Table of Contents
l
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 20-F
☐ REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR 12(g) OF THE SECURITIES EXCHANGE ACT OF 1934
☒ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2019.
OR
☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
OR
☐ SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934.
OR
For the transition period from to
Commission file number 001-38198
BEST Inc.
(Exact name of Registrant as specified in its charter)
Cayman Islands
(Jurisdiction of incorporation or organization)
2nd Floor, Block A, Huaxing Modern Industry Park
No. 18 Tangmiao Road, Xihu District, Hangzhou
Zhejiang Province 310013
People’s Republic of China
(Address of principal executive offices)
Ms. Gloria Fan, Chief Financial Officer
Telephone: +86-571-88995656
Email: ir@best-inc.com
2nd Floor, Block A, Huaxing Modern Industry Park
No. 18 Tangmiao Road, Xihu District, Hangzhou
Zhejiang Province 310013
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
Class A ordinary shares, par value $0.01 per share*
American Depositary Shares, each representing one Class A ordinary share
Trading Symbol(s)
BEST
Name of each exchange on which registered
New York Stock Exchange, Inc.
* Not for trading, but only in connection with the registration of American Depositary Shares representing such Class A ordinary shares pursuant to the requirements of the Securities and
Exchange Commission.
Securities registered or to be registered pursuant to Section 12(g) of the Act. None
Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act. None
Indicate the number of outstanding shares of each of the issuer’s classes of capital or common stock as of the close of the period covered by the annual report.
250,648,452 Class A ordinary shares were outstanding as of December 31, 2019 (including
3,039,783 Class A ordinary shares issued to the depositary bank of the Issuer and reserved for
future issuances of ADSs upon exercise or vesting of awards granted under the Issuer’s share
incentive plans)
94,075,249 Class B ordinary shares were outstanding as of December 31, 2019
47,790,698 Class C ordinary shares were outstanding as of December 31, 2019
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
☒ Yes ☐ No
Table of Contents
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 ⌧ No
Note — Checking the box above will not relieve any registrant required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 from their obligations under those
Sections.
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 ◻ No
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted 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 such files).
⌧ Yes ◻ No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or an emerging growth company. See the definitions of “large accelerated
filer,” “accelerated filer,” and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer ⌧
Accelerated filer ◻
Non-accelerated filer ◻
Emerging growth company ☐
If an emerging growth company that prepares its financial statements in accordance with U.S. GAAP, indicate by check mark if the registrant 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. ◻
† 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 ⌧
International Financial Reporting Standards as issued
by the International Accounting Standards Board ◻
Other ◻
If “Other” has been checked in response to the previous question, indicate by check mark which financial statement item the registrant has elected to follow.
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).
◻ Item 17 ◻ Item 18
☐ Yes ⌧ No
(APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE PAST FIVE YEARS)
Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Sections 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the
distribution of securities under a plan confirmed by a court.
◻ Yes ◻ No
Table of Contents
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.
PART II
BEST INC.
FORM 20-F ANNUAL REPORT
FISCAL YEAR ENDED DECEMBER 31, 2019
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
DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES
Item 13.
MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS
Item 14.
CONTROLS AND PROCEDURES
Item 15.
AUDIT COMMITTEE FINANCIAL EXPERT
ITEM 16A.
CODE OF ETHICS
ITEM 16B.
PRINCIPAL ACCOUNTANT FEES AND SERVICES
ITEM 16C.
EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES
ITEM 16D.
PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS
ITEM 16E.
CHANGE IN REGISTRANT’S CERTIFYING ACCOUNTANT
ITEM 16F.
CORPORATE GOVERNANCE
ITEM 16G.
ITEM 16H. MINE SAFETY DISCLOSURE
PART III
Item 17.
Item 18.
Item 19.
FINANCIAL STATEMENTS
FINANCIAL STATEMENTS
EXHIBITS
Page
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6
6
6
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86
86
114
126
127
128
128
135
136
138
138
139
139
140
140
140
140
141
141
141
141
141
141
141
141
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In this annual report, unless otherwise indicated:
Conventions that Apply to this Annual Report on Form 20-F
● “2008 equity and performance incentive plan” are to our equity and performance incentive plan adopted in 2008, as amended;
● “2017 equity incentive plan” are to BEST Inc. 2017 Equity Incentive Plan adopted in September 2017;
● “ADRs” are to the American depositary receipts, which, if issued, evidence our ADSs;
● “ADSs” are to our American depositary shares, each of which represents one Class A ordinary share;
● “AGVs” are to automated guided vehicles;
● “Alibaba” are to Alibaba Group Holding Limited and its consolidated subsidiaries and affiliated consolidated entities, two of
which (Alibaba Investment Limited and Cainiao Smart Logistics Investment Limited) are record shareholders of us;
● “B2B” are to business-to-business, or commercial transactions between businesses;
● “B2C” are to business-to-consumers, or commercial transactions between businesses and consumers;
● “Cainiao Network” are to Cainiao Smart Logistics Network Limited, in which Alibaba Group Holding Limited owned an
appropriately 63% equity interest as of November 8, 2019 as disclosed in the current report on Form 6-K filed with the SEC by
Alibaba Group Holding Limited on November 8, 2019, and its consolidated subsidiaries and affiliated consolidated entities,
one of which (Cainiao Smart Logistics Investment Limited) is a record shareholder of us;
● “China” and the “PRC” are to the People’s Republic of China, excluding, for the purposes of this annual report only, Taiwan,
the Hong Kong Special Administrative Region and the Macao Special Administrative Region;
● “Cloud OFC” or “OFC” are to our cloud-based order fulfillment centers through which we take full responsibility for the
optimal allocation of our customers’ inventory;
● “franchisee partners” are to our direct business partners that operate our Cloud OFCs for BEST Supply Chain Management or
service stations on our supply chain service network for BEST Express and BEST Freight and provide related services under
our brands;
● “freight” are to full-truckload and less-than-truckload road transportation services;
● “freight volume” in any given period are to the tonnage of freight cargo collected by us or our franchisee partners using our
waybills in that period;
● “FTL” are to full-truckload freight services;
● “hubs” are to large logistics facilities located in major cities in the PRC that are connected by line-haul transportation to most
of our other hubs;
● “LTL” are to less-than-truckload freight services;
● “membership stores” as of any date are to convenience stores that have registered on our B2B platform Dianjia.com as of that
date;
● “New Retail” are to the seamless integration of online and offline retail to offer a consumer-centric, omni-channel and global
shopping experience through digitization and just-in-time delivery;
4
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● “orders fulfilled” in any given period are to the number of orders processed by our self-operated or franchised OFCs, as
applicable, which were delivered to intended recipients in that period;
● “ordinary shares” are to, collectively, our Class A ordinary shares, Class B ordinary shares and Class C ordinary shares, par
value US$0.01 per share;
● “parcel volume” in any given period are to the number of parcels collected by us or our franchisee partners using our waybills
in that period;
● “RMB” or “Renminbi” are to the legal currency of the PRC;
● “Smart Supply Chain” are to a supply chain built upon a technology infrastructure that is designed to analyze massive amounts
of data to provide the customization, productivity and efficiency needed in the New Retail era, which can be defined by
characteristics including data and information visibility to all participants, timely predictions and real-time responses,
flexibility, efficiency and integration of supply chain services;
● “SMEs” are to small and medium enterprises;
● “sortation centers” are to generally smaller-scale logistics facilities compared to hubs, primarily connected to nearby hubs and
other sortation centers by feeder services;
● “store orders fulfilled” in any given period are to the number of orders placed through Dianjia.com and fulfilled in that period;
● “swap bodies” are to standard freight containers that can be conveniently mounted on tractors for road transportation;
● “US$,” “U.S. dollars,” or “dollars” are to the legal currency of the United States;
● “U.S. GAAP” are to accounting principles generally accepted in the United States;
● “variable interest entities” or “VIEs” are to Hangzhou BEST Network Technologies Co., Ltd., or Hangzhou BEST Network,
and Hangzhou BEST Information Technology Services Co., Ltd. (formerly known as Hangzhou Baisheng Investment
Management Co., Ltd.), or Hangzhou BEST IT, which are PRC entities owned by PRC legal persons, and are consolidated into
our consolidated financial statements in accordance with U.S. GAAP as if they were our wholly-owned subsidiaries;
● “we,” “us,” “our company,” “our” and “BEST” are to BEST Inc., our Cayman Islands holding company, and its subsidiaries
and variable interest entities, as the context requires; and
● “WOWO” are to Sichuan Wowo Supermarket Chain Co., Ltd., which we acquired in May 2017.
This annual report includes our audited consolidated financial statements for the years ended December 31, 2017, 2018 and 2019, and as of
December 31, 2018 and 2019.
Our ADSs are listed on the New York Stock Exchange under the symbol “BEST.” Before February 19, 2019, our ADSs were listed on the
same stock exchange under the symbol “BSTI.”
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Table of Contents
PART I
ITEM 1.
IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS
Not required.
ITEM 2.
OFFER STATISTICS AND EXPECTED TIMETABLE
Not required.
ITEM 3.
KEY INFORMATION
A.
Selected Financial Data
The selected consolidated financial data shown below should be read in conjunction with “Item 5. Operating and Financial Review and
Prospects,” and the financial statements and the notes to those statements included elsewhere in this annual report. The selected consolidated
statements of comprehensive loss data for the years ended December 31, 2017, 2018 and 2019 and the selected consolidated balance sheet data as of
December 31, 2018 and 2019 have been derived from our audited consolidated financial statements, which are included elsewhere in this annual
report. The selected consolidated statements of comprehensive loss data for the years ended December 31, 2015 and 2016 and the selected balance
sheet data as of December 31, 2015, 2016 and 2017 have been derived from our audited financial statements not included in this annual report. The
historical results are not necessarily indicative of results to be expected in any future period.
6
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Selected Consolidated Statements of Comprehensive Loss Data
Revenue(1)
Express
Freight
Supply chain management
Store+
Others
Total revenue
Cost of revenue
Express
Freight
Supply chain management
Store+
Others
Total cost of revenue
Gross (loss)/profit
Selling expenses
General and administrative expenses
Research and development expenses
Other operating income
Total operating expenses
Loss from operations
Interest income
Interest expense
Foreign exchange gain/(loss)
Other income
Other expense
Loss before income tax and share of net (loss)/income of equity investees
Income tax expense
Loss before share of net (loss)/income of equity investees
Share of net (loss)/income of equity investees
Net loss
Net loss attributable to non-controlling interests
Net loss attributable to BEST Inc.
Accretion to redemption value of redeemable convertible preferred shares
Deemed dividend-Repurchase of redeemable convertible preferred shares
Deemed dividend-Modification of redeemable convertible preferred shares
Deemed dividend-Extinguishment loss of Series D redeemable convertible preferred shares
Net loss attributable to ordinary shareholders
Net loss per ordinary share:
Basic
Diluted
Shares used in net loss per share computation:
Ordinary shares:
Basic
Diluted
Class A ordinary shares:
Basic
Diluted
Class B ordinary shares:
Basic
Diluted
Class C ordinary shares:
Basic
Diluted
For the year ended December 31,
2016
RMB
2017
RMB
RMB
(in thousands, except number of shares and per share data)
2018
RMB
2019
US$
2015
RMB
3,710,292
675,881
828,431
9,700
32,023
5,256,327
(4,035,300)
(923,011)
(795,099)
(9,714)
(27,584)
(5,790,708)
(534,381)
(188,455)
(380,864)
(46,177)
61,877
(553,619)
(1,088,000)
3,727
(10,439)
5,808
31,247
(1,774)
(1,059,431)
—
(1,059,431)
(12)
(1,059,443)
—
(1,059,443)
(3,996,288)
—
—
(296,677)
(5,352,408)
5,388,833
1,604,573
1,241,356
560,226
49,149
8,844,137
(5,671,356)
(1,906,930)
(1,183,245)
(569,557)
(45,479)
(9,376,567)
(532,430)
(370,017)
(521,237)
(80,326)
104,047
(867,533)
(1,399,963)
24,386
(21,379)
(1,864)
44,409
(8,542)
(1,362,953)
(570)
(1,363,523)
43
(1,363,480)
—
(1,363,480)
(3,661,975)
(160,891)
(423,979)
—
(5,610,325)
(89.21)
(89.21)
(93.51)
(93.51)
60,000,000
60,000,000
60,000,000
60,000,000
12,786,279
3,178,044
1,600,952
2,226,034
198,253
19,989,562
(12,435,550)
(3,362,652)
(1,502,570)
(2,072,912)
(130,327)
(19,504,011)
485,551
(694,852)
(928,188)
(139,009)
—
(1,762,049)
(1,276,498)
75,056
(47,154)
(6,320)
56,035
(18,507)
(1,217,388)
(9,856)
(1,227,244)
(816)
(1,228,060)
(167)
(1,227,893)
—
—
—
—
(1,227,893)
(8.28)
(8.28)
—
—
17,702,869
4,102,610
2,074,414
2,845,002
1,236,084
27,960,979
(16,915,801)
(3,946,032)
(1,970,105)
(2,589,883)
(1,098,021)
(26,519,842)
1,441,137
(893,859)
(1,020,671)
(184,581)
—
(2,099,111)
(657,974)
102,821
(75,060)
(6,533)
171,370
(30,672)
(496,048)
(11,887)
(507,935)
(456)
(508,391)
(403)
(507,988)
—
—
—
—
(507,988)
(1.32)
(1.32)
21,807,598
5,224,355
2,190,414
2,817,202
3,136,320
35,175,889
(20,779,992)
(4,934,937)
(2,052,006)
(2,495,503)
(2,954,425)
(33,216,863)
1,959,026
(931,914)
(1,109,545)
(243,392)
—
(2,284,851)
(325,825)
95,440
(79,486)
(6,420)
152,305
(36,437)
(200,423)
(18,290)
(218,713)
(355)
(219,068)
(16,652)
(202,416)
—
—
—
—
(202,416)
(0.52)
(0.52)
—
—
—
—
3,132,465
750,432
314,633
404,666
450,504
5,052,700
(2,984,859)
(708,859)
(294,752)
(358,457)
(424,377)
(4,771,304)
281,396
(133,861)
(159,376)
(34,961)
—
(328,198)
(46,802)
13,709
(11,417)
(922)
21,877
(5,234)
(28,789)
(2,627)
(31,416)
(51)
(31,467)
(2,392)
(29,075)
—
—
—
—
(29,075)
(0.07)
(0.07)
—
—
—
—
—
—
—
—
—
—
—
—
73,900,022
148,237,982
242,542,728
384,408,675
246,614,615
388,480,562
26,547,262
26,547,262
47,790,698
47,790,698
94,075,249
94,075,249
47,790,698
47,790,698
94,075,249
94,075,249
47,790,698
47,790,698
(1) On January 1, 2018, we adopted ASC 606, Revenues from Contracts with Customers ("ASC 606") and elected to apply the modified retrospective approach to contracts that had not
been completed as of this date. The cumulative effect of initially applying ASC 606 resulted in an increase to opening accumulated deficit of RMB25.0 million, which has been
recognized on the day of initial application and prior periods were not retrospectively adjusted. The consolidated statement of comprehensive loss data for the years ended December
31, 2018 and 2019 presented above have been prepared in accordance with ASC 606, while the consolidated statements of comprehensive loss for the years ended December 31,
2015, 2016 and 2017 presented above have been prepared in accordance with ASC Topic 605, Revenue Recognition ("ASC 605").
7
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Selected Consolidated Balance Sheet Data
Cash and cash equivalents
Restricted cash (current portion)
Short-term investments
Lease rental receivables (current portion)
Operating lease right-of-use assets(1)
Property and equipment, net
Intangible assets, net
Long-term investments
Goodwill
Restricted cash (non-current portion)
Lease rental receivables (non-current portion)
Other non-current assets
Total assets
Short-term bank loans
Operating lease liabilities (current portion) (1)
Convertible senior notes
Operating lease liabilities (non-current portion) (1)
Total liabilities
Total mezzanine equity
Total shareholders’ (deficit)/equity
Total liabilities, mezzanine equity and shareholders’ (deficit)/equity
2015
RMB
2016
RMB
As of December 31,
2017
RMB
2018
RMB
(in thousands)
2019
RMB
US$
291,064
135,342
—
—
—
625,535
5,366
10,288
239,564
55,060
—
20,843
2,286,578
338,000
—
—
—
2,728,113
7,585,550
(8,027,085)
2,286,578
2,927,581
374,363
62,000
23,292
—
947,505
13,516
24,081
247,203
78,588
87,551
87,395
6,295,853
458,000
—
—
—
3,961,748
15,842,210
(13,508,105)
6,295,853
1,240,431
1,652,653
2,353,663
193,703
—
1,307,470
158,556
37,167
448,584
89,745
749,243
62,314
10,878,529
1,216,384
—
—
—
6,486,034
—
4,392,495
10,878,529
1,630,444
1,278,326
1,007,329
613,439
—
2,064,657
143,810
214,339
469,076
90,638
1,431,441
45,531
12,366,282
1,782,900
—
—
—
8,226,124
—
4,140,158
12,366,282
1,994,683
1,786,832
1,057,598
650,912
4,378,804
2,939,379
121,587
230,855
490,986
175,700
1,077,776
262,129
19,492,856
2,510,500
1,035,252
1,360,208
3,482,634
15,577,572
—
3,915,284
19,492,856
286,518
256,662
151,914
93,498
628,976
422,215
17,465
33,160
70,526
25,238
154,813
37,652
2,799,974
360,611
148,705
195,382
500,249
2,237,578
—
562,396
2,799,974
(1) We adopted Accounting Standards Update ("ASU") No.2016-02: Leases on January 1, 2019 using the modified retrospective transition method. Operating lease right-of-use assets
and lease liabilities (including current and non-current) for operating leases are presented on the consolidated balance sheets as of December 31, 2019, while the consolidated balance
sheet data for the years ended December 31, 2015, 2016, 2017 and 2018 have been prepared in accordance with ASC topic 840 ("ASC 840"), Accounting for Leases.
Non-GAAP Measures
We use EBITDA and adjusted EBITDA, non-GAAP financial measures, in the evaluation of our operating results and in our financial and
operational decision-making. We believe that EBITDA and adjusted EBITDA help us to identify underlying trends in our business that could
otherwise be distorted by the effect of certain expenses and income that we include in net loss. We believe that EBITDA and adjusted EBITDA
provide useful information about our operating results, enhance the overall understanding of our past performance and future prospects, and allow for
greater visibility with respect to key metrics used by our management in its financial and operational decision-making.
EBITDA and adjusted EBITDA should not be considered in isolation or construed as an alternative to net loss or any other measure of
performance or as an indicator of our operating performance. Investors are encouraged to review the historical non-GAAP financial measures to the
most directly comparable GAAP measures. EBITDA and adjusted EBITDA presented here may not be comparable to similarly titled measures
presented by other companies. Other companies may calculate similarly titled measures differently, limiting their usefulness as comparative measures
to our data. We encourage investors and others to review our financial information in its entirety and not rely on a single financial measure.
EBITDA represents net loss plus depreciation, amortization, interest expense and income tax expense and minus interest income.
Adjusted EBITDA represents EBITDA before share-based compensation expenses and fair value change of equity investments.
8
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The table below sets forth a reconciliation of our net loss to EBITDA for the periods indicated:
Net loss
Add:
Depreciation and amortization
Interest expense
Income tax expense
Subtract:
Interest income
EBITDA
Add
2015
RMB
2016
RMB
For the year ended December 31,
2018
RMB
2017
RMB
(in thousands)
2019
RMB
US$
(1,059,443)
(1,363,480)
(1,228,060)
(508,391)
(219,068)
(31,467)
147,283
10,439
—
246,311
21,379
570
363,909
47,154
9,856
461,612
75,060
11,887
3,727
(905,448)
24,386
(1,119,606)
75,056
(882,197)
102,821
(62,653)
492,778
79,486
18,290
95,440
276,046
70,783
11,417
2,627
13,709
39,651
Share-based compensation expenses
—
—
298,963
109,107
98,504
14,149
Subtract:
Fair value change of equity investments
Adjusted EBITDA
Selected Operating Data
—
(905,448)
—
(1,119,606)
—
(583,234)
(64,628)
(18,174)
(14,155)
360,395
(2,033)
51,767
The table below sets forth the selected operating data for the periods indicated:
2015
For the year ended December 31,
2017
2018
2016
2019
BEST Supply Chain Management
Number of orders fulfilled by self-operated Cloud OFCs (in
thousands)(1)
Number of orders fulfilled by franchised Cloud OFCs (in
thousands)
BEST Express
Parcel volume (in thousands)(1)
BEST Freight
Freight volume (tonnage in thousands)(1)
BEST Store+
Number of store orders fulfilled
44,997
88,063
132,245
164,441
198,914
8,826
32,602
48,232
82,276
157,990
1,402,101
2,165,521
3,769,385
5,470,092
7,576,204
1,507
2,982
4,316
5,430
6,980
10,151
687,692
2,403,538
3,091,269
2,919,568
(1)
Includes services performed for external customers both directly and indirectly through our other segments. For discussion of our total segment revenue, which includes both external
revenue and intersegment revenue, please see “Item 5. Operating and Financial Review and Prospects—Segment Financial Information.”
Currency Translation and Exchange Rate
We have translated certain Renminbi, or RMB, amounts included in this annual report into U.S. dollars for the convenience of the readers.
The rate we used for the translations was RMB6.9618 = US$1.00, which was the noon buying rate on December 31, 2019 in New York for cable
transfers in Renminbi as set forth in the H.10 weekly statistical release of the Federal Reserve Board. The translation does not mean that RMB could
actually be converted into U.S. dollars at that rate.
B. Capitalization and Indebtedness
Not required.
C. Reasons for the Offer and Use of Proceeds
Not required.
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D. Risk Factors
Risks Relating to Our Business and Industry
We are highly reliant on our proprietary technology infrastructure in our business operations, and failure to continue to improve and effectively
utilize our technology infrastructure or successfully develop new technologies could harm our business operations, reputation and prospects.
Technology is critical to our integrated solutions, connecting our systems with those of our ecosystem participants. While we have
continuously enhanced our proprietary technology infrastructure, we may not be able to continue to improve our technology infrastructure and
develop new technologies to meet the future needs of our business. If we are unable to maintain, improve and effectively utilize our technology
infrastructure or to realize the expected results from our technology investments, our business, financial condition, results of operations and
prospects, as well as our reputation, could be materially and adversely affected. Any problem with the functionality and effectiveness of our software
or platforms could also result in unanticipated system disruptions, slower response times, impaired user experiences, delays in reporting accurate
operating and financial information and inefficient management of our systems. In addition, enhancing our technology infrastructure requires
significant investments of time and financial and managerial resources, including recruiting and training new technology personnel, adding new
hardware and updating software and strengthening research and development. If our technology investments are unsuccessful, our business could
suffer and we may be unable to recover the resources we commit to such initiatives.
We may not be able to maintain and enhance our ecosystem, which could negatively affect our business and prospects.
Our ability to maintain a healthy and rich ecosystem that creates strong network effects among our ecosystem participants is critical to our
success. While our ecosystem provides synergies and economies of scale across service lines and among our ecosystem participants, the extent to
which we are able to maintain and strengthen the attractiveness of our ecosystem depends on our ability to offer a mutually beneficial platform for all
participants, maintain the quality of our services and solutions, develop attractive services and solutions that meet the evolving needs of our
ecosystem participants, reinforce the scope and scale of our ecosystem, and retain our participants. We must also provide sufficient geographic
coverage to cement the effectiveness of our service network, continue to utilize data to improve service quality and operational efficiency of all
ecosystem participants and maintain and improve our technology infrastructure as part of our single interoperable system to ensure seamless
operations.
In addition, our ecosystem participants may compete with one another, which may complicate the management of our ecosystem. Further,
changes made to enhance our ecosystem or balance the interests of participants may be viewed positively by one participant but may have negative
effects upon another. If we fail to balance the interests of all participants in our ecosystem, we may fail to further attract and retain additional
ecosystem participants, which could adversely impact our business and financial condition.
If we are unable to continue to innovate, meet evolving market trends, adapt to changing customer demands and maintain our culture of
innovation, our ability to sustain and grow our business may suffer.
The ongoing success of our business depends on our ability to continue to introduce innovative solutions and services to meet evolving
market trends and satisfy changing customer demands. We must continue to adapt by continuing innovation, improving our services and modifying
our strategies, which could cause us to incur substantial costs. We may not be able to continue to innovate or adapt to changing market and customer
needs in a timely and cost-effective manner, if at all. This could adversely impact our ability to embrace the changes brought by the New Retail era,
expand our ecosystem and grow our business. Failure to develop new services to meet evolving market demands through innovation could cause us
to lose current and potential customers and harm our operating results and financial condition.
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In addition, we may not be able to maintain our culture of innovation, which has been critical to our success and has helped us create value
for our shareholders, succeed as a leader in our industry and attract, retain and motivate employees and other ecosystem participants. Among other
challenges, we may not be able to identify and promote people in leadership positions who share our culture and can always focus on technology and
innovation. Competitive pressure may also cause us to move in directions that may divert us from our mission, vision and values. If we cannot
maintain our culture of innovation, our long-term business prospects could be materially and adversely affected.
We operate in a competitive industry, and if we fail to compete effectively, our business could suffer.
We compete with total supply chain solution providers. As our operations encompass a broad range of areas, certain service lines may also
face competition from other service providers in China, including supply chain management service providers, express delivery and freight service
providers, B2B platforms for convenience stores, SaaS software service providers and logistics brokers. In addition to established players, we face
competition from new market entrants. Increased competition may lead to a loss of market share, increasing difficulty in launching new service
offerings, reduction in revenue or increase in loss, any one of which could harm our business, financial condition and results of operations.
Our competitors may have a broader service or network coverage, more advanced technology infrastructure, stronger brand recognition and
greater capital resources than we do. In addition, our competitors may reduce their rates to gain business, especially during times of reduced
economic growth, and such reductions may limit our ability to maintain or increase our rates, maintain our operating margins or achieve growth in
our business. For example, due to intense competition in rates for express services, average revenue per parcel for BEST Express in decreased by
11.3% to RMB2.74 from RMB3.09 in 2018. There historically have been and continue to be declines in fee rates for express services across our
industry, and we continue to experience a decline in average selling price per parcel for BEST Express. We expect that this trend of intense
competition and declining fee rates is likely to continue in the foreseeable future, and there can be no assurance that we will be able to maintain, or
prevent further decreases, in these rates going forward. To the extent positive effects of economies of scale, network optimization, as well as
increased operational efficiency are unable to offset further decreases in rates for express services, even if we continue to grow our parcel volume,
BEST Express may not be able to achieve desired growth in revenue, or maintain its operating margins, and our results of operations and business
may be materially and adversely affected.
