ADSs would be able to claim the benefit of income tax
treaties or agreements entered into between China and other countries or areas. See “Item 3. Key Information — D. Risk Factors — Risk Factors Related to
Doing Business in China — Under the Enterprise Income Tax Law, we may be classified as a PRC ‘resident enterprise’ for PRC enterprise income tax
purposes. Such classification would likely result in unfavorable tax consequences to us and our non-PRC shareholders and have a material adverse effect on
our results of operations and the value of your investment.”
The Enterprise Income Tax Law and the implementation rules provide that an income tax rate of 10% will normally be applicable to dividends
payable to investors that are “non-resident enterprises,” and gains derived by such investors, which (1) do not have an establishment or place of business in
China or (2) have an establishment or place of business in China, but the relevant income is not effectively connected with the establishment or place of
business to the extent such dividends and gains are derived from sources within China. The PRC State Council or an applicable tax treaty between the PRC
and the jurisdictions in which the non-PRC investors reside may reduce such income tax rate. Pursuant to an Arrangement Between the Mainland of China
and the Hong Kong Special Administrative Region for the Avoidance of Double Taxation on Income, or the Double Tax Avoidance Arrangement, and other
applicable PRC laws, if a Hong Kong resident enterprise is determined by the relevant PRC tax authority to have satisfied the relevant conditions and
requirements under the Double Tax Avoidance Arrangement and other applicable laws, the 10% withholding tax on the dividends the Hong Kong resident
enterprise receives from a PRC resident enterprise may be reduced to 5%. However, based on SAT Circular 81 issued by the State Administration of
Taxation in February 2009, if the relevant PRC tax authorities determine, in their discretion, that a company benefits from such reduced income tax rate due
to a structure or arrangement that is primarily tax-driven, the PRC tax authorities may adjust the preferential tax treatment. Pursuant to SAT Circular 601
issued by the State Administration of Taxation in October 2009, conduit companies, which are established for the purpose of evading or reducing tax, or
transferring or accumulating profits, may not be recognized as beneficial owners and thus are not entitled to the above-mentioned reduced income tax rate of
5% under the Double Tax Avoidance Arrangement. In August 2015, the State Administration of Taxation promulgated the Administrative Measures for Non-
Resident Taxpayers to Enjoy Treatments under Tax Treaties, or SAT Circular 60, which became effective on November 1, 2015. SAT Circular 60 provides
that non-resident enterprises are not required to obtain pre-approval from the relevant tax authority in order to enjoy the reduced withholding tax rate.
Instead, non-resident enterprises and their withholding agents may, by self-assessment and upon their confirmation that the prescribed criteria are met,
directly apply the reduced withholding tax rate, and file the necessary forms and supporting documents when conducting tax filings, which will be subject to
post-filing examinations by the relevant tax authorities. None of our Hong Kong subsidiaries has applied for the approval for a withholding tax rate of 5%
from local tax authority prior to SAT Circular 60, nor has any of our PRC subsidiaries applied the 5% tax rate directly to any dividend payment after the SAT
Circular 60, as our PRC subsidiaries have not paid dividends to us.
In January 2009, the State Administration of Taxation promulgated the Provisional Measures for the Administration of Withholding of Enterprise
Income Tax for Non-resident Enterprises, pursuant to which the entities that have the direct obligation to make certain payments to a non-resident enterprise
should be the relevant tax withholders for the non-resident enterprise, and such payments include: income from equity investments (including dividends and
other return on investment), interest, rents, royalties and income from assignment of property as well as other incomes subject to enterprise income tax
received by non-resident enterprises in China. Further, the measures provide that in case of an equity transfer between two non-resident enterprises which
occurs outside China, the non-resident enterprise which receives the equity transfer payment must, by itself or engage an agent to, file tax declaration with
the PRC tax authority located at place of the PRC company whose equity has been transferred, and the PRC company whose equity has been transferred
should assist the tax authorities to collect taxes from the relevant non-resident enterprise.
112
The State Administration of Taxation issued SAT Circular 59 together with the Ministry of Finance in April 2009 and SAT Circular 698 in
December 2009. Both Circular 59 and Circular 698 became effective retroactively as of January 1, 2008. On February 3, 2015, the State Administration of
Taxation issued SAT Notice 7. By promulgating and implementing these circulars, the PRC tax authorities have enhanced their scrutiny over the direct or
indirect transfer of equity interests or other taxable assets in a PRC resident enterprise by a non-resident enterprise. Under SAT Notice 7, where a non-
resident enterprise transfers the equity interests or other taxable assets of a PRC “resident enterprise” indirectly by disposition of the equity interests of an
overseas holding company, the non-resident enterprise, being the transferor, or the transferee, or the PRC entity which directly owned the taxable assets may
report to the relevant tax authority this “indirect transfer”. Using a “substance over form” principle, the PRC tax authority may re-characterize such indirect
transfer as a direct transfer of the equity interests in the PRC tax resident enterprise and other properties in China. As a result, gains derived from such
indirect transfer may be subject to PRC tax at a rate of up to 10%. We face uncertainties on the reporting and consequences on private equity financing
transactions, share exchange or other transactions involving the transfer of shares in our company by investors that are non-PRC resident enterprises, or sale
or purchase of shares in other non-PRC resident companies or other taxable assets by us. We and our non-resident investors may be at risk of being required
to file a return and being taxed under SAT Circular 698 and SAT Notice 7, and we may be required to expend valuable resources to comply with SAT
Circular 698 and SAT Notice 7 or to establish that we should not be taxed under these circulars.
United States Federal Income Tax Considerations
The following is a summary of United States federal income tax consequences of the ownership and disposition of our ADSs or Class A ordinary
shares by a U.S. Holder, as defined below, that holds our ADSs or Class A ordinary shares as “capital assets” (generally, property held for investment) under
the United States Internal Revenue Code of 1986, as amended, or the Code. This discussion is based on the tax laws of the United States as in effect on the
date of this annual report on Form 20-F and on U.S. Treasury regulations in effect or, in some cases, proposed, as of the date of this annual report on Form
20-F, as well as judicial and administrative interpretations thereof available on or before such date. All of the foregoing authorities are subject to change,
which change could apply retroactively and could affect the tax considerations described below. No ruling has been sought from the Internal Revenue
Service, or IRS with respect to any United States federal income tax consequences described below, and there can be no assurance that the IRS or a court will
not take a contrary position. This discussion does not address all aspects of United States federal income taxation that may be important to particular
investors in light of their individual investment circumstances, including investors subject to special tax rules (such as, for example, certain financial
institutions, insurance companies, regulated investment companies, real estate investment trusts, broker-dealers, traders in securities that elect mark-to-
market treatment, partnerships and their partners, tax-exempt organizations (including private foundations), investors who are not U.S. Holders, investors that
own (directly, indirectly, or constructively) 10% or more of our voting stock, investors that hold their ADSs or Class A ordinary shares as part of a straddle,
hedge, conversion, constructive sale or other integrated transaction, or investors that have a functional currency other than the United States dollar) all of
whom may be subject to tax rules that differ significantly from those summarized below. In addition, this summary does not discuss the Medicare tax on net
investment income or any state, local, or estate or gift tax considerations and, except for the limited instances where PRC tax law and potentially PRC taxes
are discussed below, does not discuss any non-United States tax considerations. U.S. Holders should consult their tax advisors regarding the United States
federal, state, local, and non-United States income and other tax considerations of an investment in our ADSs or Class A ordinary shares.
General
For purposes of this discussion, a “U.S. Holder” is a beneficial owner of our ADSs or Class A ordinary shares that is, for United States federal
income tax purposes, (i) an individual who is a citizen or resident of the United States, (ii) a corporation (or other entity treated as a corporation for United
States federal income tax purposes) created in, or organized under the laws of, the United States or any state thereof or the District of Columbia, (iii) an estate
the income of which is includible in gross income for United States federal income tax purposes regardless of its source, or (iv) a trust (A) the administration
of which is subject to the primary supervision of a United States court and which has one or more United States persons who have the authority to control all
substantial decisions of the trust or (B) that has otherwise elected to be treated as a United States person under the Code.
If a partnership (or other entity treated as a partnership for United States federal income tax purposes) is a beneficial owner of our ADSs or Class A
ordinary shares, the tax treatment of a partner in the partnership will generally depend upon the status of the partner and the activities of the partnership.
Partnerships and partners of a partnership holding our ADSs or Class A ordinary shares are urged to consult their tax advisors regarding an investment in our
ADSs or Class A ordinary shares.
The discussion below assumes that the representations contained in the deposit agreement are true and that the obligations in the deposit agreement
and any related agreement have been and will be complied with in accordance with their terms. U.S. Holders who hold ADSs will be treated as the beneficial
owner for United States federal income tax purposes of the underlying shares represented by the ADSs.
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Passive Foreign Investment Company Considerations
A non-United States corporation, such as our company, will be a “passive foreign investment company,” or PFIC, for United States federal income
tax purposes for any taxable year, if either (i) 75% or more of its gross income for such year consists of certain types of “passive” income or (ii) 50% or more
of the value of its assets (determined on the basis of a quarterly average) during such year produce or are held for the production of passive income (the
“asset test”). Passive income generally includes dividends, interest, royalties, rents, annuities, net gains from the sale or exchange of property producing such
income and net foreign currency gains. For this purpose, cash and assets readily convertible into cash are categorized as passive assets and the company’s
unbooked goodwill is taken into account for determining the value of its assets. We will be treated as owning a proportionate share of the assets and earning a
proportionate share of the income of any other corporation in which we own, directly or indirectly, more than 25% (by value) of the stock.
Although the law in this regard is not entirely clear, we treat Beijing 58 and other consolidated affiliated entities as being owned by us for United
States federal income tax purposes, because we control their management decisions and are entitled to substantially all of their economic benefits, and, as a
result, we consolidate their results of operations in our consolidated U.S. GAAP financial statements. If it were determined, however, that we are not the
owner of Beijing 58 and other consolidated affiliated entities for United States federal income tax purposes, we would likely be treated as a PFIC for our
current taxable year and any subsequent taxable year.
Assuming that we are the owner of Beijing 58 and other consolidated affiliated entities for United States federal income tax purposes, we believe
that we primarily operate as an active provider of online marketing services. Based on our current income and assets and projections as to the value of our
assets based, in part, on the market value of our ADSs and outstanding Class A ordinary shares, we do not believe that we were a PFIC for our taxable year
ended December 31, 2016 and, although no assurances can be made in this regard, we do not expect to be a PFIC for the current taxable year or any
subsequent taxable year. While we do not anticipate becoming a PFIC, because our value of the assets for purposes of the asset test may be determined by
reference to the market price of our ADSs or ordinary shares, fluctuations in the market price of our ADSs or Class A ordinary shares may cause us to
become a PFIC for the current or subsequent taxable years. Under circumstances where revenues from activities that produce passive income significantly
increase relative to our revenues from activities that produce non-passive income, or where we determine not to deploy significant amounts of cash for active
purposes, our risk of becoming classified as a PFIC may substantially increase.
Furthermore, because there are uncertainties in the application of the relevant rules, it is possible that the IRS may challenge our classification of
certain income and assets as non-passive or our valuation of our tangible and intangible assets, each of which may result in our becoming a PFIC for the
current or subsequent taxable years. Because PFIC status is a fact-intensive determination made on an annual basis and will depend upon the composition of
our assets and income and the value of our tangible and intangible assets from time to time, no assurance can be given that we will not become a PFIC in a
subsequent taxable year. In particular, if we are a PFIC for any year during which a U.S. Holder holds our ADSs or Class A ordinary shares, we generally
will continue to be treated as a PFIC with respect to such U.S. Holder for all succeeding years during which such U.S. Holder holds our ADSs or Class A
ordinary shares unless we cease to be a PFIC and the U.S. Holder makes a “deemed sale” election with respect to the ADSs or Class A ordinary shares.
If we are a PFIC for any taxable year during which a U.S. Holder holds our ADSs or Class A ordinary shares, unless the U.S. Holder makes a mark-
to-market election (as described below), the U.S. Holder will generally be subject to special tax rules that have a penalizing effect, regardless of whether we
remain a PFIC, on (i) any excess distribution that we make to the U.S. Holder (which generally means any distribution paid during a taxable year to a U.S.
Holder that is greater than 125% of the average annual distributions paid in the three preceding taxable years or, if shorter, the U.S. Holder’s holding period
for the ADSs or Class A ordinary shares), and (ii) any gain realized on the sale or other disposition, including, under certain circumstances, a pledge, of
ADSs or Class A ordinary shares. Under the PFIC rules:
(cid:120)
the excess distribution and/or gain will be allocated ratably over the U.S. Holder’s holding period for the ADSs or Class A ordinary shares;
114
(cid:120)
(cid:120)
the amount allocated to the current taxable year and any taxable years in the U.S. Holder’s holding period prior to the first taxable year in which we
are a PFIC, or pre-PFIC year, will be taxable as ordinary income; and
the amount allocated to each prior taxable year, other than the current taxable year or a pre-PFIC year, will be subject to tax at the highest tax rate in
effect applicable to the individuals or corporations, as appropriate, for that year and will be increased by an additional tax equal to interest on the
resulting tax deemed deferred with respect to each such other taxable year.
If we are a PFIC for any taxable year during which a U.S. Holder holds our ADSs or Class A ordinary shares and any of our non-United States
subsidiaries is also a PFIC, such U.S. Holder would be treated as owning a proportionate amount (by value) of the shares of the lower-tier PFIC and would be
subject to the rules described above on certain distributions by a lower-tier PFIC and a disposition of shares of a lower-tier PFIC even though such U.S.
Holder would not receive the proceeds of those distributions or dispositions. U.S. Holders should consult their tax advisors regarding the application of the
PFIC rules to any of our subsidiaries.
If we are a PFIC for any taxable year during which a U.S. Holder holds our ADSs or Class A ordinary shares, our ADSs or Class A ordinary shares
generally will continue to be treated as shares in a PFIC for all succeeding years during which such U.S. Holder holds our ADSs or Class A ordinary shares,
unless we cease to be a PFIC and such U.S. Holder makes a “deemed sale” election with respect to their ADSs or Class A ordinary shares. If a U.S. Holder
makes a deemed sale election, such U.S. Holder will be deemed to have sold their ADSs or Class A ordinary shares at fair market value as of the last day of
the last year during which we were a PFIC. Any gain from such deemed sale would be taxed as an excess distribution as described above. U.S. Holders
should consult their tax advisors regarding our possible status as a PFIC as well as the benefit of making a deemed sale election.
As an alternative to the foregoing rules, if we are a PFIC, a U.S. Holder of “marketable stock” may make a mark-to-market election with respect to
our ADSs, but not our Class A ordinary shares, provided that the ADSs continue to be listed on the NYSE and continue to be regularly traded. The mark-to-
market election is available only for “marketable stock,” which is stock that is traded in other than de minimis quantities on at least 15 days during each
calendar quarter, or “regularly traded” on a qualified exchange or other market, as defined in applicable Treasury regulations. We anticipate that our ADSs
should qualify as being regularly traded, but no assurances may be given in this regard. If a U.S. Holder makes this election, the holder will generally (i)
include as ordinary income for each taxable year that we are a PFIC the excess, if any, of the fair market value of ADSs held at the end of the taxable year
over the adjusted tax basis of such ADSs and (ii) deduct as an ordinary loss the excess, if any, of the adjusted tax basis of the ADSs over the fair market
value of such ADSs held at the end of the taxable year, but such deduction will only be allowed to the extent of the net amount previously included in income
as a result of the mark-to-market election. The U.S. Holder’s adjusted tax basis in the ADSs would be adjusted to reflect any income or loss resulting from
the mark-to-market election. If a U.S. Holder makes a mark-to-market election and we cease to be a PFIC, the holder will not be required to take into account
the mark-to-market gain or loss described above during any period that we are not a PFIC. If a U.S. Holder makes a mark-to-market election, any gain such
U.S. Holder recognizes upon the sale or other disposition of our ADSs in a year when we are a PFIC will be treated as ordinary income and any loss will be
treated as ordinary loss, but such loss will only be treated as ordinary loss to the extent of the net amount previously included in income as a result of the
mark-to-market election. In the case of a U.S. Holder who has held ADSs or Class A ordinary shares during any taxable year in respect of which we were
classified as a PFIC and continues to hold such ADSs or Class A ordinary shares (or any portion thereof) and has not previously determined to make a mark-
to-market election, and who is now considering making a mark-to-market election, special tax rules may apply relating to purging the PFIC taint of such
ADSs or Class A ordinary shares.
Because, as a technical matter, a mark-to-market election cannot be made for any lower-tier PFICs that we may own, a U.S. Holder may continue to
be subject to the PFIC rules with respect to such U.S. Holder’s indirect interest in any investments held by us that are treated as an equity interest in a PFIC
for United States federal income tax purposes.
We do not intend to provide information necessary for U.S. Holders to make qualified electing fund elections, which, if available, would result in
tax treatment different from the general tax treatment for PFICs described above.
If a U.S. Holder owns our ADSs or Class A ordinary shares during any taxable year that we are a PFIC, the holder must file an annual report, Form
8621 with the U.S. Internal Revenue Service. U.S. Holders should consult their tax advisors concerning the United States federal income tax consequences of
purchasing, holding, and disposing ADSs or Class A ordinary shares if we are or become a PFIC, including the possibility of making a mark-to-market
election and the unavailability of the qualified electing fund election.
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Dividends
Any cash distributions (including the amount of any PRC tax withheld) paid on our ADSs or Class A ordinary shares out of our current or
accumulated earnings and profits, as determined under United States federal income tax principles, will generally be includible in the gross income of a U.S.
Holder as dividend income on the day actually or constructively received by the U.S. Holder, in the case of Class A ordinary shares, or by the depositary
bank, in the case of ADSs. Because we do not intend to determine our earnings and profits on the basis of United States federal income tax principles, any
distribution paid will generally be reported as a “dividend” for United States federal income tax purposes.
Individuals and other non-corporate recipients of dividend income generally will be subject to tax on dividend income from a “qualified foreign
corporation” on dividends paid on our ADSs at a lower applicable capital gains rate rather than the marginal tax rates generally applicable to ordinary income
provided that certain holding period and other requirements are met. We generally will be considered to be a qualified foreign corporation (i) with respect to
any dividend we pay on our ADSs or Class A ordinary shares that are readily tradable on an established securities market in the United States, or if we are
eligible for the benefits of a comprehensive tax treaty with the United States that the Secretary of Treasury of the United States determines is satisfactory for
this purpose and includes an exchange of information program and (ii) we are neither a passive foreign investment company nor treated as such with respect
to a U.S. Holder (as discussed above) for the taxable year in which the dividend was paid and the preceding taxable year. Because (i) U.S. Treasury guidance
indicates that ADSs representing ordinary shares, such as ours, listed on the NYSE are considered to be readily tradable on an established securities market in
the United States, and (ii) we believe that we were not a PFIC for United States federal income tax purposes for our taxable year ended December 31, 2016
and we do not expect to be a PFIC in subsequent years, we believe that we are a qualified foreign corporation with respect to dividends paid on the ADSs,
but not with respect to dividends paid on our ordinary shares. In the event we are deemed to be a resident enterprise under the PRC Enterprise Income Tax
Law, we may be eligible for the benefits of the United States-PRC income tax treaty (which the U.S. Treasury Department has determined is satisfactory for
this purpose) and we would be treated as a qualified foreign corporation with respect to dividends paid on our Class A ordinary shares or ADSs. U.S. Holders
should consult their tax advisors regarding the availability of the reduced tax rate on dividends in their particular circumstances. Dividends received on our
ADSs or Class A ordinary shares will not be eligible for the dividends received deduction allowed to corporations.
For United States foreign tax credit purposes, dividends paid on our ADSs or Class A ordinary shares generally will be treated as income from
foreign sources and generally will constitute passive category income. In the event that we are deemed to be a PRC resident enterprise under the PRC
Enterprise Income Tax Law, a U.S. Holder may be subject to PRC withholding taxes on dividends paid, if any, on our ADSs or Class A ordinary shares. A
U.S. Holder may be eligible, subject to a number of complex limitations, to claim a foreign tax credit in respect of any non-refundable foreign withholding
taxes imposed on dividends received on our ADSs or Class A ordinary shares. A U.S. Holder who does not elect to claim a foreign tax credit for foreign tax
withheld may instead claim a deduction for United States federal income tax purposes in respect of such withholding, but only for a year in which such
holder elects to do so for all creditable foreign income taxes. The rules governing the foreign tax credit are complex. U.S. Holders are urged to consult their
tax advisors regarding the availability of the foreign tax credit under their particular circumstances.
Sale or Other Disposition of ADSs or Class A Ordinary Shares
A U.S. Holder will generally recognize capital gain or loss, if any, upon the sale or other disposition of ADSs or Class A ordinary shares in an
amount equal to the difference between the amount realized upon the disposition and the holder’s adjusted tax basis in such ADSs or Class A ordinary shares.
The gain or loss will generally be capital gain or loss. Any capital gain or loss will be long-term if the ADSs or ordinary shares have been held for more than
one year. An individual U.S. Holder or other non-corporate U.S. Holder who has held the ADSs or ordinary shares for more than one year will generally be
eligible for reduced tax rates. The deductibility of capital losses is subject to limitations. Any such gain or loss recognized by a U.S. Holder will generally be
treated as U.S. source income or loss for foreign tax credit purposes, which will generally limit the availability of foreign tax credits. However,. in the event
that we are deemed to be a PRC resident enterprise under the PRC Enterprise Income Tax Law, and gain from the disposition of the ADSs or Class A
ordinary shares is subject to tax in China, such gain may be treated as PRC source gain for foreign tax credit purposes under the United States-PRC income
tax treaty. The deductibility of a capital loss may be subject to limitations. U.S. Holders should consult their tax advisors regarding the tax consequences if a
foreign tax is imposed on a disposition of our ADSs or Class A ordinary shares, including the availability of the foreign tax credit under their particular
circumstances.
116
Information Reporting and Backup Withholding
Individual U.S. Holders and certain entities may be required to submit to the IRS certain information with respect to his or her beneficial ownership
of the ADSs or ordinary shares, if such ADSs or ordinary shares are not held on his or her behalf by a financial institution. This new law also imposes
penalties if an individual U.S. Holder is required to submit such information to the IRS and fails to do so.
Proceeds from the sale, exchange or other disposition of, or a distribution on, the ADSs or ordinary shares may be subject to information reporting
to the IRS and possible backup withholding. Backup withholding generally will not apply, however, to a U.S. Holder who furnishes a correct taxpayer
identification number and makes any other required certification, or who is otherwise exempt from backup withholding. U.S. Holders who are required to
establish their exempt status generally must provide such certification on IRS Form W-9.
Backup withholding is not an additional tax. Any amounts withheld under the backup withholding rules generally will be allowed as a refund or a
credit against a U.S. Holder’s United States federal income tax liability if the required information is furnished by the U.S. Holder on a timely basis to the
IRS. U.S. Holders should consult their tax advisors regarding the application of the information reporting and backup withholding rules.
F.
Dividends and Paying Agents
Not applicable.
G.
Statements by Experts
Not applicable.
H.
Documents on Display
We previously filed with the SEC our registration statement on Form F-1 (Registration No. 333-191424), as amended, including the prospectus
contained therein, to register our ordinary shares in relation to our initial public offering and our registration statement on Form F-1 (File Number: 333-
194610), as amended, including the prospectus contained therein, to register our ordinary shares in relation to a follow-on public offering. We have also filed
with the SEC a related registration statement on F-6 (Registration No. 333-191776) to register the ADSs.
We are subject to the periodic reporting and other informational requirements of the Securities Exchange Act of 1934, as amended, or the Exchange
Act. Under the Exchange Act, we are required to file reports and other information with the SEC, including filing annually a Form 20-F within four months
after the end of each fiscal year, which is December 31. Copies of reports and other information, when so filed, may be inspected without charge and may be
obtained at prescribed rates at the public reference facilities maintained by the Securities and Exchange Commission at 100 F Street, N.E., Room 1580,
Washington, D.C. 20549. The public may obtain information regarding the Washington, D.C. Public Reference Room by calling the Commission at 1-800-
SEC-0330. The SEC also maintains a website at www.sec.gov that contains reports, proxy and information statements, and other information regarding
registrants that make electronic filings with the SEC using its EDGAR system. As a foreign private issuer, we are exempt from the rules under the Exchange
Act prescribing the furnishing and content of quarterly reports and proxy statements, and officers, directors and principal shareholders are exempt from the
reporting and short-swing profit recovery provisions contained in Section 16 of the Exchange Act.
We will furnish Citibank, N.A., the depositary of our ADSs, with our annual reports, which will include a review of operations and annual audited
consolidated financial statements prepared in conformity with U.S. GAAP, and all notices of shareholders’ meetings and other reports and communications
that are made generally available to our shareholders. The depositary will make such notices, reports and communications available to holders of ADSs and,
upon our written request, will mail to all record holders of ADSs the information contained in any notice of a shareholders’ meeting received by the
depositary from us.
117
I.
Subsidiary Information
Not applicable.
ITEM 11.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Foreign Exchange Risk
Our operating transactions and assets and liabilities are mainly denominated in Renminbi. The Renminbi is not freely convertible into foreign
currencies for capital account transactions. The value of the Renminbi against the U.S. dollar and other currencies is affected by changes in China’s political
and economic conditions and by China’s foreign exchange policies, among other things. In July 2005, the PRC government changed its decades-old policy of
pegging the value of the Renminbi to the U.S. dollar, and the Renminbi appreciated more than 20% against the U.S. dollar over the following three years.
Between July 2008 and June 2010, this appreciation halted and the exchange rate between the Renminbi and the U.S. dollar remained within a narrow band.
Since June 2010, the Renminbi has fluctuated against the U.S. dollar, at times significantly and unpredictably, and in recent years the Renminbi has
depreciated significantly against the U.S. dollar. It is difficult to predict how market forces or PRC or U.S. government policy may impact the exchange rate
between the Renminbi and the U.S. dollar in the future. The net foreign exchange loss recognized in 2016 was insignificant. To date, we have not entered
into any hedging transactions in an effort to reduce our exposure to foreign currency exchange risk.
Interest Rate Risk
Our exposure to interest rate risk primarily relates to excess cash invested in fixed rate term deposits and variable rate short-term financial products
with original maturities of less than a year. Investments in both fixed rate and variable rate interest-earning instruments carry a degree of interest rate risk.
Fixed rate instruments may have their fair market value adversely impacted due to a rise in interest rates, while variable rate instruments may produce less
income than expected if interest rates fall. Due in part to these factors, our future interest income and investment income may fall short of expectations due to
changes in market interest rates. We have not been exposed to, nor do we anticipate being exposed to, material risks due to changes in market interest rates,
and therefore have not used any derivative financial instruments to manage our interest risk exposure.
ITEM 12.
DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES
A.
Debt Securities
Not applicable.
B.
Warrants and Rights
Not applicable.
C.
Other Securities
Not applicable.
D.
American Depositary Shares
Fees and Charges Our ADS Holders May Have to Pay
Holders of our ADSs will be required to pay the following service fees to the depositary bank:
Service
(cid:120) Issuance of ADSs
(cid:120) Cancellation of ADSs
(cid:120) Distribution of cash dividends or other cash distributions
(cid:120) Distribution of ADSs pursuant to stock dividends, free stock
distributions or exercise of rights.
Fees
Up to U.S. 5¢ per ADS issued
Up to U.S. 5¢ per ADS canceled
Up to U.S. 5¢ per ADS held
Up to U.S. 5¢ per ADS held
(cid:120) Distribution of securities other than ADSs or rights to purchase
Up to U.S. 5¢ per ADS held
additional ADSs
(cid:120) Depositary Services
Up to U.S. 5¢ per ADS held on the applicable record date(s) established by
the depositary bank
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Holders of our ADSs will also be responsible to pay certain fees and expenses incurred by the depositary bank and certain taxes and governmental
charges such as:
(cid:120)
(cid:120)
(cid:120)
(cid:120)
(cid:120)
fees for the transfer and registration of ordinary shares charged by the registrar and transfer agent for the ordinary shares in the Cayman Islands (i.e.,
upon deposit and withdrawal of ordinary shares);
expenses incurred for converting foreign currency into U.S. dollars;
expenses for cable, telex and fax transmissions and for delivery of securities;
taxes and duties upon the transfer of securities (i.e., when ordinary shares are deposited or withdrawn from deposit); and
fees and expenses incurred in connection with the delivery or servicing of ordinary shares on deposit.
Depositary fees payable upon the issuance and cancellation of ADSs are typically paid to the depositary bank by the brokers (on behalf of their
clients) receiving the newly issued ADSs from the depositary bank and by the brokers (on behalf of their clients) delivering the ADSs to the depositary bank
for cancellation. The brokers in turn charge these fees to their clients. Depositary fees payable in connection with distributions of cash or securities to ADS
holders and the depositary services fee are charged by the depositary bank to the holders of record of ADSs as of the applicable ADS record date.
The depositary fees payable for cash distributions are generally deducted from the cash being distributed. In the case of distributions other than cash
(i.e., stock dividend, rights), the depositary bank charges the applicable fee to the ADS record date holders concurrent with the distribution. In the case of
ADSs registered in the name of the investor (whether certificated or uncertificated in direct registration), the depositary bank sends invoices to the applicable
record date ADS holders. In the case of ADSs held in brokerage and custodian accounts (via DTC), the depositary bank generally collects its fees through the
systems provided by DTC (whose nominee is the registered holder of the ADSs held in DTC) from the brokers and custodians holding ADSs in their DTC
accounts. The brokers and custodians who hold their clients’ ADSs in DTC accounts in turn charge their clients’ accounts the amount of the fees paid to the
depositary banks.
In the event of refusal to pay the depositary fees, the depositary bank may, under the terms of the deposit agreement, refuse the requested service
until payment is received or may set off the amount of the depositary fees from any distribution to be made to the ADS holder.
The fees and charges holders of our ADSs may be required to pay may vary over time and may be changed by us and by the depositary bank.
Holders of our ADSs will receive prior notice of such changes.
Fees and Other Payments Made by the Depositary to Us
The depositary bank may reimburse us for certain expenses incurred by us in respect of the ADR program established pursuant to the deposit
agreement, by making available a portion of the depositary fees charged in respect of the ADR program or otherwise, upon such terms and conditions as we
and the depositary bank may agree from time to time. We received a reimbursement of US$1.2 million from the depository in 2016.
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ITEM 13.
DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES
PART II
None.
ITEM 14.
MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS
Material Modifications to the Rights of Security Holders
See “Item 10. Additional Information — B. Memorandum and Articles of Association — Ordinary Shares” for a description of the rights of
securities holders, which remain unchanged.
Use of Proceeds
The following “Use of Proceeds” information relates to the registration statement on Form F-1, as amended (File Number: 333-191424), which
became effective on October 30, 2013.
We received net proceeds of approximately US$200.0 million from our initial public offering. These net proceeds were fully applied in following
investing activities:
(cid:120)
(cid:120)
approximately US$185.4 million for the purchase of new office buildings; and
the remainder for the purchase of long-term investments.
We have fully applied the net proceeds from our initial public offering as of the date of this annual report.
ITEM 15.
CONTROLS AND PROCEDURES
Disclosure Controls and Procedures
Our management, under the supervision and with the participation of our chief executive officer and chief financial officer, has performed an
evaluation of the effectiveness of our disclosure controls and procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934, as
amended) as of December 31, 2016, the end of the period covered by this annual report.
Based upon that evaluation, our management has concluded that, as of December 31, 2016, our disclosure controls and procedures were effective in
ensuring that the information required to be disclosed by us in the reports that we file and furnish under the Exchange Act was recorded, processed,
summarized and reported, within the time periods specified in the SEC’s rules and forms, and that the information required to be disclosed by us in the
reports that we file or submit under the Exchange Act is accumulated and communicated to our management, including our chief executive officers and chief
financial officer, to allow timely decisions regarding required disclosure. The material weakness in internal control over financial reporting reported in 2015
that existed in our disclosure controls and procedures was effectively remediated, and the material weakness no longer existed as of December 31, 2016. We
are committed to monitoring the effectiveness of these measures and making any changes that are necessary and appropriate in the future.
Management’s Annual Report on Internal Control over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Rule
13a-15(f) under the Exchange Act, for our company. Internal control over financial reporting is a process designed to provide reasonable assurance regarding
the reliability of financial reporting and the preparation of consolidated financial statements in accordance with generally accepted accounting principles,
including those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions
and dispositions of a company’s assets, (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of consolidated
financial statements in accordance with generally accepted accounting principles, and that a company’s receipts and expenditures are being made only in
accordance with authorizations of a company’s management and directors, and (3) provide reasonable assurance regarding prevention or timely detection of
unauthorized acquisition, use, or disposition of a company’s assets that could have a material effect on the consolidated financial statements.
120
Because of its inherent limitations, a system of internal control over financial reporting can provide only reasonable assurance with respect to
consolidated financial statement preparation and presentation and may not prevent or detect misstatements. Also, projections of any evaluation of
effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance
with the policies or procedures may deteriorate.
As required by Section 404 of the Sarbanes-Oxley Act of 2002 and related rules promulgated by the SEC, our management, including our chief
executive officer and chief financial officer, assessed the effectiveness of internal control over financial reporting as of December 31, 2016 using the criteria
set forth in the report “Internal Control — Integrated Framework (2013)” published by the Committee of Sponsoring Organizations of the Treadway
Commission (known as COSO).
Our management has concluded that we maintained effective internal control over financial reporting as of December 31, 2016, based on criteria
established in Internal Control — Integrated Framework (2013) issued by COSO.
The effectiveness of our internal control over financial reporting as of December 31, 2016 has been audited by PricewaterhouseCoopers Zhong Tian
LLP, an independent registered public accounting firm, as stated in their report which is included in Item 18 of this annual report.
Remediation of Material Weaknesses in Internal Control over Financial Reporting Reported in 2015
In connection with our management’s assessment of the effectiveness of our internal control over financial reporting as of December 31, 2015, we
identified one “material weakness” in our internal control over financial reporting, as defined in the standards established by the PCAOB. The material
weakness identified related to the lack of adequate resources with an appropriate level of knowledge in U.S. GAAP to properly account for significant
complex transactions under U.S. GAAP. As a result, certain significant complex transactions in 2015 were not initially accounted for properly.
During 2016, we designed and implemented remedial measures to address the material weakness referred to above. The remedial measures that we
implemented are as follows: (1) we hired a senior vice president in October 2015 who has relevant U.S. GAAP and SEC financial reporting knowledge and
experiences and he started to lead and supervise the finance team to assist the chief financial officer to enhance the core finance team’s U.S. GAAP
knowledge in 2016; (2) we hired an additional financial reporting manager, who obtained her U.S. CPA qualification in the State of New Hampshire in May
2013 and her working experiences in public accounting firm, to enhance the capability of the finance team; (3) we continually provided internal or external
trainings on U.S. GAAP and SEC filing requirements to financial staff throughout the year; (4) we updated the comprehensive accounting manual to provide
proper guidance for the company’s accounting treatment on complex transactions; and (5) we timely performed accounting assessment and documentation
for new significant complex transactions appropriately in accordance with relevant U.S. GAAP guidance.
We consider that the actions we have taken, as listed above, have remediated the material weakness referred to the above, and strengthened our
internal control over financial reporting. Our management has concluded that our internal control over financial reporting was effective as of December 31,
2016.
Changes in Internal Control over Financial Reporting
Other than as described above, there were no major changes in our internal controls over financial reporting that occurred during the period covered
by this annual report that have materially affected, or are reasonably likely to materially affect, our internal controls over financial reporting.
121
ITEM 16A.
AUDIT COMMITTEE FINANCIAL EXPERT
Our board of directors has determined that Herman Yu qualifies as an audit committee financial expert and that Herman Yu qualifies as an
independent director (under the standards set forth under Section 303A of the Corporate Governance Rules of the New York Stock Exchange and Rule
10A-3 under the Exchange Act).
ITEM 16B.
CODE OF ETHICS
Our board of directors adopted a code of business conduct and ethics that applies to our directors, officers, employees and advisors, which became
effective in November 2013. We have posted a copy of our code of business conduct and ethics on our website at www.58.com.
ITEM 16C.
PRINCIPAL ACCOUNTANT FEES AND SERVICES
The following table sets forth the aggregate fees by the categories specified below in connection with certain professional services rendered by
PricewaterhouseCoopers Zhong Tian LLP, our independent registered public accounting firm for the years ended December 31, 2015 and 2016. We did not
pay any other fees to our auditors during the periods indicated below.
Audit fees(1)
Tax fees(2)
Other fees(3)
2015
2016
(in thousands of RMB)
20,865
319
1,876
19,000
―
―
(1) “Audit fees” represent the aggregate fees for professional services rendered by our principal auditors for the audit of our annual consolidated financial
statements, review of quarterly financial information, and audit services that are normally provided by the principal accountant in connection with
regulatory filings or engagements.
(2) “Tax fees” represent the aggregate fees for professional services rendered by our principal auditors for tax compliance, tax advice and tax planning.
(3) “Other fees” represent the aggregate fees for services rendered other than services reported under “Audit fees” and “Tax fees” above.
The policy of our audit committee is to pre-approve all audit and non-audit services to be provided by PricewaterhouseCoopers Zhong Tian LLP,
including audit services, audit-related services, tax services and other services are described above, other than those for de minimis services which are
approved by the audit committee prior to the completion of the audit.
ITEM 16D.
EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES
Not applicable.
ITEM 16E.
PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS
Not applicable.
ITEM 16F.
CHANGE IN REGISTRANT’S CERTIFYING ACCOUNTANT
Not applicable.
122
ITEM 16G.
CORPORATE GOVERNANCE
As a Cayman Islands company listed on the NYSE, we are subject to the NYSE corporate governance listing standards. Among other things,
Section 303A.08 of the NYSE Listed Company Manual requires shareholder approval of material revisions to equity-compensation plans and Section 312.03
(c) of the NYSE Listed Company Manual requires shareholder approval of new share issuances above the 20% threshold specified therein. However, NYSE
rules permit a foreign private issuer like us to follow the corporate governance practices of its home country. Certain corporate governance practices in the
Cayman Islands, which is our home country, differ significantly from the NYSE corporate governance listing standards. We have elected to follow the
Cayman Islands practices with respect to the amendment of our 2013 Plan to increase the total number of ordinary shares that may be issued pursuant to
awards granted under the plan by 7,000,000 Class B ordinary shares in April 2015. In addition, we have also elected to follow the Cayman Islands practices
with respect to the issuance of new ordinary shares above the 20% threshold to Tencent and former shareholders of Ganji in April 2015 and the issuance of
new ordinary shares above the 20% threshold to certain private equity funds and issuance of a convertible promissory note to Tencent in July 2015, as
specified in Section 312.03(c). We have followed the home country practice and obtained the board approval but not shareholder approval for amending our
2013 Plan and the share issuances as described above.
Other than the matters described above, there are no significant differences between our corporate governance practices and those followed by U.S.
domestic companies under the NYSE Listed Company Manual.
ITEM 16H.
MINE SAFETY DISCLOSURE
Not applicable.
123
ITEM 17.
FINANCIAL STATEMENTS
We have elected to provide financial statements pursuant to Item 18.
ITEM 18.
FINANCIAL STATEMENTS
PART III
The consolidated financial statements of 58.com Inc. are included at the end of this annual report.
ITEM 19.
EXHIBITS
Exhibit
Number
Description of Document
1.1
2.1
2.2
2.3
2.4
4.1
4.2
4.3
4.4
4.5
4.6
Third Amended and Restated Memorandum and Articles of Association of the Registrant (incorporated herein by reference to Exhibit
3.2 to the registration statement on Form F-1 (File No. 333-191424), as amended, initially filed with the Security and Exchange
Commission on September 27, 2013).
Registrant’s Specimen American Depositary Receipt (incorporated herein by reference to Exhibit 4.3 to the registration statement on
Form F-1 (File No. 333-191424), as amended, initially filed with the Security and Exchange Commission on September 27, 2013).
Registrant’s Specimen Certificate for Class A Ordinary Shares (incorporated herein by reference to Exhibit 4.2 to the registration
statement on Form F-1 (File No. 333-191424), as amended, initially filed with the Security and Exchange Commission on September
27, 2013).
Deposit Agreement dated October 31, 2013, among the Registrant, the depositary and holders of the American Depositary Receipts
(incorporated herein by reference to Exhibit 4.3 to the registration statement on Form S-8 (File No. 333-194873), initially filed with
the Security and Exchange Commission on March 28, 2014).
Amended and Restated Shareholders’ Agreement dated as of August 4, 2011 among the Registrant, its ordinary shareholders and
preference shareholders (incorporated herein by reference to Exhibit 4.5 to the registration statement on Form F-1 (File No. 333-
191424), as amended, initially filed with the Security and Exchange Commission on September 27, 2013).
2010 Employee Stock Option Plan (incorporated herein by reference to Exhibit 10.1 to the registration statement on Form F-1 (File
No. 333-191424), as amended, initially filed with the Security and Exchange Commission on September 27, 2013).
2013 Share Incentive Plan (incorporated herein by reference to Exhibit 10.2 to the registration statement on Form F-1 (File No. 333-
191424), as amended, initially filed with the Security and Exchange Commission on September 27, 2013).
Form of Indemnification Agreement with the Registrant’s directors and executive officers (incorporated herein by reference to
Exhibit 10.3 to the registration statement on Form F-1 (File No. 333-191424), as amended, initially filed with the Security and
Exchange Commission on September 27, 2013).
Form of Employment Agreement between the Registrant and an executive officer of the Registrant (incorporated herein by reference
to Exhibit 10.4 to the registration statement on Form F-1 (File No. 333-191424), as amended, initially filed with the Security and
Exchange Commission on September 27, 2013).
English translation of the Amended and Restated Exclusive Business Cooperation Agreement between Beijing Chengshi Wanglin
Information Technology Co., Ltd. and Beijing 58 Information Technology Co., Ltd. dated October 10, 2011 (incorporated herein by
reference to Exhibit 10.5 to the registration statement on Form F-1 (File No. 333-191424), as amended, initially filed with the
Security and Exchange Commission on September 27, 2013).
English translation of the Equity Interest Pledge Agreements, as amended and restated, among Beijing Chengshi Wanglin
Information Technology Co., Ltd., Beijing 58 Information Technology Co., Ltd. and each of the shareholders of Beijing 58
Information Technology Co., Ltd. dated June 28, 2013 (incorporated herein by reference to Exhibit 10.6 to the registration statement
on Form F-1 (File No. 333-191424), as amended, initially filed with the Security and Exchange Commission on September 27, 2013).
124
Exhibit
Number
4.7
4.8
4.9
4.10
4.11
4.12
4.13
4.14
4.15
4.16
4.17
Description of Document
English translation of the Exclusive Option Agreements, as amended and restated, among Beijing Chengshi Wanglin Information
Technology Co., Ltd., Beijing 58 Information Technology Co., Ltd. and each of the shareholders of Beijing 58 Information
Technology Co., Ltd. dated June 28, 2013 (incorporated herein by reference to Exhibit 10.7 to the registration statement on Form F-1
(File No. 333-191424), as amended, initially filed with the Security and Exchange Commission on September 27, 2013).
English translation of Power of Attorney issued by each of the shareholders of Beijing 58 Information Technology Co., Ltd. dated
June 28, 2013 (incorporated herein by reference to Exhibit 10.8 to the registration statement on Form F-1 (File No. 333-191424), as
amended, initially filed with the Security and Exchange Commission on September 27, 2013).
English translation of Loan Agreements between Beijing Chengshi Wanglin Information Technology Co., Ltd. and each of the
individual shareholders of Beijing 58 Information Technology Co., Ltd. (incorporated herein by reference to Exhibit 10.9 to the
registration statement on Form F-1 (File No. 333-191424), as amended, initially filed with the Security and Exchange Commission on
September 27, 2013).
Investor Rights Agreement, dated June 30, 2014, between the Registrant, Ohio River Investment Limited, Nihao China Corporation
and Jinbo Yao (incorporated herein by reference to Exhibit 4.14 of the Registrant’s Annual Report on Form 20-F filed with the
Securities and Exchange Commission on April 29, 2015).
English Summary of Cooperation Agreement, dated September 25, 2014, by and between Beijing Electronics Zone Investment and
Development Co., Ltd. and Beijing Chengshi Wanglin Information Technology Co., Ltd. (incorporated herein by reference to Exhibit
4.13 of the Registrant’s Annual Report on Form 20-F filed with the Securities and Exchange Commission on May 13, 2016).
Share Purchase Agreement, dated February 28, 2015, by and among the Registrant, Anjuke Inc. and the other parties named therein
(incorporated herein by reference to Exhibit 4.14 of the Registrant’s Annual Report on Form 20-F filed with the Securities and
Exchange Commission on May 13, 2016).
Share Purchase Agreement, dated April 17, 2015, by and among the Registrant and certain selling shareholders of Falcon View
Technology (incorporated herein by reference to Exhibit 4.15 of the Registrant’s Annual Report on Form 20-F filed with the
Securities and Exchange Commission on May 13, 2016).
Registration Rights Agreement, dated April 20, 2015, by and among the Registrant and parties set forth in Schedule 1 thereto
(incorporated herein by reference to Exhibit 4.16 of the Registrant’s Annual Report on Form 20-F filed with the Securities and
Exchange Commission on May 13, 2016).
Investment Agreement, dated April 17, 2015, between the Registrant and Ohio River Investment Limited (incorporated herein by
reference to Exhibit 99.1 of the Schedule 13D/A (File No. 005-87683) filed with the Securities and Exchange Commission on April
20, 2015).
Xiaoxiang International Technology Venture Capital LP Subscription Agreement, dated July 29, 2015, between Dream Wizard Inc.
and Xiaoxiang International Technology Venture Capital LP (incorporated herein by reference to Exhibit 4.18 of the Registrant’s
Annual Report on Form 20-F filed with the Securities and Exchange Commission on May 13, 2016).
Goliath Internet Opportunities, L.P. Subscription Agreement, dated July 31, 2015, between Dream Wizard Inc. and Goliath Internet
Opportunities, L.P. (incorporated herein by reference to Exhibit 4.19 of the Registrant’s Annual Report on Form 20-F filed with the
Securities and Exchange Commission on May 13, 2016).
125
Exhibit
Number
4.18
4.19
4.20
4.21
4.22
4.23
4.24
4.25*
4.26*
4.27*
4.28*
4.29
4.30
4.31
Description of Document
Zero2IPO Partners I, L.P. Subscription Agreement, dated August 3, 2015, between Dream Wizard Inc. and Zero2IPO Partners I, L.P.
(incorporated herein by reference to Exhibit 4.20 of the Registrant’s Annual Report on Form 20-F filed with the Securities and
Exchange Commission on May 13, 2016).
Bridge Loan Agreement, dated July 31, 2015, between the Registrant and Ohio River Investment Limited (incorporated herein by
reference to Exhibit 1 of the Schedule 13D/A (File No. 005-87683) filed with the Securities and Exchange Commission on August 5,
2015).
Convertible Promissory Note, dated July 31, 2015, issued to Ohio River Investment Limited by the Registrant (incorporated herein by
reference to Exhibit 2 of the Schedule 13D/A (File No. 005-87683) filed with the Securities and Exchange Commission on August 5,
2015).
Amendment to Bridge Loan Agreement, dated December 11, 2015, between the Registrant and Ohio River Investment Limited
(incorporated herein by reference to Exhibit 1 of the Schedule 13D/A (File No. 005-87683) filed with the Securities and Exchange
Commission on December 15, 2015).
Convertible Promissory Note, dated December 11, 2015, issued to Ohio River Investment Limited by the Registrant (incorporated
herein by reference to Exhibit 2 of the Schedule 13D/A (File No. 005-87683) filed with the Securities and Exchange Commission on
December 15, 2015).
Series A Preferred Shares Subscription Agreement, dated October 12, 2015, by and among the Registrant, 58 Daojia Inc. and other
parties named therein (incorporated herein by reference to Exhibit 4.25 of the Registrant’s Annual Report on Form 20-F filed with the
Securities and Exchange Commission on May 13, 2016).
English translation of the Exclusive Business Cooperation Agreement between Beijing 58 Daojia Information Technology Co., Ltd.
and Tianjin 58 Daojia Home Services Co., Ltd. dated August 5, 2015 (incorporated herein by reference to Exhibit 4.26 of the
Registrant’s Annual Report on Form 20-F filed with the Securities and Exchange Commission on May 13, 2016).
English translation of the Amended and Restated Equity Interest Pledge Agreements among Beijing 58 Daojia Information
Technology Co., Ltd., Tianjin 58 Daojia Home Services Co., Ltd. and each of the shareholders of Tianjin 58 Daojia Home Services
Co., Ltd. dated August 5, 2015 and July 4, 2016.
English translation of the Amended and Restated Exclusive Option Agreements among Beijing 58 Daojia Information Technology
Co., Ltd., Tianjin 58 Daojia Home Services Co., Ltd. and each of the shareholders of Tianjin 58 Daojia Home Services Co., Ltd.
dated August 5, 2015 and July 4, 2016.
English translation of the Amended and Restated Power of Attorney issued by each of the shareholders of Tianjin 58 Daojia Home
Services Co., Ltd. dated August 5, 2015 and July 4, 2016.
English translation of the Amended and Restated Loan Agreements between Beijing 58 Daojia Information Technology Co., Ltd. and
each of the shareholders of Tianjin 58 Daojia Home Services Co., Ltd. dated August 5, 2015 and July 4, 2016.
English translation of the Exclusive Business Cooperation Agreement between Beijing Yangguang Gudi Science Development Co.,
Ltd. and Beijing Shanjing Kechuang Network Technology Co., Ltd. dated August 6, 2015 (incorporated herein by reference to
Exhibit 4.31 of the Registrant’s Annual Report on Form 20-F filed with the Securities and Exchange Commission on May 13, 2016).
English translation of the Equity Interest Pledge Agreements among Beijing Yangguang Gudi Science Development Co., Ltd.,
Beijing Shanjing Kechuang Network Technology Co., Ltd. and each of the shareholders of Beijing Shanjing Kechuang Network
Technology Co., Ltd. dated August 6, 2015 (incorporated herein by reference to Exhibit 4.22 of the Registrant’s Annual Report on
Form 20-F filed with the Securities and Exchange Commission on May 13, 2016).
English translation of the Exclusive Option Agreements among Beijing Yangguang Gudi Science Development Co., Ltd., Beijing
Shanjing Kechuang Network Technology Co., Ltd. and each of the shareholders of Beijing Shanjing Kechuang Network Technology
Co., Ltd. dated August 6, 2015 (incorporated herein by reference to Exhibit 4.33 of the Registrant’s Annual Report on Form 20-F
filed with the Securities and Exchange Commission on May 13, 2016).
126
Exhibit
Number
4.32
4.33
4.34*
4.35*
8.1*
11.1
12.1*
12.2*
13.1**
13.2**
15.1*
15.2*
99.1***
99.2***
101.INS*
101.SCH*
101.CAL*
101.DEF*
101.LAB*
101.PRE*
Description of Document
English translation of Power of Attorney issued by each of the shareholders of Beijing Shanjing Kechuang Network Technology Co.,
Ltd. dated August 6, 2015 (incorporated herein by reference to Exhibit 4.34 of the Registrant’s Annual Report on Form 20-F filed
with the Securities and Exchange Commission on May 13, 2016).
English translation of Loan Agreements between Beijing Yangguang Gudi Science Development Co., Ltd. and each of the
shareholders of Beijing Shanjing Kechuang Network Technology Co., Ltd. dated August 6, 2015 (incorporated herein by reference to
Exhibit 4.36 of the Registrant’s Annual Report on Form 20-F filed with the Securities and Exchange Commission on May 13, 2016).
English translation of Offshore Credit Agreement between China Merchants Bank., Ltd. and the Registrant dated March 30, 2016
Share Subscription Agreement, dated April 18, 2017, by and among the Registrant, Magic Heart Inc., Zhuan Spirit Holdings Limited
and Tencent Mobility Limited
Principal subsidiaries of the Registrant
Code of Business Conduct and Ethics of the Registrant (incorporated herein by reference to Exhibit 99.1 to the registration statement
on Form F-1 (File No. 333-191424), as amended, initially filed with the Security and Exchange Commission on September 27, 2013).
Certification by Principal Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
Certification by Principal Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
Certification by Principal Executive Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
Certification by Principal Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
Consent of PricewaterhouseCoopers Zhong Tian LLP, Independent Registered Public Accounting Firm
Consent of Han Kun Law Offices
Consolidated Financial Statements of 58 Daojia Inc. as of December 31, 2015 and for the period November 27 to December 31, 2015
Consolidated Financial Statements of 58 Daojia Inc. as of and for the year ended December 31, 2016
XBRL Instance Document
XBRL Taxonomy Extension Schema Document
XBRL Taxonomy Extension Calculation Linkbase Document
XBRL Taxonomy Extension Definition Linkbase Document
XBRL Taxonomy Extension Labels Linkbase Document
XBRL Taxonomy Extension Presentation Linkbase Document
*
Filed herewith
**
Furnished herewith
*** To be filed by amendment within six months of December 31, 2016
127
The 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 and
authorized the undersigned to sign this annual report on its behalf.
SIGNATURES
Date: May 1, 2017
58.com Inc.
By:
/s/ Jinbo Yao
Name: Jinbo Yao
Title: Chairman and Chief Executive Officer
128
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Consolidated Financial Statements
Report of Independent Registered Public Accounting Firm
Consolidated Balance Sheets as of December 31, 2015 and 2016
Consolidated Statements of Comprehensive Income/(Loss) for the Years Ended December 31, 2014, 2015 and 2016
Consolidated Statements of Changes in Shareholders’ Equity for the Years Ended December 31, 2014, 2015 and 2016
Consolidated Statements of Cash Flows for the Years Ended December 31, 2014, 2015 and 2016
Notes to the Consolidated Financial Statements
Page
F-2
F-3
F-4
F-5
F-6
F-7
F-1
To the Board of Directors and Shareholders of 58.com Inc.:
Report of Independent Registered Public Accounting Firm
In our opinion, the accompanying consolidated balance sheets and the related consolidated statements of comprehensive income/(loss), of changes in
shareholders’ equity and of cash flows present fairly, in all material respects, the financial position of 58.com Inc. and its subsidiaries at December 31, 2016
and December 31, 2015, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2016 in
conformity with accounting principles generally accepted in the United States of America. Also in our opinion, the Company maintained, in all material
respects, effective internal control over financial reporting as of December 31, 2016, based on criteria established in Internal Control - Integrated Framework
(2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). The Company’s management is responsible for these
financial statements, for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over
financial reporting included in Management’s Annual Report on Internal Control over Financial Reporting appearing under Item 15 of Form 20-F. Our
responsibility is to express opinions on these financial statements and on the Company’s internal control over financial reporting based on our integrated
audits. We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards
require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement and
whether effective internal control over financial reporting was maintained in all material respects. Our audits of the financial statements included examining,
on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation. Our audit of internal control over financial reporting included obtaining an
understanding of internal control over financial reporting, assessing the risk 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 a reasonable basis for our opinions.
As discussed in Note 2(c) to the consolidated financial statements, effective December 31, 2016, the Company changed its reporting currency of the
consolidated financial statements from U.S. dollar to Renminbi.
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal 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 are recorded as necessary to permit
preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being
made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or
timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of
effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance
with the policies or procedures may deteriorate.
/s/ PricewaterhouseCoopers Zhong Tian LLP
Beijing, the People’s Republic of China
May 1, 2017
F-2
58.com Inc.
CONSOLIDATED BALANCE SHEETS
As of December 31, 2015 and 2016
(in thousands, except share data and per share data, unless otherwise noted)
ASSETS
Current assets:
Cash and cash equivalents
Restricted cash
Term deposits
Short-term investments
Accounts receivable (net of allowance for doubtful accounts of RMB38,214 and RMB51,719 as
of December 31, 2015 and 2016, respectively)
Prepayments and other current assets
Total current assets
Non-current assets:
Property and equipment, net
Intangible assets, net
Land use rights, net
Goodwill
Long-term investments
Long-term prepayments and other non-current assets
Total non-current assets
Total assets
LIABILITIES, MEZZANINE EQUITY AND SHAREHOLDERS’ EQUITY
Current liabilities:
Short-term loans
Accounts payable (including accounts payable of the consolidated variable interest entities
(“VIEs”) without recourse to the Company of RMB164,032 and RMB199,618 as of
December 31, 2015 and 2016, respectively)
Deferred revenues (including deferred revenues of the consolidated VIEs without recourse to
the Company of RMB749,997 and RMB859,956 as of December 31, 2015 and 2016,
respectively)
Customer advances (including customer advances of the consolidated VIEs without recourse to
the Company of RMB378,371 and RMB296,595 as of December 31, 2015 and 2016,
respectively)
Taxes payable (including taxes payable of the consolidated VIEs without recourse to the
Company of RMB17,471 and RMB14,740 as of December 31, 2015 and 2016, respectively)
Salary and welfare payable (including salary and welfare payable of the consolidated VIEs
without recourse to the Company of RMB251,826 and RMB254,958 as of December 31, 2015
and 2016, respectively)
Accrued expenses and other current liabilities (including accrued expenses and other current
liabilities of the consolidated VIEs without recourse to the Company of RMB79,012 and
RMB205,441 as of December 31, 2015 and 2016, respectively)
Total current liabilities
Non-current liabilities:
Long-term loan
Deferred tax liabilities (including deferred tax liabilities of the consolidated VIEs without
recourse to the Company of RMB376,893 and RMB329,611 as of December 31, 2015 and
2016, respectively)
Other non-current liabilities (including other non-current liabilities of the consolidated VIEs
without recourse to the Company of RMB2,000 and RMB nil as of December 31, 2015 and
2016, respectively)
Total non-current liabilities
Total liabilities
Commitments and contingencies (Note 25)
Mezzanine equity:
Mezzanine classified noncontrolling interests
Total mezzanine equity
Shareholders’ equity:
58.com Inc. shareholders’ equity
Ordinary shares (US$0.00001 par value, 5,000,000,000 (including 4,800,000,000 Class A and
200,000,000 Class B) and 5,000,000,000 (including 4,800,000,000 Class A and 200,000,000
Class B) shares authorized, 283,068,677 (including 219,413,764 Class A and 63,654,913 Class
B) and 289,670,997 (including 240,930,737 Class A and 48,740,260 Class B) shares issued and
outstanding as of December 31, 2015 and 2016, respectively)
Additional paid-in capital
Accumulated deficit
Accumulated other comprehensive loss
Total 58.com Inc. shareholders’ equity
Noncontrolling interests
Total shareholders’ equity
Total liabilities, mezzanine equity and shareholders’ equity
2015
RMB
As of December 31
2016
RMB
2016
US$
Note 2(c)
3,138,387
31,436
—
267,650
350,860
499,214
4,287,547
799,315
1,762,725
3,844
15,982,000
2,510,280
1,034,583
22,092,747
26,380,294
1,200,457
1,151,940
26,361
833,480
424,892
426,056
4,063,186
1,480,921
1,532,228
3,766
15,903,677
2,118,461
223,767
21,262,820
25,326,006
173,051
166,057
3,800
120,150
61,250
61,418
585,726
213,481
220,878
543
2,292,587
305,386
32,257
3,065,132
3,650,858
1,785,740
1,842,720
265,636
659,977
611,947
88,215
1,344,563
1,845,846
266,087
981,429
1,236,076
178,186
66,336
62,084
8,950
513,742
553,506
79,790
2,181,205
7,532,992
727,904
6,880,083
—
150,000
104,931
991,795
21,623
430,117
373,810
53,886
25,928
456,045
7,989,037
69,937
593,747
7,473,830
10,082
85,591
1,077,386
97,647
97,647
86,457
86,457
12,463
12,463
18
20,602,657
(2,302,688)
(52,455)
18,247,532
46,078
18,293,610
26,380,294
18
20,907,599
(3,070,735)
(138,597)
17,698,285
67,434
17,765,719
25,326,006
3
3,013,925
(442,660)
(19,980)
2,551,288
9,721
2,561,009
3,650,858
The accompanying notes are an integral part of these consolidated financial statements.
F-3
58.com Inc.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME/(LOSS)
For the Years Ended December 31, 2014, 2015 and 2016
(in thousands, except share, per share and per ADS data, unless otherwise noted)
Revenues:
Membership
Online marketing services
E-commerce services
Other services
Total revenues
Cost of revenues(1)
Gross profit
Operating expenses(1):
Sales and marketing expenses
Research and development expenses
General and administrative expenses
Total operating expenses
Income/(loss) from operations
Other income/(expenses):
Interest income
Interest expense
Investment income/(loss), net
Share of results of equity investees
Gain on deconsolidation and disposal of businesses
Foreign currency exchange loss, net
Others, net
Income/(loss) before tax
Income tax benefits/(expenses)
Net income/(loss)
Add: Net loss attributable to noncontrolling interests
Less: Deemed dividend to mezzanine classified noncontrolling interests
Net income/(loss) attributable to 58.com Inc.
Net income/(loss)
Other comprehensive loss:
Foreign currency translation adjustment, net of nil tax
Unrealized gain/(loss) on available-for-sale securities
Reclassification into investment loss, net of nil tax
Total comprehensive income/(loss)
Net earnings/(loss) per ordinary share attributable to ordinary
shareholders - basic
Net earnings/(loss) per ordinary share attributable to ordinary
shareholders - diluted
Net earnings/(loss) per ADS attributable to ordinary shareholders - basic
(One ADS represents two ordinary shares)
Net earnings/(loss) per ADS attributable to ordinary shareholders - diluted
(One ADS represents two ordinary shares)
Weighted average number of ordinary shares used in computing basic
earnings/(loss) per share
Weighted average number of ordinary shares used in computing diluted
earnings/(loss) per share
For the Year Ended December 31,
2014
RMB
2015
RMB
2016
RMB
2016
US$
Note 2(c)
857,017
768,316
—
2,787
1,628,120
(85,081)
1,543,039
(1,106,689)
(268,336)
(126,709)
(1,501,734)
41,305
52,399
—
62,938
—
—
(15,335)
36,214
177,521
(38,088)
139,433
—
—
139,433
139,433
(3,192)
(6,804)
—
129,437
0.83
0.80
1.65
1.60
1,859,987
2,414,906
144,930
58,275
4,478,098
(322,016)
4,156,082
(4,316,217)
(760,796)
(659,284)
(5,736,297)
(1,580,215)
26,098
(52,146)
(172,728)
(717,616)
765,072
(11,196)
45,362
(1,697,369)
48,786
(1,648,583)
80,705
(5,762)
(1,573,640)
(1,648,583)
(69,708)
16,919
—
(1,701,372)
(6.70)
(6.70)
(13.40)
(13.40)
2,951,135
4,363,777
166,753
110,462
7,592,127
(707,237)
6,884,890
(4,941,380)
(1,107,897)
(601,906)
(6,651,183)
233,707
24,755
(73,395)
(145,411)
(926,740)
79,581
(3,727)
(12,713)
(823,943)
50,980
(772,963)
4,916
(15,717)
(783,764)
(772,963)
(76,027)
(13,104)
2,989
(859,105)
(2.73)
(2.73)
(5.46)
(5.46)
425,419
629,058
24,038
15,924
1,094,439
(101,951)
992,488
(712,322)
(159,708)
(86,767)
(958,797)
33,691
3,569
(10,580)
(20,962)
(133,594)
11,472
(537)
(1,833)
(118,774)
7,349
(111,425)
709
(2,266)
(112,982)
(111,425)
(10,960)
(1,889)
431
(123,843)
(0.39)
(0.39)
(0.79)
(0.79)
168,589,273
234,811,986
286,975,068
286,975,068
174,024,997
234,811,986
286,975,068
286,975,068
Note:
(1) Share-based compensation expenses were allocated in cost of revenues and operating expenses as follows:
Cost of revenues
Sales and marketing expenses
Research and development expenses
General and administrative expenses
2014
RMB
For the Year Ended December 31,
2015
RMB
2016
RMB
109
8,579
14,772
14,473
760
44,049
59,314
72,482
490
59,017
98,515
108,553
US$
Note 2(c)
71
8,508
14,201
15,648
The accompanying notes are an integral part of these consolidated financial statements.
F-4
58.com Inc.
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY
For the Years Ended December 31, 2014, 2015 and 2016
(in thousands, except share data and per share data, unless otherwise noted)
Accumulated
other
comprehensive Noncontrolling
income/(loss)
RMB
Interest
RMB
Ordinary shares
Shares*
158,876,693
—
—
4,297,268
—
—
4,000,000
Amount
RMB
10
—
—
—
—
—
—
Additional
paid-in
capital
RMB
2,206,945
—
37,933
20,321
Accumulated
deficit
RMB
(874,243)
139,433
—
—
—
—
441,379
—
—
—
—
(1)
11
—
—
(3,398,406)
3,838,736
—
174,749
—
(734,810)
(1,567,878)
—
36,805,000
2
4,530,564
Balance as of December 31, 2013
Net income
Share-based compensation
Exercise of share options
Foreign currency translation adjustment, net
of nil tax
Unrealized loss on available-for-sale
securities
Issuance of ordinary shares upon follow-on
offering, net of issuance costs of RMB7,712
Issuance of ordinary shares to Tencent
Holdings Limited (“Tencent”), net of issuance
costs of RMB644
Repurchase of ordinary shares from pre-IPO
shareholders
Balance as of December 31, 2014
Net loss
Share-based compensation
Exercise of share options and restricted share
units
Foreign currency translation adjustment, net
of nil tax
Unrealized gain on available-for-sale
securities
Issuance of ordinary shares to Tencent
Equity consideration for acquisition of Anjuke
Inc. (“Anjuke”)
Equity consideration for equity investment in
Falcon View Technology (“Ganji”)
Equity consideration for step acquisition of
Ganji
Subsequent settlement of receivables from
option holders
Deconsolidation of 58 Daojia Inc. (“58
Home”)
Deemed dividend to mezzanine classified
noncontrolling interests
Acquisition of noncontrolling interests in
subsidiaries
Compensation to noncontrolling shareholders
resulting from waiver of receivables from 58
Home
Other
Balance as of December 31, 2015
Net loss
Share-based compensation
Exercise of share options and restricted share
units
Foreign currency translation adjustment, net
of nil tax
Unrealized loss on available-for-sale
securities
Reclassification into investment loss, net of
nil tax
Subsequent settlement of receivables from
option holders
Deemed dividend to mezzanine classified
noncontrolling interests
Capital injection from noncontrolling interest
shareholder
Disposal of Mighty Talent Limited (“Mayi”)
Balance as of December 31, 2016
(27,603,750)
176,375,211
—
—
1,657,086
—
—
19,651,960
4,839,372
34,039,136
46,505,912
—
—
—
—
—
—
283,068,677
—
—
6,602,320
—
—
—
—
—
—
—
289,670,997
21,583
—
—
3,305,017
577,961
5,586,104
7,107,130
873
—
(5,762)
—
—
(3,734)
20,602,657
—
256,153
20,942
—
—
—
20,115
(15,717)
—
—
—
—
—
—
—
—
—
—
—
—
—
(2,302,688)
(768,047)
—
—
—
—
—
—
—
—
—
—
1
—
3
3
—
—
—
—
—
—
18
—
—
—
—
—
—
—
—
—
—
18
Total
shareholders’
equity
RMB
1,343,042
139,433
37,933
20,321
(3,192)
(6,804)
441,379
4,530,566
(3,398,407)
3,104,271
(1,648,583)
176,605
21,583
(69,708)
16,919
3,305,018
577,961
5,586,107
7,107,133
873
—
—
—
—
—
—
—
—
—
—
(80,705)
1,856
—
—
—
—
—
—
—
—
(3,838)
(3,838)
—
(5,762)
47,693
47,693
77,338
3,734
46,078
(4,916)
10,422
77,338
—
18,293,610
(772,963)
266,575
—
—
—
—
—
—
20,942
(76,027)
(13,104)
2,989
20,115
(15,717)
10,330
—
—
—
(3,192)
(6,804)
—
—
—
334
—
—
—
(69,708)
16,919
—
—
—
—
—
—
—
—
—
—
(52,455)
—
—
—
(76,027)
(13,104)
2,989
—
—
198
23,251
20,907,599
—
—
(3,070,735)
—
—
(138,597)
28,037
(12,187)
67,434
28,235
11,064
17,765,719
* Ordinary shares include Class A ordinary shares and Class B ordinary shares, please refer to Note 22.
The accompanying notes are an integral part of these consolidated financial statements.
F-5
58.com Inc.