The establishment by our competitors of cooperative relationships or competing networks to increase their ability to address the needs of our
customers and other ecosystem participants could also negatively impact us. We may not be able to successfully compete against current or future
competitors, and competitive pressures may have a material and adverse effect on our business, financial condition and results of operations.
Our business and growth are significantly affected by the emergence of New Retail, the continued development of e-commerce in China and
elsewhere and related demand for integrated supply chain solutions.
We serve merchants that conduct business in the retail industry in China, and these merchants rely on our services to fulfill orders placed by
consumers. As we focus on providing integrated supply chain solutions for the New Retail era, our future business opportunities depend upon the
continued integration of online and offline retail channels and the adoption of the New Retail paradigm by an increasing number of merchants in
China and elsewhere, both in terms of large platforms and brands as well as small and medium enterprises, or SMEs, and micro-merchants.
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The future development and landscape of the retail industry in China and elsewhere are affected by a number of factors, many of which are
beyond our control. These factors include the consumption power and disposable income of consumers, as well as changes in demographics and
consumer preferences. The development of the retail industry is also subject to the selection, price and popularity of products offered through online
and offline retail channels of original brand manufacturers and changes in the availability, reliability and security of such channels. Further, the
emergence of alternative channels or business models that better suit the needs of consumers and the development of online-to-offline supply chain
integration by retailers can also affect the development of the retail industry. Another important factor is the development of fulfillment, payment and
other ancillary services associated with the retail industry. Macroeconomic conditions, particularly as retail spending tends to decline during
recessions and other economic factors affecting consumer confidence, including inflation and deflation, fluctuation of currency exchange rates,
volatility of stock and property markets, interest rates, tax rates and changes in unemployment rates, can also impact the development of the retail
industry in China and elsewhere. Finally, other factors, such as changes in government policies, laws and regulations, in particular those that govern
the retail industry, as well as changes in domestic and international politics, including military conflicts, economic disputes, political turmoil and
social instability, can also influence the development of the retail industry in China and elsewhere. It is difficult to predict how market forces, or
China or U.S. government policy, in particular, the outbreak of a trade war between China and the U.S. and the imposition in 2018 and 2019 of
additional tariffs on bilateral imports, may continue to impact China’s economy, the retail industry, e-commerce in China and the U.S., as well as
related demand for integrated supply chain solutions going forward. If New Retail, the e-commerce industry in China and their respective demand for
integrated supply chain solutions fail to develop as we expect, our business and growth could be harmed.
We have a history of net losses and negative cash flows from operating activities, which may occur again in the future.
We incurred net losses of RMB1,228.1 million, RMB508.4 million and RMB219.1 million (US$31.5 million) in 2017, 2018 and 2019,
respectively. In addition, net cash used in operating activities was RMB623.4 million in 2016, although we generated net cash from operating
activities in the amounts of RMB25.6 million, RMB637.2 million and RMB852.8 million (US$122.5 million) in 2017, 2018 and 2019, respectively.
We expect our costs and expenses to increase in absolute amounts due to (i) the continued expansion of our operations, which will cause us to incur
increased costs and expenses associated with third-party transportation, labor, leasing property for the operation of our Cloud OFCs, hubs and
sortation centers; (ii) the continued investment in our technology infrastructure and network; and (iii) the launch of new and additional value-added
services, which may incur start-up costs, have different revenue and cost structures, and take time to achieve profitability.
Our ability to achieve and maintain profitability depends on our ability to enhance our market position, maintain competitive pricing,
leverage technology and business model innovation to expand and enhance our service offerings, and increase our operational efficiency. Our ability
to achieve and maintain profitability are also affected by many factors which may be beyond our control, such as the overall demand for supply chain
services and general economic conditions, including levels of consumption, as well as global pandemics such as the outbreak of novel coronavirus,
later named COVID-19, that started in late 2019. Like other companies, our operations in China have been adversely impacted by the COVID-19
outbreak in the first quarter of 2020, and as of the date of this annual report we are unable to reasonably estimate the magnitude of the outbreak’s
impact on our operations, financial position and business prospects. As of the date of this annual report, in China, where we conduct most of our
operations, travel restrictions have been mostly eased, and our operations have fully recovered. However, as the COVID-19 outbreak has further
spread outside China and it is uncertain as to whether the outbreak will continue to be contained in China, we are uncertain as to the extent the
COVID-19 outbreak may have on our operations. As the outbreak continues to evolve, we cannot assure you that our operations will not be adversely
impacted again or that we will be able to maintain our financial position or to achieve profitability. If we are unable to achieve profitability, we may
have to cut down the scale of our operation, which may impact our business growth and adversely affect our financial condition and results of
operations.
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Our historical growth rates may not be indicative of our future growth, and if we are unable to manage our growth or execute our strategies
effectively, our business and prospects may be materially and adversely affected.
We have experienced significant growth in recent years. Our total revenue increased from RMB20.0 billion in 2017 to RMB28.0 billion in
2018 and further to RMB35.2 billion (US$5.1 billion) in 2019. However, our past growth rates may not be indicative of future growth and our
planned growth initiatives may not be successful.
Our rapid growth has placed, and will continue to place significant demands on our management and our technology infrastructure, as well
as our administrative, operational and financial systems. We intend to achieve growth by continuing innovation, expanding market share, growing
BEST Store+ and other service lines, broadening value-added services, expanding global reach, enhancing operational efficiency and quality, as well
as growing through mergers, acquisitions and strategic alliances. There can be no assurance that we will be able to effectively manage our growth. If
our growth initiatives fail, our businesses and prospects may be materially and adversely affected.
We are affected by seasonality experienced in the consumer retail and logistics and supply chain industries.
Our businesses are affected by seasonality experienced in the consumer retail and logistics and supply chain industries. We typically
experience a seasonal surge in sales, especially in our express operations, during the fourth quarter of each year as a result of stronger sales in
connection with the Singles’ Day and December 12 promotions, which may impose challenging resource and capacity demands on our business
operations. Activity levels across our business lines are typically lower around Chinese national holidays, including Chinese New Year in the first
quarter of each year, as consumer spending levels and shipment levels tend to be weaker.
Seasonality also makes it challenging to forecast demand for our services, as the express, freight, supply chain management and store sales
volumes can vary significantly and unexpectedly. We make planning and spending decisions, including capacity expansion, procurement
commitments, personnel needs and other resource requirements based on our estimates of demand. Failure to meet demand associated with the
seasonality in a timely manner may adversely affect our financial condition and results of operations.
Our success depends to a substantial degree upon our senior management, including Mr. Shao-Ning Johnny Chou and other key personnel, and
our business operations would be negatively affected if we fail to attract and retain highly competent senior management.
We depend to a significant degree on the continued service of Mr. Shao-Ning Johnny Chou, our founder, chairman and chief executive
officer, our experienced senior management and other key personnel. If members of our senior management team or other key personnel resign, join
a competitor or form a competing company, it could negatively impact our business operations and create uncertainty as we search for and integrate a
replacement and could have an adverse effect on our financial condition and results of operations.
We have entered into employment and confidentiality agreements with our senior management and other key personnel. However, these
employment and confidentiality agreements do not ensure the continued service of these senior management and key personnel, and we may not be
able to enforce these agreements. In addition, we do not maintain key man life insurance for any of the senior members of our management team or
other key personnel.
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We utilize franchisee partners to conduct certain aspects of our business, and face risks associated with these relationships, their employees and
other personnel.
We utilize franchisee partners to conduct certain aspects of our business. As of December 31, 2019, we had approximately 9,807 franchisee
partners in China. We also have franchisee partners in certain Southeast Asian countries where we operate local express delivery networks, such as
Thailand and Vietnam. Many of our franchisee partners sub-contract part of their businesses to sub-franchisees. Our control over franchisee partners
and their sub-franchisees may not be as effective as if we had directly owned these partners’ businesses, which could potentially make it difficult for
us to manage them. Particularly, as we do not enter into agreements with sub-franchisees of our franchisee partners, we are unable to exert a
significant degree of influence over them.
Our franchisee partners, sub-franchisees and their employees directly interact with merchants and consumers in our ecosystem, and their
performance directly affects our reputation and brand image. If our service personnel or those of our franchisee partners or sub-franchisees fail to
satisfy the needs of our ecosystem participants, respond effectively to their complaints, which we have received from time to time, or provide
services in a reliable, safe and secure manner, our reputation and the loyalty of our ecosystem participants could be negatively affected. As a result,
we may lose ecosystem participants or experience a decrease in our business volume, which could have a material adverse effect on our business,
financial condition and results of operations. We do not directly supervise the services provided by our franchisee partners and may not be able to
successfully maintain and improve the quality of their services. Our franchisee partners may also fail to implement sufficient control over the pick-up
and delivery personnel who work at the service stations in connection with their conduct, such as proper collection and handling of the items we
transport and delivery service fees, adherence to privacy standards and timely delivery. As a result, we may suffer financial losses, incur liabilities
and suffer reputational damages in the event of theft or late delivery of the items we ship, embezzlement of delivery service fees or mishandling of
private information. In addition, while violation of laws and regulations by franchisee partners had not led to any material claim against us in the past,
we cannot assure you that such claim will not arise in the future which may harm our brand or reputation or have other adverse impacts.
Further, suspension or termination of a franchisee partner’s services in a particular geographic area may cause interruption to or failure in
our services in the corresponding geographic area. A franchisee partner may suspend or terminate its services voluntarily or involuntarily due to
various reasons, including disagreement or dispute with us, failure to make a profit, failure to maintain requisite approvals, licenses or permits or to
comply with other governmental regulations, and events beyond our or its control, such as inclement weather, natural disasters, epidemics,
transportation interruptions or labor unrest or shortage. Due to the intense competition in the logistics and supply chain industry in China and
Southeast Asian countries, our existing franchisee partners may also choose to discontinue their cooperation with us and work with our competitors
instead. We may not be able to promptly replace our franchisee partners or find alternative ways to provide services in a timely, reliable and cost-
effective manner, or at all. As a result of any service disruptions associated with our franchisee partners, satisfaction, brand, reputation, operations
and financial performance of our ecosystem participants may be materially and adversely affected.
Our BEST Store+, BEST UCargo and BEST Global service lines have limited operating histories.
We have a limited history in providing BEST Store+, BEST UCargo and BEST Global services, which were launched or significantly
expanded in the last few years. While these service lines have experienced rapid expansion, we cannot assure you that we will be able to continue
their expansion or successfully address any future problems or issues, nor can we assure you that they will ultimately become profitable. We expect
to continue to adjust our existing operating model and explore new operating models for these service lines which may subject us to further
uncertainties and negative effects on our overall business and results of operations. As we intend to grow the scale of these service lines, we may
incur significant ramp-up costs to support such growth, which may negatively affect our profitability, particularly if we are unable to achieve
economies of scale. We may not be able to recoup all or any of our investments made in these businesses. In addition to organically growing these
service lines, we may seek to expand them through strategic acquisitions, which would subject us to additional risks. See “—Any difficulties in
identifying, consummating and integrating acquisitions, investments or alliances may expose us to potential risks and have an adverse effect on our
business, results of operations or financial condition.”
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Specifically, with respect to BEST Store+, membership stores may not utilize Dianjia.com to procure merchandise to the extent we expect.
We also face risks related to management of the merchandise inventories sold through Dianjia.com, and we depend on our demand forecasts for
various kinds of products to make procurement decisions and to manage our inventories. We are also subject to risks that membership and branded
stores fail to integrate with our service network as expected. We may also face challenges with the implementation of value-added services and last-
mile delivery from convenience stores in our network. This may impact our ability to expand the number of membership stores in the network or
retain or increase the activities of existing membership stores. For example, the number of store orders fulfilled in the fiscal year ended December 31,
2019 decreased by 5.6% compared to 2018, and we continue to experience a decline in the number of store orders fulfilled due to ongoing efforts to
improve order quality and margins. Fewer orders fulfilled for membership stores was the primary reason our BEST Store+ service revenue remained
relatively stable at RMB2,817.2 million (US$404.7 million) in 2019 and RMB2,845.0 million in 2018. There can be no assurance that our efforts to
improve the quality and margins of orders fulfilled for membership stores will be successful. We, as well as our membership BEST Store+ operators,
compete with numerous other convenience store chains, independent convenience stores, supermarkets, drugstores, motor fuel service stations, mass
merchants, fast food operators and other similar retail outlets, who may have more experience than us, and may use promotional pricing or other
discounts to encourage their in-store merchandise sales. Such competition may put pressure on us and our membership BEST Store+ operators, and
the results of operations of our BEST Store+ service line may be materially and adversely affected.
Macroeconomic and other factors that reduce demand for supply chain services, in China or globally, could have a material adverse impact on
our business.
The global logistics and supply chain industry has historically experienced cyclical fluctuations in financial performance due to economic
recessions, reductions in per capita disposable income and levels of consumer spending, downturns in the business cycles of customers, interest rate
fluctuations and economic factors beyond our control. During economic downturns, whether in China or globally, reduced overall demand for supply
chain services will likely reduce demand for our services and solutions and exert downward pressures on our rates and margins. As we focus on
providing integrated supply chain solutions in the New Retail era, if the online and offline retail channel integration trend or any other trend required
for the emergence of New Retail does not develop as we expect, our business prospect may be adversely affected. In periods of strong economic
growth, demand for limited transportation resources can also result in increased network congestion and operating inefficiencies. In addition, any
deterioration in the economic environment subjects our business to various risks that may have a material impact on our operating results and future
prospects. For instance, some of our customers may face economic difficulties due to events such as COVID-19 outbreak and may not be able to pay
us, and some may go out of business. These customers may not complete their payments as quickly as they have in the past, causing our working
capital needs to increase.
In an economic downturn, we may not be able to appropriately adjust our expenses to changing market demands and it may be more difficult
to match our staffing levels to our business needs. In addition, we have certain significant fixed expenses and other variable expenses that are fixed
for a period of time, which we may not be able to adequately adjust in a period of rapid change in market demand.
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We have started to recognize a substantial amount of share-based compensation expense upon the completion of our initial public offering, which
will have a significant impact on our results of operations.
We adopted our 2008 equity and performance incentive plan in June 2008 pursuant to which we may grant options to purchase up to
20,934,684 of our ordinary shares, and our 2017 equity incentive plan in September 2017 pursuant to which we may grant equity-based awards
representing initially 10,000,000 Class A ordinary shares, which number automatically increases by a maximum of 2% of our total outstanding shares
at the end of preceding calendar year on January 1, 2019 and on every January 1 thereafter for eight years (subject to certain limitations). As of
February 29, 2020, we had in aggregate outstanding options with respect to 4,246,560 ordinary shares and restricted share units with respect to
6,815,989 ordinary shares that have been granted to our employees, directors and consultants under the 2008 equity and performance incentive plan
and the 2017 equity incentive plan. We are required to account for share options and restricted share units granted to our employees, directors and
consultants in accordance with Codification of Accounting Standards, or ASC 718, “Compensation—Stock Compensation” and ASC 505-50, “Equity,
Equity-Based Payments to Non-Employees” prior to 2018 and we early adopted ASU 2018-07: Compensation — Stock Compensation (Topic 718):
Improvements to Nonemployee Share-Based Payment Accounting in fiscal 2018. We classify share options and restricted share units granted to our
employees, directors and consultants as equity awards and recognize share-based compensation expense based on the fair value of such share options
and restricted share units, with the share-based compensation expense recognized over the period in which the recipient is required to provide service
in exchange for the equity award. Because the exercisability of the share options granted by us before our initial public offering was conditional upon
completion of our initial public offering or, in case we had waived such restriction, our obligation to issue ordinary shares pursuant to any exercise of
the options was conditional upon the completion of our initial public offering, we did not recognize any share-based compensation expense relating to
these share options granted by us before the completion of our initial public offering. Upon the completion of our initial public offering in September
2017, we immediately recognized a substantial amount of share-based compensation expense associated with vested option awards.
We will incur additional share-based compensation expenses in the future as we continue to grant share-based awards to our employees,
directors and consultants. We believe the granting of share-based awards is important for us to attract and retain talented employees, directors and
consultants. As a result, our expense associated with share-based compensation may increase, which may have an adverse effect on our results of
operations. For further information on our share incentive plans and information on our recognition of related expenses, please see “Item 5. Operating
and Financial Review and Prospects—Components of Results of Operations—Share-Based Compensation” and “Item 6. Directors, Senior
Management and Employees—B. Compensation—Share Incentive Plans.”
We currently derive a significant portion of our revenue from consumer activity on a limited number of prominent e-commerce platforms, and a
reduction of demand from these platforms may negatively affect our business.
A significant portion of our revenue is derived from a number of major e-commerce platforms in China, such as Taobao Marketplace and
Tmall. If these platforms are to suffer a decline in their usage or if our relationships with them are to be harmed, it could materially and negatively
impact our business and operating results and financial condition. We generally do not have long-term contractual relationships with e-commerce
platforms, and instead individual merchants on such platforms select us as their shipping and other supply chain service provider. If we are unable to
remain a preferred service provider for the merchants on these e-commerce platforms, our business volume may decrease significantly, which could
adversely affect our business and results of operations.
If our customers are able to reduce their logistics and supply chain costs or increase utilization of their internal solutions, our business and
operating results may be materially and adversely affected.
A major driver for merchants and other customers to use third-party logistics and supply chain service providers is the high cost and degree
of difficulty associated with developing in-house logistics and supply chain expertise and operational efficiencies. If, however, our customers are able
to develop their own logistics and supply chain solutions, increase utilization of their in-house supply chain, reduce their logistics spending, or
otherwise choose to terminate our services, our logistics and supply chain management business and operating results may be materially and
adversely affected. In addition, certain of our major e-commerce platform partners may develop their own logistics capabilities, which could reduce
the scope of services we provide to users on their platforms.
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Decreased availability or increased costs of key logistics and supply chain inputs, including third-party transportation, equipment and materials
could impact our cost of operations and our profitability across business lines.
We depend on reliable access to third-party transportation, supplies of equipment, including vehicles and the sorting machines, conveyor
systems and Automated Guided Vehicles, or AGVs, used at our Cloud OFCs and other network facilities, replacement parts and materials such as
packing. The supplier base providing logistics equipment is relatively consolidated, which has resulted in a limited number of suppliers for certain
types of equipment and supplies. Conversely, the market for third-party transportation services is fragmented with a large number of service
providers, and it can be difficult to find reliable partners whose performance and reliability meet our standards at the scale our operations require.
Any significant reduction in availability or increase in cost of any logistics and supply chain inputs could adversely affect our operations and increase
our costs, which could adversely affect our operating results and cash flows.
Overall tightening of the labor market, increases in labor costs or any labor unrest, including strikes, may affect our business as we operate in a
labor-intensive industry.
Our business requires a substantial number of personnel, and labor costs comprised 14.6%, 11.0% and 10.0% of our total cost of revenue in
2017, 2018 and 2019, respectively. Any failure to retain stable and dedicated labor by us, our franchisee partners or service providers may lead to
disruptions to or delays in our services. We, our franchisee partners and service providers often hire additional or temporary workers to handle the
significant increase in express and freight volumes during peak periods of e-commerce activities. We have observed an overall tightening labor
market. We have experienced, and expect to continue to experience, increases in labor costs due to increases in salaries, social benefits and employee
headcounts and we may also face seasonal labor shortages. We, our franchisee partners and service providers compete with other companies for
labor, and we may not be able to offer competitive salaries and benefits compared to them.
We, our franchisee partners and service providers have been subject to labor disputes from time to time in the ordinary course of business,
although none of them, individually or in the aggregate, has had a material adverse impact on us. We expect to continue to be subject to various legal
or administrative proceedings related to labor disputes in the ordinary course of our business, due to the magnitude of the labor force involved in our
service network. Any labor unrest or strikes directed against us, our franchisee partners or service providers could directly or indirectly prevent or
hinder our normal operating activities, and if not resolved in a timely manner, lead to delays in fulfilling our customer orders. We, our franchisee
partners and service providers are not able to predict or control any labor unrest, especially those involving labor not directly employed by us.
Further, labor unrest may affect general labor market conditions or result in changes to labor laws, which in turn could materially and adversely affect
our business, financial condition and results of operations.
We engage outsourcing firms to provide outsourced personnel for our operations and have limited control over these personnel and may be liable
for violations of applicable PRC labor laws and regulations.
We engage outsourcing firms who send large numbers of their employees to work at our network facilities. As of December 31, 2019, over
31,600 outsourced personnel were active in our operations. We enter into agreements with the outsourcing firms only and do not have any contractual
relationship with these outsourced workers. Since these outsourced personnel are not directly employed by us, our control over them is more limited
as compared to our own employees. If any outsourced personnel fail to operate in accordance with our instructions, policies and business guidelines,
our market reputation, brand image and results of operations could be materially and adversely affected.
Our agreements with the outsourcing firms provide that we are not liable to the outsourced personnel if the outsourcing firms fail to fulfill
their duties to these personnel. However, if the outsourcing firms violate any relevant requirements under the applicable PRC labor laws, regulations
or their employment agreements with the personnel, such personnel may claim compensation from us as they provide their services at our network
facilities. As a result, we may incur legal liability, and our market reputation, brand image as well as our business, financial condition and results of
operations could be materially and adversely affected.
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Our business depends on our reputation and brand image, and any damage to them or any failure to effectively adjust our branding strategy in
our international expansion could adversely impact our business.
Our brand name in Chinese, “百世,” means hundreds of generations. We believe that our BEST brand name and our other brands stand for
long-term commitment, comprehensive and high-quality service, reliability and efficiency, and are part of our most important and valuable assets.
We have registered our major trademarks critical to our business in Chinese with the relevant PRC authorities, including “百世” (BEST), “百世物
流” (BEST Logistics), “百世供应链” (BEST Supply Chain), “百世快递” (BEST Express), “百世快运” (BEST Freight), “百世国际” (BEST
Global), “百世金融” (BEST Capital), “百世优货” (BEST UCargo) and “店” (Store). We have also used and registered our various trademarks in
other jurisdictions. Our brands and reputation are significant sales and marketing tools, and we devote substantial resources to promoting and
protecting them. Adverse publicity (whether or not justified) such as accidents, customer service mishaps or noncompliance with laws relating to
activities by our franchisee partners, service providers, contractors or agents, could tarnish our reputation and reduce the value of our brand. With the
increased use of social media outlets, adverse publicity can be disseminated quickly and broadly, making it increasingly difficult for us to effectively
respond.
As we continue our international expansion, we may need to adjust our branding strategy in new countries and regions that we enter into.
For example, our existing brands may be viewed as similar to brands used by existing players in the local markets that provide similar services. As
such, we may need to adopt a new brand name in these markets and our efforts in establishing the reputation of the new brand in a new market may
not be successful and could lead to brand disruption and harm our operations in these markets. Existing players in the local markets may also claim
that our brands are similar to theirs and thereby bring claims against us for infringement upon their brand names or trademark rights, which may
cause harm to our reputation and disrupt our branding strategy in the relevant local market. Damage to our reputation and loss of brand equity could
reduce demand for our services and thus have an adverse effect on our financial condition, liquidity and results of operations, as well as require
additional resources to rebuild our reputation and restore the value of our brand.
We may not be able to attract and retain the qualified and skilled employees needed to support our business.
We believe our success depends on the efforts, effectiveness and talent of our employees, including research and development, supply chain
management, operations, engineering, risk management, and sales and marketing personnel. Our future success depends on our continued ability to
attract, develop, motivate and retain qualified and skilled employees. Competition for highly skilled personnel is extremely intense. We may not be
able to hire and retain these personnel at compensation levels consistent with our existing compensation and salary structure. Some of the companies
with which we compete for experienced employees have greater resources than we have and may be able to offer more attractive terms of
employment.
In addition, we invest significant time and resources in training our employees, which increases their value to competitors who may seek to
recruit them. If we fail to retain our employees, we could incur significant expenses in hiring and training their replacements, and the quality of our
services and our ability to serve our customers could diminish, resulting in a material adverse effect to our business.
A significant system disruption could adversely affect the operations of us and our ecosystem participants, which could severely impact our
business and prospects.
We rely on our technology infrastructure to process, transmit and store digital information, and to manage or support a variety of business
processes and activities. In addition, the provision of service to our customers and the operation of our service network infrastructure involves the
storage and transmission of proprietary information and sensitive or confidential data, including business and personal information of our ecosystem
participants, who are reliant on the use of our technology infrastructure to manage their business processes and activities. Our technology
infrastructures and those of our customers and our franchisee partners are connected through various interfaces. Some of these infrastructures are
managed by third parties and are susceptible to damage, disruptions or shutdowns due to failures during the process of upgrading or replacing
software, databases or components thereof, power outages, hardware failures, computer viruses, malicious insiders, telecommunication failures, user
errors or other catastrophic events. Hackers, acting individually or in coordinated groups, may also launch distributed denial of service attacks or
other coordinated attacks that may cause service outages or other interruptions in our business.
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The techniques used to obtain unauthorized access, disable or degrade service or sabotage systems change frequently, may be difficult to
detect and often are not recognized until launched against a target. As a result, we may be unable to anticipate these techniques or to implement
adequate preventative measures. If our systems were to suffer an operational failure, it could harm our reputation and have a material adverse effect
on our business and prospects.
Our business generates and processes a large quantity of data, and improper handling of or unauthorized access to such data may adversely
affect our business.
We face risks related to complying with applicable laws, rules and regulations relating to the collection, use, disclosure and security of
personal information, as well as any requests from regulatory and government authorities relating to such data.
The PRC regulatory and enforcement regime with regard to data security and data protection has continued to evolve. There are
uncertainties on how certain laws and regulations will be implemented in practice. PRC regulators have been increasingly focused on regulating data
security and data protection. We expect that these areas will receive greater attention from regulators, as well as attract public scrutiny and attention
going forward. This greater attention, scrutiny and enforcement, including more frequent inspections, could increase our compliance costs and subject
us to heightened risks and challenges associated with data security and protection. If we are unable to manage these risks, our reputation and results
of operations could be materially and adversely affected. For further details please see “Item 4. Information on the Company—B. Business
Overview—Regulatory Matters—Regulations Relating to Internet Security.”
We also grant limited access to specified data on our technology platform to certain other ecosystem participants. These third parties face the
same challenges and risks inherent in handling and protecting large volumes of data. Any system failure or security breach or lapse on our part or on
the part of any of such third parties that results in the release of user data could harm our reputation and brand and, consequently, our business, in
addition to exposing us to potential legal liability.