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Years Ended December 31, 2014, 2015 and 2016
(in thousands, except share data, unless otherwise noted)
Cash flows from operating activities:
Net income/(loss)
Adjustments to reconcile net income/(loss) to net cash provided by/(used
in) operating activities:
Share-based compensation expenses
Depreciation and amortization expenses
Investment (income)/loss
Share of results of equity investees
Interest expense
Loss upon conversion of Guazi Convertible Note
Interest income from Guazi Convertible Note
Allowance for doubtful accounts and other current assets write-off
Compensation to noncontrolling shareholders resulting from waiver of
receivables from 58 Home
Bargain purchase gain
Gain on deconsolidation and disposal of businesses
Impairment loss of long-term investments and other non-current assets
Loss/(income) on disposal of property and equipment
Deferred income taxes
Foreign currency exchange loss, net
Changes in operating assets and liabilities, net of acquisitions and
disposals:
Accounts receivable
Prepayments and other assets
Accounts payable
Deferred revenues
Customer advances
Salary and welfare payable
Taxes payable
Accrued expenses and other liabilities
Net cash provided by operating activities
Cash flows from investing activities:
Purchase of property and equipment
Purchase of intangible assets
Cash received for disposal of property and equipment
Purchase of land use rights
Purchase of long-term investments
Changes in restricted cash
Cash paid to term deposits and other advances
Proceeds from maturity of term deposits
Purchase of short-term investments
Proceeds from maturity of short-term investments
Cash paid for acquisition of Anjuke, net of acquisition of cash
Cash paid for equity investment in Ganji
Cash paid for step-acquisition of Ganji, net of acquisition of cash
Cash received/(paid) for acquisitions of other subsidiaries, net of
acquisition of cash
Net cash received/(paid) upon deconsolidation and disposal of businesses
Purchase of convertible note issued by Guazi.com Inc. (“Guazi”)
Net cash used in investing activities
Cash flows from financing activities:
Proceeds from exercise of share options
Proceeds from short-term loans
Repayment of short-term loans
Proceeds from long-term loan
Proceeds from issuance of 4,000,000 Class A ordinary shares in follow-on
offering
Proceeds from issuance of ordinary shares to Tencent
Payments for repurchase of ordinary share from pre-IPO shareholders
Payment for issuance expenses
Capital injection from noncontrolling interest shareholders
Net cash provided by financing activities
Effect of exchange rate changes on cash and cash equivalents
Net increase/(decrease) in cash and cash equivalents
Cash and cash equivalents at the beginning of the year
Cash and cash equivalents at the end of the year
Supplemental disclosure of cash flow information:
Income tax paid/(refund), net
Interest expense paid
Supplemental disclosure of non-cash activities:
Property and equipment in accounts payable
Deemed dividend to mezzanine classified noncontrolling interests
Equity consideration for acquisition of Anjuke
Equity consideration for equity investment in Ganji
Equity consideration for step acquisition of Ganji
Cash consideration payable for acquisition of Anjuke
Cash consideration payable for equity investment in Ganji
Cash consideration payable for step acquisition of Ganji
Early repayment of convertible note by issuance of ordinary share to
Tencent
For the Year Ended December 31,
2014
RMB
2015
RMB
2016
RMB
2016
US$
Note 2(c)
139,433
(1,648,583)
(772,963)
(111,425)
37,933
34,438
(13,189)
—
—
—
—
—
—
—
—
—
248
—
15,335
(12,269)
(98,527)
37,034
247,379
89,899
66,387
31,428
31,188
606,717
(199,631)
—
271
—
(146,164)
—
(2,360,475)
1,543,263
(4,011,438)
3,289,146
—
—
—
997
—
—
(1,884,031)
20,203
—
—
—
449,091
4,532,020
(3,399,015)
(17,414)
—
1,584,885
5,113
312,684
368,825
681,509
7,349
—
11,095
—
—
—
—
—
—
—
176,605
209,144
230,619
717,616
52,146
—
—
12,026
77,338
(10,641)
(765,072)
6,119
3,814
(34,759)
11,196
(166,185)
(158,665)
304,867
363,153
484,002
167,677
4,060
162,061
198,538
(1,255,553)
(5,472)
1,423
(3,843)
(502,764)
—
(122,274)
2,003,584
(2,951,880)
4,401,792
(766,455)
(1,776,677)
(1,501,830)
(266,175)
289,562
(324,680)
(2,781,242)
21,390
2,457,240
—
—
—
2,452,080
—
—
—
4,930,710
108,872
2,456,878
681,509
3,138,387
(7,078)
—
42,449
5,762
577,961
5,586,107
7,107,133
188,068
794,901
982,923
—
852,938
266,575
406,827
(149)
926,740
73,395
84,177
(17,503)
56,617
—
—
(79,581)
172,125
(463)
(56,358)
3,727
(87,769)
(9,451)
(38,522)
420,938
233,411
41,086
(4,078)
269,068
1,887,849
(212,449)
(667)
364
—
(168,741)
(1,148,498)
(181,160)
10,530
(9,701,600)
9,120,873
(190,868)
(806,383)
(662,722)
(479)
(6,227)
—
(3,948,027)
21,131
2,853,303
(2,994,038)
150,000
—
—
—
—
28,235
58,631
63,617
(1,937,930)
3,138,387
1,200,457
3,541
74,861
36,967
15,717
—
—
—
—
—
—
—
38,428
58,646
(21)
133,594
10,580
12,134
(2,523)
8,162
—
—
(11,472)
24,813
(67)
(8,124)
537
(12,652)
(1,363)
(5,553)
60,680
33,647
5,923
(588)
38,787
272,143
(30,625)
(96)
52
—
(24,325)
(165,561)
(26,115)
1,518
(1,398,530)
1,314,815
(27,514)
(116,244)
(95,534)
(69)
(898)
—
(569,126)
3,046
411,317
(431,604)
21,623
—
—
—
—
4,070
8,452
9,170
(279,361)
452,412
173,051
510
10,792
5,329
2,266
—
—
—
—
—
—
—
Non-cash consideration for investment in Tujia.com International (“Tujia”)
—
—
79,132
11,407
The accompanying notes are an integral part of these consolidated financial statements.
F-6
58.com Inc.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share, per share and per ADS data, unless otherwise noted)
1. Organization and principal activities
a. Background
58.com Inc. (the "Company"), through its consolidated subsidiaries, including wholly-foreign owned enterprises (“WFOEs”), variable interest
entities ("VIEs") and VIEs’ subsidiaries (collectively, the "Group"), is primarily engaged in the operation of an online marketplace serving local merchants
and consumers in the People's Republic of China (the "PRC" or "China") through its websites 58.com, Ganji.com and Anjuke.com.
b. History of the Group and basis of presentation
The Company (formerly known as "China Classified Network (Cayman) Corporation") was incorporated as a limited liability company in the
Cayman Islands in May 2011. Through a share exchange in July 2011, all the shareholders of China Classified Network Corporation ("CCNC BVI")
exchanged all of their outstanding ordinary and preference shares of CCNC BVI for ordinary and preference shares of the Company on a one-for-one basis.
As a result, CCNC BVI became a wholly owned subsidiary of the Company. Given there was no change in each shareholder's proportionate shareholdings
and respective rights and obligations before and after the share exchange, the transaction was accounted for in a manner similar to a pooling-of-interest with
the assets and liabilities stated at their historical amounts in the Company's consolidated financial statements.
The Group began its operations in China in December 2005 through Beijing 58, a PRC limited liability company founded by Mr. Jinbo Yao, the
chief executive officer of the Group, and several angel investors (collectively, “the Founding Shareholders”). Other entities within the Group listed above
were established by the shareholders of the Company to facilitate the Group to conduct overseas financing and in anticipation of the Company’s initial public
offering overseas.
Through a series of contemplated transactions in July 2006, Chengshi Wangxun (Beijing) Information Technology Co., Ltd., or Wangxun, was
established to control Beijing 58 through contractual arrangements and to receive overseas financing from SB Asia Investment Fund II L.P. ("SAIF").
Through another series of contemplated transactions in 2010, CCNC BVI became the parent company of the Group and received additional overseas
financing from DCM V.L.P. and DCM Affiliates Fund V.L.P. (collectively, the "DCM") via (i) the establishment of CCNC BVI, (ii) the repurchase and
issuance of shares by CCNC BVI to provide shareholders with their prior proportionate equity interests in the Group, (iii) the establishment of subsidiaries
CCIC HK and Wanglin, (iv) a change in Beijing 58's primary beneficiary from Wangxun to Wanglin, and (v) the issuance of preference shares to DCM.
Throughout these reorganization transactions, the Group's business continued to be carried out by Beijing 58 without changes in senior management or
changes in control of Beijing 58. Accordingly, pursuant to the guidance in Accounting Standards Codification ("ASC") 805, "Business Combinations", the
new entities that were established to consolidate Beijing 58 were identified as the acquirees for accounting purposes and there was no change in financial
statements preparation basis as the result of these reorganization transactions.
On October 31, 2013, the Company’s ADSs commenced trading on the New York Stock Exchange. The Company completed its IPO on November
5, 2013, and raised RMB1,228,217 (US$199,954) in proceeds after deducting underwriter commissions from the initial public offering of 12,650,000 ADSs,
representing 25,300,000 Class A ordinary shares, at the price of US$17.0 per ADS. Concurrently with the Company’s IPO, the Company also raised
RMB92,138 (US$15,000) from DCM Hybrid RMB Fund, L.P., a fund affiliated with DCM V, L.P., the Company’s existing shareholder, by private
placement of 1,764,706 Class A ordinary shares at a price of US$8.50 per share. As a result of the initial public offering and the concurrent private
placement, the Company raised an aggregate of approximately RMB1,320,355 (US$214,954) in net proceeds.
Upon the completion of the IPO, all of the Company’s 87,566,599 outstanding preference shares were converted into and the 44,245,388
outstanding ordinary shares were designated as Class B ordinary shares immediately as of the same date at one-for-one basis.
Please refer to Note 22 for the dual class structure and also issuance of ordinary shares since the Company closed its IPO in November 2013.
F-7
58.com Inc.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share, per share and per ADS data, unless otherwise noted)
c. Acquisitions and disposals
In March 2015, the Company acquired Anjuke, a major online real estate listing platform in China, through the purchase of 100% equity interest in
Anjuke Inc., a company incorporated under the laws of the Cayman Islands, for a combination of share consideration and cash, including approximately 4.8
million newly issued ordinary shares of the Company and RMB985,427 (US$160,198) in cash. The Company also issued approximately 0.2 million fully
vested restricted share units of the Company to former Anjuke employees as part of the share consideration.
In April 2015, the Company acquired less than 50% equity stake in Falcon View Technology, or Ganji, the holding company of the PRC entities
operating Ganji.com, a major online local services platform in China, for a combination of share consideration and cash, including approximately 34.0
million newly issued ordinary shares of the Company (one American Depositary Share, or "ADS", represents two ordinary shares) and RMB2,527,095
(US$412,237) in cash.
Concurrent with the aforementioned acquisition of a strategic stake in Ganji and incremental to its then existing share ownership of the Company,
Tencent purchased additional newly issued ordinary shares of the Company for RMB2,452,080 (US$400,000) at a purchase price of US$26.00 per ordinary
share, equivalent to US$52.00 per ADS.
In August 2015, the Company, as a limited partner, committed an aggregate of approximately 46.5 million newly issued ordinary shares and
approximately RMB2,488,065 (US$406,673) in cash to several private equity funds, of which approximately 46.5 million ordinary shares and
RMB1,666,546 (US$272,396) cash were contributed to the funds in August 2015. These funds are dedicated to investing in businesses in China and
separately managed by different investment entities, as general partners, which are unaffiliated with each other and unaffiliated with the Company. These
funds, together with Tencent, acquired all the remaining equity interest in Ganji in August 2015. The Company also transferred an aggregate of
approximately 4.4 million fully vested restricted share units of the Company and approximately RMB311,825 (US$50,967) in cash to former Ganji
employees as part of the total consideration of step acquisition of Ganji. The Company considered that it has a controlling financial interest over the equity
funds under the voting interest model, and as a result has consolidated Ganji since August 6, 2015.
In addition to business acquisition of Anjuke and Ganji, in 2015, the Group additionally entered into several acquisitions. All of these acquisitions
are accounted for as business combinations because these acquisitions involved the Group obtaining control of one or more existing businesses in exchange
for cash. Therefore, the Group accounts for them as business combinations using the purchase method of accounting. This method requires the acquisition
cost to be allocated to the assets and liabilities acquired based on their fair values. The Group makes estimates and judgments in determining the fair value of
the acquired assets and liabilities, with the assistance from an independent valuation firm. See Note 4—“Business acquisitions and equity investment
transactions” for additional information.
In November 2015, the Company deconsolidated 58 Home upon the completion of issuance of Series A preference shares by 58 Home. Certain
approval rights were granted to a noncontrolling preference shareholder of 58 Home in relation to (i) annual budget and (ii) employment of certain key
management members of 58 Home, and such approval rights granted to the noncontrolling preference shareholder of 58 Home were considered as
substantive participating rights in accordance with ASC 810-10. Accordingly, the Company deconsolidated 58 Home upon completion of the transaction and
recognized a gain on deconsolidation of 58 Home of RMB292,849 (US$45,998).
In December 2015, the Company divested its controlling ownership stake in Guazi, a subsidiary that operates its consumer-to-consumer (C2C) used
car trading platform, to Mr. Mark Haoyong Yang, former co-chairman of the board of directors and co-chief executive officer for a cash consideration of
RMB324,680 (US$50,000). The Company concurrently used the proceeds of RMB324,680 (US$50,000) to invest in a RMB324,680 (US$50,000) non-
interest bearing convertible note issued by Guazi (the “Guazi Convertible Note”), which is convertible into preference shares of Guazi to be issued in Guazi’s
subsequent round of financing at the same price paid by other investors. Upon completion of the transaction, the Group retained approximately 45.6% equity
stake in Guazi and no longer had the control over Guazi. Therefore, the Group deconsolidated Guazi since December 31, 2015 and recognized a gain on
disposal of Guazi of RMB472,223 (US$73,240).
In March 2016, the Company converted the entire amount of Guazi Convertible Note into 62.5 million Series B1 convertible and redeemable
preference shares of Guazi (the “Guazi Series B1 Shares”) based on a conversion price of US$0.80 per share. Please see Note 6 for details.
F-8
58.com Inc.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share, per share and per ADS data, unless otherwise noted)
In June 2016, the Company disposed its entire interest in Mayi, a majority-owned subsidiary, which operates online C2C short stay rental business
in Mainland China, to Tujia, one of the leading Chinese online booking platform for apartment rentals and home-stays in Mainland China, for approximately
3.9 million ordinary shares of Tujia (the “Tujia Ordinary Shares”). In addition to the disposal transaction, also in June 2016, the Company made additional
investment in Tujia including the purchase of approximately 5.2 million Tujia Ordinary Shares and 2.3 million Series D preference shares of Tujia (the
“Tujia Series D Preference Shares”) by (i) paying RMB65,874 (US$10,000) in cash, and (ii) providing future services with fair value of approximately
RMB79,132 (US$12,043). Accordingly, the Company deconsolidated Mayi upon completion of the transaction and recognized a gain on disposal of Mayi of
RMB79,581 (US$12,081). Please see Note 7 for details.
d. Major consolidated subsidiaries and VIEs
In 2016, the Company's major consolidated subsidiaries, VIEs and VIEs’ subsidiaries are as follows:
Name
Wholly owned and majority owned subsidiaries of the Company:
China Classified Network Corporation (“CCNC BVI”)
China Classified Information Corporation Limited (“CCIC HK”)
Beijing Chengshi Wanglin Information Technology Co., Ltd. (“Wanglin”)
58 Tongcheng Information Technology Co., Ltd. ("58 Technology")
Anjuke Inc. (“Anjuke”)
Ruiting Network Technology (Shanghai) Co., Ltd. (“Shanghai Ruiting”)
58.com Holdings Inc. (“58 Holdings”)
Falcon View Technology (“Ganji”)
Beijing Yangguang Gudi Science Development Co., Ltd.
(“Yangguang Gudi”)
Date of
incorporation and
acquisition
Place of
incorporation
January 5, 2010
January 18, 2010
March 8, 2010
March 15, 2012
March 2, 2015
March 2, 2015
British Virgin Islands
Hong Kong
PRC
PRC
Cayman
PRC
July 11, 2014
August 6, 2015
British Virgin Islands
Cayman
August 6, 2015
PRC
VIEs and VIEs’ subsidiaries:
Beijing 58 Information Technology Co., Ltd. (“Beijing 58”)
58 Co., Ltd.
Shanghai Ruijia Information Technology Co., Ltd.
Beijing 58 Auto Technology Co., Ltd. (“Beijing 58 Auto”, formerly known as Beijing
Leftbrain Network Technology Co., Ltd.)
Beijing Shanjing Kechuang Network Technology Co., Ltd.
(“Shanjing Kechuang”)
December 12, 2005 PRC
PRC
PRC
July 28, 2011
March 2, 2015
November 26, 2015 PRC
August 6, 2015
PRC
Percentage
of
direct or
indirect
economic
ownership
100%
100%
100%
100%
100%
100%
100%
*
*
100%
100%
100%
59.5%
*
* Falcon View Technology, or Ganji, is the holding company of the PRC entities operating Ganji.com, a major online local services platform in China. In
April 2015, the Company acquired a less than 50% equity stake in Ganji. In August 2015, the Company, as a limited partner, contributed newly issued Class
A ordinary shares and cash to several private equity funds, which are managed by investment entities unaffiliated with each other and unaffiliated with the
Company. These funds, together with Tencent, acquired all the remaining equity interest in Ganji in August 2015. Since then, the Company has consolidated
the financial results of Ganji in its consolidated financial statements. See Note 4(b) for more information.
Note: 58 Daojia Inc. (“58 Home”) which was established on January 26, 2015, completed its Series A equity financing in November 2015. As certain
approval rights were granted to a noncontrolling preference shareholder and such rights were considered as substantive participating rights in accordance
with ASC 810-10, accordingly, the Company deconsolidated 58 Home and its subsidiaries and VIE upon completion of the transaction. See Note 5 for more
information.
F-9
58.com Inc.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share, per share and per ADS data, unless otherwise noted)
e. Contractual arrangements with the Group’s VIEs
(i)
Contractual Arrangements with Beijing 58
The Company’s subsidiary Wanglin has entered into contractual arrangements with Beijing 58 and its shareholders described below, which are
referred to as the Beijing 58 Agreements. Through the Beijing 58 Agreements, the Company exercises control over the operations of Beijing 58 and receives
substantially all its economic benefits and residual returns.
Through the amended and restated exclusive business cooperation agreement between Beijing 58 and Wanglin, Wanglin agrees to provide certain
technical and business support and related consulting services to Beijing 58 in exchange for service fees. In addition, pursuant to the amended and restated
exclusive option agreement, Beijing 58 is prohibited from declaring and paying any dividends without Wanglin’s prior consent and Wanglin enjoys an
irrevocable and exclusive option to purchase Beijing 58 shareholders’ equity interests, to the extent permitted by applicable PRC laws, at a nominal price
from Beijing Wanglintong Information Technology Co., Ltd. (“Beijing Wanglintong”), which is one of the shareholders of Beijing 58, or at a specified price
equal to the loan provided by Wanglin to the individual shareholders. If the lowest price permitted under PRC law is higher than the above price, the lowest
price permitted under PRC law shall apply. Through the arrangements, the Company can obtain all of Beijing 58’s income and all of its residual interests,
such as undistributed earnings, either through dividend distribution or purchase of Beijing 58’s equity interests from its existing shareholders. As a result of
the contractual arrangements, the Company consolidates Beijing 58’s financial results in the consolidated financial statements in accordance with accounting
principles generally accepted in the United States of America (“U.S. GAAP”).
Exclusive Business Cooperation Agreement
Under the exclusive business cooperation agreement between Beijing 58 and Wanglin, as amended and restated, Wanglin has the exclusive right to
provide, among other things, technical support and business support and related consulting services to Beijing 58 and Beijing 58 agrees to accept all the
consultation and services provided by Wanglin. Without Wanglin’s prior written consent, Beijing 58 is prohibited from engaging any third party to provide
any of the services under this agreement. In addition, Wanglin exclusively owns all intellectual property rights arising out of or created during the
performance of this agreement. Beijing 58 agrees to pay a quarterly service fee to Wanglin at an amount determined solely by Wanglin after taking into
account factors including the complexity and difficulty of the services provided, the time consumed, the seniority of the Wanglin employees providing
services to Beijing 58, the value of services provided, the market price of comparable services and the operating conditions of Beijing 58. This agreement
will remain effective unless Wanglin terminates the agreement in writing or a competent governmental authority rejects the renewal applications by either
Beijing 58 or Wanglin to renew its respective business license upon expiration. Beijing 58 is not permitted to terminate this agreement in any event unless
required by applicable laws. In 2016, Wanglin provided technical support services to Beijing 58 and its subsidiaries and collected service fee payments of
approximately RMB41,295.
Powers of Attorney
Pursuant to the powers of attorney, the shareholders of Beijing 58 each irrevocably appointed Wanglin as the attorney-in-fact to act on their behalf
on all matters pertaining to Beijing 58 and to exercise all of their rights as a shareholder of Beijing 58, including but not limited to attend shareholders’
meetings, vote on their behalf on all matters of Beijing 58 requiring shareholders’ approval under PRC laws and regulations and the articles of association of
Beijing 58, designate and appoint directors and senior management members. Wanglin may authorize or assign its rights under this appointment to any other
person or entity at its sole discretion without prior notice to the shareholders of Beijing 58. Each power of attorney will remain in force until the shareholder
ceases to hold any equity interest in Beijing 58.
Equity Interest Pledge Agreements
Under the equity interest pledge agreements among Wanglin, Beijing 58 and the shareholders of Beijing 58, as amended and restated, the
shareholders pledged all of their equity interests in Beijing 58 to Wanglin to guarantee Beijing 58’s and Beijing 58’s shareholders’ performance of their
obligations under the contractual arrangements including, but not limited to, the payments due to Wanglin for services provided. If Beijing 58 or any of
Beijing 58’s shareholders breaches its contractual obligations under the contractual arrangements, Wanglin, as the pledgee, will be entitled to certain rights
and entitlements, including receiving proceeds from the auction or sale of whole or part of the pledged equity interests of Beijing 58 in accordance with legal
procedures. Wanglin has the right to receive dividends generated by the pledged equity interests during the term of the pledge. If any event of default as
provided in the contractual arrangements occurs, Wanglin, as the pledgee, will be entitled to dispose of the pledged equity interests in accordance with PRC
laws and regulations. The pledge will become effective on the date when the pledge of equity interests contemplated in these agreements are registered with
the relevant local administration for industry and commerce and will remain binding until Beijing 58 and its shareholders discharge all their obligations under
the contractual arrangements. These equity interest pledge agreements were registered with Chaoyang Branch of Beijing Administration for Industry and
Commerce in July 2013.
F-10
58.com Inc.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share, per share and per ADS data, unless otherwise noted)
Exclusive Option Agreements
Under the exclusive option agreements among Wanglin, as amended and restated, Beijing 58 and each of the shareholders of Beijing 58, each of the
shareholders irrevocably granted Wanglin or its designated representative(s) an exclusive option to purchase, to the extent permitted under PRC law, all or
part of his, her or its equity interests in Beijing 58. In addition, Wanglin has the option to acquire all the equity interests of Beijing 58 for either a nominal
price from Beijing Wanglintong, or at a specified price equal to the loan provided by Wanglin to the individual shareholders. If the lowest price permitted
under PRC law is higher than the above price, the lowest price permitted under PRC law shall apply. Wanglin or its designated representative(s) have sole
discretion as to when to exercise such options, either in part or in full. Without Wanglin’s prior written consent, Beijing 58’s shareholders shall not transfer,
donate, pledge, or otherwise dispose any equity interests in Beijing 58. These agreements will remain effective until all equity interests held in Beijing 58 by
the Beijing 58’s shareholders are transferred or assigned to Wanglin or Wanglin’s designated representatives. At the moment, the Company cannot exercise
the exclusive option to purchase the current shareholders’ equity interests in Beijing 58 due to the PRC regulatory restrictions on foreign ownership in the
value-added telecommunications services. The Company intends to exercise such option once China opens up these industries to foreign investment.
Loan Agreements
Pursuant to the loan agreements between Wanglin and each individual shareholder of Beijing 58, Wanglin provided interest-free loans with an
aggregate amount of approximately RMB7.8 million to the individual shareholders of Wanglin for the sole purpose of funding the capital increase of Beijing
58. The loans can be repaid by transferring the individual shareholders’ equity interest in Beijing 58 to Wanglin or its designated person pursuant to
Exclusive Option Agreements. The term of each loan agreement is ten years from the date of the agreement expiring on December 1, 2021 and can be
extended with the written consent of both parties before expiration.
(ii)
Contractual Arrangements with Shanjing Kechuang
Ganji, through its PRC subsidiary, Yangguang Gudi, has entered into contractual arrangements with Shanjing Kechuang and its shareholders
described below, which are referred to as the Shanjing Kechuang Agreements. Through the Shanjing Kechuang Agreements, Ganji exercises control over the
operations of Shanjing Kechuang and receives substantially all its economic benefits and residual returns. Through the exclusive business cooperation
agreement between Yangguang Gudi and Shanjing Kechuang, Yangguang Gudi agrees to provide certain technical and business support and related
consulting services to Shanjing Kechuang in exchange for service fees. In addition, pursuant to the exclusive option agreements, Shanjing Kechuang is
prohibited from declaring and paying any dividends without Yangguang Gudi’s prior consent and Yangguang Gudi enjoys an irrevocable and exclusive
option to purchase Shanjing Kechuang shareholders’ equity interests, to the extent permitted by applicable PRC laws, at a specified price equal to the loan
amount provided by Yangguang Gudi to the shareholders. If the lowest price permitted under PRC law is higher than the above price, the lowest price
permitted under PRC law shall apply. Through these arrangements, Ganji can obtain all of the income and the interests of Shanjing Kechuang, such as
undistributed earnings, either through dividend distributions or purchase of equity interests of Shanjing Kechuang from its existing shareholders. As a result
of the contractual arrangements, the Company, through Ganji, consolidates the financial results of Shanjing Kechuang in its consolidated financial statements
in accordance with U.S. GAAP.
Exclusive Business Cooperation Agreement
The terms and arrangements of the exclusive business cooperation agreement between Yangguang Gudi and Shanjing Kechuang are substantially
similar to those under the Beijing 58 Agreements. In 2016, Yangguang Gudi did not collect any service fee payments from Shanjing Kechuang in 2016.
Powers of Attorney
Each shareholder of Shanjing Kechuang has executed a power of attorney to irrevocably appoint Yangguang Gudi as the attorney-in-fact to act on
the shareholder’s behalf. The terms of the powers of attorney are substantially similar to those under the Beijing 58 Agreements.
F-11
58.com Inc.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share, per share and per ADS data, unless otherwise noted)
Equity Interest Pledge Agreements
Yangguang Gudi, Shanjing Kechuang and each of the shareholders of Shanjing Kechuang have entered into equity interest pledge agreements with
terms and arrangements that are substantially similar to those under the Beijing 58 Agreements. These equity interest pledge agreements were registered with
Shunyi Branch of Beijing Administration for Industry and Commerce Bureau on March 18, 2016 for the three individual nominee shareholders and April 1,
2016 for 58 Co., Ltd., respectively.
Exclusive Option Agreements
Yangguang Gudi, Shanjing Kechuang and each of the shareholders of Shanjing Kechuang have entered into exclusive option agreements with terms
and arrangements that are substantially similar to those under the Beijing 58 Agreements. At the moment, Ganji cannot exercise the exclusive options to
purchase the current shareholders’ equity interests in Shanjing Kechuang due to the PRC regulatory restrictions on foreign ownership in the value-added
telecommunications services. Ganji may exercise the options if China opens up these industries to foreign investment.
Loan Agreements
Yangguang Gudi and each shareholder of Shanjing Kechuang have entered into loan agreements with an aggregate amount of interest-free loans of
approximately RMB38.7 million. The terms of the loan agreements are substantially similar to those under the Beijing 58 Agreements and each loan
agreement expires on August 6, 2025 and can be extended with the written consent of both parties before expiration.
(iii)
58 Home’s Contractual Arrangements with Tianjin 58 Daojia Life Services Co., Ltd. (“Tianjin 58 Home”)
58 Home has through Beijing 58 Daojia Information Technology Co., Ltd. (“Beijing 58 Home”) entered into contractual arrangements with Tianjin
58 Home and its shareholders described below, which are referred to as the Tianjin 58 Home Agreements. Through the Tianjin 58 Home Agreements,
Beijing 58 Home exercises control over the operations of Tianjin 58 Home and receives substantially all its economic benefits and residual returns. Through
the exclusive business cooperation agreement between Beijing 58 Home and Tianjin 58 Home, Beijing 58 Home agrees to provide certain technical and
business support and related consulting services to Tianjin 58 Home in exchange for service fees. In addition, pursuant to the exclusive option agreements,
Tianjin 58 Home is prohibited from declaring and paying any dividends without Beijing 58 Home’s prior consent and Beijing 58 Home enjoys an irrevocable
and exclusive option to purchase Tianjin 58 Home shareholders’ equity interests, to the extent permitted by applicable PRC laws, at a specified price equal to
the loan amount provided by Beijing 58 Home to the shareholders. If the lowest price permitted under PRC law is higher than the above price, the lowest
price permitted under PRC law shall apply. Through these arrangements, 58 Home can obtain all of the income and the residual interests of Tianjin 58 Home,
such as undistributed earnings, either through dividend distributions or purchase of equity interests of Tianjin 58 Home from its existing shareholders. As a
result of the contractual arrangements, 58 Home consolidates the financial results of Tianjin 58 Home in accordance with U.S. GAAP. In July 2016, one
shareholder of Tianjin 58 Home transferred his equity interest in Tianjin 58 Home to 58 Co., Ltd. As a result, Beijing 58 Home amended and restated its
contractual arrangements with Tianjin 58 Home to reflect the change in shareholding of Tianjin 58 Home.
The Company had been consolidating 58 Home for the period before November 27, 2015 and accounted for its equity investment in 58 Home’s
ordinary shares and preference shares as equity method investment and cost method investment, respectively since the date of the deconsolidation (See Note
5). The following contractual arrangements within 58 Home have been effective regardless of the deconsolidation of 58 Home by the Company.
Exclusive Business Cooperation Agreement
The terms and arrangements of the exclusive business cooperation agreement between Tianjin 58 Home and Beijing 58 Home under the Tianjin 58
Home Agreements are substantially similar to those under the Beijing 58 Agreements, except that Tianjin 58 Home agrees to pay a monthly service fee to
Beijing 58 Home in an amount determined by both parties after taking into account factors similar to those provided under the Beijing 58 Agreements.
Beijing 58 Home did not collect any service fee payments from Tianjin 58 Home in 2015.
F-12
58.com Inc.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share, per share and per ADS data, unless otherwise noted)
Powers of Attorney
Each shareholder of Tianjin 58 Home has executed a power of attorney to irrevocably appoint Beijing 58 Home as the attorney-in-fact to act on the
shareholder’s behalf. The terms of the powers of attorney are substantially similar to those under the Beijing 58 Agreements.
Equity Interest Pledge Agreements
Beijing 58 Home, Tianjin 58 Home and each of the shareholders of Tianjin 58 Home have entered into equity interest pledge agreements with terms
and arrangements that are substantially similar to those under the Beijing 58 Agreements. These equity interest pledge agreements are registered with the
Tianjin Binhai New Area Market and Quality Supervision and Administration Bureau on September 8, 2015.
Exclusive Option Agreements
Beijing 58 Home, Tianjin 58 Home and each of the shareholders of Tianjin 58 Home have entered into exclusive option agreements with terms and
arrangements that are substantially similar to those under the Beijing 58 Agreements, except that the purchase price to be paid by Beijing 58 Home to each
shareholder by exercising its option to purchase all the equity interests held by the shareholder in Tianjin 58 Home equal to the loan amount provided by
Beijing 58 Home to the shareholder. At the moment, 58 Home cannot exercise the exclusive options to purchase the current shareholders’ equity interests in
Tianjin 58 Home due to the PRC regulatory restrictions on foreign ownership in the value-added telecommunications services. 58 Home may exercise the
options if China opens up these industries to foreign investment.
Loan Agreements
Beijing 58 Home and each shareholder of Tianjin 58 Home have entered into loan agreements with an aggregate amount of interest-free loans of
approximately RMB100 million. The terms of the loan agreements are substantially similar to those under the Beijing 58 Agreements and each loan
agreement expires on August 5, 2025 and can be extended with the written consent of both parties before expiration.
Risks in Relation to the VIE Structure
As of December 31, 2016, the aggregate accumulated losses of VIEs and VIEs’ subsidiaries were approximately RMB1,823,473, which has been
included in the consolidated financial statements.
The following financial statement amounts and balances of the Group's VIEs and VIEs’ subsidiaries were included in the accompanying
consolidated financial statements as of December 31, 2015 and 2016 and for the three years ended December 31, 2014, 2015 and 2016:
Cash and cash equivalents
Short-term investments
Accounts receivable, net
Prepayments and other current assets
Property and equipment, net
Long-term investments
Intangible assets, net and goodwill
Long-term prepayments and other non-current assets
Total assets
Accounts payable
Deferred revenues
Customer advances
Taxes payable
Salary and welfare payable
Inter-company payable
Accrued expenses and other current liabilities
Deferred tax liabilities
Other non-current liabilities
Total liabilities
F-13
As of December 31,
2015
RMB
2016
RMB
450,021
100,593
169,719
120,254
92,902
45,953
16,317,227
56,100
17,352,769
164,032
749,997
378,371
17,471
251,826
826,926
79,012
376,893
2,000
2,846,528
351,860
425,000
211,907
141,508
121,207
149,489
16,052,273
38,047
17,491,291
199,618
859,956
296,595
14,740
254,958
1,330,757
205,441
329,611
—
3,491,676
58.com Inc.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share, per share and per ADS data, unless otherwise noted)
Revenue
Net loss
Net cash provided by operating activities
Net cash (used in)/provided by investing activities
Net cash provided by financing activities
2014
RMB
For the year ended December 31,
2015
RMB
1,669,685
(853,773)
175,097
212,875
—
625,457
(24,230)
413,473
(346,511)
—
2016
RMB
2,459,689
(457,054)
396,925
(446,062)
28,235
Under the contractual arrangements with each of the VIEs and through their respective equity interest in their subsidiaries, the Group has the power
to direct activities of the VIEs and the VIEs’ subsidiaries and direct the transfer of assets out of the VIEs and the VIEs’ subsidiaries. Therefore the Group
considers that there is no asset of the VIEs and the VIEs’ subsidiaries that can be used only to settle their obligations. As the consolidated VIEs and VIEs’
subsidiaries are incorporated as limited liability companies under the PRC Company Law, the creditors do not have recourse to the general credit of the
Company for the liabilities of the consolidated VIEs and the VIEs’ subsidiaries.
The Group believes that the contractual arrangements among each of the VIEs, their respective shareholders and relevant WFOE are in compliance
with PRC law and are legally enforceable. However, uncertainties in the PRC legal system could limit the Company’s ability to enforce these contractual
arrangements and if the shareholders of VIEs were to reduce their interest in the Company, their interests may diverge from that of the Company and that
may potentially increase the risk that they would seek to act contrary to the contractual terms.
The Company’s ability to control the VIEs also depends on the power of attorney and the WFOEs have to vote on all matters requiring shareholder
approval in the VIEs. As noted above, the Company believes this power of attorney is legally enforceable but may not be as effective as direct equity
ownership.
It is possible that the Group’s operation of certain of its businesses through the VIEs could be found by PRC authorities to be in violation of PRC
law and regulations prohibiting or restricting foreign ownership of companies that engage in such operations and businesses. While the Group’s management
considers the possibility of such a finding by PRC regulatory authorities under current PRC law and regulations to be remote, on January 19, 2015, the
Ministry of Commerce of the PRC, or (the “MOFCOM”) released on its Website for public comment a proposed PRC law (the “Draft FIE Law”) that
appears to include VIEs within the scope of entities that could be considered to be foreign invested enterprises (or “FIEs”) that would be subject to
restrictions under existing PRC law and regulations on foreign investment in certain categories of industry. Specifically, the Draft FIE Law introduces the
concept of “actual control” for determining whether an entity is considered to be an FIE. In addition to control through direct or indirect ownership or equity,
the Draft FIE Law includes control through contractual arrangements within the definition of “actual control.” If the Draft FIE Law is passed by the People’s
Congress of the PRC and goes into effect in its current form, these provisions regarding control through contractual arrangements could be construed to apply
to the Group’s VIE arrangements, and as a result the Group’s VIEs could become explicitly subject to the current restrictions on foreign investment in certain
categories of industries. The Draft FIE Law includes provisions that would exempt from the definition of foreign invested enterprises entities where the
ultimate controlling shareholders are either entities organized under PRC law or individuals who are PRC citizens. The Draft FIE Law is silent as to what
type of enforcement action might be taken against existing VIEs that operate in restricted or prohibited industries and are not controlled by entities organized
under PRC law or individuals who are PRC citizens. If a finding were made by PRC authorities, under existing law and regulations or under the Draft FIE
Law if it becomes effective, that the Group’s operation of certain of its operations and businesses through the VIEs is prohibited, the regulatory authorities
with jurisdiction over the licensing and operation of such operations and businesses would have broad discretion in dealing with such a violation, including
levying fines, confiscating the Group’s income, revoking the business or operating licenses of the affected businesses, requiring the Group to restructure its
ownership structure or operations, or requiring the Group to discontinue any or all portion of its operations. Any of these actions could cause significant
disruption to the Group’s business operations, and have a severe adverse impact on the Group’s cash flows, financial position and operating performance.
F-14
58.com Inc.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share, per share and per ADS data, unless otherwise noted)
In addition, if the legal structure and contractual arrangements were found to be in violation of any other existing PRC laws and regulations, the
PRC government could:
•
•
•
•
•
•
•
revoke the Group’s business and operating licenses;
require the Group to discontinue or restrict operations;
restrict the Group’s right to collect revenues;
block the Group’s websites;
require the Group to restructure the operations in such a way as to compel the Group to establish a new enterprise, re-apply for the
necessary licenses or relocate its businesses, staff and assets;
impose additional conditions or requirements with which the Group may not be able to comply; or
take other regulatory or enforcement actions against the Group that could be harmful to the Group’s business.
The imposition of any of these penalties may result in a material and adverse effect on the Group’s ability to conduct the Group’s business. In
addition, if the imposition of any of these penalties causes the Group to lose the right to direct the activities of any of the VIEs (through its equity interest in
its subsidiaries) or the right to receive their economic benefits, the Group would no longer be able to consolidate the relevant VIE and its subsidiaries, if any.
In the opinion of management, the likelihood of loss in respect of the Group's current ownership structure or the contractual arrangements with its VIEs is
remote.
There is no VIE for which the Company has variable interest but is not the primary beneficiary.
Currently there is no contractual arrangement that could require the Company to provide additional financial support to VIEs. As the Company is
conducting its business mainly through VIEs, the Company may provide such support on a discretionary basis in the future, which could expose the
Company to a loss.
The Company’s VIEs’ assets are comprised of recognized and unrecognized revenue-producing assets. The recognized revenue producing assets
mainly include purchased servers, which were in the line of “Property and equipment, net” in the table above. The unrecognized revenue-producing assets
mainly consist of the Internet Content Provider license (“ICP” license), trademarks, copyrights and registered patents, which have no recorded value.
As of December 31, 2016, the VIEs hold the ICP license, which is necessary for the operation of the website and provision of value-added
telecommunications services in China, and have registered 784 trademarks, including
and 50 copyrights. The VIEs also have 6
registered patents and applied for the registration of 85 other patents, which cover a variety of technologies, including those relating to data processing,
search, distribution and publishing.
and
The VIEs’ business operations rely in part on the technologies covered by the registered patents to generate revenues. Such technologies include (1)
the data verification and processing technology used to verify and process local merchant information; (2) the data researching technology provided to end-
users enable them to find the exact information they want in the shortest time; (3) the data publishing technology provided to end-users or merchants to help
them to publish their service information more efficiently.
F-15
58.com Inc.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share, per share and per ADS data, unless otherwise noted)
f. Liquidity
As of December 31, 2016, current liabilities of the Group exceeded its current assets by RMB2,816,897, and the Group had an accumulated deficit
of RMB3,070,735. For the year ended December 31, 2016, the Company had a net loss attributable to 58.com of RMB783,764. During the year ended
December 31, 2014, 2015 and 2016, the net cash provided by the Group’s operating activities were RMB606,717, RMB198,538 and RMB1,887,849,
respectively. During the year ended December 31, 2016, Mr. Jinbo Yao, the chief executive officer of the Group, pledged 12.4 million Class B ordinary
shares personally owned by him as security for the Company's loan with China Merchants Bank Co. Limited (“CMB Bank”) in the amount of
RMB1,780,955 (US$275,000), out of which the Company repaid RMB1,138,222 (US$167,500) principal and RMB42,072 (US$6,288) accrued interest as of
December 31, 2016, and the remaining balance was fully paid on April 21, 2017. The Group regularly monitors current and expected liquidity requirements
to ensure that it maintains sufficient cash balances and adequate credit facilities to meet its liquidity requirements in the short and long term. The Group has
adopted Accounting Standards Update (“ASU”) No.2014-15 “Presentation of Financial Statements – Going Concern” which addresses management’s
responsibility to evaluate whether there is a substantial doubt about an entity’s ability to continue as a going concern and to provide related footnote
disclosures if the substantial doubt exists. Based on the Group’s operating plan without considering any mitigating plan as discussed in ASU No. 2014-15, or
any guarantee by related party, the management is of the opinion that, the Group’s current cash and cash equivalents and anticipated cash flow from
operations provide sufficient funds to meet the working capital requirements to fund planned operations and other commitments for at least the next twelve
months from the date the consolidated financial statements for the year ended December 31, 2016 are issued. As a result, the consolidated financial
statements of the Group for the year ended December 31, 2016 have been prepared on a going concern basis.
2. Principal accounting policies
(a)
Principles of consolidation
The consolidated financial statements of the Group have been prepared in accordance with U.S. GAAP. The consolidated financial statements
include the financial statements of the Company, its subsidiaries, the VIEs and VIEs’ subsidiaries for which the Company is the ultimate primary beneficiary.
Subsidiaries are those entities in which the Company, directly or indirectly, controls more than one half of the voting power; or has the power to
govern the financial and operating policies, to appoint or remove the majority of the members of the board of directors, or to cast a majority of votes at the
meeting of directors.
A VIE is an entity in which the Company or its subsidiary, through contractual arrangements, bears the risks of, and enjoys the rewards normally
associated with, ownership of the entity, and therefore the Company or its subsidiary is the primary beneficiary of the entity.
All significant transactions and balances among the Company, its subsidiaries, the VIEs and VIEs’ subsidiaries have been eliminated upon
consolidation. The results of subsidiaries and VIEs acquired or disposed of during the year are recorded in the consolidated statement of comprehensive
income/(loss) from the effective date of acquisition or up to the effective date of disposal, as appropriate.
The Company deconsolidates its subsidiaries in accordance with ASC 810-10-40-4 as of the date the Company ceased to have a controlling financial
interest in the subsidiaries.
The Company accounts for the deconsolidation of its subsidiaries by recognizing a gain or loss in net income/(loss) attributable to the Company in
accordance with ASC 810-10-40-5. This gain or loss is measured at the date the subsidiaries are deconsolidated as the difference between (a) the aggregate of
the fair value of any consideration received, the fair value of any retained noncontrolling interest in the subsidiaries being deconsolidated, and the carrying
amount of any noncontrolling interest in the subsidiaries being deconsolidated, including any accumulated other comprehensive income/(loss) attributable to
the noncontrolling interest, and (b) the carrying amount of the assets and liabilities of the subsidiaries being deconsolidated.
(b)
Use of estimates
The preparation of the Group’s consolidated financial statements in conformity with the U.S. GAAP requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities. Actual results could differ materially
from those estimates. Significant accounting estimates reflected in the Group’s consolidated financial statements mainly include revenue recognition, the
determination of the fair value of identifiable assets and liabilities acquired through business combination, the determination of the fair value of long-term
investments, the determination of the fair value of mezzanine equity, the determination of fair value of noncontrolling interests, the valuation allowance of
deferred tax assets, the determination of uncertain tax position, the valuation and recognition of share-based compensation, impairment of long-lived assets
and the determination of the estimated useful lives of property and equipment and intangible assets.
F-16
58.com Inc.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share, per share and per ADS data, unless otherwise noted)
(c)
Functional Currency and Foreign Currency Translation
The functional currency of the Company and its subsidiaries incorporated outside of PRC is the United States dollar (“US$”), while the functional
currency of the PRC entities in the Group is Chinese Renminbi ("RMB") as determined based on ASC 830, “Foreign Currency Matters”. Effective December
31, 2016, the Group changed its reporting currency from US$ to RMB. Assets and liabilities are translated at the exchange rates on the balance sheet date,
equity amounts are translated at historical exchange rates, and revenues, expenses, gains and losses are translated using the average rate for the periods.
Translation adjustments arising from these are reported as foreign currency translation adjustments and are shown as a component of other comprehensive
income/(loss) in the consolidated statement of changes in shareholders’ equity. Total foreign currency translation losses adjustments, net of nil tax were
RMB3,192, RMB69,708 and RMB76,027 for the years ended December 31, 2014, 2015 and 2016, respectively.
Foreign currency transactions denominated in currencies other than the functional currency are translated into the functional currency using the
exchange rates prevailing at the dates of the transactions. Monetary assets and liabilities denominated in foreign currencies are translated into the functional
currency using the applicable exchange rates at the balance sheet dates. The resulting exchange differences are included in the consolidated statements of
comprehensive income/(loss). Total foreign currency exchange losses were RMB15,335, RMB11,196 and RMB3,727 for the years ended December 31,
2014, 2015 and 2016, respectively.
Translations of amounts from RMB into US$ for the convenience of the reader were calculated at the exchange rate of RMB6.9370 per US$1.00,
the middle rate on December 30, 2016, the last business day in fiscal year 2016, as published on the website of the State Administration of Foreign Exchange
of the PRC. No representation is made that the RMB amounts could have been, or could be converted into U.S. dollars at such rate.
(d)
Cash and cash equivalents
Cash and cash equivalents represent cash on hand, demand deposits and highly liquid investments placed with banks or other financial institutions,
which are unrestricted as to withdrawal or use, and which have original maturities of three months or less and are readily convertible to known amounts
of cash.
The following table sets forth a breakdown of the Group’s cash and cash equivalents by currency denomination, jurisdiction and geographical
location as of December 31, 2015 and 2016:
US$ in thousands
China
Non
VIE
29,459
10,917
Hong
Kong
289,522
56,103
China VIE
3,511
2
Total
326,436
67,025
USA
247,043
268
RMB in thousands
China
Non
VIE
324,952
383,233
Hong
Kong
6
152
China VIE
449,928
351,848
Total
1,021,929
735,501
RMB in
thousands
Total
translated
to RMB
3,138,387
1,200,457
December 31, 2015
December 31, 2016
USA
3,944
3
(e)
Restricted cash
Cash that is legally restricted from withdrawal and pledged as collateral with commercial banks for the Group’s short-term loans is reported
separately on the face of the Group’s consolidated balance sheets, and is not included in the total cash and cash equivalents in the consolidated statements of
cash flows. Cash that is legally restricted from withdrawal amounted to RMB31,436 and RMB3,433 as of December 31, 2015 and 2016, respectively. Cash
pledged with commercial banks for the Group’s short-term loans was RMB nil and RMB1,148,507, respectively as of December 31, 2015 and 2016.
F-17
58.com Inc.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share, per share and per ADS data, unless otherwise noted)
(f)
Term deposits
Term deposits represent time deposits placed with banks with original maturities of more than three months to up to one year. Interest earned is
recorded as interest income in the consolidated statements of comprehensive income /(loss) during the periods presented.
(g)
Short-term investments
Short-term investments include investments in variable rate financial instruments which primarily consists of wealth management products with
variable interest rates or principal non-guaranteed which were purchased from commercial banks and other financial institutions and investment in available-
for-sale securities of a public traded company.
The Group carries these investments at fair value. Changes in the fair value are reflected in the consolidated statements of comprehensive income/
(loss) as investment income/(loss), net. Fair value is estimated based on quoted prices of similar products provided by banks at the end of each period. The
Group classifies the valuation techniques that use these inputs as Level 2 of fair value measurements. Please see Note 20 for additional information.
The available-for-sale securities are reported at fair values with the unrealized gains or losses recorded as accumulated other comprehensive income
or loss in equity. The Group reviews its available-for-sale securities for other-than-temporary impairment (“OTTI”) based on the specific identification
method. If the cost of an investment exceeds the investment’s fair value, the Group considers quantitative and qualitative evidence including general market
conditions, expected future performance of the investees, the duration and the extent to which the fair value of the investment is less than the cost, and the
Group’s intent and ability to hold the investment in determining whether to record an OTTI. The Group disposed all available-for-sale securities in 2016 and
recognized investment loss of RMB2,989 upon disposal in its consolidated statement of comprehensive income/(loss). Please see Note 8 for more details.
(h)
Accounts receivable, net
The carrying value of accounts receivable is reduced by an allowance that reflects the Group’s best estimate of the amounts that will not be
collected. The Group makes estimations for the collectability of accounts receivable considering many factors including but not limited to reviewing
accounts receivable balances, historical bad debt rates, accounts aging, repayment patterns, customer credit worthiness, financial conditions of the customers
and industry trend analysis, resulting in their inability to make payments due to the Group. An accounts receivable is written off after all collection effort has
ceased. The Group recognized RMB11,672 and RMB13,737 allowance for doubtful accounts for the years ended December 31, 2015 and 2016, respectively.
(i)
Property and equipment, net
Property and equipment are stated at cost less accumulated depreciation and impairment. Property and equipment are depreciated over the estimated
useful lives on a straight-line basis. The estimated useful lives are as follows:
Buildings
Computers and equipment
Motor vehicles
Furniture and fixtures
Leasehold improvements
Software
30-50 years
3-5 years
4-5 years
5 years
Over the shorter of lease terms or
the estimated useful lives of assets
3-5 years
Expenditures for maintenance and repairs are expensed as incurred. The gain or loss on the disposal of property and equipment is the difference
between the net sales proceeds and the carrying amount of the relevant assets and is recognized in the consolidated statements of comprehensive income/
(loss).
F-18
58.com Inc.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share, per share and per ADS data, unless otherwise noted)
(j)
Intangible assets, net
Intangible assets acquired through business acquisitions are recognized as assets separated from goodwill if they satisfy either the "contractual-
legal" or "separability" criterion. Intangible assets purchased are recognized and measured at fair value upon acquisition.
Intangible assets with finite lives are carried at cost less accumulated amortization. Separately identifiable intangible assets that have determinable
lives continue to be amortized over their estimated useful lives using the straight-line method as follows:
Customer relationships
Domain names and trademarks
Technology
2 - 3 years
9 - 10 years
4 - 5 years
Intangible assets with infinite lives are evaluated to determine the fair value annually. An impairment loss is recognized if the carrying amount
exceeds the fair value. Separately identifiable intangible assets to be held and used are reviewed for impairment whenever events or changes in circumstances
indicate that the carrying amount of such assets may not be recoverable. Determination of recoverability is based on an estimate of undiscounted future cash
flows resulting from the use of the asset and its eventual disposition. Measurement of any impairment loss for identifiable intangible assets is based on the
amount by which the carrying amount of the assets exceeds the fair value of the asset.
(k)
Land use rights, net
Land use rights are carried at cost less accumulated amortization. Amortization is provided to write off the cost of lease prepayments on a straight-
line basis over the period of the shorter of estimated useful lives which are generally 50 years or the terms of the land use rights purchase agreements.
(l)
Goodwill
Goodwill represents the excess of the purchase consideration over the fair value of the identifiable tangible and intangible assets acquired and
liabilities assumed of the acquired entity as a result of the Company's acquisitions of interests in its subsidiaries and VIEs. Goodwill is not amortized but is
tested for impairment on an annual basis, or more frequently if events or changes in circumstances indicate that it might be impaired. The Company first
assesses qualitative factors to determine whether it is necessary to perform the two-step quantitative goodwill impairment test. In the qualitative assessment,
the Company considers primary factors such as industry and market considerations, overall financial performance of the reporting unit, and other specific
information related to the operations. Based on the qualitative assessment, if it is more likely than not that the fair value of each reporting unit is less than the
carrying amount, the quantitative impairment test is performed.
In performing the two-step quantitative impairment test, the first step is to compare the fair values of each reporting unit to its carrying amount,
including goodwill. If the fair value of each reporting unit exceeds its carrying amount, goodwill is not considered to be impaired and the second step will not
be required. If the carrying amount of a reporting unit exceeds its fair value, the second step is to compare the implied fair value of goodwill to the carrying
value of a reporting unit's goodwill. The implied fair value of goodwill is determined in a manner similar to accounting for a business combination with the
allocation of the assessed fair value determined in the first step to the assets and liabilities of the reporting unit. The excess of the fair value of the reporting
unit over the amounts assigned to the assets and liabilities is the implied fair value of goodwill. This allocation process is only performed for the purposes of
evaluating goodwill impairment and does not result in an entry to adjust the value of any assets or liabilities. Application of a goodwill impairment test
requires significant management judgment, including the identification of reporting units, assigning assets, liabilities and goodwill to reporting units, and
determining the fair value of each reporting unit.
The Group performs impairment tests in the fourth quarter of each year. No impairment loss was recognized for all periods presented.
(m)
Long-term investments
Long-term investments represent the Group’s investments in privately held companies.
F-19
58.com Inc.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share, per share and per ADS data, unless otherwise noted)
In accordance with ASC 323 “Investment-Equity Method and Joint Ventures”, the Group applies the equity method of accounting to equity
investments, in common stock or in-substance common stock, over which it has significant influence but does not own a majority equity interest or otherwise
control. Under the equity method, the Group initially records its investment at cost. The difference between the cost of the equity investment and the amount
of the underlying equity in the net assets of the equity investee is recognized as equity method goodwill or as an intangible asset as appropriate, which is
included in the equity method investment on the consolidated balance sheets. The Group subsequently adjusts the carrying amount of the investment to
recognize the Group's proportionate share of each equity investee's net income or loss into consolidated statements of comprehensive income/(loss) after the
date of acquisition. The Group will discontinue applying equity method if an investment (and additional financial supports to the investee, if any) has been
reduced to zero.
An investment in in-substance common stock is an investment that has risk and reward characteristics that are substantially similar to that entity’s
common stock. The Group considers subordination, risks and rewards of ownership and obligation to transfer value when determining whether an investment
in an entity is substantially similar to one in that entity’s common stock.
For long-term investments in equity securities that are not accounted for using equity method of accounting, and that have no readily determinable
fair value, the cost method of accounting is used.
The Company assesses its long-term investments accounted for under the cost method and equity method for other-than-temporary impairment by
considering factors including, but not limited to, current economic and market conditions, operating performance of the companies, including current
earnings trends and undiscounted cash flows, and other company-specific information, such as recent financing rounds. The fair value determination,
particularly for investments in privately-held companies whose revenue model is still evolving, requires significant judgment to determine appropriate
estimates and assumptions. Changes in these estimates and assumptions could affect the calculation of the fair value of the investments and the determination
of whether any identified impairment is other-than-temporary. If any impairment is considered other-than-temporary, the Company will write down the asset
to its fair value and take the corresponding charge to the consolidated statements of comprehensive income/(loss).
Impairment charges in connection with the cost method investments of RMB nil, RMB6,119 and RMB142,125 were fully recorded in investment
income/(loss), net in the consolidated statements of comprehensive income/(loss) for the years ended December 31, 2014, 2015 and 2016, respectively,
because the investees operation metrics were not performing to the expectations. No impairment charges in connection with the equity method investments
were recorded for the years ended December 31, 2014, 2015 and 2016.
(n)
Impairment of other long-lived assets
The carrying amounts of long-lived assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying
amount of an asset may not be recoverable. Recoverability of assets to be held and used is evaluated by a comparison of the carrying amount of assets to
future undiscounted net cash flows expected to be generated by the assets. Such assets are considered to be impaired if the sum of the expected undiscounted
cash flow is less than the carrying amount of the assets. The impairment to be recognized is measured by the amount by which the carrying amounts of the
assets exceed the fair value of the assets. Impairment charges of other long-lived assets of RMB nil, RMB nil and RMB30,000 were recognized for the years
ended December 31, 2014, 2015 and 2016, respectively.
(o)
Fair value
Accounting guidance defines fair value as the price that would be received from selling an asset or paid to transfer a liability in an orderly
transaction between market participants at the measurement date. When determining the fair value measurements for assets and liabilities required or
permitted to be recorded at fair value, the Group considers the principal or most advantageous market in which it would transact and it considers assumptions
that market participants would use when pricing the asset or liability.
F-20
58.com Inc.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share, per share and per ADS data, unless otherwise noted)
Accounting guidance establishes a fair value hierarchy that requires an entity to maximize the use of observable inputs and minimize the use of
unobservable inputs when measuring fair value. A financial instrument’s categorization within the fair value hierarchy is based upon the lowest level of input
that is significant to the fair value measurement. Accounting guidance establishes three levels of inputs that may be used to measure fair value:
Level 1 — Observable inputs that reflect quoted prices (unadjusted) for identical assets or liabilities in active markets
Level 2 — Include other inputs that are directly or indirectly observable in the marketplace
Level 3 — Unobservable inputs which are supported by little or no market activity
The Group measures the fair value of assets and liabilities by two main approaches: (1) market approach and (2) income approach. The market
approach uses prices and other relevant information generated from market transactions involving identical or comparable assets or liabilities. The income
approach uses valuation techniques to convert future amounts to a single present value amount. The measurement is based on the value indicated by current
market expectations about those future amounts.
The Group’s financial instruments mainly include cash and cash equivalents, term deposits, short-term investments, accounts receivable, accounts
payable, deferred revenues, customer advances, and accrued liabilities and other current liabilities. The carrying value of the Company’s short-term financial
instruments approximates their fair value because of their short maturities. The Company measures certain financial assets, including the investments under
the cost method and equity method on other-than-temporary basis; intangible assets, goodwill and fixed assets are marked to fair value when an impairment
charge is recognized. Please see Note 20 for additional information.
(p)
Customer advances
Customers pay in advance to purchase membership services, online marketing services and other services. The cash proceeds received from
customers are initially recorded as customer advances and then transferred to deferred revenues when they are used to purchase desired services.
(q)
Revenue recognition
The Group generates revenues primarily from membership, online marketing and E-commerce services. The Group sells its services through its
direct sales teams and third party sales agencies. Under the terms of the agreement with the sales agencies, the sales agencies remit to the Group a certain
percentage of the listed sales price. The Group recognizes revenue net of the amounts retained by the sales agencies because the sales agencies will offer
discretionary discount to the customer. Additionally, the Group does not receive information from the sales agencies indicating the amount of such discounts
offered to the customers or regarding the actual cash paid by the customers to the sales agencies. As such, the Group is unable to determine the gross
amounts paid by the customers to the sales agencies. Accordingly, the Group believes that it is more appropriate to recognize revenue net of the amounts
retained by the sale agencies. Revenue is recognized when persuasive evidence of an arrangement exists, the price is fixed or determinable, service is
performed and collectability of the related fee is reasonably assured.
The Group has adopted the gross presentation for business tax and related surcharges pursuant to ASC 605-45, "Revenue Recognition: Principal
Agent Considerations". The amount of business tax and related surcharges included in cost of revenues were RMB10,027, RMB23,075 and RMB37,067 for
the years ended December 31, 2014, 2015 and 2016, respectively. Effective January 1, 2012, the PRC Ministry of Finance and the State Administration of
Taxation launched the Value Added Tax ("VAT") Pilot Program for certain industries in certain regions. According to the implementation circulars released
by the Ministry of Finance and the State Administration of Taxation on the Pilot Program, the "Modern Service Industries" includes research, development
and technological services, information technology services, cultural innovation services, logistics support, lease of corporeal properties, attestation and
consulting services. Subsidiaries in different regions were affected at different times as the program was rolled out. All of the Company’s entities were
subject to the VAT Pilot Program as of December 31, 2016. With the adoption of the Pilot Program, the Group’s revenues are subject to VAT payable on
goods sold or taxable labor services provided by a general VAT taxpayer for a taxable period. VAT payable is the net balance of the output VAT for the
period after deducting the input VAT for the period. Hence, the amount of VAT payable does not result directly from output VAT generated from goods sold
or taxable labor services provided. Accordingly, the Group has adopted the net presentation of VAT.
F-21
58.com Inc.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share, per share and per ADS data, unless otherwise noted)
(i)
Membership
A membership is a basic services package mainly consisting of the following services: customer certification, display of an online storefront on the
Group’s platforms, preferential listing benefits such as limited daily priority listings and higher quota for free daily listings, access to the Group’s dedicated
customer service support team and online account management system. Membership revenues are recognized ratably over the contract period when
membership services are provided.
(ii)
Online marketing services
The Group’s online marketing services include time-based services and performance-based services. Revenues from time-based services are
recognized ratably over the service period. Revenues from performance-based services are recognized when the agreed performance criteria are achieved.
For service arrangements that include multiple deliverables, revenues are allocated to each unit of accounting based on relative selling price of each unit of
accounting according to the selling price hierarchy established by ASU No. 2009–13. The Group uses (a) vendor-specific objective evidence of selling price,
if it exists, (b) otherwise, third-party evidence of selling price. If neither (a) nor (b) exists, the Group will use (c) the management’s best estimate of the
selling price for that deliverable. Selling price is generally determined by vendor specific objective evidence.
(iii)
E-commerce services
The Group enters into promotional service agreements with real estate developers pursuant to which the Group is authorized to sell discount
coupons with face value ranging from RMB2 to RMB100 to prospective home buyers. The home buyers are required to prepay the full face value of the
coupon to the Group before they can use the coupon to purchase specified properties from the real estate developers at a discount significantly greater than
the coupon value. The coupon purchased by prospective home buyers is refundable before a purchase of the specified properties prior to the expiry date of
the coupon. The Group recognizes revenues when home buyers apply the discount coupon to pay for the purchase price of the specified properties from real
estate developers. Cash received in advance of the purchase of specified properties is recorded as customer advances.
(iv)
Other services
Other services mainly include various off-line services provided. For the year ended December 31, 2016, other services revenue is primarily derived
from offline recruiting services provided. The Group recognizes other service revenue when the related service is rendered.
(r)
Cost of revenues
Cost of revenues mainly consists of traffic acquisition cost paid to 58.com advertising union partner as well as costs associated with the production
and operation of websites, which include fees paid to third parties for internet connection, content and services, payroll-related expenses, equipment
depreciation associated with the website production and operation, and business taxes, etc.
(s)
Advertising expenses
Advertising costs are generally prepaid to the third parties for television, internet and outdoor advertising services. Advertising costs are expensed as
sales and marketing expenses when the services are received. For the years ended December 31, 2014, 2015 and 2016, advertising expenses recognized in the
consolidated statements of comprehensive income/(loss) were RMB451,172, RMB1,811,852 and RMB2,040,020, respectively. Out of the total advertising
expenses, the advertising expenses charged by the Group’s related party Tencent amounted to approximately RMB9,142, RMB152,099 and RMB351,095 for
the year ended December 31, 2014, 2015 and 2016, respectively.
(t)
Research and development expenses
Research and development expenses mainly consist of personnel, rent and depreciation expenses associated with the development of and
enhancement to the Group’s websites and expenses associated with research and development. The research and development expenses are expensed as
incurred for all the periods presented.
F-22
58.com Inc.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share, per share and per ADS data, unless otherwise noted)
Costs incurred for the preliminary project stage of internal use software are expensed when incurred in research and development expenses. Costs
incurred during the application development stage are capitalized when certain criteria are met as stated in ASC 350-40. Costs incurred during the post-
implementation-operation stage are also expensed as incurred. As the period qualified for capitalization has historically been very short and the development
costs incurred during this period have been insignificant, development costs of internal use software to date have been expensed when incurred.
(u)
Operating leases
Leases where substantially all the rewards and risks of ownership of assets remain with the lessors are accounted for as operating leases. Payments
made under operating leases are charged to the consolidated statements of comprehensive income/(loss) on a straight-line basis over the terms of underlying
lease.
(v)
Share-based compensation
All share-based awards to employees and directors, including share options, restricted share units (“RSUs”) and restricted shares (“RSs”) are
measured at the grant date based on the fair value of the awards. Share-based compensation, net of forfeitures, is recognized as expense on a straight-line
basis over the requisite service period, which is the vesting period.
The Group uses the binominal option pricing model to determine the fair value of share options and account for share-based compensation expenses
using an estimated forfeiture rate at the time of grant and revising the rate, if necessary, in subsequent periods if actual forfeitures differ from initial
estimates. Share-based compensation expenses are recorded net of estimated forfeitures such that expenses are recorded only for those share-based awards
that are expected to vest.
See Note 23 for further information regarding share-based compensation assumptions and expenses.
(w)
Income taxes
Current income taxes are provided on the basis of net income for financial reporting purposes, adjusted for income and expense items which are not
assessable or deductible for income tax purposes, in accordance with the regulations of the relevant tax jurisdictions. Deferred income taxes are provided
using the liability method. Under this method, deferred income taxes are recognized for the tax consequences of temporary differences by applying enacted
statutory rates applicable to future years to differences between the financial statement carrying amounts and the tax bases of existing assets and liabilities.
The tax base of an asset or liability is the amount attributed to that asset or liability for tax purposes. The effect on deferred taxes of a change in tax rates is
recognized in the statement of comprehensive income/(loss) in the period of change. A valuation allowance is provided to reduce the amount of deferred tax
assets if it is considered more likely than not that some portion of, or all of the deferred tax assets will not be realized.
Uncertain tax positions
The guidance prescribes a more likely than not threshold for financial statement recognition and measurement of a tax position taken or expected to
be taken in a tax return. Guidance was also provided on derecognition of income tax assets and liabilities, classification of current and deferred income tax
assets and liabilities, accounting for interest and penalties associated with tax positions, accounting for income taxes in interim periods, and income tax
disclosures. Significant judgment is required in evaluating the Group’s uncertain tax positions and determining its provision for income taxes. The Group
recognizes interest and penalties, if any, under accrued expenses and other current liabilities on its balance sheet and under other expenses in its statement of
comprehensive income/(loss). The Group did not have any significant interest or penalties associated with tax positions as of December 31, 2014, 2015 and
2016. As of December 31, 2014, 2015 and 2016, the Group did not have any significant unrecognized uncertain tax positions.
In order to assess uncertain tax positions, the Group applies a more likely than not threshold and a two-step approach for the tax position
measurement and financial statement recognition. Under the two-step approach, the first step is to evaluate the tax position 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 more than 50% likely of being realized upon settlement.
F-23
58.com Inc.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share, per share and per ADS data, unless otherwise noted)
(x)
Employee benefits
Full-time employees of the Group in mainland China are entitled to staff welfare benefits including pension, work-related injury benefits, maternity
insurance, medical insurance, unemployment benefit and housing fund plans through a PRC government-mandated defined contribution plan. Chinese labor
regulation requires that the Group makes contributions to the government for these benefits based on certain percentage of the employees’ salaries, up to a
maximum amount specified by the local government. Currently, the Group is paying contributions to the social insurance plan for all full-time employees and
to the housing fund plans for some employees, but the amounts paid for these employees may not be sufficient as required by the PRC laws and regulations,
for which the Group have made provision based on its best estimate. The Group has no legal obligation for the benefits beyond the required contributions.
The Group recorded employee benefit expenses of RMB89,078, RMB338,638 and RMB476,989 for the years ended December 31, 2014, 2015 and
2016, respectively.
(y)
Government grants
Grants from the government are recognized at their fair value where there is a reasonable assurance that the grant will be received and the Group
will comply with all attached conditions.
Government grants relating to costs are deferred and recognized in the consolidated statements of comprehensive income/(loss) over the period
necessary to match them with the costs that they are intended to compensate.
Government grants relating to the property, plant and equipment and other non-current assets are presented in the consolidated balance sheet by
deducting the grants in arriving at the assets carrying amount and are credited to consolidated statements of comprehensive income/(loss) on a straight-line
basis over the expected lives of the related assets.
For the years ended December 31, 2014, 2015 and 2016, the Group recognized government grants of RMB35,018, RMB30,015 and RMB72,325,
respectively in others, net in the consolidated statements of comprehensive income/(loss).
(z)
Ordinary shares
The Company accounts for repurchased ordinary shares under the cost method and includes such treasury stock as a component of the common
shareholders’ equity. Cancellation of treasury stock is recorded as a reduction of ordinary shares, additional paid-in capital and retained earnings, as
applicable. An excess of purchase price over par value is allocated to additional paid-in capital first with any remaining excess charged entirely to retained
earnings.
(aa)
Business combination, noncontrolling interests and mezzanine classified noncontrolling interests
The Company accounts for its business combinations using the acquisition method of accounting in accordance with ASC 805 "Business
Combinations". The cost of an acquisition is measured as the aggregate of the acquisition date fair values of the assets transferred and liabilities incurred by
the Company to the sellers and equity instruments issued. Transaction costs directly attributable to the acquisition are expensed as incurred. Identifiable
assets and liabilities acquired or assumed are measured separately at their fair values as of the acquisition date. The excess of (i) the total costs of acquisition,
fair value of the noncontrolling interests and acquisition date fair value of any previously held equity interest in the acquiree over (ii) the fair value of the
identifiable net assets of the acquiree is recorded as goodwill. If the cost of acquisition is less than the fair value of the net assets of the subsidiary acquired,
the difference will be recognized directly in the consolidated statements of comprehensive income/(loss). During the measurement period, which can be up to
one year from the acquisition date, the Company may record adjustments to the assets acquired and liabilities assumed with the corresponding offset to
goodwill. Upon the conclusion of the measurement period or final determination of the values of assets acquired or liabilities assumed, whichever comes
first, any subsequent adjustments are recorded to the consolidated statements of operations.
In a business combination achieved in stages, the Company re-measures the previously held equity interest in the acquiree immediately before
obtaining control at its acquisition-date fair value and the re-measurement gain or loss, if any, is recognized in the consolidated statements of comprehensive
income/(loss).