In addition, we are subject to additional laws in other jurisdictions in which we operate and where our ecosystem participants are located.
The laws, rules and regulations of other jurisdictions, such as the U.S., Europe and Southeast Asian countries, may impose more stringent or
conflicting requirements and penalties than those in China, compliance with which could require significant resources and costs. Our policies and
practices concerning the collection, use and disclosure of user data are posted on our websites. Any failure, or perceived failure, by us to comply with
any regulatory requirements or privacy protection-related laws, rules and regulations could result in proceedings or actions against us by
governmental entities or others. These proceedings or actions could subject us to significant penalties and negative publicity, require us to change our
business practices, increase our costs and severely disrupt our business.
We face risks associated with the items we deliver and the contents of shipments and inventories handled through our service network.
We handle a large volume of shipments and inventories across our service network, and face challenges with respect to the protection and
control of these items. Shipments and inventories in our service network may be stolen, damaged or lost for various reasons, and we, our franchisee
partners and service providers may be perceived or found to be liable for such incidents. In addition, we may fail to screen shipments and inventories
and detect unsafe or prohibited/restricted items. Unsafe items, such as flammables and explosives, toxic or corrosive items and radioactive materials,
may damage other items or facilities in our service network, injure recipients and harm our personnel and assets or those of our franchisee partners
and service providers. Furthermore, if we fail to prevent prohibited or restricted items from entering into our service network and if we participate in
the transport and delivery of such items, we may be subject to administrative or even criminal penalties, and if any personal injury or property
damage is concurrently caused, we may be further liable for civil compensation.
Our delivery operations also involve inherent risks. We constantly have a large number of vehicles and personnel in transportation and a
large number of items in storage facilities that we rent, and are therefore subject to risks associated with storage and transportation safety. The
insurance maintained by us may not fully cover the damages caused by transportation-related injuries or loss. From time to time, our vehicles and
personnel may be involved in accidents, and the items they transport may be lost or damaged. In addition, frictions or disputes may occasionally arise
from the personal interactions between our pick-up and delivery personnel and senders or recipients and those of our franchisees partners and service
providers. Personal injury or property damage may occur in connection with such incidents.
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Any of the foregoing could disrupt our services, cause us to incur substantial expenses and divert the time and attention of our management.
We, our franchisee partners and service providers may face claims and incur significant liabilities if found liable or partially liable for any injuries,
damages or losses. Claims against us may exceed the amount of our insurance coverage, or may not be covered by insurance at all. Governmental
authorities may also impose significant fines on us or require us to adopt costly preventive measures. Furthermore, if our services are perceived to be
insecure or unsafe by our ecosystem participants, our business volume may be significantly reduced, and our business, financial condition and results
of operations may be materially and adversely affected.
We have limited ability to protect our intellectual property rights, including our brand and our proprietary information technology platform, and
unauthorized parties may infringe upon or misappropriate our intellectual property.
Our success depends in part upon our proprietary technology infrastructure, including certain methodologies, practices, tools and technical
expertise we utilize in designing, developing, implementing and maintaining applications and processes used in providing our services. We rely on a
combination of patent, copyright, trademark, trade secrets and other intellectual property protections, confidentiality agreements with our key
personnel, customers and other relevant persons and other measures to protect our intellectual property, including our brand and our proprietary
technology infrastructure. Nevertheless, it may be possible for third parties to obtain and use our intellectual property without authorization. The
unauthorized use of intellectual property is common in China and certain Southeast Asian countries and enforcement of intellectual property rights by
regulatory agencies may not be as consistent as in more developed countries. As a result, litigation may be necessary to enforce our intellectual
property rights. Litigation could result in substantial costs and diversion of our management’s attention and resources, and could disrupt our business,
as well as have a material adverse effect on our financial condition and results of operations. There is no guarantee that we would be able to halt any
unauthorized use of our intellectual property through litigation.
We may be accused of infringing the intellectual property rights of others.
Our success depends in part on the use of our proprietary intellectual property and the intellectual property of other ecosystem participants,
including technology, software products, business policies, plans, and trade secrets. Many of our contracts with third parties require us not to engage
in the unauthorized use of such intellectual property or information, and to indemnify such third parties for any resulting loss. The steps taken by us
in this regard may not be adequate to safeguard such intellectual property and confidential information. Moreover, most of our contracts do not
include any limitation on our liability with respect to our infringement or breach of our obligation to keep confidential the intellectual property or
confidential information. In addition, we may not always be aware of intellectual property registrations or applications relating to trademarks, source
codes, software products or other intellectual property of such third parties, whether in China or other jurisdictions. As a result, if the proprietary
rights of our ecosystem participants or other third parties are misappropriated by us or our employees, we may be liable for damages or other
compensation.
Assertions of infringement of intellectual property or misappropriation of confidential information against us, if successful, could have a
material adverse effect on our business, financial condition and results of operations. Protracted litigation could divert our management’s attention
and our resources and also result in existing or potential customers deferring or limiting their procurement or use of our services until the resolution
of such litigation. Even if such assertions against us are unsuccessful, they may cause us to lose existing and future business and incur reputational
harm and substantial legal fees.
Any difficulties in identifying, consummating and integrating acquisitions, investments or alliances may expose us to potential risks and have an
adverse effect on our business, results of operations or financial condition.
We have in the past made and may in the future seek to make acquisitions and investments and enter into strategic alliances to further
expand our business. We acquired a local express delivery company in Vietnam in July 2019 and a local express delivery company in Malaysia in
April 2020. If we are presented with appropriate opportunities, we may acquire additional businesses, services, resources, or assets, including supply
chain service providers and transport solution providers that are accretive to our core business. We cannot assure you that we will always be able to
complete such acquisitions successfully or on terms acceptable to us. Integration of entities or assets we acquire into our business may not be
successful and may prevent us from expanding into new services, customer segments or operating locations. This could significantly affect the
expected benefits of these acquisitions. Moreover, the integration of any acquired entities or assets into our operations could require significant
attention from our management. The diversion of our management’s attention and any difficulties encountered in any integration process could have
an adverse effect on our ability to manage our business.
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Our possible future acquisitions, investments or strategic alliances may also expose us to other potential risks, including risks associated
with unforeseen or hidden liabilities, the diversion of resources from our existing businesses and technologies, our inability to generate sufficient
revenue to offset the costs, expenses of acquisitions and potential loss of, or harm to, relationships with employees and customers as a result of our
integration of new businesses. In addition, we may recognize impairment losses on goodwill arising from our acquisitions. The occurrence of any of
these events could have a material and adverse effect on our ability to manage our business, our financial condition and our results of operations.
Our international expansion exposes us to significant risks.
We provide inbound and outbound cross-border supply chain management services and plan to continue to expand our footprint
internationally as part of our growth strategy. In addition to China, we currently operate warehouses in the U.S. and Thailand, and have coverage in
Vietnam, Australia, France, Japan, Korea, the United Kingdom, Malaysia, Hong Kong, Italy, India, Indonesia, Saudi Arabia, Qatar, New Zealand,
Kuwait, Laos, Russia and the United Arab Emirates through partners, and expect to open additional foreign facilities and hire employees to work at
these offices in order to reach new customers and expand the reach of our service network. We started to provide local express delivery services in
Thailand in late 2018, Vietnam in July 2019 and Malaysia in April 2020. Operating in international markets requires significant resources and
management attention and will subject us to regulatory, economic and political risks in addition to those we already face in China. Because of our
limited experience with international operations as well as developing and managing operations in international markets, our international expansion
efforts may not produce the results we expect.
In addition, we will face risks in doing business internationally that could adversely affect our business. For instance, we face difficulties
managing and staffing international operations and the increased operating, travel, infrastructure and legal compliance costs associated with
international business. We must comply with laws and regulations in foreign jurisdictions, particularly in the areas of data privacy and customs. We
must also comply with technical and environmental standards in these jurisdictions. In addition, we must offer customer service in various languages,
adapt and localize our service offerings for specific countries, appropriately price our products and services and work with overseas merchants,
partners and other third parties, such as local transportation service providers. We are also subject to general risks inherent in international operations,
such as fluctuations in exchange rates, changes in trade policies, tariff regulations, embargoes and customer clearances, or other trade restrictions, as
well political or social unrest or economic instability in regions in which we operate.
Our failure to manage any of these risks successfully could harm our international operations, and adversely affect our business, results of
operations and financial condition.
We may not be able to obtain sufficient capital to fund our business expansion.
Our business expansion requires a substantial amount of capital. In 2017, 2018 and 2019, we incurred capital expenditures of RMB749.7
million, RMB1,077.8 million and RMB1,497.7 million (US$215.1 million), respectively, representing purchases of property and equipment. We have
incurred and expect to continue to incur substantial costs to launch and ramp-up new service offerings as well as to expand geographically and we
may only be able to recover such costs over the long term. The continued improvement and upgrade of our supply chain service network may also
require a substantial amount of capital investments, such as purchasing equipment, funding leasehold improvements at our hubs, sortation centers and
Cloud OFCs and expanding our BEST Store+ network. Further, we may encounter development delays and excess development costs.
We have historically funded our operations by issuance of equity or equity-linked securities (including convertible senior notes), redeemable
convertible preferred shares, asset backed securities and short-term bank borrowings. There can be no assurance that we will be able to generate
sufficient cash from our operations to fund our capital requirements or raise additional funds through equity or debt financings on satisfactory terms
or at all, in which case we may be required to prioritize projects or curtail capital expenditures, and our results of operations could be adversely
affected. On the other hand, if we raise funds through debt financings, we may also become subject to restrictive covenants that could limit our future
capital raising activities and other financial and operational matters. If we raise funds through further issuances of equity or equity-linked securities,
our existing shareholders could suffer significant dilution in their percentage ownership of our company.
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We may not have the ability to raise the funds necessary to repurchase our convertible senior notes on the repurchase date or upon the
occurrence of a fundamental change, and our future debt may contain limitations on our ability to pay cash upon required repurchase or
redemption of the notes.
Holders of our 1.75% convertible senior notes due 2024 will have the right to require us to repurchase their notes on September 30, 2022,
and upon the occurrence of a fundamental change, in each case at a repurchase price equal to 100% of the principal amount of the notes to be
repurchased, plus accrued and unpaid interest, if any. However, we may not have enough available cash or be able to obtain financing at the time we
are required to make repurchases of notes surrendered therefor or redeem the notes. In addition, our ability to repurchase or redeem the notes may be
limited by law, by regulatory authority or by agreements governing our current or future indebtedness. Our failure to repurchase notes or pay the tax
redemption price at a time when the repurchase or such payment is required by the indenture governing the notes would constitute a default under the
indenture governing the notes. A default under the indenture governing the notes or the fundamental change itself would also lead to a default under
agreements governing our existing indebtedness and could also lead to a default under agreements governing our future indebtedness. If the
repayment of the related indebtedness were to be accelerated after any applicable notice or grace periods, we may not have sufficient funds to repay
the indebtedness and repurchase or redeem the notes.
Failure of us or our franchisee partners to obtain, maintain or update necessary licenses and permits may have a material adverse effect on our
business, financial condition and results of operations.
We and our franchisee partners are required to hold a number of licenses and permits in connection with our business operation including,
but not limited to, with respect to our China businesses, the courier service operation permit, road transportation operation permit and the value-added
telecommunication service license concerning Internet information service, or the ICP license.
Under PRC laws, an enterprise that operates and provides express delivery services must obtain a courier service operation permit listing out
all the regions it and its branches are allowed to operate in. Such enterprise needs to make a filing with the relevant postal authority to update its
courier service operation permit to include any additional regions it plans to expand into. All of our PRC subsidiaries, our VIEs and their subsidiaries
engaging in express delivery services have obtained courier service operation permits required for our operations. However, some local branches of
our VIEs and their subsidiaries have not made timely filings with the relevant postal authority to update their courier service operation permits. While
we have not received any government order or penalty resulting from such failure, we cannot assure you that we will not be subject to orders to
rectify, fines of up to RMB50,000 or business suspension of such branches.
In addition, an enterprise engaging in road freight transportation is required to obtain a road transportation operation permit from the
relevant county-level road transportation administrative bureau, unless such enterprise is engaging in general cargo transportation with a general
cargo vehicle weighing 4,500 kilograms or less. If an enterprise engaging in road freight transportation intends to establish a branch, it is required to
make a filing with the local road transportation administrative bureau where the branch is to be established. While all of our PRC subsidiaries, the
VIEs and their subsidiaries engaging in road freight transportation have obtained their road transportation operation permits, we are in the process of
renewing the filings for some of the branches, and if we cannot complete the renewal in a timely manner, these branches may be subject to business
suspension and other penalties.
Our franchisee partners also need to obtain necessary licenses and permits and make necessary filings to provide express delivery services.
Some of our franchisee partners providing express delivery services do not currently possess all necessary licenses and permits. While we have urged
them to obtain such licenses and permits, we can provide no assurance that all of our franchisee partners will be able to obtain all of the licenses and
permits and make all of the filings necessary for their business. Failure to obtain such licenses and permits and make such filings may result in
suspension of operation, fines or other penalties on our franchisee partners by government authorities. In addition, if any of our franchisee partners
providing express delivery services fails to obtain required licenses and permits, we may also be subject to an order to rectify and a fine ranging from
RMB5,000 to RMB30,000 for each such failure.
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New laws and regulations that are enforced from time to time may require additional licenses and permits other than those we and our
franchisee partners currently have. If the PRC government considers us or our franchisee partners to be operating without the proper approvals,
licenses or permits or promulgates new laws and regulations that require additional approvals or licenses, it has the authority, among other things, to
levy fines, confiscate our income, revoke our business licenses, and require us to discontinue our relevant business or impose restrictions on the
affected portion of our business. Any of these actions by the PRC government may have a material and adverse effect on our results of operations.
Failure to comply with PRC laws and regulations by us or our franchisee partners may materially and adversely impact our business, financial
condition and results of operations.
Our business is subject to governmental supervision and regulation by the relevant PRC governmental authorities, including but not limited
to the State Post Bureau and the Ministry of Transport. Together, these governmental authorities promulgate and enforce regulations that cover many
aspects of our day-to-day operations, and we may fail to fully comply with these regulations. For example, the PRC Postal Law, promulgated by the
Standing Committee of the National People’s Congress of China, which became effective on October 1, 2009 and was amended in 2015, indicates
that express delivery companies cannot engage in “posting and mail delivery business exclusively operated by postal enterprises.” However, PRC
laws do not provide a definition for “posting and mail delivery business exclusively operated by postal enterprises.” If the authorities define such
term in the future and if the items that we or our franchisee partners deliver fall into the defined category, we may be considered in violation of such
regulation, and as a result, it might have an adverse impact on our results of operations.
According to the Administrative Measures for Express Delivery Market, or the Express Delivery Regulations, promulgated by the Ministry
of Transport on January 11, 2013, when engaging in express delivery business through franchising arrangements, a franchisor is required to execute
written agreements with its franchisees to set forth their respective rights and obligations with respect to their franchising arrangement and clearly
delineate their respective liabilities to consumers in case of any infringement of their lawful rights. Failure to enter into such a written agreement with
any franchisee may subject a franchisor to an order to rectify and a fine ranging from RMB5,000 to RMB30,000. While it is not clearly provided in
the Express Delivery Regulations, national government authorities have imposed that certain specific forms be used in connection with the execution
of the written agreements required under the Express Delivery Regulations. While the majority of our agreements with franchisee partners for express
delivery service have satisfied such form requirements, our other agreements with such franchisee partners may be found non-compliant by relevant
authorities. Although we have proactively taken measures to ensure that our agreements with franchisee partners will comply with such requirements,
we cannot assure you that we will not be subject to fines and penalties due to any past or future non-compliances.
Pursuant to the Administrative Regulations on Commercial Franchising Operation promulgated by the State Council in February 2007 and
Provisions on Administration of the Record Filing of Commercial Franchises issued by MOFCOM in December 2011, or collectively the Regulations
and Provisions on Commercial Franchising, commercial franchising refers to the business activities where an enterprise that possesses the registered
trademarks, enterprise logos, patents, proprietary technology or any other business resources allows such business resources to be used by another
business operator through a contract and the business operator follows the uniform business model to conduct business operations and pay
franchising fees according to the contract. Therefore, if the relationship between us and our franchisee partners and other ecosystem participants
constitute such regulated commercial franchising, we will be subject to these regulations and will be required to file such franchising arrangements
with MOFCOM or its local counterparts and update the filings when there are changes to relevant information. While we had completed such filings
with respect to our BEST Express, BEST Freight and Cloud OFC services as of December 31, 2019, we cannot assure you that we can update such
filings in a timely manner or our relationships with other existing and future ecosystem participants will not be found to constitute such regulated
commercial franchising in the future. As of December 31, 2019, we had not received any request from any governmental authorities to make any of
such filings. If relevant authorities determine that we failed to make any filing with respect to any regulated commercial franchising activity in the
future, we may be subject to an order to rectify or fines ranging from RMB10,000 to RMB50,000, and if we fail to rectify within the rectification
period determined by competent government authorities, we may be subject to an additional fine ranging from RMB50,000 and RMB100,000 as well
as public reprimand.
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In addition, our franchisee partners have full discretion over their daily operations and make localized decisions with respect to their
facilities, vehicles and hiring and pricing strategies. Their operations are regulated by various PRC laws and regulations, including local
administrative rulings, orders and policies that are pertinent to their localized freight, express delivery business and retail business. For example, local
regulations may specify the models or types of vehicles to be used in pickup and delivery services or require the franchisee partners to implement
heightened safety screening procedures, which could materially drive up the operating costs and impact the delivery efficiency of the pickup and
delivery outlets.
We are also subject to a number of retail industry regulations including, but not limited to, regulations relating to pricing, consumer
protection, product quality, food safety and public safety. Local regulatory authorities conduct periodic inspections, examinations and inquiries in
respect of our compliance with relevant regulatory requirements. If we, or our membership stores, fail to comply with these laws and regulations, we
or our membership stores may be exposed to penalties, fines, the suspension or revocation of our or our membership stores’ licenses or permits to
conduct business, administrative proceedings and litigation.
New laws and regulations may be enforced from time to time and substantial uncertainties exist regarding the interpretation and
implementation of current and any future PRC laws and regulations applicable to our businesses. If the PRC government promulgates new laws and
regulations that impose additional restrictions on our daily operations, it has the authority, among other things, to levy fines, confiscate income,
revoke business licenses, and require us to discontinue our relevant business or impose restrictions on the affected portion of our business. Any of
these actions by the PRC government may have a material and adverse effect on our results of operations. If our franchisee partners are found to be in
violation of any applicable law or regulation then in effect, such franchisee partners may be subject to similar penalties or administrative orders and
may not be able to continue to deliver satisfactory services or at all. As a result, our business, reputation, financial condition and results of operations
may be materially and adversely affected.
We face risks related to the termination and renewal of leases on which we rely for our operations.
Substantially all of our Cloud OFCs, hubs and sortation centers are located in properties for which we have entered into long-term operating
leases. In some instances, we may negotiate an option to renew the lease according to the terms and conditions under the relevant lease agreements.
However, upon the expiration of such leases, we may not be able to renew these leases on commercially reasonable terms, if at all. Under certain
lease agreements, the lessor may terminate the agreement by giving prior notice and paying default penalties to us. Such default penalties nonetheless
may not be sufficient to cover our losses. Even though the lessors for most of our Cloud OFCs, hubs and sortation centers do not have the right of
unilateral early termination unless they provide the required notice, the lease may nonetheless be terminated early if we are in material breach of the
lease agreements. We may assert claims for compensation against the landlords if they elect to terminate a lease agreement early and without due
cause. If the leases for our Cloud OFCs, hubs or sortation centers were terminated prior to their expiration dates, notwithstanding any compensation
we may receive for early termination of such leases, or if we are not able to renew such leases, we may have to incur significant cost related to
relocation.
Our use of certain leased properties could be challenged by third parties or governmental authorities, which may cause interruptions to our
business operations.
As of December 31, 2019, lessors of approximately 0.8% of the total gross floor area of our leased properties in China have not provided us
with their property ownership certificates or any other documentation proving their right to lease those properties to us. If our lessors are not the
owners of the properties and they have not obtained consents from the owners or their lessors or permits from the relevant governmental authorities,
our leases could be invalidated. If this occurs, we may have to renegotiate the leases with the owners or other parties who have the right to lease the
properties, and the terms of the new leases may be less favorable to us. Although we may seek damages from such lessors, such leases may be void
and we may be forced to relocate. Any relocation would require us to locate and secure additional facilities, expenditures of additional funds in
connection with the relocation and preparation of replacement facilities. This could affect our ability to provide uninterrupted services to our
customers and harm our reputation. As of December 31, 2019, we had not incurred expenditures associated with the relocation and preparation of
replacement facilities. In addition, a substantial portion of our leasehold interests in leased properties have not been registered with the relevant PRC
governmental authorities as required by relevant PRC laws. The failure to register leasehold interests may expose us to potential warnings and
penalties.
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In addition, some of our leased properties in China may not have filed the fire-control registration as required by relevant PRC laws and as a
result, our use of the leased property may be affected. In the event that our use of properties is successfully challenged by the regulators or due to fire
incidents, we may be forced to relocate from the affected operations.
Our failure or alleged failure to comply with China’s anti-corruption laws or the U.S. Foreign Corrupt Practices Act could result in penalties,
which could harm our reputation and have an adverse effect on our business, results of operations and financial condition.
We are subject to PRC laws and regulations related to anti-corruption, which prohibit bribery to government agencies, state or government-
owned or controlled enterprises or entities, to government officials or officials that work for state or government-owned enterprises or entities, as
well as bribery to non-government entities or individuals. As a U.S. public company, we are also subject to the U.S. Foreign Corrupt Practices Act, or
the FCPA, which generally prohibits companies and any individuals or entities acting on their behalf from offering or making improper payments or
providing benefits to foreign officials for the purpose of obtaining or keeping business, along with various other anti-corruption laws. Our existing
policies prohibit any such conduct and we continually refine and update our policies and procedures to keep up with business and regulatory
developments. We also provide ongoing training to our employees, franchisee partners and other third parties in order to ensure that we comply with
PRC anti-corruption laws and regulations, the FCPA and other anti-corruption laws to which we are subject. There is, however, no assurance that
such policies or procedures will work effectively all the time or protect us against liability under the FCPA or other anti-corruption laws. There is no
assurance that our employees, franchisee partners and other third parties would always obey our policies and procedures. Further, there is uncertainty
in connection with the implementation of PRC anti-corruption laws. We could be held liable for actions taken by our employees, franchisee partners
and other third parties with respect to our business or any businesses that we may acquire. In addition to the PRC, we also operate warehouses in the
U.S. and Thailand, and have coverage in Vietnam, Australia, France, Japan, Korea, the United Kingdom, Malaysia, Hong Kong, Italy, India,
Indonesia, Saudi Arabia, Qatar, New Zealand, Kuwait, Laos, Russia and the United Arab Emirates through partners. We also provide local express
delivery services in Thailand, Vietnam and Malaysia. This puts us in frequent contact with persons who may be considered “foreign officials” under
the FCPA, resulting in an elevated risk of potential FCPA violations. If we are found not to be in compliance with PRC anti-corruption laws, the
FCPA and other applicable anti-corruption laws, we may be subject to criminal, administrative, and civil penalties and other remedial measures,
which could have an adverse impact on our business, results of operations and financial condition. Any investigation of any potential violations of the
FCPA or other anti-corruption laws by the U.S. or foreign authorities, including Chinese authorities, could adversely impact our reputation, cause us
to lose customer relationships and lead to other adverse impacts on our business, results of operations and financial condition.
We are subject to various claims and lawsuits in the ordinary course of business, and increases in the amount or severity of these claims and
lawsuits could adversely affect us.
We are exposed to various claims and litigation related to commercial disputes, personal injury, property damage, labor disputes and other
matters in the ordinary course of our business. Developments in regulatory, legislative or judicial standards, material changes to litigation trends, or a
catastrophic accident or series of accidents, including accidents that affect our franchisee partners or service providers, involving any or all of
commercial disputes, property damage, personal injury, and labor disputes could have a material adverse effect on our operating results, financial
condition and reputation.
We may not have sufficient insurance coverage.
We maintain various insurance policies to safeguard against risks and unexpected events. We have purchased certain life insurance, such as
group accident insurance; property loss insurance, such as cargo transportation insurance and all-risk property insurance; and liability insurance, such
as non-motor vehicle liability insurance, public liability insurance and logistics liability insurance. Some of our insurance also covers fire or other
damages. We also provide social security insurance, including pension insurance, unemployment insurance, work-related injury insurance and
medical insurance for our full-time employees. We are not legally required to maintain insurance for the items we ship. We do not maintain business
interruption insurance or general third-party liability insurance, nor do we maintain key-man life insurance. We cannot assure you that our insurance
coverage is sufficient to prevent us from any losses or that we will be able to successfully claim for losses under our current insurance policies on a
timely basis, or at all. If we incur losses that are not covered by our insurance policies, or if the amount reimbursed is significantly less than our
actual losses, our business, financial condition and results of operations could be materially and adversely affected.
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Fluctuations in exchange rates could result in foreign currency exchange losses, which may adversely affect our financial condition, results of
operations and cash flows.
We have in the past raised significant funds in U.S. dollars and have received net proceeds in U.S. dollars from our initial public offering
and convertible senior notes offering. We have historically incurred substantial short-term borrowings in Renminbi to fund our working capital
requirement in the PRC while holding significant U.S. dollar balances. As such, any appreciation in the value of Renminbi against U.S. dollar and
other currencies would have a negative impact on our financial position and results of operations. In addition, while we currently incur only a small
portion of our expenses and generate only a small portion of our revenue in currencies other than Renminbi, we may incur more of such expenses and
generate more of such revenues in the future as we continue our international expansion. As a result, we may be subject to increased foreign
exchange rate risk in the future.
The value of the Renminbi against the U.S. dollar and other currencies may fluctuate and is affected by, among other things, changes in
political and economic conditions and the foreign exchange policy adopted by the PRC and other governments. Specifically in the PRC, on July 21,
2005, the PRC government changed its policy of pegging the value of the Renminbi to the U.S. dollar. From December 31, 2015 to December 31,
2016, the Renminbi depreciated approximately 6.7% against the U.S. dollar. In 2017, however, the RMB appreciated approximately 6.7% against the
U.S. dollar; and in 2018 and 2019, the RMB depreciated approximately 5.7% and 1.5%, respectively, against the U.S. dollar. It remains unclear what
further fluctuations may occur or what impact this will have on our results of operations.