F-24
58.com Inc.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share, per share and per ADS data, unless otherwise noted)
For the Company's majority-owned subsidiaries and VIEs, a noncontrolling interest is recognized to reflect the portion of their equity which is not
attributable, directly or indirectly, to the Company. When the noncontrolling interest is contingently redeemable upon the occurrence of a conditional event,
which is not solely within the control of the Company, the noncontrolling interest is classified as mezzanine classified noncontrolling interest. Consolidated
net income/(loss) on the consolidated income statements includes the net income/(loss) attributable to noncontrolling interests and mezzanine equity holders
when applicable. The cumulative results of operations attributable to noncontrolling interests are also recorded as noncontrolling interests in the Company's
consolidated balance sheets. Cash flows related to transactions with noncontrolling interests are presented under financing activities in the consolidated
statements of cash flows.
(ab)
Statutory reserves
The Group’s PRC subsidiaries, the VIEs and VIEs’ subsidiaries in China are required to make appropriations to certain non-distributable
reserve funds.
In accordance with China’s Company Laws, the Company’s PRC subsidiary, the VIEs and VIEs’ subsidiaries that are Chinese companies, must
make appropriations from their after-tax profit (as determined under the Accounting Standards for Business Enterprises as promulgated by the Ministry of
Finance of the People’s Republic of China (“PRC GAAP”)) to non-distributable reserve funds including (i) statutory surplus fund and (ii) discretionary
surplus fund. The appropriation to the statutory surplus fund must be at least 10% of the after-tax profits calculated in accordance with PRC GAAP.
Appropriation is not required if the statutory surplus fund has reached 50% of the registered capital of the respective company. Appropriation to the
discretionary surplus fund is made at the discretion of the respective company.
Pursuant to the laws applicable to China’s Foreign Investment Enterprises, the Company’s subsidiaries that are foreign investment enterprises in
China have to make appropriations from their after-tax profit (as determined under PRC GAAP) to reserve funds including (i) general reserve fund,
(ii) enterprise expansion fund and (iii) staff bonus and welfare fund. The appropriation to the general reserve fund must be at least 10% of the after tax profits
calculated in accordance with PRC GAAP. Appropriation is not required if the reserve fund has reached 50% of the registered capital of the respective
company. Appropriations to the other two reserve funds are at the respective company’s discretion. The use of the general reserve fund, statutory surplus
fund and discretionary surplus fund are restricted to the offsetting of losses to increase the registered capital of the respective company. These reserves are
not allowed to be transferred out as cash dividends, loans or advances, nor can they be distributed except under liquidation.
As of December 31, 2016, the Group had statutory reserve fund amounted to RMB129,610.
(ac)
Related parties
Parties are considered to be related if one party has the ability, directly or indirectly, to control the other party or exercise significant influence over
the other party in making financial and operating decisions. Parties are also considered to be related if they are subject to common control or significant
influence of the same party, such as a family member or relative, shareholder, or a related corporation.
(ad)
Earnings/(loss) per share
Basic earnings/(loss) per share is computed by dividing net income/(loss) attributable to 58.com Inc. by the weighted average number of ordinary
shares outstanding during the period using the two-class method. Under the two-class method, net income is allocated between ordinary shares and other
participating securities based on their participating rights. Net loss is not allocated to other participating securities if based on their contractual terms they are
not obligated to share in the losses. Diluted earnings/(loss) per share is calculated by dividing net income/(loss) attributable to ordinary shareholders, as
adjusted for the accretions and allocation of net income related to the preference shares, if any, by the weighted average number of ordinary and dilutive
ordinary equivalent shares outstanding during the period. Ordinary equivalent shares consist of shares issuable upon the conversion of the preference shares
using the if-converted method, and shares issuable upon the exercise of share options using the treasury stock method. Ordinary equivalent shares are not
included in the denominator of the diluted earnings/(loss) per share calculation when inclusion of such shares would be anti-dilutive.
F-25
58.com Inc.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share, per share and per ADS data, unless otherwise noted)
(ae)
Comprehensive income/(loss)
Comprehensive income/(loss) is defined as the change in equity of the Group during a period arising from transactions and other events and
circumstances excluding transactions resulting from investments by shareholders and distributions to shareholders. Comprehensive income or loss is reported
in the consolidated statements of comprehensive income/(loss). Accumulated other comprehensive income/(loss), as presented on the accompanying
consolidated balance sheets, consists of accumulated foreign currency translation adjustment and unrealized gain/(loss) on available-for-sale securities.
(af)
Segment reporting
Based on the criteria established by ASC 280 “Segment Reporting”, the Group’s chief operating decision maker has been identified as the Chief
Executive Officer, who reviews consolidated results when making decisions about allocating resources and assessing performance of the Group. The Group
has internal reporting of revenue by products but has internal reporting of cost and expenses that do not distinguish between segments, and costs and
expenses of the Group is reported by nature as a whole. The Group does not distinguish between markets or segments for the purpose of internal reporting.
Hence, the Group has only one operating and reportable segment. As the Group’s long-lived assets and revenue are substantially located in and derived from
the PRC, no geographical segments are presented.
(ag)
Recently issued accounting pronouncements
In May 2014, the FASB issued ASU No. 2014-09, “Revenue from Contracts with Customers (Topic 606).” This guidance supersedes current
guidance on revenue recognition in Topic 605, “Revenue Recognition”. In addition, there are disclosure requirements related to the nature, amount, timing,
and uncertainty of revenue recognition. In August 2015, the FASB issued ASU No. 2015-14 to defer the effective date of ASU No. 2014-09 for all entities by
one year. For publicly-traded business entities that follow U.S. GAAP, the deferral results in the new revenue standards’ being effective for fiscal years, and
interim periods within those fiscal years, beginning after December 15, 2017, with early adoption permitted for interim and annual periods beginning after
December 15, 2016. The Group will apply the new revenue standard under the modified retrospective approach, effective January 1, 2018. The cumulative
effect of initially applying the guidance will be recognized at the date of initial application. The Group is currently in the process of analyzing its revenue in
accordance with the new revenue standard to determine the impact on the consolidated financial statements and related disclosures.
In November 2015, the FASB issued ASU No. 2015-17, “Income Taxes (Topic 740): Balance Sheet Classification of Deferred Taxes”, which
simplifies the presentation of deferred income taxes by requiring deferred tax assets and liabilities to be classified as noncurrent on the balance sheet. The
amendments in this update are effective for financial statements issued for annual periods beginning after December 15, 2016, and interim periods within
those annual periods. The Group is in the process of evaluating the impacts the adoption of this update will have on its consolidated financial statements as
current deferred tax assets were RMB609 and non-current deferred tax liabilities were RMB373,810 as of December 31, 2016.
In January 2016, the FASB issued ASU No.2016-01, “Recognition and Measurement of Financial Assets and Financial Liabilities”, which provides
guidance for the recognition, measurement, presentation, and disclosure of financial assets and liabilities. This amendment requires all equity investments to
be measured at fair value, with changes in the fair value recognized through net income (other than those accounted for under equity method of accounting or
those that result in consolidation of the investee). The guidance will be effective for the fiscal year beginning after December 15, 2017, including interim
periods within that year. The Group is in the process of evaluating the impacts the adoption of this update will have on its consolidated financial statements.
In February 2016, the FASB issued ASU No. 2016-02, “Leases (Topic 842)”, which amends the existing accounting standards for lease accounting.
For operating leases, ASU No.2016-02 requires a lessee to recognize a right-of-use asset and a lease liability, initially measured at the present value of the
lease payments, in its balance sheet with terms of more than twelve months. Lessees are permitted to make an accounting policy election to not recognize the
asset and liability for leases with a term of twelve months or less. The standard also requires a lessee to recognize a single lease cost, calculated so that the
cost of the lease is allocated over the lease term, on a generally straight-line basis. In addition, this standard requires both lessees and lessors to disclose
certain key information about lease transactions. The amendments in this Update are effective for fiscal years beginning after December 15, 2018, including
interim periods within those fiscal years. The Group is currently assessing the potential effects the adoption of this update will have on its consolidated
financial statements and related disclosures.
F-26
58.com Inc.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share, per share and per ADS data, unless otherwise noted)
In March 2016, the FASB issued ASU No. 2016-09, “Compensation—Stock Compensation (Topic 718),” which intends to improve the accounting
for employee share-based payments. This standard addresses several aspects of the accounting for share-based payment award transactions, including: (a)
income tax consequences; (b) classification of awards as either equity or liabilities; (c) classification on the statement of cash flows; and (d) accounting for
forfeitures of share-based payments. This standard will be effective for annual periods beginning after December 15, 2016, and interim periods within those
annual periods, with early adoption permitted. The Group is currently assessing the potential effects the adoption of this update will have on its consolidated
financial statements and related disclosures.
In June 2016, the FASB issued ASU No. 2016-13, “Financial Instruments-Credit Losses (Topic 326),” which requires entities to measure all
expected credit losses for financial assets held at the reporting date. This replaces the existing incurred loss model and is applicable to the measurement of
credit losses on financial assets measured at amortized cost. For available-for-sale debt securities, entities will be required to record allowances rather than
reduce the carrying amount, as they do today under other-than-temporary impairment model. For public business entities, the amendments in this Update are
effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. The Group is currently evaluating the
impact that the adoption of this update will have on its consolidated financial statements and related disclosures.
In August 2016, the FASB issued ASU No. 2016-15, “Statement of Cash Flows – Classification of Certain Cash Receipts and Cash Payments,”
which addresses the following eight specific cash flow issues: debt prepayment or debt extinguishment costs; settlement of zero-coupon debt instruments or
other debt instruments with coupon interest rates that are insignificant in relation to the effective interest rate of the borrowing; contingent consideration
payments made after a business combination; proceeds from the settlement of insurance claims; proceeds from the settlement of corporate-owned life
insurance policies (COLIs) (including bank-owned life insurance policies (BOLIs)); distributions received from equity method investees; beneficial interests
in securitization transactions; and separately identifiable cash flows and application of the predominance principle. The amendments in this Update are
effective for public business entities for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. Early adoption is
permitted. The Group is currently evaluating the impact that the adoption of this update will have on its consolidated financial statements and related
disclosures.
In November 2016, the FASB issued ASU No. 2016-18, “Statement of Cash Flows (Topic 230): Restricted Cash.” The guidance requires that a
statement of cash flows explain the change during the period in the total of cash, cash equivalents, and amounts generally described as restricted cash or
restricted cash equivalents. Therefore, amounts generally described as restricted cash and restricted cash equivalents should be included with cash and cash
equivalents when reconciling the beginning-of-period and end-of-period total amounts shown on the statement of cash flows. The amendments in this Update
are effective for public business entities for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. Early adoption is
permitted, including adoption in an interim period. The standard should be applied using a retrospective transition method to each period presented. The
Group is currently evaluating the impact that the adoption of this update will have on its consolidated financial statements.
In January 2017, the FASB issued ASU No. 2017-01, “Business Combinations (Topic 805): Clarifying the Definition of a Business,” which clarifies
the definition of a business with the objective of adding guidance to assist entities with evaluating whether transactions should be accounted for as
acquisitions or disposals of assets or businesses. Public business entities should apply the amendments in this Update to annual periods beginning after
December 15, 2017, including interim periods within those periods. Early application of the amendments in this Update is allowed as follows: 1. For
transactions for which the acquisition date occurs before the issuance date or effective date of the amendments, only when the transaction has not been
reported in financial statements that have been issued or made available for issuance; 2. For transactions in which a subsidiary is deconsolidated or a group of
assets is derecognized that occur before the issuance date or effective date of the amendments, only when the transaction has not been reported in financial
statements that have been issued or made available for issuance. The standard should be applied prospectively on or after the effective date. The Group will
evaluate the impact of adopting this standard prospectively upon any transactions of acquisitions or disposals of assets or businesses.
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 will now be the amount by which a reporting
unit’s carrying value exceeds its fair value, not to exceed the carrying amount of goodwill. The guidance should be adopted on a prospective basis for the
annual or any interim goodwill impairment tests beginning after December 15, 2019. Early adoption is permitted for interim or annual goodwill impairment
tests performed on testing dates after January 1, 2017. The Group is currently evaluating the impact that the adoption of this update will have on its
consolidated financial statements.
F-27
58.com Inc.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share, per share and per ADS data, unless otherwise noted)
3. Credit risks and concentration
(a)
Credit risk
The Group’s credit risk arises from cash and cash equivalents, term deposits, short-term investments, as well as credit exposures to receivables due
from its customers, related parties and other parties.
The Group believes that there is no significant credit risk associated with cash and cash equivalents and term deposits which were held by reputable
financial institutions in the jurisdictions where the Company, its subsidiaries, the VIEs and VIEs’ subsidiaries are located.
The Group has no significant concentrations of credit risk with respect to its customers, except for the accounts receivable from the internet search
companies as discussed below. The Group assesses the credit quality of and sets credit limits on its customers by taking into account their financial position,
the availability of guarantees from third parties, their credit history and other factors such as current market conditions.
(b)
Major customers
There was no customer whose revenue represented over 10% of total revenues in 2014, 2015 and 2016.
The accounts receivable from one internet search company represented approximately 13% and 5% of total accounts receivable as of December 31,
2015 and 2016, respectively. No other customer has receivables representing over 10% of total accounts receivable.
(c)
Foreign currency risk
The Group’s operating transactions are mainly denominated in RMB. RMB is not freely convertible into foreign currencies. The value of the RMB
is subject to changes by the central government policies and to international economic and political developments. In the PRC, certain foreign exchange
transactions are required by law to be transacted only by authorized financial institutions at exchange rates set by the People’s Bank of China (the “PBOC”).
Remittances in currencies other than RMB by the Group in China must be processed through the PBOC or other China foreign exchange regulatory bodies
which require certain supporting documentation in order to effect the remittance.
4. Business acquisitions and equity investment transactions
(a)
Acquisition of Anjuke Inc. (“Anjuke”)
On March 2, 2015, the Group completed the acquisition of 100% equity interest of Anjuke, a major online real estate listing platform in China
which allows potential home buyers and renters to search for primary and secondary real estate. This transaction allows the Group to create China’s largest
secondary and rental real estate platform by combining the Group’s housing content category with Anjuke’s platform. Total consideration for this acquisition
consisted of approximately 4.8 million newly issued ordinary shares and approximately 0.2 million fully vested RSUs of the Company and RMB985,427
(US$160,198) in cash.
The acquisition had been accounted for as a business acquisition and the results of operations of Anjuke and its subsidiaries and affiliated companies
from the acquisition date have been included in the Group’s consolidated financial statements. The Group made estimates and judgments in determining the
fair value of acquired assets and liabilities, with the assistance of an independent valuation firm and management’s experience with similar assets and
liabilities. In performing the purchase price allocation, the Group considered the analyses of historical financial performance and estimates of future
performance of Anjuke.
F-28
58.com Inc.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share, per share and per ADS data, unless otherwise noted)
The allocation of the purchase price is as follows:
Net assets acquired
Amortizable intangible assets
Domain names and trademarks
Technology
Customer relationship
Goodwill
Deferred tax liabilities
Total
Total purchase price comprised of
-Cash consideration
-Equity consideration
Total
Amounts
RMB
Amortization Years
10
5
2
39,651
168,279
59,681
14,676
1,341,760
(60,659)
1,563,388
985,427
577,961
1,563,388
The total cash consideration of RMB985,427 (US$160,198) less cash acquired of RMB40,510 (US$6,590) and cash consideration payable of
RMB188,068 (US$28,962) resulted in a net cash outlay of RMB766,455 (US$124,646) at the acquisition date. The excess of purchase price over net tangible
assets and identifiable intangible assets acquired were recorded as goodwill. Goodwill primarily represents the expected synergies from combining the
Group’s housing content category with Anjuke’s platform. The goodwill is not expected to be deductible for tax purposes. No subsequent purchase price
adjustment has been made.
All the cash consideration payable has been settled as of December 31, 2016.
(b)
Investment and consolidation of Falcon View Technology ("Ganji")
(i) Equity investment in Ganji
On April 20, 2015, the Group acquired from Ganji’s shareholders certain number of ordinary and preference shares of Ganji which accounted for
less than 50% equity stake in Ganji, the holding company of the PRC entities operating Ganji.com, a major online local services platform in China for
consideration consisting approximately 34.0 million newly issued ordinary shares of the Company and RMB2,527,095 (US$412,237) in cash. The
RMB2,527,095 (US$412,237) of total cash consideration less consideration payable of RMB794,901 (US$122,413) resulted in a net cash outlay of
RMB1,776,677 (US$289,824) upon the completion of the equity investment. (the “Transaction (i)”)
The investment in the ordinary shares of Ganji was accounted for as equity method investment based on the equity interest of 31.6% attributable to
the acquired ordinary shares of Ganji in accordance with ASC 323. During the period from April 20, 2015 to August 6, 2015, the Group recognized its
proportionate share of Ganji’s net loss, which amounted to RMB657,387 (US$103,550), into the consolidated statements of comprehensive income/(loss).
The investment in the preference shares of Ganji was accounted for as cost method investment in accordance with ASC 325-20 because the
preference shares of Ganji acquired by the Group were not in-substance common stocks and there was no readily determinable fair value of the Ganji shares.
F-29
58.com Inc.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share, per share and per ADS data, unless otherwise noted)
In accordance with Rule 4-08(g) of Regulation S-X, the Company summarized condensed financial information of Ganji for the period in which it
was accounted for by equity method.
Operating data:
Revenues
Gross profit
Loss from operations
Net loss
Net loss attributable to Ganji’s shareholders
Balance sheets data:
Current assets
Non-current assets
Current liabilities
Non-current liabilities
Mezzanine equity
Total shareholders’ equity
For the
period from
April 20 to
August 6, 2015
RMB
325,525
295,029
(2,101,364)
(2,082,803)
(2,080,336)
As of
August 6, 2015
RMB
1,043,498
1,618,241
1,012,294
392,849
30,135
1,226,461
(ii)
Investment in private equity funds which invested in Ganji
On July 31, 2015, the Company issued a convertible note to Tencent for a cash consideration of RMB2,447,240 (US$400,000) (See Note 16).
Subsequently, the Company committed the whole RMB2,447,240 (US$400,000) proceeds from this transaction, together with additional cash of RMB40,825
(US$6,673) from the Company and approximately 46.5 million newly issued ordinary shares of the Company to several private equity funds (the “Equity
Funds”) of which approximately 46.5 million newly issued ordinary shares and RMB1,666,546 (US$272,396) cash were contributed to the funds in August,
2015.These funds are dedicated to investing in businesses in China and separately managed by different investment entities, as general partners, and they are
unaffiliated with each other and unaffiliated with the Company. These funds, together with Tencent, acquired all the remaining equity interests in Ganji on
August 6, 2015 (the “Transaction (ii)”). The Company also transferred an aggregate of approximately 4.4 million fully vested restricted share units of the
Company and approximately RMB311,825 (US$50,967) in cash to former Ganji employees as part of the total consideration of step acquisition of Ganji.
Upon the completion of the transactions on August 6, 2015, Ganji was directly owned by the Company as a result of the Transaction (i) and by the
Equity Funds and Tencent as a result of the Transaction (ii).
The Company decided to early adopt ASU No. 2015-2, which is a new consolidation standard, to account for the investment in the Equity Funds
and hence Ganji. Although the Company is a limited partner of the Equity Funds, the Company has a substantive kick-out right and holds the majority
shareholding in the Equity Funds, and there are no other limited partners holding substantive participating right to the Equity Funds. Therefore the Company
considered that it has a controlling financial interest over the Equity funds under the voting interest model, and as a result has consolidated Ganji since
August 6, 2015. The financial results of Ganji were no longer reflected in the financial statement line item of “share of results of equity investees”. The
Company accounted for the Transaction (ii) as step acquisition of Ganji on August 6, 2015. The Group believes the investment in the Equity Funds which
acquired Ganji will allow the Group to leverage the Ganji platform and create business synergy for the Group’s online local services platform.
Because of the step acquisition, the Company became the beneficial owner of an aggregate of 99.6% equity interest in Ganji. The remaining 0.4%
interest in Ganji was owned by Tencent. In relation to this noncontrolling interest in Ganji, a put option agreement was entered into between the Company
and Tencent in 2015, where the Company has also granted to Tencent a right to sell all of Tencent’s interest in Ganji (the “Put Option”).
The Company determined that the Put Option over Tencent’s noncontrolling interest in Ganji was considered on a combined basis and was
accounted for as mezzanine classified noncontrolling interest as a whole as the noncontrolling interest can be redeemed by Tencent through exercising the
Put Option and the carrying amount of the mezzanine classified noncontrolling interest initially recognized on August 6, 2015 was accreted using effective
interest method to the accreted value pursuant to the Put Option agreement.
F-30
58.com Inc.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share, per share and per ADS data, unless otherwise noted)
On the acquisition date of Ganji, the mezzanine classified noncontrolling interest is recognized and measured at fair value by the Company in
accordance with ASC 805-20-30-1 and ASC 480-10-S99-3A and the Company’s previously held interest in Ganji (i.e. the less than 50% investment as a
result of Transaction (i)) was remeasured to fair value on the same date in accordance with ASC 805-10-25-10.
By applying a market approach and an income approach, the fair value of the mezzanine classified noncontrolling interest and the fair value of the
previously held equity interest in Ganji were estimated to be RMB86,507 (US$14,140) and RMB7,248,199 (US$1,184,714), respectively. These fair value
measurements of the noncontrolling interest and the previously held equity interest are based on significant inputs not observable in the market, and thus
represent Level 3 measurements. The Group recognized a loss of RMB224,302 (US$35,217) as a result of the remeasurement of the previously held equity
interest in Ganji upon completion of the step acquisition in Ganji.
The fair value estimates for the noncontrolling interest and the previously held equity interest are based on (1) an assumed discount rate of 15.6%,
(2) an assumed terminal growth rate of 3.0%, (3) assumed financial multiples of reporting entities deemed to be similar to Ganji, and (4) assumed
adjustments because of the lack of control or lack of marketability, as relevant, that market participants would consider when estimating the fair value of the
noncontrolling interest and the previously held equity interest in Ganji.
The Group made estimates and judgments in determining the fair value of acquired assets and liabilities, with the assistance of an independent
valuation firm and management’s experience with similar assets and liabilities. The allocation of the purchase price is as follows:
Net assets acquired
Amortizable intangible assets
Domain names and trademarks
Technology
Mezzanine classified noncontrolling interest
Goodwill
Deferred tax liabilities
Total
Total purchase price comprised of
-Cash consideration
-Equity consideration
-Fair value of previously held equity interests
Total
Amounts
RMB
Amortization
Years
9.4
4.4
78,605
1,435,918
148,670
(86,507)
15,974,683
(396,147)
17,155,222
2,799,890
7,107,133
7,248,199
17,155,222
The total cash consideration of RMB2,799,890 (US$457,640)less cash acquired of RMB377,039 (US$61,627) and consideration payable of
RMB982,923 (US$151,368) resulted in a net cash outlay of RMB1,501,830 (US$244,645) at the acquisition date. The excess of purchase price over the fair
value of assets acquired and liabilities assumed of the business acquired was recorded as goodwill. The goodwill primarily represents the expected synergies
from combining the Group’s 58.com platform with Ganji’s platform and fully integrating each service category. The goodwill is not expected to be
deductible for tax purposes. No subsequent purchase price adjustment has been made.
During the year of 2016, RMB806,383 (US$122,413) was paid for transaction(i) and RMB662,722 (US$100,540) was paid for transaction (ii). As
of December 31, 2016, the consideration payable balance was RMB305,818 (US$44,085).
(c)
Other acquisitions
In 2015, the Group also completed other acquisitions that will be accounted for as business acquisitions. The Group made estimates and judgments
in determining the fair value of acquired assets and liabilities, with the assistance of an independent valuation firm and management’s experience with
similar assets and liabilities. The allocation of the purchase price of all the other acquisitions is summarized below:
F-31
58.com Inc.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share, per share and per ADS data, unless otherwise noted)
Net assets acquired
Amortizable intangible assets
Domain names and trademarks
Technology
Customer relationship
Goodwill
Deferred tax liabilities
Bargain purchase gain
Less noncontrolling interest
Total consideration in cash
Amounts
RMB
Amortization
Years
9-10
4-5
2-3
162,255
52,100
5,300
10,600
175,343
(7,175)
(10,641)
(48,250)
339,532
The total cash consideration of RMB339,532 less cash acquired of RMB66,878, cash consideration payable of RMB2,479 and consideration prepaid
in 2014 of RMB4,000 resulted in a net cash outlay of RMB266,175 at the acquisition date.
During 2016, RMB479 was paid and as of December 31,2016, the consideration payable balance is RMB2,000.
(d)
Unaudited pro forma total revenue and net loss of the Group reflecting acquisitions made in 2015
The total revenue and net loss arising from acquisitions made in 2015 that are included in the Group’s consolidated statement of comprehensive
income/(loss) for the year ended December 31, 2015 were RMB1,179,517 and RMB500,524, respectively.
The following summary of unaudited pro forma results of operations of the Group for the years ended December 31, 2014 and 2015 is presented
using the assumption that the acquisitions made in 2015 were completed as of January 1, 2014. These pro forma results of the Group have been prepared for
comparative purposes only and do not purport to be indicative of the results of operations which would have resulted had the acquisitions occurred as of
January 1, 2014, nor is it indicative of future operating results. The pro forma adjustments are based upon available information and certain assumptions that
management believes are reasonable.
Pro forma total revenues
Pro forma net loss
5. Deconsolidation of 58 Home
For the year ended December 31,
2014
(unaudited)
RMB
2015
(unaudited)
RMB
2,854,782
(595,009)
5,221,763
(3,441,828)
58 Home has been the holding company of the 58 Home business and a majority owned entity of the Company since its establishment in late 2014.
The Company owned 80 million ordinary shares issued by 58 Home (“58 Home Ordinary Shares”).
In February 2015, 58 Home adopted its 2015 Share Incentive Plan (“58 Home 2015 Plan”). In February 2015, 58 Home granted 9.1 million
restricted shares to the selected management members of 58 Home. In April 2015, 58 Home further granted approximately 1.9 million restricted shares to a
senior management member of the Company. All of these restricted shares were fully vested on the respective grant dates. Share-based compensation
expense amounted to RMB12,151 was recognized for the period from respective grant dates to November 27, 2015 with respect to the grant of the restricted
shares. These holders of restricted shares are referred to as “noncontrolling interests” of 58 Home. Other share-based awards granted by 58 Home to its
employees were discussed in Note 23.
F-32
58.com Inc.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share, per share and per ADS data, unless otherwise noted)
On October 12, 2015, a share subscription agreement (the “58 Home Share Subscription Agreement”) was entered into among 58 Home and certain
investors whereby 58 Home agreed to issue to the investors 40.8 million Series A convertible preference shares (“58 Home Series A Preference Shares”), at a
price of US$7.3529 per share, amounting to an aggregate purchase price of RMB1,917,450 (US$300,000). Investors of the 58 Home Series A Preference
Shares included the Company who paid RMB63,915 (US$10,000) for approximately 1.4 million 58 Home Series A Preference Shares and other new
investors who paid RMB1,853,535 (US$290,000) aggregately to subscribe the remaining approximately 39.4 million 58 Home Series A Preference Shares.
Before closing of the transaction, in November 2015, pursuant to the 58 Home Share Subscription Agreement, the Company unilaterally contributed
RMB640,743 (US$100,638) as additional paid-in capital to 58 Home by waiving RMB640,743 (US$100,638) receivable from 58 Home. Because the
noncontrolling ordinary shareholders of 58 Home are employees of the Group, the unilateral capital contribution by the Company resulted in the increase in
the noncontrolling interests of 58 Home by RMB77,338 (US$12,147) and the corresponding amount was recognized as employee compensation expense in
the Group’s consolidated statements of comprehensive income/(loss).
Pursuant to the Amended and Restated Memorandum of Association of 58 Home adopted on October 26, 2015, certain approval rights were granted
to a noncontrolling preference shareholder of 58 Home in relation to (i) annual budget and (ii) employment of certain key management members of 58
Home. These approval rights granted to the noncontrolling preference shareholder of 58 Home were considered as substantive participating rights in
accordance with ASC 810-10. As a result, the Group has deconsolidated 58 Home since the completion of the transaction on November 27, 2015.
On the date of deconsolidation, the Group derecognized the assets and liabilities, including allocated goodwill attributable to 58 Home, which
amounted to RMB1,329,341 (US$207,833), derecognized noncontrolling interests of 58 Home and recognized the investment in 58 Home Series A
Preference Shares at fair value of RMB63,915 (US$10,000), the investment in 58 Home Ordinary Shares at fair value of RMB1,636,224 (US$256,000), and
a gain on deconsolidation of 58 Home of RMB292,849 (US$45,998).
Subsequent to the completion of the transaction, the Group continued to retain equity interest in 58 Home through its ownership of 80 million 58
Home Ordinary Shares, representing 87.9% ordinary share equity interest in 58 Home, and of approximately 1.4 million 58 Home Series A Preference
Shares. The Company’s investment in 58 Home Ordinary Shares was accounted for as equity method investment in accordance with ASC 323. The Company
has shared 87.9% of net loss of 58 Home for the period from November 27, 2015 to December 31, 2015 and recorded an investment loss of RMB59,883
(US$9,288). On the other hand, the Company’s investment in the 58 Home Series A Preference Shares was accounted for as cost method investment in
accordance with ASC 325-20 because the preference shares were not considered as in-substance common stock and the shares do not have readily
determinable fair value or quoted market price.
In accordance with Rule 4-08(g) of Regulation S-X, the Company summarized the condensed financial information of 58 Home for the period in
which it was accounted for by equity method.
Operating data:
Total revenues
Gross profit/(loss)
Loss from operations
Net loss
F-33
For the period
from November
27 to December
31, 2015
RMB
For the year
ended December
31, 2016
RMB
331
(556)
(69,994)
(68,103)
114,484
90,527
(975,358)
(1,015,209)
58.com Inc.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share, per share and per ADS data, unless otherwise noted)
Balance sheets data:
Current assets
Non-current assets
Current liabilities
Mezzanine equity
Total shareholders’ deficit
As of December 31,
2015
RMB
1,517,326
540,938
165,275
1,948,080
(55,091)
2016
RMB
1,286,858
118,233
376,174
2,081,100
(1,052,183)
Intangible assets amounted to RMB304,500 and the related deferred tax liability amounted to RMB76,125 were recognized on the date of the
deconsolidation as a result of attributing the basis difference between the Company’s initial cost of investment in 58 Home and the Company’s share of the
carrying value of the net assets of 58 Home. During the years ended December 31, 2015 and 2016, the basis difference arising from the abovementioned
asset and liability aggregately resulted in net increase of RMB2,034 and RMB24,405, respectively in the Company’s share of 58 Home’s losses in the
consolidated statement of comprehensive income/(loss).
6. Disposal of Guazi and conversion of Guazi Convertible Note
As part of the acquired Ganji business, Guazi is engaged in the business of operating an online C2C platform for trading used cars and providing
relevant services.
On December 31, 2015, the following transactions were completed pursuant to a share purchase agreement, dated November 25, 2015, by and
among the Company, the entities of Guazi and Mr. Haoyong Yang, former co-chairman of the Company’s board of directors (the “Guazi Purchaser”):
(cid:120)
(cid:120)
(cid:120)
The Company transferred 54.4% ownership interest in Guazi to the Guazi Purchaser in return for cash proceeds of RMB324,680 (US$50,000).
The Company concurrently used the proceeds of RMB324,680 (US$50,000) to invest in a RMB324,680 (US$50,000) non-interest bearing Guazi
Convertible Note. The Guazi Convertible Note is convertible into preference shares of Guazi to be issued in Guazi’s subsequent round of financing at
the same price paid by other investors.
The Company retained 45.6% ownership interest in Guazi by purchasing 38.8 million Series A convertible and redeemable preference shares of Guazi
(the “Series A Guazi Shares”) at the par value of the shares.
The negotiation and execution of the transactions mentioned above were not dependent with the acquisition of Ganji.
As a result of the Company’s loss of control over Guazi on December 31, 2015, the Company derecognized the assets and liabilities, including
allocated goodwill attributable to Guazi, which amounted to RMB180,445 (US$27,788), and recognized the investment in Series A Guazi Shares at fair
value of RMB348,602 (US$53,684), the investment in Guazi Convertible Note at fair value of RMB307,212 (US$47,310), a gain on disposal of Guazi of
RMB472,223 (US$73,240) on December 31, 2015.
The Series A Guazi Shares and the Guazi Convertible Note were considered as the consideration received by the Company in return for the disposal
of Guazi. The Company assessed the fair values of the Series A Guazi Shares and Guazi Convertible Note on the disposal date with the assistance of a third-
party independent valuation specialist. The fair values were based on significant inputs not observable in the market, and thus represented Level 3
measurements.
Subsequently, the investment in Series A Guazi Shares was accounted for under cost method in accordance with ASC 325-20 as the shares held by
the Company were not considered in-substance common stock and the shares do not have readily determinable fair value. The Company also determined that
the host contract of Series A Guazi Shares is equity in nature and there was no embedded derivative that needs to be separately accounted for in accordance
with ASC 815-15-25-1.
The Company accounted for its investment in Guazi Convertible Note under ASC 310 which was carried at amortized cost using effective interest
rate method and presented it as a long term prepayment for additional shares of Guazi upon note conversion.
F-34
58.com Inc.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share, per share and per ADS data, unless otherwise noted)
In March 2016, the Company converted the entire amount of Guazi Convertible Note into 62.5 million Guazi Series B1 Shares based on a
conversion price of US$0.80 per share. Upon the conversion, the Company recognized a loss of RMB84,177 (US$12,938) in “others, net” in its consolidated
statement of comprehensive income/(loss), which resulted from different liquidation preferences and participating rights among the sub classes of Guazi
Series B preference shares, although the conversion price was the same as the issuance price paid by other Series B preference share investors of Guazi. The
different liquidation preferences and participating rights among the sub classes of Guazi Series B preference shares were resulted from negotiation between
the Company and various investors during Guazi Series B round of financing which commenced and completed in the first quarter of 2016.
The Guazi Series B1 Shares was measured at fair value of RMB239,468 (US$37,063) on the date of conversion with the assistance of a third-party
independent valuation specialist. The fair value was based on significant inputs not observable in the market, and thus represented Level 3 measurements.
The investment in Guazi Series B1 Shares was accounted for under cost method as the shares invested by the Group were not considered as in-substance
common stock and the shares did not have readily determinable fair value or quoted market price.
7. Disposal of Mayi and concurrent investment in Tujia
On June 20, 2016, the Company disposed its entire interest in Mayi, a majority-owned subsidiary which is engaged in online marketplace business
for people to list and reserve short-term accommodations in Mainland China to Tujia, a competitor in the short-term accommodation business in Mainland
China. The disposal of interest included an aggregate number of 16 million ordinary shares and approximately 1.7 million Series A preference shares of Mayi
(the “Disposal Transaction”). In return, approximately 3.9 million Tujia Ordinary Shares were issued to the Company.
In addition to the Disposal Transaction, on June 20, 2016, the Company made additional investment in Tujia including the purchase of
approximately 5.2 million Tujia Ordinary Shares and 2.3 million Tujia Series D Preference Shares by (i) paying RMB65,874 (US$10,000) in cash, and (ii)
providing future services with fair value of approximately RMB79,132 (US$12,043) (the “Investment Transaction”).
Upon completion of the above transactions, the Company derecognized the assets and liabilities, including allocated goodwill attributable to Mayi,
amounted to RMB78,323 (US$11,920). As a result of the disposal of Mayi, the Company recognized a gain on disposal of Mayi of approximately
RMB79,581 (US$12,081) and obtained less than 5% ownership in Tujia through its investment in an aggregate number of approximately 9.2 million Tujia
Ordinary Shares and 2.3 million Tujia Series D Preference Shares. The Company's investment in Tujia Ordinary Shares was accounted for as cost method as
the Company does not have ability to exercise significant influence over operating and financial policies of Tujia through the investment in Tujia Ordinary
Shares and the shares do not have readily determinable fair value or quoted market price. The Company's investment in Tujia Series D Preference Shares was
also accounted for as cost method because the Tujia Series D Preference Shares were not considered as in-substance common stock and the shares do not
have readily determinable fair value or quoted market price.
8. Short-term investments
Short-term investments consisted of the following:
Variable-rate financial instruments
Available-for-sale securities
Total
As of December 31,
2015
RMB
190,590
77,060
267,650
2016
RMB
833,480
—
833,480
Variable-rate financial instruments represent investments in wealth management products with variable interest rates or principal non-guaranteed
which were purchased from commercial banks and other financial institutions. The fair values are based on cash flow discounted using the judgment that
expected return will be obtained upon maturity.
F-35
58.com Inc.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share, per share and per ADS data, unless otherwise noted)
The Group purchased stock of a US listed company in private placement in December 2014 at a cost of RMB61,184 (US$10,000) and accounted for
it as available-for-sale securities. In April 2016, the Group received total cash proceeds of RMB61,776 (US$9,539) and recognized approximately
RMB2,989 (US$461) investment loss upon the disposal of the available-for-sale securities.
9. Accounts receivable, net
Accounts receivable, net, consists of the following:
Accounts receivable
Allowance for doubtful accounts
Accounts receivable, net
Movement of allowance for doubtful accounts is as follows:
Balance at beginning of year
Addition due to acquisition
Provisions
Reversals
Write-offs
Balance at end of year
10. Prepayments and other current assets
The following is a summary of prepayments and other current assets:
Prepaid advertising fees
Employee advances
Input VAT
Rental and other deposits
Prepaid rental
Notes and other receivables
Prepayment for service fees
Others
Total
As of December 31,
2015
RMB
389,074
(38,214)
350,860
2016
RMB
476,611
(51,719)
424,892
As of December 31,
2015
RMB
2016
RMB
—
29,430
15,951
(4,279)
(2,888)
38,214
38,214
—
14,694
(957)
(232)
51,719
As of December 31,
2015
RMB
2016
RMB
79,216
71,131
76,600
126,614
33,759
46,184
46,787
18,923
499,214
105,252
84,589
72,337
52,062
32,751
24,612
16,577
37,876
426,056
The prepaid advertising fees represent prepayments to third parties for advertising services, mainly through television, internet and outdoor media.
The advertising expenses are recognized in sales and marketing expenses subsequently, when the services are received.
F-36
58.com Inc.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share, per share and per ADS data, unless otherwise noted)
11. Property and equipment, net
The following is a summary of property and equipment, net:
Buildings
Computers and equipment
Leasehold improvements
Software
Furniture and fixtures
Motor vehicles
Total
Less: Accumulated depreciation
Net book value
As of December 31,
2015
RMB
2016
RMB
519,309
364,136
109,452
22,827
15,140
8,029
1,038,893
(239,578)
799,315
1,172,236
463,461
138,463
39,909
19,008
7,173
1,840,250
(359,329)
1,480,921
Depreciation expenses for the years ended December 31, 2014, 2015 and 2016 were RMB34,360, RMB91,471 and RMB175,636, respectively.
12. Intangible assets, net
The following is a summary of intangible assets, net:
Cost
Domain names and trademarks
Technology
Customer relationship
Total
Accumulated amortization
Domain names and trademarks
Technology
Customer relationship
Total
Net book value
As of December 31,
2015
RMB
2016
RMB
1,642,175
215,065
25,616
1,882,856
(86,717)
(25,859)
(7,555)
(120,131)
1,762,725
1,642,844
215,065
25,616
1,883,525
(259,971)
(72,566)
(18,760)
(351,297)
1,532,228
Amortization expenses for the years ended December, 2014, 2015 and 2016 were RMB78, RMB117,647 and RMB231,113, respectively. During
the corresponding periods, no impairment was recognized in the consolidated statements of comprehensive income/(loss).
F-37
58.com Inc.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share, per share and per ADS data, unless otherwise noted)
The estimated aggregate amortization expenses for each of the five succeeding fiscal years and thereafter are as follows:
For the year ended December 31, 2016
2017
2018
2019
2020
2021
Thereafter
Total
13. Goodwill
The changes in the carrying amount of goodwill for the years ended December 31, 2015 and 2016 were as follows:
Balance as of December 31, 2014
Additions
Deconsolidation and disposal of subsidiaries
Balance as of December 31, 2015
Deconsolidation and disposal of subsidiaries
Balance as of December 31, 2016
Amounts
RMB
224,266
221,661
218,584
174,247
171,873
521,597
1,532,228
Amounts
RMB
—
17,491,786
(1,509,786)
15,982,000
(78,323)
15,903,677
In the annual impairment assessment of goodwill, the Company concluded that there was no impairment charge for the year ended December 31,
2016.
14. Long-term investments
The following is a summary of long-term investments:
Cost method investments:
Investment in Series A Guazi Shares (a)
Investee B (b)
Investee C
Investee D
Investee E (c)
Investment in 58 Home Series A Preference Shares (d)
Others (e)
Total cost method investments
Equity method investments:
Investment in 58 Home Ordinary Shares (d)
Others
Total equity method investments
Total long-term investments
As of December 31,
2015
RMB
2016
RMB
348,602
—
218,979
129,872
97,404
64,936
72,768
932,561
1,572,066
5,653
1,577,719
2,510,280
629,508
286,672
233,931
138,740
—
69,370
157,578
1,515,799
594,593
8,069
602,662
2,118,461
(a) As a result of the disposal of Guazi in 2015, the Group retained certain interests in Guazi by investing in (i) 38.8 million Guazi Series A
Shares and (ii) a RMB324,680 (US$50,000) non-interest bearing Guazi Convertible Note.
F-38
58.com Inc.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share, per share and per ADS data, unless otherwise noted)
The investment in Guazi Series A Shares was measured at fair value of RMB348,602 (US$53,684) on the date of disposal and was subsequently
accounted for under cost method as the shares invested by the Group were not considered as in-substance common stock and the shares do not have readily
determinable fair value or quoted market price.
The investment in Guazi Convertible Note was carried at amortized cost using effective interest rate method under ASC 310. In March, 2016, the
Company converted the entire amount of Guazi Convertible Note into 62.5 million Guazi Series B1 Shares based on a conversion price of US$0.80 per
share. Upon the conversion, the Company recognized a loss of RMB84,177 (US$12,938) which resulted from different liquidation preferences and
participating rights among the sub classes of Guazi Series B preference shares, although the conversion price was the same as the issuance price paid by other
Series B preference shares investors of Guazi.
The investment in Guazi Series B1 Shares was measured at fair value of RMB239,468 (US$37,063) on the date of conversion and was subsequently
accounted for under cost method as the shares invested by the Group were not considered as in-substance common stock and the shares do not have readily
determinable fair value or quoted market price.
(b) The investment in Tujia Ordinary Shares and Tujia Series D Preference Shares was measured at fair value of RMB286,672 (US$41,325) on
the date of investment and was subsequently accounted for under cost method. For the details, please refer to Note 7.
(c) In 2015, the Group acquired shares of investee E for cash consideration of RMB97,404 (US$15,000). Investee E is mainly engaged in the
business of operating a real estate internet portal. The investment is accounted for under cost method as the shares invested by the Group were not considered
as in-substance common stock and the shares do not have readily determinable fair value. At December 31, 2016, the investment was impaired based on
management analysis.
(d) As a result of the deconsolidation of 58 Home on November 27, 2015, the Group continues to retain equity interest in 58 Home through its
ownership of 80 million 58 Home Ordinary Shares and of approximately 1.4 million 58 Home Series A Preference Shares. The Company’s investment in 58
Home Ordinary Shares was accounted for as equity method investment in accordance with ASC 323. For the year ended December 31, 2016, the Group
recorded an investment loss of RMB923,156 in share of results of equity investees in the consolidated statements of comprehensive income/(loss). The
Company’s investment in 58 Home Series A Preference Shares was accounted for as cost method investment as 58 Home Series A Preference Shares were
not considered as in-substance common stock and the shares do not have readily determinable fair value or quoted market price.
(e) In 2016, the Group acquired shares of other companies for an aggregate cash consideration of RMB96,402. The cash consideration paid for
each of these investments was no more than RMB30,000. These investments are accounted for under cost method as the shares invested by the Group were
not considered as in-substance common stock and the shares do not have readily determinable fair value. During 2016, other cost method investment
amounted to RMB38,352 was fully impaired because the operation metrics were not performing to the expectations.
The Company continually reviews its long-term investments to determine whether a decline in fair value below the carrying value is other than
temporary. The primary factors the Company considers in its determination are the length of time that the fair value of the investment is below the
Company's carrying value; the financial condition, operating performance and the prospects of the equity investee; and other company specific information
such as recent financing rounds. If the decline in fair value is deemed to be other than temporary, the carrying value of the equity investee is written down to
fair value. An impairment charge in connection with cost method investments of RMB nil, RMB6,119 and RMB142,125 was fully recorded in investment
income/(loss), net in the consolidated statements of comprehensive income/(loss) for the years ended 2014, 2015 and 2016, respectively, because the
operation metrics were not performing to the expectations. No impairment charge related to equity method investments was recorded for the years ended
2014, 2015 and 2016, respectively.
15. Long-term prepayments and other non-current assets
The following is a summary of long-term prepayments and other non-current assets:
Long-term receivable
Investment in Guazi Convertible Note
Prepayment for acquisition and investments
Rental deposits
Prepayment for purchase of property and equipment
Others
Total
F-39
As of December 31,
2015
RMB
—
307,212
35,198
22,788
647,894
21,491
1,034,583
2016
RMB
145,507
—
—
28,119
1,734
48,407
223,767
58.com Inc.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share, per share and per ADS data, unless otherwise noted)
The long-term receivable primarily represented receivables in connection with the Group’s second-hand automotive business.
16. Short-term loans
On July 31, 2015, the Company issued a RMB2,447,240 (US$400,000) convertible note to a subsidiary of Tencent for a cash consideration of
RMB2,447,240 (US$400,000) (“Original Convertible Note”) (See also Note 4(b)(ii)). The Original Convertible Note was issued at par, bearing a base
interest rate of 5% per annum, with December 20, 2015 being the maturity date (“Original Maturity Date”). Pursuant to the note agreement, the Company
was allowed to early repay the whole or any part of the principal amount of the note prior to the Original Maturity Date, without premium or penalty and
Tencent shall have the right to convert all or portion of the outstanding loan amount into ordinary shares of the Company at a discount if the loan together
with interest accrued is not paid on the Original Maturity Date.
On December 11, 2015, which was before the Original Maturity Date, the Company issued approximately 4.3 million Class A ordinary shares to
Tencent to early repay RMB805,950 (US$125,000) principal amount and settle the accrued interest payable of RMB46,988 (US$7,288) of the Original
Convertible Note. Also on the same date, the Company and Tencent entered into an amendment to the Original Convertible Note (the “Note Amendment”),
pursuant to which the Original Convertible Note was replaced by a new convertible note (the “Amended Convertible Note”) issued to Tencent. The principal
amount of the Amended Convertible Note was RMB1,773,090 (US$275,000), the interest rate increased to 6% and the maturity date of the Amended
Convertible Note was June 20, 2016.
The Company determined that the Note Amendment was accounted for as a debt modification, not a debt extinguishment because the changes of the
cash flow before and after the Note Amendment were less than 10% pursuant to ASC 470-50-40-12. Therefore, interest expense for the period from July 31,
2015 to December 11, 2015 was recognized based on 5% per annum and principal amount of the Original Convertible Note, and subsequently, interest
expense for the period from December 12, 2015 to December 31, 2015 was recognized based on 6% per annum and the reduced principal amount of the
Amended Convertible Note.
The Company determined that the embedded features of the Original and Amended Convertible Note are not required to be bifurcated and
accounted for as derivatives because they are neither assessed to be material nor are considered clearly and closely related to the economic characteristics and
risks of the host debt contract pursuant to ASC 815-15-25-1(a) and ASC 815-15-25-42.
In April 2016, the Company obtained an interest-bearing loan of RMB1,780,955 (US$275,000) in U.S. dollar from CMB Bank, which was secured
by 12.4 million Class B ordinary shares personally owned by Mr. Jinbo Yao, the chief executive officer of the Group. Based on the covenant of the loan
agreement, if the aggregate fair value of the pledged shares on any trading date was less than 120% of the outstanding amount of the corresponding loan and
accrued interest payable, the Company is required to pledge sufficient amount of cash or the chief executive officer of the Group can pledge additional
number of shares to cover the shortfall in the fair value of the pledged shares. The Company used the proceeds from this loan to early repay the
RMB1,780,955 (US$275,000) principal and RMB32,789 (US$5,063) accrued interest of the Amended Convertible Note borrowed from Tencent. In 2016,
the Company repaid RMB1,138,222 (US$167,500) principal and RMB42,072 (US$6,288) accrued interest payable of the loan borrowed from CMB Bank.
On April 21, 2017, the remaining balance of the loan amounted to RMB739,847 (US$107,500) was fully repaid and CMB Bank has agreed to release the
shares pledged accordingly.
F-40
58.com Inc.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share, per share and per ADS data, unless otherwise noted)
In September and December 2016, the Company obtained interest-bearing loans amounted to RMB1,072,348 (US$157,500) from CMB Bank,
which will be due in September and December 2017, respectively. The new bank borrowings were secured by one-year term deposits amounted to
RMB1,148,507 (US$165,563), which was classified as restricted cash in the Company’s consolidated balance sheets. As of December 31, 2016, outstanding
short-term bank loans and accrued interest payable due to CMB Bank amounted to RMB1,842,720 (US$265,636).
17. Accounts payable
The following is a summary of accounts payable:
Payable for advertisement fees
Rebate payable to sales agents
Payable related to purchases of property and equipment
Payable to group buying merchants
Others
Total
18. Accrued expenses and other current liabilities
The following is a summary of accrued expenses and other current liabilities:
Acquisition consideration payable
Accrued office expenses
Deposits from sales agents and others
Accrued telecom and bandwidth fees
Other payable to platform users
Accrued professional fees
Government subsidy
Payable to employees for proceeds of selling their share-based awards
Others
Total
As of December 31,
2015
RMB
2016
RMB
527,261
67,514
42,449
6,909
15,844
659,977
458,265
92,234
36,967
3,982
20,499
611,947
As of December 31,
2015
RMB
2016
RMB
1,919,183
87,893
41,643
24,325
15,082
16,909
11,900
21,134
43,136
2,181,205
307,818
117,841
76,437
66,519
63,824
28,396
16,478
2,177
48,414
727,904
Acquisition consideration payable consists of consideration payable related to acquisitions of Anjuke, Ganji and other acquisitions. Please refer to
Note 4 for details.
19. Long-term loan
The Company obtained a three-year interest bearing bank loan of RMB150,000 from Shanghai Pudong Development Bank Co., Ltd. in December
2016, which was secured by an office building of the Company as collateral. Pursuant to the loan repayment schedule, the principal amount will be paid in
four equal installments from June 2018 to November 2019.
F-41
58.com Inc.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share, per share and per ADS data, unless otherwise noted)
20. Fair value measurements
Measured on recurring basis
The Group measured its financial assets including cash equivalents, term deposits and short-term investments at fair value on a recurring basis as of
December 31, 2015 and 2016. The following table sets forth the financial instruments, measured at fair value at recurring basis, by level within the fair value
hierarchy:
Financial instruments
Fair value hierarchy
Cash equivalents
Term deposits
Short-term investments
- Variable-rate financial instruments
- Available-for-sale securities
Significant other observable inputs (Level 2)
Significant other observable inputs (Level 2)
Significant other observable inputs (Level 2)
Quoted Prices in Active Market for Identical Assets (Level 1)
Cash equivalents, term deposits and variable-rate financial instruments
As of December 31,
2015
RMB
2016
RMB
19,169
—
190,590
77,060
15,955
26,361
833,480
—
The Group measures cash equivalents, term deposits and variable-rate financial instruments at fair value based on the pervasive interest rates in the
market, which are also the interest rates as stated in the contracts with the banks. 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 time deposits at the reporting date. In
order to determine the fair value, the Group 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 observable market data for substantially the full term of the assets or liabilities.
Available-for-sale securities
The Group measures available-for-sale securities at fair value. As the available-for-sale securities are stocks of a public traded company, the Group
determines the fair value of the available-for-sale securities according to the quoted market price at the end of each period. The Group classifies the valuation
techniques as Level 1 of fair value measurement.
Variable-rate financial instruments
The Group measures variable-rate financial instruments at fair value. As the variable-rate financial instruments represent investments in wealth
management products with variable interest rates or principal non-guaranteed which were purchased from commercial banks and other financial institutions.
The fair values are based on cash flow discounted using the judgment that expected return will be obtained upon maturity. The Group classifies the valuation
techniques as Level 2 of fair value measurement.
The following are other financial instruments not measured at fair value in the balance sheets but for which the fair value is estimated for disclosure
purposes.
Short-term receivables and payables
Accounts receivable and prepaid expenses and other current assets are financial assets with carrying values that approximate fair value due to their
short term nature. Accounts payable and accrued expenses and other current liabilities are financial liabilities with carrying values that approximate fair value
due to their short term nature. The Group estimates fair values of short-term receivables and payables and classifies the valuation technique as Level 3 of fair
value measurement, as it uses estimated cash flow input which is unobservable in the market.
F-42
58.com Inc.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share, per share and per ADS data, unless otherwise noted)
Non-current assets and non-current liabilities
Non-current assets of receivables for rental deposits is a financial asset with carrying value that approximate fair value due to the impact of
discounting is immaterial. Accrued expenses and other liabilities, non-current portion is a financial liability with carrying value that approximate fair value
due to the impact of discounting is immaterial. The Group estimated fair values of non-current assets and non-current liabilities using the discounted cash
flow method. The Group classifies the valuation technique as Level 3 of fair value measurement, as it uses estimated cash flow input which is unobservable
in the market.
Measured on non-recurring basis
The Group’s non-financial assets, such as long-term investments, intangible assets and goodwill would be measured at fair value only if they were
determined to be impaired.
Intangible assets and Goodwill
The inputs used to measure the estimated fair value of goodwill are classified as Level 3 fair value measurement due to the significance of
unobservable inputs used such as historical financial information and assumptions about future growth rates and discount rates, which require significant
judgment and company-specific information.
Long-term investments
As of December 31, 2015 and 2016, the Group had RMB2,510,280 and RMB2,118,461, respectively, long-term investments in equity securities of
privately-held companies. Such investments are reviewed periodically for impairment using fair value measurement which requires significant unobservable
inputs (Level 3). Impairment charges of RMB6,119 and RMB142,125 were recorded in the consolidated statements of comprehensive income/(loss) for the
year ended December 31, 2015 and 2016, respectively. No impairment charge was recorded for the years ended December 31, 2014.
21. Income taxes
The Company is registered in the Cayman Islands. The Company generated substantially all of its income/(loss) from its PRC operations for the
years ended December 31, 2014, 2015 and 2016.
Cayman Islands (“Cayman”)
Under the current laws of the Cayman Islands, the Company is not subject to tax on income or capital gain. Additionally, upon payments of
dividends to the shareholders, no Cayman Islands withholding tax will be imposed.
British Virgin Islands (“BVI”)
The Group is exempted from income tax in the BVI on its foreign-derived income. There are no withholding taxes in the BVI.
Hong Kong
Entities incorporated in Hong Kong are subject to Hong Kong profit tax at a rate of 16.5% since January 1, 2010. The operations in Hong Kong
have incurred net accumulated operating losses for income tax purposes.
PRC
On March 16, 2007, the National People’s Congress of PRC enacted an Enterprise Income Tax Law (“EIT Law”), under which FIEs and domestic
companies would be subject to EIT at a uniform rate of 25%. The EIT law became effective on January 1, 2008.
F-43
58.com Inc.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share, per share and per ADS data, unless otherwise noted)
The EIT Law and its implementing rules also permit qualified “High and New Technology Enterprises” (“HNTE”) to enjoy a preferential enterprise
income tax rate of 15% upon filing with relevant tax authorities. The qualification as a HNTE generally has a valid term of three years and the renewal of
such qualification is subject to review by the relevant authorities in China. Beijing 58 obtained HNTE certificate in 2009 and renewed the certificate in 2012
and again in 2015. Beijing 58 Auto obtained HNTE certificate in 2013 and renewed the certificate in 2016.Wanglin obtained HNTE certificate in 2012 and
renewed the certificate in 2015. Shanghai Ruiting obtained HNTE certificate in 2010 and renewed the certificate in 2013 and again in 2016. Beijing 58,
Beijing 58 Auto, Wanglin and Shanghai Ruiting are eligible to enjoy a preferential tax rate of 15% when they have taxable income under the EIT Law, as
long as they maintain this qualification and obtain approval from the relevant tax authority.
In addition, qualified software enterprises are exempt from the enterprise income tax for two years beginning from their first profitable year and are
entitled to a 50% tax reduction for the subsequent three years. The software enterprise qualification is subject to an annual assessment. Wanglin was
determined as a software enterprise in July 2014. In April 2015, Wanglin was granted a two-year EIT exemption and a 50% reduction on its taxable income
for the subsequent three years effective retroactively from January 1, 2014. As a qualified software enterprise, Wanglin is entitled to two-year tax holiday in
2014 and 2015 and a three-year 50% deduction on EIT rate in the subsequent years from 2016 to 2018. Wanglin prepaid income tax of approximately
RMB7,349 in 2014 and received tax refund from local tax bureau in the second half of 2015. 58 Technology was determined as a software enterprise in
December 2014. In March 2016, the local tax authority granted 58 Technology a two-year exemption followed by a three-year 50% reduction on its taxable
income under the Enterprise Income Tax Law, effective retroactively from January 1, 2015. As a qualified software enterprise, 58 Technology is entitled to
two-year tax holiday in 2015 and 2016 and a three-year 50% deduction on EIT rate in the subsequent years from 2017 to 2019.
According to a policy promulgated by the State Tax Bureau of the PRC and effective from 2008 onwards, enterprises engaging in research and
development activities are entitled to claim 150% of the research and development expenses so incurred in a year as tax deductible expenses in determining
its tax assessable profits for that year (“Super Deduction”). Wanglin, Beijing 58 and 58 Technology had claimed such Super Deduction in ascertaining its tax
assessable profits for the years ended December 31, 2014, 2015 and 2016, respectively. In 2016, the Group’s acquired subsidiaries Shanghai Ruiting also
claimed Super Deduction in ascertaining their respective tax assessable profits.
The EIT Law also provides that an enterprise established under the laws of a foreign country or region but whose “de facto management body” is
located in the PRC be treated as a resident enterprise for PRC tax purposes and consequently be subject to the PRC income tax at the rate of 25% for its
global income. The Implementing Rules of the EIT Law merely define the location of the “de facto management body” as “the place where the exercising, in
substance, of the overall management and control of the production and business operation, personnel, accounting, properties, etc., of a non-PRC company is
located.” Based on a review of surrounding facts and circumstances, the Company does not believe that it is likely that its operations outside of the PRC
should be considered a resident enterprise for PRC tax purposes.
The EIT Law also imposes a withholding income tax of 10% on dividends distributed by an FIE to its immediate holding company outside of China,
if such immediate holding company is considered as a non-resident enterprise without any establishment or place within China or if the received dividends
have no connection with the establishment or place of such immediate holding company within China, unless such immediate holding company’s jurisdiction
of incorporation has a tax treaty with China that provides for a different withholding arrangement. The Cayman Islands, where the Company was
incorporated, does not have such tax treaty with China. According to the arrangement between Mainland China and Hong Kong Special Administrative
Region on the Avoidance of Double Taxation and Prevention of Fiscal Evasion in August 2006, dividends paid by an FIE in China to its immediate holding
company in Hong Kong will be subject to withholding tax at a rate of no more than 5% (if the foreign investor owns directly at least 25% of the shares of the
FIE). Only a few entities including 58 Technology and Shanghai Ruiting etc. had accumulated undistributed earnings while most of the other subsidiaries and
VIEs were in accumulated loss positions as of December 31, 2016. There Group’s subsidiaries and VIEs had not declared any dividend to their respective
parent companies and had determined that it had no plan to declare or pay any dividends to the parent companies out of the accumulated undistributed
earnings as of December 31, 2016. Accordingly, no deferred income tax was accrued and required to be accrued as of December 31, 2016.
The provisions for income tax expenses are summarized as follows:
Current tax benefit/(expenses)
Deferred tax benefit
Income tax benefit/(expenses)
For the Year ended December 31,
2015
RMB
2016
RMB
2014
RMB
(50,134)
12,046
(38,088)
14,027
34,759
48,786
(5,378)
56,358
50,980
F-44
58.com Inc.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share, per share and per ADS data, unless otherwise noted)
The following table sets forth reconciliation between the statutory EIT rate and the effective tax rate:
Statutory income tax rates
Change in valuation allowance
Permanent book-tax differences
Reversal of deferred tax liabilities
Effect of preferential tax treatment
Effective tax rate
Deferred tax assets
For the Year ended December 31,
2015
2014
2016
25.0%
20.7%
(9.9)%
—
(14.3)%
21.5%
25.0%
(14.0)%
(15.4)%
2.1%
5.2%
2.9%
25.0%
(7.3)%
(42.9)%
6.9%
24.5%
6.2%
The following table sets forth the significant components of the aggregate deferred tax assets and liabilities:
Deferred tax assets
Current:
Provision for doubtful receivables
Less: valuation allowance
Total current deferred tax assets, net
Non-current:
Net operating loss carry forwards
Advertising expenses in excess of deduction limit
Less: valuation allowance
Total non-current deferred tax assets, net
Total deferred tax assets, net
Deferred tax liabilities
Non-current:
Acquired intangible assets
Total non-current deferred tax liabilities
Total deferred tax liabilities
As of December 31,
2015
RMB
2016
RMB
5,947
(5,389)
558
135,383
415,193
(550,576)
—
558
430,117
430,117
430,117
16,451
(15,842)
609
201,258
241,333
(442,591)
—
609
373,810
373,810
373,810
The current deferred tax assets of RMB609 were included in the prepayments and other current assets of the consolidated balance sheets.
The non-current deferred tax liabilities of RMB373,810 as of December 31, 2016 were mainly related to the intangible assets acquired during
business acquisition in 2015 as set out in Note 4.
As of December 31, 2016, the Group had net operating loss carry forwards of RMB1,187,069 which will expire during the period between
December 31, 2017 and December 31, 2021. There is no expiration for the advertising expenses that were in excess of annual deduction limit and
carried forward.
F-45
58.com Inc.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share, per share and per ADS data, unless otherwise noted)
A valuation allowance is provided against deferred tax assets when the Group determines that it is more likely than not that the deferred tax assets of
most subsidiaries will not be utilized in the future. In making such determination, the Group evaluates a variety of factors including the Group’s operating
history, accumulated deficit, existence of taxable temporary differences and reversal periods.
The Group has incurred net accumulated operating losses for income tax purposes since its inception. The Group believes that it is more likely than
not that most of its entities with these net accumulated operating losses and other deferred tax assets will not be utilized in the future except for RMB609
deferred tax assets recognized as of December 31, 2016. Therefore, the Group had valuation allowances of RMB230,577, RMB555,965 and RMB458,433
for the deferred tax assets as of December 31, 2014, 2015 and 2016, respectively.
Movement of valuation allowance
Balance at beginning of the period
Provision
Current period reversal
Balance at the end of the period
For the years ended December 31,
2015
RMB
2014
RMB
2016
RMB
194,223
75,581
(39,227)
230,577
230,577
436,262
(110,874)
555,965
555,965
129,575
(227,107)
458,433
The current period reversal of valuation allowance is primarily attributed to the utilization of net operating losses and deductible advertising
expenses carried forward from prior years of certain entities that started to make profits in 2016.
As of December 31, 2016, the tax years ended December 31, 2012 through 2016 of the Company’s PRC subsidiaries and the affiliated PRC entities
are subjected to examination by the PRC tax authorities.
22. Ordinary shares
The Company was incorporated in the Cayman Islands in May 2011. The Company is authorized to issue a maximum of 5,000,000,000 shares with
a par value of US$0.00001 per share, comprised of 4,912,433,396 ordinary shares and 87,566,604 Preference Shares.
On August 30, 2013, the Group's Board of Directors approved that the Group redesigned the share capital and adopted a dual class ordinary share
structure immediately upon the completion of IPO. Upon completion of the Group’s IPO on November 5, 2013, the Company’s shares were divided into
Class A ordinary shares and Class B ordinary shares, at par value of US$0.00001. Holders of Class A ordinary shares and Class B ordinary shares have the
same rights except for voting and conversion rights. Holders of Class A ordinary shares are entitled to one vote per share, while holders of Class B ordinary
shares are entitled to ten votes per share, voting together as one class on all matters subject to a shareholders' vote. All of the outstanding ordinary shares
prior to this offering were redesignated as Class B ordinary shares and all of the outstanding preference shares were automatically re-designated or converted
into Class B ordinary shares on a one-for-one basis immediately upon the completion of the IPO.
As a result of the Group’s follow-on offering on April 1, 2014, the Company issued and sold 2,000,000 ADSs and the selling shareholders sold an
aggregate of 4,000,000 ADSs and 900,000 additional ADSs for the overallotment at the price of US$38.00 per ADS.
On June 30, 2014, Tencent purchased 36,805,000 ordinary shares from the Company at a purchase price of US$40.00 per ADS. The Group used
part of the proceeds from this transaction to repurchase an aggregate of 27,603,750 ordinary shares from existing pre-IPO shareholders at the price of
US$40.00 per ADS.
On March 2, 2015, the Group completed the acquisition of 100% equity interest of Anjuke. Total consideration for this acquisition consisted of
4,839,372 newly issued ordinary shares and 248,216 fully vested RSUs of the Company and RMB985,427 (US$160,198) in cash (See Note 4(a)).
F-46
58.com Inc.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share, per share and per ADS data, unless otherwise noted)
On April 17, 2015, the Company entered into an investment agreement with a subsidiary of Tencent, pursuant to which Tencent purchased
15,384,616 newly issued ordinary shares of the Company for an aggregate cash consideration of RMB2,452,080 (US$400,000).
On April 20, 2015, the Company applied the whole RMB2,452,080 (US$400,000) proceeds from Tencent, together with additional cash from the
Company of RMB75,015 (US$12,237) and 34,039,136 newly issued ordinary shares of the Company, to acquire less than 50% equity interest in Ganji as
mentioned in the “Transaction (i)” (See Note 4(b)(i)).
On August 6, 2015, the Company committed cash of RMB2,488,065 (US$406,673) and 46,505,912 newly issued ordinary shares of the Company,
to several private equity funds of which 46,505,912 ordinary shares and RMB1,666,546 (US$272,396) cash were contributed to the funds in August 2015.
These funds acquired the remaining equity interest in Ganji with Tencent (See Note 4(b)(ii)).
On December 11, 2015, the Company issued 4,267,344 Class A ordinary shares to Tencent to early repay RMB805,950 (US$125,000) principal
amount and settle the accrued interest payable of RMB46,988 (US$7,288) of the Original Convertible Note (See Note 16).
As of December 31, 2016, 4,800,000,000 Class A ordinary shares and 200,000,000 Class B ordinary shares were authorized, 289,670,997 ordinary
shares were issued and outstanding, of which 240,930,737 were Class A ordinary shares and 48,740,260 were Class B ordinary shares.
23. Share-based compensation
In March 2010, the Group authorized an employment- related stock incentive plan (the "2010 Plan"). The 2010 Plan will terminate automatically 10
years after its adoption, unless terminated earlier at the Group's shareholders' approval. According to the resolutions of the Board of Directors of the Group in
April, November 2011 and January 2013, the number of ordinary shares available for issuance under the 2010 Plan was increased to 20,173,225. The
majority of options granted under 2010 plan were to be vested over three or four years, one fourth (1/4) of which shall vest and become exercisable upon the
first anniversary of the date of grant and the remaining shall vest monthly thereafter in 24 or 36 equal monthly installments.
The Group adopted a share incentive plan (the “2013 Plan”) on September 26, 2013. The 2013 Plan will terminate automatically 10 years after its
adoption, unless terminated earlier at the Group's shareholders' approval. The maximum aggregate number of shares which may be issued pursuant to all
awards under the 2013 Plan is 2,800,000 shares as of the date of its adoption. The number of shares reserved for future issuances under the 2013 Plan will be
increased by a number equal to 1.5% of the total number of outstanding shares on the last day of the immediately preceding calendar year, on the first day of
each calendar year during the term of the 2013 Plan beginning in 2015, or such lesser number of ordinary shares as determined by the Board of Directors.
According to the resolutions of the Board of Directors of the Group in April and December 2015, the number of ordinary shares available for issuance under
the 2013 Plan was increased to 17,932,158. The options and RSUs granted under the 2013 Plan were to be vested over three to five years, the majority of
which shall have one fourth (1/4) vested and exercisable upon the first anniversary of the date of grant and the remaining shall vest every six months
thereafter in equal installments.
As of December 31, 2016, the Group has reserved 3,081,575 ordinary shares available to be granted as share-based awards.
F-47
58.com Inc.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share, per share and per ADS data, unless otherwise noted)
A summary of the Group’s share option activities for the years ended December 31, 2014, 2015 and 2016 is presented below:
Outstanding as of December 31, 2013
Granted
Forfeited and expired
Exercised
Outstanding as of December 31, 2014
Granted
Forfeited and expired
Exercised
Outstanding as of December 31, 2015
Granted
Forfeited and expired
Exercised
Outstanding as of December 31, 2016
Exercisable as of December 31, 2016
Fully vested and expected to vest as of December 31, 2016
Weighted
Average
Exercise
Price
US$
Weighted
Average
Remaining
Contractual
Life
In years
Aggregate
Intrinsic
Value
US$
2.02
18.20
4.08
0.98
4.14
20.72
7.22
3.10
8.05
17.08
3.38
7.78
3.78
8.14
168,870
7.75
7.43
6.39
5.66
67,128
112,925
27,785
175,250
19,356
43,531
40,250
Number of
Options
9,846,673
721,600
(388,260)
(3,391,943)
6,788,070
1,638,600
(279,626)
(1,118,334)
7,028,710
—
(646,030)
(934,880)
5,447,800
3,812,656
11,798,282
The weighted average grant date fair value of options granted for the years ended December 31, 2014 and 2015 was US$11.43 and US$12.05 per
share, respectively.
The following table sets forth the summary of RSUs activities for the years ended December 31, 2014, 2015 and 2016:
Unvested as of December 31, 2013
Granted
Forfeited
Vested
Unvested as of December 31, 2014
Granted
Forfeited
Vested
Unvested as of December 31, 2015
Granted
Forfeited
Vested
Unvested as of December 31, 2016
Fully vested and expected to vest as of December 31, 2016
Note:
Weighted
Average
Remaining
Contractual
Life
In years
Weighted
Average
Grant Date
Fair Value
US$
21.10
25.69
24.63
9.62
9.51
9.09
Number of
RSUs
—
948,600
(54,000)
—
894,600
10,369,278
(527,274)
(4,963,116)
5,773,488
3,597,722
(1,077,996)
(1,243,076)
7,050,138
13,256,330
(1) In March 2015, in connection with the acquisition of Anjuke, the Company issued 248,216 fully vested RSUs of the Company to former
Anjuke’s employees as part of the share consideration. In August 2015, in connection with our strategic investment in Ganji, the Company issued
4,449,002 fully vested RSUs of the Company to former Ganji’s employees as part of the share consideration.
F-48
58.com Inc.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share, per share and per ADS data, unless otherwise noted)
In February 2015, 58 Home, a subsidiary of the Group, adopted its 2015 Share Incentive Plan, or the 58 Home 2015 Plan. The maximum aggregate
number of shares which may be issued pursuant to all awards under the 58 Home 2015 Plan is 20,000,000 ordinary shares of 58 Home. The 58 Home 2015
Plan permits the awards of options, restricted shares and restricted share units. Unless terminated earlier, the 58 Home 2015 Plan will terminate automatically
in 2025. In connection with the Series A round of equity financing closed on November 27, 2015, the maximum aggregate number of shares which may be
issued under the 58 Home 2015 Plan was increased by 2,000,000 ordinary shares of 58 Home.
A summary of the 58 Home’s share option activities for the years ended December 31, 2015 is presented below:
Outstanding as of December 31, 2014
Granted
Forfeited
Outstanding as of December 31, 2015
Number of
Options
—
8,921,000
(979,000)
7,942,000
Weighted
Average
Exercise
Price
US$
0.11
0.13
0.11
Weighted
Average
Remaining
Contractual
Life
In years
Aggregate
Intrinsic
Value
US$
8.99
22,780
In February 2015, 58 Home granted 9,100,000 RSs to selected management members of 58 Home. In April 2015, 58 Home further granted
1,880,000 RSs to a senior management member of the Company under the 58 Home 2015 Plan. All of these RSs were fully vested on the respective grant
dates. Share-based compensation expense amounted to RMB12,151 was recognized during the year ended December 31, 2015 with respect to the grant of the
RSs. These holders of RSs are referred to as “noncontrolling interests” of 58 Home. Please see Note 5 for details.
The weighted average grant date fair value of options granted for the year ended December 31, 2015 was US$0.15 per share.
Valuation Assumptions: The Group estimated the fair value of share options using the Binominal option-pricing model with the assistance from
an independent valuation firm.
The fair value of each option grant under the 2013 Plan was estimated on the date of grant with the following assumptions:
Expected volatility
Risk-free interest rate (per annum)
Exercise multiple
Expected dividend yield
Expected term (in years)
Expected forfeiture rate (post-vesting)
Fair value of the underlying shares on the date of option grants (US$)
F-49
2014
50.80%-53.30%
3.01%-3.73%
2
0.00%
10
0.30%-0.40%
19.26-22.95
2015
48.50%-49.00%
2.67%-2.76%
2-2.8
0.00%
10
0.17%-0.25%
10.93-24.85
58.com Inc.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share, per share and per ADS data, unless otherwise noted)
The fair value of each option grant under the 58 Home 2015 Plan was estimated on the date of grant with the following assumptions:
Expected volatility
Risk-free interest rate (per annum)
Exercise multiple
Expected dividend yield
Expected term (in years)
Expected forfeiture rate (post-vesting)
Fair value of the underlying shares on the date of option grants (US$)
2015
59.40%-60.00%
2.46%-2.63%
2-2.8
0.00%
10
0.25%
0.10-0.27
The Group estimated the risk free rate based on the yield to maturity of US treasury bonds denominated in US$ at the option valuation date. The
exercise multiple is estimated as the ratio of fair value of underlying shares over the exercise price as at the time the option is exercised, based on a
consideration of research study regarding exercise pattern based on historical statistical data. Expected term is the contract life of the option. The expected
volatility at the date of grant date and each option valuation date was estimated based on the historical stock prices of comparable companies. The Group has
never declared or paid any cash dividends on its capital stock, and the Group does not anticipate any dividend payments on its ordinary shares in the
foreseeable future.
Share-based compensation expenses for the share-based awards which are based on service conditions are recognized using the straight-line
attribution approach.
For the years ended December 31, 2014, 2015 and 2016, the Group recognized share-based compensation expenses of RMB37,933, RMB176,605
and RMB266,575, respectively for share options and RSUs granted.
As of December 31, 2016, there was a total of RMB1,090,129 unrecognized compensation expenses, adjusted for estimated forfeitures, related to
non-vested share-based compensation arrangement under the 2010 and 2013 Plan. The expense is expected to be recognized over a weighted average period
of 3.37 years. Total unrecognized compensation expenses may be adjusted for future changes in estimated forfeitures.
24. Earnings/(loss) per share
The following table sets forth the computation of basic and diluted net earnings/(loss) per share for the periods indicated:
Numerator:
Net income/(loss).
Add: Net loss attributable to noncontrolling interests
Less: Deemed dividend to mezzanine classified noncontrolling interests
Numerator for basic and diluted net earnings/(loss) per share
Denominator:
Weighted average number of ordinary shares used in computing net earnings/(loss)
per share—basic
Weighted average number of ordinary shares used in computing net earnings/(loss)
per share—diluted
Net earnings/(loss) per ordinary share attributable to ordinary shareholders - basic
Net earnings/(loss) per ordinary share attributable to ordinary shareholders - diluted
Net earnings/(loss) per ADS attributable to ordinary shareholders-basic (1 ADS
represents 2 ordinary shares)
Net earnings/(loss) per ADS attributable to ordinary shareholders -diluted (1 ADS
represents 2 ordinary shares)
F-50
2014
RMB
As of December 31,
2015
RMB
2016
RMB
139,433
—
—
139,433
(1,648,583)
80,705
(5,762)
(1,573,640)
(772,963)
4,916
(15,717)
(783,764)
168,589,273
234,811,986
286,975,068
174,024,997
0.83
0.80
234,811,986
(6.70)
(6.70)
286,975,068
(2.73)
(2.73)
1.65
1.60
(13.40)
(13.40)
(5.46)
(5.46)
58.com Inc.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share, per share and per ADS data, unless otherwise noted)
Basic net earnings/(loss) per share is computed using the weighted average number of the ordinary shares outstanding during the period. Diluted net
earnings/(loss) per share is computed using the weighted average number of ordinary shares and dilutive ordinary share equivalents outstanding during the
period. Class A and Class B ordinary shares are considered the same for the purposes of EPS calculation as they have identical earnings rights and
preferences. For the year ended December 31, 2014, options to purchase ordinary shares included in the calculation of diluted net income per share totaled
5,435,724. For the years ended December 31, 2015 and 2016, options to purchase ordinary shares that were anti-dilutive and excluded from the calculation of
diluted net loss per share totaled 7,851,775 and 5,517,699, respectively, on a weighted average basis.
25. Commitments and contingencies
(a)
Commitments
The Group leases its facilities and offices under non-cancelable operating lease agreements. The rental expenses were RMB52,278, RMB186,707
and RMB222,192 during the years ended December 31, 2014, 2015, and 2016, respectively, and were charged to the statement of comprehensive income/
(loss) when incurred.
Certain of these arrangements have renewal or expansion options and adjustments for market provisions, such as free or escalating base monthly
rental payments. The Group recognizes rental expense under such arrangements on the straight-line basis over the initial term of the lease. The difference
between the straight-line expense and the cash paid for rent was recorded as prepaid rent.
The Group used third party services for server custody and bandwidth. The contracts are typically 12 months in duration. The Group typically
contracts these services according to the traffic level of its online marketplace and the respective server storage and bandwidth required to support the traffic.
The Group engaged third parties for promoting its brand image through various advertising channels, including advertising on internet search
engines, websites and other traditional off-line media. The amount of advertising commitments relates to the committed advertising services that have not
been delivered and paid.
As of December 31, 2016, future minimum commitments under non-cancelable agreements were as follows:
Operating lease commitments
Server custody and bandwidth fee
commitments
Advertising commitments
Bank loans and accrued interest
payable
Total
2017
RMB
2018
RMB
2019
RMB
2020
RMB
2021
RMB
Thereafter
RMB
Total
RMB
175,552
145,442
82,660
43,982
34,021
2,942
484,599
67,216
212,495
1,890,538
2,345,801
28,000
—
81,318
254,760
—
—
77,588
160,248
—
—
—
43,982
—
—
—
34,021
—
—
—
2,942
95,216
212,495
2,049,444
2,841,754
Other than those shown above, the Group did not have any significant capital and other commitments, long-term obligations, or guarantees as of
December 31, 2016.
(b)
Contingencies
From time to time, the Group is involved in claims and legal proceedings that arise in the ordinary course of business. Based on currently available
information, management does not believe that the ultimate outcome of these unresolved matters, individually and in the aggregate, is likely to have a
material adverse effect on the Group’s financial position, results of operations or cash flows. However, litigation is subject to inherent uncertainties and the
Group’s view of these matters may change in the future. When an unfavorable outcome to occur, there exists the possibility of a material adverse impact on
the Group’s financial position and results of operations for the periods in which the unfavorable outcome occurs, and potentially in future periods.
F-51
58.com Inc.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share, per share and per ADS data, unless otherwise noted)
26. Subsequent events
In February 2017, the Group granted 1,280,720 RSUs to its employees under the 2013 Share Incentive Plan.
On April 17, 2017, the Group entered into a definitive agreement with Tencent to invest in the Group’s used good platform business named Zhuan
Zhuan. The Group will establish a separate group of companies (the “Zhuan Zhuan Entities”) and inject the Zhuan Zhuan App and certain used goods related
listing channels from the 58 and Ganji platforms into Zhuan Zhuan, and Tencent will invest RMB1,375,700 (US$200,000) in cash and additional business
resources into the Zhuan Zhuan Entities for a minority equity ownership. The Group will continue its direct traffic and other business support to the Zhuan
Zhuan Entities. The transaction contemplated under this definitive agreement closed on April 28, 2017.
The Company obtained a two-year secured interest-bearing loan in U.S. dollar amounted to RMB739,847 (US$107,500) from CMB Bank on April
21, 2017. This bank loan was secured by two-year term deposits in Renminbi amounted to RMB792,000. The Company used the proceeds from this loan to
repay the short-term loan in U.S. dollar amounted RMB739,847 (US$107,500) due to CMB Bank as stated in Note 16.
27. Restricted net assets
PRC laws and regulations permit payments of dividends by the Company's subsidiaries, the VIEs and VIEs’ subsidiaries incorporated in the PRC
only out of their retained earnings, if any, as determined in accordance with PRC accounting standards and regulations. In addition, the Company's
subsidiaries, the VIEs and VIEs’ subsidiaries incorporated in the PRC are required to annually appropriate 10% of their net after-tax income to the statutory
general reserve fund prior to payment of any dividends, unless such reserve funds have reached 50% of their respective registered capital. As a result of these
and other restrictions under PRC laws and regulations, the Company's subsidiaries, the VIEs and VIEs’ subsidiaries incorporated in the PRC 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, which restricted portion amounted to
RMB1,423,545 and RMB1,614,714 as of December 31, 2015 and 2016, respectively. Even though the Company currently does not require any such
dividends, loans or advances from the PRC entities for working capital and other funding purposes, the Company may in the future require additional cash
resources from them due to changes in business conditions, to fund future acquisitions and development, or merely to declare and pay dividends or
distributions to its shareholders. Except for the above, there is no other restriction on the use of proceeds generated by the Company's subsidiaries, the VIEs
and VIEs’ subsidiaries to satisfy any obligations of the Company.
The Group performed a test on the restricted net assets of its consolidated subsidiaries, the VIEs and VIEs’ subsidiaries (the "restricted net assets")
in accordance with Securities and Exchange Commission Regulation S-X Rule 4-08 (e) (3), "General Notes to Financial Statements" and concluded that the
restricted net assets did not exceed 25% of the consolidated net assets of the Group as of December 31, 2016.
F-52
Amended and Restated Equity Interest Pledge Agreement
Exhibit 4.25
This Amended and Restated Equity Interest Pledge Agreement (this “Agreement”) has been executed by and among the following parties on July 4,
2016 in Beijing, the People’s Republic of China (“China” or the “PRC”):
Party A:
Beijing 58 Daojia Information Technology Co., Ltd., (hereinafter “Pledgee”) a wholly foreign owned enterprise, organized and existing under
the laws of the PRC, with its address at Room D101A-123, Building B-2 of Zhongguancun Dongsheng Science Park, #66 Xixiaokou Road,
Haidian District, Beijing;
Party B:
58 Co., Ltd., (hereinafter “Pledgor”) a limited liability company organized and existing under the laws of the PRC, with its address at Room
210-03, Office Building, Nangang Industry Zone, Economic and Technological Development District, Tianjin; and
Party C:
Tianjin 58 Daojia Home Services Co., Ltd., a limited liability company organized and existing under the laws of the PRC, with its address at
Square block -901-918 , #5 Meiyuan Road , Binhaigaoxin District, Tianjin.
In this Agreement, each of Pledgee, Pledgor and Party C shall be referred to as a “Party” respectively, and they shall be collectively referred to as the
“Parties”.
Whereas:
1.
2.
3.
Pledgor is a corporate jurisdical person of China who as of the date hereof holds 94.1% of equity interests of Party C, representing RMB94,100,000 in
the registered capital of Party C. Party C is a limited liability company registered in Tianjin, China, engaging in Internet information services and
advertising services. Party C acknowledges the respective rights and obligations of Pledgor and Pledgee under this Agreement, and intends to provide
any necessary assistance in registering the Pledge;
Pledgee is a wholly foreign-owned enterprise registered in China. Pledgee and Party C partially owned by Pledgor have executed an Exclusive Business
Cooperation Agreement (as defined below) in Beijing; Party C, Pledgee and Pledgor have executed an Exclusive Option Agreement (as defined below);
Pledgee and Pledgor have executed a Loan Agreement (as defined below); and Pledgor has executed a Power of Attorney to Pledgee.
To ensure that Party C and Pledgor fully perform their obligations under the Exclusive Business Cooperation Agreement, the Exclusive Option
Agreement, the Loan Agreement and the Power of Attorney, Pledgor hereby pledges to the Pledgee all of the equity interest he holds in Party C as
security for Party C’s and Pledgor’s obligations under the Exclusive Business Cooperation Agreements, the Exclusive Option Agreement, the Loan
Agreement and the Power of Attorney.
1
To perform the provisions of the Transaction Documents, the Parties have mutually agreed to execute this Agreement upon the following terms.
1. Definitions
Unless otherwise provided herein, the terms below shall have the following meanings:
1.1 Pledge: shall refer to the security interest granted by Pledgor to Pledgee pursuant to Article 2 of this Agreement, i.e., the right of Pledgee to be
compensated on a preferential basis with the conversion, auction or sales price of the Equity Interest.
1.2 Equity Interest: shall refer to all of the equity interest now held and hereafter acquired by Pledgor in Party C.
1.3 Term of Pledge: shall refer to the term set forth in Section 3.2 of this Agreement.
1.4 Transaction Documents: shall refer to the Exclusive Business Cooperation Agreement executed by and between Party C and Pledgee on August 5,
2015 (the “Exclusive Business Cooperation Agreement”), the Amended and Restated Exclusive Option Agreement executed by and among Party
C, Pledgee and Pledgor on July 4, 2016 (the “Exclusive Option Agreement”), the Amended and Restated Loan Agreement executed by and
between Pledgee and Pledgor on July 4, 2016 (the “Loan Agreement”), the Amended and Restated Power of Attorney executed on July 4, 2016 by
Pledgor (the “Power of Attorney”) and any modification, amendment and restatement to the aforementioned documents.
1.5 Contract Obligation: shall refer to all the obligations of Pledgor under the Exclusive Option Agreement, the Power of Attorney, the Loan
Agreement and this Agreement; all the obligations of Party C under the Exclusive Business Cooperation Agreement, the Exclusive Option
Agreement and this Agreement.
1.6 Secured Indebtedness: shall refer to all the direct, indirect or derivative losses of Pledgee, including loss of expected profits, incurred as a result of
any Event of Default (as defined below). The amount of such loss shall be based on, including but not limited to the reasonable business plan and
profit forecast of Pledgee, the consulting and service fees payable to Pledgee under the Exclusive Business Cooperation Agreement and all
expenses occurred in connection with enforcement by Pledgee of Pledgor’s and/or Party C’s Contract Obligation. The anticipated aggregate losses
to be incurred hereunder are RMB1,000 million. Notwithstanding the forgoing, if the actual losses incurred exceed such anticipated amount, the
Secured Indebtedness hereunder shall be the actual amount of such losses incurred.
1.7 Event of Default: shall refer to any of the circumstances set forth in Article 7 of this Agreement.
2
1.8 Notice of Default: shall refer to the notice issued by Pledgee in accordance with this Agreement declaring an Event of Default.
2.
The Pledge
2.1 Pledgor agrees to pledge all the Equity Interest as security for performance of the Contract Obligation and payment of the Secured Indebtedness
under this Agreement. Party C hereby assents that Pledgor pledges the Equity Interest to the Pledgee pursuant to this Agreement.
2.2 During the term of the Pledge, Pledgee is entitled to receive dividends distributed on the Equity Interest. Pledgor may receive dividends distributed
on the Equity Interest only with prior written consent from Pledgee. Dividends received by Pledgor on Equity Interest shall be, subject to
requirement of Pledgee, (1) deposited into an account designated and supervised by Pledgee and used to secure the Contract Obligations and pay
the Secured Indebtedness prior and in preference to make any other payment; or (2) unconditionally give to Pledgee or any other person
designated by Pledgee to the extent permitted under applicable PRC laws.
2.3 Pledgor may subscribe for capital increase in Party C only with prior written consent of Pledgee. Any equity interest obtained by the Pledgor in
future capital increase shall be deemed as Equity Interest as well.
2.4 In the event that Party C is required by PRC law to be liquidated or dissolved, any interest distributed to Pledgor upon Party C’s dissolution or
liquidation shall be (1) deposited into an account designate and supervised by Pledgee and used to secure the Contract Obligations and pay the
Secured Indebtedness prior and in preference to make any other payment; or (2) unconditionally give to Pledgee or any other person designated by
Pledgee to the extent permitted under applicable PRC laws.
3.
Term of Pledge
3.1 The Pledge shall become effective on such date when the pledge of the Equity Interest contemplated herein has been registered with relevant
administration for industry and commerce (the “AIC”). The Pledge shall be continuously valid until all Contract Obligations and Secured
Indebtedness have been fully performed and paid. Pledgor and Party C shall (1) register the Pledge in the shareholders’ register of Party C within 3
business days following the execution of this Agreement, and (2) submit an application to the AIC for the registration of the Pledge of the Equity
Interest contemplated herein within 30 business days following the execution of this Agreement. The parties covenant that for the purpose of
registration of the Pledge, the parties hereto and all other shareholders of Party C shall submit to the AIC this Agreement or an equity interest
pledge contract in the form required by the AIC at the location of Party C which shall truly reflect the information of the Pledge hereunder (the
“AIC Pledge Contract”). For matters not specified in the AIC Pledge Contract, the parties shall be bound by the provisions of this Agreement.
Pledgor and Party C shall submit all necessary documents and complete all necessary procedures, as required by the PRC laws and regulations and
the relevant AIC, to ensure that the Pledge of the Equity Interest shall be registered with the AIC as soon as possible after filing.
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3.2 During the Term of Pledge, in the event Pledgor and/or Party C fails to perform the Contract Obligation or pay Secured Indebtedness, Pledgee
shall have the right, but not the obligation, to exercise the Pledge in accordance with the provisions of this Agreement.
4. Custody of Records for Equity Interest subject to Pledge
4.1 During the Term of Pledge set forth in this Agreement, Pledgor shall deliver to Pledgee’s custody the capital contribution certificate for the Equity
Interest and the shareholders’ register containing the Pledge within one week from the execution of this Agreement. Pledgee shall have custody of
such documents during the entire Term of Pledge set forth in this Agreement.
5. Representations and Warranties of Pledgor and Party C
As of the execution date of this Agreement, Pledgor and Party C hereby jointly and severally represent and warrant to Pledgee that:
5.1 Pledgor is the sole legal and beneficial owner of the Equity Interest.
5.2 Pledgee shall have the right to dispose of and transfer the Equity Interest in accordance with the provisions set forth in this Agreement.
5.3 Except for the Pledge, Pledgor has not placed any security interest or other encumbrance on the Equity Interest.
5.4 Pledgor and Party C have obtained any and all approvals and consents from applicable government authorities and third parties (if required) for
execution, delivery and performance of this Agreement.
5.5 The execution, delivery and performance of this Agreement will not: (i) violate any relevant PRC laws; (ii) conflict with Party C’s articles of
association or other constitutional documents; (iii) result in any breach of or constitute any default under any contract or instrument to which it is a
party or by which it is otherwise bound; (iv) result in any violation of any condition for the grant and/or maintenance of any permit or approval
granted to any Party; or (v) cause any permit or approval granted to any Party to be suspended, cancelled or attached with additional conditions.
6. Covenants of Pledgor and Party C
6.1 Pledgor and Party C hereby jointly and severally covenant to the Pledgee:
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6.1.1 Pledgor shall not transfer the Equity Interest, place or permit the existence of any security interest or other encumbrance on the Equity
Interest or any portion thereof, without the prior written consent of Pledgee, except for the performance of the Transaction Documents;
6.1.2 Pledgor and Party C shall comply with the provisions of all laws and regulations applicable to the pledge of rights, and within 5 days of
receipt of any notice, order or recommendation issued or prepared by relevant competent authorities regarding the Pledge, shall present the
aforementioned notice, order or recommendation to Pledgee, and shall comply with the aforementioned notice, order or recommendation or
submit objections and representations with respect to the aforementioned matters upon Pledgee’s reasonable request or upon consent of
Pledgee;
6.1.3 Pledgor and Party C shall promptly notify Pledgee of any event or notice received by Pledgor that may have an impact on Pledgee’s rights
to the Equity Interest or any portion thereof, as well as any event or notice received by Pledgor that may have an impact on any guarantees
and other obligations of Pledgor arising out of this Agreement.
6.1.4 Party C shall complete the registration procedures for extension of the term of operation within three (3) months prior to the expiration of
such term to maintain the validity of this Agreement.
6.2 Pledgor agrees that the rights acquired by Pledgee in accordance with this Agreement with respect to the Pledge shall not be interrupted or harmed
by Pledgor or any heirs or representatives of Pledgor or any other persons through any legal proceedings.
6.3 To protect or perfect the security interest granted by this Agreement for the Contract Obligation and Secured Indebtedness, Pledgor hereby
undertakes to execute in good faith and to cause other parties who have an interest in the Pledge to execute all certificates, agreements, deeds
and/or covenants required by Pledgee. Pledgor also undertakes to perform and to cause other parties who have an interest in the Pledge to perform
actions required by Pledgee, to facilitate the exercise by Pledgee of its rights and authority granted thereto by this Agreement, and to enter into all
relevant documents regarding ownership of Equity Interest with Pledgee or designee(s) of Pledgee (natural persons/legal persons). Pledgor
undertakes to provide Pledgee within a reasonable time with all notices, orders and decisions regarding the Pledge that are required by Pledgee.
6.4 Pledgor hereby undertakes to comply with and perform all guarantees, promises, agreements, representations and conditions under this
Agreement. In the event of failure or partial performance of its guarantees, promises, agreements, representations and conditions, Pledgor shall
indemnify Pledgee for all losses resulting therefrom.
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7.
Event of Breach
7.1 The following circumstances shall be deemed Event of Default:
7.1.1 Pledgor’s any breach to any obligations under the Transaction Documents and/or this Agreement.
7.1.2 Party C’s any breach to any obligations under the Transaction Documents and/or this Agreement.
7.2 Upon notice or discovery of the occurrence of any circumstances or event that may lead to the aforementioned circumstances described in Section
7.1, Pledgor and Party C shall immediately notify Pledgee in writing accordingly.
7.3 Unless an Event of Default set forth in this Section 7.1 has been successfully resolved to Pledgee’s satisfaction within twenty (20) days after the
Pledgee and /or Party C delivers a notice to the Pledgor requesting ratification of such Event of Default, Pledgee may issue a Notice of Default to
Pledgor in writing at any time thereafter, demanding the Pledgor to immediately exercise the Pledge in accordance with the provisions of Article 8
of this Agreement.
8.
Exercise of Pledge
8.1 Pledgee may issue a Notice of Default to Pledgor when exercising the Pledge.
8.2 Subject to the provisions of Section 7.3, Pledgee may exercise the right to enforce the Pledge at any time after the issuance of the Notice of
Default in accordance with Section 8.1. Once Pledgee elects to enforce the Pledge, Pledgor shall cease to be entitled to any rights or interests
associated with the Equity Interest.
8.3 After Pledgee issues a Notice of Default Pledgee in accordance with Section 8.1, Pledgee may exercise any remedy measure under applicable PRC
laws, the Transaction Documents and this Agreement, including but not limited to be compensated in priority by the conversion of the Equity
Pledge or from the proceeds from auction or sale of the Equity Interest. The Pledgee shall have no liability for any loss incurred by its duly
exercise of such rights and powers.
8.4 The proceeds from exercise of the Pledge by Pledgee shall be used to pay for tax and expenses incurred by disposing the Equity Interest and
perform Contract Obligations and pay the Secured Indebtedness prior and in preference to any other payment. After the payment of the
aforementioned amounts, the remaining balance shall be returned to Pledgor or any other person who have rights to such balance under applicable
laws or be deposited to the local notary public office where Pledgor resides, with all expense incurred being borne by Pledgor. To the extent
permitted under applicable PRC laws, Pledgor shall unconditionally give the aforementioned proceeds to Pledgee or any other person designated
by Pledgee.
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8.5 Pledgee has the right to exercise any remedy measure available simultaneously or in any order. Pledgee may exercise the right to be compensated
from in priority by the conversion of the Equity Pledge or from the proceeds from auction or sale of the Equity Interest under this Agreement,
without exercising any other remedy measure first.
8.6 Pledgee is entitled to designate an attorney or other representatives to exercise the Pledge on its behalf and Pledgor and Party C shall not raise any
objection to such exercise.
8.7 When Pledgee disposes of the Pledge in accordance with this Agreement, Pledgor and Party C shall provide necessary assistance to enable
Pledgee to enforce the Pledge in accordance with this Agreement.
9.
Breach of Agreement
9.1 If Pledgor or Party C conducts any material breach of any term of this Agreement, Pledgee shall have right to terminate this Agreement and
require Pledgor or Party C to compensate all damages; this Section 9 shall not prejudice any other rights of Pledgee herein;
9.2 If Pledgee conducts any breach of any term of this Agreement, Pledgor or Party C shall not terminate this Agreement in any event unless
otherwise required by applicable laws.
10. Assignment
10.1 Without Pledgee’s prior written consent, Pledgor shall not have the right to assign or delegate its rights and obligations under this Agreement.
10.2 This Agreement shall be binding on Pledgor and its successors and permitted assigns, and shall be valid with respect to Pledgee and each of its
successors and assigns.
10.3 At any time, Pledgee may assign any and all of its rights and obligations under the Transaction Documents to its designee(s), in which case the
assigns shall have the rights and obligations of Pledgee under this Agreement, as if it were the original party to this Agreement. When the Pledgee
assigns the rights and obligations under the Business Cooperation Agreement, upon Pledgee’s request, Pledgor and/or Party C shall execute
relevant agreements or other documents relating to such assignment.
10.4 In the event of a change in Pledgee due to an assignment, Pledgor and/or Party C shall, at the request of Pledgee, execute a new pledge agreement
with the new pledgee on the same terms and conditions as this Agreement, and register the same with the relevant AIC.
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10.5 Pledgor and Party C shall strictly abide by the provisions of this Agreement and other contracts jointly or separately executed by the Parties hereto
or any of them, including the Transaction Documents, perform the obligations hereunder and thereunder, and refrain from any action/omission that
may affect the effectiveness and enforceability thereof. Any remaining rights of Pledgor with respect to the Equity Interest pledged hereunder shall
not be exercised by Pledgor except in accordance with the written instructions of Pledgee.
11. Termination
11.1 Upon the fulfillment of all Contract Obligation and the full payment of all Secured Indebtedness by Pledgor and Party C, Pledgee shall release the
Pledge under this Agreement upon Pledgor’s request as soon as reasonably practicable and shall assist Pledgor to de-register the Pledge from the
shareholders’ register of Party C and with relevant PRC local administration for industry and commerce.
11.2 The provisions under Sections 9, 13, 14 and 11.2 herein of this Agreement shall survive the expiration or termination of this Agreement.
12. Handling Fees and Other Expenses
All fees and out of pocket expenses relating to this Agreement, including but not limited to legal costs, costs of production, stamp tax and any other
taxes and fees, shall be borne by Party C.
13. Confidentiality
The Parties acknowledge that the existence and the terms of this Agreement and any oral or written information exchanged between the Parties in
connection with the preparation and performance this Agreement are regarded as confidential information. Each Party shall maintain confidentiality of
all such confidential information, and without obtaining the written consent of the other Party, it shall not disclose any relevant confidential information
to any third parties, except for the information that: (a) is or will be in the public domain (other than through the receiving Party’s unauthorized
disclosure); (b) is under the obligation to be disclosed pursuant to the applicable laws or regulations, rules of any stock exchange, or orders of the court
or other government authorities; or (c) is required to be disclosed by any Party to its shareholders, investors, legal counsels or financial advisors
regarding the transaction contemplated hereunder, provided that such shareholders, investors, legal counsels or financial advisors shall be bound by the
confidentiality obligations similar to those set forth in this Section. Disclosure of any confidential information by the staff members or agencies hired
by any Party shall be deemed disclosure of such confidential information by such Party, which Party shall be held liable for breach of this Agreement.
This Section shall survive the termination of this Agreement for any reason.
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14. Governing Law and Resolution of Disputes
14.1 The execution, effectiveness, construction, performance, amendment and termination of this Agreement and the resolution of disputes hereunder
shall be governed by the laws of China.
14.2 In the event of any dispute with respect to the construction and performance of this Agreement, the Parties shall first resolve the dispute through
friendly negotiations. In the event the Parties fail to reach an agreement on the dispute within 30 days after either Party’s request to the other
Parties for resolution of the dispute through negotiations, either Party may submit the relevant dispute to the China International Economic and
Trade Arbitration Commission for arbitration, in accordance with its Arbitration Rules. The arbitration shall be conducted in Beijing, and the
language used in arbitration shall be Chinese. The arbitration award shall be final and binding on all Parties.
14.3 Upon the occurrence of any disputes arising from the construction and performance of this Agreement or during the pending arbitration of any
dispute, except for the matters under dispute, the Parties to this Agreement shall continue to exercise their respective rights under this Agreement
and perform their respective obligations under this Agreement.
15. Notices
15.1 All notices and other communications required or permitted to be given pursuant to this Agreement shall be delivered personally or sent by
registered mail, postage prepaid, by a commercial courier service or by facsimile transmission to the address of such party set forth below. A
confirmation copy of each notice shall also be sent by E-mail. The dates on which notices shall be deemed to have been effectively given shall be
determined as follows:
15.2 Notices given by personal delivery, by courier service or by registered mail, postage prepaid, shall be deemed effectively given on the date of
delivery or refusal at the address specified for notices.
15.3 Notices given by facsimile transmission shall be deemed effectively given on the date of successful transmission (as evidenced by an
automatically generated confirmation of transmission).
15.4 For the purpose of notices, the addresses of the Parties are as follows:
Party A:
Address:
Attn:
Phone:
Beijing 58 Daojia Information Technology Co., Ltd.
Building 105, No.10 Jiuxianqiao North Road Jia, Chaoyang District, Beijing
Jinbo Yao
+8610 9565858
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Party B:
Address:
Attn:
Phone:
Party C:
Address:
Attn:
Phone:
58 Co., Ltd.
Building 105, No. 10 Jiuxianqiao North Road Jia, Chaoyang District, Beijing
Jinbo Yao
+8610 59565858
Tianjin 58 Daojia Home Services Co., Ltd.
Building 105, No. 10 Jiuxianqiao North Road Jia, Chaoyang District, Beijing
Jinbo Yao
+8610 59565858
15.5 Any Party may at any time change its address for notices by a notice delivered to the other Parties in accordance with the terms hereof.
16. Severability
In the event that one or several of the provisions of this Contract are found to be invalid, illegal or unenforceable in any aspect in accordance with any
laws or regulations, the validity, legality or enforceability of the remaining provisions of this Contract shall not be affected or compromised in any
respect. The Parties shall strive in good faith to replace such invalid, illegal or unenforceable provisions with effective provisions that accomplish to the
greatest extent permitted by law and the intentions of the Parties, and the economic effect of such effective provisions shall be as close as possible to the
economic effect of those invalid, illegal or unenforceable provisions.
17. Attachments
The attachments set forth herein shall be an integral part of this Agreement.
18. Effectiveness
18.1 This Agreement shall become effective upon execution by the Parties.
18.2 Any amendments, changes and supplements to this Agreement shall be in writing and shall become effective upon completion of the governmental
filing procedures (if applicable) after the affixation of the signatures or seals of the Parties.
19. Language and Counterparts
This Agreement is written in Chinese and English in four copies. Pledgor, Pledgee and Party C shall hold one copy respectively and the other copy shall
be used for registration. Each copy of this Agreement shall have equal validity. In case there is any conflict between the Chinese version and the
English version, the Chinese version shall prevail.
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The Remainder of this page is intentionally left blank
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IN WITNESS WHEREOF, the Parties have caused their authorized representatives to execute this Equity Interest Pledge Agreement as of the date first
above written.
Party A:
Beijing 58 Daojia Information Technology Co., Ltd.
By:
Name:
Title:
/s/ Jinbo Yao
Jinbo Yao
Legal Representative
Party B:
58 Co. Ltd.
By:
Name:
Title:
/s/ Jinbo Yao
Jinbo Yao
Legal Representative
Party C:
Tianjin 58 Daojia Home Services Co., Ltd.
By:
Name:
Title:
/s/ Jinbo Yao
Jinbo Yao
Legal Representative
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Attachments:
1.
2.
3.
4.
5.
6.
Shareholders’ Register of Party C;
The Capital Contribution Certificate for Party C;
Exclusive Business Cooperation Agreement;
Amended and Restated Loan Agreement;
Amended and Restated Exclusive Option Agreement;
Amended and Restated Power of Attorney.
13
Equity Interest Pledge Agreement
This Equity Interest Pledge Agreement (this “Agreement”) has been executed by and among the following parties on August 5, 2015 in Beijing, the
People’s Republic of China (“China” or the “PRC”):
Party A: Beijing 58 Daojia Information Technology Co., Ltd. (hereinafter “Pledgee”), a wholly foreign owned enterprise, organized and existing under
the laws of the PRC, with its address at Room D101A-123, Building B-2 of Zhongguancun Dongsheng Science Park, #66 Xixiaokou Road,
Haidian District, Beijing;
Party B:
Jinbo Yao (hereinafter “Pledgor”), a Chinese citizen with Chinese Identification No.: ; and
Party C: Tianjin 58 Daojia Home Services Co., Ltd., a limited liability company organized and existing under the laws of the PRC, with its address at
Square block -901-918 , #5 Meiyuan Road , Binhaigaoxin District, Tianjin.
In this Agreement, each of Pledgee, Pledgor and Party C shall be referred to as a “Party” respectively, and they shall be collectively referred to as the
“Parties”.
Whereas:
1.
2.
3.
Pledgor is a citizen of China who as of the date hereof holds 1.4% of equity interests of Party C, representing RMB1,400,000 in the registered capital of
Party C. Party C is a limited liability company registered in Beijing, China, engaging in residential service. Party C acknowledges the respective rights
and obligations of Pledgor and Pledgee under this Agreement, and intends to provide any necessary assistance in registering the Pledge;
Pledgee is a wholly foreign-owned enterprise registered in China. Pledgee and Party C partially owned by Pledgor have executed an Exclusive Business
Cooperation Agreement (as defined below) in Beijing; Party C, Pledgee and Pledgor have executed an Exclusive Option Agreement (as defined below);
Pledgee and Pledgor have executed a Loan Agreement (as defined below); and Pledgor has executed a Power of Attorney to Pledgee.
To ensure that Party C and Pledgor fully perform their obligations under the Exclusive Business Cooperation Agreement, the Exclusive Option
Agreement, the Loan Agreement and the Power of Attorney, Pledgor hereby pledges to the Pledgee all of the equity interest he holds in Party C as
security for Party C’s and Pledgor’s obligations under the Exclusive Business Cooperation Agreements, the Exclusive Option Agreement, the Loan
Agreement and the Power of Attorney.
To perform the provisions of the Transaction Documents, the Parties have mutually agreed to execute this Agreement upon the following terms.
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1. Definitions
Unless otherwise provided herein, the terms below shall have the following meanings:
1.1 Pledge: shall refer to the security interest granted by Pledgor to Pledgee pursuant to Article 2 of this Agreement, i.e., the right of Pledgee to be
compensated on a preferential basis with the conversion, auction or sales price of the Equity Interest.
1.2 Equity Interest: shall refer to all of the equity interest now held and hereafter acquired by Pledgor in Party C.
1.3 Term of Pledge: shall refer to the term set forth in Section 3.2 of this Agreement.
1.4 Transaction Documents: shall refer to the Exclusive Business Cooperation Agreement executed by and between Party C and Pledgee on August 5,
2015 (the “Exclusive Business Cooperation Agreement”), the Exclusive Option Agreement executed by and among Party C, Pledgee and Pledgor
on August 5, 2015 (the “Exclusive Option Agreement”), the Loan Agreement executed by and between Pledgee and Pledgor on August 5, 2015
(the “Loan Agreement”), Power of Attorney executed on August 5, 2015 by Pledgor (the “Power of Attorney”) and any modification, amendment
and restatement to the aforementioned documents.
1.5 Contract Obligation: shall refer to all the obligations of Pledgor under the Exclusive Option Agreement, the Power of Attorney, the Loan
Agreement and this Agreement; all the obligations of Party C under the Exclusive Cooperation Agreement, the Exclusive Option Agreement and
this Agreement.
1.6 Secured Indebtedness: shall refer to all the direct, indirect or derivative losses of Pledgee, including loss of expected profits, incurred as a result of
any Event of Default (as defined below). The amount of such loss shall be based on, including but not limited to the reasonable business plan and
profit forecast of Pledgee, the consulting and service fees payable to Pledgee under the Exclusive Business Cooperation Agreement and all
expenses occurred in connection with enforcement by Pledgee of Pledgor’s and/or Party C’s Contract Obligation. The anticipated aggregate losses
to be incurred hereunder are RMB1,000 million. Notwithstanding the forgoing, if the actual losses incurred exceed such anticipated amount, the
Secured Indebtedness hereunder shall be the actual amount of such losses incurred.
1.7 Event of Default: shall refer to any of the circumstances set forth in Article 7 of this Agreement.
1.8 Notice of Default: shall refer to the notice issued by Pledgee in accordance with this Agreement declaring an Event of Default.
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2.
The Pledge
2.1 Pledgor agrees to pledge all the Equity Interest as security for performance of the Contract Obligation and payment of the Secured Indebtedness
under this Agreement. Party C hereby assents that Pledgor pledges the Equity Interest to the Pledgee pursuant to this Agreement.
2.2 During the term of the Pledge, Pledgee is entitled to receive dividends distributed on the Equity Interest. Pledgor may receive dividends distributed
on the Equity Interest only with prior written consent from Pledgee. Dividends received by Pledgor on Equity Interest shall be, subject to
requirement of Pledgee, (1) deposited into an account designated and supervised by Pledgee and used to secure the Contract Obligations and pay
the Secured Indebtedness prior and in preference to make any other payment; or (2) unconditionally give to Pledgee or any other person
designated by Pledgee to the extent permitted under applicable PRC laws.
2.3 Pledgor may subscribe for capital increase in Party C only with prior written consent of Pledgee. Any equity interest obtained by the Pledgor in
future capital increase shall be deemed as Equity Interest as well.
2.4 In the event that Party C is required by PRC law to be liquidated or dissolved, any interest distributed to Pledgor upon Party C’s dissolution or
liquidation shall be (1) deposited into an account designate and supervised by Pledgee and used to secure the Contract Obligations and pay the
Secured Indebtedness prior and in preference to make any other payment; or (2) unconditionally give to Pledgee or any other person designated by
Pledgee to the extent permitted under applicable PRC laws.
3.
Term of Pledge
3.1 The Pledge shall become effective on such date when the pledge of the Equity Interest contemplated herein has been registered with relevant
administration for industry and commerce (the “AIC”). The Pledge shall be continuously valid until all Contract Obligations and Secured
Indebtedness have been fully performed and paid. Pledgor and Party C shall (1) register the Pledge in the shareholders’ register of Party C within 3
business days following the execution of this Agreement, and (2) submit an application to the AIC for the registration of the Pledge of the Equity
Interest contemplated herein within 30 business days following the execution of this Agreement. The parties covenant that for the purpose of
registration of the Pledge, the parties hereto and all other shareholders of Party C shall submit to the AIC this Agreement or an equity interest
pledge contract in the form required by the AIC at the location of Party C which shall truly reflect the information of the Pledge hereunder (the
“AIC Pledge Contract”). For matters not specified in the AIC Pledge Contract, the parties shall be bound by the provisions of this Agreement.
Pledgor and Party C shall submit all necessary documents and complete all necessary procedures, as required by the PRC laws and regulations and
the relevant AIC, to ensure that the Pledge of the Equity Interest shall be registered with the AIC as soon as possible after filing.
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3.2 During the Term of Pledge, in the event Pledgor and/or Party C fails to perform the Contract Obligation or pay Secured Indebtedness, Pledgee
shall have the right, but not the obligation, to exercise the Pledge in accordance with the provisions of this Agreement.
4. Custody of Records for Equity Interest subject to Pledge
4.1 During the Term of Pledge set forth in this Agreement, Pledgor shall deliver to Pledgee’s custody the capital contribution certificate for the Equity
Interest and the shareholders’ register containing the Pledge within one week from the execution of this Agreement. Pledgee shall have custody of
such documents during the entire Term of Pledge set forth in this Agreement.
5. Representations and Warranties of Pledgor and Party C
As of the execution date of this Agreement, Pledgor and Party C hereby jointly and severally represent and warrant to Pledgee that:
5.1 Pledgor is the sole legal and beneficial owner of the Equity Interest.
5.2 Pledgee shall have the right to dispose of and transfer the Equity Interest in accordance with the provisions set forth in this Agreement.
5.3 Except for the Pledge, Pledgor has not placed any security interest or other encumbrance on the Equity Interest.
5.4 Pledgor and Party C have obtained any and all approvals and consents from applicable government authorities and third parties (if required) for
execution, delivery and performance of this Agreement.
5.5 The execution, delivery and performance of this Agreement will not: (i) violate any relevant PRC laws; (ii) conflict with Party C’s articles of
association or other constitutional documents; (iii) result in any breach of or constitute any default under any contract or instrument to which it is a
party or by which it is otherwise bound; (iv) result in any violation of any condition for the grant and/or maintenance of any permit or approval
granted to any Party; or (v) cause any permit or approval granted to any Party to be suspended, cancelled or attached with additional conditions.
6. Covenants of Pledgor and Party C
6.1 Pledgor and Party C hereby jointly and severally covenant to the Pledgee:
6.1.1 Pledgor shall not transfer the Equity Interest, place or permit the existence of any security interest or other encumbrance on the Equity
Interest or any portion thereof, without the prior written consent of Pledgee, except for the performance of the Transaction Documents;
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6.1.2 Pledgor and Party C shall comply with the provisions of all laws and regulations applicable to the pledge of rights, and within 5 days of
receipt of any notice, order or recommendation issued or prepared by relevant competent authorities regarding the Pledge, shall present the
aforementioned notice, order or recommendation to Pledgee, and shall comply with the aforementioned notice, order or recommendation or
submit objections and representations with respect to the aforementioned matters upon Pledgee’s reasonable request or upon consent of
Pledgee;
6.1.3 Pledgor and Party C shall promptly notify Pledgee of any event or notice received by Pledgor that may have an impact on Pledgee’s rights
to the Equity Interest or any portion thereof, as well as any event or notice received by Pledgor that may have an impact on any guarantees
and other obligations of Pledgor arising out of this Agreement.
6.1.4 Party C shall complete the registration procedures for extension of the term of operation within three (3) months prior to the expiration of
such term to maintain the validity of this Agreement.
6.2 Pledgor agrees that the rights acquired by Pledgee in accordance with this Agreement with respect to the Pledge shall not be interrupted or harmed
by Pledgor or any heirs or representatives of Pledgor or any other persons through any legal proceedings.
6.3 To protect or perfect the security interest granted by this Agreement for the Contract Obligation and Secured Indebtedness, Pledgor hereby
undertakes to execute in good faith and to cause other parties who have an interest in the Pledge to execute all certificates, agreements, deeds
and/or covenants required by Pledgee. Pledgor also undertakes to perform and to cause other parties who have an interest in the Pledge to perform
actions required by Pledgee, to facilitate the exercise by Pledgee of its rights and authority granted thereto by this Agreement, and to enter into all
relevant documents regarding ownership of Equity Interest with Pledgee or designee(s) of Pledgee (natural persons/legal persons). Pledgor
undertakes to provide Pledgee within a reasonable time with all notices, orders and decisions regarding the Pledge that are required by Pledgee.
6.4 Pledgor hereby undertakes to comply with and perform all guarantees, promises, agreements, representations and conditions under this
Agreement. In the event of failure or partial performance of its guarantees, promises, agreements, representations and conditions, Pledgor shall
indemnify Pledgee for all losses resulting therefrom.
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7.
Event of Breach
7.4 The following circumstances shall be deemed Event of Default:
7.1.1 Pledgor’s any breach to any obligations under the Transaction Documents and/or this Agreement.
7.1.2 Party C’s any breach to any obligations under the Transaction Documents and/or this Agreement.
7.5 Upon notice or discovery of the occurrence of any circumstances or event that may lead to the aforementioned circumstances described in Section
7.1, Pledgor and Party C shall immediately notify Pledgee in writing accordingly.
7.6 Unless an Event of Default set forth in this Section 7.1 has been successfully resolved to Pledgee’s satisfaction within twenty (20) days after the
Pledgee and /or Party C delivers a notice to the Pledgor requesting ratification of such Event of Default, Pledgee may issue a Notice of Default to
Pledgor in writing at any time thereafter, demanding the Pledgor to immediately exercise the Pledge in accordance with the provisions of Article 8
of this Agreement.
8.
Exercise of Pledge
8.1 Pledgee may issue a Notice of Default to Pledgor when exercising the Pledge.
8.2 Subject to the provisions of Section 7.3, Pledgee may exercise the right to enforce the Pledge at any time after the issuance of the Notice of
Default in accordance with Section 8.1. Once Pledgee elects to enforce the Pledge, Pledgor shall cease to be entitled to any rights or interests
associated with the Equity Interest.
8.3 After Pledgee issues a Notice of Default Pledgee in accordance with Section 8.1, Pledgee may exercise any remedy measure under applicable PRC
laws, the Transaction Documents and this Agreement, including but not limited to be compensated in priority by the conversion of the Equity
Pledge or from the proceeds from auction or sale of the Equity Interest. The Pledgee shall have no liability for any loss incurred by its duly
exercise of such rights and powers.
8.4 The proceeds from exercise of the Pledge by Pledgee shall be used to pay for tax and expenses incurred by disposing the Equity Interest and
perform Contract Obligations and pay the Secured Indebtedness prior and in preference to any other payment. After the payment of the
aforementioned amounts, the remaining balance shall be returned to Pledgor or any other person who have rights to such balance under applicable
laws or be deposited to the local notary public office where Pledgor resides, with all expense incurred being borne by Pledgor. To the extent
permitted under applicable PRC laws, Pledgor shall unconditionally give the aforementioned proceeds to Pledgee or any other person designated
by Pledgee.
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8.5 Pledgee has the right to exercise any remedy measure available simultaneously or in any order. Pledgee may exercise the right to be compensated
from in priority by the conversion of the Equity Pledge or from the proceeds from auction or sale of the Equity Interest under this Agreement,
without exercising any other remedy measure first.
8.6 Pledgee is entitled to designate an attorney or other representatives to exercise the Pledge on its behalf and Pledgor and Party C shall not raise any
objection to such exercise.
8.7 When Pledgee disposes of the Pledge in accordance with this Agreement, Pledgor and Party C shall provide necessary assistance to enable
Pledgee to enforce the Pledge in accordance with this Agreement.
9.
Breach of Agreement
9.1 If Pledgor or Party C conducts any material breach of any term of this Agreement, Pledgee shall have right to terminate this Agreement and
require Pledgor or Party C to compensate all damages; this Section 9 shall not prejudice any other rights of Pledgee herein;
9.2 If Pledgee conducts any breach of any term of this Agreement, Pledgor or Party C shall not terminate this Agreement in any event unless
otherwise required by applicable laws.
10. Assignment
10.1 Without Pledgee’s prior written consent, Pledgor shall not have the right to assign or delegate its rights and obligations under this Agreement.
10.2 This Agreement shall be binding on Pledgor and its successors and permitted assigns, and shall be valid with respect to Pledgee and each of its
successors and assigns.
10.3 At any time, Pledgee may assign any and all of its rights and obligations under the Transaction Documents to its designee(s), in which case the
assigns shall have the rights and obligations of Pledgee under this Agreement, as if it were the original party to this Agreement. When the Pledgee
assigns the rights and obligations under the Business Cooperation Agreement, upon Pledgee’s request, Pledgor and/or Party C shall execute
relevant agreements or other documents relating to such assignment.
10.4 In the event of a change in Pledgee due to an assignment, Pledgor and/or Party C shall, at the request of Pledgee, execute a new pledge agreement
with the new pledgee on the same terms and conditions as this Agreement, and register the same with the relevant AIC.
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10.5 Pledgor and Party C shall strictly abide by the provisions of this Agreement and other contracts jointly or separately executed by the Parties hereto
or any of them, including the Transaction Documents, perform the obligations hereunder and thereunder, and refrain from any action/omission that
may affect the effectiveness and enforceability thereof. Any remaining rights of Pledgor with respect to the Equity Interest pledged hereunder shall
not be exercised by Pledgor except in accordance with the written instructions of Pledgee.
11. Termination
11.1 Upon the fulfillment of all Contract Obligation and the full payment of all Secured Indebtedness by Pledgor and Party C, Pledgee shall release the
Pledge under this Agreement upon Pledgor’s request as soon as reasonably practicable and shall assist Pledgor to de-register the Pledge from the
shareholders’ register of Party C and with relevant PRC local administration for industry and commerce.
11.2 The provisions under Sections 9, 13, 14 and 11.2 herein of this Agreement shall survive the expiration or termination of this Agreement.
12. Handling Fees and Other Expenses
All fees and out of pocket expenses relating to this Agreement, including but not limited to legal costs, costs of production, stamp tax and any other
taxes and fees, shall be borne by Party C.
13. Confidentiality
The Parties acknowledge that the existence and the terms of this Agreement and any oral or written information exchanged between the Parties in
connection with the preparation and performance this Agreement are regarded as confidential information. Each Party shall maintain confidentiality of
all such confidential information, and without obtaining the written consent of the other Party, it shall not disclose any relevant confidential
information to any third parties, except for the information that: (a) is or will be in the public domain (other than through the receiving Party’s
unauthorized disclosure); (b) is under the obligation to be disclosed pursuant to the applicable laws or regulations, rules of any stock exchange, or
orders of the court or other government authorities; or (c) is required to be disclosed by any Party to its shareholders, investors, legal counsels or
financial advisors regarding the transaction contemplated hereunder, provided that such shareholders, investors, legal counsels or financial advisors
shall be bound by the confidentiality obligations similar to those set forth in this Section. Disclosure of any confidential information by the staff
members or agencies hired by any Party shall be deemed disclosure of such confidential information by such Party, which Party shall be held liable for
breach of this Agreement. This Section shall survive the termination of this Agreement for any reason.
14. Governing Law and Resolution of Disputes
14.1 The execution, effectiveness, construction, performance, amendment and termination of this Agreement and the resolution of disputes hereunder
shall be governed by the laws of China.
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14.2 In the event of any dispute with respect to the construction and performance of this Agreement, the Parties shall first resolve the dispute through
friendly negotiations. In the event the Parties fail to reach an agreement on the dispute within 30 days after either Party’s request to the other
Parties for resolution of the dispute through negotiations, either Party may submit the relevant dispute to the China International Economic and
Trade Arbitration Commission for arbitration, in accordance with its Arbitration Rules. The arbitration shall be conducted in Beijing, and the
language used in arbitration shall be Chinese. The arbitration award shall be final and binding on all Parties.
14.3 Upon the occurrence of any disputes arising from the construction and performance of this Agreement or during the pending arbitration of any
dispute, except for the matters under dispute, the Parties to this Agreement shall continue to exercise their respective rights under this Agreement
and perform their respective obligations under this Agreement.
15. Notices
15.1 All notices and other communications required or permitted to be given pursuant to this Agreement shall be delivered personally or sent by
registered mail, postage prepaid, by a commercial courier service or by facsimile transmission to the address of such party set forth below. A
confirmation copy of each notice shall also be sent by E-mail. The dates on which notices shall be deemed to have been effectively given shall be
determined as follows:
15.2 Notices given by personal delivery, by courier service or by registered mail, postage prepaid, shall be deemed effectively given on the date of
delivery or refusal at the address specified for notices.
15.3 Notices given by facsimile transmission shall be deemed effectively given on the date of successful transmission (as evidenced by an
automatically generated confirmation of transmission).
15.4 For the purpose of notices, the addresses of the Parties are as follows:
Party A:
Address:
Attn:
Phone:
Facsimile:
Party B:
Address:
Attn:
Phone:
Facsimile:
Beijing 58 Daojia Information Technology Co., Ltd.
Tower E, North America International Business Center, #Yi108, Beiyuan Road, Chaoyang District, Beijing
Jinbo Yao
+8610 64435588-8888
+8610-64459926
Jinbo Yao
Tower E, North America International Business Center, #Yi108, Beiyuan Road, Chaoyang District, Beijing
Jinbo Yao
+8610 64435588-8888
+8610-64459926
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Party C:
Address:
Attn:
Phone:
Facsimile:
Tianjin 58 Daojia Home Services Co., Ltd.
Tower E, North America International Business Center, #Yi108, Beiyuan Road, Chaoyang District, Beijing
Jinbo Yao
+8610 64435588-8888
+8610-64459926
15.5 Any Party may at any time change its address for notices by a notice delivered to the other Parties in accordance with the terms hereof.
16. Severability
In the event that one or several of the provisions of this Contract are found to be invalid, illegal or unenforceable in any aspect in accordance with any
laws or regulations, the validity, legality or enforceability of the remaining provisions of this Contract shall not be affected or compromised in any
respect. The Parties shall strive in good faith to replace such invalid, illegal or unenforceable provisions with effective provisions that accomplish to the
greatest extent permitted by law and the intentions of the Parties, and the economic effect of such effective provisions shall be as close as possible to the
economic effect of those invalid, illegal or unenforceable provisions.
17. Attachments
The attachments set forth herein shall be an integral part of this Agreement.
18. Effectiveness
18.1 This Agreement shall become effective upon execution by the Parties.
18.2 Any amendments, changes and supplements to this Agreement shall be in writing and shall become effective upon completion of the governmental
filing procedures (if applicable) after the affixation of the signatures or seals of the Parties.
19. Language and Counterparts
This Agreement is written in Chinese and English in four copies. Pledgor, Pledgee and Party C shall hold one copy respectively and the other copy shall
be used for registration. Each copy of this Agreement shall have equal validity. In case there is any conflict between the Chinese version and the
English version, the Chinese version shall prevail.
The Remainder of this page is intentionally left blank
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IN WITNESS WHEREOF, the Parties have caused their authorized representatives to execute this Equity Interest Pledge Agreement as of the date first
above written.
Party A:
Beijing 58 Daojia Information Technology Co., Ltd.
By:
Name:
Title:
/s/ Jinbo Yao
Jinbo Yao
Legal Representative
Party B:
Jinbo Yao
By:
/s/ Jinbo Yao
Party C:
Tianjin 58 Daojia Home Services Co., Ltd.
By:
Name:
Title:
/s/ Jinbo Yao
Jinbo Yao
Legal Representative
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Attachments:
1.
2.
3.
4.
5.
6.
Shareholders’ Register of Party C;
The Capital Contribution Certificate for Party C;
Exclusive Business Cooperation Agreement;
Loan Agreement;
Exclusive Option Agreement;
Power of Attorney.
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Equity Interest Pledge Agreement
This Equity Interest Pledge Agreement (this “Agreement”) has been executed by and among the following parties on August 5, 2015 in Beijing, the
People’s Republic of China (“China” or the “PRC”):
Party A:
Beijing 58 Daojia Information Technology Co., Ltd. (hereinafter “Pledgee”), a wholly foreign owned enterprise, organized and existing under
the laws of the PRC, with its address at Room D101A-123, Building B-2 of Zhongguancun Dongsheng Science Park, #66 Xixiaokou Road,
Haidian District, Beijing;
Party B: Xiaohua Chen (hereinafter “Pledgor”), a citizen of China with Chinese Identification No.: ; and
Party C:
Tianjin 58 Daojia Home Services Co., Ltd., a limited liability company organized and existing under the laws of the PRC, with its address at
Square block -901-918 , #5 Meiyuan Road , Binhaigaoxin District, Tianjin.
In this Agreement, each of Pledgee, Pledgor and Party C shall be referred to as a "Party" respectively, and they shall be collectively referred to as the
"Parties".
Whereas:
1.
2.
3.
Pledgor is a citizen of China who as of the date hereof holds 4.5% of equity interests of Party C, representing RMB4,500,000 in the registered capital of
Party C. Party C is a limited liability company registered in Beijing, China, engaging in Internet information services and advertising services. Party C
acknowledges the respective rights and obligations of Pledgor and Pledgee under this Agreement, and intends to provide any necessary assistance in
registering the Pledge;
Pledgee is a wholly foreign-owned enterprise registered in China. Pledgee and Party C partially owned by Pledgor have executed an Exclusive
Business Cooperation Agreement (as defined below) in Beijing; Party C, Pledgee and Pledgor have executed an Exclusive Option Agreement (as
defined below); Pledgee and Pledgor have executed a Loan Agreement (as defined below); and Pledgor has executed a Power of Attorney to Pledgee.
To ensure that Party C and Pledgor fully perform their obligations under the Exclusive Business Cooperation Agreement, the Exclusive Option
Agreement, the Loan Agreement and the Power of Attorney, Pledgor hereby pledges to the Pledgee all of the equity interest he holds in Party C as
security for Party C’s and Pledgor’s obligations under the Exclusive Business Cooperation Agreements, the Exclusive Option Agreement, the Loan
Agreement and the Power of Attorney.
To perform the provisions of the Transaction Documents, the Parties have mutually agreed to execute this Agreement upon the following terms.
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1. Definitions
Unless otherwise provided herein, the terms below shall have the following meanings:
1.1 Pledge: shall refer to the security interest granted by Pledgor to Pledgee pursuant to Article 2 of this Agreement, i.e., the right of Pledgee to be
compensated on a preferential basis with the conversion, auction or sales price of the Equity Interest.
1.2 Equity Interest: shall refer to all of the equity interest now held and hereafter acquired by Pledgor in Party C.
1.3 Term of Pledge: shall refer to the term set forth in Section 3.2 of this Agreement.
1.4 Transaction Documents: shall refer to the Exclusive Business Cooperation Agreement executed by and between Party C and Pledgee on August 5,
2015 (the “Exclusive Business Cooperation Agreement”), the Exclusive Option Agreement executed by and among Party C, Pledgee and Pledgor
on August 5, 2015 (the “Exclusive Option Agreement”), the Loan Agreement executed by and between Pledgee and Pledgor on August 5, 2015
(the “Loan Agreement”), Power of Attorney executed on August 5, 2015 by Pledgor (the “Power of Attorney”) and any modification, amendment
and restatement to the aforementioned documents.
1.5 Contract Obligation: shall refer to all the obligations of Pledgor under the Exclusive Option Agreement, the Power of Attorney, the Loan
Agreement and this Agreement; all the obligations of Party C under the Exclusive Cooperation Agreement, the Exclusive Option Agreement and
this Agreement.
1.6 Secured Indebtedness: shall refer to all the direct, indirect or derivative losses of Pledgee, including loss of expected profits, incurred as a result of
any Event of Default (as defined below). The amount of such loss shall be based on, including but not limited to the reasonable business plan and
profit forecast of Pledgee, the consulting and service fees payable to Pledgee under the Exclusive Business Cooperation Agreement and all
expenses occurred in connection with enforcement by Pledgee of Pledgor’s and/or Party C’s Contract Obligation. The anticipated aggregate losses
to be incurred hereunder are RMB1,000 million. Notwithstanding the forgoing, if the actual losses incurred exceed such anticipated amount, the
Secured Indebtedness hereunder shall be the actual amount of such losses incurred.
1.7 Event of Default: shall refer to any of the circumstances set forth in Article 7 of this Agreement.
1.8 Notice of Default: shall refer to the notice issued by Pledgee in accordance with this Agreement declaring an Event of Default.
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2.
The Pledge
2.1 Pledgor agrees to pledge all the Equity Interest as security for performance of the Contract Obligation and payment of the Secured Indebtedness
under this Agreement. Party C hereby assents that Pledgor pledges the Equity Interest to the Pledgee pursuant to this Agreement.
2.2 During the term of the Pledge, Pledgee is entitled to receive dividends distributed on the Equity Interest. Pledgor may receive dividends distributed
on the Equity Interest only with prior written consent from Pledgee. Dividends received by Pledgor on Equity Interest shall be, subject to
requirement of Pledgee, (1) deposited into an account designated and supervised by Pledgee and used to secure the Contract Obligations and pay
the Secured Indebtedness prior and in preference to make any other payment; or (2) unconditionally give to Pledgee or any other person
designated by Pledgee to the extent permitted under applicable PRC laws.
2.3 Pledgor may subscribe for capital increase in Party C only with prior written consent of Pledgee. Any equity interest obtained by the Pledgor in
future capital increase shall be deemed as Equity Interest as well.
2.4 In the event that Party C is required by PRC law to be liquidated or dissolved, any interest distributed to Pledgor upon Party C’s dissolution or
liquidation shall be (1) deposited into an account designate and supervised by Pledgee and used to secure the Contract Obligations and pay the
Secured Indebtedness prior and in preference to make any other payment; or (2) unconditionally give to Pledgee or any other person designated by
Pledgee to the extent permitted under applicable PRC laws.
3.
Term of Pledge
3.1 The Pledge shall become effective on such date when the pledge of the Equity Interest contemplated herein has been registered with relevant
administration for industry and commerce (the “AIC”). The Pledge shall be continuously valid until all Contract Obligations and Secured
Indebtedness have been fully performed and paid. Pledgor and Party C shall (1) register the Pledge in the shareholders' register of Party C within 3
business days following the execution of this Agreement, and (2) submit an application to the AIC for the registration of the Pledge of the Equity
Interest contemplated herein within 30 business days following the execution of this Agreement. The parties covenant that for the purpose of
registration of the Pledge, the parties hereto and all other shareholders of Party C shall submit to the AIC this Agreement or an equity interest
pledge contract in the form required by the AIC at the location of Party C which shall truly reflect the information of the Pledge hereunder (the
“AIC Pledge Contract”). For matters not specified in the AIC Pledge Contract, the parties shall be bound by the provisions of this Agreement.
Pledgor and Party C shall submit all necessary documents and complete all necessary procedures, as required by the PRC laws and regulations and
the relevant AIC, to ensure that the Pledge of the Equity Interest shall be registered with the AIC as soon as possible after filing.
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3.2 During the Term of Pledge, in the event Pledgor and/or Party C fails to perform the Contract Obligation or pay Secured Indebtedness, Pledgee
shall have the right, but not the obligation, to exercise the Pledge in accordance with the provisions of this Agreement.
4. Custody of Records for Equity Interest subject to Pledge
4.1 During the Term of Pledge set forth in this Agreement, Pledgor shall deliver to Pledgee's custody the capital contribution certificate for the Equity
Interest and the shareholders' register containing the Pledge within one week from the execution of this Agreement. Pledgee shall have custody of
such documents during the entire Term of Pledge set forth in this Agreement.
5. Representations and Warranties of Pledgor and Party C
As of the execution date of this Agreement, Pledgor and Party C hereby jointly and severally represent and warrant to Pledgee that:
5.1 Pledgor is the sole legal and beneficial owner of the Equity Interest.
5.2 Pledgee shall have the right to dispose of and transfer the Equity Interest in accordance with the provisions set forth in this Agreement.
5.3 Except for the Pledge, Pledgor has not placed any security interest or other encumbrance on the Equity Interest.
5.4 Pledgor and Party C have obtained any and all approvals and consents from applicable government authorities and third parties (if required) for
execution, delivery and performance of this Agreement.
5.5 The execution, delivery and performance of this Agreement will not: (i) violate any relevant PRC laws; (ii) conflict with Party C’s articles of
association or other constitutional documents; (iii) result in any breach of or constitute any default under any contract or instrument to which it is a
party or by which it is otherwise bound; (iv) result in any violation of any condition for the grant and/or maintenance of any permit or approval
granted to any Party; or (v) cause any permit or approval granted to any Party to be suspended, cancelled or attached with additional conditions.
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6. Covenants of Pledgor and Party C
6.1 Pledgor and Party C hereby jointly and severally covenant to the Pledgee:
6.1.1 Pledgor shall not transfer the Equity Interest, place or permit the existence of any security interest or other encumbrance on the Equity
Interest or any portion thereof, without the prior written consent of Pledgee, except for the performance of the Transaction Documents;
6.1.2 Pledgor and Party C shall comply with the provisions of all laws and regulations applicable to the pledge of rights, and within 5 days of
receipt of any notice, order or recommendation issued or prepared by relevant competent authorities regarding the Pledge, shall present the
aforementioned notice, order or recommendation to Pledgee, and shall comply with the aforementioned notice, order or recommendation or
submit objections and representations with respect to the aforementioned matters upon Pledgee's reasonable request or upon consent of
Pledgee;
6.1.3 Pledgor and Party C shall promptly notify Pledgee of any event or notice received by Pledgor that may have an impact on Pledgee's rights
to the Equity Interest or any portion thereof, as well as any event or notice received by Pledgor that may have an impact on any guarantees
and other obligations of Pledgor arising out of this Agreement.
6.1.4 Party C shall complete the registration procedures for extension of the term of operation within three (3) months prior to the expiration of
such term to maintain the validity of this Agreement.
6.2 Pledgor agrees that the rights acquired by Pledgee in accordance with this Agreement with respect to the Pledge shall not be interrupted or harmed
by Pledgor or any heirs or representatives of Pledgor or any other persons through any legal proceedings.
6.3 To protect or perfect the security interest granted by this Agreement for the Contract Obligation and Secured Indebtedness, Pledgor hereby
undertakes to execute in good faith and to cause other parties who have an interest in the Pledge to execute all certificates, agreements, deeds
and/or covenants required by Pledgee. Pledgor also undertakes to perform and to cause other parties who have an interest in the Pledge to perform
actions required by Pledgee, to facilitate the exercise by Pledgee of its rights and authority granted thereto by this Agreement, and to enter into all
relevant documents regarding ownership of Equity Interest with Pledgee or designee(s) of Pledgee (natural persons/legal persons). Pledgor
undertakes to provide Pledgee within a reasonable time with all notices, orders and decisions regarding the Pledge that are required by Pledgee.
6.4 Pledgor hereby undertakes to comply with and perform all guarantees, promises, agreements, representations and conditions under this
Agreement. In the event of failure or partial performance of its guarantees, promises, agreements, representations and conditions, Pledgor shall
indemnify Pledgee for all losses resulting therefrom.
30
7.
Event of Breach
7.1 The following circumstances shall be deemed Event of Default:
7.1.1 Pledgor’s any breach to any obligations under the Transaction Documents and/or this Agreement.
7.1.2 Party C’s any breach to any obligations under the Transaction Documents and/or this Agreement.
7.2 Upon notice or discovery of the occurrence of any circumstances or event that may lead to the aforementioned circumstances described in Section
7.1, Pledgor and Party C shall immediately notify Pledgee in writing accordingly.
7.3 Unless an Event of Default set forth in this Section 7.1 has been successfully resolved to Pledgee's satisfaction within twenty (20) days after the
Pledgee and /or Party C delivers a notice to the Pledgor requesting ratification of such Event of Default, Pledgee may issue a Notice of Default to
Pledgor in writing at any time thereafter, demanding the Pledgor to immediately exercise the Pledge in accordance with the provisions of Article 8
of this Agreement.