It is difficult to predict how market forces or PRC, U.S. or other government policies may impact the exchange rate between the Renminbi,
U.S. dollar and other currencies in the future. There remains significant international pressure on the PRC government to adopt a more flexible
currency policy, which could result in greater fluctuation of the Renminbi against the U.S. dollar. Substantially all of our revenue and costs are
currently denominated in Renminbi, and a large portion of our financial assets are denominated in U.S. dollars. To the extent that we need to convert
U.S. dollars into Renminbi for our operations, appreciation of the Renminbi against the U.S. dollar would have an adverse effect on the Renminbi
amount we would receive. Conversely, if we decide to convert our Renminbi into U.S. dollars for other business purposes, appreciation of the U.S.
dollar against the Renminbi would have a negative effect on the U.S. dollar amount we would receive. We cannot predict the impact of foreign
currency fluctuations, and foreign currency fluctuations in the future may adversely affect our financial condition, results of operations and cash
flows.
We face risks related to natural disasters, extreme weather conditions, health epidemics and other catastrophic incidents, which could
significantly disrupt our operations.
China has in the past experienced significant natural disasters, including earthquakes in Western and Southwestern China, extreme weather
conditions, as well as health scares related to epidemic diseases, and any similar event could materially impact our business in the future. Most
recently, beginning in January 2020, the COVID-19 outbreak that resulted in travel restrictions and quarantines in China has negatively affected our
operations in the country and caused lower productivity from late January to early March 2020. Our total revenue declined for January and February
2020 on a year-over-year basis. By the end of March 2020, we had fully recovered our services across China, including all hubs and warehouses for
express services, freight services and supply chain management services. However, as COVID-19 outbreak has further spread outside China and it is
uncertain as to whether the COVID-19 outbreak will continue to be contained in China, we are still in the process of evaluating the magnitude of
COVID-19’s impact on our operations and we are unable to quantify the ensuing financial impact at this time. As a result of the on-going COVID-19,
our operations may again slow down or be suspended. Our business could be materially and adversely affected in the event that the slowdown or
suspension continues for a prolonged period. If any of our employees are suspected of having contracted a contagious disease, we may be required to
apply quarantines or suspend our operations. Furthermore, any continuing outbreak may restrict economic activities in affected regions, resulting in
reduced business volume, temporary closure of our business permises or otherwise disrupt our business operations and adversely affect our results of
operations.
Our business could also be affected by other public health epidemics, such as the outbreak of avian influenza, severe acute respiratory
syndrome, or SARS, Zika virus, Ebola virus or other diseases. If a disaster or other disruption were to occur in the future that affects the regions
where we have or are developing Cloud OFCs or hubs and sortation centers, our operations could be materially and adversely affected due to loss of
personnel and damages to property. Even if we are not directly affected, such a disaster or disruption could affect the operations or financial
condition of our ecosystem participants, which could harm our results of operations.
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If we fail to maintain proper and effective internal controls, our ability to produce accurate financial statements on a timely basis could be
impaired.
As a U.S. public company, we are subject to the reporting requirements of the U.S. Securities Exchange Act of 1934, as amended, or the
Exchange Act, the Sarbanes-Oxley Act and the rules and regulations of the New York Stock Exchange. The Sarbanes-Oxley Act requires, among
other things, that we maintain effective disclosure controls and procedures and internal controls over financial reporting. As required by Section 404
of the Sarbanes-Oxley Act, we must perform system and process evaluation and testing of our internal controls over financial reporting to allow
management to report on the effectiveness of our internal controls over financial reporting in our Form 20-F filing for that year. In addition, our
independent registered public accounting firm must attest to and report on the effectiveness of our internal control over financial reporting. Our
management has concluded that our internal control over financial reporting was effective as of December 31, 2019. In addition, our independent
registered public accounting firm has issued an attestation report, which concluded that our internal control over financial reporting was effective in
all material aspects as of December 31, 2019. See “Item 15. Controls and Procedures—Management’s Annual Report on Internal Control over
Financial Reporting.”
However, our internal control over financial reporting may not prevent or detect all errors and all fraud. A control system, no matter how
well designed and operated, can provide only reasonable, not absolute, assurance that the control system’s objectives will be met. Because of the
inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that misstatements due to error or fraud will not
occur or that all control issues and instances of fraud will be detected.
If we are not able to comply with the requirements of Section 404 of the Sarbanes-Oxley Act in a timely manner, or if we are unable to
maintain proper and effective internal controls, we may not be able to produce timely and accurate financial statements. This will require that we
incur substantial additional professional fees and internal costs to expand our accounting and finance functions and that we expend significant
management efforts. In addition, the trading price of our ADSs could decline and we could be subject to sanctions or investigations by the New York
Stock Exchange, SEC or other regulatory authorities.
Risks Related to Our Corporate Structure
If the PRC government finds that the agreements that establish the structure for operating certain of our operations in China do not comply with
PRC regulations relating to the relevant industries, or if these regulations or the interpretation of existing regulations change in the future, we
could be subject to severe penalties or be forced to relinquish our interests in those operations.
Under current PRC laws and regulations, foreign enterprises or individuals may not invest in or operate domestic mail delivery services and
foreign ownership of Internet information services is subject to restrictions. According to the Special Administrative Measures for Entrance of
Foreign Investment (Negative List) (2019 Version), or the Negative List 2019, which was promulgated jointly by the MOFCOM and the NDRC on
June 30, 2019 and became effective on July 30, 2019, foreign investment is prohibited in the establishment of any postal enterprise and in domestic
express delivery of mail. Postal enterprises refer to the China Post Group and its wholly-owned enterprises or controlled enterprises providing postal
services, as well as other services including but not limited to mail delivery, postal remittances, savings and issuance of stamps and production and
sale of philatelic products. In addition, according to the Interim Measures for the Operation and Administration of Road Freight Transport based on
Internet Platforms promulgated by the Ministry of Transport and the State Taxation Administration in 2019, enterprises that operate an internet
platform for road freight transport, such as our entities that operate our BEST UCargo business, must satisfy legal requirements regarding operational
internet information service such as obtaining their own ICP licenses. Foreign investors are generally not permitted to own more than 50% of the
equity interests in a value-added telecommunication service provider (other than business of e-commerce, domestic multiparty communication, store-
and-forward business and call center). Any such foreign investor must also have experience and a good track record in providing value-added
telecommunications services overseas.
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We are a Cayman Islands company and our PRC subsidiaries wholly owned by us are considered wholly-foreign owned enterprises.
Accordingly, none of these subsidiaries are eligible to operate domestic mail delivery services and value-added telecommunications business in
China, including operation of an internet platform for road freight transport in connection with our BEST UCargo business. It is also practically and
economically not possible to separate the delivery of mail from the delivery of non-mail items in our day-to-day services. To ensure compliance with
the PRC laws and regulations, we conduct such domestic mail delivery services and value-added telecommunications business (other than those in
connection with BEST UCargo) through Hangzhou BEST Network Technologies Ltd., our VIE, and its subsidiaries, and our BEST UCargo business
through Hangzhou BEST Information Technology Services Co., Ltd., also our VIE, and its subsidiaries. Our company and Zhejiang BEST
Technology Co., Ltd., or Zhejiang BEST, our wholly-owned subsidiary in China, have entered into a series of contractual arrangements with
Hangzhou BEST Network Technologies Ltd. and its shareholders, and our company and BEST Logistics Technology (China) Co., Ltd., or BEST
Logistics China, our wholly-owned subsidiary in China, have entered into a series of contractual arrangements with Hangzhou BEST Information
Technology Services Co., Ltd. and its shareholders, which enable us to (i) exercise effective control over the VIEs, (ii) receive substantially all of the
economic benefits of the VIEs and are also obligated to absorb the expected losses of the VIEs, and (iii) have an exclusive option to purchase all or
part of the equity interests and assets in the VIEs when and to the extent permitted by PRC law. As a result of these contractual arrangements, we
have control over and are the primary beneficiary of the VIEs and hence consolidate their financial results as our VIEs under U.S. GAAP.
If the PRC government finds that our contractual arrangements do not comply with its restrictions on foreign investment in domestic express
delivery services of mail or value-added telecommunications business, or if the PRC government otherwise finds that we, our VIEs, or any of its
subsidiaries are in violation of PRC laws or regulations or lack the necessary permits or licenses to operate our business, the relevant PRC regulatory
authorities, would have broad discretion in dealing with such violations or failures, including, without limitation: (i) revoking the business licenses
and/or operating licenses of these entities; (ii) discontinuing or placing restrictions or onerous conditions on our operation through any transactions
between our PRC subsidiaries and VIEs; (iii) imposing fines, confiscating the income from our PRC subsidiaries or VIEs, or imposing other
requirements with which such entities may not be able to comply; (iv) requiring us to restructure our ownership structure or operations, including
terminating the contractual arrangements with our VIEs and deregistering the equity pledges of our VIEs, which in turn would affect our ability to
consolidate, derive economic interests from, or exert effective control over our VIEs; or (v) restricting or prohibiting our use of the proceeds of our
initial public offering and convertible senior notes offering to finance our business and operations in China.
Any of these actions would 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. In addition, new PRC laws, rules and regulations may be
introduced to impose additional requirements that may impose additional challenges to our corporate structure and contractual arrangements. If any
of these occurrences results in our inability to direct the activities of our VIEs that most significantly impact their economic performance, and/or our
failure to receive the economic benefits from our VIEs, we may not be able to consolidate the entities in our consolidated financial statements in
accordance with U.S. GAAP.
Our contractual arrangements with our VIEs may result in adverse tax consequences to us.
Under applicable PRC laws and regulations, arrangements and transactions among related parties may be subject to audit or challenge by the
PRC tax authorities. We could face material and adverse tax consequences if the PRC tax authorities determine that our contractual arrangements
with our VIEs were not made on an arm’s length basis and adjust our income and expenses for PRC tax purposes by requiring a transfer pricing
adjustment. A transfer pricing adjustment could adversely affect us by (i) increasing the tax liabilities of our VIEs without reducing the tax liability of
our PRC subsidiaries, which could further result in late payment fees and other penalties to our VIEs for underpaid taxes; or (ii) limiting the ability of
our VIEs to obtain or maintain preferential tax treatments and other financial incentives.
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We rely on contractual arrangements with our VIEs and their shareholders for our China operations, which may not be as effective as direct
ownership in providing operational control and otherwise have a material adverse effect as to our business.
We rely on contractual arrangements with our VIEs and their shareholders to operate our business in China. For a description of these
contractual arrangements, see “Item 4. Information on the Company—C. Organizational Structure—Variable Interest Entity Contractual
Arrangements.” In 2017, 2018 and 2019, 66%, 66% and 66% of our total revenue, respectively, was attributed to our VIEs. These contractual
arrangements may not be as effective as direct ownership in providing us with control over our VIEs. If our VIEs or their shareholders fail to perform
their respective obligations under these contractual arrangements, we may have to incur substantial costs and expend significant resources to enforce
such arrangements in reliance on legal remedies under PRC law as we will only have indirect recourse to the assets held by our VIEs. These remedies
may not always be effective, particularly in light of uncertainties in the PRC legal system. Furthermore, in connection with litigation, arbitration or
other judicial or dispute resolution proceedings, assets under the name of any of the record holders of equity interest in our VIEs, including such
equity interest, may be put under court custody. As a consequence, we cannot be certain that the equity interest will be disposed of pursuant to the
contractual arrangements or ownership by the record holder of the equity interest.
All of these contractual arrangements are governed by PRC law and provide for the resolution of disputes through litigation in the PRC.
Accordingly, these contracts would be interpreted in accordance with PRC laws and any disputes would be resolved in accordance with PRC legal
procedures. The legal environment in the PRC is not as developed as in other jurisdictions, such as the U.S. As a result, uncertainties in the PRC legal
system could limit our ability to enforce these contractual arrangements. In the event that we are unable to enforce these contractual arrangements, or
if we suffer significant time delays or other obstacles in the process of enforcing these contractual arrangements, it would be very difficult to exert
effective control over our VIEs, and our ability to conduct our business and our financial condition and results of operations may be materially and
adversely affected. See “—Risks Related to Doing Business in the People’s Republic of China—There are uncertainties regarding the interpretation
and enforcement of PRC laws, rules and regulations.”
The shareholders of our VIEs may have conflicts of interest with us, which may materially and adversely affect our business and financial
condition.
In connection with our operations in China, we rely on the shareholders of our VIEs to abide by the obligations under such contractual
arrangements. Hangzhou BEST Network, one of our VIEs, is 36.285% owned by Wei Chen, a PRC individual who is a relative of Mr. Shao-Ning
Johnny Chou, 36.285% owned by Lili He, another PRC individual who is a relative of Mr. Shao-Ning Johnny Chou and 27.43% owned by Hangzhou
Ali Venture Capital Co., Ltd., a PRC domestic company and a consolidated entity of Alibaba. Hangzhou BEST IT, another VIE of ours, is 50%
owned by Wei Chen and 50% owned by Lili He. The interests of Wei Chen, Lili He and Hangzhou Ali Venture Capital Co., Ltd. in their own
capacities as the shareholders of our VIEs, as applicable, may differ from the interests of our company as a whole, as what is in the best interests of
our VIEs, including matters such as whether to distribute dividends or to make other distributions to fund our offshore requirement, may not be in the
best interests of our company. There can be no assurance that when conflicts of interest arise, any or all of these shareholders will act in the best
interests of our company, or that conflicts of interest will be resolved in our favor. In addition, these shareholders may breach or cause our VIEs to
breach or refuse to renew the existing contractual arrangements with us.
We currently do not have arrangements to address potential conflicts of interest the shareholders of our VIEs may encounter. We believe
that we can, at all times, exercise our option under the exclusive call option agreement to cause these shareholders of our VIEs to transfer all of their
equity ownership in our VIEs to a PRC entity or individual designated by us as permitted by then applicable PRC laws.
In addition, if such conflicts of interest arise, we could also, in the capacity of attorney-in-fact of the then-existing shareholders of the VIEs
as provided under the shareholder voting rights proxy agreement, directly appoint new directors of our VIEs. If we cannot resolve any conflicts of
interest or disputes between us and the shareholders of our VIEs, 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.
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We may lose the ability to use, or otherwise benefit from, the licenses, approvals and assets held by our VIEs, which could severely disrupt our
business, render us unable to conduct some or all of our business operations and constrain our growth.
As part of our contractual arrangements with our VIEs, our VIEs and their subsidiaries hold certain assets, licenses and permits that are
material to our business operations, including courier service operation permits, ICP licenses and road transportation operation permits. The
contractual arrangements contain terms that specifically obligate VIE equity holders to ensure the valid existence of the VIEs and restrict the disposal
of material assets of the VIEs. However, in the event the VIE equity holders breach the terms of these contractual arrangements and voluntarily
liquidate our VIEs, or our VIEs declare bankruptcy and all or part of their assets become subject to liens or rights of third-party creditors, or are
otherwise disposed of without our consent, we may be unable to conduct some or all of our business operations or otherwise benefit from the assets
held by the VIEs, which could have a material adverse effect on our business, financial condition and results of operations. Furthermore, if our VIEs
undergo a voluntary or involuntary liquidation proceeding, its equity holders or unrelated third-party creditors may claim rights to some or all of the
assets of the VIEs, thereby hindering our ability to operate our business as well as constrain our growth.
Our corporate actions are significantly influenced by our principal shareholders, including our founder, chairman and chief executive officer,
Mr. Shao-Ning Johnny Chou, and Alibaba (including Cainiao Network), which have the ability to exert significant influence over important
corporate matters that require approval of shareholders, which may deprive you of an opportunity to receive a premium for your ADSs and
materially reduce the value of your investment.
Our outstanding share capital consists of Class A ordinary shares, Class B ordinary shares and Class C ordinary shares. Each Class A
ordinary share is entitled to one vote, each Class B ordinary share is entitled to 15 votes, and each Class C ordinary share is entitled to 30 votes at
general meetings of our shareholders. As of February 29, 2020, Alibaba (including Cainiao Network) beneficially owned, in aggregate, 9.2% of our
Class A ordinary shares and 100% of our Class B ordinary shares, representing approximately 46.2% of the aggregate voting power of our issued and
outstanding share capital, and Mr. Shao-Ning Johnny Chou beneficially owned 100% of the Class C ordinary shares issued and outstanding,
representing approximately 46.4% of the aggregate voting power of our issued and outstanding share capital. Our amended and restated
memorandum and articles of association that are currently in effect also provide that all matters submitted to our shareholders for approval should be
decided by a special resolution, which requires at least two-thirds of the votes cast by shareholders who are present in person or by proxy at a general
meeting of our company, unless a greater majority is required. Therefore, our shareholders will not be able to pass any resolution without the
affirmative votes of Mr. Shao-Ning Johnny Chou or Alibaba (including Cainiao Network) if one or more of them continue to hold more than one-
third of the aggregate voting power of our issued and outstanding share capital. In addition, Mr. Shao-Ning Johnny Chou has nominated two directors
to our board of directors; Alibaba (including Cainiao Network) has nominated two directors to our board of directors; and they generally have the
right to appoint replacements of these directors unless they do not hold any of our shares.
This concentration of ownership and the protective provisions in our amended and restated memorandum and articles of association may
discourage, delay or prevent a change in control of our company, which could have the dual effect of depriving our shareholders of an opportunity to
receive a premium for their shares as part of a sale of our company and reducing the price of the ADSs. As a result of the foregoing, the value of your
investment could be materially reduced.
If the custodians or authorized users of our controlling non-tangible assets, including chops and seals, fail to fulfill their responsibilities, or
misappropriate or misuse these assets, our business and operations may be materially and adversely affected.
Under PRC law, legal documents for corporate transactions that our business relies on are executed using the chop or seal of the signing
entity or with the signature of a legal representative whose designation is registered and filed with the relevant local branch of the State
Administration for Market Regulation.
The chops of our PRC subsidiaries and VIEs are generally held by the relevant entities so that documents can be executed locally. Although
we usually utilize chops to execute contracts, the registered legal representatives of our PRC subsidiaries and VIEs have the apparent authority to
enter into contracts on behalf of such entities without chops, unless such contracts set forth otherwise.
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In order to maintain the physical security of our chops, we generally have them stored in secured locations accessible only to the designated
key employees of our legal, administrative or finance departments. Although we have approval procedures in place and monitor our key employees,
including the designated legal representatives of our PRC subsidiaries and our VIEs, the procedures may not be sufficient to prevent all instances of
abuse or negligence. There is a risk that our key employees or designated legal representatives could abuse their authority, for example, by binding
our PRC subsidiaries and our VIEs with contracts against our interests, as we would be obligated to honor these contracts if the other contracting
party acts in good faith in reliance on the apparent authority of our chops or signatures of our legal representatives. If any designated legal
representative obtains control of the chop in an effort to obtain control over the relevant entity, we would need to have a shareholder or board
resolution to designate a new legal representative and to take legal action to seek the return of the chop, apply for a new chop with the relevant
authorities, or otherwise seek legal remedies for the legal representative’s misconduct. If any of the designated legal representatives obtains and
misuses or misappropriates our chops and seals or other controlling intangible assets for whatever reason, we could experience disruption to our
normal business operations. We may have to take corporate or legal action, which could involve significant time and resources to resolve while
distracting management from our operations, and our business and operations may be materially and adversely affected.
Our current corporate structure and business operations may be affected by the newly enacted Foreign Investment Law.
On March 15, 2019, the National People’s Congress of China approved the Foreign Investment Law, which took effect on January 1, 2020.
Since it is relatively new, uncertainties exist with respect to its interpretation and implementation. The Foreign Investment Law does not specify
whether VIEs that are controlled through contractual arrangements would be deemed as foreign-invested enterprises if they are ultimately
“controlled” by foreign investors. However, it has a catch-all provision under its definition of “foreign investment” that includes investments made by
foreign investors in China through other means as provided by laws, administrative regulations or the State Council. As such, there is still leeway for
future laws, administrative regulations or provisions of the State Council to classify contractual arrangements as a form of foreign investment.
Therefore, there can be no assurance that our control over our VIEs through contractual arrangements will not be deemed as foreign investment in the
future.
The Foreign Investment Law grants national treatment to foreign-invested entities, except for those foreign-invested entities that operate in
industries specified as either “restricted” or “prohibited” to foreign investment in a “negative list”. On June 30, 2019, the MOFCOM and the NDRC
jointly promulgated the Negative List 2019. If, in the future, our control over our VIEs through contractual arrangements were deemed as foreign
investment, and if our VIEs are engaged in any business which is “restricted” or “prohibited” to foreign investment under the then-effective “negative
list”, we may be deemed to be in violation of the Foreign Investment Law, the contractual arrangements that allow us to have control over our VIEs
may be deemed as invalid and illegal, and we may be required to unwind such contractual arrangements and/or restructure our business operations,
any of which may have a material adverse effect on our business operations.
Furthermore, if future laws, administrative regulations or provisions mandate further actions to be taken by companies with respect to
existing contractual arrangements, we may face substantial uncertainties as to whether we can complete such actions in a timely manner, or at all.
Any failure on our part to take timely and appropriate measures to cope with any of these or similar regulatory compliance challenges could
materially and adversely affect our current corporate structure and business operations.
Risks Related to Doing Business in the People’s Republic of China
Changes in the political and economic policies of the PRC government may materially and adversely affect our business, financial condition and
results of operations and may result in our inability to sustain our growth and expansion strategies.
Substantially all of our operations are conducted in the PRC and substantially all of our revenue is sourced from the PRC. Accordingly, our
financial condition and results of operations are affected to a significant extent by economic, political and legal developments in the PRC.
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The PRC economy differs from the economies of most developed countries in many respects, including the extent of government
involvement, level of development, growth rate, and control of foreign exchange and allocation of resources. Although the PRC government has
implemented measures 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
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 China’s economic growth by allocating resources, controlling payment of foreign
currency-denominated obligations, setting monetary policy, regulating financial services and institutions and providing preferential treatment to
particular industries or companies.
While the PRC economy has experienced significant growth in the past, growth has been uneven, both geographically and among various
sectors of the economy. The PRC government has implemented various measures to encourage economic growth and guide the allocation of
resources. Some of these measures may benefit the overall PRC economy, but may also have a negative effect on us. Our financial condition and
results of operations could be materially and adversely affected by government control over capital investments or changes in tax regulations that are
applicable to us. In addition, the PRC government has implemented in the past certain measures to control the pace of economic growth. These
measures may cause decreased economic activity, which in turn could lead to a reduction in demand for our services and consequently have a
material adverse effect on our businesses, financial condition and results of operations.
There are uncertainties regarding the interpretation and enforcement of PRC laws, rules and regulations.
Substantially all of our operations are conducted in the PRC, and are governed by PRC laws, rules and regulations. Our PRC subsidiaries are
subject to laws, rules and regulations applicable to foreign investment in China. The PRC legal system is a civil law system based on written statutes.
Unlike the common law system, prior court decisions may be cited for reference but have limited precedential value.
In 1979, the PRC government began to promulgate a comprehensive system of laws, rules and regulations governing economic matters in
general. The overall effect of legislation over the past four decades has significantly enhanced the protections afforded to various forms of foreign
investment in China. However, China has not developed a fully integrated legal system, and recently enacted laws, rules and regulations may not
sufficiently cover all aspects of economic activities in China or may be subject to significant degrees of interpretation by PRC regulatory agencies. In
particular, because these laws, rules and regulations are relatively new, and because of the limited number of published decisions and the nonbinding
nature of such decisions, and because the laws, rules and regulations often give the relevant regulator significant discretion in how to enforce them,
the interpretation and enforcement of these laws, rules and regulations involve uncertainties and can be inconsistent and unpredictable. In addition,
the PRC legal system is based in part on government policies and internal rules, some of which are not published on a timely basis or at all, and
which may have a retroactive effect. As a result, we may not be aware of our violation of these policies and rules until after the occurrence of the
violation.
Any administrative and court proceedings in China may be protracted, resulting in substantial costs and diversion of resources and
management attention. Since PRC administrative and court authorities have significant discretion in interpreting and implementing statutory and
contractual terms, it may be more difficult to evaluate the outcome of administrative and court proceedings and the level of legal protection we enjoy
than in more developed legal systems. These uncertainties may impede our ability to enforce the contracts we have entered into and could materially
and adversely affect our business, financial condition and results of operations.
Our business operations are extensively impacted by the policies and regulations of the PRC government. Any policy or regulatory change may
cause us to incur significant compliance costs.
We are subject to extensive national, provincial and local governmental regulations, policies and controls. Central governmental authorities
and provincial and local authorities and agencies regulate many aspects of Chinese industries, including, among others and in addition to specific
industry-related regulations, the following aspects: (i) operation of logistics and supply chain services; (ii) traffic and transport-related services;
(iii) provision of supply chain solutions, transport services, financial services, retail services and operation of high technology businesses;
(iv) environmental laws and regulations; (v) security laws and regulations; (vi) establishment of or changes in shareholder of foreign investment
enterprises; (vii) foreign exchange; (viii) taxes, duties and fees; (ix) customs; and (x) land planning and land use rights, including establishment of
urban transformation initiatives.
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The liabilities, costs, obligations and requirements associated with these laws and regulations may cause interruptions to our operations or
impact our financial position and results of operations. Failure to comply with the relevant laws and regulations in our operations may result in
various penalties, including, among others the suspension of our operations and thus adversely and materially affect our business, prospects, financial
condition and results of operations. Additionally, there can be no assurance that the relevant government agencies will not change such laws or
regulations or impose additional or more stringent laws or regulations. Compliance with such laws or regulations may require us to incur material
capital expenditures or other obligations or liabilities.
The successful operation of our business depends upon the performance and reliability of the Internet infrastructure in China and other
countries in which we operate.
Our business depends on the performance and reliability of the Internet infrastructure in China and other countries in which we operate.
Almost all access to the Internet in China is maintained through state-owned telecommunication operators under the administrative control and
regulatory supervision of the MIIT. In addition, the national networks in China are connected to the Internet through state-owned international
gateways, which are the only channels through which a domestic user can connect to the Internet outside of China. We may not have access to
alternative networks in the event of disruptions, failures or other problems with the Internet infrastructure in China or elsewhere. In addition, the
Internet infrastructure in the countries in which we operate may not support the demands associated with continued growth in Internet usage.
The failure of telecommunications network operators to provide us with the requisite bandwidth could also interfere with the speed and
availability of our websites. We have no control over the costs of the services provided by the telecommunications operators. If the prices that we pay
for telecommunications and Internet services rise significantly, our gross margins could be adversely affected. In addition, if Internet access fees or
other charges to Internet users increase, activities in our ecosystem may decrease, which in turn may significantly decrease our revenue.
Certain PRC regulations establish more complex procedures for acquisitions conducted by foreign investors that could make it more difficult for
us to grow through acquisitions.
On August 8, 2006, six PRC regulatory agencies, including the MOFCOM, the State-Owned Assets Supervision and Administration
Commission, or the SASAC, the State Administration of Taxation, the State Administration for Industry and Commerce, the predecessor of the State
Administration for Market Regulation, the CSRC, and the SAFE, jointly adopted the Regulations on Mergers and Acquisitions of Domestic
Enterprises by Foreign Investors, or the M&A Rules, which came into effect on September 8, 2006 and were amended on June 22, 2009. The M&A
Rules include, among other things, provisions that purport to require that an offshore special purpose vehicle formed for the purpose of an overseas
listing of securities in a PRC company obtain the approval of the CSRC prior to the listing and trading of such special purpose vehicle’s securities on
an overseas stock exchange. On September 21, 2006, the CSRC published on its official website procedures regarding its approval of overseas
listings by special purpose vehicles. However, substantial uncertainty remains regarding the scope and applicability of the M&A Rules to offshore
special purpose vehicles.
While the application of the M&A Rules remains unclear, we believe, based on the advice of our PRC counsel, King & Wood Mallesons,
that the CSRC approval is not required in the context of our initial public offering because (i) our PRC subsidiaries were incorporated as foreign-
invested enterprises by means of foreign direct investments at the time of their incorporation, and (ii) we did not acquire any equity interests or assets
of a PRC company owned by its controlling shareholders or beneficial owners who are PRC companies or individuals, as such terms are defined
under the M&A Rules. There can be no assurance that the relevant PRC government agencies, including the CSRC, would reach the same conclusion
as our PRC counsel. If the CSRC or other PRC regulatory body subsequently determines that we need to obtain the CSRC’s approval for our initial
public offering or if the CSRC or any other PRC government authorities promulgates any interpretation or implements rules before our listing that
would require us to obtain CSRC or other governmental approvals for our initial public offering, we may face adverse actions or sanctions by the
CSRC or other PRC regulatory agencies. In any such event, these regulatory agencies may impose fines and penalties on our operations in China,
limit our operating privileges in China, delay or restrict the repatriation of the proceeds from our initial public offering into the PRC or take other
actions that could have a material adverse effect on our business, financial condition, results of operations, reputation and prospects.
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The new regulations also established additional procedures and requirements that are expected to make merger and acquisition activities in
China by foreign investors more time-consuming and complex, including requirements in some instances that the MOFCOM be notified in advance
of any change-of-control transaction in which a foreign investor takes control of a PRC domestic enterprise, or that the approval from the MOFCOM
be obtained in circumstances where overseas companies established or controlled by PRC enterprises or residents acquire affiliated domestic
companies. We may grow our business in part by acquiring other companies operating in our industry. Complying with the requirements of the new
regulations to complete such transactions could be time-consuming, and any required approval processes, including approval from the MOFCOM,
may delay or inhibit our ability to complete such transactions, which could affect our ability to expand our business or maintain our market share. See
“Item 4. Information on the Company—B. Business Overview—Regulatory Matters—Regulations Relating to M&A Rules and Overseas Listing.”
PRC regulations relating to investments in offshore companies by PRC residents may subject our PRC-resident beneficial owners or our PRC
subsidiaries to liability or penalties, limit our ability to inject capital into our PRC subsidiaries or limit our PRC subsidiaries’ ability to increase
their registered capital or distribute profits.
SAFE promulgated the Circular on Relevant Issues Concerning Foreign Exchange Control on Domestic Residents’ Offshore Investment and
Financing and Roundtrip Investment through Special Purpose Vehicles, or SAFE Circular 37, on July 4, 2014, which replaced the former circular
commonly known as “SAFE Circular 75” promulgated by SAFE on October 21, 2005. SAFE Circular 37 requires PRC residents to register with local
branches of SAFE in connection with their direct establishment or indirect control of an offshore entity, for the purpose of overseas investment and
financing, with such PRC residents’ legally owned assets or equity interests in domestic enterprises or offshore assets or interests, referred to in
SAFE Circular 37 as a “special purpose vehicle.” SAFE Circular 37 further requires amendment to the registration in the event of any significant
changes with respect to the special purpose vehicle, such as increase or decrease of capital contributed by PRC individuals, share transfer or
exchange, merger, division or other material events. In the event that a PRC shareholder holding interests in a special purpose vehicle fails to fulfill
the required SAFE registration, the PRC subsidiaries of that special purpose vehicle may be prohibited from making profit distributions to the
offshore parent and from carrying out subsequent cross-border foreign exchange activities, and the special purpose vehicle may be restricted in its
ability to contribute additional capital into its PRC subsidiary. Moreover, failure to comply with the various SAFE registration requirements
described above could result in liability under PRC law for evasion of foreign exchange controls. According to the Notice on Further Simplifying and
Improving Policies for the Foreign Exchange Administration of Direct Investment released on February 13, 2015 by SAFE, qualified local banks will
examine and handle foreign exchange registration for overseas direct investment, including the initial foreign exchange registration and amendment
registration, under SAFE Circular 37 from June 1, 2015.
We have notified our substantial beneficial owners who we know are PRC residents of their obligations of applications, filings and
amendments as required under SAFE Circular 37 and other related rules. Nevertheless, we may not be aware of the identities of all of our beneficial
owners who are PRC residents. We do not have control over our beneficial owners and there can be no assurance that all of our PRC-resident
beneficial owners will comply with SAFE Circular 37, its implementation rules and other applicable foreign exchange rules, and there is no assurance
that the registration under SAFE Circular 37 and any amendment will be completed in a timely manner, or will be completed at all. The failure of our
beneficial owners who are PRC residents to register or amend their foreign exchange registrations in a timely manner pursuant to SAFE Circular 37,
its implementation rules and other applicable foreign exchange rules, or the failure of future beneficial owners of our company who are PRC
residents to comply with these registration requirements, may subject such beneficial owners or our PRC subsidiaries to fines and legal sanctions.
Failure to register or comply with relevant requirements may also limit our ability to contribute additional capital to our PRC subsidiaries and limit
our PRC subsidiaries’ ability to distribute dividends to our company, or we may be penalized by SAFE. These risks may have a material adverse
effect on our business, financial condition and results of operations.
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PRC regulation of loans to and direct investment in PRC entities by offshore holding companies and governmental control of currency
conversion may delay or prevent us from using the proceeds of our initial public offering and convertible senior notes offering to make loans to
or make additional capital contributions to our PRC subsidiaries, which could materially and adversely affect our liquidity and our ability to fund
and expand our business.
We are an offshore holding company conducting our operations in China through our PRC subsidiaries, our VIEs and their subsidiaries. Any
funds we transfer to our PRC subsidiaries, either as a shareholder loan or as an increase in registered capital, are subject to approval by or registration
with relevant governmental authorities in China. According to the relevant PRC regulations on foreign-invested enterprises, or FIEs, in China, capital
contributions to our PRC subsidiaries are subject to the filing with the MOFCOM or its local branches and registration with other governmental
authorities in China. In addition, (i) any foreign loan procured by our PRC subsidiaries is required to be registered with the State Administration of
Foreign Exchange, or the SAFE, or its local branches, and (ii) each of our PRC subsidiaries may not procure loans which exceed the difference
between its registered capital and its total investment amount as approved. Any medium or long term loan to be provided by us to our VIEs must be
filed with the National Development and Reform Commission, or the NDRC, and the SAFE or its local branches in advance. We may not obtain
these governmental approvals or complete such registrations on a timely basis, if at all, with respect to future capital contributions or foreign loans by
us to our PRC subsidiaries. If we fail to receive such approvals or complete such registrations, our ability to use the proceeds of our initial public
offering and convertible senior notes offering and to capitalize our PRC operations may be negatively affected, which could adversely affect our
liquidity and our ability to fund and expand our business.
In 2008, the SAFE promulgated the Circular on the Relevant Operating Issues Concerning the Improvement of the Administration of the
Payment and Settlement of Foreign Currency Capital of Foreign-Invested Enterprises, or SAFE Circular 142. SAFE Circular 142 regulates the
conversion by FIEs of foreign currency into Renminbi by restricting the usage of converted Renminbi. SAFE Circular 142 provides that any
Renminbi capital converted from registered capitals in foreign currency of FIEs may only be used for purposes within the business scopes approved
by PRC governmental authority and such Renminbi capital may not be used for equity investments within China unless otherwise permitted by the
PRC law. In addition, the SAFE strengthened its oversight of the flow and use of the Renminbi capital converted from registered capital in foreign
currency of FIEs. The use of such Renminbi capital may not be changed 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 utilized. As a result, we are required to apply Renminbi funds converted
from the net proceeds we received from our initial public offering and convertible senior notes offering within the business scopes of our PRC
subsidiaries. On March 30, 2015, the SAFE promulgated the Circular on Reforming the Management Approach Regarding the Foreign Exchange
Capital Settlement of Foreign-Invested Enterprises, or SAFE Circular 19. SAFE Circular 19 took effect as of June 1, 2015 and superseded SAFE
Circular 142 on the same date. SAFE Circular 19 launched a nationwide reform of the administration of the settlement of the foreign exchange
capitals of FIEs and allows FIEs to settle their foreign exchange capital at their discretion, but continues to prohibit FIEs from using the Renminbi
fund converted from their foreign exchange capitals for expenditure beyond their business scopes. SAFE promulgated the Notice of the State
Administration of Foreign Exchange on Reforming and Standardizing the Foreign Exchange Settlement Management Policy of Capital Account, or
SAFE Circular 16, effective on June 9, 2016, which reiterates some of the rules set forth in SAFE Circular 19, but changes the prohibition against
using RMB capital converted from foreign currency-denominated registered capital of a foreign-invested company to issue RMB entrusted loans to a
prohibition against using such capital to issue loans to non-associated enterprises.
Violations of SAFE Circular 19 and SAFE Circular 16 could result in administrative penalties. SAFE Circular 19 and SAFE Circular 16
may significantly limit our ability to transfer any foreign currency we hold, including the net proceeds from our initial public offering and convertible
senior notes offering, to our PRC subsidiaries, which may adversely affect our liquidity and our ability to fund and expand our business in the PRC.
SAFE Circular 19 and SAFE Circular 16 may significantly limit our ability to transfer to and use in China the net proceeds from our initial public
offering and convertible senior notes offering, which may adversely affect our business, financial condition and results of operations. Additionally,
the Notice for Further Advancing the Facilitation of Cross-border Trade and Investment, or the SAFE Circular 28, was promulgated by the SAFE on
October 23, 2019. SAFE Circular 28, among other things, allows FIEs to use Renminbi converted from foreign currency-denominated capital for
equity investments in China so long as the equity investment complies with the then-effective Special Administrative Measures for Access of Foreign
Investment (Negative List) and is genuine and legitimate. However, since the SAFE Circular 28 is newly promulgated, it remains uncertain how the
SAFE and competent banks will implement this circular.
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In light of the various requirements imposed by PRC regulations on loans to, and direct investment in, PRC entities by offshore holding
companies, we cannot assure you that we will be able to complete the necessary government registrations or obtain the necessary government
approvals on a timely basis, if at all, with respect to future loans or capital contributions by us to our PRC subsidiaries or our VIEs. If we fail to
complete such registrations or obtain such approvals, our ability to use the proceeds we receive from our initial public offering and convertible senior
notes offering and to capitalize or otherwise fund our PRC operations may be negatively affected, which could materially and adversely affect our
liquidity and our ability to fund and expand our business.
Any failure to comply with PRC regulations regarding our employee share incentive plans may subject the PRC plan participants or us to fines
and other legal or administrative sanctions.
Pursuant to SAFE Circular 37, PRC residents who participate in share incentive plans in overseas non-publicly-listed companies due to their
position as director, senior management or employees of the PRC subsidiaries of the overseas companies may submit applications to SAFE or its
local branches for the foreign exchange registration with respect to offshore special purpose companies. Our directors, executive officers and other
employees who are PRC residents or who are non-PRC residents residing in China for a continuous period of not less than one year, subject to
limited exceptions, and who have been granted options may follow SAFE Circular 37 to apply for the foreign exchange registration before our
company becomes an overseas listed company. As a U.S. public company, we and our directors, executive officers and other employees who are
PRC residents and who have been granted options are subject to the Notice on Issues Concerning the Foreign Exchange Administration for Domestic
Individuals Participating in Stock Incentive Plan of Overseas Publicly Listed Company, or SAFE Circular 7, issued by SAFE in February 2012,
according to which, employees, directors, supervisors and other management members participating in any stock incentive plan of an overseas
publicly listed company who are PRC residents or who are non-PRC residents residing in China for a continuous period of not less than one year,
subject to limited exceptions, are required to register with SAFE through a domestic qualified agent, which could be a PRC subsidiary of such
overseas listed company, and complete certain other procedures. We are making efforts to comply with these requirements. However, there can be no
assurance that they can successfully register with SAFE in full compliance with the rules. Failure to complete the SAFE registrations may subject
them to fines and legal sanctions and may also limit the ability to make payment under our share incentive plans or receive dividends or sales
proceeds related thereto, or our ability to contribute additional capital into our wholly-foreign owned enterprises in China and limit our wholly-
foreign owned enterprises’ ability to distribute dividends to us. We also face regulatory uncertainties that could restrict our ability to adopt additional
share incentive plans for our directors and employees under PRC law.
The enforcement of the PRC Labor Contract Law, and other labor-related regulations in the PRC may increase our labor costs and limit our
flexibility to use labor. Our failure to comply with PRC labor-related laws may expose us to penalties.
On June 29, 2007, the Standing Committee of the National People’s Congress of China enacted the PRC Labor Contract Law, which became
effective on January 1, 2008 and was amended on December 28, 2012. The PRC Labor Contract Law introduces specific provisions related to fixed-
term employment contracts, part-time employment, probation, consultation with labor unions and employee assemblies, employment without a
written contract, dismissal of employees, severance, and collective bargaining, which together represent enhanced enforcement of labor laws and
regulations. According to the PRC Labor Contract Law, an employer is obliged to sign an unfixed-term labor contract with any employee who has
worked for the employer for 10 consecutive years. Further, if an employee requests or agrees to renew a fixed-term labor contract that has already
been entered into twice consecutively, the resulting contract must have an unfixed term, with certain exceptions. The employer must pay economic
compensation to an employee where a labor contract is terminated or expires in accordance with the PRC Labor Contract Law, except for certain
situations which are specifically regulated. As a result, our ability to terminate employees is significantly restricted. In addition, the government has
issued various labor-related regulations to further protect the rights of employees. According to such laws and regulations, employees are entitled to
annual leave ranging from five to 15 days and are able to be compensated for any untaken annual leave days in the amount of three times their daily
salary, subject to certain exceptions. In the event that we decide to change our employment or labor practices, the PRC Labor Contract Law and its
implementation rules may also limit our ability to effect those changes in a manner that we believe to be cost-effective. In addition, as the
interpretation and implementation of these new regulations are still evolving, our employment practices may not be at all times deemed in compliance
with the new regulations. If we are subject to severe penalties or incur significant liabilities in connection with labor disputes or investigations, our
business and financial conditions may be adversely affected.
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Companies operating in China are required to participate in various government sponsored employee benefit plans, including certain social
insurance, housing funds and other welfare-oriented payment obligations, and contribute to the plans in amounts equal to certain percentages of
salaries, including bonuses and allowances, of their employees up to a maximum amount specified by the local government from time to time. The
requirement to maintain employee benefit plans has not been implemented consistently by local governments in China given the different levels of
economic development in different locations. We did not pay, or were not able to pay, certain past social security and housing fund contributions in
strict compliance with the relevant PRC regulations for and on behalf of our employees due to differences in local regulations and inconsistent
implementation or interpretation by local authorities in the PRC and varying levels of acceptance of the housing fund system by our employees. We
may be subject to fines and penalties for our failure to make payments in accordance with the applicable PRC laws and regulations. We may be
required to make up the contributions for these plans as well as to pay late fees and fines. We have not made any accruals for the interest on
underpayments and penalties that may be imposed by the relevant PRC government authorities in the financial statements. If we are subject to
penalties, late fees or fines in relation to the underpaid employee benefits, our financial condition and results of operations may be adversely affected.
We rely to a significant extent on dividends and other distributions on equity paid by our principal operating subsidiaries to fund offshore cash
and financing requirements. Any limitation on the ability of our operating subsidiaries to make payments to us could have a material and adverse
impact on our ability to operate our business.
We are a holding company and rely to a significant extent on dividends and other distributions on equity paid by our principal operating
subsidiaries and on remittances from our VIEs, for our offshore cash and financing requirements, including the funds necessary to pay dividends and
other cash distributions to our shareholders, fund inter-company loans, service any debt and interest we may incur outside of China and pay our
expenses. When our principal operating subsidiaries or our VIEs incur additional debt, the instruments governing the debt may restrict their ability to
pay dividends or make other distributions or remittances to us. Furthermore, the laws, rules and regulations applicable to our PRC subsidiaries and
certain other subsidiaries permit payments of dividends only out of their retained earnings, if any, determined in accordance with applicable
accounting standards and regulations.
Under PRC laws, rules and regulations, each of our subsidiaries incorporated in China is required to set aside at least 10% of its net income
each year to fund certain statutory reserves until the cumulative amount of such reserves reaches 50% of its registered capital. These reserves,
together with the registered capital, are not distributable as cash dividends. As a result of these laws, rules and regulations, our subsidiaries
incorporated in China are restricted in their ability to transfer a portion of their respective net assets to their shareholders as dividends, loans or
advances.
In response to the persistent capital outflow in China and RMB’s depreciation against U.S. dollar in the fourth quarter of 2016, the PBOC
and the SAFE have implemented a series of capital control measures over recent months, including stricter vetting procedures for China-based
companies to remit foreign currency for overseas acquisitions, dividend payments and shareholder loan repayments. For instance, on January 26,
2017, SAFE issued the Notice of State Administration of Foreign Exchange on Improving the Review of Authenticity and Compliance to Further
Promote Foreign Exchange Control, or the SAFE Circular 3, which stipulates several capital control measures with respect to the outbound
remittance of profit from domestic entities to offshore entities, including (i) under the principle of genuine transaction, banks shall check board
resolutions regarding profit distribution, the original version of tax filing records and audited financial statements; and (ii) domestic entities shall hold
income to account for previous years’ losses before remitting the profits. The PRC government may continue to strengthen its capital controls, and
more restrictions and substantial vetting process may be put in place by SAFE for cross-border transactions falling under both the current account and
the capital account. Limitations on the ability of VIEs to make remittances to wholly-foreign owned enterprises and on the ability of our subsidiaries
to pay dividends to us could limit our ability to access cash generated by the operations of those entities, including to make investments or
acquisitions that could be beneficial to our businesses, pay dividends to our shareholders, service debt and interest, or otherwise fund and conduct our
business.
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We may be treated as a resident enterprise for PRC tax purposes under the PRC Enterprise Income Tax Law, and we may therefore be subject to
PRC income tax on our global income.
Under the PRC Enterprise Income Tax Law and its implementing rules, enterprises established under the laws of jurisdictions outside of
China with “de facto management bodies” located in China may be considered PRC tax resident enterprises for tax purposes and may be subject to
the PRC enterprise income tax at the rate of 25% on their global income. “De facto management body” refers to a managing body that exercises
substantive and overall management and control over the production and business, personnel, accounting books and assets of an enterprise. The State
Administration of Taxation issued the Notice Regarding the Determination of Chinese-Controlled Offshore-Incorporated Enterprises as PRC Tax
Resident Enterprises on the Basis of De Facto Management Bodies, or SAT Circular 82, on April 22, 2009. SAT Circular 82 provides certain specific
criteria for determining whether the “de facto management body” of a Chinese-controlled offshore-incorporated enterprise is located in China.
Although SAT Circular 82 only applies to offshore enterprises controlled by PRC enterprises, not those controlled by foreign enterprises or
individuals, the determining criteria set forth in SAT Circular 82 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. If we were to be considered a PRC resident enterprise, we would be subject to PRC enterprise income tax at the rate of
25% on our global income. In such case, our profitability and cash flow may be materially reduced as a result of our global income being taxed under
the Enterprise Income Tax Law. We believe that none of our entities outside of China is a PRC resident enterprise for PRC tax purposes. However,
the tax resident status of an enterprise is subject to determination by the PRC tax authorities and uncertainties remain with respect to the
interpretation of the term “de facto management body.”
Dividends payable to our foreign investors and gains on the sale of our ADSs or Class A ordinary shares by our foreign investors may become
subject to PRC tax.
Under the PRC Enterprise Income Tax Law and its implementing rules issued by the State Council, a 10% PRC withholding tax , subject to
any reduction or exemption set forth in applicable tax treaties or under applicable tax arrangements between jurisdictions, is applicable to dividends
payable to investors that are non-resident enterprises, which do not have an establishment or place of business in the PRC or which have such
establishment or place of business but the dividends are not effectively connected with such establishment or place of business, to the extent such
dividends are derived from sources within the PRC. Similarly, any gain realized on the transfer of ADSs or Class A ordinary shares by such investors
is also subject to PRC tax at a current rate of 10%, subject to any reduction or exemption set forth in applicable tax treaties or under applicable tax
arrangements between jurisdictions, if such gain is regarded as income derived from sources within the PRC. If we are deemed a PRC resident
enterprise, dividends paid on our Class A ordinary shares or ADSs, and any gain realized from the transfer of our Class A ordinary shares or ADSs,
would be treated as income derived from sources within the PRC and would as a result be subject to PRC taxation. Furthermore, if we are deemed a
PRC resident enterprise, dividends payable to individual investors who are non-PRC residents and any gain realized on the transfer of ADSs or
Class A ordinary shares by such investors may be subject to PRC tax at a current rate of 20%, subject to any reduction or exemption set forth in
applicable tax treaties or under applicable tax arrangements between jurisdictions. If we or any of our subsidiaries established outside China are
considered a PRC resident enterprise, it is unclear whether holders of our ADSs or Class A ordinary shares would be able to claim the benefit of
income tax treaties or agreements entered into between China and other countries or areas. If dividends payable to our non-PRC investors, or gains
from the transfer of our ADSs or Class A ordinary shares by such investors, are deemed as income derived from sources within the PRC and thus are
subject to PRC tax, the value of your investment in our ADSs or Class A ordinary shares may decline significantly.
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We and our shareholders face uncertainties with respect to indirect transfers of equity interests in PRC resident enterprises, assets attributed to a
PRC establishment of a non-Chinese company, or real property located in China owned by non-Chinese companies.
On February 3, 2015, the State Administration of Taxation issued the Bulletin on Issues of Enterprise Income Tax on Indirect Transfers of
Assets by Non-PRC Resident Enterprises, or Bulletin 7, which was recently amended on December 29, 2017. Pursuant to this Bulletin, an “indirect
transfer” of assets, including equity interests in a PRC resident enterprise, by non-PRC resident enterprises may be recharacterized and treated as a
direct transfer of PRC taxable assets, if such arrangement does not have a reasonable commercial purpose and was established for the purpose of
avoiding payment of PRC enterprise income tax. As a result, gains derived from such indirect transfer may be subject to PRC enterprise income tax.
According to Bulletin 7, “PRC taxable assets” include assets attributed to an establishment or place of business in China, real properties located in
China, and equity investments in PRC resident enterprises, in respect of which gains from their transfer by a direct holder, being a non-PRC resident
enterprise, would be subject to PRC enterprise income taxes. When determining whether there is a “reasonable commercial purpose” of the
transaction arrangement, features to be taken into consideration include: whether the main value of the equity interest of the relevant offshore
enterprise derives from PRC taxable assets; whether the assets of the relevant offshore enterprise mainly consists of direct or indirect investment in
China or if its income mainly derives from China; whether the offshore enterprise and its subsidiaries directly or indirectly holding PRC taxable
assets have real commercial nature which is evidenced by their actual function and risk exposure; the duration of existence of the business model and
organizational structure; the foreign income tax liabilities arising from the indirect transfer of PRC taxable assets; the replicability of the transaction
by direct transfer of PRC taxable assets; and the tax situation of such indirect transfer and applicable tax treaties or similar arrangements. In respect
of an indirect offshore transfer of assets of a PRC establishment or place of business, the resulting gain is to be included with the enterprise income
tax filing of the PRC establishment or place of business being transferred, and would consequently be subject to PRC enterprise income tax at a rate
of 25%. Where the underlying transfer relates to the real properties located in China or to equity investments in a PRC resident enterprise, which is
not related to a PRC establishment or place of business of a non-resident enterprise, a PRC enterprise income tax of 10% would apply, subject to
available preferential tax treatment under applicable tax treaties or similar arrangements, and the party who is obligated to make the transfer
payments has the withholding obligation. Where the payor fails to withhold any or sufficient tax, the transferor shall declare and pay such tax to the
tax authority by itself within the statutory time limit. Bulletin 7 does not apply to transactions of sale of shares by investors through a public stock
exchange where such shares were acquired from a transaction through a public stock exchange. On October 17, 2017, the SAT issued the Bulletin on
Issues Concerning the Withholding of Non-resident Enterprise Income Tax at Source, or Bulletin 37, which, among others, repeals certain
rules related to treatment of situations where a payor has failed to timely withhold tax as stipulated in Bulletin 7. In particular, Bulletin 37 provides
that when a payor as the withholding agent fails to or is unable to perform its withholding duty, on the condition that the relevant non-PRC resident
enterprise voluntarily makes payment before being ordered to do so in a timely manner or within a time limit prescribed by relevant tax authorities,
the tax shall be deemed as having been timely paid. The Bulletin 37 further specifies and clarifies tax withholding methods applicable to income of
non-PRC resident enterprises.
There is uncertainty as to the application of Bulletin 7. Especially as Bulletin 7 is lately promulgated, it is not clear how it will be
implemented. Bulletin 7 may be determined by the tax authorities to be applicable to our offshore restructuring transactions or sale of our ordinary
shares or preferred shares, or those of our offshore subsidiaries, where non-resident enterprises, being the transferors, were involved. We thereby may
be subject to the tax filing and withholding or tax payment obligation, while our PRC subsidiaries may be requested to assist in the filing.