8.
Exercise of Pledge
8.1 Pledgee may issue a Notice of Default to Pledgor when exercising the Pledge.
8.2 Subject to the provisions of Section 7.3, Pledgee may exercise the right to enforce the Pledge at any time after the issuance of the Notice of
Default in accordance with Section 8.1. Once Pledgee elects to enforce the Pledge, Pledgor shall cease to be entitled to any rights or interests
associated with the Equity Interest.
8.3 After Pledgee issues a Notice of Default Pledgee in accordance with Section 8.1, Pledgee may exercise any remedy measure under applicable PRC
laws, the Transaction Documents and this Agreement, including but not limited to be compensated in priority by the conversion of the Equity
Pledge or from the proceeds from auction or sale of the Equity Interest. The Pledgee shall have no liability for any loss incurred by its duly
exercise of such rights and powers.
8.4 The proceeds from exercise of the Pledge by Pledgee shall be used to pay for tax and expenses incurred by disposing the Equity Interest and
perform Contract Obligations and pay the Secured Indebtedness prior and in preference to any other payment. After the payment of the
aforementioned amounts, the remaining balance shall be returned to Pledgor or any other person who have rights to such balance under applicable
laws or be deposited to the local notary public office where Pledgor resides, with all expense incurred being borne by Pledgor. To the extent
permitted under applicable PRC laws, Pledgor shall unconditionally give the aforementioned proceeds to Pledgee or any other person designated
by Pledgee.
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8.5 Pledgee has the right to exercise any remedy measure available simultaneously or in any order. Pledgee may exercise the right to be compensated
from in priority by the conversion of the Equity Pledge or from the proceeds from auction or sale of the Equity Interest under this Agreement,
without exercising any other remedy measure first.
8.6 Pledgee is entitled to designate an attorney or other representatives to exercise the Pledge on its behalf and Pledgor and Party C shall not raise any
objection to such exercise.
8.7 When Pledgee disposes of the Pledge in accordance with this Agreement, Pledgor and Party C shall provide necessary assistance to enable
Pledgee to enforce the Pledge in accordance with this Agreement.
9.
Breach of Agreement
9.1 If Pledgor or Party C conducts any material breach of any term of this Agreement, Pledgee shall have right to terminate this Agreement and
require Pledgor or Party C to compensate all damages; this Section 9 shall not prejudice any other rights of Pledgee herein;
9.2 If Pledgee conducts any breach of any term of this Agreement, Pledgor or Party C shall not terminate this Agreement in any event unless
otherwise required by applicable laws.
10. Assignment
10.1 Without Pledgee's prior written consent, Pledgor shall not have the right to assign or delegate its rights and obligations under this Agreement.
10.2 This Agreement shall be binding on Pledgor and its successors and permitted assigns, and shall be valid with respect to Pledgee and each of its
successors and assigns.
10.3 At any time, Pledgee may assign any and all of its rights and obligations under the Transaction Documents to its designee(s), in which case the
assigns shall have the rights and obligations of Pledgee under this Agreement, as if it were the original party to this Agreement. When the Pledgee
assigns the rights and obligations under the Business Cooperation Agreement, upon Pledgee's request, Pledgor and/or Party C shall execute
relevant agreements or other documents relating to such assignment.
10.4 In the event of a change in Pledgee due to an assignment, Pledgor and/or Party C shall, at the request of Pledgee, execute a new pledge agreement
with the new pledgee on the same terms and conditions as this Agreement, and register the same with the relevant AIC.
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10.5 Pledgor and Party C shall strictly abide by the provisions of this Agreement and other contracts jointly or separately executed by the Parties hereto
or any of them, including the Transaction Documents, perform the obligations hereunder and thereunder, and refrain from any action/omission that
may affect the effectiveness and enforceability thereof. Any remaining rights of Pledgor with respect to the Equity Interest pledged hereunder shall
not be exercised by Pledgor except in accordance with the written instructions of Pledgee.
11. Termination
11.1 Upon the fulfillment of all Contract Obligation and the full payment of all Secured Indebtedness by Pledgor and Party C, Pledgee shall release the
Pledge under this Agreement upon Pledgor’s request as soon as reasonably practicable and shall assist Pledgor to de-register the Pledge from the
shareholders’ register of Party C and with relevant PRC local administration for industry and commerce.
11.2 The provisions under Sections 9, 13, 14 and 11.2 herein of this Agreement shall survive the expiration or termination of this Agreement.
12. Handling Fees and Other Expenses
All fees and out of pocket expenses relating to this Agreement, including but not limited to legal costs, costs of production, stamp tax and any other
taxes and fees, shall be borne by Party C.
13. Confidentiality
The Parties acknowledge that the existence and the terms of this Agreement and any oral or written information exchanged between the Parties in
connection with the preparation and performance this Agreement are regarded as confidential information. Each Party shall maintain confidentiality of
all such confidential information, and without obtaining the written consent of the other Party, it shall not disclose any relevant confidential information
to any third parties, except for the information that: (a) is or will be in the public domain (other than through the receiving Party’s unauthorized
disclosure); (b) is under the obligation to be disclosed pursuant to the applicable laws or regulations, rules of any stock exchange, or orders of the court
or other government authorities; or (c) is required to be disclosed by any Party to its shareholders, investors, legal counsels or financial advisors
regarding the transaction contemplated hereunder, provided that such shareholders, investors, legal counsels or financial advisors shall be bound by the
confidentiality obligations similar to those set forth in this Section. Disclosure of any confidential information by the staff members or agencies hired
by any Party shall be deemed disclosure of such confidential information by such Party, which Party shall be held liable for breach of this Agreement.
This Section shall survive the termination of this Agreement for any reason.
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14. Governing Law and Resolution of Disputes
14.1 The execution, effectiveness, construction, performance, amendment and termination of this Agreement and the resolution of disputes hereunder
shall be governed by the laws of China.
14.2 In the event of any dispute with respect to the construction and performance of this Agreement, the Parties shall first resolve the dispute through
friendly negotiations. In the event the Parties fail to reach an agreement on the dispute within 30 days after either Party's request to the other
Parties for resolution of the dispute through negotiations, either Party may submit the relevant dispute to the China International Economic and
Trade Arbitration Commission for arbitration, in accordance with its Arbitration Rules. The arbitration shall be conducted in Beijing, and the
language used in arbitration shall be Chinese. The arbitration award shall be final and binding on all Parties.
14.3 Upon the occurrence of any disputes arising from the construction and performance of this Agreement or during the pending arbitration of any
dispute, except for the matters under dispute, the Parties to this Agreement shall continue to exercise their respective rights under this Agreement
and perform their respective obligations under this Agreement.
15. Notices
15.1 All notices and other communications required or permitted to be given pursuant to this Agreement shall be delivered personally or sent by
registered mail, postage prepaid, by a commercial courier service or by facsimile transmission to the address of such party set forth below. A
confirmation copy of each notice shall also be sent by E-mail. The dates on which notices shall be deemed to have been effectively given shall be
determined as follows:
15.2 Notices given by personal delivery, by courier service or by registered mail, postage prepaid, shall be deemed effectively given on the date of
delivery or refusal at the address specified for notices.
15.3 Notices given by facsimile transmission shall be deemed effectively given on the date of successful transmission (as evidenced by an
automatically generated confirmation of transmission).
15.4 For the purpose of notices, the addresses of the Parties are as follows:
Party A:
Address:
Attn:
Phone:
Facsimile:
Beijing 58 Daojia Information Technology Co., Ltd.
Tower E, North America International Business Center, #Yi108, Beiyuan Road, Chaoyang District, Beijing
Jinbo Yao
+8610 64435588-8888
+8610-64459926
34
Party B:
Address:
Phone:
Facsimile:
Party C:
Address:
Attn:
Phone:
Facsimile:
Xiaohua Chen
Tower E, North America International Business Center, #Yi108, Beiyuan Road, Chaoyang District, Beijing
+8610 64435588-8888
+8610-64459926
Tianjin 58 Daojia Home Services Co., Ltd.
Tower E, North America International Business Center, #Yi108, Beiyuan Road, Chaoyang District, Beijing
Jinbo Yao
+8610 64435588-8888
+8610-64459926
15.5 Any Party may at any time change its address for notices by a notice delivered to the other Parties in accordance with the terms hereof.
16. Severability
In the event that one or several of the provisions of this Contract are found to be invalid, illegal or unenforceable in any aspect in accordance with any
laws or regulations, the validity, legality or enforceability of the remaining provisions of this Contract shall not be affected or compromised in any
respect. The Parties shall strive in good faith to replace such invalid, illegal or unenforceable provisions with effective provisions that accomplish to the
greatest extent permitted by law and the intentions of the Parties, and the economic effect of such effective provisions shall be as close as possible to the
economic effect of those invalid, illegal or unenforceable provisions.
17. Attachments
The attachments set forth herein shall be an integral part of this Agreement.
18. Effectiveness
18.1 This Agreement shall become effective upon execution by the Parties.
18.2 Any amendments, changes and supplements to this Agreement shall be in writing and shall become effective upon completion of the governmental
filing procedures (if applicable) after the affixation of the signatures or seals of the Parties.
19. Language and Counterparts
This Agreement is written in Chinese and English in four copies. Pledgor, Pledgee and Party C shall hold one copy respectively and the other copy shall
be used for registration. Each copy of this Agreement shall have equal validity. In case there is any conflict between the Chinese version and the
English version, the Chinese version shall prevail.
The Remainder of this page is intentionally left blank
35
IN WITNESS WHEREOF, the Parties have caused their authorized representatives to execute this Equity Interest Pledge Agreement as of the date first
above written.
Party A:
Beijing 58 Daojia Information Technology Co., Ltd.
By:
Name:
Title:
/s/ Jinbo Yao
Jinbo Yao
Legal Representative
Party B:
Xiaohua Chen
By:
/s/ Xiaohua Chen
Party C:
Tianjin 58 Daojia Home Services Co., Ltd.
By:
Name:
Title:
/s/ Jinbo Yao
Jinbo Yao
Legal Representative
36
Attachments:
1.
2.
3.
4.
5.
6.
Shareholders' Register of Party C;
The Capital Contribution Certificate for Party C;
Exclusive Business Cooperation Agreement;
Loan Agreement;
Exclusive Option Agreement;
Power of Attorney.
37
Amended and Restated Exclusive Option Agreement
Exhibit 4.26
This Amended and Restated Exclusive Option Agreement (this "Agreement") is executed by and among the following Parties as of the 4th day of July,
2016 in Beijing, the People’s Republic of China (“China” or the “PRC”):
Party A:
Beijing 58 Daojia Information Technology Co., Ltd., a wholly foreign owned enterprise, organized and existing under the laws of the PRC,
with its address at Room D101A-123, Building B-2 of Zhongguancun Dongsheng Science Park, #66 Xixiaokou Road, Haidian District, Beijing;
Party B:
58 Co., Ltd., a limited liability company organized and existing under the laws of the PRC, with its address at Room 210-03, Office Building,
Nangang Industry Zone, Economic and Technological Development District, Tianjin; and
Party C:
Tianjin 58 Daojia Home Services Co., Ltd., a limited liability company organized and existing under the laws of the PRC, with its address
Square block -901-918 , #5 Meiyuan Road , Binhaigaoxin District, Tianjin.
In this Agreement, each of Party A, Party B and Party C shall be referred to as a "Party" respectively, and they shall be collectively referred to as the
"Parties".
Whereas:
1.
2.
Party B is a shareholder of Party C and as of the date hereof holds 94.1% of equity interests of Party C, representing RMB94,100,000 in the registered
capital of Party C.
Party A and Party B executed an Amended and Restated Loan Agreement (“Loan Agreement”) on July 4, 2016, according to which Party A confirmed
that it provided to Party B a loan in amount of RMB94,100,000, to be used for the purpose of subscribing for the equity interest in Party C.
Now therefore, upon mutual discussion and negotiation, the Parties have reached the following agreement:
1.
SALE AND PURCHASE OF EQUITY INTEREST
1.1 Option Granted
In consideration of the payment of RMB10 by Party A, the receipt and adequacy of which is hereby acknowledged by Party B, Party B
hereby irrevocably grants Party A an irrevocable and exclusive right to purchase, or designate one or more persons (each, a "Designee") to
purchase the equity interests in Party C then held by Party B once or at multiple times at any time in part or in whole at Party A's sole and
absolute discretion to the extent permitted by Chinese laws and at the price described in Section 1.3 herein (such right being the "Equity Interest
Purchase Option"). Except for Party A and the Designee(s), no other person shall be entitled to the Equity Interest Purchase Option or other rights
with respect to the equity interests of Party B. Party C hereby agrees to the grant by Party B of the Equity Interest Purchase Option to Party A.
The term "person" as used herein shall refer to individuals, corporations, partnerships, partners, enterprises, trusts or non-corporate organizations.
1
1.2
Steps for Exercise of Equity Interest Purchase Option
Subject to the provisions of the laws and regulations of China, Party A may exercise the Equity Interest Purchase Option by issuing a written
notice to Party B (the "Equity Interest Purchase Option Notice"), specifying: (a) Party A's or the Designee’s decision to exercise the Equity
Interest Purchase Option; (b) the portion of equity interests to be purchased by Party A or the Designee from Party B (the "Optioned Interests");
and (c) the date for purchasing the Optioned Interests and/or the date for transfer of the Optioned Interests.
1.3 Equity Interest Purchase Price
The purchase price of all equity interests held by Party B in Party C purchased by Party A by exercising the Equity Interest Purchase Option shall
be RMB94,100,000; if Party A exercises the Equity Interest Purchase Option to purchase part of the equity interests held by Party B in Party C,
the purchase price shall be calculated pro rata. If PRC law requires a minimum price higher than aforementioned price when Party A exercises
Equity Interest Purchase Option, the minimum price regulated by PRC law shall be the purchase price (collectively, the "Equity Interest Purchase
Price").
1.4 Transfer of Optioned Interests
For each exercise of the Equity Interest Purchase Option:
1.4.1
1.4.2
1.4.3
Party B shall cause Party C to promptly convene a shareholders’ meeting, at which a resolution shall be adopted approving Party B's
transfer of the Optioned Interests to Party A and/or the Designee(s);
Party B shall obtain written statements from the other shareholders of Party B giving consent to the transfer of the equity interest to
Party A and/or the Designee(s) and waiving any right of first refusal related thereto.
Party B shall execute an equity interest transfer contract with respect to each transfer with Party A and/or each Designee (whichever is
applicable), in accordance with the provisions of this Agreement and the Equity Interest Purchase Option Notice regarding the Optioned
Interests;
2
1.4.4
The relevant Parties shall execute all other necessary contracts, agreements or documents, obtain all necessary government licenses and
permits and take all necessary actions to transfer valid ownership of the Optioned Interests to Party A and/or the Designee(s),
unencumbered by any security interests, and cause Party A and/or the Designee(s) to become the registered owner(s) of the Optioned
Interests. For the purpose of this Section and this Agreement, "security interests" shall include securities, mortgages, third party's rights
or interests, any stock options, acquisition right, right of first refusal, right to offset, ownership retention or other security arrangements,
but shall be deemed to exclude any security interest created by this Agreement, Party B's Equity Interest Pledge Agreement and Party
B’s Power of Attorney. "Party B's Equity Interest Pledge Agreement" as used in this Agreement shall refer to the Amended and
Restated Equity Interest Pledge Agreement executed by and among Party A, Party B and Party C on the date hereof and any
modification, amendment and restatement thereto. “Party B’s Power of Attorney” as used in this Agreement shall refer to the Power of
Attorney executed by Party B on the date hereof granting Party A with power of attorney and any modification, amendment and
restatement thereto.
1.5
Payment
The Parties have agreed in the Loan Agreement that any proceeds obtained by Party B through the transfer of its equity interests in Party C shall
be used for repayment of the loan provided by Party A in accordance with the Loan Agreement. Accordingly, upon exercise of the Equity
Interest Purchase Option, Party A may elect to make payment of the Equity Interest Purchase Price through cancellation of the outstanding
amount of the loan owed by Party B to Party A, in which case Party A shall not be required to pay any additional Equity Interest Purchase Price
to Party B, unless the Total Equity Interest Purchase Price set forth herein is required to be adjusted in accordance with applicable laws and
regulations.
2. COVENANTS
2.1
Covenants regarding Party C
Party B (as the shareholders of Party C) and Party C hereby covenant as follows:
2.1.1 Without the prior written consent of Party A, they shall not in any manner supplement, change or amend the articles of association and
bylaws of Party C, increase or decrease its registered capital, or change its structure of registered capital in other manners;
2.1.2
They shall maintain Party C's corporate existence in accordance with good financial and business standards, obtain and maintain all
necessary government licenses and permits and practice by prudently and effectively operating its business and handling its affairs;
3
2.1.3 Without the prior written consent of Party A, they shall not at any time following the date hereof, sell, transfer, mortgage or dispose of
in any manner any assets of Party C or legal or beneficial interest in the business or revenues of Party C, or allow the encumbrance
thereon of any security interest;
2.1.4 Without the prior written consent of Party A, they shall not incur, inherit, guarantee or suffer the existence of any debt, except for (i)
debts incurred in the ordinary course of business other than through loans; and (ii) debts disclosed to Party A for which Party A's written
consent has been obtained;
2.1.5
They shall always operate all of Party C's businesses during the ordinary course of business to maintain the asset value of Party C and
refrain from any action/omission that may affect Party C's operating status and asset value;
2.1.6 Without the prior written consent of Party A, they shall not cause Party C to execute any major contract, except the contracts in the
ordinary course of business (for purpose of this subsection, a contract with a price exceeding RMB500,000 shall be deemed a major
contract);
2.1.7 Without the prior written consent of Party A, they shall not cause Party C to provide any person with any loan or credit;
2.1.8
They shall provide Party A with information on Party C's business operations and financial condition at Party A's request;
2.1.9
If requested by Party A, they shall procure and maintain insurance in respect of Party C's assets and business from an insurance carrier
acceptable to Party A, at an amount and type of coverage typical for companies that operate similar businesses;
2.1.10 Without the prior written consent of Party A, they shall not cause or permit Party C to merge, consolidate with, acquire or invest in any
person;
2.1.11 They shall immediately notify Party A of the occurrence or possible occurrence of any litigation, arbitration or administrative
proceedings relating to Party C's assets, business or revenue;
2.1.12 To maintain the ownership by Party C of all of its assets, they shall execute all necessary or appropriate documents, take all necessary or
appropriate actions and file all necessary or appropriate complaints or raise necessary and appropriate defenses against all claims;
4
2.1.13 Without the prior written consent of Party A, they shall ensure that Party C shall not in any manner distribute dividends to its
shareholders, provided that upon Party A's written request, Party C shall immediately distribute all distributable profits to its
shareholders; and
2.1.14 At the request of Party A, they shall appoint any persons designated by Party A as the director(s) of Party C.
2.1.15 Without Party A’s prior written consent, they shall not engage in any business in competition with Party A or its affiliates.
2.1.16 Unless otherwise required by PRC law, Party C shall not be dissolved or liquated without prior written consent by Party A.
2.2
Covenants of Party B
Party B hereby covenants as follows:
2.2.1 Without the prior written consent of Party A, Party B shall not sell, transfer, mortgage or dispose of in any other manner any legal or
beneficial interest in the equity interests in Party C held by Party B, or allow the encumbrance thereon, except for the interest placed in
accordance with Party B's Equity Interest Pledge Agreement and Party B’s Power of Attorney;
2.2.2
2.2.3
2.2.4
2.2.5
Party B shall cause the shareholders' meeting and/or the director(s) of Party C not to approve the sale, transfer, mortgage or disposition
in any other manner of any legal or beneficial interest in the equity interests in Party C held by Party B, or allow the encumbrance
thereon of any security interest, without the prior written consent of Party A, except for the interest placed in accordance with Party B's
Equity Interest Pledge Agreement and Party B’s Power of Attorney;
Party B shall cause the shareholders' meeting or the director(s) of Party C not to approve the merger or consolidation with any person, or
the acquisition of or investment in any person, without the prior written consent of Party A;
Party B shall immediately notify Party A of the occurrence or possible occurrence of any litigation, arbitration or administrative
proceedings relating to the equity interests in Party C held by Party B;
Party B shall cause the shareholders' meeting or the director(s) of Party C to vote their approval of the transfer of the Optioned Interests
as set forth in this Agreement and to take any and all other actions that may be requested by Party A;
5
2.2.6
To the extent necessary to maintain Party B's ownership in Party C, Party B shall execute all necessary or appropriate documents, take
all necessary or appropriate actions and file all necessary or appropriate complaints or raise necessary and appropriate defenses against
all claims;
2.2.7
Party B shall appoint any designee of Party A as the director(s) of Party C, at the request of Party A;
2.2.8
2.2.9
Party B hereby waives its right of first of refusal to transfer of equity interest by the other existing shareholders of Party C to Party A (if
any); and
Party B shall promptly donate any profit, interest, dividend or proceeds of liquidation to Party A or any other person designated by Party
A to the extent permitted under applicable PRC laws.
2.2.10 Party B shall strictly abide by the provisions of this Agreement and other contracts jointly or separately executed by and among Party B,
Party C and Party A, perform the obligations hereunder and thereunder, and refrain from any action/omission that may affect the
effectiveness and enforceability thereof. To the extent that Party B has any remaining rights with respect to the equity interests subject
to this Agreement hereunder or under the Equity Interest Pledge Agreement among the same parties hereto or under the Power of
Attorney granted in favor of Party A, Party B shall not exercise such rights except in accordance with the written instructions of Party
A.
3. REPRESENTATIONS AND WARRANTIES
Party B and Party C hereby represent and warrant to Party A, jointly and severally, as of the date of this Agreement and each date of transfer of the
Optioned Interests, that:
3.1
They have the authority to execute and deliver this Agreement and any equity interest transfer contracts to which they are parties concerning the
Optioned Interests to be transferred thereunder (each, a "Transfer Contracts"), and to perform their obligations under this Agreement and any
Transfer Contracts. Party B and Party C agree to enter into Transfer Contracts consistent with the terms of this Agreement upon Party A’s
exercise of the Equity Interest Purchase Option. This Agreement and the Transfer Contracts to which they are parties constitute or will constitute
their legal, valid and binding obligations and shall be enforceable against them in accordance with the provisions thereof;
6
3.2
3.3
Party B and Party C have obtained any and all approvals and consents from government authorities and third parties (if required) for execution,
delivery and performance of this Agreement.
The execution and delivery of this Agreement or any Transfer Contracts and the obligations under this Agreement or any Transfer Contracts
shall not: (i) cause any violation of any applicable laws of China; (ii) be inconsistent with the articles of association, bylaws or other
organizational documents of Party C; (iii) cause the violation of any contracts or instruments to which they are a party or which are binding on
them, or constitute any breach under any contracts or instruments to which they are a party or which are binding on them; (iv) cause any
violation of any condition for the grant and/or continued effectiveness of any licenses or permits issued to either of them; or (v) cause the
suspension or revocation of or imposition of additional conditions to any licenses or permits issued to either of them;
3.4
Party B has a good and merchantable title to the equity interests in Party C he holds. Except for Party B's Equity Interest Pledge Agreement and
Party B’s Power of Attorney, Party B has not placed any security interest on such equity interests;
3.5
Party C has a good and merchantable title to all of its assets, and has not placed any security interest on the aforementioned assets;
3.6
Party C does not have any outstanding debts, except for (i) debt incurred in the ordinary course of business; and (ii) debts disclosed to Party A
for which Party A's written consent has been obtained.
3.7
Party C has complied with all laws and regulations of China applicable to asset acquisitions; and
3.8
There are no pending or threatened litigation, arbitration or administrative proceedings relating to the equity interests in Party C, assets of Party
C or Party C.
4. EFFECTIVE DATE
This Agreement shall become effective upon execution by the Parties, and remain effective until all equity interests held by Party B in Party C have
been transferred or assigned to Party A and/or any other person designated by Party A in accordance with this Agreement.
5. GOVERNING LAW AND RESOLUTION OF DISPUTES
5.1
Governing law
The execution, effectiveness, construction, performance, amendment and termination of this Agreement and the resolution of disputes hereunder
shall be governed by the laws of PRC.
7
5.2 Methods of Resolution of Disputes
In the event of any dispute with respect to the construction and performance of this Agreement, the Parties shall first resolve the dispute through
friendly negotiations. In the event the Parties fail to reach an agreement on the dispute within 30 days after either Party's request to the other
Parties for resolution of the dispute through negotiations, either Party may submit the relevant dispute to the China International Economic and
Trade Arbitration Commission for arbitration, in accordance with its Arbitration Rules. The arbitration shall be conducted in Beijing, and the
language used in arbitration shall be Chinese. The arbitration award shall be final and binding on all Parties.
6. TAXES AND FEES
Each Party shall pay any and all transfer and registration tax, expenses and fees incurred thereby or levied thereon in accordance with the laws of China
in connection with the preparation and execution of this Agreement and the Transfer Contracts, as well as the consummation of the transactions
contemplated under this Agreement and the Transfer Contracts.
7. NOTICES
7.1
All notices and other communications required or permitted to be given pursuant to this Agreement shall be delivered personally or sent by
registered mail, postage prepaid, by a commercial courier service or by facsimile transmission to the address of such Party set forth below. A
confirmation copy of each notice shall also be sent by email. The dates on which notices shall be deemed to have been effectively given shall be
determined as follows:
7.1.1
7.1.2
Notices given by personal delivery, by courier service or by registered mail, postage prepaid, shall be deemed effectively given on the
date of receipt or refusal at the address specified for notices.
Notices given by facsimile transmission shall be deemed effectively given on the date of successful transmission (as evidenced by an
automatically generated confirmation of transmission).
7.2
For the purpose of notices, the addresses of the Parties are as follows:
Party A:
Address:
Attn:
Phone:
Beijing 58 Daojia Information Technology Co., Ltd.
Building 105, No.10 Jiuxianqiao North Road Jia, Chaoyang District, Beijing
Jinbo Yao
+8610 59565858
8
Party B:
Address:
Phone:
Party C:
Address:
Attn:
Phone:
58 Co., Ltd.
Building 105, No.10 Jiuxianqiao North Road Jia, Chaoyang District, Beijing
+8610 59565858
Tianjin 58 Daojia Home Services Co., Ltd.
Building 105, No.10 Jiuxianqiao North Road Jia, Chaoyang District, Beijing
Jinbo Yao
+8610 59565858
7.3
Any Party may at any time change its address for notices by a notice delivered to the other Parties in accordance with the terms hereof.
8. CONFIDENTIALITY
The Parties acknowledge that the existence and the terms of this Agreement and any oral or written information exchanged between the Parties in
connection with the preparation and performance this Agreement are regarded as confidential information. Each Party shall maintain confidentiality of
all such confidential information, and without obtaining the written consent of the other Party, it shall not disclose any relevant confidential information
to any third parties, except for the information that: (a) is or will be in the public domain (other than through the receiving Party’s unauthorized
disclosure); (b) is under the obligation to be disclosed pursuant to the applicable laws or regulations, rules of any stock exchange, or orders of the court
or other government authorities; or (c) is required to be disclosed by any Party to its shareholders, investors, legal counsels or financial advisors
regarding the transaction contemplated hereunder, provided that such shareholders, investors, legal counsels or financial advisors shall be bound by the
confidentiality obligations similar to those set forth in this Section. Disclosure of any confidential information by the staff members or agencies hired by
any Party shall be deemed disclosure of such confidential information by such Party, which Party shall be held liable for breach of this Agreement. This
Section shall survive the termination of this Agreement for any reason.
9. FURTHER WARRANTIES
The Parties agree to promptly execute documents that are reasonably required for or are conducive to the implementation of the provisions and purposes
of this Agreement and take further actions that are reasonably required for or are conducive to the implementation of the provisions and purposes of this
Agreement.
10. BREACH OF AGREEMENT
10.1
If Party B or Party C conducts any material breach of any term of this Agreement, Party A shall have right to terminate this Agreement and
require the Party B or Party C to compensate all damages; this Section 10 shall not prejudice any other rights of Party A herein;
9
10.2
If Party A conducts any breach of any term of this Agreement, Party B or Party C shall not terminate this Agreement in any event unless
otherwise required by applicable laws.
11. MISCELLANEOUS
11.1
Amendment, change and supplement
Any amendment, change and supplement to this Agreement shall require the execution of a written agreement by all of the Parties.
11.2
Entire agreement
Except for the amendments, supplements or changes in writing executed after the execution of this Agreement, this Agreement shall constitute
the entire agreement reached by and among the Parties hereto with respect to the subject matter hereof, and shall supercede all prior oral and
written consultations, representations and contracts reached with respect to the subject matter of this Agreement.
11.3
Headings
The headings of this Agreement are for convenience only, and shall not be used to interpret, explain or otherwise affect the meanings of the
provisions of this Agreement.
11.4
Language
This Agreement is written in both Chinese and English language in three copies, each Party having one copy with equal legal validity; in case
there is any conflict between the Chinese version and the English version, the Chinese version shall prevail.
11.5
Severability
In the event that one or several of the provisions of this Agreement are found to be invalid, illegal or unenforceable in any aspect in accordance
with any laws or regulations, the validity, legality or enforceability of the remaining provisions of this Agreement shall not be affected or
compromised in any respect. The Parties shall strive in good faith to replace such invalid, illegal or unenforceable provisions with effective
provisions that accomplish to the greatest extent permitted by law and the intentions of the Parties, and the economic effect of such effective
provisions shall be as close as possible to the economic effect of those invalid, illegal or unenforceable provisions.
10
11.6
Successors
This Agreement shall be binding on and shall inure to the interest of the respective successors of the Parties and the permitted assigns of such
Parties.
11.7
Survival
11.7.1 Any obligations that occur or that are due as a result of this Agreement upon the expiration or early termination of this Agreement shall
survive the expiration or early termination thereof.
11.7.2 The provisions of Sections 5, 8, 10 and this Section 11.7 shall survive the termination of this Agreement.
11.8 Waivers
Any Party may waive the terms and conditions of this Agreement, provided that such a waiver must be provided in writing and shall require
the signatures of the Parties. No waiver by any Party in certain circumstances with respect to a breach by other Parties shall operate as a waiver
by such a Party with respect to any similar breach in other circumstances.
IN WITNESS WHEREOF, the Parties have caused their authorized representatives to execute this Exclusive Option Agreement as of the date first
above written.
11
Party A:
Beijing 58 Daojia Information Technology Co., Ltd.
By:
Name:
Title:
/s/ Jinbo Yao
Jinbo Yao
Legal Representative
Party B:
58 Co. Ltd.
By:
Name:
Title:
/s/ Jinbo Yao
Jinbo Yao
Legal Representative
Party C:
Tianjin 58 Daojia Home Services Co., Ltd.
By:
Name:
Title:
/s/ Jinbo Yao
Jinbo Yao
Legal Representative
12
Exclusive Option Agreement
This (this "Agreement") is executed by and among the following Parties as of the 5th day of August, 2015 in Beijing, the People’s Republic of China
(“China” or the “PRC”):
Party A: Beijing 58 Daojia Information Technology Co., Ltd., a wholly foreign owned enterprise, organized and existing under the laws of the PRC,
with its address at Room D101A-123, Building B-2 of Zhongguancun Dongsheng Science Park, #66 Xixiaokou Road, Haidian District, Beijing;
Party B: Jinbo Yao, a Chinese citizen with Chinese Identification No.: ; and
Party C: Tianjin 58 Daojia Home Services Co., Ltd., a limited liability company organized and existing under the laws of the PRC, with its address at
Square block -901-918 , #5 Meiyuan Road , Binhaigaoxin District, Tianjin.
In this Agreement, each of Party A, Party B and Party C shall be referred to as a "Party" respectively, and they shall be collectively referred to as the
"Parties".
Whereas:
1.
2.
Party B is a shareholder of Party C and as of the date hereof holds 1.4% of equity interests of Party C, representing RMB1,400,000 in the registered
capital of Party C.
Party A and Party B executed a Loan Agreement (“Loan Agreement”) on August 5, 2015, according to which Party A confirmed that it provided to
Party B a loan in amount of RMB1,400,000, to be used for the purpose of subscribing the equity interest in Party C.
Now therefore, upon mutual discussion and negotiation, the Parties have reached the following agreement:
1.
SALE AND PURCHASE OF EQUITY INTEREST
1.1 Option Granted
In consideration of the payment of RMB10 by Party A, the receipt and adequacy of which is hereby acknowledged by Party B, Party B hereby
irrevocably grants Party A an irrevocable and exclusive right to purchase, or designate one or more persons (each, a "Designee") to purchase the
equity interests in Party C then held by Party B once or at multiple times at any time in part or in whole at Party A's sole and absolute discretion
to the extent permitted by Chinese laws and at the price described in Section 1.3 herein (such right being the "Equity Interest Purchase Option").
Except for Party A and the Designee(s), no other person shall be entitled to the Equity Interest Purchase Option or other rights with respect to the
equity interests of Party B. Party C hereby agrees to the grant by Party B of the Equity Interest Purchase Option to Party A. The term "person" as
used herein shall refer to individuals, corporations, partnerships, partners, enterprises, trusts or non-corporate organizations.
13
1.2
Steps for Exercise of Equity Interest Purchase Option
Subject to the provisions of the laws and regulations of China, Party A may exercise the Equity Interest Purchase Option by issuing a written
notice to Party B (the "Equity Interest Purchase Option Notice"), specifying: (a) Party A's or the Designee’s decision to exercise the Equity
Interest Purchase Option; (b) the portion of equity interests to be purchased by Party A or the Designee from Party B (the "Optioned Interests");
and (c) the date for purchasing the Optioned Interests and/or the date for transfer of the Optioned Interests.
1.3 Equity Interest Purchase Price
The purchase price of all equity interests held by Party B in Party C purchased by Party A by exercising the Equity Interest Purchase Option shall
be RMB1,400,000; if Party A exercises the Equity Interest Purchase Option to purchase part of the equity interests held by Party B in Party C, the
purchase price shall be calculated pro rata. If PRC law requires a minimum price higher than aforementioned price when Party A exercises Equity
Interest Purchase Option, the minimum price regulated by PRC law shall be the purchase price (collectively, the "Equity Interest Purchase
Price").
1.4 Transfer of Optioned Interests
For each exercise of the Equity Interest Purchase Option:
1.4.1
1.4.2
1.4.3
Party B shall cause Party C to promptly convene a shareholders’ meeting, at which a resolution shall be adopted approving Party B's
transfer of the Optioned Interests to Party A and/or the Designee(s);
Party B shall obtain written statements from the other shareholders of Party B giving consent to the transfer of the equity interest to
Party A and/or the Designee(s) and waiving any right of first refusal related thereto.
Party B shall execute an equity interest transfer contract with respect to each transfer with Party A and/or each Designee (whichever is
applicable), in accordance with the provisions of this Agreement and the Equity Interest Purchase Option Notice regarding the Optioned
Interests;
14
1.4.4
The relevant Parties shall execute all other necessary contracts, agreements or documents, obtain all necessary government licenses and
permits and take all necessary actions to transfer valid ownership of the Optioned Interests to Party A and/or the Designee(s),
unencumbered by any security interests, and cause Party A and/or the Designee(s) to become the registered owner(s) of the Optioned
Interests. For the purpose of this Section and this Agreement, "security interests" shall include securities, mortgages, third party's rights
or interests, any stock options, acquisition right, right of first refusal, right to offset, ownership retention or other security arrangements,
but shall be deemed to exclude any security interest created by this Agreement, Party B's Equity Interest Pledge Agreement and Party
B’s Power of Attorney. "Party B's Equity Interest Pledge Agreement" as used in this Agreement shall refer to the Equity Interest Pledge
Agreement executed by and among Party A, Party B and Party C on the date hereof and any modification, amendment and restatement
thereto. “Party B’s Power of Attorney” as used in this Agreement shall refer to the Power of Attorney executed by Party B on the date
hereof granting Party A with power of attorney and any modification, amendment and restatement thereto.
1.5
Payment
The Parties have agreed in the Loan Agreement that any proceeds obtained by Party B through the transfer of its equity interests in Party C shall
be used for repayment of the loan provided by Party A in accordance with the Loan Agreement. Accordingly, upon exercise of the Equity
Interest Purchase Option, Party A may elect to make payment of the Equity Interest Purchase Price through cancellation of the outstanding
amount of the loan owed by Party B to Party A, in which case Party A shall not be required to pay any additional Equity Interest Purchase Price
to Party B, unless the Total Equity Interest Purchase Price set forth herein is required to be adjusted in accordance with applicable laws and
regulations.
2. COVENANTS
2.1
Covenants regarding Party C
Party B (as the shareholders of Party C) and Party C hereby covenant as follows:
2.1.1 Without the prior written consent of Party A, they shall not in any manner supplement, change or amend the articles of association and
bylaws of Party C, increase or decrease its registered capital, or change its structure of registered capital in other manners;
2.1.2
They shall maintain Party C's corporate existence in accordance with good financial and business standards, obtain and maintain all
necessary government licenses and permits and practice by prudently and effectively operating its business and handling its affairs;
15
2.1.3 Without the prior written consent of Party A, they shall not at any time following the date hereof, sell, transfer, mortgage or dispose of
in any manner any assets of Party C or legal or beneficial interest in the business or revenues of Party C, or allow the encumbrance
thereon of any security interest;
2.1.4 Without the prior written consent of Party A, they shall not incur, inherit, guarantee or suffer the existence of any debt, except for (i)
debts incurred in the ordinary course of business other than through loans; and (ii) debts disclosed to Party A for which Party A's written
consent has been obtained;
2.1.5
They shall always operate all of Party C's businesses during the ordinary course of business to maintain the asset value of Party C and
refrain from any action/omission that may affect Party C's operating status and asset value;
2.1.6 Without the prior written consent of Party A, they shall not cause Party C to execute any major contract, except the contracts in the
ordinary course of business (for purpose of this subsection, a contract with a price exceeding RMB500,000 shall be deemed a major
contract);
2.1.7 Without the prior written consent of Party A, they shall not cause Party C to provide any person with any loan or credit;
2.1.8
They shall provide Party A with information on Party C's business operations and financial condition at Party A's request;
2.1.9
If requested by Party A, they shall procure and maintain insurance in respect of Party C's assets and business from an insurance carrier
acceptable to Party A, at an amount and type of coverage typical for companies that operate similar businesses;
2.1.10 Without the prior written consent of Party A, they shall not cause or permit Party C to merge, consolidate with, acquire or invest in any
person;
2.1.11 They shall immediately notify Party A of the occurrence or possible occurrence of any litigation, arbitration or administrative
proceedings relating to Party C's assets, business or revenue;
2.1.12 To maintain the ownership by Party C of all of its assets, they shall execute all necessary or appropriate documents, take all necessary or
appropriate actions and file all necessary or appropriate complaints or raise necessary and appropriate defenses against all claims;
2.1.13 Without the prior written consent of Party A, they shall ensure that Party C shall not in any manner distribute dividends to its
shareholders, provided that upon Party A's written request, Party C shall immediately distribute all distributable profits to its
shareholders; and
16
2.1.14 At the request of Party A, they shall appoint any persons designated by Party A as the director(s) of Party C.
2.1.15 Without Party A’s prior written consent, they shall not engage in any business in competition with Party A or its affiliates.
2.1.16 Unless otherwise required by PRC law, Party C shall not be dissolved or liquated without prior written consent by Party A.
2.3
Covenants of Party B
Party B hereby covenants as follows:
2.3.1 Without the prior written consent of Party A, Party B shall not sell, transfer, mortgage or dispose of in any other manner any legal or
beneficial interest in the equity interests in Party C held by Party B, or allow the encumbrance thereon, except for the interest placed in
accordance with Party B's Equity Interest Pledge Agreement and Party B’s Power of Attorney;
2.3.2
2.3.3
2.3.4
2.3.5
2.3.6
Party B shall cause the shareholders' meeting and/or the director(s) of Party C not to approve the sale, transfer, mortgage or disposition
in any other manner of any legal or beneficial interest in the equity interests in Party C held by Party B, or allow the encumbrance
thereon of any security interest, without the prior written consent of Party A, except for the interest placed in accordance with Party B's
Equity Interest Pledge Agreement and Party B’s Power of Attorney;
Party B shall cause the shareholders' meeting or the director(s) of Party C not to approve the merger or consolidation with any person, or
the acquisition of or investment in any person, without the prior written consent of Party A;
Party B shall immediately notify Party A of the occurrence or possible occurrence of any litigation, arbitration or administrative
proceedings relating to the equity interests in Party C held by Party B;
Party B shall cause the shareholders' meeting or the director(s) of Party C to vote their approval of the transfer of the Optioned Interests
as set forth in this Agreement and to take any and all other actions that may be requested by Party A;
To the extent necessary to maintain Party B's ownership in Party C, Party B shall execute all necessary or appropriate documents, take
all necessary or appropriate actions and file all necessary or appropriate complaints or raise necessary and appropriate defenses against
all claims;
17
2.3.7
Party B shall appoint any designee of Party A as the director(s) of Party C, at the request of Party A;
2.3.8
2.3.9
Party B hereby waives its right of first of refusal to transfer of equity interest by the other existing shareholders of Party C to Party A (if
any); and
Party B shall promptly donate any profit, interest, dividend or proceeds of liquidation to Party A or any other person designated by Party
A to the extent permitted under applicable PRC laws.
2.3.10 Party B shall strictly abide by the provisions of this Agreement and other contracts jointly or separately executed by and among Party B,
Party C and Party A, perform the obligations hereunder and thereunder, and refrain from any action/omission that may affect the
effectiveness and enforceability thereof. To the extent that Party B has any remaining rights with respect to the equity interests subject
to this Agreement hereunder or under the Equity Interest Pledge Agreement among the same parties hereto or under the Power of
Attorney granted in favor of Party A, Party B shall not exercise such rights except in accordance with the written instructions of Party
A.
3. REPRESENTATIONS AND WARRANTIES
Party B and Party C hereby represent and warrant to Party A, jointly and severally, as of the date of this Agreement and each date of transfer of the
Optioned Interests, that:
3.1
3.2
3.3
They have the authority to execute and deliver this Agreement and any equity interest transfer contracts to which they are parties concerning the
Optioned Interests to be transferred thereunder (each, a "Transfer Contracts"), and to perform their obligations under this Agreement and any
Transfer Contracts. Party B and Party C agree to enter into Transfer Contracts consistent with the terms of this Agreement upon Party A’s
exercise of the Equity Interest Purchase Option. This Agreement and the Transfer Contracts to which they are parties constitute or will constitute
their legal, valid and binding obligations and shall be enforceable against them in accordance with the provisions thereof;
Party B and Party C have obtained any and all approvals and consents from government authorities and third parties (if required) for execution,
delivery and performance of this Agreement.
The execution and delivery of this Agreement or any Transfer Contracts and the obligations under this Agreement or any Transfer Contracts
shall not: (i) cause any violation of any applicable laws of China; (ii) be inconsistent with the articles of association, bylaws or other
organizational documents of Party C; (iii) cause the violation of any contracts or instruments to which they are a party or which are binding on
them, or constitute any breach under any contracts or instruments to which they are a party or which are binding on them; (iv) cause any
violation of any condition for the grant and/or continued effectiveness of any licenses or permits issued to either of them; or (v) cause the
suspension or revocation of or imposition of additional conditions to any licenses or permits issued to either of them;
18
3.4
Party B has a good and merchantable title to the equity interests in Party C he holds. Except for Party B's Equity Interest Pledge Agreement and
Party B’s Power of Attorney, Party B has not placed any security interest on such equity interests;
3.5
Party C has a good and merchantable title to all of its assets, and has not placed any security interest on the aforementioned assets;
3.6
Party C does not have any outstanding debts, except for (i) debt incurred in the ordinary course of business; and (ii) debts disclosed to Party A
for which Party A's written consent has been obtained.
3.7
Party C has complied with all laws and regulations of China applicable to asset acquisitions; and
3.8
There are no pending or threatened litigation, arbitration or administrative proceedings relating to the equity interests in Party C, assets of Party
C or Party C.
4. EFFECTIVE DATE
This Agreement shall become effective upon execution by the Parties, and remain effective until all equity interests held by Party B in Party C have
been transferred or assigned to Party A and/or any other person designated by Party A in accordance with this Agreement.
5. GOVERNING LAW AND RESOLUTION OF DISPUTES
5.1 Governing law
The execution, effectiveness, construction, performance, amendment and termination of this Agreement and the resolution of disputes hereunder
shall be governed by the laws of PRC.
5.2 Methods of Resolution of Disputes
In the event of any dispute with respect to the construction and performance of this Agreement, the Parties shall first resolve the dispute through
friendly negotiations. In the event the Parties fail to reach an agreement on the dispute within 30 days after either Party's request to the other
Parties for resolution of the dispute through negotiations, either Party may submit the relevant dispute to the China International Economic and
Trade Arbitration Commission for arbitration, in accordance with its Arbitration Rules. The arbitration shall be conducted in Beijing, and the
language used in arbitration shall be Chinese. The arbitration award shall be final and binding on all Parties.
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6. TAXES AND FEES
Each Party shall pay any and all transfer and registration tax, expenses and fees incurred thereby or levied thereon in accordance with the laws of China
in connection with the preparation and execution of this Agreement and the Transfer Contracts, as well as the consummation of the transactions
contemplated under this Agreement and the Transfer Contracts.
7. NOTICES
7.1
All notices and other communications required or permitted to be given pursuant to this Agreement shall be delivered personally or sent by
registered mail, postage prepaid, by a commercial courier service or by facsimile transmission to the address of such Party set forth below. A
confirmation copy of each notice shall also be sent by email. The dates on which notices shall be deemed to have been effectively given shall be
determined as follows:
7.1.1
7.1.2
Notices given by personal delivery, by courier service or by registered mail, postage prepaid, shall be deemed effectively given on the
date of receipt or refusal at the address specified for notices.
Notices given by facsimile transmission shall be deemed effectively given on the date of successful transmission (as evidenced by an
automatically generated confirmation of transmission).
7.2
For the purpose of notices, the addresses of the Parties are as follows:
Party A:
Address:
Phone:
Facsimile:
Party B:
Address:
Phone:
Facsimile:
Party C:
Address:
Phone:
Facsimile:
Beijing 58 Daojia Information Technology Co., Ltd.
Tower E, North America International Business Center, #Yi108, Beiyuan Road, Chaoyang District, Beijing
+8610 64435588-8888
+8610-64459926
Jinbo Yao
Tower E, North America International Business Center, #Yi108, Beiyuan Road, Chaoyang District, Beijing
+8610 64435588-8888
+8610-64459926
Tianjin 58 Daojia Home Services Co., Ltd.
Tower E, North America International Business Center, #Yi108, Beiyuan Road, Chaoyang District, Beijing
+8610 64435588-8888
+8610-64459926
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7.3
Any Party may at any time change its address for notices by a notice delivered to the other Parties in accordance with the terms hereof.
8. CONFIDENTIALITY
The Parties acknowledge that the existence and the terms of this Agreement and any oral or written information exchanged between the Parties in
connection with the preparation and performance this Agreement are regarded as confidential information. Each Party shall maintain confidentiality of
all such confidential information, and without obtaining the written consent of the other Party, it shall not disclose any relevant confidential information
to any third parties, except for the information that: (a) is or will be in the public domain (other than through the receiving Party’s unauthorized
disclosure); (b) is under the obligation to be disclosed pursuant to the applicable laws or regulations, rules of any stock exchange, or orders of the court
or other government authorities; or (c) is required to be disclosed by any Party to its shareholders, investors, legal counsels or financial advisors
regarding the transaction contemplated hereunder, provided that such shareholders, investors, legal counsels or financial advisors shall be bound by the
confidentiality obligations similar to those set forth in this Section. Disclosure of any confidential information by the staff members or agencies hired by
any Party shall be deemed disclosure of such confidential information by such Party, which Party shall be held liable for breach of this Agreement. This
Section shall survive the termination of this Agreement for any reason.
9. FURTHER WARRANTIES
The Parties agree to promptly execute documents that are reasonably required for or are conducive to the implementation of the provisions and purposes
of this Agreement and take further actions that are reasonably required for or are conducive to the implementation of the provisions and purposes of this
Agreement.
10. BREACH OF AGREEMENT
10.1
10.2
If Party B or Party C conducts any material breach of any term of this Agreement, Party A shall have right to terminate this Agreement and
require the Party B or Party C to compensate all damages; this Section 10 shall not prejudice any other rights of Party A herein;
If Party A conducts any breach of any term of this Agreement, Party B or Party C shall not terminate this Agreement in any event unless
otherwise required by applicable laws.
11. MISCELLANEOUS
11.1
Amendment, change and supplement
Any amendment, change and supplement to this Agreement shall require the execution of a written agreement by all of the Parties.
21
11.2
Entire agreement
Except for the amendments, supplements or changes in writing executed after the execution of this Agreement, this Agreement shall constitute
the entire agreement reached by and among the Parties hereto with respect to the subject matter hereof, and shall supersede all prior oral and
written consultations, representations and contracts reached with respect to the subject matter of this Agreement.
11.3
Headings
The headings of this Agreement are for convenience only, and shall not be used to interpret, explain or otherwise affect the meanings of the
provisions of this Agreement.
11.4
Language
This Agreement is written in both Chinese and English language in three copies, each Party having one copy with equal legal validity; in case
there is any conflict between the Chinese version and the English version, the Chinese version shall prevail.
11.5
Severability
In the event that one or several of the provisions of this Agreement are found to be invalid, illegal or unenforceable in any aspect in accordance
with any laws or regulations, the validity, legality or enforceability of the remaining provisions of this Agreement shall not be affected or
compromised in any respect. The Parties shall strive in good faith to replace such invalid, illegal or unenforceable provisions with effective
provisions that accomplish to the greatest extent permitted by law and the intentions of the Parties, and the economic effect of such effective
provisions shall be as close as possible to the economic effect of those invalid, illegal or unenforceable provisions.
11.6
Successors
This Agreement shall be binding on and shall inure to the interest of the respective successors of the Parties and the permitted assigns of such
Parties.
22
11.7
Survival
11.7.1 Any obligations that occur or that are due as a result of this Agreement upon the expiration or early termination of this Agreement shall
survive the expiration or early termination thereof.
11.7.2 The provisions of Sections 5, 8, 10 and this Section 11.7 shall survive the termination of this Agreement.
11.8 Waivers
Any Party may waive the terms and conditions of this Agreement, provided that such a waiver must be provided in writing and shall require
the signatures of the Parties. No waiver by any Party in certain circumstances with respect to a breach by other Parties shall operate as a waiver
by such a Party with respect to any similar breach in other circumstances.
23
IN WITNESS WHEREOF, the Parties have caused their authorized representatives to execute this Exclusive Option Agreement as of the date first
above written.
Party A:
Beijing 58 Daojia Information Technology Co., Ltd.
By:
Name:
Title:
/s/ Jinbo Yao
Jinbo Yao
Legal Representative
Party B:
Jinbo Yao
By:
/s/ Jinbo Yao
Party C:
Tianjin 58 Daojia Home Services Co., Ltd.
By:
Name:
Title:
/s/ Jinbo Yao
Jinbo Yao
Legal Representative
24
Exclusive Option Agreement
This (this "Agreement") is executed by and among the following Parties as of the 5th day of August, 2015 in Beijing, the People’s Republic of China
(“China” or the “PRC”):
Party A:
Beijing 58 Daojia Information Technology Co., Ltd., a wholly foreign owned enterprise, organized and existing under the laws of the PRC,
with its address at Room D101A-123, Building B-2 of Zhongguancun Dongsheng Science Park, #66 Xixiaokou Road, Haidian District, Beijing;
Party B:
Xiaohua Chen, a citizen of China with Chinese Identification No.: ; and
Party C:
Tianjin 58 Daojia Home Services Co., Ltd., a limited liability company organized and existing under the laws of the PRC, with its address at
Square block -901-918 , #5 Meiyuan Road , Binhaigaoxin District, Tianjin.
In this Agreement, each of Party A, Party B and Party C shall be referred to as a "Party" respectively, and they shall be collectively referred to as the
"Parties".
Whereas:
1.
2.
Party B is a shareholder of Party C and as of the date hereof holds 4.5% of equity interests of Party C, representing RMB4,500,000 in the registered
capital of Party C.
Party A and Party B executed a Loan Agreement (“Loan Agreement”) on August 5, 2015, according to which Party A confirmed that it provided to
Party B a loan in amount of RMB 4,500,000, to be used for the purpose of subscribing for the registered capital of Party C.
Now therefore, upon mutual discussion and negotiation, the Parties have reached the following agreement:
1.
SALE AND PURCHASE OF EQUITY INTEREST
1.1 Option Granted
In consideration of the payment of RMB10 by Party A, the receipt and adequacy of which is hereby acknowledged by Party B, Party B hereby
irrevocably grants Party A an irrevocable and exclusive right to purchase, or designate one or more persons (each, a "Designee") to purchase the
equity interests in Party C then held by Party B once or at multiple times at any time in part or in whole at Party A's sole and absolute discretion
to the extent permitted by Chinese laws and at the price described in Section 1.3 herein (such right being the "Equity Interest Purchase Option").
Except for Party A and the Designee(s), no other person shall be entitled to the Equity Interest Purchase Option or other rights with respect to the
equity interests of Party B. Party C hereby agrees to the grant by Party B of the Equity Interest Purchase Option to Party A. The term "person" as
used herein shall refer to individuals, corporations, partnerships, partners, enterprises, trusts or non-corporate organizations.
25
1.2
Steps for Exercise of Equity Interest Purchase Option
Subject to the provisions of the laws and regulations of China, Party A may exercise the Equity Interest Purchase Option by issuing a written
notice to Party B (the "Equity Interest Purchase Option Notice"), specifying: (a) Party A's or the Designee’s decision to exercise the Equity
Interest Purchase Option; (b) the portion of equity interests to be purchased by Party A or the Designee from Party B (the "Optioned Interests");
and (c) the date for purchasing the Optioned Interests and/or the date for transfer of the Optioned Interests.
1.3 Equity Interest Purchase Price
The purchase price of all equity interests held by Party B in Party C purchased by Party A by exercising the Equity Interest Purchase Option shall
be RMB4,500,000; if Party A exercises the Equity Interest Purchase Option to purchase part of the equity interests held by Party B in Party C, the
purchase price shall be calculated pro rata. If PRC law requires a minimum price higher than aforementioned price when Party A exercises Equity
Interest Purchase Option, the minimum price regulated by PRC law shall be the purchase price (collectively, the "Equity Interest Purchase
Price").
1.4 Transfer of Optioned Interests
For each exercise of the Equity Interest Purchase Option:
1.4.1
1.4.2
1.4.3
Party B shall cause Party C to promptly convene a shareholders’ meeting, at which a resolution shall be adopted approving Party B's
transfer of the Optioned Interests to Party A and/or the Designee(s);
Party B shall obtain written statements from the other shareholders of Party B giving consent to the transfer of the equity interest to
Party A and/or the Designee(s) and waiving any right of first refusal related thereto.
Party B shall execute an equity interest transfer contract with respect to each transfer with Party A and/or each Designee (whichever is
applicable), in accordance with the provisions of this Agreement and the Equity Interest Purchase Option Notice regarding the Optioned
Interests;
26
1.4.4
The relevant Parties shall execute all other necessary contracts, agreements or documents, obtain all necessary government licenses and
permits and take all necessary actions to transfer valid ownership of the Optioned Interests to Party A and/or the Designee(s),
unencumbered by any security interests, and cause Party A and/or the Designee(s) to become the registered owner(s) of the Optioned
Interests. For the purpose of this Section and this Agreement, "security interests" shall include securities, mortgages, third party's rights
or interests, any stock options, acquisition right, right of first refusal, right to offset, ownership retention or other security arrangements,
but shall be deemed to exclude any security interest created by this Agreement, Party B's Equity Interest Pledge Agreement and Party
B’s Power of Attorney. "Party B's Equity Interest Pledge Agreement" as used in this Agreement shall refer to the Equity Interest Pledge
Agreement executed by and among Party A, Party B and Party C on the date hereof and any modification, amendment and restatement
thereto. “Party B’s Power of Attorney” as used in this Agreement shall refer to the Power of Attorney executed by Party B on the date
hereof granting Party A with power of attorney and any modification, amendment and restatement thereto.
1.5
Payment
The Parties have agreed in the Loan Agreement that any proceeds obtained by Party B through the transfer of its equity interests in Party C shall
be used for repayment of the loan provided by Party A in accordance with the Loan Agreement. Accordingly, upon exercise of the Equity
Interest Purchase Option, Party A may elect to make payment of the Equity Interest Purchase Price through cancellation of the outstanding
amount of the loan owed by Party B to Party A, in which case Party A shall not be required to pay any additional Equity Interest Purchase Price
to Party B, unless the Total Equity Interest Purchase Price set forth herein is required to be adjusted in accordance with applicable laws and
regulations.
2. COVENANTS
2.1
Covenants regarding Party C
Party B (as the shareholders of Party C) and Party C hereby covenant as follows:
2.1.1 Without the prior written consent of Party A, they shall not in any manner supplement, change or amend the articles of association and
bylaws of Party C, increase or decrease its registered capital, or change its structure of registered capital in other manners;
2.1.2
They shall maintain Party C's corporate existence in accordance with good financial and business standards, obtain and maintain all
necessary government licenses and permits and practice by prudently and effectively operating its business and handling its affairs;
27
2.1.3 Without the prior written consent of Party A, they shall not at any time following the date hereof, sell, transfer, mortgage or dispose of
in any manner any assets of Party C or legal or beneficial interest in the business or revenues of Party C, or allow the encumbrance
thereon of any security interest;
2.1.4 Without the prior written consent of Party A, they shall not incur, inherit, guarantee or suffer the existence of any debt, except for (i)
debts incurred in the ordinary course of business other than through loans; and (ii) debts disclosed to Party A for which Party A's written
consent has been obtained;
2.1.5
They shall always operate all of Party C's businesses during the ordinary course of business to maintain the asset value of Party C and
refrain from any action/omission that may affect Party C's operating status and asset value;
2.1.6 Without the prior written consent of Party A, they shall not cause Party C to execute any major contract, except the contracts in the
ordinary course of business (for purpose of this subsection, a contract with a price exceeding RMB500,000 shall be deemed a major
contract);
2.1.7 Without the prior written consent of Party A, they shall not cause Party C to provide any person with any loan or credit;
2.1.8
They shall provide Party A with information on Party C's business operations and financial condition at Party A's request;
2.1.9
If requested by Party A, they shall procure and maintain insurance in respect of Party C's assets and business from an insurance carrier
acceptable to Party A, at an amount and type of coverage typical for companies that operate similar businesses;
2.1.10 Without the prior written consent of Party A, they shall not cause or permit Party C to merge, consolidate with, acquire or invest in any
person;
2.1.11 They shall immediately notify Party A of the occurrence or possible occurrence of any litigation, arbitration or administrative
proceedings relating to Party C's assets, business or revenue;
2.1.12 To maintain the ownership by Party C of all of its assets, they shall execute all necessary or appropriate documents, take all necessary or
appropriate actions and file all necessary or appropriate complaints or raise necessary and appropriate defenses against all claims;
28
2.1.13 Without the prior written consent of Party A, they shall ensure that Party C shall not in any manner distribute dividends to its
shareholders, provided that upon Party A's written request, Party C shall immediately distribute all distributable profits to its
shareholders; and
2.1.14 At the request of Party A, they shall appoint any persons designated by Party A as the director(s) of Party C.
2.1.15 Without Party A’s prior written consent, they shall not engage in any business in competition with Party A or its affiliates.
2.1.16 Unless otherwise required by PRC law, Party C shall not be dissolved or liquated without prior written consent by Party A.
2.2
Covenants of Party B
Party B hereby covenants as follows:
2.2.1 Without the prior written consent of Party A, Party B shall not sell, transfer, mortgage or dispose of in any other manner any legal or
beneficial interest in the equity interests in Party C held by Party B, or allow the encumbrance thereon, except for the interest placed in
accordance with Party B's Equity Interest Pledge Agreement and Party B’s Power of Attorney;
2.2.2
2.2.3
2.2.4
2.2.5
2.2.6
Party B shall cause the shareholders' meeting and/or the director(s) of Party C not to approve the sale, transfer, mortgage or disposition in
any other manner of any legal or beneficial interest in the equity interests in Party C held by Party B, or allow the encumbrance thereon of
any security interest, without the prior written consent of Party A, except for the interest placed in accordance with Party B's Equity
Interest Pledge Agreement and Party B’s Power of Attorney;
Party B shall cause the shareholders' meeting or the director(s) of Party C not to approve the merger or consolidation with any person, or
the acquisition of or investment in any person, without the prior written consent of Party A;
Party B shall immediately notify Party A of the occurrence or possible occurrence of any litigation, arbitration or administrative
proceedings relating to the equity interests in Party C held by Party B;
Party B shall cause the shareholders' meeting or the director(s) of Party C to vote their approval of the transfer of the Optioned Interests
as set forth in this Agreement and to take any and all other actions that may be requested by Party A;
To the extent necessary to maintain Party B's ownership in Party C, Party B shall execute all necessary or appropriate documents, take all
necessary or appropriate actions and file all necessary or appropriate complaints or raise necessary and appropriate defenses against all
claims;
29
2.2.7
Party B shall appoint any designee of Party A as the director(s) of Party C, at the request of Party A;
2.2.8
2.2.9
Party B hereby waives its right of first of refusal to transfer of equity interest by the other existing shareholders of Party C to Party A (if
any); and
Party B shall promptly donate any profit, interest, dividend or proceeds of liquidation to Party A or any other person designated by Party
A to the extent permitted under applicable PRC laws.
2.2.10 Party B shall strictly abide by the provisions of this Agreement and other contracts jointly or separately executed by and among Party B,
Party C and Party A, perform the obligations hereunder and thereunder, and refrain from any action/omission that may affect the
effectiveness and enforceability thereof. To the extent that Party B has any remaining rights with respect to the equity interests subject to
this Agreement hereunder or under the Equity Interest Pledge Agreement among the same parties hereto or under the Power of Attorney
granted in favor of Party A, Party B shall not exercise such rights except in accordance with the written instructions of Party A.
3. REPRESENTATIONS AND WARRANTIES
Party B and Party C hereby represent and warrant to Party A, jointly and severally, as of the date of this Agreement and each date of transfer of the
Optioned Interests, that:
3.1
They have the authority to execute and deliver this Agreement and any equity interest transfer contracts to which they are parties concerning the
Optioned Interests to be transferred thereunder (each, a "Transfer Contracts"), and to perform their obligations under this Agreement and any
Transfer Contracts. Party B and Party C agree to enter into Transfer Contracts consistent with the terms of this Agreement upon Party A’s
exercise of the Equity Interest Purchase Option. This Agreement and the Transfer Contracts to which they are parties constitute or will constitute
their legal, valid and binding obligations and shall be enforceable against them in accordance with the provisions thereof;
3.2
Party B and Party C have obtained any and all approvals and consents from government authorities and third parties (if required) for execution,
delivery and performance of this Agreement.
30
3.3
The execution and delivery of this Agreement or any Transfer Contracts and the obligations under this Agreement or any Transfer Contracts
shall not: (i) cause any violation of any applicable laws of China; (ii) be inconsistent with the articles of association, bylaws or other
organizational documents of Party C; (iii) cause the violation of any contracts or instruments to which they are a party or which are binding on
them, or constitute any breach under any contracts or instruments to which they are a party or which are binding on them; (iv) cause any
violation of any condition for the grant and/or continued effectiveness of any licenses or permits issued to either of them; or (v) cause the
suspension or revocation of or imposition of additional conditions to any licenses or permits issued to either of them;
3.4
Party B has a good and merchantable title to the equity interests in Party C he holds. Except for Party B's Equity Interest Pledge Agreement and
Party B’s Power of Attorney, Party B has not placed any security interest on such equity interests;
3.5
Party C has a good and merchantable title to all of its assets, and has not placed any security interest on the aforementioned assets;
3.6
Party C does not have any outstanding debts, except for (i) debt incurred in the ordinary course of business; and (ii) debts disclosed to Party A
for which Party A's written consent has been obtained.
3.7
Party C has complied with all laws and regulations of China applicable to asset acquisitions; and
3.8
There are no pending or threatened litigation, arbitration or administrative proceedings relating to the equity interests in Party C, assets of Party
C or Party C.
4. EFFECTIVE DATE
This Agreement shall become effective upon execution by the Parties, and remain effective until all equity interests held by Party B in Party C have
been transferred or assigned to Party A and/or any other person designated by Party A in accordance with this Agreement.
5. GOVERNING LAW AND RESOLUTION OF DISPUTES
5.1
Governing law
The execution, effectiveness, construction, performance, amendment and termination of this Agreement and the resolution of disputes hereunder
shall be governed by the laws of PRC.
5.2 Methods of Resolution of Disputes
In the event of any dispute with respect to the construction and performance of this Agreement, the Parties shall first resolve the dispute through
friendly negotiations. In the event the Parties fail to reach an agreement on the dispute within 30 days after either Party's request to the other
Parties for resolution of the dispute through negotiations, either Party may submit the relevant dispute to the China International Economic and
Trade Arbitration Commission for arbitration, in accordance with its Arbitration Rules. The arbitration shall be conducted in Beijing, and the
language used in arbitration shall be Chinese. The arbitration award shall be final and binding on all Parties.
31
6. TAXES AND FEES
Each Party shall pay any and all transfer and registration tax, expenses and fees incurred thereby or levied thereon in accordance with the laws of China
in connection with the preparation and execution of this Agreement and the Transfer Contracts, as well as the consummation of the transactions
contemplated under this Agreement and the Transfer Contracts.
7. NOTICES
7.1
All notices and other communications required or permitted to be given pursuant to this Agreement shall be delivered personally or sent by
registered mail, postage prepaid, by a commercial courier service or by facsimile transmission to the address of such Party set forth below. A
confirmation copy of each notice shall also be sent by email. The dates on which notices shall be deemed to have been effectively given shall be
determined as follows:
7.1.1
7.1.2
Notices given by personal delivery, by courier service or by registered mail, postage prepaid, shall be deemed effectively given on the
date of receipt or refusal at the address specified for notices.
Notices given by facsimile transmission shall be deemed effectively given on the date of successful transmission (as evidenced by an
automatically generated confirmation of transmission).
7.2
For the purpose of notices, the addresses of the Parties are as follows:
Party A:
Address:
Attn:
Phone:
Facsimile:
Party B:
Address:
Phone:
Facsimile:
Party C:
Address:
Attn:
Phone:
Facsimile:
Beijing 58 Daojia Information Technology Co., Ltd.
Tower E, North America International Business Center, #Yi108, Beiyuan Road, Chaoyang District, Beijing
Jinbo Yao
+8610 64435588-8888
+8610-64459926
Xiaohua Chen
Tower E, North America International Business Center, #Yi108, Beiyuan Road, Chaoyang District, Beijing
+8610 64435588-8888
+8610-64459926
Tianjin 58 Daojia Home Services Co., Ltd.
Tower E, North America International Business Center, #Yi108, Beiyuan Road, Chaoyang District, Beijing
Jinbo Yao
+8610 64435588-8888
+8610-64459926
32
7.3
Any Party may at any time change its address for notices by a notice delivered to the other Parties in accordance with the terms hereof.
8. CONFIDENTIALITY
The Parties acknowledge that the existence and the terms of this Agreement and any oral or written information exchanged between the Parties in
connection with the preparation and performance this Agreement are regarded as confidential information. Each Party shall maintain confidentiality of
all such confidential information, and without obtaining the written consent of the other Party, it shall not disclose any relevant confidential information
to any third parties, except for the information that: (a) is or will be in the public domain (other than through the receiving Party’s unauthorized
disclosure); (b) is under the obligation to be disclosed pursuant to the applicable laws or regulations, rules of any stock exchange, or orders of the court
or other government authorities; or (c) is required to be disclosed by any Party to its shareholders, investors, legal counsels or financial advisors
regarding the transaction contemplated hereunder, provided that such shareholders, investors, legal counsels or financial advisors shall be bound by the
confidentiality obligations similar to those set forth in this Section. Disclosure of any confidential information by the staff members or agencies hired by
any Party shall be deemed disclosure of such confidential information by such Party, which Party shall be held liable for breach of this Agreement. This
Section shall survive the termination of this Agreement for any reason.
9. FURTHER WARRANTIES
The Parties agree to promptly execute documents that are reasonably required for or are conducive to the implementation of the provisions and purposes
of this Agreement and take further actions that are reasonably required for or are conducive to the implementation of the provisions and purposes of this
Agreement.
10. BREACH OF AGREEMENT
10.1
10.2
If Party B or Party C conducts any material breach of any term of this Agreement, Party A shall have right to terminate this Agreement and
require the Party B or Party C to compensate all damages; this Section 10 shall not prejudice any other rights of Party A herein;
If Party A conducts any breach of any term of this Agreement, Party B or Party C shall not terminate this Agreement in any event unless
otherwise required by applicable laws.
33
11. MISCELLANEOUS
11.1
Amendment, change and supplement
Any amendment, change and supplement to this Agreement shall require the execution of a written agreement by all of the Parties.
11.2
Entire agreement
Except for the amendments, supplements or changes in writing executed after the execution of this Agreement, this Agreement shall constitute
the entire agreement reached by and among the Parties hereto with respect to the subject matter hereof, and shall supercede all prior oral and
written consultations, representations and contracts reached with respect to the subject matter of this Agreement.
11.3
Headings
The headings of this Agreement are for convenience only, and shall not be used to interpret, explain or otherwise affect the meanings of the
provisions of this Agreement.