Furthermore, we, our non-resident enterprises and PRC subsidiaries may be required to spend valuable resources to comply with Bulletin 7 or to
establish that we and our non-resident enterprises should not be taxed under Bulletin 7, for our previous and future restructuring or disposal of shares
of our offshore subsidiaries, which may have a material adverse effect on our financial condition and results of operations.
The PRC tax authorities have the discretion under Bulletin 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 Bulletin 7, our income tax costs associated with such potential acquisitions or disposals could increase, which may have an
adverse effect on our financial condition and results of operations.
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Restrictions on currency exchange may limit our ability to utilize our cash effectively.
Substantially all of our revenue is denominated in Renminbi. The Renminbi is currently convertible under the “current account,” which
includes dividends, trade and service-related foreign exchange transactions, but not under the “capital account,” which includes foreign direct
investment and loans, including loans we may secure from or for our onshore subsidiaries or our VIEs. Currently, certain of our PRC subsidiaries
may purchase foreign currency for settlement of “current account transactions,” including payment of dividends to us, without the approval of SAFE
by complying with certain procedural requirements. However, the relevant PRC governmental authorities may limit or eliminate our ability to
purchase foreign currencies in the future for current account transactions. Foreign exchange transactions under the capital account remain subject to
limitations and require approvals from, or registration with, SAFE and other relevant PRC governmental authorities. Since a significant amount of
our future revenue will be denominated in Renminbi, any existing and future restrictions on currency exchange may limit our ability to utilize cash
generated in Renminbi to fund our business activities outside of the PRC or pay dividends in foreign currencies to our shareholders, including holders
of our ADSs, and may limit our ability to obtain foreign currency through debt or equity financing for our subsidiaries and our VIEs.
The audit report included in this annual report is prepared by an auditor who has not been inspected by the Public Company Accounting
Oversight Board and, as such, our investors are deprived of the benefits of such inspection.
Our independent registered public accounting firm that issues the audit report included in this annual report, as auditors of companies that
are traded publicly in the U.S. and a firm registered with the U.S. Public Company Accounting Oversight Board, or the PCAOB, is required by the
laws of the U.S. to undergo regular inspections by the PCAOB to assess its compliance with the laws of the U.S. and professional standards. Because
our auditors are located in the PRC, a jurisdiction where the PCAOB is currently unable to fully conduct inspections without the approval of the
Chinese authorities, our auditors have not been inspected by the PCAOB.
Inspections of other firms that the PCAOB has conducted outside China have identified deficiencies in those firms’ audit procedures and
quality control procedures, which may be addressed as part of the inspection process to improve future audit quality. This lack of PCAOB inspections
in China prevents the PCAOB from regularly evaluating our auditor’s audits and its quality control procedures. As a result, investors in our company
do not have the benefits of PCAOB inspections. Further, the inability of the PCAOB to conduct inspections of auditors in China makes it more
difficult to evaluate the effectiveness of our auditor’s audit procedures or quality control procedures as compared to auditors outside of China that are
subject to PCAOB inspections.
If additional remedial measures are imposed on the “big four” China-based accounting firms, including our independent registered public
accounting firm, in administrative proceedings brought by the SEC alleging such firms’ failure to meet specific criteria set by the SEC with
respect to requests for the production of documents, we could be unable to timely file future financial statements in compliance with the
requirements of the Exchange Act.
In December 2012, the SEC instituted proceedings under Rule 102(e)(1)(iii) of the SEC’s Rules of Practice against five China-based
accounting firms, including our independent registered public accounting firm, alleging that these firms had violated the U.S. securities laws and the
SEC’s rules and regulations thereunder by failing to provide to the SEC the firms’ work papers related to their audits of certain China-based
companies that are publicly traded in the U.S. Rule 102(e)(1)(iii) grants the SEC the authority to deny to any person, temporarily or permanently, the
ability to practice before the SEC who is found by the SEC, after notice and opportunity for a hearing, to have willfully violated any such laws or
rules and regulations. On January 22, 2014, an initial administrative law decision was issued, censuring these accounting firms and suspending four
of the five firms from practicing before the SEC for a period of six months. Four of these China-based accounting firms appealed to the SEC against
this decision and, on February 6, 2015, each of the four China-based accounting firms 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. The firms’ ability to continue to serve all their respective clients is not
affected by the settlement. The settlement requires the firms to follow detailed procedures to seek to provide the SEC with access to Chinese firms’
audit documents via the China Securities Regulatory Commission. If the firms do not follow these procedures, the SEC could impose penalties such
as suspensions, or it could restart the administrative proceedings. The settlement did not require the firms to admit to any violation of law and
preserves the firms’ legal defenses in the event the administrative proceeding is restarted.
In the event that the SEC restarts the administrative proceedings, depending upon the final outcome, companies listed in the U.S. with major
Chinese operations may find it difficult or impossible to retain auditors in respect of their operations in China, which could result in financial
statements being determined to not be in compliance with the requirements of the Exchange Act, including possible delisting. Moreover, any negative
news about any such future proceedings against these audit firms may cause investor uncertainty regarding China-based, U.S.-listed companies and
the trading price of our ADSs may be adversely affected.
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In December 2018, the SEC and the PCAOB issued a joint statement on regulatory access to audit and other information internationally that
cites the ongoing challenges faced by them in overseeing the financial reporting of companies listed in the United States with operations in China, the
absence of satisfactory progress in discussions on these issues with Chinese authorities and the potential for remedial action if significant information
barriers persist. If our independent registered public accounting firm were denied, even temporarily, the ability to practice before the SEC and we
were unable to timely find another registered public accounting firm to audit and issue an opinion on our financial statements, our financial
statements could be determined not to be in compliance with the requirements of the Exchange Act. Such a determination could ultimately lead to the
delay or abandonment of our initial public offering, delisting of the ADSs representing our Class A ordinary shares from the New York Stock
Exchange or deregistration from the SEC, or both, which would substantially reduce or effectively terminate the trading of our ADSs in the U.S.
As part of a continued regulatory focus in the United States on access to audit and other information currently protected by national law, in
particular China's, in June 2019, a bipartisan group of lawmakers introduced bills in both houses of Congress that would require the SEC to maintain
a list of issuers for which the PCAOB is not able to inspect or investigate an auditor report issued by a foreign public accounting firm. The Ensuring
Quality Information and Transparency for Abroad-Based Listings on our Exchanges (EQUITABLE) Act prescribes increased disclosure
requirements for such issuers and, beginning in 2025, the delisting from national securities exchanges of issuers included for three consecutive years
on the SEC's list. Enactment of this legislation or other efforts to increase US regulatory access to audit information could cause investor uncertainty
for affected issuers, including us, and the trading price of our ADSs could be adversely affected. It is unclear if this proposed legislation would be
enacted.
Risks Related to Our ADSs
The trading price of our ADSs may be volatile, which could result in substantial losses to you.
The trading prices of our ADSs are likely to be volatile and could fluctuate widely due to factors beyond our control. This may happen
because of broad market and industry factors, such as global and China’s economic conditions, as well as the performance and fluctuation in the
market prices or the underperformance or deteriorating financial results of other listed companies based in China. The securities of some of the listed
companies based in China have experienced significant volatility since their initial public offerings, including, in some cases, substantial declines in
the trading prices of their securities. The trading performances of other Chinese companies’ securities after their offerings, including Internet and
e-commerce companies, may affect the attitudes of investors toward Chinese companies listed in the U.S., which consequently may impact the
trading performance of our ADSs, regardless of our actual operating performance. In addition, any negative news or perceptions about inadequate
corporate governance practices or fraudulent accounting, corporate structure or matters of other Chinese companies may also negatively affect the
attitudes of investors towards Chinese companies in general, including us, regardless of whether we have conducted any inappropriate activities. In
addition, securities markets may from time to time experience significant price and volume fluctuations that are not related to our operating
performance, such as the large decline in share prices in the U.S., China and other jurisdictions in late 2008, early 2009, the second half of 2011 and
in 2015, which may have a material and adverse effect on the trading price of our ADSs.
In addition to the above factors, the price and trading volume of our ADSs may be highly volatile due to multiple factors, such as
announcements by us or our competitors of new product and service offerings, acquisitions, strategic relationships, joint ventures, capital raisings or
capital commitments, additions or departures by our senior management and by actual or anticipated fluctuations in our quarterly results of operations
and changes or revisions of our expected results. The trading price and volume of our ADSs may also be affected by studies and reports relating to
the quality of our service offerings or those of our competitors and reports by securities research analysts. Other factors include regulatory
developments affecting us or our industry, customers or suppliers, as well as changes in the market for our services and the economic performance or
market valuations of other companies offering supply chain services may affect trading in our ADSs. Further, the trading price and volume of our
ADSs may also be influenced by fluctuations of exchange rates between the RMB and the U.S. dollar, or restrictions on our outstanding shares or
ADSs and sales or perceived potential sales of additional Class A ordinary shares or ADSs.
If securities or industry analysts do not publish research or publish inaccurate or unfavorable research about our business, the market price for
our ADSs and trading volume could decline.
The trading market for our ADSs will depend in part on the research and reports that securities or industry analysts publish about us or our
business. If research analysts do not establish and maintain adequate research coverage or if one or more of the analysts who covers us downgrades
our ADSs or publishes inaccurate or unfavorable research about our business, the market price for our ADSs would likely decline. If one or more of
these analysts cease coverage of our company or fail to publish reports on us regularly, we could lose visibility in the financial markets, which, in
turn, could cause the market price or trading volume for our ADSs to decline.
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Techniques employed by short sellers may drive down the market price of our ADSs.
Short selling is the practice of selling securities that the seller does not own but rather has borrowed from a third party with the intention of
buying identical securities back at a later date to return to the lender. The short seller hopes to profit from a decline in the value of the securities
between the sale of the borrowed securities and the purchase of the replacement shares, as the short seller expects to pay less in that purchase than it
received in the sale. As it is in the short seller’s interest for the price of the security to decline, many short sellers publish, or arrange for the
publication of, negative opinions regarding the relevant issuer and its business prospects in order to create negative market momentum and generate
profits for themselves after selling a security short. These short attacks have, in the past, led to selling of shares in the market.
Public companies that have substantially all of their operations in China have been the subject of short selling. Much of the scrutiny and
negative publicity has centered on allegations of a lack of effective internal control over financial reporting resulting in financial and accounting
irregularities and mistakes, inadequate corporate governance policies or a lack of adherence thereto and, in many cases, allegations of fraud. As a
result, many of these companies are now conducting internal and external investigations into the allegations and, in the interim, are subject to
shareholder lawsuits and/or SEC enforcement actions.
It is not clear what effect such negative publicity could have on us. If we were to become the subject of any unfavorable allegations, whether
such allegations are proven to be true or untrue, we could have to expend a significant amount of resources to investigate such allegations and/or
defend ourselves. While we would strongly defend against any such short seller attacks, we may be constrained in the manner in which we can
proceed against the relevant short seller by principles of freedom of speech, applicable state law or issues of commercial confidentiality. Such a
situation could be costly and time-consuming, and could distract our management from growing our business. Even if such allegations are ultimately
proven to be groundless, allegations against us could severely impact our business operations and stockholders equity, and any investment in our
ADSs could be greatly reduced or rendered worthless.
Because we do not expect to pay dividends in the foreseeable future, you must rely on price appreciation of our ADSs for return on your
investment.
We currently intend to retain most, if not all, of our available funds and any future earnings to fund the development and growth of our
business. As a result, we do not expect to pay any cash dividends in the foreseeable future. See “Item 8. Financial Information—A. Consolidated
Statements and Other Financial Information—Dividend Policy and Distributions.” Therefore, you should not rely on an investment in our ADSs as a
source for any future dividend income.
Our board of directors has complete discretion as to whether to distribute dividends, subject to certain requirements of Cayman Islands law.
Under Cayman Islands law, a Cayman Islands company may pay a dividend out of either profit or share premium account, provided that in no
circumstances may a dividend be paid if this would result in the company being unable to pay its debts as they fall due in the ordinary course of
business. Even if our board of directors decides to declare and pay dividends, the timing, amount and form of future dividends, if any, will depend on,
among other things, our future results of operations and cash flow, our capital requirements and surplus, the amount of distributions, if any, received
by us from our subsidiaries, our financial condition, contractual restrictions and other factors deemed relevant by our board of directors. Accordingly,
the return on your investment in our ADSs will likely depend entirely upon any future price appreciation of our ADSs. There is no guarantee that our
ADSs will appreciate in value or even maintain the price at which you purchased the ADSs. You may not realize a return on your investment in our
ADSs and you may even lose your entire investment in our ADSs.
Substantial future sales or perceived potential sales of our ADSs in the public market could cause the price of our ADSs to decline.
Substantial sales of our ADSs in the public market, or the perception that these sales could occur, could cause the market price of our ADSs
to decline significantly. As of February 29, 2020, we had 392,514,399 ordinary shares outstanding, comprising 250,648,452 Class A ordinary shares
(including 2,864,587 Class A ordinary shares issued to our depositary bank and reserved for future issuances of ADSs upon exercise or vesting of
awards granted under the our share incentive plans), 94,075,249 Class B ordinary shares and 47,790,698 Class C ordinary shares, including
155,036,855 Class A ordinary shares represented by ADSs (including 2,864,587 ADSs held by our depositary bank for our account and reserved for
future issuances of ADSs upon exercise or vesting of awards granted under the our share incentive plans). All ADSs representing our Class A
ordinary shares are freely transferable by persons other than our “affiliates” without restriction or additional registration under the U.S. Securities Act
of 1933, as amended, or the Securities Act. All of the other Class A ordinary shares outstanding are available for sale in the public market subject to
volume and other restrictions as applicable under Rules 144 and 701 under the Securities Act.
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Certain major holders of our ordinary shares have the right to cause us to register under the Securities Act the sale of their shares.
Registration of these shares under the Securities Act would result in ADSs representing these shares becoming freely tradable without restriction
under the Securities Act immediately upon the effectiveness of the registration. Sales of these registered shares in the form of ADSs in the public
market could cause the price of our ADSs to decline significantly.
We have adopted share incentive plans under which we have the discretion to grant a broad range of equity-based awards to eligible
participants. We have registered all ordinary shares that we may issue under these share incentive plans. Since these ordinary shares have been
registered, they can be freely sold in the public market in the form of ADSs upon issuance, subject to volume limitations applicable to affiliates. If a
large number of our ordinary shares or securities convertible into our ordinary shares are sold in the public market in the form of ADSs after they
become eligible for sale, the sales could reduce the trading price of our ADSs and impede our ability to raise future capital. In addition, any ordinary
shares that we issue under our share incentive plans would dilute the percentage ownership held by our investors.
Any conversion of our convertible senior notes will dilute the ownership interest of existing ordinary shareholders and holders of our ADSs,
including holders who have previously converted their notes.
The conversion of some or all of the US$200 million aggregate principal amount of 1.75% convertible senior notes due 2024 will dilute the
ownership interests of existing ordinary shareholders and holders of the ADSs. Any sales of the ADSs issuable upon such conversion could adversely
affect prevailing trading prices of the ADSs. In addition, the anticipated conversion of the notes into ADSs could depress the trading price of the
ADSs. While we entered into the capped call transactions in order to reduce the potential dilution with respect to our ADSs upon such conversion,
such strategy with respect to the capped call transactions is subject to risks. Furthermore, if the trading price per share of our ADSs, as measured
under the terms of the capped call transactions, exceeds the cap price of the capped call transactions, there would nevertheless be dilution upon
conversion of the notes to the extent that such market price exceeds the cap price of the capped call transactions.
As a holder of ADSs, you have fewer rights than holders of our ordinary shares and must act through the depositary to exercise those rights.
Holders of ADSs do not have the same rights as our registered shareholders. As a holder of our ADSs, you will not have any direct right to
attend general meetings of our shareholders or to cast any votes at such meetings. You will only be able to exercise the voting rights which attach to
the underlying Class A ordinary shares represented by your ADSs indirectly by giving voting instructions to the depositary in accordance with the
provisions of the deposit agreement. Upon receipt of your voting instructions, the depositary will try, as far as is practicable, to vote the underlying
Class A ordinary shares in accordance with your instructions. You will not be able to exercise directly any right to vote with respect to the underlying
Class A ordinary shares unless you withdraw the shares and become the registered holder of such shares prior to the record date for the general
meeting. Under our ninth amended and restated articles of association currently in effect, the minimum notice period required to be given by our
company to our registered shareholders to convene a general meeting will be 10 calendar days. When a general meeting is convened, you may not
receive sufficient notice of the meeting to enable you to withdraw the Class A ordinary shares represented by your ADSs and become the registered
holder of such shares to allow you to attend the general meeting or to cast your vote directly with respect to any specific matter or resolution to be
considered and voted upon at the general meeting. In addition, under our ninth amended and restated articles of association currently in effect, for the
purposes of determining those shareholders who are entitled to attend and vote at any general meeting, our directors may close our register of
members and/or fix in advance a record date for such meeting, and such closure of our register of members or the setting of such a record date may
prevent you from withdrawing the underlying Class A ordinary shares represented by your ADSs and becoming the registered holder of such shares
prior to the record date, so that you would not be able to attend the general meeting or to vote directly. Where any matter is to be put to a vote at a
general meeting, we will make all reasonable efforts to cause the depositary to notify you of the upcoming vote and to deliver our voting materials to
you in a timely manner, but there can be no assurance that you will receive the voting materials in time to ensure that you can instruct the depositary
to vote the Class A ordinary shares underlying your ADSs. Furthermore, the depositary and its agents will not be responsible for any failure to carry
out any instructions to vote, for the manner in which any vote is cast or for the effect of any such vote. As a result, you may not be able to exercise
your right to direct how the underlying Class A ordinary shares represented by your ADSs are voted, and you may lack recourse if the underlying
Class A ordinary shares represented by your ADSs are not voted as you requested. In addition, in your capacity as an ADS holder, you will not be
able to call a shareholders’ meeting.
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Your right to participate in any future rights offerings may be limited, which may cause dilution to your holdings.
We may from time to time distribute rights to our shareholders, including rights to acquire our securities. However, we cannot make rights
available to you in the U.S. unless we register both the rights and the securities to which the rights relate under the Securities Act or an exemption
from the registration requirements is available. Under the deposit agreement, the depositary will not make rights available to you unless both the
rights and the underlying securities to be distributed to ADS holders are either registered under the Securities Act or exempt from registration under
the Securities Act. We are under no obligation to file a registration statement with respect to any such rights or securities or to endeavor to cause such
a registration statement to be declared effective and we may not be able to establish a necessary exemption from registration under the Securities Act.
Accordingly, you may be unable to participate in our rights offerings and may experience dilution in your holdings.
You may not receive cash dividends if the depositary decides it is impractical to make them available to you.
The depositary will pay cash dividends on the ADSs only to the extent that we decide to distribute dividends on our ordinary shares or other
deposited securities, and we do not have any present plan to pay any cash dividends in the foreseeable future. See “Item 8. Financial Information—A.
Consolidated Statements and Other Financial Information—Dividend Policy and Distributions.” To the extent that our company pays any cash
dividends or other distributions to our shareholders, we will pay such distributions which are payable in respect of our Class A ordinary shares (or
other deposited securities) represented by ADSs to the depositary of our ADSs or the custodian (as the registered holder of such Class A ordinary
shares or other deposited securities), and the depositary has agreed to pay the cash dividends or other distributions it or the custodian receives on our
Class A ordinary shares or other deposited securities after deducting its fees and expenses, to the holders of the ADSs. You will receive these
distributions in proportion to the number of Class A ordinary shares your ADSs represent. However, the depositary may, at its discretion, decide that
it is inequitable or impractical to make a distribution available to any holders of ADSs. For example, the depositary may determine that it is not
practicable to distribute certain property through the mail, or that the value of certain distributions may be less than the cost of mailing them. In these
cases, the depositary may decide not to distribute such property to you.
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 transfer books at any time or from time to
time when it deems expedient in connection with the performance of its duties. In addition, the depositary may refuse to deliver, transfer or register
transfers of ADSs generally when our books or the books of the depositary are closed, or at any time if we or the depositary deems it advisable to do
so because of any requirement of law or of any government or governmental body, or under any provision of the deposit agreement, or for any other
reason.
Certain judgments obtained against us by our shareholders may not be enforceable.
We are an exempted company incorporated under the laws of the Cayman Islands. Substantially all of our assets are located outside the U.S.
In addition, all of our directors and executive officers and the experts named in this annual report reside outside the U.S., and most of their assets are
located outside the U.S. As a result, it may be difficult or impossible for you to bring an action against us or against them in the U.S. in the event that
you believe that your rights have been infringed under the U.S. federal securities laws or otherwise. Even if you are successful in bringing an action
of this kind, the laws of the Cayman Islands, China or other relevant jurisdiction may render you unable to enforce a judgment against our assets or
the assets of our directors and officers.
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You may face difficulties in protecting your interests, and your ability to protect your rights through U.S. courts may be limited, because we are
incorporated under Cayman Islands law.
We are an exempted company limited by shares incorporated under the laws of the Cayman Islands. Our corporate affairs are governed by
our memorandum and articles of association, the Companies Law (2020 Revision) of the Cayman Islands and the common law of the Cayman
Islands. The rights of shareholders to take action against our directors, actions by our minority shareholders and the fiduciary duties of our directors
to us under Cayman Islands law are to a large extent governed by the common law of the Cayman Islands. The common law of the Cayman Islands is
derived in part from comparatively limited judicial precedent in the Cayman Islands as well as from the common law of England, the decisions of
whose courts are of persuasive authority, but are not binding, on a court in the Cayman Islands. The rights of our shareholders and the fiduciary
duties of our directors under Cayman Islands law are not as clearly established as they would be under statutes or judicial precedent in some
jurisdictions in the U.S. In particular, the Cayman Islands has a less developed body of securities laws than the U.S. Some U.S. states, such as
Delaware, have more fully developed and judicially interpreted bodies of corporate law than the Cayman Islands. In addition, Cayman Islands
companies may not have standing to initiate a shareholder derivative action in a federal court of the U.S.
Shareholders of Cayman Islands exempted companies like us have no general rights under Cayman Islands law to inspect corporate records
or to obtain copies of lists of shareholders of these companies. Our directors have discretion under our ninth amended and restated articles of
association currently in effect to determine whether or not, and under what conditions, our corporate records may be inspected by our shareholders,
but are not obliged to make them available to our shareholders. This may make it more difficult for you to obtain the information needed to establish
any facts necessary for a shareholder resolution or to solicit proxies from other shareholders in connection with a proxy contest.
As a result of all of the above, our public shareholders may have more difficulty in protecting their interests in the face of actions taken by
management, members of the board of directors or controlling shareholders than they would as public shareholders of a company incorporated in the
U.S.
Our articles of association contain anti-takeover provisions that could discourage a third party from acquiring us, which could limit our
shareholders’ opportunity to sell their shares, including Class A ordinary shares represented by our ADSs, at a premium. The fundamental
change repurchase feature of our convertible senior notes may delay or prevent an otherwise beneficial takeover attempt of our company.
Our ninth amended and restated articles of association currently in effect contain provisions that limit the ability of others to acquire control
of our company or cause us to engage in change-of-control transactions. These provisions could have the effect of depriving our shareholders of an
opportunity to sell their shares at a premium over prevailing market prices by discouraging third parties from seeking to obtain control of our
company in a tender offer or similar transaction. For example, our board of directors has the authority, without further action by our shareholders, to
issue preferred shares in one or more series and to fix their designations, powers, preferences, privileges, and relative participating, optional or special
rights and the qualifications, limitations or restrictions, including dividend rights, conversion rights, voting rights, terms of redemption and
liquidation preferences, any or all of which may be greater than the rights associated with our ordinary shares, in the form of ADS or otherwise.
Preferred shares could be issued quickly with terms calculated to delay or prevent a change in control of our company or make removal of
management more difficult. If our board of directors decides to issue preferred shares, the price of our ADSs may fall and the voting and other rights
of the holders of our ordinary shares and ADSs may be materially and adversely affected.
These provisions could have the effect of depriving our shareholders of an opportunity to sell their shares at a premium over prevailing
market prices by discouraging third parties from seeking to obtain control of our company in a tender offer or similar transaction.
Furthermore, the indenture governing our 1.75% convertible senior notes due 2024 will require us to repurchase the notes for cash upon the
occurrence of a fundamental change and, in certain circumstances, to increase the conversion rate for a holder that converts its notes in connection
with a make-whole fundamental change. A takeover of our company may trigger the requirement that we purchase the notes and/or increase the
conversion rate, which could make it more costly for a potential acquirer to engage in a combinatory transaction with us. Such additional costs may
have the effect of delaying or preventing a takeover of our company that would otherwise be beneficial to investors.
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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 U.S. 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 U.S. that are applicable to U.S. domestic issuers, including: (i) the rules under the Exchange Act requiring the filing with the SEC
of quarterly reports on Form 10-Q or current reports on Form 8-K; (ii) the sections of the Exchange Act regulating the solicitation of proxies,
consents, or authorizations in respect of a security registered under the Exchange Act; (iii) the sections of the Exchange Act requiring insiders to file
public reports of their stock ownership and trading activities and liability for insiders who profit from trades made in a short period of time; and
(iv) 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 New York Stock Exchange. Press releases
relating to financial results and material events will also be furnished to the SEC on Form 6-K. However, the information we are required to file with
or furnish to the SEC will be less extensive and less timely compared to that required to be filed with the SEC by U.S. domestic issuers. As a result,
you may not be afforded the same protections or information that would be made available to you were you investing in a U.S. domestic issuer.
As a foreign private issuer, we are permitted to adopt certain practices of our home country, the Cayman Islands, in relation to corporate
governance matters that differ significantly from the New York Stock Exchange corporate governance listing standards; these practices afford
less protection to shareholders than they would enjoy if we complied fully with the New York Stock Exchange corporate governance listing
standards.
Our ADSs are listed on the New York Stock Exchange. The New York Stock Exchange Listed Company Manual permits 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, may differ significantly from the New York Stock Exchange corporate governance listing standards.
For instance, we are not required to: (i) have a majority of the board be independent; (ii) have a compensation committee or a corporate
governance and nominating committee consisting entirely of independent directors; or (iii) have regularly scheduled executive sessions with only
independent directors each year. We rely on some of these exemptions. As a result, you may not be provided with the benefits of certain corporate
governance requirements of the New York Stock Exchange.
We may become a passive foreign investment company, or PFIC, which could result in adverse U.S. tax consequences to U.S. investors.
Based on the past and projected composition of our income and assets, and the valuation of our assets, including goodwill, we do not believe
we were a PFIC for our most recent taxable year and we do not expect to become one in the future, although there can be no assurance in this regard.
The determination of whether or not we are a PFIC is made on an annual basis and will depend on the composition of our income and assets from
time to time. Specifically, for any taxable year, we will be classified as a PFIC for U.S. federal income tax purposes if either (i) 75% or more of our
gross income in that taxable year is passive income or (ii) the average percentage of our assets (which includes cash) by value in that taxable year
which produce, or are held for the production of, passive income is at least 50%. The calculation of the value of our assets will be based, in part, on
the quarterly market value of our ADSs, which is subject to change. See “Item 10. Additional Information—E. Taxation—Material U.S. Federal
Income Tax Considerations—Passive Foreign Investment Company.”
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In addition, there is uncertainty as to the treatment of our corporate structure and ownership of our VIEs for U.S. federal income tax
purposes. For U.S. federal income tax purposes, we consider ourselves to own the stock of our VIEs. If it is determined, contrary to our view, that we
do not own the stock of our VIEs for U.S. federal income tax purposes (for instance, because the relevant Chinese authorities do not respect these
arrangements), we may be treated as a PFIC.
If we are a PFIC for any taxable year during which you hold our ADSs or Class A ordinary shares, our PFIC status could result in adverse
U.S. federal income tax consequences to you if you are a U.S. Holder, as defined under “Item 10. Additional Information—E. Taxation—Material
U.S. Federal Income Tax Considerations.” For example, if we are or become a PFIC, you may become subject to increased tax liabilities under U.S.
federal income tax laws and regulations, and will become subject to burdensome reporting requirements. See “Item 10. Additional Information—E.
Taxation—Material U.S. Federal Income Tax Considerations—Passive Foreign Investment Company.” There can be no assurance that we will not be
a PFIC for 2020 or any future taxable year.
We will continue to incur increased costs as a result of being a public company.
As a U.S. 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 the New York Stock Exchange, impose various
requirements on the corporate governance practices of public companies. These rules and regulations increase our legal and financial compliance
costs and make some corporate activities more time-consuming and costly. We expect to continue to incur significant expenses and devote substantial
management effort toward ensuring compliance with the requirements of Section 404 of the Sarbanes-Oxley Act of 2002 and the other rules and
regulations of the SEC. For example, as a result of becoming a public company, we have increased the number of independent directors and adopted
policies regarding internal controls and disclosure controls and procedures. We also expect that operating as a public company will continue to make
it more difficult and more expensive for us to obtain director and officer liability insurance, and we may be required to accept reduced policy limits
and coverage or incur substantially higher costs to obtain the same or similar coverage. In addition, we 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.
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
Our founder established Eight Hundred Logistics Technologies Corporation, or BEST BVI, a British Virgin Islands company, and its wholly
owned subsidiary in Hong Kong, BEST Logistics Technologies Limited, or BEST HK, in May 2007. In March 2008, BEST Logistics Technologies
Limited was established under the laws of the Cayman Islands, which became our current ultimate holding company. In June 2017, the name of
BEST Logistics Technologies Limited was changed to BEST Inc. In December 2017, we established BEST Capital Inc., a Cayman Islands company,
and its wholly owned subsidiaries, namely BEST Capital Holding Limited, a British Virgin Islands company, and BEST Capital Management
Limited, a Hong Kong company. In March 2018, Xinyuan Financial Leasing (Zhejiang) Co., Ltd., which operates our BEST Capital business, was
transferred from BEST Logistics Technologies Limited to BEST Capital Management Limited. We conduct our businesses mainly through our
wholly-foreign owned enterprises and the VIEs in China. See “—C. Organizational Structure — Contractual Arrangements with Our Affiliated
Consolidated Entities.”
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We have a track record of successful organic growth and strategic acquisitions, as evidenced by the following corporate milestones:
● In 2007, BEST was founded in Hangzhou;
● In 2008, we launched BEST Supply Chain Management;
● In 2010, we launched BEST Express through the acquisition of Huitong Express;
● In 2012, we launched BEST Freight through the acquisition of Quanjitong;
● In 2013, we launched BEST Capital;
● In 2015, we launched BEST Global and BEST Store+; and
● In 2016, we launched BEST UCargo.
Each of these service lines serves to expand the scope and scale of our supply chain service network while harnessing our technology
infrastructure and service network to provide integrated solutions.
On September 20, 2017, our ADSs began trading on the New York Stock Exchange under the ticker symbol “BSTI.” Our ticker symbol on
the New York Stock Exchange changed from “BSTI” to BEST” effective at the start of trading on February 19, 2019.
Principal Offices
Our principal executive offices are located at 2nd Floor, Block A, Huaxing Modern Industry Park, No. 18 Tangmiao Road, Xihu District,
Hangzhou, Zhejiang Province 310013, People’s Republic of China. Our telephone number at this address is +86-57188995656. Our registered office
in the Cayman Islands is located at the offices of Maples Corporate Services Limited, PO Box 309, Ugland House, Grand Cayman KY1-1104,
Cayman Islands. Our agent for service of process in the United States is Law Debenture Corporate Services Inc., located at 801 2nd Avenue, Suite
403, New York, New York 10017.
Issuance of Convertible Senior Notes
On September 17, 2019, we completed our offering of US$200 million aggregate principal amount of 1.75% convertible senior notes due
2024 (including full exercise of the initial purchasers' option to purchase additional notes), raising US$194.5 million in net proceeds to us after
deducting underwriting discounts and commissions and other offering expenses.
Share Repurchase Program
In November 2019, we announced the adoption of a share repurchase program in an aggregate amount of up to US$100 million worth of our
outstanding ADSs from time to time over a period of 18 months, or the 2019 Share Repurchase Program. We did not repurchase any ADS in 2019,
being the period covered by this annual report. See "Item 16E. Purchases of Equity Securities by the Issuer and Affiliated Purchasers."
B.
Business Overview
We are a leading integrated Smart Supply Chain service provider in China. Our multi-sided platform combines integrated logistics and
supply chain services, last-mile services, value-added services and proprietary technology infrastructure. Our integrated logistics and supply chain
services encompass B2B and B2C supply chain management, express and less-than-truckload delivery, cross-border supply chain management and a
real-time bidding platform to source truckload capacity. Our last-mile services include online merchandise sourcing and store management for
convenience stores as well as B2C services. In addition, we provide value-added services to support our ecosystem participants and help them grow.
BEST Cloud, our proprietary technology platform that seamlessly connects our systems with those of our ecosystem participants, is the backbone that
powers our integrated services and solutions.
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We believe we are well positioned to transform the logistics and supply chain industry in China and capture growth opportunities in the New
Retail era, which is the seamless integration of online and offline retail to offer a consumer-centric, omni-channel and global shopping experience
through digitization and just-in-time delivery.
Our Integrated Logistics and Supply Chain Services and Solutions
BEST Express: We have one of the most extensive express service networks covering 100% of China's provinces and cities, and 100% of
China's districts and counties as of December 31, 2019. All service stations in our express service networks are franchised while all critical nodes in
our network including 100% of hubs and sorting centers are self-operated.
BEST Freight: We achieved a 64% CAGR in freight volume between 2012 and 2019. Our nationwide freight network covers 100% of
China's provinces and 98.8% of China's cities as of December 31, 2019.
BEST Supply Chain Management: We offer integrated services and solutions across the supply chain, including warehouse management,
order fulfillment, express delivery, freight and other services. As of December 31, 2019, we served over 890 corporate customers, including
multinationals and large Chinese corporates such as 3M, Li Ning, Hotwind and Cainiao Network, and numerous small and medium enterprises, or
SMEs.
BEST Global: We offer door-to-door integrated cross-border supply chain services to and from China, including international express,
LTL, fulfillment and freight forwarding through our own network and global transportation and warehouse partners. We operate warehouses in the
U.S. and Thailand, and have coverage in Vietnam, Australia, France, Japan, Korea, the United Kingdom, Malaysia, Hong Kong, Italy, India,
Indonesia, Saudi Arabia, Qatar, New Zealand, Kuwait, Laos, Russia and the United Arab Emirates through partners.We also provide local express
delivery services in Thailand, Vietnam and Malaysia.
BEST UCargo: We have built a real-time bidding platform to source truckload capacity from independent transportation service providers
and agents. As of December 31, 2019, over 5,100 transportation service providers and agents were registered on our BEST UCargo platform,
providing access to over 327,000 trucks covering 30 provinces in China.
Our Last-mile Services
BEST Store+ was created in 2015 to address pain points in the traditional retail industry such as high channel costs and inefficient supply
chain management. It offers online merchandise sourcing and store management services for convenience stores. It streamlines their supply chain by
enabling merchandise procurement directly through us, and outsourcing logistics needs to BEST Supply Chain Management, rather than through
multiple layers of distributors. We also started to leverage our BEST Store+ network to provide last-mile B2C services, such as parcel pick-up and
drop-off and bill payment. As of December 31, 2019, we had 414,136 membership stores.
Our Value-Added Services
BEST Capital utilizes data insights and close relationships with our ecosystem participants to provide various value-added services,
including customized financial services, such as fleet and equipment lease services, to support their operations and growth, and centralized sourcing
of products and services, such as bulk procurement of trucks and accessories, to help them obtain group discounts and reduce costs.
Our Technology Infrastructure
BEST Cloud is our proprietary technology platform. It enables our ecosystem participants to operate their businesses effectively through a
diverse range of SaaS-based applications. We utilize big data analytics, machine learning, artificial intelligence, or AI, and mobile technologies to
efficiently design, manage and operate complex supply chain services and solutions for our ecosystem. We apply our technologies to a diverse range
of applications, such as network and route optimization, swap bodies, sorting line automation, smart warehouses and store management to enhance
operational efficiency and service quality.
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Our Asset-Light Business Model
We operate an asset-light business model. We lease premises for our network facilities and outsource all of our transportation needs to third-
party service providers. In addition, we franchise almost all of our service stations in our express and freight network and the majority of our Cloud
OFCs. Our franchisee partners are responsible for investing in their own operations and have strong local expertise and proximity to customers,
which allows us to expand our network rapidly while optimizing our level of capital investment. As of December 31, 2019, we had approximately
9,807 franchisee partners in China who operate over 60,100 service stations in our express and freight network and 293 franchised Cloud OFCs in
China.
We have established a flat franchise network that minimizes the number of tiers of franchisees in order to maintain flexibility and control.
We self-operate all critical nodes in our network including 100% of hubs and sortation centers. This model ensures consistent service quality and
mitigates risk of service disruption. For BEST Supply Chain Management, we self-operate large-scale Cloud OFCs for key account customers in tier
1 and tier 2 cities, and franchise Cloud OFCs in lower-tier cities in China.
Our Ecosystem
Merchants, consumers, franchisee partners, transportation service providers and other suppliers are participants in our ecosystem, which is
strategically designed to benefit from its inherent network effect. As our platform grows and our suite of solutions and services expands, our
ecosystem will continue to attract new participants. The growing number of participants in our ecosystem enlarges our scale and extends our reach,
which drives network density and improves its overall efficiency.
Our Technology Infrastructure
BEST Cloud, our proprietary technology platform, is the backbone that powers our integrated solutions. It seamlessly connects our systems
with those of our ecosystem participants. We utilize big data analytics, machine learning, AI, and mobile technologies to efficiently design, manage
and operate complex supply chain systems for our ecosystem. Our technology allows us to provide end-to-end support for our customers and enables
our ecosystem participants to grow and prosper. We have also built a large and experienced technology team of over 870 professionals including
software engineers and other technology specialists.
We believe BEST Cloud and our strong technology team are key advantages distinguishing us from our competitors.
Fundamental System Architecture
The system architecture of BEST Cloud differs from traditional information systems. While traditional information systems focus on
monitoring, controlling and coordinating business processes individually, BEST Cloud focuses on connecting all endpoints in our ecosystem,
including those of our own service lines, facilities, equipment and employees and those of our customers and business partners. We believe this offers
the following advantages:
● We are able to weave together services from different networks to create new solutions for our customers.
● We are able to rapidly develop and launch new applications which can be deployed across the network.
● Our network users benefit from technology improvements instantly as they all have access to our centrally hosted systems.
Single Interoperable System
BEST Cloud connects all of our ecosystem participants by establishing millions of interlinkages among endpoints in our network. These
endpoints include human interfaces, such as web portals and mobile apps, our customers’ information systems and our own smart devices and
logistics equipment.
We plan to continue to increase the scale of our endpoints through development of more software and application interfaces and expand the
scope of our service offerings and attract more participants into our ecosystem. This will allow us to collect and analyze an increasing amount and
variety of data to provide better, more innovative services.
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Big Data Analytics
We view the data collected through BEST Cloud’s millions of endpoints as one of our most valuable assets. Through our big data analytics
engines, optimization engines and machine learning tools, we analyze this data to identify correlations and derive insights. These data insights enable
us to develop and improve our services and solutions, improve operating efficiency and reduce operating costs for us and our ecosystem participants.
We help merchants manage inventory, optimize their procurement and select merchandise with our big data analytics. We also apply big
data analytics to optimize operations of our express and freight service networks, including analysis of delayed deliveries and targeted service
improvements, load rate, and sort operations. Our big data analytics systems also aid in the calculation of labor costs in our hubs and sortation centers
based on processing volumes, which has been important in controlling our costs. Our hubs and sortation centers use this information in planning their
daily operations. We expect to utilize big data analytics in the development of new value-added services and to manage our financial and operating
risks. We have also internally developed XingNG, a data bus that can support billions of data exchanges between system components on a daily
basis.
These technologies allow us to process data more rapidly to support our operations in real-time and facilitate the growth of our technology
infrastructure in line with the growth of our service lines.
Machine Learning and Artificial Intelligence
We have deployed AI and machine learning technology to produce valuable insights using the massive amount of data collected by BEST
Cloud. The following examples illustrate the role AI and machine learning play in our business:
● Sorting operations. Our internally developed, patented smart sorting technology is able to learn to recognize nonstandard
addresses and maps express parcels to appropriate service stations at an accuracy rate of over 99.9% and at a rate of two
milliseconds per address. Traditionally, mapping of these non-standard addresses required manual processing and extensive local
knowledge.
● Station monitoring. Using machine learning technology, we are able to generate a station performance index for BEST Express
and BEST Freight franchisee partners using operating data in our system. With this index, we are able to identify at-risk service
stations, address related issues and maintain the stability and service quality of our network.
● Inventory planning. Based on predicted order volume and inventory operational cost, our AI technology calculates estimated
replacement volumes of goods needed at our Cloud OFCs to increase operational efficiency.
● Shipment planning. Based on the dimensions, weights, destinations and shipping times entered into our system, AI-powered
planning technology can automatically assign vehicles and routes to reduce delivery costs.
● Performance tracking. By applying machine learning technology to data from the thousands of routes in our network, we are able
to evaluate driver performance and estimate vehicle arrival times to optimize transportation resource allocation.
Data and Service Integration
BEST Cloud weaves information collected through the millions of endpoints and from our application and technology layers with the
capabilities available across our ecosystem to create smart solutions. For example, data collected from our Thunder (
optimize route planning for BEST Express and BEST Freight which allows them to provide on-time delivery while reducing costs. When
transportation service providers operating on our BEST Express network complete their deliveries, they are able to use the BEST UCargo mobile
application to bid on truckload jobs, which may be sourced from our BEST Freight franchisee partners, for the return route.
) routing engine is used to
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Red Sun (
), Big Dipper (
) and Thunder (
) are our proprietary big data analytics applications that respectively power our
automated sorting, provide service station mapping and optimize routes on our service network. We have also developed a number of mobile
applications for use by various ecosystem participants. For instance, Rulai Shenzhang (
workers for route navigation, parcel tracking and payment management. The Zhanggui (
management to provide instant dispatch monitoring, account settlement, reporting and customer relationship management.
) application is used by BEST Freight service station
) is an application used by BEST Express delivery
Asset-Light Business Model
We are an asset-light company. We lease facilities used in our operations and outsource all of our transportation needs to third-party service
providers. We have established a flat franchise network that minimizes the number of tiers of franchisees in order to maintain flexibility and control.
For BEST Supply Chain Management, we operate large scale Cloud OFCs in tier 1 and tier 2 cities and franchise the rest. For BEST Express and
BEST Freight, we directly operate all of the hubs and sortation centers at provincial, city and district levels, as well as certain strategic service
stations at street levels and franchise the majority of service stations. As of December 31, 2019, our franchisee partners operated 73.1% of our Cloud
OFCs, 100% of our service stations for BEST Express, and 99.1% of our service stations for BEST Freight.
Our asset-light business model allows us to optimize levels of self-operated and franchised operations to ensure the right balance of
scalability and control, and helps us expand our network in a cost-effective manner. By directly operating the critical parts of the network and
providing key services, we are able to achieve standardization, ensure technology integration and data visibility. Direct operation of the hubs and
sortation centers also gives us the flexibility to dynamically reconfigure and optimize our network, including consolidating sortation centers and route
optimization to improve operating efficiency and reduce costs. For instance, when volume generated by a service station reaches critical mass, we
may route its feeder service directly to hubs and bypass sortation centers with which it was previously connected. We spent approximately RMB650
million from 2010 to 2016 to buy back the operational rights of 247 former franchisee partners in 191 cities in order to expand our network and
achieve synergies. Our franchisee partners are responsible for investing in their own operations, thus allowing us to optimize the level of our capital
investment. We train and provide our franchisee partners with best business practices. Through BEST Cloud, we connect their systems to ours for
performance monitoring and data transparency. As a result, we can achieve scalability and growth while capitalizing on the franchisee partners’
strong local expertise and proximity to customers. Our flat franchise network minimizes the number of tiers of franchisees, which ensures consistent
service quality and mitigates risk of service disruption.
Relationship with Our Franchisee Partners
As of December 31, 2019, we had approximately 9,807 franchisee partners in China. We believe our relationships with franchisee partners
are mutually beneficial. Our technology infrastructure and supply chain service network empower our franchisee partners to increase operating
efficiency and improve their service quality. Our franchisee partners are also our marketing champions for customer acquisition, which significantly
reduces the need for a large centralized sales force. The success of our franchisee partners in turn contributes to the success of our network, allowing
us to provide a broader range of services, and attracts more participants to our ecosystem.
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We carefully evaluate potential franchisee partners before they are allowed to join our network. Once approved, we enter into agreements to
govern our relationships with franchisee partners. Pursuant to these agreements:
● We grant franchisee partners the right to provide service under our brand name in a specific geographic region during the term of
the agreements. We support franchisee partners with technology infrastructure, facilitating their integration into our broader
ecosystem. Franchisee partners are not allowed to provide similar services under their own names or the brand names of other
parties and are not allowed to assign their rights under the agreement to any third party without our consent.
● Franchisee partners are required to provide services that meet our quality standards as stipulated in our comprehensive operating
manual which covers every aspect of their operations. We also regularly provide training to the franchisee partners’ employees. We
have the right to inspect their service quality, demand correction, impose fines on them, or unilaterally terminate the contract if
their service quality cannot satisfy our standards within a remedial period.
● Our franchisee partners are required to pay a one-off fee as well as a performance deposit. The performance deposit may be
forfeited if they breach the agreement such as when their service quality does not meet our standards. We also provide them with
guidelines on the various fees they will pay us for use of our network.
As of December 31, 2019, we had a team of 363 local managers based across China, directly interacting with our franchisee partners on a
daily basis to ensure that our quality standards are followed and to help our franchisee partners solve problems and improve and expand their
services.
Our Service Offerings
Through our leading proprietary technology infrastructure and extensive supply chain service network, we offer comprehensive services and
solutions that include the following major categories:
Service Line
● BEST Express
● BEST Freight
● BEST Supply Chain Management
● BEST Store+
● BEST Global
● BEST Capital
● BEST UCargo
● BEST Cloud
BEST Express
Description
Express delivery of parcels under 15 kg
Door-to-door, LTL and FTL freight services
Integrated, customizable supply chain management services
Online merchandise sourcing and store management services for convenience stores and last-mile
B2C services
International supply chain, cross-border logistics services and local express delivery services in
Thailand, Vietnam and Malaysia
Financial services to support our ecosystem participants
Real-time truckload capacity bidding platform with value-added services
Proprietary technology powering our services and solutions
Our total parcel volume increased from 3,769.4 million pieces in 2017 to 7,576.2 million pieces in 2019, representing a CAGR of 41.8%.
We have one of the most extensive express service networks, covering 100% of China’s provinces and cities and 100% of China’s districts and
counties as of December 31, 2019. Our market share in China’s express delivery market, as measured by parcel volume, also increased steadily from
9.4% in 2017, to 10.8% in 2018 and further to 11.9% in 2019. Our peak daily parcel volume, which has historically occurred during the Singles’ Day
promotion, increased from 37.6 million in 2017 to 65.2 million in 2019.
BEST Express services
Through our network and together with our franchisee partners, we provide express delivery of parcels typically weighing less than 15 kg
with expected delivery time generally ranging from 24 to 72 hours.
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In addition, we offer customized delivery services such as COD facilitation, declared value insurance coverage, proof of delivery and rush
delivery. The principal types of parcels transported by us include items ordered on e-commerce platforms, such as Taobao Marketplace and Tmall,
and shipments by other merchants and consumers. We also provide packaging services specially designed for micro-merchants. BEST Express also
provides express services that support BEST Supply Chain Management’s fulfillment operations.
Express delivery service process
Senders either drop off parcels at our service stations or request pick up service. A waybill carrying a unique tracking number and
corresponding barcode is assigned to each parcel, allowing us to track its status throughout the entire delivery process. The pickup service station
may perform preliminary sorting of the parcels before sending them to our sortation centers and/or hubs covering its region. Service stations typically
make deliveries to sortation centers on a daily basis. Upon receipt of parcels sent from service stations, the sortation center and/or hub further sorts,
packs and dispatches the parcels to the destination sortation center and/or hub. The destination sortation center and/or hub unloads and sorts the
parcels, which are then delivered to the recipients by our service stations performing the last-mile delivery. Once the recipient signs on the waybill to
confirm receipt, a full cycle is completed.
Express delivery service pricing
When sending a package, senders make payment to the relevant pick-up service station. We set pricing guidelines, but our franchisee
partners have flexibility on pricing to effectively respond to local competitive dynamics based on business volume and long-term prospects of each
sender. We believe this model leverages our franchisee partners’ entrepreneurship and their insights into the local market.
Fee structure
Our express delivery service revenue from franchisee partners is mainly generated from an integrated fee that is comprised of (i) a fixed-
amount waybill fee for each parcel processed through our network, and (ii) a delivery service fee based on parcel weight, route and the scope of our
services and responsibilities.
Prior to 2017, we were not responsible for last-mile delivery of parcels unless we directly operated the destination service stations and,
therefore, pick-up service stations were directly liable to destination service stations for their delivery service charges. In the event of loss or damage,
the pick-up service station was responsible for working with the delivery service station to resolve the issue. Starting in 2017, in order to enhance the
parcel delivery experience and our control over service quality throughout our network, we revised our arrangements with franchisee partners and the
scope of our service. As a result, we became the principal that is directly responsible for last-mile delivery of all parcels processed through our
network, and we are liable to senders for damage to or loss of parcels in connection with last-mile delivery. In consideration of such expanded service
scope and increased responsibilities, we increased the fee that we charge to pick-up franchised service stations. We provide the last-mile delivery
service through franchised service stations under our supervision and are responsible for paying service fees to the destination franchised service
stations for the provision of last-mile delivery services.
We determine and periodically evaluate and adjust our fee levels based on prevailing market conditions, our operating costs and service
quality.
Express delivery service capacity
The maximum capacity of our express delivery service has been continuously increasing as we expand our network, increase line-haul
connections within our network and utilize technology to optimize our operations and increase efficiency. Our network has been designed to ensure
performance under extreme volumes and periodic fluctuations. During the Singles’ Day promotion period in 2017, 2018 and 2019, our network
processed 37.6 million, 50.0 million and 65.2 million parcels, respectively.
BEST Freight
Our total freight volume increased from 4,316 thousand tonnes in 2017 to 6,980 thousand tonnes in 2019, representing a CAGR of 27.2%.
Our nationwide freight network covers 98.8% of China’s cities as of December 31, 2019.
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BEST Freight services
BEST Freight’s core business involves LTL transportation. Through BEST Freight’s comprehensive network across China spanning pick-
up, distribution, transportation and delivery, we transport parcels and other goods generally weighing 15 kg or more.
BEST Freight provides door-to-door freight services for B2B and B2C shippers. Historically, the majority of items transported by BEST
Freight were shipped by B2B sellers to other businesses. As online sales of large consumer products, such as home appliances and furniture, have
significantly increased in recent years, shipments of these large consumer products directly to consumers from online and offline B2C sellers
comprise a greater proportion of the items we ship. In addition, BEST Freight provides value-added services including pre-shipment inspection, cargo
insurance, oversized item delivery, COD facilitation, evidence of delivery, and upstairs delivery services. BEST Freight also provides freight services
that support BEST Supply Chain Management’s fulfillment operations. We believe that consumption upgrade and increased sales of large items
through e-commerce will accelerate the development of LTL market, which is currently the focus of development for BEST Freight.
BEST Freight started to offer FTL transportation services in 2017 by leveraging our BEST UCargo platform to better serve the needs of
brands and large online and offline retailers.
Freight service process
The service process of BEST Freight is very similar to that of BEST Express. While the goods shipped through BEST Freight are larger and
heavier and thereby require different equipment, facilities and vehicles to sort and deliver, the major steps in the transportation process are essentially
the same. In addition, as we do not directly operate endpoint service stations for freight services, operations before the goods are sent to our sortation
centers and/or hubs and after the goods have left the destination sortation centers and/or hubs are normally provided by our franchisee partners.
However, BEST Freight also has certain direct merchant customers for which we directly provide door-to-door services that include first-mile pick-
up and last-mile delivery.
Freight service pricing
Substantially all of our endpoint service stations for freight services are operated by franchisee partners and we derive the vast majority of
our freight service revenue from franchisee partners that operate our service stations. The components of our freight service revenue are similar to
that of our express service revenue. As with our express service revenue, starting in 2017, in order to enhance the freight delivery experience and our
control over service quality throughout our network, we revised our arrangements with franchisee partners and the scope of our service. As a result,
we became the principal that is directly responsible for last-mile delivery of all goods sent through our network, and we are liable to senders for
damage to or loss of goods in connection with last-mile delivery. In consideration of such expanded service scope and increased responsibilities, we
increased the fee that we charge to pick-up franchised service stations. We provide the last-mile delivery service mainly through destination
franchised service stations under our supervision and are responsible for paying service fees to them for the provision of last-mile delivery services.