11.4
Language
This Agreement is written in both Chinese and English language in three copies, each Party having one copy with equal legal validity; in case
there is any conflict between the Chinese version and the English version, the Chinese version shall prevail.
11.5
Severability
In the event that one or several of the provisions of this Agreement are found to be invalid, illegal or unenforceable in any aspect in accordance
with any laws or regulations, the validity, legality or enforceability of the remaining provisions of this Agreement shall not be affected or
compromised in any respect. The Parties shall strive in good faith to replace such invalid, illegal or unenforceable provisions with effective
provisions that accomplish to the greatest extent permitted by law and the intentions of the Parties, and the economic effect of such effective
provisions shall be as close as possible to the economic effect of those invalid, illegal or unenforceable provisions.
11.6
Successors
This Agreement shall be binding on and shall inure to the interest of the respective successors of the Parties and the permitted assigns of such
Parties.
34
11.7
Survival
11.7.1 Any obligations that occur or that are due as a result of this Agreement upon the expiration or early termination of this Agreement shall
survive the expiration or early termination thereof.
11.7.2 The provisions of Sections 5, 8, 10 and this Section 11.7 shall survive the termination of this Agreement.
11.8 Waivers
Any Party may waive the terms and conditions of this Agreement, provided that such a waiver must be provided in writing and shall require
the signatures of the Parties. No waiver by any Party in certain circumstances with respect to a breach by other Parties shall operate as a waiver
by such a Party with respect to any similar breach in other circumstances.
35
IN WITNESS WHEREOF, the Parties have caused their authorized representatives to execute this Exclusive Option Agreement as of the date first
above written.
Party A:
Beijing 58 Daojia Information Technology Co., Ltd.
By:
Name:
Title:
/s/ Jinbo Yao
Jinbo Yao
Legal Representative
Party B: Xiaohua Chen
By:
/s/ Xiaohua Chen
Party C:
Tianjin 58 Daojia Home Services Co., Ltd.
By:
Name:
Title:
/s/ Jinbo Yao
Jinbo Yao
Legal Representative
36
Amended and Restated Power of Attorney
Exhibit 4.27
We, 58 Co., Ltd., a limited liability company organized and existing under the laws of the PRC, and a holder of 94.1% of the entire registered capital in
Tianjin 58 Daojia Home Services Co., Ltd. ("Domestic Company") as of the date when the Amended and Restated Power of Attorney ("Power of Attorney")
is executed, hereby irrevocably authorize Beijing 58 Daojia Information Technology Co., Ltd. ("WFOE") to exercise the following rights relating to all
equity interests held by us now and in the future (“Our Shareholding”) during the term of this Power of Attorney:
WFOE is hereby authorized to act on our behalf as our exclusive agent and attorney with respect to all matters concerning Our Shareholding, including
without limitation to: 1) attend shareholders' meetings of Domestic Company; 2) exercise all the shareholder's rights and shareholder's voting rights we are
entitled to under the laws of China and Domestic Company's Articles of Association, including but not limited to the sale or transfer or pledge or disposition
of Our Shareholding in part or in whole; and 3) designate and appoint on our behalf the legal representative, the directors, supervisors, the chief executive
officer and other senior management members of Domestic Company.
Without limiting the generality of the powers granted hereunder, WFOE shall have the power and authority to, on our behalf, execute all the
documents we shall sign as stipulated in the Amended and Restated Exclusive Option Agreement entered into by and among we, WFOE and Domestic
Company on July 4, 2016 and the Amended and Restated Equity Pledge Agreement entered into by and among we, WFOE and Domestic Company on July
4, 2016 (including any modification, amendment and restatement thereto, collectively the “Transaction Documents”), and perform the terms of the
Transaction Documents.
All the actions associated with Our Shareholding conducted by WFOE shall be deemed as our own actions, and all the documents related to Our
Shareholding executed by WFOE shall be deemed to be executed by me. We hereby acknowledge and ratify those actions and/or documents by WFOE.
WFOE is entitled to re-authorize or assign its rights related to the aforesaid matters to any other person or entity at its own discretion and without
giving prior notice to us or obtaining our consent. If required by PRC laws, WFOE shall designate a PRC citizen to exercise the aforementioned rights.
This Power of Attorney is coupled with an interest and shall be irrevocable and continuously valid from the date of execution of this Power of
Attorney, so long as we are a shareholder of Domestic Company.
During the term of this Power of Attorney, we hereby waive all the rights associated with Our Shareholding, which have been authorized to WFOE
through this Power of Attorney, and shall not exercise such rights by myself.
This Power of Attorney is written in Chinese and English; in case there is any conflict between the Chinese version and the English version, the
Chinese version shall prevail.
1
58 Co., Ltd.
By:
Name:
Title:
/s/ Jinbo Yao
Jinbo Yao
Legal Representative
July 4, 2016
Accepted by:
Beijing 58 Daojia Information Technology Co., Ltd.
By:
Name:
Title:
/s/ Jinbo Yao
Jinbo Yao
Legal Representative
Acknowledged by:
Tianjin 58 Daojia Home Services Co., Ltd.
By:
Name:
Title:
/s/ Jinbo Yao
Jinbo Yao
Legal Representative
2
Power of Attorney
I, Jinbo Yao, a Chinese citizen with Chinese Identification Card No.: , and a holder of 1.4% of the entire registered capital in Tianjin 58 Daojia
Home Services Co., Ltd. ("Domestic Company") as of the date when the Power of Attorney is executed, hereby irrevocably authorize Beijing 58 Daojia
Information Technology Co., Ltd. ("WFOE") to exercise the following rights relating to all equity interests held by me now and in the future (“My
Shareholding”) during the term of this Power of Attorney:
WFOE is hereby authorized to act on behalf of myself as my exclusive agent and attorney with respect to all matters concerning My Shareholding,
including without limitation to: 1) attend shareholders' meetings of Domestic Company; 2) exercise all the shareholder's rights and shareholder's voting rights
I am entitled to under the laws of China and Domestic Company's Articles of Association, including but not limited to the sale or transfer or pledge or
disposition of My Shareholding in part or in whole; and 3) designate and appoint on behalf of myself the legal representative, the directors, supervisors, the
chief executive officer and other senior management members of Domestic Company.
Without limiting the generality of the powers granted hereunder, WFOE shall have the power and authority to, on behalf of myself, execute all the
documents I shall sign as stipulated in Exclusive Option Agreement entered into by and among I, WFOE and Domestic Company on August 5, 2015 and the
Equity Pledge Agreement entered into by and among I, WFOE and Domestic Company on August 5, 2015 (including any modification, amendment and
restatement thereto, collectively the “Transaction Documents”), and perform the terms of the Transaction Documents.
All the actions associated with My Shareholding conducted by WFOE shall be deemed as my own actions, and all the documents related to My
Shareholding executed by WFOE shall be deemed to be executed by me. I hereby acknowledge and ratify those actions and/or documents by WFOE.
WFOE is entitled to re-authorize or assign its rights related to the aforesaid matters to any other person or entity at its own discretion and without
giving prior notice to me or obtaining my consent. If required by PRC laws, WFOE shall designate a PRC citizen to exercise the aforementioned rights.
This Power of Attorney is coupled with an interest and shall be irrevocable and continuously valid from the date of execution of this Power of
Attorney, so long as I am a shareholder of Domestic Company.
During the term of this Power of Attorney, I hereby waive all the rights associated with My Shareholding, which have been authorized to WFOE
through this Power of Attorney, and shall not exercise such rights by myself.
This Power of Attorney is written in Chinese and English; in case there is any conflict between the Chinese version and the English version, the
Chinese version shall prevail.
3
Accepted by:
Beijing 58 Daojia Information Technology Co., Ltd.
By:
Name:
Title:
/s/ Jinbo Yao
Jinbo Yao
Legal Representative
Acknowledged by:
Tianjin 58 Daojia Home Services Co., Ltd.
By:
Name:
Title:
/s/ Jinbo Yao
Jinbo Yao
Legal Representative
Jinbo Yao
By:
/s/ Jinbo Yao
August 5, 2015
4
Power of Attorney
I, Xiaohua Chen, a Chinese citizen with Chinese Identification Card No.: , and a holder of 4.5% of the entire registered capital in Tianjin 58
Daojia Home Services Co., Ltd. ("Domestic Company") as of the date when the Power of Attorney is executed, hereby irrevocably authorize Beijing 58
Daojia Information Technology Co., Ltd. ("WFOE") to exercise the following rights relating to all equity interests held by me now and in the future (“My
Shareholding”) during the term of this Power of Attorney:
WFOE is hereby authorized to act on behalf of myself as my exclusive agent and attorney with respect to all matters concerning My Shareholding,
including without limitation to: 1) attend shareholders' meetings of Domestic Company; 2) exercise all the shareholder's rights and shareholder's voting rights
I am entitled to under the laws of China and Domestic Company's Articles of Association, including but not limited to the sale or transfer or pledge or
disposition of My Shareholding in part or in whole; and 3) designate and appoint on behalf of myself the legal representative, the directors, supervisors, the
chief executive officer and other senior management members of Domestic Company.
Without limiting the generality of the powers granted hereunder, WFOE shall have the power and authority to, on behalf of myself, execute all the
documents I shall sign as stipulated in Exclusive Option Agreement entered into by and among I, WFOE and Domestic Company on August 5, 2015 and the
Equity Pledge Agreement entered into by and among I, WFOE and Domestic Company on August 5, 2015 (including any modification, amendment and
restatement thereto, collectively the “Transaction Documents”), and perform the terms of the Transaction Documents.
All the actions associated with My Shareholding conducted by WFOE shall be deemed as my own actions, and all the documents related to My
Shareholding executed by WFOE shall be deemed to be executed by me. I hereby acknowledge and ratify those actions and/or documents by WFOE.
WFOE is entitled to re-authorize or assign its rights related to the aforesaid matters to any other person or entity at its own discretion and without
giving prior notice to me or obtaining my consent. If required by PRC laws, WFOE shall designate a PRC citizen to exercise the aforementioned rights.
This Power of Attorney is coupled with an interest and shall be irrevocable and continuously valid from the date of execution of this Power of
Attorney, so long as I am a shareholder of Domestic Company.
During the term of this Power of Attorney, I hereby waive all the rights associated with My Shareholding, which have been authorized to WFOE
through this Power of Attorney, and shall not exercise such rights by myself.
This Power of Attorney is written in Chinese and English; in case there is any conflict between the Chinese version and the English version, the
Chinese version shall prevail.
5
Accepted by:
Beijing 58 Daojia Information Technology Co., Ltd.
By:
Name:
Title:
/s/ Jinbo Yao
Jinbo Yao
Legal Representative
Acknowledged by:
Tianjin 58 Daojia Home Services Co., Ltd.
By:
Name:
Title:
/s/ Jinbo Yao
Jinbo Yao
Legal Representative
Xiaohua Chen
By:
/s/ Xiaohua Chen
August 5, 2015
6
Amended and Restated Loan Agreement
Exhibit 4.28
This Loan Agreement (this “Agreement”) is made and entered into by and between the Parties below as of July 4, 2016 in Beijing, China:
(1) Beijing 58 Daojia Information Technology Co., Ltd. (“Lender”), a wholly foreign owned enterprise, organized and existing under the laws of the
PRC, with its address at Room D101A-123, Building B-2 of Zhongguancun Dongsheng Science Park, #66 Xixiaokou Road, Haidian District,
Beijing;
(2) 58 Co., Ltd., a limited liability company organized and existing under the laws of the PRC, with its address at Room 210-03, Office Building,
Nangang Industry Zone, Economic and Technological Development District, Tianjin.
Each of the Lender and the Borrower shall be hereinafter referred to as a “Party” respectively, and as the “Parties” collectively.
Whereas:
1. As of the date hereof, Borrower holds 94.1% of equity interests in Tianjin 58 Daojia Home Services Co., Ltd. (“Borrower Company”). All of the
equity interest now held and hereafter acquired by Borrower in Borrower Company shall be referred to as Borrower Equity Interest;
2. Lender confirms that it agrees to provide Borrower with and Borrow confirms that he/she has received a loan which equals to RMB94,100,000 to
be used for the purposes set forth under this Agreement.
After friendly consultation, the Parties agree as follows:
1
Loan
1.1
In accordance with the terms and conditions of this Agreement, Lender and Borrower hereby acknowledge that Borrower has obtained from
Lender a loan in the amount of RMB94,100,000 (the “Loan”). The term of the Loan shall be 10 years from August 5, 2015, which may be
extended upon mutual written consent of the Parties. During the term of the Loan or the extended term of the Loan, Borrower shall immediately
repay the full amount of the Loan in the event any one or more of the following circumstances occur:
1.1.1
30 days elapse after Borrower receives a written notice from Lender requesting repayment of the Loan;
1.1.2
Borrower’s death, lack or limitation of civil capacity;
1.1.3
Borrower ceases (for any reason) to be an employee of Lender, Borrower Company or their affiliates;
1
1.1.4
Borrower engages in criminal act or is involved in criminal activities;
1.1.5
According to the applicable laws of China, foreign investors are permitted to invest in the Principle Business that is currently conducted
by Borrower Company in China with a controlling stake and/or in the form of wholly-foreign-owned enterprises, the relevant competent
authorities of China begin to approve such investments, and Lender exercises the exclusive option under the Amended and Restated
Exclusive Option Agreement (the “Exclusive Option Agreement”) described in this Agreement.
1.2
The Loan provided by Lender under this Agreement shall inure to Borrower’s benefit only and not to Borrower’s successors or assigns.
1.3
1.4
1.5
1.6
1.7
Borrower agrees to accept the aforementioned Loan provided by Lender, and hereby agrees and warrants using the Loan to increase the
registered capital of Borrower Company. Without Lender’s prior written consent, Borrower shall not use the Loan for any purpose other than as
set forth herein.
Lender and Borrower hereby agree and acknowledge that Borrower’s method of repayment shall be at the sole discretion of Lender, and may at
Lender’s option take the form of Borrower’s transferring the Borrower Equity Interest in whole to Lender or Lender’s designated persons (legal
or natural persons) pursuant to the Lender’s exercise of its right to acquire the Borrower Equity Interest under the Exclusive Option Agreement.
Lender and Borrower hereby agree and acknowledge that any proceeds from the transfer of the Borrower Equity Interest (to the extent
permissible) shall be used to repay the Loan to Lender, in accordance with this Agreement and in the manner designated by Lender.
Lender and Borrower hereby agree and acknowledge that to the extent permitted by applicable laws, Lender shall have the right but not the
obligation to purchase or designate other persons (legal or natural persons) to purchase Borrower Equity Interest in part or in whole at any time,
at the price stipulated in the Exclusive Option Agreement.
Borrower also undertakes to execute an irrevocable Amended and Restated Power of Attorney (the “Power of Attorney”), which authorizes
Lender or a legal or natural person designated by Lender to exercise all of Borrower’s rights as a shareholder of Borrower Company.
1.8 When Borrower transfers Borrower Equity Interest to Lender or Lender’s designated person(s), in the event that the transfer price of such equity
interest equals or is lower than the principal of the Loan under this Agreement, the Loan under this Agreement shall be deemed an interest-free
loan. In the event that the transfer price of such equity interest exceeds the principal of the Loan under this Agreement, the excess over the
principal shall be deemed the interest of the Loan under this Agreement payable by Borrower to Lender.
2
2
Representations and Warranties
2.1
Between the date of this Agreement and the date of termination of this Agreement, Lender hereby makes the following representations and
warranties to Borrower:
2.1.1
Lender is a corporation duly organized and legally existing in accordance with the laws of China;
2.1.2
Lender has the legal capacity to execute and perform this Agreement. The execution and performance by Lender of this Agreement is
consistent with Lender’s scope of business and the provisions of Lender’s corporate bylaws and other organizational documents, and
Lender has obtained all necessary and proper approvals and authorizations for the execution and performance of this Agreement; and
2.1.3
This Agreement constitutes Lender’s legal, valid and binding obligations enforceable in accordance with its terms.
2.2
Between the date of this Agreement and the date of termination of this Agreement, Borrower hereby makes the following representations and
warranties:
2.2.1
Borrower has the legal capacity to execute and perform this Agreement. Borrower has obtained all necessary and proper approvals and
authorizations for the execution and performance of this Agreement;
2.2.2
This Agreement constitutes Borrower’s legal, valid and binding obligations enforceable in accordance with its terms; and
2.2.3
There are no disputes, litigations, arbitrations, administrative proceedings or any other legal proceedings relating to Borrower, nor are
there any potential disputes, litigations, arbitrations, administrative proceedings or any other legal proceedings relating to Borrower.
3
Borrower’s Covenants
3.1
As and when he becomes, and for so long as he remains a shareholder of Borrower Company, Borrower covenants irrevocably that during the
term of this Agreement, Borrower shall cause Borrower Company:
3.1.1
to strictly abide by the provisions of the Exclusive Option Agreement and the Exclusive Business Cooperation Agreement to which the
Borrower Company is a party, and to refrain from any action/omission that may affect the effectiveness and enforceability of the
Exclusive Option Agreement and Exclusive Business Cooperation Agreement.
3
3.1.2
at the request of Lender (or a party designated by Lender), to execute contracts/agreements on business cooperation with Lender (or a
party designated by Lender), and to strictly abide by such contracts/agreements;
3.1.3
to provide Lender with all of the information on Borrower Company’s business operations and financial condition at Lender’s request;
3.1.4
to immediately notify Lender of the occurrence or possible occurrence of any litigation, arbitration or administrative proceedings
relating to Borrower Company's assets, business or income;
3.1.5
at the request of Lender, to appoint any persons designated by Lender as directors of Borrower Company;
3.2
Borrower covenants that during the term of this Agreement, he shall:
3.2.1
endeavor to keep Borrower Company to engage in its Principle Businesses;
3.2.2
3.2.3
3.2.4
abide by the provisions of this Agreement, the Power of Attorney, the Amended and Restated Equity Interest Pledge Agreement (the
“Equity Interest Pledge Agreement”) and the Exclusive Option Agreement to which the Borrower is a party, perform his obligations
under this Agreement, the Power of Attorney, the Equity Interest Pledge Agreement and the Exclusive Option Agreement, and refrain
from any action/omission that may affect the effectiveness and enforceability of this Agreement, the Power of Attorney, the Equity
Interest Pledge Agreement and the Exclusive Option Agreement;
not sell, transfer, mortgage or dispose of in any other manner the legal or beneficial interest in Borrower Equity Interest, or allow the
encumbrance thereon of any security interest or the encumbrance, except in accordance with the Equity Interest Pledge Agreement;
cause any shareholders’ meeting and/or the board of directors of Borrower Company not to approve the sale, transfer, mortgage or
disposition in any other manner of any legal or beneficial interest in Borrower Equity Interest, or allow the encumbrance thereon of any
security interest, except to Lender or Lender’s designated person;
3.2.5
cause any shareholders’ meeting and/or the board of directors of the Borrower Company not to approve the merger or consolidation of
Borrower Company with any person, or its acquisition of or investment in any person, without the prior written consent of Lender;
4
3.2.6
3.2.7
immediately notify Lender of the occurrence or possible occurrence of any litigation, arbitration or administrative proceedings relating
to Borrower Equity Interest;
to the extent necessary to maintain his ownership of the Borrower Equity Interest, execute all necessary or appropriate documents, take
all necessary or appropriate actions and file all necessary or appropriate complaints or raise necessary and appropriate defense against
all claims;
3.2.8
without the prior written consent of Lender, refrain from any action /omission that may have a material impact on the assets, business
and liabilities of Borrower Company;
3.2.9
appoint any designee of Lender as director of Borrower Company, at the request of Lender;
3.2.10
3.2.11
to the extent permitted by the laws of China, at the request of Lender at any time, promptly and unconditionally transfer all of Borrower
Equity Interest to Lender or Lender’s designated representative(s) at any time, and cause the other shareholders of Borrower Company
to waive their right of first refusal with respect to the share transfer described in this Section;
to the extent permitted by the laws of China, at the request of Lender at any time, cause the other shareholders of Borrower Company to
promptly and unconditionally transfer all of their equity interests to Lender or Lender’s designated representative(s) at any time, and
Borrower hereby waives his right of first refusal (if any) with respect to the share transfer described in this Section;
3.2.12
in the event that Lender purchases Borrower Equity Interest from Borrower in accordance with the provisions of the Exclusive Option
Agreement, use such purchase price obtained thereby to repay the Loan to Lender; and
3.2.13 without the prior written consent of Lender, not to cause Borrower Company to supplement, change, or amend its articles of association
in any manner, increase or decreases its registered capital or change its share capital structure in any manner.
4
Liability for Default
4.1
If Borrower conducts any material breach of any term of this Agreement, Lender shall have right to terminate this Agreement and require the
Borrower to compensate all damages; this Section 4.1 shall not prejudice any other rights of Lender herein.
5
4.2
4.3
If Lender conducts any breach of any term of this Agreement, Borrower shall not terminate this Agreement in any event unless otherwise
required by applicable laws.
In the event that Borrower fails to perform the repayment obligations set forth in this Agreement, Borrower shall pay overdue interest of 0.01%
per day for the outstanding payment, until the day Borrower repays the full principal of the Loan, overdue interests and other payable amounts.
5
Notices
5.1
All notices and other communications required or permitted to be given pursuant to this Agreement shall be delivered personally or sent by
registered mail, postage prepaid, by a commercial courier service or by facsimile transmission to the address of such Party set forth below. A
confirmation copy of each notice shall also be sent by email. The dates on which notices shall be deemed to have been effectively given shall be
determined as follows:
5.1.1 Notices given by personal delivery, by courier service or by registered mail, postage prepaid, shall be deemed effectively given on the
date of delivery.
5.1.2 Notices given by facsimile transmission shall be deemed effectively given on the date of successful transmission (as evidenced by an
automatically generated confirmation of transmission).
5.2
For the purpose of notices, the addresses of the Parties are as follows:
Lender:
Address:
Attn:
Phone:
Borrower:
Address:
Attn:
Phone:
Beijing 58 Daojia Information Technology Co., Ltd.
Building 105, No.10 Jiuxianqiao North Road Jia, Chaoyang District, Beijing
Jinbo Yao
+8610 59565858
58 Co., Ltd.
Building 105, No.10 Jiuxianqiao North Road Jia, Chaoyang District, Beijing
Jinbo Yao
+8610 59565858
5.3
Any Party may at any time change its address for notices by a notice delivered to the other Party in accordance with the terms hereof.
6
6
Confidentiality
The Parties acknowledge that any oral or written information exchanged among them with respect to this Agreement is confidential information. The
Parties shall maintain the confidentiality of all such information, and without the written consent of other Party, either Party shall not disclose any
relevant information to any third party, except in the following circumstances: (a) such information is or will be in the public domain (provided that this
is not the result of a public disclosure by the receiving party); (b) information disclosed as required by applicable laws or rules or regulations of any
stock exchange; or (c) information required to be disclosed by any Party to its legal counsel or financial advisor regarding the transaction contemplated
hereunder, and such legal counsel or financial advisor are also bound by confidentiality duties similar to the duties in this section. Disclosure of any
confidential information by the staff members or agency hired by any Party shall be deemed disclosure of such confidential information by such Party,
which Party shall be held liable for breach of this Agreement. This section shall survive the termination of this Agreement for any reason.
7
Governing Law and Resolution of Disputes
7.1 The execution, effectiveness, construction, performance, amendment and termination of this Agreement and the resolution of disputes shall be
governed by the laws of China.
7.2 In the event of any dispute with respect to the construction and performance of this Agreement, the Parties shall first resolve the dispute through
friendly negotiations. In the event the Parties fail to reach an agreement on the dispute within 30 days after either Party’s request to the other Party
for resolution of the dispute through negotiations, either Party may submit the relevant dispute to the China International Economic and Trade
Arbitration Commission for arbitration, in accordance with its then effective arbitration rules. The arbitration shall be conducted in Beijing, and the
language used in arbitration shall be Chinese. The arbitration award shall be final and binding on all Parties.
7.3 Upon the occurrence of any disputes arising from the construction and performance of this Agreement or during the pending arbitration of any
dispute, except for the matters under dispute, the Parties to this Agreement shall continue to exercise their respective rights under this Agreement
and perform their respective obligations under this Agreement.
8 Miscellaneous
8.1 This Agreement should become effective upon execution by the Parties , and shall expire upon the date of full performance by the Parties of their
respective obligations under this Agreement.
8.2 This Agreement shall be written in both Chinese and English language in two copies, each Party having one copy with equal legal validity. In case
there is any conflict between the Chinese version and the English version, the Chinese version shall apply.
7
8.3 This Agreement may be amended or supplemented through written agreement by and between Lender and Borrower. Such written amendment
agreement and/or supplementary agreement executed by and between Lender and Borrower are an integral part of this Agreement, and shall have
the same legal validity as this Agreement.
8.4 In the event that one or several of the provisions of this Agreement are found to be invalid, illegal or unenforceable in any aspect in accordance
with any laws or regulations, the validity, legality or enforceability of the remaining provisions of this Agreement shall not be affected or
compromised in any respect. The Parties shall strive in good faith to replace such invalid, illegal or unenforceable provisions with effective
provisions that accomplish to the greatest extent permitted by law the intentions of the Parties, and the economic effect of such effective
provisions shall be as close as possible to the economic effect of those invalid, illegal or unenforceable provisions.
8.5 The attachments (if any) to this Agreement shall be an integral part of this Agreement and shall have the same legal validity as this Agreement.
8.6 Any obligations that occur or that are due as a result of this Agreement upon the expiration or early termination of this Agreement shall survive the
expiration or early termination thereof. The provisions of Sections 4, 6, 7 and this Section 8.6 shall survive the termination of this Agreement.
8
IN WITNESS WHEREOF, the Parties have caused their authorized representatives to execute this Loan Agreement as of the date firs above written.
Lender: Beijing 58 Daojia Information Technology Co., Ltd.
By:
Name:
Title:
/s/ Jinbo Yao
Jinbo Yao
Legal Representative
Borrower: 58 Co. Ltd.
By:
Name:
Title:
/s/ Jinbo Yao
Jinbo Yao
Legal Representative
9
Loan Agreement
This Loan Agreement (this “Agreement”) is made and entered into by and between the Parties below as of August 5, 2015 in Beijing, China:
(1) Beijing 58 Daojia Information Technology Co., Ltd. (“Lender”), a wholly foreign owned enterprise, organized and existing under the laws of the
PRC, with its address at Room D101A-123, Building B-2 of Zhongguancun Dongsheng Science Park, #66 Xixiaokou Road, Haidian District,
Beijing;
(2) Jinbo Yao (“Borrower”), a citizen of China with Chinese Identification No.: .
Each of the Lender and the Borrower shall be hereinafter referred to as a “Party” respectively, and as the “Parties” collectively.
Whereas:
1. As of the date hereof, Borrower holds 1.4% of equity interests in Tianjin 58 Daojia Home Services Co., Ltd. (“Borrower Company”). All of the
equity interest now held and hereafter acquired by Borrower in Borrower Company shall be referred to as Borrower Equity Interest;
2. Lender confirms that it agrees to provide Borrower with and Borrow confirms that he/she has received a loan which equals to RMB1,400,000 to be
used for the purposes set forth under this Agreement.
After friendly consultation, the Parties agree as follows:
1
Loan
1.1
In accordance with the terms and conditions of this Agreement, Lender and Borrower hereby acknowledge that Borrower has obtained from
Lender a loan in the amount of RMB1,400,000 (the “Loan”). The term of the Loan shall be 10 years from the effective date of this Agreement,
which may be extended upon mutual written consent of the Parties. During the term of the Loan or the extended term of the Loan, Borrower
shall immediately repay the full amount of the Loan in the event any one or more of the following circumstances occur:
1.1.1
30 days elapse after Borrower receives a written notice from Lender requesting repayment of the Loan;
1.1.2
Borrower’s death, lack or limitation of civil capacity;
1.1.3
Borrower ceases (for any reason) to be an employee of Lender, Borrower Company or their affiliates;
10
1.1.4
Borrower engages in criminal act or is involved in criminal activities;
1.1.5
According to the applicable laws of China, foreign investors are permitted to invest in the Principle Business that is currently conducted
by Borrower Company in China with a controlling stake and/or in the form of wholly-foreign-owned enterprises, the relevant competent
authorities of China begin to approve such investments, and Lender exercises the exclusive option under the Exclusive Option
Agreement (the “Exclusive Option Agreement”) described in this Agreement.
1.2
The Loan provided by Lender under this Agreement shall inure to Borrower’s benefit only and not to Borrower’s successors or assigns.
1.3
1.4
1.5
1.6
1.7
Borrower agrees to accept the aforementioned Loan provided by Lender, and hereby agrees and warrants using the Loan to increase the
registered capital of Borrower Company. Without Lender’s prior written consent, Borrower shall not use the Loan for any purpose other than as
set forth herein.
Lender and Borrower hereby agree and acknowledge that Borrower’s method of repayment shall be at the sole discretion of Lender, and may at
Lender’s option take the form of Borrower’s transferring the Borrower Equity Interest in whole to Lender or Lender’s designated persons (legal
or natural persons) pursuant to the Lender’s exercise of its right to acquire the Borrower Equity Interest under the Exclusive Option Agreement.
Lender and Borrower hereby agree and acknowledge that any proceeds from the transfer of the Borrower Equity Interest (to the extent
permissible) shall be used to repay the Loan to Lender, in accordance with this Agreement and in the manner designated by Lender.
Lender and Borrower hereby agree and acknowledge that to the extent permitted by applicable laws, Lender shall have the right but not the
obligation to purchase or designate other persons (legal or natural persons) to purchase Borrower Equity Interest in part or in whole at any time,
at the price stipulated in the Exclusive Option Agreement.
Borrower also undertakes to execute an irrevocable Power of Attorney (the “Power of Attorney”), which authorizes Lender or a legal or natural
person designated by Lender to exercise all of Borrower’s rights as a shareholder of Borrower Company.
1.8 When Borrower transfers Borrower Equity Interest to Lender or Lender’s designated person(s), in the event that the transfer price of such equity
interest equals or is lower than the principal of the Loan under this Agreement, the Loan under this Agreement shall be deemed an interest-free
loan. In the event that the transfer price of such equity interest exceeds the principal of the Loan under this Agreement, the excess over the
principal shall be deemed the interest of the Loan under this Agreement payable by Borrower to Lender.
11
2
Representations and Warranties
2.1
Between the date of this Agreement and the date of termination of this Agreement, Lender hereby makes the following representations and
warranties to Borrower:
2.1.1
Lender is a corporation duly organized and legally existing in accordance with the laws of China;
2.1.2
Lender has the legal capacity to execute and perform this Agreement. The execution and performance by Lender of this Agreement is
consistent with Lender’s scope of business and the provisions of Lender’s corporate bylaws and other organizational documents, and
Lender has obtained all necessary and proper approvals and authorizations for the execution and performance of this Agreement; and
2.1.3
This Agreement constitutes Lender’s legal, valid and binding obligations enforceable in accordance with its terms.
2.2
Between the date of this Agreement and the date of termination of this Agreement, Borrower hereby makes the following representations and
warranties:
2.2.1
Borrower has the legal capacity to execute and perform this Agreement. Borrower has obtained all necessary and proper approvals and
authorizations for the execution and performance of this Agreement;
2.2.2
This Agreement constitutes Borrower’s legal, valid and binding obligations enforceable in accordance with its terms; and
2.2.3
There are no disputes, litigations, arbitrations, administrative proceedings or any other legal proceedings relating to Borrower, nor are
there any potential disputes, litigations, arbitrations, administrative proceedings or any other legal proceedings relating to Borrower.
3
Borrower’s Covenants
3.1
As and when he becomes, and for so long as he remains a shareholder of Borrower Company, Borrower covenants irrevocably that during the
term of this Agreement, Borrower shall cause Borrower Company:
12
3.1.1
to strictly abide by the provisions of the Exclusive Option Agreement and the Exclusive Business Cooperation Agreement to which the
Borrower Company is a party, and to refrain from any action/omission that may affect the effectiveness and enforceability of the
Exclusive Option Agreement and Exclusive Business Cooperation Agreement.
3.1.2
at the request of Lender (or a party designated by Lender), to execute contracts/agreements on business cooperation with Lender (or a
party designated by Lender), and to strictly abide by such contracts/agreements;
3.1.3
to provide Lender with all of the information on Borrower Company’s business operations and financial condition at Lender’s request;
3.1.4
to immediately notify Lender of the occurrence or possible occurrence of any litigation, arbitration or administrative proceedings
relating to Borrower Company's assets, business or income;
3.1.5
at the request of Lender, to appoint any persons designated by Lender as directors of Borrower Company;
3.2
Borrower covenants that during the term of this Agreement, he shall:
3.2.1
endeavor to keep Borrower Company to engage in its Principle Businesses;
3.2.2
3.2.3
3.2.4
abide by the provisions of this Agreement, the Power of Attorney, the Equity Interest Pledge Agreement and the Exclusive Option
Agreement to which the Borrower is a party, perform his obligations under this Agreement, the Power of Attorney, the Equity Interest
Pledge Agreement and the Exclusive Option Agreement, and refrain from any action/omission that may affect the effectiveness and
enforceability of this Agreement, the Power of Attorney, the Equity Interest Pledge Agreement and the Exclusive Option Agreement;
not sell, transfer, mortgage or dispose of in any other manner the legal or beneficial interest in Borrower Equity Interest, or allow the
encumbrance thereon of any security interest or the encumbrance, except in accordance with the Equity Interest Pledge Agreement;
cause any shareholders’ meeting and/or the board of directors of Borrower Company not to approve the sale, transfer, mortgage or
disposition in any other manner of any legal or beneficial interest in Borrower Equity Interest, or allow the encumbrance thereon of any
security interest, except to Lender or Lender’s designated person;
3.2.5
cause any shareholders’ meeting and/or the board of directors of the Borrower Company not to approve the merger or consolidation of
Borrower Company with any person, or its acquisition of or investment in any person, without the prior written consent of Lender;
13
3.2.6
3.2.7
immediately notify Lender of the occurrence or possible occurrence of any litigation, arbitration or administrative proceedings relating
to Borrower Equity Interest;
to the extent necessary to maintain his ownership of the Borrower Equity Interest, execute all necessary or appropriate documents, take
all necessary or appropriate actions and file all necessary or appropriate complaints or raise necessary and appropriate defense against
all claims;
3.2.8
without the prior written consent of Lender, refrain from any action /omission that may have a material impact on the assets, business
and liabilities of Borrower Company;
3.2.9
appoint any designee of Lender as director of Borrower Company, at the request of Lender;
3.2.10
3.2.11
to the extent permitted by the laws of China, at the request of Lender at any time, promptly and unconditionally transfer all of Borrower
Equity Interest to Lender or Lender’s designated representative(s) at any time, and cause the other shareholders of Borrower Company
to waive their right of first refusal with respect to the share transfer described in this Section;
to the extent permitted by the laws of China, at the request of Lender at any time, cause the other shareholders of Borrower Company to
promptly and unconditionally transfer all of their equity interests to Lender or Lender’s designated representative(s) at any time, and
Borrower hereby waives his right of first refusal (if any) with respect to the share transfer described in this Section;
3.2.12
in the event that Lender purchases Borrower Equity Interest from Borrower in accordance with the provisions of the Exclusive Option
Agreement, use such purchase price obtained thereby to repay the Loan to Lender; and
3.2.13 without the prior written consent of Lender, not to cause Borrower Company to supplement, change, or amend its articles of association
in any manner, increase or decreases its registered capital or change its share capital structure in any manner.
4
Liability for Default
4.1
If Borrower conducts any material breach of any term of this Agreement, Lender shall have right to terminate this Agreement and require the
Borrower to compensate all damages; this Section 4.1 shall not prejudice any other rights of Lender herein.
14
If Lender conducts any breach of any term of this Agreement, Borrower shall not terminate this Agreement in any event unless otherwise
required by applicable laws.
In the event that Borrower fails to perform the repayment obligations set forth in this Agreement, Borrower shall pay overdue interest of 0.01%
per day for the outstanding payment, until the day Borrower repays the full principal of the Loan, overdue interests and other payable amounts.
4.2
4.3
5
Notices
5.1
All notices and other communications required or permitted to be given pursuant to this Agreement shall be delivered personally or sent by
registered mail, postage prepaid, by a commercial courier service or by facsimile transmission to the address of such Party set forth below. A
confirmation copy of each notice shall also be sent by email. The dates on which notices shall be deemed to have been effectively given shall be
determined as follows:
5.1.1 Notices given by personal delivery, by courier service or by registered mail, postage prepaid, shall be deemed effectively given on the
date of delivery.
5.1.2 Notices given by facsimile transmission shall be deemed effectively given on the date of successful transmission (as evidenced by an
automatically generated confirmation of transmission).
5.2
For the purpose of notices, the addresses of the Parties are as follows:
Lender:
Address:
Attn:
Phone:
Facsimile:
Borrower:
Address:
Attn:
Phone:
Facsimile:
Beijing 58 Daojia Information Technology Co., Ltd.
Tower E, North America International Business Center, #Yi108, Beiyuan Road, Chaoyang District, Beijing
Jinbo Yao
+8610 64435588-8888
+8610-64459926
Jinbo Yao
Tower E, North America International Business Center, #Yi108, Beiyuan Road, Chaoyang District, Beijing
Jinbo Yao
+8610 64435588-8888
+8610-64459926
5.3
Any Party may at any time change its address for notices by a notice delivered to the other Party in accordance with the terms hereof.
15
6
Confidentiality
The Parties acknowledge that any oral or written information exchanged among them with respect to this Agreement is confidential information. The
Parties shall maintain the confidentiality of all such information, and without the written consent of other Party, either Party shall not disclose any
relevant information to any third party, except in the following circumstances: (a) such information is or will be in the public domain (provided that this
is not the result of a public disclosure by the receiving party); (b) information disclosed as required by applicable laws or rules or regulations of any
stock exchange; or (c) information required to be disclosed by any Party to its legal counsel or financial advisor regarding the transaction contemplated
hereunder, and such legal counsel or financial advisor are also bound by confidentiality duties similar to the duties in this section. Disclosure of any
confidential information by the staff members or agency hired by any Party shall be deemed disclosure of such confidential information by such Party,
which Party shall be held liable for breach of this Agreement. This section shall survive the termination of this Agreement for any reason.
7
Governing Law and Resolution of Disputes
7.1
7.2
7.3
The execution, effectiveness, construction, performance, amendment and termination of this Agreement and the resolution of disputes shall be
governed by the laws of China.
In the event of any dispute with respect to the construction and performance of this Agreement, the Parties shall first resolve the dispute through
friendly negotiations. In the event the Parties fail to reach an agreement on the dispute within 30 days after either Party’s request to the other
Party for resolution of the dispute through negotiations, either Party may submit the relevant dispute to the China International Economic and
Trade Arbitration Commission for arbitration, in accordance with its then effective arbitration rules. The arbitration shall be conducted in
Beijing, and the language used in arbitration shall be Chinese. The arbitration award shall be final and binding on all Parties.
Upon the occurrence of any disputes arising from the construction and performance of this Agreement or during the pending arbitration of any
dispute, except for the matters under dispute, the Parties to this Agreement shall continue to exercise their respective rights under this Agreement
and perform their respective obligations under this Agreement.
8 Miscellaneous
8.1
8.2
This Agreement should become effective upon execution by the Parties , and shall expire upon the date of full performance by the Parties of
their respective obligations under this Agreement.
This Agreement shall be written in both Chinese and English language in two copies, each Party having one copy with equal legal validity. In
case there is any conflict between the Chinese version and the English version, the Chinese version shall apply.
16
8.3
8.4
8.5
8.6
This Agreement may be amended or supplemented through written agreement by and between Lender and Borrower. Such written amendment
agreement and/or supplementary agreement executed by and between Lender and Borrower are an integral part of this Agreement, and shall
have the same legal validity as this Agreement.
In the event that one or several of the provisions of this Agreement are found to be invalid, illegal or unenforceable in any aspect in accordance
with any laws or regulations, the validity, legality or enforceability of the remaining provisions of this Agreement shall not be affected or
compromised in any respect. The Parties shall strive in good faith to replace such invalid, illegal or unenforceable provisions with effective
provisions that accomplish to the greatest extent permitted by law the intentions of the Parties, and the economic effect of such effective
provisions shall be as close as possible to the economic effect of those invalid, illegal or unenforceable provisions.
The attachments (if any) to this Agreement shall be an integral part of this Agreement and shall have the same legal validity as this Agreement.
Any obligations that occur or that are due as a result of this Agreement upon the expiration or early termination of this Agreement shall survive
the expiration or early termination thereof. The provisions of Sections 4, 6, 7 and this Section 8.6 shall survive the termination of this
Agreement.
17
IN WITNESS WHEREOF, the Parties have caused their authorized representatives to execute this Loan Agreement as of the date firs above written.
Lender: Beijing 58 Daojia Information Technology Co., Ltd.
By:
Name:
Title:
/s/ Jinbo Yao
Jinbo Yao
Legal Representative
Borrower: Jinbo Yao
By:
/s/ Jinbo Yao
18
Loan Agreement
This Loan Agreement (this “Agreement”) is made and entered into by and between the Parties below as of August 5, 2015 in Beijing, China:
(1) Beijing 58 Daojia Information Technology Co., Ltd. (“Lender”), a wholly foreign owned enterprise, organized and existing under the laws of the
PRC, with its address at Room D101A-123, Building B-2 of Zhongguancun Dongsheng Science Park, 66# Xixiaokou Road, Haidian District,
Beijing;
(2) Xiaohua Chen (“Borrower”), a citizen of China with Chinese Identification No.: .
Each of the Lender and the Borrower shall be hereinafter referred to as a “Party” respectively, and as the “Parties” collectively.
Whereas:
1. As of the date hereof, Borrower holds 4.5% of equity interests in Tianjin 58 Daojia Home Services Co., Ltd. (“Borrower Company”). All of the
equity interest now held and hereafter acquired by Borrower in Borrower Company shall be referred to as Borrower Equity Interest;
2. Lender confirms that it agrees to provide Borrower with and Borrow confirms that he/she has received a loan which equals to RMB4,500,000 to be
used for the purposes set forth under this Agreement.
After friendly consultation, the Parties agree as follows:
1
Loan
1.1
In accordance with the terms and conditions of this Agreement, Lender and Borrower hereby acknowledge that Borrower has obtained from
Lender a loan in the amount of RMB4,500,000 (the “Loan”). The term of the Loan shall be 10 years from the effective date of this Agreement,
which may be extended upon mutual written consent of the Parties. During the term of the Loan or the extended term of the Loan, Borrower
shall immediately repay the full amount of the Loan in the event any one or more of the following circumstances occur:
1.1.1
30 days elapse after Borrower receives a written notice from Lender requesting repayment of the Loan;
1.1.2
Borrower’s death, lack or limitation of civil capacity;
1.1.3
Borrower ceases (for any reason) to be an employee of Lender, Borrower Company or their affiliates;
19
1.1.4
Borrower engages in criminal act or is involved in criminal activities;
1.1.5
According to the applicable laws of China, foreign investors are permitted to invest in the Principle Business that is currently conducted
by Borrower Company in China with a controlling stake and/or in the form of wholly-foreign-owned enterprises, the relevant competent
authorities of China begin to approve such investments, and Lender exercises the exclusive option under the Exclusive Option
Agreement (the “Exclusive Option Agreement”) described in this Agreement.
1.2
The Loan provided by Lender under this Agreement shall inure to Borrower’s benefit only and not to Borrower’s successors or assigns.
1.3
1.4
1.5
1.6
1.7
Borrower agrees to accept the aforementioned Loan provided by Lender, and hereby agrees and warrants using the Loan to increase the
registered capital of Borrower Company. Without Lender’s prior written consent, Borrower shall not use the Loan for any purpose other than as
set forth herein.
Lender and Borrower hereby agree and acknowledge that Borrower’s method of repayment shall be at the sole discretion of Lender, and may at
Lender’s option take the form of Borrower’s transferring the Borrower Equity Interest in whole to Lender or Lender’s designated persons (legal
or natural persons) pursuant to the Lender’s exercise of its right to acquire the Borrower Equity Interest under the Exclusive Option Agreement.
Lender and Borrower hereby agree and acknowledge that any proceeds from the transfer of the Borrower Equity Interest (to the extent
permissible) shall be used to repay the Loan to Lender, in accordance with this Agreement and in the manner designated by Lender.
Lender and Borrower hereby agree and acknowledge that to the extent permitted by applicable laws, Lender shall have the right but not the
obligation to purchase or designate other persons (legal or natural persons) to purchase Borrower Equity Interest in part or in whole at any time,
at the price stipulated in the Exclusive Option Agreement.
Borrower also undertakes to execute an irrevocable Power of Attorney (the “Power of Attorney”), which authorizes Lender or a legal or natural
person designated by Lender to exercise all of Borrower’s rights as a shareholder of Borrower Company.
1.8 When Borrower transfers Borrower Equity Interest to Lender or Lender’s designated person(s), in the event that the transfer price of such equity
interest equals or is lower than the principal of the Loan under this Agreement, the Loan under this Agreement shall be deemed an interest-free
loan. In the event that the transfer price of such equity interest exceeds the principal of the Loan under this Agreement, the excess over the
principal shall be deemed the interest of the Loan under this Agreement payable by Borrower to Lender.
20
2
Representations and Warranties
2.1
Between the date of this Agreement and the date of termination of this Agreement, Lender hereby makes the following representations and
warranties to Borrower:
2.1.1
Lender is a corporation duly organized and legally existing in accordance with the laws of China;
2.1.2
Lender has the legal capacity to execute and perform this Agreement. The execution and performance by Lender of this Agreement is
consistent with Lender’s scope of business and the provisions of Lender’s corporate bylaws and other organizational documents, and
Lender has obtained all necessary and proper approvals and authorizations for the execution and performance of this Agreement; and
2.1.3
This Agreement constitutes Lender’s legal, valid and binding obligations enforceable in accordance with its terms.
2.2
Between the date of this Agreement and the date of termination of this Agreement, Borrower hereby makes the following representations and
warranties:
2.2.1
Borrower has the legal capacity to execute and perform this Agreement. Borrower has obtained all necessary and proper approvals and
authorizations for the execution and performance of this Agreement;
2.2.2
This Agreement constitutes Borrower’s legal, valid and binding obligations enforceable in accordance with its terms; and
2.2.3
There are no disputes, litigations, arbitrations, administrative proceedings or any other legal proceedings relating to Borrower, nor are
there any potential disputes, litigations, arbitrations, administrative proceedings or any other legal proceedings relating to Borrower.
3
Borrower’s Covenants
3.1
As and when he becomes, and for so long as he remains a shareholder of Borrower Company, Borrower covenants irrevocably that during the
term of this Agreement, Borrower shall cause Borrower Company:
3.1.1
to strictly abide by the provisions of the Exclusive Option Agreement and the Exclusive Business Cooperation Agreement to which the
Borrower Company is a party, and to refrain from any action/omission that may affect the effectiveness and enforceability of the
Exclusive Option Agreement and Exclusive Business Cooperation Agreement.
21
3.1.2
at the request of Lender (or a party designated by Lender), to execute contracts/agreements on business cooperation with Lender (or a
party designated by Lender), and to strictly abide by such contracts/agreements;
3.1.3
to provide Lender with all of the information on Borrower Company’s business operations and financial condition at Lender’s request;
3.1.4
to immediately notify Lender of the occurrence or possible occurrence of any litigation, arbitration or administrative proceedings
relating to Borrower Company's assets, business or income;
3.1.5
at the request of Lender, to appoint any persons designated by Lender as directors of Borrower Company;
3.2
Borrower covenants that during the term of this Agreement, he shall:
3.2.1
endeavor to keep Borrower Company to engage in its Principle Businesses;
3.2.2
3.2.3
3.2.4
abide by the provisions of this Agreement, the Power of Attorney, the Equity Interest Pledge Agreementand the Exclusive Option
Agreement to which the Borrower is a party, perform his obligations under this Agreement, the Power of Attorney, the Equity Interest
Pledge Agreement and the Exclusive Option Agreement, and refrain from any action/omission that may affect the effectiveness and
enforceability of this Agreement, the Power of Attorney, the Equity Interest Pledge Agreement and the Exclusive Option Agreement;
not sell, transfer, mortgage or dispose of in any other manner the legal or beneficial interest in Borrower Equity Interest, or allow the
encumbrance thereon of any security interest or the encumbrance, except in accordance with the Equity Interest Pledge Agreement;
cause any shareholders’ meeting and/or the board of directors of Borrower Company not to approve the sale, transfer, mortgage or
disposition in any other manner of any legal or beneficial interest in Borrower Equity Interest, or allow the encumbrance thereon of any
security interest, except to Lender or Lender’s designated person;
3.2.5
cause any shareholders’ meeting and/or the board of directors of the Borrower Company not to approve the merger or consolidation of
Borrower Company with any person, or its acquisition of or investment in any person, without the prior written consent of Lender;
22
3.2.6
3.2.7
immediately notify Lender of the occurrence or possible occurrence of any litigation, arbitration or administrative proceedings relating
to Borrower Equity Interest;
to the extent necessary to maintain his ownership of the Borrower Equity Interest, execute all necessary or appropriate documents, take
all necessary or appropriate actions and file all necessary or appropriate complaints or raise necessary and appropriate defense against
all claims;
3.2.8
without the prior written consent of Lender, refrain from any action /omission that may have a material impact on the assets, business
and liabilities of Borrower Company;
3.2.9
appoint any designee of Lender as director of Borrower Company, at the request of Lender;
3.2.10
3.2.11
to the extent permitted by the laws of China, at the request of Lender at any time, promptly and unconditionally transfer all of Borrower
Equity Interest to Lender or Lender’s designated representative(s) at any time, and cause the other shareholders of Borrower Company
to waive their right of first refusal with respect to the share transfer described in this Section;
to the extent permitted by the laws of China, at the request of Lender at any time, cause the other shareholders of Borrower Company to
promptly and unconditionally transfer all of their equity interests to Lender or Lender’s designated representative(s) at any time, and
Borrower hereby waives his right of first refusal (if any) with respect to the share transfer described in this Section;
3.2.12
in the event that Lender purchases Borrower Equity Interest from Borrower in accordance with the provisions of the Exclusive Option
Agreement, use such purchase price obtained thereby to repay the Loan to Lender; and
3.2.13 without the prior written consent of Lender, not to cause Borrower Company to supplement, change, or amend its articles of association
in any manner, increase or decreases its registered capital or change its share capital structure in any manner.
4
Liability for Default
4.1
If Borrower conducts any material breach of any term of this Agreement, Lender shall have right to terminate this Agreement and require the
Borrower to compensate all damages; this Section 4.1 shall not prejudice any other rights of Lender herein.
23
4.2
4.3
If Lender conducts any breach of any term of this Agreement, Borrower shall not terminate this Agreement in any event unless otherwise
required by applicable laws.
In the event that Borrower fails to perform the repayment obligations set forth in this Agreement, Borrower shall pay overdue interest of 0.04.5%
per day for the outstanding payment, until the day Borrower repays the full principal of the Loan, overdue interests and other payable amounts.
5
Notices
5.1
All notices and other communications required or permitted to be given pursuant to this Agreement shall be delivered personally or sent by
registered mail, postage prepaid, by a commercial courier service or by facsimile transmission to the address of such Party set forth below. A
confirmation copy of each notice shall also be sent by email. The dates on which notices shall be deemed to have been effectively given shall be
determined as follows:
5.1.1 Notices given by personal delivery, by courier service or by registered mail, postage prepaid, shall be deemed effectively given on the
date of delivery.
5.1.2 Notices given by facsimile transmission shall be deemed effectively given on the date of successful transmission (as evidenced by an
automatically generated confirmation of transmission).
5.2
For the purpose of notices, the addresses of the Parties are as follows:
Lender:
Address:
Attn:
Phone:
Facsimile:
Borrower:
Address:
Phone:
Facsimile:
Beijing 58 Daojia Information Technology Co., Ltd.
Tower E, North America International Business Center, #Yi108, Beiyuan Road, Chaoyang District, Beijing
Jinbo Yao
+8610 64435588-8888
+8610-64459926
Xiaohua Chen
Tower E, North America International Business Center, #Yi108, Beiyuan Road, Chaoyang District, Beijing
+8610 64435588-8888
+8610-64459926
5.3
Any Party may at any time change its address for notices by a notice delivered to the other Party in accordance with the terms hereof.
24
6
Confidentiality
The Parties acknowledge that any oral or written information exchanged among them with respect to this Agreement is confidential information. The
Parties shall maintain the confidentiality of all such information, and without the written consent of other Party, either Party shall not disclose any
relevant information to any third party, except in the following circumstances: (a) such information is or will be in the public domain (provided that this
is not the result of a public disclosure by the receiving party); (b) information disclosed as required by applicable laws or rules or regulations of any
stock exchange; or (c) information required to be disclosed by any Party to its legal counsel or financial advisor regarding the transaction contemplated
hereunder, and such legal counsel or financial advisor are also bound by confidentiality duties similar to the duties in this section. Disclosure of any
confidential information by the staff members or agency hired by any Party shall be deemed disclosure of such confidential information by such Party,
which Party shall be held liable for breach of this Agreement. This section shall survive the termination of this Agreement for any reason.
7
Governing Law and Resolution of Disputes
7.1
7.2
7.3
The execution, effectiveness, construction, performance, amendment and termination of this Agreement and the resolution of disputes shall be
governed by the laws of China.
In the event of any dispute with respect to the construction and performance of this Agreement, the Parties shall first resolve the dispute through
friendly negotiations. In the event the Parties fail to reach an agreement on the dispute within 30 days after either Party’s request to the other
Party for resolution of the dispute through negotiations, either Party may submit the relevant dispute to the China International Economic and
Trade Arbitration Commission for arbitration, in accordance with its then effective arbitration rules. The arbitration shall be conducted in
Beijing, and the language used in arbitration shall be Chinese. The arbitration award shall be final and binding on all Parties.
Upon the occurrence of any disputes arising from the construction and performance of this Agreement or during the pending arbitration of any
dispute, except for the matters under dispute, the Parties to this Agreement shall continue to exercise their respective rights under this Agreement
and perform their respective obligations under this Agreement.
8 Miscellaneous
8.1
8.2
This Agreement should become effective upon execution by the Parties , and shall expire upon the date of full performance by the Parties of
their respective obligations under this Agreement.
This Agreement shall be written in both Chinese and English language in two copies, each Party having one copy with equal legal validity. In
case there is any conflict between the Chinese version and the English version, the Chinese version shall apply.
25
8.3
8.4
8.5
8.6
This Agreement may be amended or supplemented through written agreement by and between Lender and Borrower. Such written amendment
agreement and/or supplementary agreement executed by and between Lender and Borrower are an integral part of this Agreement, and shall
have the same legal validity as this Agreement.
In the event that one or several of the provisions of this Agreement are found to be invalid, illegal or unenforceable in any aspect in accordance
with any laws or regulations, the validity, legality or enforceability of the remaining provisions of this Agreement shall not be affected or
compromised in any respect. The Parties shall strive in good faith to replace such invalid, illegal or unenforceable provisions with effective
provisions that accomplish to the greatest extent permitted by law the intentions of the Parties, and the economic effect of such effective
provisions shall be as close as possible to the economic effect of those invalid, illegal or unenforceable provisions.
The attachments (if any) to this Agreement shall be an integral part of this Agreement and shall have the same legal validity as this Agreement.
Any obligations that occur or that are due as a result of this Agreement upon the expiration or early termination of this Agreement shall survive
the expiration or early termination thereof. The provisions of Sections 4, 6, 7 and this Section 8.6 shall survive the termination of this
Agreement.
26
IN WITNESS WHEREOF, the Parties have caused their authorized representatives to execute this Loan Agreement as of the date firs above written.
Lender: Beijing 58 Daojia Information Technology Co., Ltd.
By:
Name:
Title:
/s/ Jinbo Yao
Jinbo Yao
Legal Representative
Borrower: Xiaohua Chen
By:
/s/ Xiaohua Chen
27
OFFSHORE CREDIT AGREEMENT
Exhibit 4.34
No:. 2016 Li Zi Di 033102
Credit Grantor: China Merchants Bank Co., Ltd. (hereinafter referred to as “Party A”)
Chief Principal:
Credit Applicant: 58.com Inc. (hereinafter referred to as “Party B”)
Chief Principal:
Upon the application of Party B, Party A agrees to, through its offshore financial center, grant a credit line to Party B for its use in accordance with this
Agreement. Now through the full consultation and pursuant to the applicable law, Party A and Party B hereby enter into this Agreement as follows.
Clause 1 Credit Line
1.1
Party A will grant Party B the credit line up to US Dollars two hundred and seventy-five million only (including the equivalent amount in other
currencies converted at the foreign exchange rates published by Party A when each specific business actually takes place, the same below),√the
amount of credit line which may be actually used shall be the amount of the qualified standby letter of credit / letter of guarantee received by Party A
(please mark with “√” in (cid:133), if this agreed term is applicable), of which (please make a choice by marking with “√” below):
(cid:133) revolving credit line currency dollar;
√ one-time credit line US Dollars two hundred and seventy-five million.
The revolving credit line means the maximum of the sum of credit principal balances of loans, trade financing, letters of guarantee,
overdraft, / , / and etc. to be make available by Party A to Party B during the term of credit which may be used in a continuous and revolving
manner.
1
The one-time credit line means that when applying to Party A for conducting a number of credit business during the term of credit, Party B will submit
to Party A an application separately for each of such business, and the cumulatively occurring amount of all credit business shall not exceed the
amount of one-time credit line as specified herein. Party B shall not use the one-time credit line in a revolving manner, and the corresponding amounts
of such number of credit business conducted upon the applications of Party B shall occupy the amount of one-time credit line as set forth in this clause
until cumulatively fully occupy such amount.
“Trade financing” includes such types of business as the opening of letters of credit, inward documentary bill, delivery guarantee, inward bill
purchased under collection, packing credit, outward documentary bill, collection bill purchased, import / export remittance financing, short-term credit
insurance financing, import factoring, export factoring (other than double factoring without recourse and double factoring without recourse in the
system of Party A, the same below), / , / .
“Working capital loans” refer to short-term or mid-term loans, with the specific term for each drawing being one month, three months, six months, one
year or other term to be agreed on by the parties.
1.2 When Party A conducts the import factoring where Party B is the payer, the creditor’s rights assigned to Party A thereunder to the receivables payable
by Party B occupy the aforesaid credit line; when Party A conducts the export factoring for the account of Party B, then the basic purchasing funds
provided by Party A to Party B thereunder occupy the aforesaid credit line.
2
1.3
The aforesaid credit line excludes the corresponding portion of credit amount secured by the security deposits or pledge on deposit receipt provided by
Party B or third parties solely against single specific business hereunder; the same below.
(cid:133)1.4 Upon the application, Party B has applied to and been granted by Party A the credit line amounting to / (currency) / dollars
on / date / month, / year for the term being / months beginning from / date / month, / year and ending on / date / month, / year, for which
the parties have executed an Offshore Credit Agreement (hereinafter referred to the “Original Credit Agreement”). From the effective date hereof, any
outstanding balance (if any) (the specific amount of which will be fixed as per the records and determination of Party A) of the specific business
having occurred under the Original Credit Agreement shall be automatically included hereunder and directly occupy the credit line hereunder, and the
unused credit line under the Original Credit Agreement shall be automatically abolished. (Please mark with “√” in (cid:133), if this clause is applicable.)
Clause 2 Term of Credit
The term of credit shall be thirteen months, i.e., from April 1st, 2016 to April 21st, 2017. Party B shall submit applications to Party A for the use of credit
during such term, and Party A will not accept any application submitted by Party B for the use of credit beyond the expiration date of such term, unless
otherwise provided herein.
Clause 3 Use of Credit Line
3.1
Types and Scope of Credit Line
The aforesaid credit line shall be (make a choice between the two options below by marking with “√”):
( ) 3.1.1 Comprehensive credit line; the parties agree as follows on the types and amounts of specific business for which the credit line may be used:
3
/ , / ,
/ , /
Meanwhile, Party B / (insert “may” or “may not”) transfer the aforesaid credit line and (the below may be selected by marking with
“√”):
(cid:133) May be transferred between all types of business;
(cid:133) May be transferred between part of types of business, i.e., / and / ;
( √ ) 3.1.2 Working capital loans single credit line. Used to repay the dollar loan lent to Party B by Tencent Holdings Limited (including Ohio River); used
for any other purpose not permitted.
3.2 During the term of credit, the revolving credit line may be used by Party B in a revolving manner, and the one-time credit line may not be used in a
revolving manner. Party B must submit an application separately for each use of credit line, and Party A will approve and agree separately for each
use. When Party B applies for the working capital loans within the credit line, it’s not necessary for Party A and Party B to execute a Loan Contract
separately for each application, but, however, Party B shall submit an Application for Drawing to Party A when each time applying for a loan, and if
Party A agrees to make such loan after having examined such application, the contents of such loan will be evidenced by an applicable receipt for loan.
The parties agree that the contents evidenced by the applicable receipt for loan shall prevail in case of any discrepancy between the provisions of the
Application for Drawing and the receipt for loan regarding the amount, term, interest rate, purpose and other aspects of a loan.
4
When Party B applies for credit other than the working capital loans and Party A approves after examination, the amount, term specific purpose and
other aspects of each credit may be stipulated in a contract (including a receipt for loan) or an agreement to be separately executed by the parties for
such specific business, or in an applicable application for business submitted by Party B to and accepted by Party A.
The aforesaid contracts, agreements or applicable applications for specific business are collectively referred to as the “Specific Contracts”. Under the
import factoring, a Specific Contract shall be deemed to have been entered into by Party A and Party B upon Party B confirming, in a manner
acknowledged by Party A, a Notice of Assignment of Receivables sent by Party A to Party B.
3.3
The term of use for each loan or other credit within the credit line shall be determined as per Party B’s demand in its operation and Party A’s
regulations for business management, and the expiration date for each specific business may not (insert “may” or “may not”) be later than the
expiration date for the term of credit [√if such loan or other credit is secured with a standby letter of credit / letter of guarantee, its expiration date may
not be later than five business days prior to the expiration date of the applicable standby letter of credit / letter of guarantee (please mark with “√” in
(cid:133), if this clause is applicable)].
3.4
Examination and Adjustment of Credit. Party A shall be entitled to independently examine the credit during its term, and upon a written notice to Party
B, at any time unilaterally modify the amount and other terms and conditions of the original credit, including cancelling the portion of credit which has
not been drawn.
5
Clause 4 Interest and Fees
4.1
4.2
The interest rates for the loans and financing within the credit line and the fees charged for the relevant business will be collected pursuant to the
provisions of the respective Specific Contracts. In addition, Party A will receive from Party B the financing charges at 0.05% per annum of average
daily financing balance and the fees for supervision of account at 0.55% per annum of average daily financing balance; both the financing charges and
fees for supervision of account shall be (cid:133)paid in a lump sum when the line is used for the first time; or √paid in the manner same to that of the interest
(make a choice between the two options by marking with “√”)
The interest for a working capital loan will be paid together at the time of repayment of the principal, if the term of such loan is not more than three
months (including three months). If the term is more than three months, the interest payment dates shall be March 21st, June 21st, September 21st and
December 21st of each year, and the interest accruing until the day immediately prior to each interest payment date shall be paid on such interest
payment date. The interest of loan will be calculated from the day when the loan fund is transferred into the borrowing account on the basis of the
amount of loan actually made and the number of days actually occupied. Party B must pay the interest on each interest payment date, and Party A may
directly collect by deducting from the deposit account of Party B. Should Party B fail to pay the interest on time, Party A shall be entitled to receive the
compound interest on the unpaid interest at the loan interest to be determined pursuant to the receipt for loan.
4.3
The principal and remaining interest and financing charges (if any) must be paid off simultaneously when the loan is paid off.
4.4 Unless otherwise provided in the Specific Contract, the financing interest rate shall not be less than LIBOR (three months) + 55 BPs.
6
4.4.1 Party A shall be entitled to regularly or irregularly adjust such BPs in accordance with the change in the relevant national policies, the change in
the prices in the international credit loan market or the change in Party A’s policies for credit loan. When deciding to make such adjustment,
Party A shall sent Party B a five business days’ prior written notice. Such adjustment will become effective after Party A has notified Party B.
The new credit line for Party B and the specific BPs for the loan which has been drawn prior to the effectiveness of the notice and has not been
repaid will be governed by the provisions as determined by Party A in the notice, and the floating period will still be governed by the provisions
hereof.
4.4.2 If the loan adopts the floating interest rate, the floating period shall: (make a choice between the two options by marking with “√”)
(cid:133) be subject to the provisions as set forth in the receipt for loan;
(cid:133) float for the floating period of / months / days.
The date when the loan is actually made will be the pricing date for the first floating period, and thereafter the first date of each floating period
will be the pricing date for such floating period (the pricing date means the reference date used to determine the prime interest rate within the
floating period; Party A will determine in accordance with the international practices that the interest rate determination date will be the pricing
date or the date falling on one or two business day(s) prior to the pricing date).
4.5
If Party B fails to repay the loan on time, the default interest shall be collected at 2% plus the original interest rate on the amount in arrears from the
overdue date.
If Party B fails to use the loan for the purpose hereof, the default interest shall be collected at 2% plus the original interest rate on the amount not used
for the purpose as per the contract from the date when Party B began to use such amount for other purpose.
7
Clause 5 Guarantee
5.1 China Merchants Bank Co., Ltd., Beijing Branch shall, as the guarantor assuming joint and several liabilities, issue the standby letter of credit or
irrevocable maximum letter of guarantee in favor of Party A for securing all debts owed by Party B to Party A hereunder. And / or
5.2
/ shall create mortgage (pledge) on all / properties owned by it or of which it has the right to legally dispose for securing all debts owed by
Party B to Party A hereunder; the parties will separately execute the contract for such security.
Party A shall be entitled to decline to grant the credit to Party B, if the guarantor fails to execute the instrument or appropriately complete the
procedures for the security in accordance with the provisions of this clause.
Clause 6 Rights and Obligations of Party B
6.1
Party B shall have the following rights:
6.1.1 the right to require Party A to provide the loan or other credit within the credit line pursuant to the conditions hereof;
6.1.2 the right to use the credit line pursuant to the agreements hereof;
6.1.3 the right to require Party A to keep confidential the information provided by Party B regarding the production, operation, properties, accounts
and other aspects, unless otherwise provided by the laws or regulations or otherwise required by the regulatory authorities;
6.1.4 the right to transfer its debts to a third party upon the consent of Party A.
8
6.2
Party B shall undertake the following obligations:
6.2.1 to truthfully provide such documents as required by Party A (including but not limited to the true copies of its financial statements and annual
financial reports for such periods as required by Party A, and the significant decisions on and changes in its production, operation and
management), and the information about each bank with which it maintains an account, each account and the balance of deposit and loan, and to
cooperate with Party A in the investigation, examination and inspection by Party A;
6.2.2 to be subject to the supervision by Party A on Party B’s use of the credit funds and relevant production, operation and financial activities;
6.2.3 to use the loans and / or other credit in accordance with the agreements herein and in each Specific Contract and / or for the covenanted
purposes;
6.2.4 to on time and fully repay the principal of loans, advances and other credit debts, and pay the interest thereon in accordance with the agreements
herein and in each Specific Contract;
6.2.5 to obtain the written consent of Party A if assigning the debts hereunder or any part thereof to a third party;
6.2.6 to promptly notify Party A and actively cooperate with Party A in adopting all measures to ensure the safety repayment of the principal of loans,
advances and other credit debts hereunder and the payment of the interest thereon and all relevant fees in case of any of the following
circumstances;
6.2.6.1material financial loss, loss of assets or other financial crisis;
6.2.6.2making a loan to or providing guarantee for a third party, or creating mortgage (pledge) on its own properties (rights);
6.2.6.3such changes as merger (consolidation), separation, reorganization, joint venture (cooperation), transfer of property right (equity) and
shareholding reform;
9
6.2.6.4such circumstances as winding-up, revocation or cancellation of business license, filing or being filed for bankruptcy, and dissolution;
6.2.6.5any material crisis in the operation or finance of its holding shareholder or other affiliate, or any coercive measure taken by a competent
governmental authority on any officer of it or any of its holding shareholder or affiliate, which may affect its normal operation;
6.2.6.6any material affiliated transaction with its holding shareholder or other affiliate, which affects its normal operation;
6.2.6.7any litigation, arbitration or criminal or administrative penalty materially and adversely affecting its operation or properties status;
6.2.6.8any other material circumstance which may affect its ability to pay off its debts;
6.2.7 not to be indolent in managing or exercising the right of recourse for its maturity creditor’s rights, or to dispose of the current major properties
without consideration or otherwise dispose of such properties in an inappropriate manner.
Clause 7 Rights and Obligations of Party A
7.1
Party A shall have the following rights:
7.1.1 the right to require Party B to on time and fully repay the principal of loans, advances and other credit debts hereunder and under each Specific
Contract, and pay the interest thereon;
7.1.2 the right to require Party B to provide the information regarding Party B’s use of its credit line;
7.1.3 the right to be aware of the production, operation and financial activities of Party B;
10
7.1.4 the right to supervise Party B’s use of the loans and / or other credit for the purposes agreed herein and in each Specific Contract;
7.1.5 the right to directly make deductions from the account of Party B for the purpose to repay the debts owed by Party B hereunder and under each
Specific Contract in accordance with the provisions hereof;
7.1.6 the right to assign its creditor’s rights against Party B, and send Party B [thirty days’] prior written notice of the assignment in such manner as it
considers appropriate including but not limited to facsimile, mail and personal service, and make collection from Party B;
7.1.7 and other rights as set forth herein.
7.2
Party A shall undertake the following obligations:
7.2.1 to make loans or provide other credit to Party B within the credit line in accordance with the conditions specified herein and in each Specific
Contract;
7.2.2 to keep confidential the information regarding Party B’s assets, finance, production and operation, unless otherwise provided by the laws or
regulations or otherwise required by the regulatory authorities.
Clause 8 Party B specifically makes the following warranties
8.1
Party B is an entity qualified as a legal person duly registered and legally existing under the law of the jurisdiction where it’s registered, and of the full
civil capacity of executing and performing this Agreement;
8.2
Party B’s execution and performance of this Agreement have been fully authorized by its board of directors or other competent organ;
8.3
The documents, information and evidences provided by Party B relevant to Party B, the guarantor, mortgagor (pledger) and collateral (pledged
properties) are true, accurate, complete and effective without error not consistent with the fact or omission of any material fact;
11
8.4
8.5
8.6
8.7
Party B shall strictly observe the agreements in each Specific Contract and the letters of undertaking signed by it in favor of Party A and other relevant
documents;
There is no litigation, arbitration or criminal or administrative penalty which may materially and adversely affect Party B or its major properties as of
the execution hereof, and there will no such litigation, arbitration or criminal or administrative penalty during the performance hereof. In case of
occurrence of any such litigation, arbitration or criminal or administrative penalty, Party B shall promptly notify Party A;
Party B shall strictly comply with the laws and regulations of the jurisdictions where it’s registered and its principal business place is located and
China when conducting its activities, engage in business strictly within the business scope as specified in its articles of association or permitted under
the law, and handle the procedures for the annual inspection of its registration;
Party B shall maintain or enhance its current level of operation and management and ensure the preservation and increase of the value of its existing
assets, and shall neither waive any maturity creditor’s rights, nor dispose of its current major properties without consideration or otherwise dispose of
such properties in an inappropriate manner;
8.8 Without the permission of Party A, Party B shall not pay off other long-term debts in advance, or / , or / ;
8.9
There is no other important event occurring to Party B which affects Party B’s ability to perform its obligations hereunder as of the execution hereof.
12
Clause 9 Other Fees
Party B shall assume all costs arising from the credit investigation, inspection and notarization relevant to this Agreement, and attorney’s fee and costs for
litigation, travelling, announcement, service and etc. incurred by Party A as a result of realizing its creditor’s rights in the event that Party B fails to on time
pay off the debts owed by it to Party A hereunder, and authorize Party A to directly deduct such costs from the account of Party B maintained with Party A.
In case of any deficiency, Party B shall ensure to pay after receipt of Party A’s notice.
Clause 10 Events of Breach and Actions thereon
10.1 An event of breach shall be deemed to be constituted if any of the following circumstances occurs to Party B:
10.1.1Party B breaches the obligation under Clause 6.2.1 by providing any false information to Party A or concealing any important truth from Party A
or not cooperating with Party A in its investigation, examination or inspection;
10.1.2Party B breaches the obligation under Clause 6.2.2 by not accepting or evading supervision of Party A on Party B’s use of credit funds or its
relevant production, operation or financial activities;
10.1.3Party B breaches the obligation under Clause 6.2.3 by not using the loans and / or other credit for the purposes as specified herein or in each
Specific Contract;
10.1.4Party B breaches the obligation under Clause 6.2.4 by failing to on time or fully repay the principal of loans, advances or other credit debts, or to
pay the interest thereon in accordance with the agreements herein or in each Specific Contract ;
10.1.5Party B breaches the obligation under Clause 6.2.5 by transferring the debts hereunder to any third party without the consent of Party A, or
breaches the obligation under Clause 6.2.7 by being indolent in managing or exercising the right of recourse for its maturity creditor’s rights, or
disposing of the current major properties without consideration or otherwise disposing of such properties in an inappropriate manner;
13
10.1.6Party B breaches the obligation under Clause 6.2.6 by failing to timely notify Party A of any circumstance as set forth in that clause, or failing to
cooperate with Party A in its requirement for Party B to adopt further measure to ensure the paying off of the debts hereunder upon Party A
becoming aware of any such circumstance, or it’s not favorable, in Party A’s opinion, for the safe recovery of the principal of credit and interest
thereon;
10.1.7Party B breaches Clause 8.1, Clause 8.2 or Clause 8.5, or violates Clause 8.3, Clause 8.4, Clause 8.6, Clause 8.7, Clause 8.8 or Clause 8.9, and
fails to immediately correct at the requirement of Party A;
10.1.8Any other circumstance occurs which may impair Party A’s legal interest in Party A’s opinion.
10.2 It will be deemed that an event of breach is constituted if any of the following circumstances occurs to the guarantor which, in Party A’s opinion, may
affect the guarantor’s capacity for guarantee, and the guarantor or Party B fails to cooperate with Party A in its requirement for the guarantor to
eliminate adverse effects arising therefrom or requirement for Party B to add or replace the conditions of guarantee:
10.2.1Any circumstance similar to any one of such circumstance as set forth in Clause 6.2.6 occurs;
10.2.2When issuing the standby letter of credit / irrevocable letter of guarantee, the guarantor conceals its actual capacity for assuming the liabilities of
guarantee or is not authorized by its board of directors or any other competent organ;
14
10.2.3The guarantor fails to on time handle the procedures for the annual inspection of its registration; or
10.2.4The guarantor is indolent in managing or exercising the right of recourse for its maturity creditor’s rights, or disposing of the current major
properties without consideration or otherwise disposing of such properties in an inappropriate manner.
10.3 It will be deemed that an event of breach is constituted if any of the following circumstances occurs to the mortgagor (or pledger) which, in Party A’s
opinion, may result in the non-establishment of mortgage (or pledge) or deficiency in the value of the collateral (pledged properties), and the
mortgagor (or pledger) or Party B fails to cooperate with Party A in its requirement for the mortgagor (or pledger) to eliminate adverse effects arising
therefrom or requirement for Party B to add or replace the conditions of guarantee:
10.3.1The mortgagor (or pledger) does not have the ownership of or the right to dispose of the collateral (or pledged properties), or there is any dispute
in the title to the collateral (or pledged properties);
10.3.2The collateral (or pledged properties) is leased out, seized, attached, or under surveillance, or there is any priority which is prior by law on the
collateral (or pledged properties) (including but not limited to the priority of payment for construction works), and / or any of such circumstances
is concealed;
10.3.3The mortgagor transfers, leases out, remortgages or otherwise disposes of the collateral in an inappropriate manner without the written consent
of Party A, or disposes of the collateral with the written consent of Party A but fails to pay off the debts owed by Party B to Party A with the
proceeds from such disposal as per the requirement of Party A;
15
10.3.4The mortgagor does not preserve, maintain or repair the collateral in an appropriate manner and therefore causes the obvious depreciation in the
value of the collateral, or does not maintain the insurance covering the collateral during the term of mortgage as per the requirement of Party A.
10.4 Party A shall be entitled to respectively or concurrently take the following actions in case of any of the events of breach as listed in Clause 10.1, Clause
10.2 orClause 10.3:
10.4.1to reduce the credit line hereunder, or cease the use of the remaining credit line;
10.4.2to recover in advance the principal of financing which has been provided within the credit line and the interest thereon and the relevant fees;
10.4.3with respect to any draft, letter of credit, guarantee, delivery guarantee or etc. which has been accepted or issued by Party A during the term of
credit, whether or not Party A has made advances, to require Party B to increase the amount of security deposit, or to transfer the deposit in other
account opened by Party B with Party A into its account of security deposit as the security deposit for paying off the advances made by Party A
thereafter hereunder, or to submit the relevant sum to a third party as the security deposit for the advances made by Party A for the account of
Party B thereafter;
10.4.4with respect to the creditor’s rights to unpaid receivables assigned to Party A by Party B under the export factoring, to require Party B to
promptly perform its obligation to repurchase; with respect to the creditor’s rights to receivables of Party B assigned to Party A under the import
factoring, to promptly claim against Party B for recourse;
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10.4.5to directly deduct deposits in the clearance account and / or other account of Party B for the purpose to pay off all debts of Party B hereunder and
under each Specific Contract;
10.4.6to claim for recourse pursuant to Clause 13 hereof.
Clause 11 Repayment
Party B shall repay the principal amounting to US Dollars 275 million by the following installments after the loan is made to the account of Party B:
US Dollars 10 million in the first quarter, US Dollars 70 million in the second quarter, US Dollars 87.5 million in the third quarter, and US Dollars
10750 at the final expiration of the loan.
The date and amount of repayment for each specific installment shall be subject to the contents of the applicable Application for Drawing to be accepted by
Party A.
If intending to apply for prepayment in lieu of the aforesaid schedule of repayment, Party B shall submit a written application to Party A seven business days
prior to the planned prepayment date and pay the liquidated damages to Party A for such prepayment. The amount of liquidated damages for prepayment =
the amount of prepayment * the percentage of liquidated damages (0%). After Party A reviews and agrees on the application of Party B for prepayment,
Party B shall fully pay Party A the liquidated damages for prepayment within the time limit required by Party A, otherwise Party A shall still be entitled to
reject the application of Party B for prepayment. Party A shall have the right, but have no obligation to appropriately reduce the amount of liquidated
damages for prepayment to be paid by Party B at its sole discretion based on such factors as the remaining term of loan of Party B when Party B makes the
prepayment.
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Clause 12 Miscellaneous
12.1 No tolerance, grace or delay of Party A in exercising the interests or rights which it shall enjoy hereunder for any breach or delay of Party B during the
term hereof shall impair, affect or limit any interest or right which Party A shall enjoy as the creditor under the applicable law and hereunder, or be
deemed as Party A’s permission or acknowledgment of any breach hereof, or be deemed as Party A’s waiver of the right to take any action for any
current or future breach.
12.2 Party B shall still be obligated to pay off all debts owed to Party A hereunder, should this Agreement or any part hereof become invalid at law due to
any reason. In this case, Party A shall be entitled to terminate the performance of this Agreement and may promptly claim against Party B for
recovering all debts owed by Party B hereunder.
12.3 The notices and requirements of Party A and Party B in connection hereof shall be sent in writing.
Contact address of Party A: 19/F, China Merchants Bank Tower, No. 7088 Shennan Boulevard, Shenzhen
Contact address of Party B: Building 105, Yard Jia 10, Jiuxianqiao North Road, Chaoyang District, Beijing
A notice shall be deemed to have been served upon the signature and receipt of the addressee in case of personal delivery (if rejected by the addressee,
on the date of rejection); upon the expiration of seven days after posting in case of delivery by a postal letter; and upon the receipt of facsimile by the
addressee’s facsimile system in case of delivery via facsimile.
Either party shall timely notify the other party of any change in its contact address, otherwise shall assume the loss which may arise therefrom.
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12.4 The parties agree that each application for business under trade financing will be affixed to the reserved seal of Party B as per the specimen seal
reserved on the Card of Seals provided by Party B to Party A, and each party acknowledges the validity of such seal. Party B may deliver each
application for business to Party A in the manner of facsimile plus payment password in accordance with the Letter of Undertaking for Authorizations
and Indemnity regarding “Certified Facsimile Instructions” executed with Party A. Each party confirms that an application for business delivered in
the manner of facsimile plus payment password shall have such legal effect as same to an application for business delivered in writing.
12.5 Any written supplemental agreement on matters not defined herein or amendment hereto agreed by Party A and Party B and each Specific Contract
hereunder shall be attached hereto and constitute an integral part hereof.
Clause 13 Applicable Law and Dispute Settlement
13.1 The formation and interpretation hereof and the settlement of disputes arising herefrom shall be governed by the law of the People’s Republic of China
(for the purpose hereof, the law of the People’s Republic of China excludes the laws and regulations of the Hong Kong Special Administrative Region,
the Macao Special Administrative Region and Taiwan Province; the same below), and the rights and interests of Party A and Party B shall be protected
by the law of the People’s Republic of China.
13.2 Any dispute arising during the performance hereof between Party A and Party B shall be settled by the consultation between the parties. If failing,
either party may (make a choice in the following three options by marking with “√”):
(cid:133)13.2.1 refer to (if choosing this option, make a choice in the following two options by marking with “√”)
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(cid:133) China International Economic and Trade Arbitration Commission
(cid:133) China International Economic and Trade Arbitration Commission, / Branch
for arbitration in accordance with the arbitration rules for financial disputes.
(cid:133)13.2.2 request for arbitration to / Arbitration Commission;
√13.2.3 bring a lawsuit to the people’s court in the jurisdiction where Party A is located.
13.2 After the notarization of this Agreement and each Specific Contract is conducted by Party A and Party B which grants enforceability hereto and
thereto, Party A may directly request the people’s court of competent jurisdiction for compulsory enforcement for the purpose to recover the debts
owed by Party B hereunder and thereunder.
Clause 14 Effectiveness
This Agreement shall become effective upon being affixed to by Party A of its special seal for contractual uses of and signed by the signatory of Party B
authorized by the resolution of its board of director, and automatically terminate on the date when all debts owed by Party B to Party A hereunder and all
other relevant fees are paid off.
Clause 15 Supplementary Provisions
This Agreement is made in duplicate of the same legal effect, Party A, Party B and / , / respectively holding one.
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Special Notice:
All terms hereof have been fully negotiated by the parties. Party A has remind Party B of paying special attention to the terms which disclaim or
limit Party A’s liabilities, or under which Party A unilaterally have certain rights, or which aggravate Party B’s liabilities or limit Party B’s rights,
and of fully and accurately understanding such terms. Party A has made relevant explanation on such terms at the requirement of Party B. The
parties hereto have the same understanding on the terms hereof.
(No text below)
Party A (seal): China Merchants Bank Co., Ltd.
/s/ China Merchants Bank Co., Ltd.
(seal)
/s/ Authorized signatory
Party B: 58.com Inc.
Authorized Signatory (signature)
/s/ Jinbo Yao
Signed on: March 30th, 2016
Signed in: Shenzhen
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Exhibit 4.35
EXECUTION VERSION
SHARE SUBSCRIPTION AGREEMENT
by and among
58.COM INC.
MAGIC HEART INC.
ZHUAN SPIRIT HOLDINGS LIMITED
and
TENCENT MOBILITY LIMITED
Dated as of April 18, 2017
1
TABLE OF CONTENTS
ARTICLE I INTERPRETATION
Definitions
Interpretation
Section 1.1
Section 1.2
ARTICLE II SUBSCRIPTION AND SALE
Section 2.1
Section 2.2
Section 2.3
Section 2.4
Issuance of the Subscription Shares
Closing
Payment and Delivery
Conditions
ARTICLE III REPRESENTATIONS AND WARRANTIES
Section 3.1
Section 3.2
Section 3.3
Representations and Warranties of the Key Holder
Representations and Warranties of the Company
Representations and Warranties of Tencent
ARTICLE IV COVENANTS
Section 4.1
Section 4.2
Section 4.3
Section 4.4
Section 4.5
Section 4.8
Section 4.9
Section 4.10
Section 4.11
Section 4.12
Section 4.13
Section 4.14
Section 4.15
Section 4.16
Section 4.17
Section 4.18
Conduct of Business of the Company
Operation of the Principal Business
Regulatory Compliance
Negative Covenants
Affirmative Covenants
Restructuring
Non-Assignable Assets
Non-competition
Most Favored Nation
Further Assurances
Use of Proceeds
Cooperation
Conduct of Other Business
Permits
Access
ESOP
ARTICLE V INDEMNIFICATION
Section 5.1
Section 5.2
Section 5.3
Survival of the Representations and Warranties
Indemnification
Third Party Claims
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Page
4
4
13
15
15
15
15
17
20
20
25
26
34
34
35
36
36
36
38
40
41
41
41
41
41
41
42
42
42
42
42
43
43
Section 5.4
Section 5.5
Other Claims
Limitations on Liability
ARTICLE VI MISCELLANEOUS
Section 6.1
Section 6.2
Section 6.3
Section 6.4
Section 6.5
Section 6.6
Section 6.7
Section 6.8
Section 6.9
Section 6.10
Section 6.11
Section 6.12
Section 6.13
Section 6.14
Section 6.15
Section 6.16
Section 6.17
Schedules
Disclosure Schedule References
Governing Law; Arbitration
Amendment
Binding Effect
Assignment
Notices
Entire Agreement
Severability
Fees and Expenses
Confidentiality
Specific Performance
Termination
Joint and Several Liability
Third Party Rights
Headings
Execution in Counterparts
Waiver
Schedule 1
Covenant pursuant to Section 4.10(b)
Exhibits
Exhibit A
Exhibit B
Exhibit C
Exhibit D
Exhibit E
Exhibit F
Exhibit G
Form of Articles
Form of Shareholders Agreement
Form of Key Holder Business Cooperation Agreement
Form of Tencent Business Cooperation Agreement
Form of Framework Restructuring Agreement
Capitalization Table
Legal Opinion Items
3
44
45
45
45
46
46
46
46
46
48
48
48
49
49
49
50
50
50
51
51
SHARE SUBSCRIPTION AGREEMENT
This Share Subscription Agreement (this “Agreement”) is made as of April 18, 2017, by and between 58.com Inc., a company incorporated
in the Cayman Islands (the “Key Holder”), Magic Heart Inc., a company incorporated in the British Virgin Islands and wholly owned by the Key Holder,
Zhuan Spirit Holdings Limited, a company incorporated in the Cayman Islands (the “Company”) and Tencent Mobility Limited, a company incorporated in
Hong Kong (“Tencent”). The Key Holder, Magic Heart Inc., the Company and Tencent are each referred to herein as a “Party,” and collectively as the
“Parties.”
WITNESSETH:
WHEREAS, the Key Holder desires to contribute to the Group (a) the Principal Business pursuant to the Framework Restructuring
Agreement in exchange for 429,999,990 Ordinary Shares to be issued to Magic Heart Inc. (the “Key Holder Subscription Ordinary Shares”) representing
43.0% of the issued share capital of the Company on a fully diluted basis immediately following the Closing and (b) the Key Holder Business Cooperation
Agreement in exchange for 250,000,000 Series A Preferred Shares to be issued to Magic Heart Inc. (the “Key Holder Subscription Series A Shares”, and
together with the Key Holder Subscription Ordinary Shares, the “Key Holder Subscription Shares”) representing 25.0% of the issued share capital of the
Company on a fully diluted basis immediately following the Closing;
capital of the Company on a fully diluted basis immediately following the Closing for issuance thereunder; and
WHEREAS, the Company desires to establish the ESOP and reserve 70,000,000 Ordinary Shares representing 7.0% of the issued share
Agreement on the Closing Date; and
WHEREAS, the Company and Tencent desire for the Company and Affiliates of Tencent to enter into the Tencent Business Cooperation
WHEREAS, subject to the terms and conditions herein, Tencent desires to subscribe for, and the Company desires to issue, 250,000,000
Series A Preferred Shares (the “Tencent Subscription Shares”) representing 25.0% of the issued share capital of the Company on a fully diluted basis
immediately following the Closing (and after issuance of Shares to Magic Heart Inc. in accordance with this Agreement).
NOW, THEREFORE, in consideration of the foregoing recitals and the mutual promises hereinafter set forth, the Parties agree as follows:
ARTICLE I
INTERPRETATION
Section 1.1 Definitions. As used in this Agreement, the following terms shall have the following respective meanings:
litigations, arbitrations, suits or other criminal, civil or administrative or investigative or similar proceedings (whether public or private).
“Actions” shall mean actions, causes of action (whether at law or in equity), claims, demands, investigations, examinations, indictments,
4
“Affiliate” of a Person (the “Subject Person”) shall mean (a) in the case of a Person other than a natural person, any other Person that
directly or indirectly Controls, is Controlled by or is under common Control with the Subject Person and (b) in the case of a natural person, any other Person
that is directly or indirectly Controlled by the Subject Person or is a Relative of the Subject Person; provided, that none of the Group Companies, the Key
Holder and Key Holder Parties shall be deemed to be an Affiliate of Tencent, and none of Tencent, Tencent Holdings Limited and their Affiliates shall be
deemed to be an Affiliate of any of the Group Companies, Key Holder and the Key Holder Parties.
“Agreement” shall have the meaning set forth in the Preamble.
respective values as of the Closing Date.
“Assets Sheet” shall mean a list of the Contributed Assets (other than the Non-Transferred Contributed Assets), together with their
Exhibit A.
“Articles” shall mean the amended and restated memorandum and articles of association of the Company, in the form attached hereto as
“Authorization” shall have the meaning set forth in Section 3.1(d).
“Board” shall mean the board of directors of the Company.
“Business Day” shall mean any day other than Saturday, Sunday or other day on which commercial banks located in the Cayman Islands,
New York, the PRC or Hong Kong are authorized or required by law or executive order to be closed and on which no tropical cyclone warning No. 8 or
above and no “black” rainstorm warning signal is hoisted in Hong Kong at any time between 8:00 a.m. and 6:00 p.m. Hong Kong time.
as Exhibit F.
“Capitalization Table” shall mean the capitalization table setting out the capitalization of each of the Group Companies, as attached hereto
“Claim Notice” shall have the meaning set forth in Section 5.3(a).
“Closing” shall have the meaning set forth in Section 2.2.
“Closing Balance Sheet” shall have the meaning set forth in Section 2.4(a)(x).
“Closing Date” shall have the meaning set forth in Section 2.2.
“Company” shall have the meaning set forth in the Preamble.
“Competitive Business” shall mean any business which is in direct competition with the Principal Business.
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Alibaba Group Holding Limited, or any Affiliate of such Person.
“Competitor” shall mean any Person whose primary business is in direct competition with the Principal Business, which shall include
“Confidential Information” shall have the meaning set forth in Section 6.10(a).
“Contemplated Transactions” shall mean the transactions contemplated by the Transaction Documents.
commitment, purchase order, and other legally binding arrangement, whether written or oral.
“Contract” shall mean, as to any Person, a contract, agreement, indenture, note, bond, loan, instrument, lease, mortgage, franchise, license,
“Contributed Assets” shall mean all assets, Intellectual Property, Information Technology, employees and Contracts set out in Framework
Restructuring Agreement and other Restructuring Documents to be transferred or otherwise contributed by the relevant Key Holder Parties to the Group in
accordance with Restructuring Documents, including the Transferred Contracts, the Transferred Employees, the Transferred IP and Transferred Inventories
and any other assets that are currently used for, and are necessary and adequate to carry out, the operation of the Principal Business as currently operated.
“Control” shall mean the possession, directly or indirectly, of the power to direct or cause the direction of the management of a Person,
whether through the ownership of voting securities, by contract, credit arrangement or proxy, as trustee, executor or agent or otherwise. For purposes of this
definition, a Person shall be deemed to Control another Person if such first Person, directly or indirectly, owns or holds more than 50% of the voting Equity
Securities in such other Person. The terms “Controlled” and “Controls” shall have meanings correlative to the foregoing.
and consolidate in its financial statements the results of, the VIE Entity, in each case in form and substance satisfactory to Tencent.
“Control Documents” shall mean, collectively, the agreements made from time to time, which enable the Company to exclusively Control,
Company and each director appointed to the Board, in form and substance reasonably satisfactory to Tencent.
“Director’s Indemnification Agreements” shall mean the respective indemnification agreements to be entered into by and between the
the Key Holder and the Company to Tencent.
“Disclosure Schedule” shall mean the disclosure schedule dated the date hereof in respect of this Agreement which has been provided by
“Encumbrance” shall mean (a) any mortgage, charge (whether fixed or floating), pledge, lien, hypothecation, assignment, deed of trust, title
retention, security interest or other encumbrance of any kind securing, or conferring any priority of payment in respect of, any obligation of any Person,
including any right granted by a transaction which, in legal terms, is not the granting of security but which has an economic or financial effect similar to the
granting of security under applicable Law, (b) any proxy, power of attorney, voting trust agreement, interest, option, right of first offer, negotiation or refusal
or transfer restriction in favor of any Person and (c) any adverse claim as to title, possession or use.
6
“Equity Securities” shall mean, with respect to any Person, such Person’s capital stock, membership interests, partnership interests,
registered capital, joint venture or other ownership interests (including, in the case of the Company, Ordinary Shares) or any options, warrants or other
securities that are directly or indirectly convertible into, or exercisable or exchangeable for, such capital stock, membership interests, partnership interests,
registered capital, joint venture or other ownership interests (whether or not such derivative securities are issued by such Person).
Tencent.
“ESOP” shall mean the employee equity incentive plan to be adopted by the Company in form and substance reasonably satisfactory to
promulgated thereunder.
“Exchange Act” shall mean the Securities Exchange Act of 1934, as amended, or any successor statute, and the rules and regulations
“FCPA” shall have the meaning set forth in Section 3.1(j)(ii).
Holder Parties, certain Group Companies and certain other parties thereto on or prior to the Closing, in the form attached hereto as Exhibit E.
“Framework Restructuring Agreement” shall mean the framework restructuring agreement to be entered into by and among certain Key
On a “fully diluted basis” shall mean, for the purpose of calculating share numbers, that the calculation is to be made assuming that all
outstanding options, warrants and other Equity Securities directly or indirectly convertible into or exercisable or exchangeable for Ordinary Shares (whether
or not by their terms then currently convertible, exercisable or exchangeable) and Equity Securities which have been reserved for issuance pursuant to the
ESOP have been so converted, exercised, exchanged or issued.
“Fundamental Representations” shall mean the representations and warranties made by the Key Holder or the Company (as the case may
be) to Tencent contained in Section 3.1(a), Section 3.1(b), Section 3.1(i), Section 3.2(a), Section 3.2(b), Section 3.2(c), Section 3.3(a), Section 3.3(b), Section
3.3(c), Section 3.3(e), Section 3.3(f), Section 3.3(l), Section 3.3(m) and Section 3.3(q).
“Government Official” shall have the meaning set forth in Section 3.1(j)(i).
“Governmental Authority” shall mean any government or political subdivision thereof, whether on a federal, central, state, provincial,
municipal or local level and whether executive, legislative or judicial in nature, including any agency, authority, board, bureau, commission, court,
department or other instrumentality thereof and any governing body of any securities exchange.
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“Group” or “Group Companies” shall mean, collectively, the Company and its Subsidiaries (including, for the avoidance of doubt, the VIE
Entity), and a “Group Company” shall mean any of them.
“HKIAC” shall have the meaning set forth in Section 6.2.
“Hong Kong” means the Hong Kong Special Administrative Region of the People’s Republic of China.
“ICP Permit” shall have the meaning set forth in Section 2.4(a)(vi).
“Indebtedness” shall mean, as of any time with respect to any Person, without duplication, (a) all Liabilities for borrowed money, whether
current or funded, secured or unsecured, all obligations evidenced by bonds, debentures, notes or similar instruments, (b) all Liabilities for the deferred
purchase price of property, other than trade payables in the ordinary course outstanding for 90 days or less, (c) all Liabilities in respect of any lease of, or
other arrangement conveying the right to use, real or personal property, or a combination thereof, which Liabilities are required to be classified and
accounted for under US GAAP as capital leases, (d) all Liabilities for the reimbursement of any obligor on any letter of credit, banker’s acceptance or similar
credit transaction securing obligations of a type described in clauses (a), (b) or (c) above to the extent of the obligation secured, and all Liabilities as obligor,
guarantor, or otherwise, to the extent of the obligation secured, (e) all guarantees of obligations of any other Person with respect to any of the foregoing and
(f) any accrued and unpaid interest on any of the foregoing.
“Indemnified Parties” shall have the meaning set forth in Section 5.2(a).
“Indemnifying Party” shall have the meaning set forth in Section 5.2(a).
“Indemnity Notice” shall have the meaning set forth in Section 5.4.
“Information Technology” shall mean all computer systems, telecommunication systems, software (and the tangible media on which it is
stored) and hardware including source and object code, cabling, routers, switched, racks, servers, PCs, laptops, terminals, scanners, printers and all associated
peripherals, excluding in all cases Intellectual Property.
“Intellectual Property” shall mean any and all (a) patents (including all reissues, divisionals, provisionals, continuations, continuations in
part, re-examinations, renewals and extensions thereof), patent applications, and other patent rights, (b) trademarks, service marks, tradenames, brand names,
logos, slogans, trade dress, design rights, and other similar designations of source or origin, together with all goodwill associated with any of the foregoing
and applications, registrations and renewals in connection therewith, (c) copyrights, mask works, and copyrightable works, and all applications, registrations
for and renewals in connection therewith, (d) internet domain names, web addresses, web pages, websites and related content, accounts with Twitter,
Facebook, Instagram, and other social media companies and the content found thereon and related thereto, and uniform resource locators, (e) proprietary
computer software, including source code, object code and supporting documentation for such computer software, (f) trade secrets and proprietary
information, including confidential business information, technical data, customer lists, data collections, methods and inventions (whether or not patentable
and where or not reduced to practice), (g) copies and tangible embodiments of any of the foregoing and (h) all other intellectual property, whether or not
registrable, in each case, under any Law or statutory provision or common law doctrine in any country.
8
“Key Holder” shall have the meaning set forth in the Preamble.
Group Companies and the Key Holder and/or its Affiliates, in the form attached hereto as Exhibit C.
“Key Holder Business Cooperation Agreement” shall mean the business cooperation agreement to be entered into by and among certain
“Key Holder Nominee” shall mean 北京云企互联投资有限公司, a company incorporated in the PRC.
“Key Holder Ordinary Share Purchase Price” shall have the meaning set forth in Section 2.1(b).
Subsidiaries) which operates the Principal Business or will contribute any part of the Principal Business to the Group.
“Key Holder Parties” shall mean the Key Holder and each of its Subsidiaries (including any variable interest entities Controlled by such
“Key Holder Purchase Price” shall have the meaning set forth in Section 2.1(b).
“Key Holder Series A Share Purchase Price” shall have the meaning set forth in Section 2.1(b).
“Key Holder Share Subscription” shall have the meaning set forth in Section 2.1(b).
“Key Holder Subscription Ordinary Shares” shall have the meaning set forth in the Recitals.
“Key Holder Subscription Series A Shares” shall have the meaning set forth in the Recitals.
“Key Holder Subscription Shares” shall have the meaning set forth in the Recitals.
“Knowledge” of any Person shall mean the actual knowledge of such Person (and in the case of any Person which is not an individual, such
Person’s directors or officers) and that knowledge which should have been acquired by such Person or its directors or officers after making such due inquiry
and exercising such due diligence as a prudent business person would have made or exercised in the management of his business affairs.
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“Law” or “Laws” shall mean all applicable laws, regulations, rules and Orders of any Governmental Authority, securities exchange or other
self-regulating body, including any common or customary law, constitution, code, ordinance, statute or other legislative measure and any regulation, rule,
treaty, order, decree or judgment. The term “lawful” shall be construed accordingly.
“Liabilities” shall mean any and all debts, liabilities, commitments and obligations of any kind, whether fixed, contingent or absolute,
matured or unmatured, liquidated or unliquidated, accrued or not accrued, asserted or not asserted, known or unknown, determined, determinable or
otherwise, whenever or however arising (including whether arising out of any contract or tort based on negligence or strict liability) and whether or not the
same would be required by US GAAP or PRC GAAP to be reflected in financial statements or disclosed in the notes thereto.
“Losses” shall have the meaning set forth in Section 5.2(a).
“Material Adverse Effect” shall mean any event, fact, circumstance or occurrence that, individually or in the aggregate with any other
events, facts, circumstances or occurrences, results in or would reasonably be expected to result in a material adverse change in or a material adverse effect
on (a) the condition, assets, liabilities, results of operations or business of the Principal Business and the Group taken as a whole or (b) the ability of the
Company, the Key Holder or their respective Affiliates to consummate the Contemplated Transactions; provided, that in determining whether a Material
Adverse Effect has occurred, there shall be excluded any effect on the Principal Business or the Group to the extent relating to or arising in connection with
(i) any action required to be taken pursuant to the terms and conditions of this Agreement or any other Transaction Documents or taken at the written
direction of Tencent, (ii) changes affecting the industry in which the Principal Business or the Group operates or the economy or financial, credit or securities
markets or political conditions generally in the PRC; provided, that in each case such changes do not have a unique or disproportionate impact on the
Principal Business or the Group; (iii) effects resulting from any breach of this Agreement or any other Transaction Documents by Tencent or its Affiliates; or
(iv) the announcement or consummation of the Contemplated Transactions.
pursuant to clause 8.4(6) and clause 8.4(7) of the Framework Restructuring Agreement.
“Non-Transferred Contributed Assets” shall mean services to be provided by the relevant Key Holder Parties to the Group Companies
judgment, injunction or other similar determination or finding by, before or under the supervision of any Governmental Authority.
“Order” shall mean any order, ruling, decision, verdict, decree, writ, subpoena, mandate, command, directive, consent, approval, award,
“Ordinary Shares” shall mean the ordinary shares of par value US$0.00001 each in the share capital of the Company.
“Parties” shall have the meaning set forth in the Preamble.
“Party” shall have the meaning set forth in the Preamble.
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entity of any kind or nature.
“Person” shall mean any natural person, firm, partnership, association, corporation, company, trust, public body or government or other
Administrative Region and Taiwan.
“PRC” shall mean the People’s Republic of China, but for purposes of this Agreement, excluding Hong Kong, the Macau Special
“PRC GAAP” means the Generally Accepted Accounting Principles of the PRC.
“Principal Business” shall have the meaning given to “标的业务” in the Framework Restructuring Agreement.
“Relative” of a natural person means such Person’s spouse, parents, children and siblings, whether by blood, marriage or adoption.
Framework Restructuring Agreement and other transactions contemplated by the Restructuring Documents.
“Restructuring” means the contribution of the Principal Business to the Group by the relevant Key Holder Parties pursuant to the
“Restructuring Representations” shall mean the representations and warranties made by the Key Holder or the Company (as the case may
be) to Tencent contained in Section 3.1(f), Section 3.1(g), Section 3.1(h), Section 3.3(i) and Section 3.3(l), and all of the representations and warranties made
by each of the Key Holder Parties in the Framework Restructuring Agreement.
Documents (other than those obligations that are ongoing and do not have a specific completion date under the Restructuring Documents).
“Restructuring Completion Date” shall mean the date on which the Restructuring is completed in accordance with the Restructuring
delivered pursuant thereto or pursuant to the Restructuring.
“Restructuring Documents” shall mean the Framework Restructuring Agreement and any other agreements, documents or certificates
administering the Securities Act.
“SEC” shall mean the Securities and Exchange Commission of the United States of America or any other federal agency at the time
rules and regulations of the SEC thereunder, all as the same shall be in effect at the time.
“Securities Act” shall mean the Securities Act of 1933 of the United States of America, as amended, or any similar federal statute and the
exchange and any other applicable law regulating securities or takeover matters.
“Securities Laws” shall mean the Securities Act, the Exchange Act, the listing rules of or any listing agreement with the applicable stock
“Series A Preferred Shares” shall mean the Series A preferred shares of par value US$0.00001 each in the share capital of the Company.
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Company, in the form attached hereto as Exhibit B.
“Shareholders Agreement” shall mean the shareholders agreement to be entered into by and among Magic Heart Inc., Tencent and the
“Subsidiary” shall mean, with respect to any Person, any corporation, partnership, limited liability company or other organization, whether
incorporated or unincorporated, which is Controlled by such Person. For the avoidance of doubt, a “variable interest entity” Controlled by a Person shall be
deemed to be a Subsidiary of such Person.
“Tax” shall mean any tax, duty, deduction, withholding, impost, levy, fee, assessment or charge of any nature whatsoever (including
income, franchise, value added, sales, use, excise, stamp, customs, documentary, transfer, withholding, property, capital, employment, payroll, ad valorem,
net worth or gross receipts taxes and any social security, unemployment or other mandatory contributions) imposed, levied, collected, withheld or assessed
by any local, municipal, regional, urban, governmental, state, national or other Governmental Authority and any interest, addition to tax, penalty, surcharge
or fine in connection therewith, including any obligations to indemnify or otherwise assume or succeed to the liability of any other Person with respect to any
of the foregoing items.
“Tencent” shall have the meaning set forth in the Preamble.
Companies and certain Affiliates of Tencent, in the form attached hereto as Exhibit D.
“Tencent Business Cooperation Agreement” shall mean the business cooperation agreement to be entered into by and among certain Group
Tencent.
“Tencent Nominee” shall mean 林芝利创信息技术有限公司, a company incorporated in the PRC, or such other Person designated by
“Tencent Purchase Price” shall have the meaning set forth in Section 2.1(a).
“Tencent Share Subscription” shall have the meaning set forth in Section 2.1(a).
“Tencent Subscription Shares” shall have the meaning set forth in the Recitals.
“Third Party Claim” shall have the meaning set forth in Section 5.3(a).
“Transaction Documents” shall mean, collectively, this Agreement, the Articles, the Shareholders Agreement, the Key Holder Business
Cooperation Agreement, the Tencent Business Cooperation Agreement, the Director’s Indemnification Agreements, the Restructuring Documents, the
Control Documents and any other agreements, documents or certificates delivered pursuant hereto or thereto.
“Transferred Assets” shall mean all assets, Intellectual Property, Information Technology, employees and Contracts set out in Framework
Restructuring Agreement and other Restructuring Documents to be transferred by the relevant Key Holder Parties to the Group in accordance with
Restructuring Documents, including the Transferred Contracts, the Transferred Employees, the Transferred Tangible Assets, Transferred Database, the
Transferred IP and Transferred Inventories.
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“Transferred Contracts” shall mean the business Contracts set out in Appendix I of the Framework Restructuring Agreement.
“Transferred Database” shall mean any and all databases, compilations and other collections of data and information in connection with the
operation of the e-commerce marketplace platform and the mobile applications as set out in Appendix V and Appendix VI of the Framework Restructuring
Agreement] (the “Marketplace”), including (a) the user login, password, personal data, contact, preferences and other account details of each customer,
merchant, advertiser and other user of the Marketplace and (b) transactions, click-streams, browsing and other analytic data undertaken or otherwise
generated on the Marketplace.
“Transferred Employees” shall mean the employees set out in Appendix IX of the Framework Restructuring Agreement.
Agreement and the Transferred Database.
“Transferred IP” shall mean the Intellectual Property set out in Appendix II, Appendix III, Appendix IV of the Framework Restructuring
“Transferred Inventories” shall mean the inventories and stocks set out in Appendix VIII of the Framework Restructuring Agreement.
Restructuring Agreement.
“Transferred Tangible Assets” shall mean the devices, equipment and any tangible assets set out in Appendix VII of the Framework
“US GAAP” shall mean the Generally Accepted Accounting Principles of the United States of America.
Principal Business.
“VIE Entity” shall mean “北京转转精神科技有限责任公司”, the PRC domestic limited liability company which shall operate the
Entity in exchange for 25.0% of the equity interests in the VIE Entity.
“VIE Purchase Price” shall mean RMB3,333,333, the amount to be contributed by the Tencent Nominee to the registered capital of the VIE
“WFOE” shall mean a wholly foreign-owned entity to be established in PRC, which is indirectly wholly-owned by the Company.
Section 1.2 Interpretation. Unless the express context otherwise requires:
Agreement, shall refer to this Agreement as a whole and not to any particular provision of this Agreement;
(a) the words “hereof,” “hereby,” “hereto,” “herein,” and “hereunder” and words of similar import, when used in this
(b) the terms defined in the singular have a comparable meaning when used in the plural, and vice versa;
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(c) any references herein to “US$” are to United States Dollars and any references herein to RMB are to PRC Renminbi;
Sections, Schedules, Exhibits, Recitals or Preamble of this Agreement, unless otherwise specified;
(d) any references herein to a specific Section, Schedule or Exhibit or to the Recitals or Preamble shall refer, respectively, to
the words “without limitation;”
(e) wherever the word “include,” “includes” or “including” is used in this Agreement, it shall be deemed to be followed by
(f) references herein to any gender shall include each other gender as the context requires;
(g) the word “or” shall not be exclusive;
(h) references to “written” or “in writing” include in electronic form;
interpretation should arise, this Agreement shall be construed as if drafted jointly by the Parties and no presumption of burden of proof shall arise favoring or
burdening any Party by virtue of the authorship of any provision in this Agreement;
(i) the Parties have each participated in the negotiation and drafting of this Agreement and if an ambiguity or question of
(j) reference to any Person includes such Person’s successors and permitted assigns;
(k) any reference to “days” shall mean calendar days unless Business Days are expressly specified;
pursuant to this Agreement, the date that is the reference date in calculating such period shall be excluded and if the last day of such period is not a Business
Day, the period shall end on the next succeeding Business Day;
(l) when calculating the period of time before which, within which or following which any act is to be done or step taken
applicable Law addressed matters as of an earlier date, in which case, applicable Law shall be deemed to mean the applicable Law in effect as of that date);
(m) any reference to any Law shall be deemed to refer to the applicable Law in effect as of the date hereof (unless the
that agreement or instrument as amended, novated or supplemented; and
(n) any reference in this Agreement to any agreement or instrument (other than the Disclosure Schedule) is a reference to
(o) if any amount in a certain currency is to be translated into an equivalent amount in another currency, such translation
shall be done at the relevant daily spot rate of exchange reported by the People’s Bank of China which appears on the Reuters Screen “SAEC” Page at the
end of the day on the second Business Day immediately prior to the Closing Date.
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Section 2.1 Issuance of the Subscription Shares.
ARTICLE II
SUBSCRIPTION AND SALE
(a) Issuance of the Tencent Subscription Shares. Upon the terms and subject to the conditions of this Agreement, at the
Closing, Tencent agrees to subscribe for, and the Company agrees to issue and deliver to Tencent, the Tencent Subscription Shares, free and clear of all
Encumbrances, for an aggregate purchase price (the “Tencent Purchase Price”) equal to US$250,000,000 constituting (i) cash consideration which is equal to
US$200,000,000 payable in accordance with Section 2.3(a)(i) and (ii) the Tencent Business Cooperation Agreement (the “Tencent Share Subscription”).
(b) Issuance of the Key Holder Subscription Shares. Upon the terms and subject to the conditions of this Agreement, at the
Closing, Magic Heart Inc. agrees to subscribe for, and the Company agrees to issue and deliver to Magic Heart Inc., (i) the Key Holder Subscription Ordinary
Shares, free and clear of all Encumbrances, for an aggregate purchase price (the “Key Holder Ordinary Share Purchase Price”) equal to US$500,000,000
constituting the Principal Business to be contributed pursuant to the Framework Restructuring Agreement and (ii) the Key Holder Subscription Series A
Shares, free and clear of all Encumbrances, for an aggregate purchase price (the “Key Holder Series A Share Purchase Price”, and together with the Key
Holder Ordinary Share Purchase Price, the “Key Holder Purchase Price”) equal to US$250,000,000 constituting the Key Holder Business Cooperation
Agreement ((i) and (ii) together, the “Key Holder Share Subscription”).
Section 2.2 Closing. The closing of each of the Tencent Share Subscription and the Key Holder Share Subscription (collectively, the
“Closing”) shall take place electronically on the third Business Day following the satisfaction or waiver of the conditions set forth in Section 2.4(a) (other
than those conditions that by their terms are to be satisfied at the Closing, but subject to the satisfaction or waiver of such conditions), or at such other time
and place as Tencent and the Key Holder may agree in writing. The “Closing Date” shall be the date upon which the Closing occurs.
Section 2.3 Payment and Delivery.
(a) Payment and Delivery for the Tencent Share Subscription. At the Closing:
shall:
(i) against compliance by the Key Holder and the Company with Section 2.3(a)(ii) and Section 2.3(b), Tencent
(1) pay and deliver, or cause to be paid and delivered, to the Company the Tencent Purchase Price minus
the sum of (A) US$50,000,000 (being the value of the Tencent Business Cooperation Agreement) and (B) the US$ equivalent of the VIE Purchase Price, in
US$ by wire transfer of immediately available funds, to such bank account designated in writing by the Company to Tencent at least seven Business Days
prior to the Closing, such payment obligation to be satisfied by delivery of evidence of an irrevocable payment instruction by Tencent to the Company on the
Closing Date; and
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relevant Affiliates of Tencent; and
(2) deliver to the Company a copy of the Tencent Business Cooperation Agreement, duly executed by the
(ii) the Key Holder and the Company shall deliver to Tencent (1) a copy of the Tencent Business Cooperation
Agreement, duly executed by all of the parties thereto other than Tencent or its Affiliates, (2) a scanned copy of a duly executed share certificate issued to
Tencent in respect of the Tencent Subscription Shares (the original of which shall be delivered to Tencent within five (5) Business Days after the Closing),
(3) a certified true copy of the register of members of the Company evidencing Tencent as the legal and beneficial holder of the Tencent Subscription Shares
and (4) a certified true copy of the register of directors of the Company evidencing the appointment of the director nominated by Tencent as a director of the
Board.
(b) Payment and Delivery for Key Holder Share Subscription.
Agreement, duly executed by the relevant Key Holder Parties, and the Company shall deliver to the Key Holder a copy of the Framework Restructuring
Agreement, duly executed by the relevant Group Companies.
(i) On or prior to the Closing, the Key Holder shall deliver to the Company a copy of the Framework Restructuring
(ii) At the Closing:
Agreement, duly executed by the Key Holder and certain of its Affiliates; and
(1) the Key Holder shall deliver to the Company a copy of the Key Holder Business Cooperation
(2) the Company shall deliver to the Key Holder (A) a copy of the Key Holder Business Cooperation
Agreement, duly executed by all of the parties thereto other than the Key Holder and its Affiliates, (B) scanned copies of duly executed share certificates
issued to Magic Heart Inc. in respect of the Key Holder Subscription Shares (the original of which shall be delivered to the Key Holder within five (5)
Business Days after the Closing), (C) a certified true copy of the register of members of the Company evidencing Magic Heart Inc. as the legal and beneficial
holder of the Key Holder Subscription Shares and (D) a certified true copy of the register of directors of the Company evidencing the appointment of the
directors nominated by Magic Heart Inc. as directors of the Board.
(c) Discharge of Payment Obligation. Completion by Tencent of its obligations under Section 2.3(a)(i) shall constitute full
discharge of its obligations to pay the Tencent Purchase Price pursuant to Section 2.1(a). Completion by the Key Holder of its obligations under Section 2.3
(b)(i) and Section 2.3(b)(ii)(1) shall constitute full discharge of its obligations to pay the Key Holder Purchase Price pursuant to Section 2.1(b).
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Holder Subscription Shares shall be endorsed with the following legend:
(d) Restrictive Legend. Each of the share certificates in respect of any of the Tencent Subscription Shares and the Key
THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 (AS AMENDED, THE “ACT”) OR UNDER THE
SECURITIES LAWS OF ANY STATE. THIS SECURITY MAY NOT BE TRANSFERRED, SOLD, OFFERED FOR SALE, PLEDGED OR
HYPOTHECATED IN THE ABSENCE OF (A) AN EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT OR (B) AN OPINION OF
COUNSEL IN A FORM SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED UNDER THE ACT.
THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO CERTAIN RESTRICTIONS ON TRANSFER AS SET FORTH IN
THE APPLICABLE SHAREHOLDERS’ AGREEMENT, A COPY OF WHICH IS ON FILE AT THE PRINCIPAL OFFICE OF THE COMPANY AND
WILL BE FURNISHED UPON REQUEST TO THE HOLDER OF RECORD OF THE SHARES REPRESENTED BY THIS CERTIFICATE.
Section 2.4 Conditions.
(a) Conditions to Tencent’s Obligations to Effect the Closing. The obligation of Tencent to consummate the transactions
contemplated by Section 2.1, Section 2.2 and Section 2.3 is subject to the satisfaction, on or before the Closing Date, of the following conditions, any of
which may be waived in writing by Tencent in its sole discretion:
(i) The Fundamental Representations shall have been true, accurate and not misleading in all respects on and as of
the date of this Agreement and on and as of the Closing Date with the same effect as if made on and as of the Closing Date (except for such Fundamental
Representations that are made as of a specific date, which shall speak only as of such date), and all other representations and warranties of the Key Holder
contained in Section 3.1 and all other representations and warranties of the Company contained in Section 3.3 shall have been true, accurate and not
misleading in all respects (in the case of any such representation or warranty containing any materiality or Material Adverse Effect qualification) or in all
material respects (in the case of any such representation or warranty without any materiality or Material Adverse Effect qualification) on and as of the date of
this Agreement and on and as of the Closing Date with the same effect as if made on and as of the Closing Date (except for such representations and
warranties that are made as of a specific date, which shall speak only as of such date).
be in breach or default in any material respect under any, agreements, covenants, conditions and obligations contained in this Agreement and the other
Transaction Documents that are required to be performed or complied with on or before the Closing Date.
(ii) The Key Holder and the Company shall have performed and complied in all material respects with all, and not
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(iii) No Governmental Authority shall have enacted, issued, promulgated, enforced or entered any Law (whether
temporary, preliminary or permanent) that is in effect and restrains, enjoins, prevents, prohibits or otherwise makes illegal the consummation of the
Contemplated Transactions, or imposes any damages or penalties in connection with the Contemplated Transactions; and no action, suit, proceeding or
investigation shall have been instituted or threatened by any Governmental Authority or any third party that seeks to restrain, enjoin, prevent, prohibit or
otherwise make illegal the consummation of the Contemplated Transactions, or imposes any damages or penalties in connection with the consummation of
the Contemplated Transactions.
consummation by the Company of the issuance of the Tencent Subscription Shares to Tencent and the entry by each of the Key Holder and the Company into
the Transaction Documents to which it is a party and the performance by it of its obligations contemplated thereby (other than those Authorizations to be
obtained after the Closing pursuant to the Transaction Documents), all of which shall be in full force and effect.
(iv) The Key Holder and the Company shall have obtained any and all Authorizations necessary for the
the aggregate, has had or would reasonably be expected to have or result in a Material Adverse Effect.
(v) No event, development or state of circumstances shall have occurred or come to exist which, individually or in
the Key Holder Parties to be performed prior to the Closing under, the Restructuring Documents shall have been duly completed.
(vi) The portion of the Restructuring to be completed prior to the Closing pursuant to, and the obligations of each of
(vii) The Key Holder and the Company shall have delivered to Tencent a certificate, dated the Closing Date and
signed by a duly authorized signatory of the Key Holder, certifying that the conditions set forth in Section 2.4(a)(i), Section 2.4(a)(ii), Section 2.4(a)(iii),
Section 2.4(a)(iv), Section 2.4(a)(v), Section 2.4(a)(vi), Section 2.4(a)(viii), Section 2.4(a)(xv) and Section 2.4(a)(xvii) have been satisfied.
interests therein.
(viii) The VIE Entity shall have been duly established with the Key Holder Nominee holding 100% of the equity
(ix) The Key Holder shall have delivered to Tencent the Assets Sheet.
(x) The Key Holder shall have delivered to Tencent an unaudited consolidated balance sheet of the Group as of the
Closing Date (the “Closing Balance Sheet”), prepared in accordance with Section 4.6, and the liabilities of the Group as reflected in the Closing Balance
Sheet (other than those liabilities arising from payments required to be paid by the Group Companies to the relevant Key Holder Parties specifically provided
for under Restructuring Documents, which amount shall not exceed the amount of registered capital of the VIE Entity actually paid by the Key Holder) shall
have been zero and the assets of the Group as reflected in the Closing Balance Sheet shall have reflected the value of the assets listed in the Assets Sheet
(other than those to be contributed to the Group after the Closing under the Restructuring Documents or those of the Non-Transferred Contributed Assets).
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(xi) The Key Holder and the Company shall have delivered to Tencent a duly executed copy of each of the Control
Documents entered into among the VIE Entity, the Group Company incorporated in Hong Kong and certain other parties thereto, which shall remain in full
force and effect.
documents of each Group Company (other than the Company).
(xii) The Company shall have provided Tencent with true, correct and complete copies of the constitutional
Agreement and the Director’s Indemnification Agreements, duly executed by all of the parties thereto other than Tencent and the director nominated by
Tencent as a director of the Board.
(xiii) The Key Holder and the Company shall have delivered to Tencent a copy of each of the Shareholders
Company’s Cayman Islands and PRC legal counsels, dated the Closing Date, relating to the Contemplated Transactions and including those items set forth
on Exhibit G.
(xiv) The Key Holder and the Company shall have delivered to Tencent legal opinions issued to Tencent by the
(xv) The Articles shall have been duly adopted by the Company and shall remain in full force and effect.
(xvi) A director nominated by Tencent shall have been appointed to the Board.
(xvii) The Board and the shareholders of the Company shall have adopted resolutions approving immediately upon
payment of the Tencent Purchase Price in accordance with this Agreement (1) the issue of the Tencent Subscription Shares to Tencent, (2) the updating of the
register of members of the Company to reflect Tencent as the legal and beneficial owner of the Tencent Subscription Shares fully paid and non-assessable,
(3) the issue of a share certificate in the name of Tencent in respect of the Tencent Subscription Shares and (4) the appointment of a director nominated by
Tencent as a director of the Board.
and the Company to consummate the transactions contemplated by Section 2.1, Section 2.2 and Section 2.3 is subject to the satisfaction, on or before the
Closing Date, of each of the following conditions, any of which may be waived in writing by the Key Holder or the Company in its sole discretion:
(b) Conditions to the Key Holder’s and the Company’s Obligations to Effect the Closing. The obligation of the Key Holder
(i) The representations and warranties of Tencent contained in Section 3.4 shall have been true, accurate and not
misleading in all respects (in the case of any such representation or warranty containing any materiality qualification) or in all material respects (in the case
of any such representation or warranty without any materiality qualification) on and as of the date of this Agreement and on and as of the Closing Date with
the same effect as if made on and as of the Closing Date (except for such representations and warranties that are made as of a specific date, which shall speak
only as of such date).
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any material respect under any, agreements, covenants, conditions and obligations contained in this Agreement and the other Transaction Documents that are
required to be performed or complied with on or before the Closing Date.
(ii) Tencent shall have performed and complied in all material respects with all, and not be in breach or default in
(iii) No Governmental Authority shall have enacted, issued, promulgated, enforced or entered any Law (whether
temporary, preliminary or permanent) that is in effect and restrains, enjoins, prevents, prohibits or otherwise makes illegal the consummation of the
Contemplated Transactions, or imposes any damages or penalties in connection with the Contemplated Transactions; and no action, suit, proceeding or
investigation shall have been instituted or threatened by any Governmental Authority or any third party that seeks to restrain, enjoin, prevent, prohibit or
otherwise make illegal the consummation of the Contemplated Transactions, or imposes any damages or penalties in connection with the consummation of
the Contemplated Transactions.
Indemnification Agreement in respect of the director nominated by Tencent as a director of the Board, duly executed by Tencent or such director (as the case
may be).
(iv) Tencent shall have delivered to the Company a copy of each of the Shareholders Agreement and the Director’s
ARTICLE III
REPRESENTATIONS AND WARRANTIES
Section 3.1 Representations and Warranties of the Key Holder. Subject to Section 6.1, the Key Holder hereby represents, warrants
and undertakes to Tencent that the following representations and warranties are true, accurate and not misleading on and as of the date of this Agreement,
shall be true, accurate and not misleading on and as of the Closing Date with the same effect as if made on and as of the Closing Date and, solely with respect
to the Restructuring Representations contained in this Section 3.1, shall be true, accurate and not misleading on and as of the Restructuring Completion Date
with the same effect as if made on and as of the Restructuring Completion Date:
(a) Authority. The Key Holder has full power and authority to enter into, execute and deliver each Transaction Document to
which it is or will be a party and each other agreement, certificate, document and instrument to be executed and delivered by it pursuant to any Transaction
Document and to perform its obligations thereunder. The execution and delivery by the Key Holder of each Transaction Document to which it is or will be a
party and the performance by it of its obligations thereunder have been duly authorized by all requisite actions on its part. No vote or other approval of the
stockholders of the Key Holder will be required for the consummation by the Key Holder of the Contemplated Transactions.
(b) Valid Agreement. Each Transaction Document to which the Key Holder is or will be a party has been or will be duly
executed and delivered by the Key Holder and constitutes, or when executed and delivered in accordance herewith will constitute, the legal, valid and
binding obligations of the Key Holder, enforceable against the Key Holder in accordance with its terms, except as limited by (i) applicable bankruptcy,
insolvency, reorganization, moratorium and other laws of general application affecting enforcement of creditors’ rights generally and (ii) laws relating to the
availability of specific performance, injunctive relief or other equitable remedies.
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(c) Non-contravention; Litigation. Neither the execution and delivery of each Transaction Document to which the Key
Holder is or will be a party nor the consummation of any of the Contemplated Transactions will (i) violate any provision of the organizational documents of
the Key Holder or violate any Law or Order to which the Key Holder is subject or (ii) conflict with, result in a material breach of, constitute a material
default under, result in the acceleration of or creation of an Encumbrance under or create in any party the right to accelerate, terminate, modify or cancel any
Contract to which the Key Holder is a party, by which the Key Holder is bound or to which any of the Key Holder’s assets are subject. There is no action,
suit or proceeding pending or, to the Knowledge of the Key Holder, threatened in writing against the Key Holder that questions the validity of this
Agreement or the right of the Key Holder to enter into each Transaction Document to which it is or will be a party or to consummate the Contemplated
Transactions.
(d) Consents and Approvals. None of the execution and delivery of each Transaction Document to which the Key Holder is
or will be a party, the consummation of any of the Contemplated Transactions nor the performance by the Key Holder of each Transaction Document to
which the Key Holder is or will be a party in accordance with its terms requires any consent, approval, order, license or authorization of, registration,
certificate, declaration or filing with or notice to any Governmental Authority or other third party (each, an “Authorization”), except for those Authorizations
expressly set forth in the Transaction Documents.
(e) Brokers. The Key Holder has not dealt with any broker, finder, commission agent, placement agent or arranger in
connection with the issuance of the Tencent Subscription Shares, and none of the Group Companies is under any obligation to pay any broker’s fee or
commission in connection with the issuance of the Tencent Subscription Shares or the Contemplated Transactions.
(f) Principal Business.
same as a going concern. There is no existing fact or circumstance that may have, individually or in the aggregate, a Material Adverse Effect on the Principal
Business as currently conducted.
(i) Ordinary Course. The Principal Business has been carried on in the ordinary course and so as to maintain the
(ii) Transferred Contracts. Each Transferred Contract has been duly executed and is valid and binding on the parties
thereto with full force and effect. Except as would not reasonably be expected to have, individually or in the aggregate, a Material Adverse Effect, (1) no
Transferred Contract will be terminated or adversely affected as a result of or in connection with the Contemplated Transactions and (2) none of the Key
Holder Parties is in breach of or has Knowledge of the invalidity or grounds for rescission, avoidance or repudiation of, or any breach by any counterparty to,
any Transferred Contract, nor has any Key Holder Party received notice of any intention to terminate any Transferred Contract or repudiate or disclaim any
transaction pursuant thereto.
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(iii) Transferred Employees.
Knowledge of the Key Holder, threatened labor strikes, disputes, grievances, arbitrations, union organizing efforts, picketing, handbilling, organized work
stoppages, organized work slowdowns or other labor trouble or disputes involving any Transferred Employees that are material to the Principal Business.
(1) No Key Holder Party is a party to any collective bargaining agreement. There are no existing or, to the
under the existing employment contracts with the Transferred Employees, (A) no Key Holder Party has any material obligation or liability whatsoever in
respect of the employment of any Transferred Employee for any period prior to the Closing, including under any employee incentive plan, as a result of its
execution of this Agreement or as a result of the completion of any of the Contemplated Transactions, and (B) each Group Company has complied in all
material respects with all applicable national, provincial, local or municipal equal employment opportunity and other employment Laws.
(2) Except as provided for or contemplated by the Transaction Documents and as expressly contemplated
(iv) Transferred IP.
(1) Each relevant Key Holder Party owns all necessary rights (including the rights of development,
maintenance, licensing and sale), title and interest in and to, free and clear of all Encumbrances, or otherwise has all necessary and valid rights to use, all the
Transferred IP, and no item of such Transferred IP is subject to any outstanding material injunction, judgment, order, decree, ruling or charge. Each material
Transferred IP is valid, enforceable and subsisting, in full force and effect and has not been cancelled, expired or abandoned. The possession, development,
use, marketing, licensing, sale or other exploitation by each Key Holder Party of any and all of the Transferred IP does not materially infringe, violate,
misappropriate or otherwise interfere or conflict with any patent, trademark or other right, title or interest of any third party. There is no notice, claim or
assertion (in writing or otherwise) that (1) any item of Transferred IP is invalid or any proprietary or other right therein is owned by a Person other than a
Key Holder Party or (2) any Key Holder, any item of Transferred IP or the conduct of the Principal Business as currently conducted materially infringes,
violates, misappropriates or otherwise interferes or conflicts with any right, title or interest of any third party, and no actual, pending or, to the Knowledge of
the Key Holder, threatened claim, action, opposition, re-examination, interference or cancellation proceeding with respect thereto.
(2) Each Transferred IP is owned by or registered or applied for solely in the name of the relevant Key
Holder Parties, and all necessary registration, maintenance and renewal fees with respect thereto and currently due have been satisfied, except as has not
materially and adversely affected the rights, title and interest to the Transferred IP. No Key Holder Party or, to the Knowledge of the Key Holder, any of its
employees, officers or directors has taken any actions or failed to take any actions that would cause any Transferred IP to be invalid, unenforceable or not
subsisting, provided that it shall not constitute a breach of this clause if the relevant Key Holder Parties have applied for registration, but fail to obtain the
registration for reasons not attributable to such Key Holder Parties. Except as would not reasonably be expected to have a Material Adverse Effect, (A) no
Transferred IP is the subject of any Encumbrance, license or other contract granting rights therein to any other Person, (B) no Transferred IP is subject to any
proceeding, Order, settlement agreement or stipulation that restricts in any manner the use, transfer or licensing thereof by any Key Holder Party or affects
the validity, use or enforceability of such Transferred IP, (C) no Key Holder Party has transferred or assigned any Transferred IP, authorized the joint
ownership of any Transferred IP or permitted the rights of any Key Holder Party in any Transferred IP to lapse or enter the public domain, and (D) to the
Knowledge of the Key Holder, no third party is infringing or is likely to infringe any of the Transferred IP.
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in the industry in which the Principal Business operates in material respects, to protect the secrecy, confidentiality and value of all of the trade secrets and
any other non-public, proprietary information included in the Transferred IP.
(3) Each of the Key Holder Parties has taken adequate security measures consistent with standard practices
(v) Transferred Inventories and Transferred Tangible Assets.
material respects.
(1) Each Transferred Inventory and each Transferred Tangible Asset is in good working order in all
Inventories and Transferred Tangible Assets.
(2) One or more of the relevant Key Holder Parties are the owner or have direct control of Transferred
(3) None of the Key Holder Parties has entered into or granted any Contract, option or right with or to any
third party in relation to any of the Transferred Inventory or Transferred Tangible Asset which is still in force and effect, other than those in the ordinary
course of business. The existence, use, distribution, operation, sale, transfer, modification or disposal of all or any part of any Transferred Inventory or
Transferred Tangible Asset (including any ancillary part thereof) will not violate any applicable Law or infringe upon or misappropriate any third party’s
rights. There is no notice, claim or assertion (in writing or otherwise) of any such violation, infringement or misappropriation and no actual, pending or, to
the Knowledge of the Key Holder, threatened claim, action, investigation or proceeding with respect thereto. To the Knowledge of the Key Holder, there has
been no unauthorized use, infringement or misappropriation of any of the Transferred Inventories by any third party.
Holder, threatened against any of the Key Holder Parties, the Principal Business or the Contributed Assets that would reasonably be expected to have,
individually or in the aggregate, a Material Adverse Effect. Neither the Principal Business nor the Contributed Assets are subject to any Orders that would
reasonably be expected to have, individually or in the aggregate, a Material Adverse Effect.
(vi) Legal Actions and Orders. There are no legal actions in progress, pending or, to the Knowledge of the Key
delivery of each Transaction Document to which it is or will be a party and the consummation of the Contemplated Transactions, complied with, and the
Principal Business and the Contributed Assets are in compliance with, all applicable Laws, other than such non-compliance as would not reasonably be
expected to have, individually or in the aggregate, a Material Adverse Effect.
(vii) Compliance with Legal Requirements. Each Key Holder Party has, in connection with the execution and
23
(viii) Contributed Assets. The Contributed Assets comprise all of the assets, Intellectual Property, Information
Technology, employees and Contracts that are currently used for, and are necessary, material and adequate to carry out, the operation of the Principal
Business as currently operated. The Contributed Assets have been maintained and serviced in accordance with prudent practice in all material respects and in
material compliance with all applicable Laws. As of the date hereof, the relevant Key Holder Parties have good and valid title to the Contributed Assets
(other than employees and Contracts), free and clear of all Encumbrances, other than those Encumbrances as would not reasonably be expected to have,
individually or in the aggregate, a Material Adverse Effect.
(g) Closing Balance Sheet; Accounts. On the Closing Date, the Closing Balance Sheet will be prepared in accordance with
US GAAP and will present fairly, in all material respects, the financial condition of the Group and the Principal Business as of the Closing Date. The Assets
Sheet contains a full list of all assets necessary and material for the operation of the Principal Business as currently carried out (except for the Non-
Transferred Contributed Assets).
(h) Restructuring.
(i) Each Restructuring Document to which any Key Holder Party is or will be a party will, upon execution,
constitute the legal, valid and binding obligation of each party thereto, enforceable against such party in accordance with its terms, except as limited by (i)
applicable bankruptcy, insolvency, reorganization, moratorium and other laws of general application affecting enforcement of creditors’ rights generally and
(ii) laws relating to the availability of specific performance, injunctive relief or other equitable remedies. The execution, delivery and performance of, and
compliance with, the Restructuring Documents by the parties thereto will not result in any violation, breach or default, with or without the passage of time or
the giving of notice or both, of any organizational document of any Key Holder Party, any Contract to which any Key Holder Party is a party or by which
any Key Holder is bound or any Law or Order to which any Key Holder Party is subject.
Restructuring Documents will be duly completed by the relevant parties in accordance with the Restructuring Documents. As of the Restructuring
Completion Date, the Restructuring will be duly completed by the relevant parties pursuant to the Restructuring Documents (other than those that are
specifically provided to be ongoing obligations and do not have a specific completion date under the Restructuring Documents).
(ii) As of the Closing Date, the portion of the Restructuring to be completed prior to the Closing pursuant to the
(iii) Upon completion of the Restructuring on Restructuring Completion Date, the Group Company shall have good
and valid title to the Transferred Asset (other than employees and Contracts) that are material to the Principal Business, free and clear of all Encumbrances.
24
(i) Tax Filings. Each Key Holder Party contributing any part of the Principal Business to the Group has filed or caused to be
filed in a timely manner all applicable Tax returns required to be filed by it, all such Tax returns are true, correct and complete in all material respects, and
each such Key Holder Party has paid, or provided adequate reserves, for all deficiencies or other assessments of Tax owed by it in respect of the Principal
Business. No unassessed Tax deficiency has been proposed or, to the Knowledge of the Key Holder, threatened against any such Key Holder Party.
employee, Affiliate or other Person acting on its behalf has, in relation to the operation of the Principal Business:
(j) FCPA Compliance. Neither the Key Holder nor, to the Knowledge of the Key Holder, any director, officer, agent,
(i) made, or offered any payment of anything of value, or authorized such payment or offer, to any officer,
employee or any other person acting in an official capacity for any government or any department, agency or instrumentality thereof, including any entity or
enterprise owned or controlled by a government, or for any public international organization, to any political party or official thereof or to any candidate for
political office (individually and collectively, a “Government Official”) or to any person knowing or being aware of a high probability that all or a portion of
such money or thing of value will be unlawfully offered, given or promised, directly or indirectly, to any Government Official, for the purpose of (1)
influencing any act or decision of such Government Official in his official capacity, (2) inducing such Government Official to do or omit to do any act in
violation of his lawful duty, (3) securing any improper advantage, (4) inducing such Government Official to influence or affect any act or decisions of any
entity or enterprise owned or controlled by a government or (5) assisting any Key Holder Party in obtaining or retaining business for or with, or directing
business to any Key Holder Party; or
Holder Party conducts its business or operations, including the United States Foreign Corrupt Practices Act of 1977, as amended (the “FCPA”).
(ii) violated any provision of applicable anti-bribery and anti-corruption Laws of any jurisdiction in which any Key
(k) Full Disclosure. As of the Closing Date, each of the Key Holder and the Company shall have provided Tencent with all
the material information regarding the Group Companies which a prudent investor would have requested for deciding whether to purchase the Subscription
Shares on the terms set out hereunder.
in relation to its operation of the Principal Business since its establishment, other than such violations as would not reasonably be expected to have,
individually or in the aggregate, a Material Adverse Effect.
(l) Compliance with Laws. None of the Key Holder Parties has been in violation of any applicable Law or Order applicable
Section 3.2 Representation and Warranties of the Magic Heart Inc. Subject to Section 6.1, Magic Heart Inc. hereby represents,
warrants and undertakes to Tencent that the following representations and warranties are true, accurate and not misleading on and as of the date of this
Agreement, shall be true, accurate and not misleading on and as of the Closing Date with the same effect as if made on and as of the Closing Date:
25
has all requisite power and authority to carry on its business as it is currently being conducted.
(a) Due Formation. Magic Heart Inc. is duly formed, validly existing and in good standing in the British Virgin Islands and
(b) Authority. Magic Heart Inc. has full power and authority to enter into, execute and deliver each Transaction Document to
which it is or will be a party and each other agreement, certificate, document and instrument to be executed and delivered by it pursuant to any Transaction
Document and to perform its obligations thereunder. The execution and delivery by Magic Heart Inc. of each Transaction Document to which it is or will be
a party and the performance by Magic Heart Inc. of its obligations thereunder have been duly authorized by all requisite actions on its part.
(c) Valid Agreement. Each Transaction Document to which Magic Heart Inc. is or will be a party has been or will be duly
executed and delivered by Magic Heart Inc. and constitutes, or when executed and delivered in accordance herewith will constitute, the legal, valid and
binding obligations of Magic Heart Inc., enforceable against Magic Heart Inc. in accordance with its terms, except as limited by (i) applicable bankruptcy,
insolvency, reorganization, moratorium and other laws of general application affecting enforcement of creditors’ rights generally and (ii) laws relating to the
availability of specific performance, injunctive relief or other equitable remedies.
(d) Non-contravention; Litigation. Neither the execution and delivery of each Transaction Document to which Magic Heart
Inc. is or will be a party nor the consummation of any of the Contemplated Transactions will (i) violate any provision of the organizational documents of
Magic Heart Inc. or violate any Law or Order to which Magic Heart Inc. is subject or (ii) conflict with, result in a breach of, constitute a default under, result
in the acceleration of or creation of an Encumbrance under or create in any party the right to accelerate, terminate, modify or cancel any Contract to which
Magic Heart Inc.is a party, by which Magic Heart Inc.is bound or to which any of Magic Heart Inc.’s assets are subject. There is no action, suit or proceeding
pending or, to the Knowledge of Magic Heart Inc. and the Key Holder, threatened against Magic Heart Inc.that questions the validity of this Agreement or
the right of Magic Heart Inc. to enter into this Agreement or to consummate the Contemplated Transactions.
(e) Consents and Approvals. None of the execution and delivery by Magic Heart Inc. of each Transaction Document to
which Magic Heart Inc. is a party, the consummation by Magic Heart Inc. of any of the Contemplated Transactions nor the performance by Magic Heart Inc.
of each Transaction Document to which Magic Heart Inc. is a party in accordance with its terms requires any Authorization, except for those Authorizations
as have been or will have been obtained, made or given on or prior to the Closing Date.
Section 3.3 Representations and Warranties of the Company.Subject to Section 6.1, the Company hereby represents, warrants and
undertakes to Tencent that the following representations and warranties are true, accurate and not misleading on and as of the date of this Agreement, shall be
true, accurate and not misleading on and as of the Closing Date with the same effect as if made on and as of the Closing Date and, solely with respect to the
Restructuring Representations contained in this Section 3.3, shall be true, accurate and not misleading on and as of the Restructuring Completion Date with
the same effect as if made on and as of the Restructuring Completion Date:
26
organization and has all requisite power and authority to carry on its business as it is currently being conducted.
(a) Due Formation. Each Group Company is duly formed, validly existing and in good standing in the jurisdiction of its
(b) Authority. Each Group Company has full power and authority to enter into, execute and deliver each Transaction
Document to which it is or will be a party and each other agreement, certificate, document and instrument to be executed and delivered by it pursuant to any
Transaction Document and to perform its obligations thereunder. The execution and delivery by each Group Company of each Transaction Document to
which it is or will be a party and the performance by such Group Company of its obligations thereunder have been duly authorized by all requisite actions on
its part.
(c) Valid Agreement. Each Transaction Document to which any Group Company is or will be a party has been or will be
duly executed and delivered by such Group Company and constitutes, or when executed and delivered in accordance herewith will constitute, the legal, valid
and binding obligations of such Group Company, enforceable against it in accordance with its terms, except as limited by (i) applicable bankruptcy,
insolvency, reorganization, moratorium and other laws of general application affecting enforcement of creditors’ rights generally and (ii) laws relating to the
availability of specific performance, injunctive relief or other equitable remedies.
superseded or amended. The business licenses and articles of association of each of the Group Companies incorporated in the PRC are in full force and effect
under, and in compliance with, PRC Laws.
(d) Articles; Business Licenses. As of the Closing Date, the Articles shall be in full force and effect and shall not have been
(e) Capitalization.
(i) As of the date hereof, the authorized share capital of the Company is US$50,000 divided into a total of
500,000,000 Ordinary Shares of which one is are issued and outstanding. Immediately prior to the Closing, the authorized share capital of the Company shall
be US$50,000 divided into (1) a total of 4,500,000,000 Ordinary Shares, of which 10 will be issued and outstanding and (2) a total of 500,000,000 Series A
Preferred Shares, none of which will be issued and outstanding. The Capitalization Table truly and accurately describes the capitalization of each Group
Company on a fully diluted basis on the date hereof, immediately prior to the Closing and immediately following the Closing, in each case reflecting all then
outstanding Equity Securities in such Group Company, the record and beneficial holders thereof and the terms of any vesting applicable thereto.
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(ii) Except for certain rights provided in or contemplated by the Transaction Documents and provided under
applicable Laws and the outstanding Equity Securities set forth in the Capitalization Table, (1) there are no outstanding Equity Securities in any Group
Company, (2) no Equity Securities in any Group Company are subject to any preemptive rights, rights of first refusal or first offer or other rights to purchase
such Equity Securities or any other rights with respect to such Equity Securities, (3) no Group Company is a party or subject to any Contract that affects or
relates to the voting or giving of written consents with respect to, or the right to cause the redemption or repurchase of or a change in the vesting provisions
related to, any Equity Security in such Group Company and (4) no Group Company has ever adjusted or amended the exercise price of any share options
previously awarded, whether through amendment, cancellation, replacement grant, repricing or any other means.
any registration rights or information rights to any other Person, nor is the Company obliged to cause the listing of any of the Equity Securities in any Group
Company on any securities exchange.
(iii) Except as provided in the Shareholders Agreement (from and after the Closing), the Company has not granted
paid and non-assessable, free and clear of all Encumbrances and (2) were not issued in contravention of any preemptive rights, rights of first refusal or first
offer or similar rights or any applicable Laws or Contracts.
(iv) All of the outstanding Equity Securities in each Group Company (1) are duly authorized, validly issued, fully
authorized, issued or outstanding Equity Securities in any Group Company, (2) dividends which have accrued or been declared but are unpaid by any Group
Company, (3) obligations, contingent or otherwise, of any Group Company to repurchase, redeem or otherwise acquire any Equity Securities or (4)
outstanding or authorized equity appreciation, phantom equity, equity plans or similar rights with respect to any Group Company.
(v) Except as contemplated by the Transaction Documents, there are no (1) resolutions pending to increase the
(vi) The rights of the Ordinary Shares and the Series A Preferred Shares are as stated in the Articles.
(f) Due Issuance. The Tencent Subscription Shares have been duly authorized and, when issued and delivered to and paid for
by Tencent pursuant to this Agreement, will be validly issued, fully paid and non-assessable, free and clear of all Encumbrances (except for restrictions
arising under the Securities Act or created by virtue of the Transaction Documents), and upon delivery and entry into the register of members of the
Company of the Tencent Subscription Shares, Tencent shall have good and valid title to the Tencent Subscription Shares, free and clear of all Encumbrances
(except for restrictions arising under the Securities Act or created by virtue of the Transaction Documents). The Ordinary Shares into which the Tencent
Subscription Shares are convertible have been reserved for issuance and, when issued and delivered in accordance with the terms of the Articles, will be
validly issued, fully paid and non-assessable, free and clear of all Encumbrances (except for restrictions arising under the Securities Act or created by virtue
of the Transaction Documents), and shall rank pari passu in all respects with existing Ordinary Shares at the time of their issuance. The issuance of the
Tencent Subscription Shares and the Ordinary Shares into which they are convertible is not subject to any preemptive rights, rights of first refusal or first
offer or similar rights. Assuming the truthfulness and accuracy of the representations made by Tencent under Section 3.4(f), the issuance of the Tencent
Subscription Shares pursuant to this Agreement are, and the issuance of the Ordinary Shares into which they are convertible will be, exempt from the
registration and prospectus delivery requirements of all applicable Securities Laws. All presently outstanding Equity Securities in the Company have been
issued, and, assuming the truthfulness and accuracy of the representations made by Tencent under Section 3.4(f), the Tencent Subscription Shares and the
Ordinary Shares into which they are convertible will be issued, in compliance with the requirements of all applicable Securities Laws.
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(g) Non-contravention; Litigation. Neither the execution and delivery of each Transaction Document to which any Group
Company is or will be a party nor the consummation of any of the Contemplated Transactions will (i) violate any provision of the organizational documents
of any Group Company or violate any Law or Order to which any Group Company is subject or (ii) conflict with, result in a breach of, constitute a default
under, result in the acceleration of or creation of an Encumbrance under or create in any party the right to accelerate, terminate, modify or cancel any
Contract to which any Group Company is a party, by which any Group Company is bound or to which any Group Company’s assets are subject. There is no
action, suit or proceeding pending or threatened in writing against any Group Company that questions the validity of this Agreement or the right of any
Group Company to enter into each Transaction Document to which it is or will be a party or to consummate the Contemplated Transactions.
(h) Consents and Approvals. None of the execution and delivery of each Transaction Document to which any Group
Company is or will be a party, the consummation of any of the Contemplated Transactions nor the performance by any Group Company of each Transaction
Document to which such Group Company is or will be a party in accordance with its terms requires any Authorization, except for those Authorizations
expressly set forth in the Transaction Documents.
(i) Holding Companies. Each of the Group Companies was formed solely to acquire and hold Equity Securities in the
relevant Group Companies or the Contributed Assets or to operate the Principal Business and has not since its formation engaged in any business other than
the Principal Business and the business in relation to its acquiring and holding Equity Securities in the other relevant Group Companies or the Contributed
Assets.
connection with the issuance of the Tencent Subscription Shares, and none of the Group Companies is under any obligation to pay any broker’s fee or
commission in connection with the issuance of the Tencent Subscription Shares or the Contemplated Transactions.
(j) Brokers. The Company has not dealt with any broker, finder, commission agent, placement agent or arranger in
(k) Constitutional Documents. The constitutional documents of each Group Company are in the form provided to Tencent.
Each Group Company has made available to Tencent or its advisors a copy of its minute books, to the extent such Group Company keeps minute books. Such
copy is true, correct and complete, and contains all amendments and all minutes of meetings and actions taken by its shareholders and directors since the time
of formation through the date hereof and reflects all transactions referred to in such minutes accurately in all material respects.
29
Restructuring Completion Date (with respect to clauses (i) through (v)):
(l) Control Documents. As of the Closing Date (with respect to the following clauses (i) through (iii) and (v)) and the
(i) Each party to any Control Document (other than the Tencent Nominee) has full power and authority to enter
into, execute and deliver such Control Document to which it is a party and each other agreement, certificate, document and instrument to be executed and
delivered by it pursuant to the Control Documents and to perform its obligations thereunder. The execution and delivery by such party of each Control
Document to which it is a party and the performance by such party of its obligations thereunder have been duly authorized by all requisite actions on its part.
Subject to any necessary Authorization by the relevant Governmental Authority, each Control Document to which such party is a party has been or will be
duly executed and delivered by such party and constitutes, or when executed and delivered in accordance herewith will constitute, the legal, valid and
binding obligations of such party, enforceable against such party in accordance with its terms, except as limited by (1) applicable bankruptcy, insolvency,
reorganization, moratorium and other laws of general application affecting enforcement of creditors’ rights generally and (2) laws relating to the availability
of specific performance, injunctive relief or other equitable remedies.
(ii) No Authorizations are required to be obtained for the execution and delivery of the Control Documents, the
performance by the parties to each Control Document of their respective obligations thereunder and the transactions contemplated under the Control
Documents, other than those Authorizations that (1) have already been obtained or provided for under the Control Documents, (2) remain in full force and
effect, (3) are required to register any share pledge to secure the VIE Entity’s obligations under the Control Documents and to make the transfer of profits
from the VIE Entity to the Group Company incorporated in Hong Kong, (4) are required for transfer of equity interests in the VIE Entity upon exercise by
the WFOE of its rights under the relevant exclusive option agreement among the WFOE, the VIE Entity and the shareholders of the VIE Entity and (5) do
not impose any obligation, condition or restriction that would create a material burden on the parties to the Control Documents.
(iii) The execution, delivery and performance by each and all of the relevant parties (other than the Tencent
Nominee) of their respective obligations under each and all of the Control Documents, and the consummation of the transactions contemplated thereunder,
did not and do not (1) result in any violation of their respective articles of association, business licenses or constitutive documents, (2) result in any violation
of any applicable PRC Laws which would reasonably be expected to have, individually or in aggregate, a Material Adverse Effect or (3) conflict with or
result in a breach or violation of any of the terms or provisions of, or constitute a default under, any Order of any court of the PRC having jurisdiction over
the relevant parties to the Control Documents or any Contract to which any of such parties is expressed to be a party or which is binding on any of them.
Documents taken as a whole are, legal, valid, enforceable and admissible as evidence under PRC Laws, and constitute the legal and binding obligations of
the relevant parties.
(iv) Each Control Document entered into between the WFOE and the VIE Entity is, and all of such Control
30
(v) All shareholders of the VIE Entity (other than the Tencent Nominee) are acting in good faith and in the best
interests of the Company. There have been no disputes, disagreements, claims or any legal proceedings of any nature, raised by any Governmental Authority
or any other party, pending or, to the Knowledge of the Company, threatened against or affecting any of the VIE Entity and other Group Companies that (1)
challenge the validity or enforceability of any part or all of the Control Documents taken as a whole, (2) challenge the VIE structure or the ownership
structure as set forth in the Control Documents, (3) claim any ownership, share, equity or interest in the VIE Entity or other Group Companies, or claim any
compensation for not being granted any ownership, share, equity or interest in the VIE Entity or other Group Companies or (4) claim any of the Control
Documents or the ownership structure thereof or any arrangement or performance of or in accordance with the Control Documents was, is or will violate any
PRC Laws.
(m) Tax Filings.
(i) Each of the Group Companies has filed or caused to be filed in a timely manner all Tax returns required to be
filed by it, all such Tax returns are true, correct and complete in all material respects and each of the Group Companies has paid, or provided adequate
reserves, for all Taxes and deficiencies or other assessments of Tax owed by it. All Taxes which any Group Company has been obligated to collect, deduct or
withhold from amounts paid by any customer or other third party, or owing to any employee, creditor or other third party, have been timely collected,
deducted or withheld and paid to the appropriate Governmental Authority.
Authority are currently in progress with respect to the Group Companies. None of the Group Companies has received any from any Governmental Authority
(1) notice indicating any intent to open an examination, audit, investigation or administrative or judicial proceedings in respect of any Tax or Tax return or
(2) notice of deficiency or proposed adjustment for any unpaid Taxes.
(ii) No Tax examination, audit, investigation or administrative or judicial proceedings by any Governmental
(n) Interested Party Transaction. Except as set forth in or contemplated by the Transaction Documents, none of the Key
Employees, the shareholders, officers or directors of a Group Company, or officer or director of any Group Company’s shareholder, or any Affiliate of any
foregoing party, has any contract, understanding or proposed transaction with, or is indebted to, any Group Company, nor is any Group Company indebted,
or committed to make loans or extend or guarantee credit, to any of such Persons, other than for accrued salaries, reimbursable expenses or other standard
employee benefits.
employee, Affiliate or other Person acting on the behalf of any Group Company has:
(o) FCPA Compliance. None of the Group Companies nor, to the Knowledge of the Company, any director, officer, agent,
31
(i) made, or offered any payment of anything of value, or authorized such payment or offer, to any Government
Official or to any person knowing or being aware of a high probability that all or a portion of such money or thing of value will be unlawfully offered, given
or promised, directly or indirectly, to any Government Official, for the purpose of (1) influencing any act or decision of such Government Official in his
official capacity, (2) inducing such Government Official to do or omit to do any act in violation of his lawful duty, (3) securing any improper advantage, (4)
inducing such Government Official to influence or affect any act or decisions of any entity or enterprise owned or controlled by a government or (5) assisting
any Group Company in obtaining or retaining business for or with, or directing business to any Group Company; or
Group Company conducts its business or operations, including the FCPA.
(ii) violated any provision of applicable anti-bribery and anti-corruption Laws of any jurisdiction in which any
since its establishment (including applicable Laws governing the receipt, collection, use, storage, processing, sharing, security, disclosure or transfer of
personal information).
(p) Compliance with Laws. Each of the Group Companies has been in compliance with any Law or Order applicable to it
(q) Insolvency.
(i) The aggregate assets of each Group Company, at a fair valuation, exceeds or shall exceed the aggregate debt of
such Group Company as the debt becomes absolute and mature, and each Group Company is not incurring nor intends to incur, and shall not have incurred
nor intended to incur, debt beyond its ability to pay such debt as such debt becomes absolute and matures.
provincial, city, local or foreign bankruptcy, insolvency, receivership or similar Law, or any Action for the appointment of a receiver, liquidator, assignee,
custodian, trustee, sequestrator or similar official of such Group Company or for any substantial part of its property or for the winding up or liquidation of its
affairs.
(ii) There has not been commenced against any Group Company an involuntary case under any applicable national,
Section 3.4 Representations and Warranties of Tencent. Tencent hereby represents, warrants and undertakes to the Key Holder and
the Company that the following representations and warranties are true, accurate and not misleading on and as of the date of this Agreement and shall be true,
accurate and not misleading on and as of the Closing Date with the same effect as if made on and as of the Closing Date:
and authority to carry on its business as it is currently being conducted.
(a) Due Formation. Tencent is duly formed, validly existing and in good standing in Hong Kong and has all requisite power
(b) Authority. Tencent has full power and authority to enter into, execute and deliver each Transaction Document to which it
is or will be a party and each other agreement, certificate, document and instrument to be executed and delivered by it pursuant to any Transaction Document
and to perform its obligations thereunder. The execution and delivery by Tencent of each Transaction Document to which it is or will be a party and the
performance by Tencent of its obligations thereunder have been duly authorized by all requisite actions on its part.
32
(c) Valid Agreement. Each Transaction Document to which Tencent is or will be a party has been or will be duly executed
and delivered by Tencent and constitutes, or when executed and delivered in accordance herewith will constitute, the legal, valid and binding obligations of
Tencent, enforceable against Tencent in accordance with its terms, except as limited by (i) applicable bankruptcy, insolvency, reorganization, moratorium
and other laws of general application affecting enforcement of creditors’ rights generally and (ii) laws relating to the availability of specific performance,
injunctive relief or other equitable remedies.
(d) Non-contravention; Litigation. Neither the execution and delivery of each Transaction Document to which Tencent is or
will be a party nor the consummation of any of the Contemplated Transactions will (i) violate any provision of the organizational documents of Tencent or
violate any Law or Order to which Tencent is subject or (ii) conflict with, result in a breach of, constitute a default under, result in the acceleration of or
creation of an Encumbrance under or create in any party the right to accelerate, terminate, modify or cancel any Contract to which Tencent is a party, by
which Tencent is bound or to which any of Tencent’s assets are subject. There is no action, suit or proceeding pending or, to the Knowledge of Tencent,
threatened against Tencent that questions the validity of this Agreement or the right of Tencent to enter into this Agreement or to consummate the
Contemplated Transactions.
(e) Consents and Approvals. None of the execution and delivery by Tencent of each Transaction Document to which
Tencent is a party, the consummation by Tencent of any of the Contemplated Transactions nor the performance by Tencent of each Transaction Document to
which Tencent is a party in accordance with its terms requires any Authorization, except for those Authorizations as have been or will have been obtained,
made or given on or prior to the Closing Date.
(f) Status and Investment Intent.
capable of evaluating the merits and risks of its investment in the Tencent Subscription Shares. Tencent is capable of bearing the economic risks of such
investment, including a complete loss of its investment.
(i) Experience. Tencent has sufficient knowledge and experience in financial and business matters so as to be
Agreement for its own account for investment purposes only and not with the view nor intention to resell, distribute or otherwise dispose thereof. Tencent
does not have any direct or indirect arrangement or understanding with any other Person to distribute the Tencent Subscription Shares in violation of the
Securities Act or any other applicable state securities law.
(ii) Purchase Entirely for Own Account. Tencent is acquiring the Tencent Subscription Shares pursuant to this
Tencent did not contact the Company as a result of any general solicitation or directed selling efforts.
(iii) Solicitation. Tencent was not identified or contacted through the marketing of the Tencent Subscription Shares.
33
(iv) Restricted Securities. Tencent acknowledges that the Tencent Subscription Shares are “restricted securities” that
have not been registered under the Securities Act or any applicable state securities law. Tencent further acknowledges that, absent an effective registration
under the Securities Act, the Tencent Subscription Shares may only be offered, sold or otherwise transferred (1) to the Company, (2) outside the United
States of America in accordance with Rule 904 of Regulation S under the Securities Act or (3) pursuant to an exemption from registration under the
Securities Act.
(v) Not U.S. Person. Tencent is not a “U.S. person” as defined in Rule 902 of Regulation S under the Securities Act.
(vi) Offshore Transaction. Tencent has been advised and acknowledges that in issuing the Tencent Subscription
Shares to it pursuant hereto, the Company is relying upon the exemption from registration provided by Regulation S under the Securities Act. Tencent is
acquiring the Tencent Subscription Shares in an offshore transaction in reliance upon the exemption from registration provided by Regulation S under the
Securities Act.
ARTICLE IV
COVENANTS
Section 4.1 Conduct of Business of the Company. From the date hereof until the Closing Date, except as expressly contemplated by
any Transaction Document or with the prior written consent of Tencent (which consent shall not be unreasonably withheld or delayed), the Company shall
not, and each of the Key Holder and the Company shall cause each of the Group Companies not to:
(a) amend its organizational documents;
(b) split, combine or reclassify any Equity Security in any Group Company;
in respect of the Equity Securities in any Group Company;
(c) declare, set aside or pay any dividend or other distribution (whether in cash, stock, property or any combination thereof)
(d) redeem, repurchase or otherwise acquire any Equity Securities in the any Group Company;
of any wholly-owned Subsidiary of the Company to the Company or any other wholly-owned Subsidiary of the Company;
(e) issue, deliver or dispose of any Equity Securities in any Group Company, other than the issuance of any Equity Securities
(f) amend any term of any Equity Securities in any Group Company;
businesses, other than in the ordinary course of business consistent with past practice;
(g) acquire (by merger, consolidation or otherwise), directly or indirectly, any assets, securities, properties, interests or
34
any Group Company, other than in the ordinary course of business consistent with past practice;
(h) sell, lease or otherwise dispose of, or create or incur any Encumbrance on, any assets, securities, properties or interests of
(i) make any loans, advances or capital contributions to, or investments in, any other Person;
course of business consistent with past practice;
(j) create, incur, assume, suffer to exist or otherwise be liable with respect to any Indebtedness, other than in the ordinary
employee benefit plan, practice, program, policy or Contract;
(k) hire any employee or consultant or adopt, establish, enter into, amend, terminate or increase the benefits under any
(l) make any material change in any method of accounting or accounting practice used by such Group Company;
(m) enter into any contract or other transaction with an Affiliate;
Governmental Authority in respect of Taxes, file any amended Tax return, incur any Liability for Tax other than in the ordinary course of business or consent
to any extension or waiver of the limitations period applicable to any Tax claim or assessment;
(n) make, change or revoke any material Tax election, enter into, request or obtain any “closing agreement” with any
(o) initiate or settle any Action involving or against any Group Company; or
(p) agree, commit or offer to do any of the foregoing.
Section 4.2 Operation of the Principal Business. From the date hereof until the Closing Date, (a) the Key Holder shall ensure that the
Principal Business is carried out in the ordinary course consistent with past practice, and shall use commercially reasonable efforts to preserve its
relationships with customers, suppliers, lenders and other Persons having business dealings relating to the Principal Business and keep available the services
of and not to change the main work undertaken by, the employees who are currently involved in the Principal Business but cannot be transferred to the Group
due to reasons associated with their work residence permit. The Key Holder shall, and shall cause each of the relevant Key Holder Parties to, use
commercially reasonable efforts to negotiate and renew business contracts in the Principal Business which have expired on or prior to the date hereof. The
Key Holder shall ensure that the Principal Business is conducted in a manner which complies with all applicable Laws in all material respects. The Key
Holder shall, and shall cause each of the relevant Key Holder Parties, to provide the Group with the support required under the Restructuring Documents in
compliance with the terms thereof.
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Section 4.3 Regulatory Compliance. The Company shall ensure that each of the Group Companies complies, in all material respects,
with all applicable PRC Laws, including Laws in connection with the operation of the Principal Business, internet advertising, welfare funds, social benefits,
medical benefits, insurance, requirement benefits, pensions and income, value-added or business tax.
Section 4.4 Negative Covenants. From the date hereof until the Closing Date, except as expressly contemplated by any Transaction
Documents or with the prior written consent of Tencent (which consent shall not be unreasonably withheld or delayed), the Key Holder shall ensure that no
Key Holder Party shall do any of the following:
(a) Compensation. other than in the ordinary course of business consistent with past practice, (i) increase annual recurring
compensation or fringe benefits payable to any Person employed in connection with the Principal Business, (ii) pay or grant any severance, termination or
change-of-control benefit to such Person or (iii) adopt or amend any employee incentive plan of any Key Holder Party involved in the Principal Business;
any additional liability or obligations pursuant to such Transferred Contract, other than on terms that would not be materially adverse to the interests of the
Principal Business and any modification, amendment or liability that is made or incurred in the ordinary course of business;
(b) Contracts. (i) terminate any Transferred Contract or (ii) modify or amend any Transferred Contract or otherwise assume
a Material Adverse Effect;
(c) No Material Adverse Effect. take any action that would reasonably be expected to have, individually or in the aggregate,
Assets, other than in the ordinary course of business consistent with past practice;
(d) Disposition of Contributed Assets. sell, convey, assign, lease or otherwise transfer or dispose of any of the Contributed
ordinary course of business consistent with past practice;
(e) Encumbrances. create, assume or permit to exist any Encumbrance upon any of the Contributed Assets, other than in the
nonrenewal or adverse modification of any Authorizations necessary and material for the operation of the Principal Business;
(f) Authorizations. do any act or fail to do any act which could result in the termination, expiration, revocation, suspension,
Assets; and
(g) Waivers etc. waive, release or assign any material right or claim relating to the Principal Business or the Contributed
(h) No Agreement. agree to do any of the foregoing.
the Key Holder Parties shall, do the following:
Section 4.5 Affirmative Covenants. From the date hereof until the Closing Date, the Key Holder shall, and shall ensure that each of
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(a) Access to Information. provide each of the Company, Tencent and their respective representatives reasonable access to
the Principal Business and the Contributed Assets for purposes of audit and inspection, and make available or cause to be made available to each of the
Company, Tencent and their respective authorized representatives all information with respect to the Principal Business and the Contributed Assets as such
Person may reasonably request;
(b) Maintenance of Assets. (i) maintain all of the Contributed Assets (including Transferred IP) and all buildings or other
improvements located on any leased real property owned or used in connection with the Principal Business in a condition (ordinary wear and tear excepted)
no worse than the condition as of the date hereof, and use all of the Contributed Assets and all buildings or other improvements located on any leased real
property owned or used in connection in the Principal Business in a commercially reasonable manner, and (ii) duly perform and enforce the Transferred
Contracts;
consistent with past practice;
(c) Insurance. maintain existing insurance coverage with respect to the Principal Business and the Contributed Assets
(d) Books and Records. maintain the books and records of the Principal Business in the ordinary course;
(e) Notification. promptly notify Tencent of (i) any material change in the Key Holder’s representations and warranties or
any material failure to perform any covenant or agreement of the Key Holder contained in any Transaction Document or (ii) any material breach of any
representation, warranty, covenant or agreement of the Key Holder contained in any Transaction Document. Such notification shall be without prejudice to
any rights or remedies accruing to Tencent from any such change, failure or breach;
Contributed Assets; and
(f) Compliance with Laws. comply in all material respects with all Laws applicable to the Principal Business and the
suppliers, customers, landlords and other Persons having business relations with the Key Holder Parties in relation to the Principal Business.
(g) Goodwill. use its commercially reasonable efforts to preserve for the Company the goodwill of the Key Holder Parties’
Section 4.6 Closing Balance Sheet; Accounts.
Closing Balance Sheet, together with the assumptions made in the preparation thereof, and any supporting documentation therefor reasonably requested by
Tencent. The Closing Balance Sheet shall be prepared in accordance with US GAAP.
(a) As soon as practicable after the date hereof, the Key Holder shall prepare and deliver to Tencent the Assets Sheet and the
(b) The Key Holder shall ensure that, as of the Closing Date, the amount of liabilities of the Group as reflected in the
Closing Balance Sheet (other than those liabilities arising from payment required to be paid by the Group Companies specifically provided for under
Restructuring Documents, which amount shall not exceed the amount of registered capital of the VIE Entity actually paid by the Key Holder) is zero.
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Section 4.7 VIE Entity and Control Documents.
(a) The Company shall ensure that, within 90 days after the Closing Date, all necessary Authorizations shall have been
obtained in connection with the contribution of the VIE Purchase Price by or on behalf of the Tencent Nominee to the registered capital of the VIE Entity and
the amendment of the constitutional documents of the VIE Entity to reflect the holding by the Tencent Nominee of 25.0% of the equity interests in the VIE
Entity, and Tencent shall, and shall cause the Tencent Nominee to, provide necessary assistance requested by the Company.
Entity is duly established with the Tencent Nominee and the Key Holder Nominee holding 25.0% and 75.0% of the equity interests therein, respectively, and
Tencent shall, and shall cause the Tencent Nominee to, provide necessary assistance requested by the Company.
(b) The Company shall ensure that, as soon as practicable but in any event within 90 days after the Closing Date, the VIE
(c) As soon as practicable but in any event within 90 days after the Closing Date, (i) the Company shall, or cause the other
Group Companies to, establish the WFOE and (ii) the Company shall cause concurrently the termination of the Control Documents then in force and effect
among the Group Company incorporated in Hong Kong, the VIE Entity and certain other parties thereto and the entry into new Control Documents by the
WFOE and the VIE Entity.
(d) Against compliance by the Company with, and as soon as practicable but in any event within five (5) Business Days after
the completion of, Section 4.7(a), 4.7(b) and 4.7(c), Tencent shall (i) cause the entry into the new Control Documents referred to in Section 4.7(c) by the
Tencent Nominee and (ii) pay and deliver, or cause to be paid and delivered, to the VIE Entity, on behalf of the Tencent Nominee, the VIE Purchase Price in
RMB as capital contribution to the VIE Entity by wire transfer of immediately available funds to such bank account designated in writing by the Company to
Tencent at least seven Business Days prior to the date of such proposed payment.
Section 4.8 Restructuring.
(a) The Parties shall, and the Key Holder and the Company shall cause the Key Holder Parties and the Group Companies to,
negotiate, prepare and finalize in good faith the Restructuring Documents, other than the Framework Restructuring Agreement, to the reasonable satisfaction
of Tencent as soon as practicable following the date hereof.
Parties and the Group Companies not to, consent to any amendment, supplement, termination or waiver of any rights or obligations under any Restructuring
Document, save with the prior written consent of Tencent (which consent shall not be unreasonably withheld or delayed).
(b) Neither the Key Holder nor the Company shall, and the Key Holder and the Company shall cause each of the Key Holder
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(c) During the term of the Framework Restructuring Agreement, each of the Key Holder and the Company shall, and shall
cause each of the Key Holder Parties and the Group Companies to, provide Tencent and, at the request of Tencent, its professional advisors with (i) an update
on the status of the Restructuring after the completion of any material step thereto and (ii) any relevant documentation evidencing the contents of such
update, to the extent such documentation exists.
its obligations under the Restructuring Agreement before the expiration of any applicable deadlines and consummate the Restructuring in accordance with
the Restructuring Documents and in compliance with all applicable PRC Laws in all material respects.
(d) The Key Holder shall, and shall cause each of the Key Holder Parties and the Group Companies to, duly perform each of
(e) The Company shall ensure that, within 12 months after the Closing Date, the VIE Entity obtains from the relevant PRC
Governmental Authority the ICP Permit and deliver to Tencent a copy of the ICP Permit, and the Key Holder shall, and shall cause each of the Key Holder
Parties to, use commercially reasonable efforts to assist the Company and the VIE Entity in applying for and obtaining the ICP Permit.
(f) The Company shall ensure that the VIE Entity and the shareholders of the VIE Entity (other than the Tencent Nominee)
and Tencent shall ensure that the Tencent Nominee, file with the competent PRC administration for industry and commerce, as soon as practicable but in any
event within one month after the completion of Section 7, the pledge created over the equity interests in the VIE Entity in accordance with the Control
Documents and provide to Tencent a copy of the registration certificate obtained from the competent PRC administration for industry and commerce,
provided that failure to complete the filing with such period due to reasons on the part of the competent PRC administration for industry and commerce shall
not constitute a violation or non-performance of this Section 4.8(f).
each of the relevant Group Companies to, duly perform each of its obligations with respect to trademarks and IPs provided for under the Framework
Restructuring Agreement in accordance with the terms thereof.
(g) The Key Holder shall, and shall cause each of the relevant Key Holder Parties to, and the Company shall, and shall cause
(h) In connection with the Restructuring, the Key Holder shall bear, or shall reimburse the Group Companies for, (i) all Tax
Liabilities incurred in connection with the contribution of assets by the relevant Key Holder Parties to the Group pursuant to the Framework Restructuring
Agreement and the contribution of business resources other than the advertisement support by the relevant Key Holder Parties to the Group pursuant to the
Key Holder Business Cooperation Agreement, and (ii) all obligations for severance or similar payments to employees of the Principal Business taking into
account the seniority of such employees to the extent arising from the termination of their employment with the relevant Key Holder Party prior to the earlier
of (1) the Closing Date and (2) the date on which such employees are transferred to the Group pursuant to the Restructuring Documents. All Tax Liabilities
of the Group Companies arising from matters occurred prior to the Closing Date shall be borne by the Key Holder.
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(i) The Key Holder shall ensure that the total purchase price for all Contributed Assets payable by any Group Company to
any Key Holder Party or third party (other than payment pursuant to and specified in section 8.4(6) of the Framework Restructuring Agreement) shall not
exceed the amounts of cash contributions paid by Key Holder Nominee to the VIE Entity as registered capital, which shall be RMB10,000,000.
Section 4.9 Non-Assignable Assets.
(a) None of the Key Holder Parties nor the Group Companies shall be required to assign or transfer any Contributed Asset
which by its terms or by Law is not assignable or transferable without the consent or approval of any Governmental Authority or other third party or
satisfaction of any condition (each “Conditional Transfer Asset”), unless and until such consent or approval has been obtained or such condition has been
satisfied, or any Non-Transferred Contributed Asset.
(b) The Key Holder and the Company shall, and shall cause each of the Key Holder Parties and the Group Companies to, use
commercially reasonable efforts to obtain as expeditiously as possible any consent or approval that may be required and to satisfy any condition necessary to
the assignment or transfer of a Conditional Transfer Asset to the Group Companies.
(c) (A) With respect to any Conditional Transfer Asset that is not a Contract, unless and until any such consent or approval
that may be required is obtained or any such condition is satisfied, to the extent permitted by applicable Law and by the terms of the applicable Conditional
Transfer Asset, the Key Holder and the Company shall, and shall cause each of the Key Holder Parties and the Group Companies to, cooperate and use
commercially reasonable efforts to establish an arrangement (including subcontracting, sublicensing or subleasing arrangements) under which the Group
Companies would obtain the rights and benefits and assume the corresponding liabilities and obligations under such Conditional Transfer Asset or under
which the Key Holder or the Key Holder Parties would, at the reasonable request of the Group Companies, enforce for the benefit of the Group Companies,
in respect of such Conditional Transfer Asset, any and all claims, rights and benefits of the Key Holder and its Subsidiaries against a third party; (B) with
respect to any Conditional Transfer Asset that is a Contract, the Parties shall discuss in good faith and agree upon the arrangement to ensure that the
arrangements under this Section 4.9(c) can be applied to such Contract, unless such arrangements are expressly provided for under the Framework
Restructuring Agreement. The foregoing arrangement shall not apply to a Transferred Employee.
(d) If and when all such consents or approvals are obtained and all such conditions are satisfied in respect of the relevant
Conditional Transfer Asset, the transfer of such Conditional Transfer Asset to the Group Companies shall be effected in accordance with the terms of the
Restructuring Documents.
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Section 4.10 Non-competition.
(a) From the date hereof until the date on which Tencent and its Affiliates dispose of all their respective interests in the
Group, the Key Holder shall not, and shall cause its Affiliates not to, directly or indirectly, invest in, own, manage, operate or Control any Competitor or
otherwise participate, engage or invest in or operate any Competitive Business, other than through the Group Companies, without the prior written consent of
Tencent; provided, that the restrictions contained in this Section 4.10(a) shall not restrict (i) the acquisition of less than 5% of the outstanding share capital of
any Competitor that is a publicly traded company and (ii) the ownership, management, operation and Control of any Competitor, or the direct or indirect
participation, engagement or investment in any Competitive Business by entities not Controlled by the Key Holder or any of its Affiliates.
the Group, Tencent shall, and shall cause its Affiliates to comply with the obligations set out in Schedule 1.
(b) From the date hereof until the date on which the Key Holder and its Affiliates dispose of all their respective interests in
Section 4.10 are reasonable in scope and duration, an integral part of the Contemplated Transactions and necessary to protect and preserve the Company’s
legitimate business interests and the value of the Principal Business and to prevent any unfair advantage.
(c) Each of the Key Holder and Tencent acknowledges and agrees that the agreements and covenants contained in this
Section 4.11 Most Favored Nation. From the date hereof until the Closing Date, if the Company proposes to issue any Equity Security
to any Person, or any of the Key Holder Parties enters into any agreement with any Person in connection with the subscription for Equity Securities in the
Company by such Person, which is on terms or provides rights which are more favorable to such Person than those contained in the Transaction Documents,
the Key Holder and the Company shall promptly notify Tencent thereof and agree to, and shall cause all necessary third parties to agree to, such amendments
to the Transaction Documents as shall ensure that those same terms or rights are provided to Tencent.
efforts to satisfy the conditions precedent to the consummation of the Contemplated Transactions.
Section 4.12 Further Assurances. From the date hereof until the Closing Date, the Parties shall use their commercially reasonable
Companies.
Section 4.13 Use of Proceeds. The Company shall use the Tencent Purchase Price for the general corporate purposes of the Group
of the Principal Business following the Closing.
Section 4.14 Cooperation. The Parties shall use their commercially reasonable efforts to cooperate to facilitate the further development
Section 4.15 Conduct of Other Businesses. The Company shall ensure that the Group shall conduct (a) any business relating to real
estate, automobiles or human resources exclusively in cooperation with the Key Holder and its Affiliates, and (b) any business relating to finance exclusively
in cooperation with the Key Holder and its Affiliates and/or Tencent and its Affiliates. The Company shall not, and shall cause the Group not to, conduct any
business relating to real estate, automobiles, human resources or finance in any manner not compliant with the preceding sentence without the prior approval
of the Board.
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PRC Laws and necessary and material for the Principal Business and any other business proposed to be conducted by the Group Companies.
Section 4.16 Permits. The Company shall ensure that the Group Companies promptly obtain all Authorizations required by applicable
Section 4.17 Access. From the date hereof until the Closing Date, the Key Holder shall, and shall cause its Affiliates to, (a) give
Tencent and its counsel, financial advisors, auditors and other representatives reasonable access to the offices, properties, books and records of the Group
Companies, the Principal Business and the Contributed Assets, (b) furnish to Tencent and its counsel, financial advisors, auditors and other representatives
such information relating to the Group Companies, the Principal Business and the Contributed Assets as may be reasonably requested and (c) instruct the
employees, counsel, accountants and other advisors of the Key Holder and its Affiliates to cooperate with Tencent in Tencent’s investigation of the Group
Companies, the Principal Business and the Contributed Assets.
Section 4.18 ESOP. The Parties agree that (a) the Company shall adopt an ESOP as soon as practicable following the Closing, (b) the
Key Holder and the relevant Key Holder Parties shall cancel any and all options, restricted share units and other share incentive awards that have been
granted to the Transferred Employees under the Key Holder’s share incentive plan but have not become vested in accordance with the vesting schedule and
other terms of the awards as of the date hereof, (c) following the Closing Date the Company shall, and shall cause the relevant Group Companies to, grant to
such Transferred Employees whose share incentive awards have been cancelled as described in this Section 4.18 such number of share incentive awards of
the Company under the ESOP with such exercise price, vesting schedule and other detailed terms as determined by the Board in accordance with the ESOP,
and (d) the Company shall ensure that each Person who shall have received any Equity Securities of the Company pursuant to any options, restricted share
units and any other share incentive awards granted to such Person under the ESOP grant an irrevocable voting proxy and power of attorney to the Key
Holder, appointing the Key Holder as his attorney-in-fact with full power and authority to exercise the voting rights with respect to all of such Equity
Securities in any vote of the shareholders of the Company or proposed action by written consent by the shareholders of the Company, and to make, execute
and deliver all resolutions, consents and other writings and to do such things and to take such actions in each case to the extent the Key Holder considers
necessary to exercise the voting rights.
ARTICLE V
INDEMNIFICATION
Section 5.1 Survival of the Representations and Warranties. All representations and warranties made by the Key Holder or the
Company to Tencent contained in Section 3.1 and Section 3.3 or by Tencent to the Key Holder and the Company contained in Section 3.4 shall survive for a
period of 18 months following the Closing Date, save for the Fundamental Representations which shall survive until the expiration of the applicable statutory
limitation periods and the Restructuring Representations which shall survive for a period of 18 months following the Restructuring Completion Date.
Notwithstanding the foregoing, if an Indemnified Party asserts any claim in writing pursuant to Section 5.2 resulting from or arising out of an alleged breach
of any such representation or warranty on or prior to the applicable expiration date of such representation or warranty, such representation or warranty shall
survive, solely with respect to such asserted claim, until such claim has been finally resolved. The covenants and agreements of each Party contained in this
Agreement shall survive the Closing until they are terminated, whether by the performance thereof, their respective express terms or as a matter of applicable
Law.
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Section 5.2 Indemnification.
(a) From and after the Closing, the Key Holder and the Company (each, an “Indemnifying Party”) shall indemnify and hold
Tencent and its Affiliates (collectively, the “Indemnified Parties”) harmless from and against any losses, claims, damages, judgments, fines, obligations,
expenses and Liabilities of any kind or nature whatsoever, including any investigative, legal and other expenses incurred in connection with, and any
amounts paid in settlement of, any pending or threatened legal action or proceeding, and any Taxes or levies that may be payable by such Person by reason of
the indemnification of any indemnifiable loss hereunder (collectively, “Losses”), resulting from or arising out of (a) the breach of any representation or
warranty of such Indemnifying Party contained in this Agreement or (b) the violation or non-performance, partial or total, of any covenant or agreement of
such Indemnifying Party contained in this Agreement.
against any Losses, resulting from or arising out of the violation or non-performance of Section 4.8(d), Section 4.8(e) or Section 4.8(g).
(b) From and after the Closing, the Indemnifying Parties shall indemnify and hold the Indemnified Parties harmless from and
Section 5.3 Third Party Claims.
(a) If any third party shall notify any Indemnified Party in writing with respect to any matter involving a claim by such third
party (a “Third Party Claim”) which such Indemnified Party believes would give rise to a claim for indemnification against an Indemnifying Party under this
Article V, then the Indemnified Party shall promptly following receipt of notice of such claim (i) notify the Indemnifying Party thereof in writing and (ii)
transmit to the Indemnifying Party a written notice (a “Claim Notice”) describing in reasonable detail the nature of the Third Party Claim, a copy of all
papers served with respect to such claim (if any) and the basis of the Indemnified Party’s request for indemnification under this Agreement. Notwithstanding
the foregoing, no failure or delay in providing such Claim Notice shall constitute a waiver or otherwise modify the Indemnified Party’s right to
indemnification hereunder, except to the extent that the Indemnifying Party shall have been prejudiced by such failure or delay. If the Indemnifying Party
does not notify the Indemnified Party in writing within 30 days from receipt of such Claim Notice that the Indemnifying Party disputes such claim for
indemnification under this Agreement, the Indemnifying Party shall be deemed to have accepted and agreed with such claim for indemnification under this
Agreement.
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(b) Upon the receipt of a Claim Notice with respect to a Third Party Claim, the Indemnifying Party shall have the right to
assume the defense of any Third Party Claim by notifying the Indemnified Party in writing within 30 days of receipt of such Claim Notice that the
Indemnifying Party elects to assume the defense of such Third Party Claim, and upon delivery of such notice by the Indemnifying Party, the Indemnifying
Party shall have the right to fully control and settle the relevant proceeding; provided, that any such settlement shall be permitted hereunder only with the
written consent of the Indemnified Party. Notwithstanding the foregoing, the Indemnifying Party shall not be entitled to assume the defense of any Third
Party Claim if (i) the Third Party Claim relates to or arises in connection with any criminal action, (ii) the Third Party Claim seeks an injunction or equitable
relief against any Indemnified Party, (iii) the Third Party Claim is or would reasonably be expected to result in Losses in excess of the amounts available for
indemnification pursuant to this Article V or (iv) the Indemnifying Party has not acknowledged that such Third Party Claim is subject to indemnification
pursuant to this Article V. If the Indemnifying Party assumes the defense of a Third Party Claim pursuant to this Section 5.3(b), the Indemnifying Party shall
conduct such defense in good faith.
(c) If requested by the Indemnifying Party, the Indemnified Party shall, at the sole cost and expense of the Indemnifying
Party, cooperate reasonably with the Indemnifying Party and its counsel in contesting any Third Party Claim which the Indemnifying Party elects to contest,
including in connection with the making of any related counterclaim against the third party asserting the Third Party Claim or any cross complaint against
any Person. The Indemnified Party shall have the right to receive copies of all pleadings, notices and communications with respect to such Third Party Claim,
other than any privileged communications between the Indemnifying Party and its counsel, and shall be entitled, at its sole cost and expense, to retain
separate co-counsel and participate in, but not control, any defense or settlement of any Third Party Claim assumed by the Indemnifying Party pursuant to
Section 5.3(b).
(d) In the event of a Third Party Claim for which the Indemnifying Party elects not to assume the defense, fails to make such
an election within 30 days of receipt of the relevant Claim Notice or otherwise fails to continue the defense of the Indemnified Party reasonably and in good
faith, the Indemnified Party may, at its option, defend, settle, compromise or pay such action or claim at the expense of the Indemnifying Party.
Section 5.4 Other Claims. If any Indemnified Party has a claim against any Indemnifying Party hereunder which does not involve a
Third Party Claim, the Indemnified Party shall promptly transmit to the Indemnifying Party a written notice (the “Indemnity Notice”) describing in
reasonable detail the nature of the claim, the Indemnified Party’s best estimate of the amount of Losses attributable to such claim and the basis of the
Indemnified Party’s request for indemnification under this Agreement; provided, that no failure or delay in providing such Indemnity Notice shall constitute
a waiver or otherwise modify the Indemnified Party’s right to indemnification hereunder, except to the extent that the Indemnifying Party shall have been
prejudiced by such failure or delay. If the Indemnifying Party does not notify the Indemnified Party within 30 days from its receipt of the Indemnity Notice
that the Indemnifying Party disputes such claim, the Indemnifying Party shall be deemed to have accepted and agreed with such claim.
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Section 5.5 Limitations on Liability.
(a) Basket; Maximum Liability. Other than with respect to fraud or breach of any of the Fundamental Representations or
Section 4.4, Section 4.6, Section 4.7, Section 4.8, Section 4.9, Section 4.10 or Section 4.15, (i) no Indemnifying Party shall be liable under Section 5.2(a)
unless and until the aggregate amount of the relevant claim exceeds US$250,000 (in which case the Indemnifying Party shall be responsible for the full
amount of such claim, subject to Section 5.5(a)(ii)) and (ii) the maximum aggregate liability of the Indemnifying Parties towards the Indemnified Parties in
respect of all Losses under Section 5.2(a) shall not exceed the Tencent Purchase Price.
(b) Double Claims. No Indemnifying Party shall be required to compensate any Indemnified Party more than once (whether
under this Agreement or any other Transaction Document) in respect of the same Loss. For the avoidance of doubt and to avoid double recovery, if Tencent
has exercised its right of redemption and received the Redemption Price (as defined under the Articles) with respect to any breach by any Group Company of
any of the Transaction Documents pursuant to Article 46 through Article 50 of the Articles, the Indemnified Parties shall not be entitled to make any claim or
recover any any losses, claims, damages, judgments, fines, obligations, expenses and Liabilities of any kind or nature whatsoever hereunder and under other
Transaction Documents for the same breach.
(c) Exclusive Monetary Remedy. Notwithstanding any provision to the contrary in this Agreement, this Article V shall be
the sole and exclusive monetary remedy of the Indemnified Parties for any claim arising out of or resulting from this Agreement. Nothing in this Article V or
elsewhere in this Agreement shall affect the Parties’ rights to specific performance or other equitable or non-monetary remedies with respect to the covenants
and agreements in this Agreement.
the Indemnified Party makes claims under the Agreement; provided, that all costs of mitigation shall be taken into account in calculating the amount of
Losses hereunder.
(d) Mitigation. To the extent required by applicable Law, the relevant Indemnified Party shall mitigate any Losses for which
(e) Materiality. For purposes of this Article V, materiality, Material Adverse Effect and other similar qualifications
contained in any representations and warranties shall be disregarded for the sole purposes of calculating the amount of Losses under this Article V.
ARTICLE VI
MISCELLANEOUS
Section 6.1 Disclosure Schedule References. The Parties agree that any reference in a particular Section of the Disclosure Schedule
shall be deemed to be an exception to or, as applicable, a disclosure for purposes of (i) the representations and warranties, or covenants, as applicable, of the
relevant Party that are contained in the corresponding Section of this Agreement and (ii) any other representations and warranties of such Party that is
contained in this Agreement, regardless of the absence of an express reference or cross reference thereto, but only if the relevant disclosure is fully and fairly
disclosed and the relevance of that reference as an exception to or a disclosure for purposes of such representations and warranties would be reasonably
apparent. The Parties acknowledge and agree that the Disclosure Schedule may include certain items and information solely for informational purposes for
the convenience of Tencent, and the disclosure by the Company of any matter in the Disclosure Schedule shall not be deemed to constitute an
acknowledgment by the Company that the matter is required to be disclosed by the terms of this Agreement or that the matter is material.
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Section 6.2 Governing Law; Arbitration. This Agreement shall be governed by and interpreted in accordance with the laws of Hong
Kong. Any dispute arising out of or relating to this Agreement, including any question regarding its existence, validity or termination, shall be referred to and
finally resolved by arbitration at the Hong Kong International Arbitration Centre (the “HKIAC”) in accordance with the Hong Kong International Arbitration
Centre Administered Arbitration Rules in force when the relevant arbitration notice is received by the HKIAC. There shall be three arbitrators. The Key
Holder and the Company collectively shall have the right to appoint one arbitrator, Tencent shall have the right to appoint one arbitrator and the third
arbitrator shall be appointed by the HKIAC. The language to be used in the arbitration proceedings shall be English. Each of the Parties irrevocably waives
any immunity to jurisdiction to which it may be entitled or become entitled (including immunity to pre-award attachment, post-award attachment or
otherwise) in any arbitration proceedings and/or enforcement proceedings against it arising out of or based on this Agreement or the Contemplated
Transactions. The award of the arbitration tribunal shall be final and binding upon the Parties, and the prevailing Party may apply to a court of competent
jurisdiction for enforcement of such award. Any Party shall be entitled to seek preliminary injunctive relief from any court of competent jurisdiction pending
the constitution of the arbitral tribunal.
executed by the Parties.
Section 6.3 Amendment. This Agreement shall not be amended, changed or modified, except by another agreement in writing
heirs, successors and permitted assigns and legal representatives.
Section 6.4 Binding Effect. This Agreement shall inure to the benefit of, and be binding upon, each of the Parties and their respective
Section 6.5 Assignment. Neither this Agreement nor any of the rights, duties or obligations hereunder may be assigned by any Party
without the express written consent of the other Parties. Any purported assignment in violation of the foregoing sentence shall be null and void.
Notwithstanding the foregoing, Tencent may assign its rights hereunder to any of its Affiliates.
Section 6.6 Notices. All notices, requests, demands and other communications under this Agreement shall be in writing and shall be
deemed to have been duly given if (a) in writing and served by personal delivery upon the Party for whom it is intended, (b) if delivered by facsimile or
electronic mail with receipt confirmed or (c) if delivered by certified mail, registered mail or courier service, return-receipt received, to the Party at the
address set forth below:
If to the Key Holder, at:
Address:
Attn:
Email:
Building 105, 10 Jiuxianqiao North Road Jia, Chaoyang District, Beijing 100015,
P.R. China
Xiaojing Li
lixiaojing01@58ganji.com
46
With a copy (which shall not constitute notice) to:
Address:
Attn:
Facsimile:
Email:
Address:
Attn:
Facsimile:
Email:
Address:
Attn:
Email:
Address:
Attn.:
E-mail:
Skadden, Arps, Slate, Meagher & Flom LLP
c/o 42/F Edinburgh Tower, The Landmark, 15 Queen’s Road Central, Hong
Kong
Z. Julie Gao
+852 3910 4863
julie.gao@skadden.com
Skadden, Arps, Slate, Meagher & Flom LLP
46/F, Jing An Kerry Centre, Tower II, 1539 Nanjing West Road, Shanghai
200040, P.R. China
Haiping Li
+86 21 6193 8310
haiping.li@skadden.com
Building 101, 10 Jiuxianqiao North Road Jia, Chaoyang District, Beijing 100015,
P.R. China
Wei Huang
hw@58ganji.com
c/o Tencent Holdings Limited
Level 29, Three Pacific Place, 1 Queen’s Road East, Wanchai,
Hong Kong
Compliance and Transactions Department
legalnotice@tencent.com
If to the Company, at:
If to Tencent, at:
With a copy (which shall not constitute notice) to:
Address:
Attn.:
E-mail:
Tencent Building, Keji Zhongyi Avenue, Hi-tech Park, Nanshan District,
Shenzhen 518057, PRC
Mergers and Acquisitions Department
PD_Support@tencent.com
47
With a copy (which shall not constitute notice) to:
Address:
Attn:
Facsimile:
E-mail:
Address:
Attn:
Facsimile:
Email:
Paul, Weiss, Rifkind, Wharton & Garrison LLP
12th Floor, The Hong Kong Club Building, 3A Chater Road, Central, Hong Kong
Jeanette K. Chan, Esq.
(852) 2840-4300
jchan@paulweiss.com
Paul, Weiss, Rifkind, Wharton & Garrison LLP
Unit 3601, Office Tower A, Beijing Fortune Plaza, No. 7 Dongsanhuan Zhonglu,
Chaoyang District, Beijing 100020, PRC
Judie Ng Shortell, Esq.
(86) 10-6530-9070/9080
jngshortell@paulweiss.com
Any Party may change its address for purposes of this Section 6.6 by giving the other Parties written notice of the new address in the manner set forth above.
Section 6.7 Entire Agreement. This Agreement, together with the Schedules and Exhibits and the other Transaction Documents,
constitutes the entire understanding and agreement among the Parties with respect to the matters covered hereby and thereby, and all prior agreements and
understandings, oral or in writing, if any, among the Parties with respect to the matters covered hereby and thereby are superseded by this Agreement and the
other Transaction Documents.
Section 6.8 Severability. If any provision of this Agreement is inoperative or unenforceable for any reason, such circumstances shall
not have the effect of rendering the provision in question inoperative or unenforceable in any other case or circumstance, or of rendering any other provision
or provisions herein contained invalid, inoperative or unenforceable to any extent whatsoever. If any provision of this Agreement shall be adjudged to be
excessively broad as to duration, geographical scope, activity or subject, such provision shall be deemed modified to the minimum degree necessary to make
such provision valid and enforceable under applicable Law and that such modified provision shall thereafter be enforced to the fullest extent possible.
Section 6.9 Fees and Expenses. Except as otherwise provided in this Agreement, the Parties will bear their respective expenses
incurred in connection with the negotiation, preparation and execution of the Transaction Documents and the Contemplated Transactions, including fees and
expenses of attorneys, accountants, consultants and financial advisors; provided, that if the Contemplated Transactions are consummated, then the Company
shall bear all such expenses incurred by Tencent, up to an aggregate amount equal to US$200,000.
48
Section 6.10 Confidentiality.
(a) Subject to Section 6.10(b) and Section 6.10(c), each Party shall keep confidential and shall not disclose to any Person the
existence and provisions of any Transaction Document, the negotiations relating to any Transaction Document and any non-public material or information
with respect to the business, technology, financial conditions or other aspects of the other Parties or their respective Affiliates (collectively, “Confidential
Information”).
(b) Confidential Information shall not include any information that is (i) previously known on a non-confidential basis by the
receiving Party, (ii) in the public domain through no fault of such receiving Party, its Affiliates or its or its Affiliates’ officers, directors or employees, (iii)
received from a Person other than any of the other Parties or their respective representatives or agents, so long as such Person was not, to the best knowledge
of the receiving Party, subject to a duty of confidentiality to such other Party or (iv) developed independently by the receiving Party without reference to
confidential information of the disclosing Party.
(c) Notwithstanding Section 6.10(a):
extent such disclosure is necessary in connection with its normal accounting or Tax reporting in respect of its investment in the Company as required by
applicable accounting standards or Laws;
(i) each of Tencent and the Key Holder and their respective Affiliates may disclose Confidential Information to the
(ii) any Party may disclose Confidential Information to the extent that such disclosure is required under applicable
Laws or any judicial or regulatory process or is requested by any Governmental Authority or other regulatory body, including the rules and requirements of
the SEC and/or any securities exchange; provided, that such Party shall, to the extent permitted by Law and so far as it is practicable, provide the other
Parties with prompt notice of such requirement or request and cooperate with the other Parties at such other Parties’ request and cost to enable such other
Parties to seek an appropriate protection order or remedy; and
directors, employees, agents, professional advisors and representatives on a need-to-know basis; provided, that such Party shall use commercially reasonable
efforts to ensure that each such Person to which it discloses Confidential Information strictly abides by the confidentiality obligations hereunder.
(iii) any Party may disclose Confidential Information to its Affiliates and its and its Affiliates’ respective officers,
Section 6.11 Specific Performance. The Parties agree that irreparable damage would occur if any provision of this Agreement were
not performed in accordance with the terms hereof and that the Parties shall be entitled to specific performance of the terms hereof, in addition to any other
remedy at law or equity.
Section 6.12 Termination.
(a) This Agreement may be terminated at any time prior to the Closing:
(i) by the written consent of each of the Parties;
49
(ii) by any Party by written notice to the other Parties if the Closing shall not have occurred by June 30, 2017;
provided, that no Party shall be permitted to terminate this Agreement pursuant to this Section 6.12(a)(ii) if the failure to consummate the Closing was
proximately caused by the breach by such Party or its Affiliate of any representation, warranty or covenant in this Agreement;
(iii) by any Party by written notice to the other Parties if any Governmental Authority shall have issued any Order or
taken any other action permanently restraining, enjoining, preventing, prohibiting or otherwise making illegal the consummation of the Contemplated
Transactions and such Order or other action has become final and non-appealable; provided, that no Party shall be permitted to terminate this Agreement
pursuant to this Section 6.12(a)(iii) if the imposition of such Order or other action was proximately caused by the breach by such Party or its Affiliate of any
representation, warranty or covenant in this Agreement, the Framework Restructuring Agreement or any Restructuring Document;
(iv) by Tencent if there exists a breach of any representation or warranty of the Key Holder or the Company such that
the condition set forth in Section 2.4(a)(i) would not be satisfied and such breach has not been cured, or is incapable of being cured, by the Key Holder or the
Company (as the case may be) within 30 days following its receipt of notice from Tencent of such breach; or
the condition set forth in Section 2.4(b)(i) would not be satisfied and such breach has not been cured, or is incapable of being cured, by Tencent within 30
days following its receipt of notice from the Key Holder or the Company (as the case may be) of such breach.
(v) by the Key Holder or the Company if there exists a breach of any representation or warranty of Tencent such that
(b) Upon the termination of this Agreement pursuant to this Section 6.12, this Agreement (other than Article I, Article V and
this Article VI) shall become void and have no further force or effect; provided, that no such termination shall relieve any Party of liability for any breach of
this Agreement prior to such termination.
Section 6.13 Joint and Several Liability. All representations and warranties made by the Key Holder or the Company in this
Agreement are made by the Key Holder and the Company jointly and severally. The Key Holder shall cause the Company to perform all of the undertakings,
covenants and agreements given or entered into by the Company in Sections 2.1, 4.3 (for the period between the date hereof and the Closing Date only), 4.7
(a), 4.7(b), 4.7(c) and 4.8(f).
Section 6.14 Third Party Rights. Except as provided in Section 5.2, a Person who is not a party to this Agreement has no right under
the Contracts (Rights of Third Parties) Ordinance (Chapter 623 of the Laws of Hong Kong) to enforce any term of, or enjoy any benefit under, this
Agreement, provided that any Affiliate of Tencent that is not a company may not bring any claim directly against the Key Holder or the Company pursuant
to this Agreement.
convenience and do not expressly or by implication limit, define or extend the specific terms of the Article or Section so designated.
Section 6.15 Headings. The headings of the various Articles and Sections of this Agreement are inserted merely for the purpose of
50
Section 6.16 Execution in Counterparts. This Agreement may be executed in one or more counterparts, including counterparts
transmitted by facsimile or e-mail, each of which shall be deemed to be an original, but all of which together shall constitute one and the same instrument.
Delivery of executed signature pages by facsimile or electronic transmission (via scanned PDF) by all Parties will constitute effective and binding execution
and delivery of this Agreement.
Section 6.17 Waiver. No waiver of any provision of this Agreement shall be effective unless set forth in a written instrument signed
by the Party waiving such provision. No failure or delay by a Party in exercising any right, power or remedy under this Agreement shall operate as a waiver
thereof, nor shall any single or partial exercise of the same preclude any further exercise thereof or the exercise of any other right, power or remedy.
[SIGNATURE PAGES FOLLOW]
51
IN WITNESS WHEREOF, the Parties have caused this Agreement to be executed as of the day and year first above written.
58.COM INC.
By:
Name:
Title:
/s/ Jinbo Yao
Jinbo Yao
Authorized Signatory
MAGIC HEART INC.
By:
Name:
Title:
/s/ Jinbo Yao
Jinbo Yao
Authorized Signatory
IN WITNESS WHEREOF, the Parties have caused this Agreement to be executed as of the day and year first above written.
ZHUAN SPIRIT HOLDINGS LIMITED
By:
Name:
Title:
/s/ Jinbo Yao
Jinbo Yao
Authorized Signatory
IN WITNESS WHEREOF, the Parties have caused this Agreement to be executed as of the day and year first above written.
TENCENT MOBILITY LIMITED
/s/ MA Huateng
By:
Name: MA Huateng
Title:
Authorized Signatory
List of Principal Subsidiaries and Consolidated Affiliated Entities of 58.com Inc.*
Exhibit 8.1
Name
Subsidiaries:
China Classified Network Corporation
China Classified Information Corporation Limited
Beijing Chengshi Wanglin Information Technology Co., Ltd.
58 Tongcheng Information Technology Co., Ltd.
Ruiting Network Technology (Shanghai) Co., Ltd.
Anjuke Inc.
58.com Holdings Inc.
Falcon View Technology
Beijing Yangguang Gudi Science Development Co., Ltd.
Consolidated Affiliated Entities and Their Subsidiaries:
Beijing 58 Information Technology Co., Ltd.
Shanghai Ruijia Information Technology Co., Ltd.
58 Co., Ltd.
Beijing 58 Auto Technology Co., Ltd.
Beijing Shanjing Kechuang Network Technology Co., Ltd.
Jurisdiction of
Incorporation
British Virgin Islands
Hong Kong
PRC
PRC
PRC
Cayman Islands
British Virgin Islands
Cayman Islands
PRC
PRC
PRC
PRC
PRC
PRC
Unconsolidated Subsidiaries and Their Controlled Affiliates**:
58 Daojia Inc.
Beijing 58 Daojia Information Technology Co., Ltd.
Tianjin 58 Daojia Life Services Co., Ltd.
British Virgin Islands
PRC
PRC
Note:
* The registrant has omitted from this list its other consolidated entities of the registrant that, in the aggregate, would not constitute a significant
subsidiary as defined in Rule 1-02(w) of Regulation S-X as of December 31, 2016.
** 58 Daojia Inc., or 58 Home, is the holding company of the PRC entities that operate 58 Home business. On November 27, 2015, 58 Daojia Inc.
completed a Series A equity funding round, following which the Registrant holds 87.9% of the total outstanding ordinary shares of 58 Home and 61.7% of
the total outstanding shares of 58 Home on an as-converted basis. As certain rights provided to the non-controlling Series A preferred shareholders of 58
Home would be viewed as substantive participating rights under U.S. GAAP, the Registrant has ceased consolidating the financial results of 58 Home in its
consolidated financial statements in accordance with U.S. GAAP since November 27, 2015.
I, Jinbo Yao, certify that:
Certification by the Principal Executive Officer Pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002
Exhibit 12.1
1.
2.
3.
4.
I have reviewed this Annual Report on Form 20-F of 58.com Inc. (the “Company”);
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 the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period
covered by this report;
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material
respects the financial condition, results of operations and cash flows of the Company as of, and for, the period presented in this report;
The Company’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules
13a-15(f) and 15d-15(f)) for the Company 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 Company, including its consolidated subsidiaries, is made known to us by
others within those 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 our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial
statements for external purposes in accordance with generally accepted accounting principles;
c. Evaluated the effectiveness of the Company’s disclosure controls and procedures and presented in this report our conclusions about
the effectiveness 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 Company’s internal control over financial reporting that occurred during the period
covered by the annual report that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over
financial reporting; and
5.
The Company’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial
reporting, to the Company’s auditors and the audit committee of the Company’s board of directors (or persons performing the equivalent
functions):
a. All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are
reasonably likely to adversely affect the Company’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 Company’s
internal control over financial reporting.
Date: May 1, 2017
/s/ Jinbo Yao
Name:
Title:
Jinbo Yao
Chief Executive Officer
Certification by the Principal Financial Officer Pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002
I, Hao Zhou, certify that:
1. I have reviewed this Annual Report on Form 20-F of 58.com Inc. (the “Company”);
Exhibit 12.2
2.
3.
4.
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 the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period
covered by this report;
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material
respects the financial condition, results of operations and cash flows of the Company as of, and for, the period presented in this report;
The Company’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and
15d-15(f)) for the Company 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 Company, including its consolidated subsidiaries, is made known to us by
others within those 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 our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial
statements for external purposes in accordance with generally accepted accounting principles;
c. Evaluated the effectiveness of the Company’s disclosure controls and procedures and presented in this report our conclusions about
the effectiveness 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 Company’s internal control over financial reporting that occurred during the period
covered by the annual report that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over
financial reporting; and
5.
The Company’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial
reporting, to the Company’s auditors and the audit committee of the Company’s board of directors (or persons performing the equivalent
functions):
a. All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are
reasonably likely to adversely affect the Company’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 Company’s
internal control over financial reporting.
Date: May 1, 2017
/s/ Hao Zhou
Name: Hao Zhou
Title:
Chief Financial Officer
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
EXHIBIT 13.1
In connection with the Annual Report of 58.com Inc. (the “Company”) on Form 20-F for the fiscal year ended December 31, 2016 as filed with the
Securities and Exchange Commission on the date hereof (the “Report”), I, Jinbo Yao, Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to my knowledge:
(1)
(2)
May 1, 2017
The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the
Company.
/s/ Jinbo Yao
Name:
Title:
Jinbo Yao
Chief Executive Officer
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
EXHIBIT 13.2
In connection with the Annual Report of 58.com Inc. (the “Company”) on Form 20-F for the fiscal year ended December 31, 2016 as filed with the
Securities and Exchange Commission on the date hereof (the “Report”), I, Hao Zhou, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to my knowledge:
(1)
(2)
The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the
Company.
May 1, 2017
/s/ Hao Zhou
Name: Hao Zhou
Title:
Chief Financial Officer
EXHIBIT 15.1
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We hereby consent to the incorporation by reference in the Registration Statements on Form S-8 (File No. 333-194873 and File No. 333-205011) of 58.com
Inc. of our report dated May 1, 2017 relating to the financial statements and the effectiveness of internal control over financial reporting, which appears in
this Form 20-F.
/s/ PricewaterhouseCoopers Zhong Tian LLP
Beijing, the People’s Republic of China
May 1, 2017
漢 坤 律 師 事 務 所
HAN KUN LAW OFFICES
Suite 906, Office Tower C1, Oriental Plaza, 1 East Chang An Avenue, Beijing 100738, P. R. China
TEL: (86 10) 8525 5500; FAX: (86 10) 8525 5511 / 8525 5522
EXHIBIT 15.2
Date: May 1, 2017
58.com Inc.
Building 105, 10 Jiuxianqiao North Road Jia
Chaoyang District
Beijing 100015
People’s Republic of China
Dear Sir/Madam:
We hereby consent to the use of our name and the summary of our opinion under the captions, “Risk Factors” in Item 3, “Organizational Structure” in Item 4
and “Financial Information” in Item 8, included in the annual report of 58.com Inc. on Form 20-F for the fiscal year ended December 31, 2016 (the “Annual
Report”), which will be filed with the Securities and Exchange Commission on the date hereof, and further consent to the incorporation by reference of the
summaries of our opinions under these captions into Registration Statements on Form S-8 (File No. 333-194873 and File No. 333-205011) of 58.com Inc.
We also consent to the filing with the SEC of this consent letter as an exhibit to the Annual Report.
Very truly yours,
/s/ Han Kun Law Offices
Han Kun Law Offices