We determine and periodically evaluate and adjust our fee levels based on prevailing market conditions, our operating costs and service
quality.
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BEST Supply Chain Management
The table below sets forth information regarding the scale of our supply chain management services in China as of and for the periods
indicated:
Number of Cloud OFCs:
Self-Operated
Franchised
Total
GFA of Cloud OFCs (‘000 sq m)
Number of total orders fulfilled (‘000)(1)
Number of orders fulfilled during Singles’ Day promotion period (‘000)(1)
(1) Includes orders fulfilled by franchised Cloud OFCs.
BEST Supply Chain Management services
As of and for the year ended December 31,
2018
2019
2017
99
228
327
2,384
180,477
14,420
115
237
352
2,809
246,717
21,488
108
293
401
3,253
356,905
28,524
BEST Supply Chain Management provides one-stop, customizable supply chain management services to both online and offline businesses.
Leveraging our strong technology infrastructure and extensive supply chain service network, we provide comprehensive integrated solutions
including warehouse management, in-warehouse processing, order fulfillment, transportation services and value-added services.
BEST Supply Chain Management services include the following categories:
● Cloud OFCs. We offer warehouse management, in-warehouse processing and order fulfillment services to our customers to
optimize their inventory management and delivery process. We also provide and arrange transportation services and coordinate
shipments from merchants to our Cloud OFCs and from our Cloud OFCs to customers or consumers or other locations designated
by our customers as part of our order fulfillment services.
We created the concept of “cloud-based order fulfillment centers,” or Cloud OFCs, which differ from traditional warehouses in that
they can support direct order fulfillment and dispatch operations in addition to storage functions. They are “cloud-based” because
we take full responsibility for the optimal allocation of our customers’ inventory into different Cloud OFCs and save our customers
from the hassle of day-to-day operations, and therefore, from our customers’ point of view, these Cloud OFCs are “in the cloud.”
We use big data analytics and advanced algorithms to set optimal inventory levels across our Cloud OFCs based on expected
demands for our customers’ products to lower overall supply chain costs and improve service quality.
We directly operate some Cloud OFCs, and have allowed our franchisee partners to operate other Cloud OFCs for a volume-based
service system usage fee. All the Cloud OFCs use our technology infrastructure and are connected to the various information
systems across our platform. Therefore, we can allocate inventory of our customers effectively in our Cloud OFCs, leverage our
franchisee partners’ Cloud OFCs and coordinate our various services including subsequent transportation and delivery. Our
franchised Cloud OFCs also provide significant cross-selling opportunities for our other services. We constantly monitor the
service quality of our franchised Cloud OFCs to ensure the standardization of services across all the Cloud OFCs.
● Transportation Services. We provide and arrange transportation services and coordinate shipments to and from locations
designated by our customers, such as their factories, warehouses, distributors, customers or consumers and our Cloud OFCs.
Transportation from our Cloud OFCs is considered part of our order fulfillment services.
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We offer end-to-end transportation services from factories to consumers that may include FTL, LTL, regional distribution, intra-
city distribution, express delivery, freight forwarding and other transportation-related value-added services. We arrange and
optimize transportation services for our customers by evaluating options available from not just BEST Express and BEST Freight
but also from a variety of transportation service providers in the market to ensure the best quality and lowest cost. We believe this
approach is important to attracting and retaining customers.
● Value-Added Services. We also offer a full suite of SaaS-based solutions such as OMS and ERP to allow our customers to
improve their supply chain operations.
BEST Supply Chain Management’s technology system is integrated into our customers’ ERP systems to facilitate the management and
satisfaction of their warehousing and transportation needs. In addition, we provide a client portal to allow customers to monitor these operations at
any time, and track the status of individual orders throughout the delivery process.
We are also able to fully integrate online and offline channels to track, manage and deliver goods across our Cloud OFCs and our customers’
retail stores. This allows consumers to place orders online or offline, have goods delivered to their homes from any store or Cloud OFC, and pick up
and return goods at any store. We believe our ability to provide integrated supply chain management services across all sales channels has positioned
us well in the New Retail era.
BEST Supply Chain Management Service Pricing
We serve customers of varying sizes and are able to tailor our services to accommodate their business needs.
● We are able to serve the entire supply chain of our customers, most of which are well-known brands, as a one-stop supply chain
solutions provider. We normally enter into annual service contracts with these customers. Our contracts specify the details of our
services based on our customers’ expected sales volume and, when services are provided at our Cloud OFCs rather than on our
customers’ premises, the floor area of the Cloud OFCs to be used. Our contracts also typically specify the unit price for each
service we provide and hence, the amount of revenue we generate depends on the unit price and the volume we fulfill in connection
with various order fulfillment services, which may include in-warehouse processing, order fulfillment, express delivery, freight
delivery and other value-added services.
● For franchised Cloud OFCs, we charge a service system usage fee for each order processed through our network for their usage of
our technology infrastructure plus other fees such as for training. When franchised Cloud OFCs use our freight and express
services, we charge them our normal rates for such services, and such revenue is recognized by BEST Freight and BEST Express.
● For small and medium customers, most of whom are online sellers, we offer a full range of standardized services, and we charge
different prices for different services.
BEST Store+
BEST Store+ was created in 2015 to address pain points in the traditional retail industry such as high channel costs and inefficient supply
chain management. As of December 31, 2019, we had 414,136 membership stores across China and help them tackle the challenges they face by
leveraging the strengths of our technology infrastructure and ecosystem. We offer smart supply chain solutions to businesses. Our online and mobile
S2B platform allows convenience stores to source merchandise from BEST directly at competitive prices instead of through multiple layers of
distributors. Leveraging our brand and capabilities in branded stores, we authorize certain membership stores to use our brand name, and empower
the stores with our data and technological advantages and customer service integration. We also leverage our BEST Store+ network to provide B2C
services. We provide last-mile and value-added services such as online-to-offline, parcel pick-up and drop-off, and others.
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Convenience store network
Convenience stores in our network fall into two categories: membership stores and branded stores. Membership stores are stores registered
on our website, owned and operated by third parties. We have experienced rapid growth in our membership stores primarily through organic growth,
from 363,755 as of December 31, 2017 to 414,136 as of December 31, 2019. We authorize certain membership stores to use our brand name. In 2017
and 2018, we acquired WOWO and another convenience store chain in China, which in aggregate had 346 convenience stores (under the WOWO
brand) as of December 31, 2019. We acquired these stores in order to further accumulate first-hand experience and know-how in convenience store
operations and explore new services and products to integrate traditional convenience stores into our store service network.
Dianjia.com services
Our B2B platform Dianjia.com sources merchandise from brands and top-layer distributors to directly supply convenience stores, thereby
eliminating the multiple layers of the traditional distribution network. It helps convenience stores procure inventory at more competitive prices,
allowing them to reduce procurement costs, improve services and enhance sales. Dianjia.com also helps convenience store operators predict demand,
optimize inventory levels and product mix and reduce their working capital needs by using big data analytics.
BEST Store+ service pricing
We primarily generate revenue for BEST Store+ from sales of merchandise to membership stores through Dianjia.com. We acquired
WOWO in May 2017, and since then, we have also generated revenue from sales of merchandise by our self-operated stores to consumers. For some
of our branded stores, such as BEST-Neighbor stores, we generated revenue not only from sales of merchandise, but also from franchising fee. As
most of the products sold are standard consumer products, they are generally priced taking into account prevailing market rates and geographical
locations of the stores.
BEST Global
In order to meet the strong demand for cross-border e-commerce transactions, we provide inbound and outbound door-to-door integrated
cross-border supply chain services, including international express, LTL, fulfillment and freight forwarding through our own network and global
transportation and warehouse partners. We provide direct mail and bonded warehouses, customs clearance and fulfillment to overseas merchants
offering goods into China. We also provide full supply chain services, including local fulfillment, as well as other market advisory services to
Chinese merchants selling into overseas markets.
We operate Cloud OFCs in the U.S., and Thailand, occupying approximately 1,330,000 square feet of space. We also offer coverage through
our partners in Vietnam, Australia, France, Japan, Korea, the United Kingdom, Malaysia, Hong Kong, Italy, India, Indonesia, Saudi Arabia, Qatar,
New Zealand, Kuwait, Laos, Russia, and the United Arab Emirates. We also manage eight bonded Cloud OFCs in China, including one of the largest
cross-border bonded warehouses that fulfills orders generated on Tmall Global. In addition, our Urumqi Frontier Cloud OFC facilitates shipments to
destinations in Central Asia, Russia and other destinations using land transport links across Eurasia. We contract with third-party transportation
service providers for transportation services, including transportation within China, international air and sea freight providers, and local fulfillment
companies. In China, we may also provide transportation services through our other service lines, such as BEST Express and BEST Freight. Pricing
of services is primarily determined by prevailing market rates.
To further expand our footprint and capture growth opportunities in Southeast Asia, BEST Global launched its express delivery services in
Thailand’s Greater Bangkok area in the fourth quarter of 2018. The service has been expanded nationwide to provide flexible, fast and high-quality
delivery services across Thailand with operation centers in Bangkok, Khon Kaen, Phitsanulok and Suratthani. Starting in July 2019, we started to
operate a local express network in Vietnam after acquiring a local express delivery company. Commencing in April 2020, we further expanded our
local express delivery services to Malaysia through a strategic acquisition of a local express delivery company.
As of December 31, 2019, BEST Global had four hubs and eight sortation centers in Thailand and four hubs in Vietnam. We directly operate
all of these hubs and sortation centers as they are critical to ensuring the service quality of our network.
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BEST Capital
Through BEST Capital we provide certain financial services and support to participants in our ecosystem to help them grow their businesses,
and improve the overall efficiency of our network.
We offer financing lease related services to help our franchisee partners and transportation service providers acquire trucks and other
logistics equipment to grow their businesses and provide better services. As of December 31, 2019, we provided financing lease related services for
the purchase of over 10,600 trucks through BEST Capital. We normally require installation of vehicle monitoring devices and truck management
systems on these trucks to help us monitor and manage the fleets. BEST Capital also provides support to certain franchisee partners and
transportation service providers to satisfy their short-term capital needs from time to time. We are able to take as collateral certain operating assets
which we are able to monitor and repossess for rapid utilization and/or monetization in the event of a default. In addition, as most of the parties to
which we provide financial services are our ecosystem participants, we have substantial knowledge about their business and operations and can
monitor their financial position and their usage of collateralized assets.
BEST Capital also offers centralized sourcing of products and services used by our franchisee partners and transportation service providers
such as bulk procurement of trucks and accessories to obtain group discounts and reduce costs.
BEST UCargo
BEST UCargo is a real-time bidding platform, powered by BEST Cloud, to source truckload capacity from independent transportation
service providers and agents. As of December 31, 2019, over 5,100 transportation service providers and agents with access to over 327,000 trucks
covering 30 provinces in China were registered on the BEST UCargo platform. When we or our ecosystem participants have temporary or long-term
truckload transportation needs, we post these jobs on the BEST UCargo platform. Registered transportation service providers that have corresponding
transportation capacity will bid on these jobs. The transportation service providers for each posted job on the BEST UCargo platform are selected and
assigned by us based on bid price and service quality.
Starting in 2016, when we source truckload capacity for our ecosystem participants, they pay us directly while we are responsible for
payment to the transportation service providers and agents. We believe our ability to leverage our technology infrastructure, transportation services
and handle payment flows increases the credibility of BEST UCargo as compared to other online platforms. The large amount of demand for
transportation services from us and our ecosystem participants also distinguishes BEST UCargo from other online platforms and helps attract a large
number of transportation service providers and agents.
Starting in 2017, UCargo has opened the platform to external clients for sourcing truckload capacity. We plan to further expand this service
in order to attract more merchants and transportation service providers to the platform and increase transaction volume and revenue.
To leverage the increasing scale of our BEST UCargo platform, we intend to offer truck pooling and additional value-added services to
transportation service providers and agents, such as bulk procurement of vehicle insurance, gasoline and electronic toll collection credits.
BEST Cloud
Our proprietary BEST Cloud service platform powers the technology solutions and applications for our ecosystem. Our franchisee partners
use BEST Cloud to run their operations, including to manage franchised Cloud OFCs, BEST Express and BEST Freight operations. Convenience
store operators use our B2B platform Dianjia.com for store management and merchandise sourcing. As of December 31, 2019, BEST Cloud had over
1.5 million users of its SaaS, OMS and ERP solutions and over 46 million subscribers on public accounts on popular online platforms. Our best-in-
class technology and big data analytics capabilities drive operational excellence and enhance value creation across our ecosystem.
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BEST Cloud offers integrated web and mobile portals, which we refer to as our network endpoints, for merchants, consumers, franchisee
partners and employees, providing access to a wide range of applications and services, such as SMS, OMS, TMS, WMS, billing and payment
settlement, CRM and customer data tracking and analytics. We refer to these applications and services as the application layer. Applications may be
integrated with the data and systems of our customers, such as their ERP, messaging, payment gateway and business intelligence. The application
layer is supported by the technology layer, which consists of a robust set of tools such as AI, big data analytics, geographic information system,
address mapping, performance monitoring, mobile apps and others. In the data integration layer, we weave information collected through millions of
endpoints and from the application and technology layers with the capabilities available across our ecosystem to create smart solutions.
Our Supply Chain Service Network
We have established a nationwide, integrated supply chain service network. The seamless integration of this network with our technology
infrastructure has laid the foundation for our service offerings and our rich and growing ecosystem. We are asset-light as we lease facilities used in
our operations and outsource all of our transportation needs to third-party service providers.
Network Facilities
Our network facilities include Cloud OFCs, hubs and sortation centers, service stations and convenience stores.
Order Fulfillment Centers (Cloud OFCs)
Cloud OFCs are warehouses with direct order fulfillment functions, which allow us to manage inventory for our customers and dispatch
products from the Cloud OFCs directly to their customers whether consumers or businesses. As of December 31, 2019, we had 401 Cloud OFCs with
an aggregate gross floor area of approximately 3.3 million square meters. Among these Cloud OFCs, 108 were directly operated by us and 293 were
operated by our franchisee partners.
Hubs and Sortation Centers
All of our hubs and sortation centers can collect, sort and dispatch parcels or goods to hubs and sortation centers in other regions and cities.
Our hubs are generally large logistics facilities located in major cities in China. Each of our hubs is connected to most of our other hubs by
line-haul transportation and therefore can dispatch parcels and goods directly to most other regions in China.
Our sortation centers are generally smaller-scale logistics facilities compared to hubs and each of them is primarily connected to nearby hubs
and/or other sortation centers by feeder services. They can dispatch parcels and goods to other regions through nearby hub or directly to nearby cities
and regions. When a sortation center reaches critical mass, we will connect it directly to hubs and sortation centers in other regions by line-haul
transportation.
As of December 31, 2019, BEST Express had 59 hubs and 29 sortation centers, and BEST Freight had 56 hubs and 42 sortation centers. We
directly operate all of these hubs and sortation centers as they are critical to ensuring the service quality of our network. Over 41% of BEST Freight
hubs and sortation centers are adjacent to BEST Express hubs and sortation centers, allowing them to share resources between the two facilities, thus
increasing operating efficiency and reducing costs.
We continue to optimize our hubs and sortation centers as our volume grows.
Service Stations
Service stations are responsible for developing relationships with senders within its coverage area and picking up parcels and other goods
from senders for delivery through our network. They also handle last-mile delivery of parcels and other goods sent through our network to recipients
located within their coverage areas.
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As of December 31, 2019, we had over 60,100 service stations, of which over 42,400 were BEST Express service stations and over 17,700
were BEST Freight service stations. BEST Express service stations cover 100% of China’s provinces and cities, and 100% of China’s districts and
counties. BEST Freight service stations cover 100% of China’s provinces, 98.8% of China’s cities and 96.2% of China’s districts and counties. As of
December 31, 2019, all of our BEST Express service stations and substantially all of our BEST Freight service stations were operated by franchisee
partners.
Convenience Stores
As of December 31, 2019, we had 414,136 membership stores in 37 cities in China. In May 2017, we acquired WOWO to gather first-hand
experience and know-how in convenience store operations. We had 3,614 branded stores as of December 31, 2019, including franchised BEST-
Neighbor, self-operated WOWO and franchised WOWO.
We view the stores in our network as a strategic expansion of our supply chain service network. We believe convenience stores on our
BEST Store+ network will help us significantly increase first-mile and last-mile coverage with minimal investment and operational costs, providing
us with a unique advantage in serving the full scope of our ecosystem participants in the New Retail era.
Transportation Fleet
Line-Haul and Feeder Services
We generally use line-haul services for long-distance, cross-region transportation and feeder services for shorter-distance, inter-region
transportation.
We are responsible for arranging all of the line-haul transportation in our network. As of December 31, 2019, our network had over 4,000
BEST Express line-haul routes and over 2,100 BEST Freight line-haul routes.
We are also responsible for arranging feeder services between our hubs and sortation centers as well as between our different sortation
centers. We also arrange feeder services between our self-operated Cloud OFCs and our hubs or sortation centers. In addition, we also arrange feeder
services between our directly-served customers and our self-operated Cloud OFCs, hubs and sortation centers.
Our franchisee partners are responsible for arranging feeder services from their service stations to our sortation centers or hubs. They also
arrange transportation for their directly-served customers and franchised Cloud OFCs.
Fleet Management
We have historically relied on trucks and other vehicles owned and operated by independent transportation service providers.
We have taken various measures to enhance our control over the trucks used in our network and increase their utilization to reduce
transportation costs across our network. For example,
● While we continue to rely on independent transportation service providers to provide trucks and drivers, we started to provide
financing to them through BEST Capital for truck purchases, install data collection equipment and truck management system on
these trucks, and hire these trucks together with their drivers for our use and management on a time charter basis.
● We use swap bodies, which are standard freight containers that can be conveniently mounted on tractors for road transportation.
This allows us to increase the utilization rate of tractors and their drivers by reducing the waiting time during loading and
unloading. This also allows us to better match swap bodies to freight volume and thereby minimize empty containers and save on
fuel cost. We are also utilizing our technology infrastructure to optimize route planning and tractor-to-swap body ratio to further
reduce our transportation costs.
● We shared some line haul trucks between express and freight network for some routes to save overall costs.
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● In 2016, we also launched our real-time bidding platform, BEST UCargo, to source truckload capacity from independent
transportation service providers and agents at more competitive costs.
Operating Efficiency and Capacity
We have continuously expanded the capacity and improved the operating efficiency of our Cloud OFCs, hubs, sortation centers and service
stations through optimization of our operating processes as well as the increased adoption of automation and AI.
As of December 31, 2019, nine of our Cloud OFCs used 150 AGVs, which have increased the order fulfillment capacity of these Cloud
OFCs while increasing efficiency and accuracy and reducing labor costs. We are also able to support extreme volumes across our network, as
illustrated by the fulfillment of over 28.5 million orders during the Singles’ Day promotion period in 2019.
As of December 31, 2019, we had 88 automated sorting lines in our hubs and sortation centers. These automated sorting lines are able to
achieve sorting accuracy of over 98.7% and our double-layer high speed automated sorting lines are able to sort over 45,000 items per hour, which is
significantly higher than manual sorting.
We utilize big data analytics, AI and machine learning to optimize our network operations, route planning and line-haul routes to reduce
costs. We also capitalize on synergies from our different services.
We continue to introduce technological enhancements to improve our capabilities and increase efficiency. BEST Cloud integrates
convenience stores’ POS and membership rewards program with Store and Supply Chain Management for full data visibility. It also integrates BEST
Express and BEST Freight’s dynamic routing calculation, which is expected to further reduce transportation costs. In addition, BEST Cloud has
started a pilot simulation process in Cloud OFCs and BEST Express hubs to analyze and optimize personnel resources planning in order to increase
labor utilization efficiency.
Our Ecosystem Participants
We have built a rich and growing ecosystem with various types of participants. Many of our ecosystem participants not only receive but also
provide services to us and therefore are both our customers and suppliers. Our ecosystem participants also provide services to other ecosystem
participants. Our technology infrastructure and supply chain service network enable us and our ecosystem participants to provide better services and
improve operating efficiency, which ultimately benefit all participants in our ecosystem.
Merchants
Merchants in our ecosystem include (i) brands, (ii) distributors, (iii) large online and offline retailers, (iv) other sellers on various
e-commerce platforms, or online sellers, most of which are SMEs and individuals, and (v) membership stores.
We provide BEST Supply Chain Management services to brands, large online and offline retailers and an increasing number of online
sellers. We also offer BEST Cloud services and cross-sell BEST Express, BEST Freight and BEST Global services to them as part of our integrated
solution. In such transactions, these merchants are our customers.
We also source merchandise from brands and top-tier distributors and sell them to membership stores through our B2B platform
Dianjia.com. In addition, we provide door-to-door delivery and value-added services to the stores. In these transactions, brands and top-tier
distributors are our suppliers and membership stores are our customers.
Merchants are our direct customers when they use BEST Express, BEST Freight and Cloud OFC services directly through us. Merchants are
customers of our franchisee partners when they use BEST Express, BEST Freight and Cloud OFC services through our franchisee partners.
As we continue to expand service offerings, we expect more merchants to become customers and suppliers of our services in the future. For
example, as we plan to provide financial services to membership stores, we expect they will become customers of BEST Capital, and as we utilize
these stores to extend our last-mile service network, we expect they will become important suppliers for BEST Express and BEST Freight as well.
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Our largest merchant customers include brands such as 3M, Li Ning, Hotwind and Cainiao Network and large online and offline retailers,
but no single customer contributed more than 5% of our total revenue in 2017, 2018 or 2019. In addition, many of our merchant customers conduct
their businesses on major e-commerce platforms in China. Our volume of express deliveries generated from merchants on major Alibaba platforms
such as Taobao Marketplace and Tmall accounted for approximately 51% of our express deliveries in 2019.
Consumers
When individual consumers use BEST Express at our self-operated service stations, make a purchase at our self-operated convenience
stores, or order goods from overseas through our platform, they are our direct customers. For most of our other services and solutions, we serve
consumers indirectly through merchants and our franchisee partners.
Franchisee partners
Franchisee partners for our BEST Express, BEST Freight and Cloud OFCs are our customers. In addition, we have started to provide other
services, such as an FTL freight real-time bidding platform under BEST UCargo and financial services under BEST Capital. We may also provide
additional services, such as feeder services connecting franchised service stations and our hubs and sortation centers, to our franchisee partners in the
future.
Prior to 2017, we were not responsible for last-mile delivery of parcels or freight items unless we directly operated the destination service
stations, and therefore franchisee partners were directly liable to franchised service stations for their delivery service charges. Starting in 2017, all of
our franchisee partners for BEST Express and BEST Freight also provide last-mile delivery services to us and therefore are our suppliers.
Other ecosystem participants
Other participants in our ecosystem include transportation service providers and other suppliers.
Transportation service providers have traditionally been our suppliers as we use them for line-haul transportation and feeder services that
connect our network. They are also suppliers of our FTL freight real-time bidding platform under BEST UCargo as we use them to provide
transportation services for franchisee partners and our other service lines. As we expand our BEST Capital service, they have increasingly become
customers of our various financial services.
Given the variety of participants and transactions in our ecosystem, we rely on many other suppliers to provide products and services to us
and our ecosystem participants. These include other capacity carriers such as airlines and shipping companies that provide cross-border transportation
services, truck and logistics equipment manufacturers from which transportation service providers and our franchisee partners procure trucks and
other equipment using our financial services, landlords from which we and our franchisee partners lease premises for our network facilities, insurance
providers from which we procure insurance products for various ecosystem participants, and financial institutions from which we may obtain
financing.
As we continue to grow our ecosystem and expand our service offerings, we expect to attract an increasing number and variety of
participants into our ecosystem.
Marketing and Sales
We have established our brand awareness through continuous innovation and high service quality. While we have mainly relied on word-of-
mouth referrals, we also utilize various advertising channels to increase our brand awareness among potential customers.
Marketing and sales of our supply chain solutions and transportation services is led by a team of 1,242 personnel as of December 31, 2019.
Our senior management is also significantly involved in building relationships with customers, especially current and potential major partners. In
addition, from time to time, we initiate promotions to expand our customer base and build familiarity with our brand. As we have multiple service
lines, there are many opportunities for cross-selling across our platform as we seek to introduce customers to our other service offerings in addition to
the service line with which they engage initially. We also believe our strong reputation is a factor in retaining and attracting customers.
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In addition to our centralized marketing efforts, we empower our franchisee partners to promote BEST services. Successful initiatives will
increase demand for services in their franchised areas across our entire network. Our marketing team assists franchisee partners in the identification
of new marketing leads and coordination of new initiatives.
Customer Service
The quality of our service directly affects our customer loyalty and brand image. We directly operate the critical parts of our network and
selectively franchise out services to franchisee partners. To maintain consistent standards within our network, we provide periodical training to our
franchisee partners’ employees and regularly inspect franchisee partners’ service quality.
We have established a customer relationship management system, or CRM, that allows us to effectively manage service quality issues and
promptly address customer inquiries. Customers can access the system by phone or online channels. We currently operate 12 call centers that are
dedicated to customer service. Our call center representatives provide real-time assistance from 8:00 am to 8:00 pm, seven days a week. Our call
system automatically forwards each incoming call to an available representative from one of the call centers. After the submission of each enquiry,
we ask the customer to rate the quality of our customer service, and we follow up on instances where customers are not completely satisfied. For each
complaint, we strive to provide an initial response within 24 hours, and to resolve the issue within three days.
Intellectual Property
We regard our trademarks, trade secrets, domain names, copyrights, patents, know-how, proprietary technologies and similar intellectual
property as critical to our business. As of December 31, 2019, we had 518 trademark registrations in China, including those of “百世” and “百世物
流” and were in the process of making 768 trademark applications in China. As of December 31, 2019, we had 48 trademark registrations outside
China and were in the process of making 144 trademark applications outside China. We have also been granted 41 copyrights in China in respect of
our proprietary information systems. We are the registered holder of 169 domain names, including best-inc.com. We have 22 issued patents and 59
publicly filed patents under application in China. We also rely on confidentiality and invention assignment provisions in the employment agreements
that we enter into with key employees engaged in research and development. We have implemented a data security system which strictly controls
access to our technology and information systems.
Security and Safety
We have integrated safety policies and procedures across our businesses. Our key safety measures include:
Operational security and Safety
We have enacted a full range of operational security measures to ensure the safety of our employees, customers and partners. We screen all
items processed through our network for dangerous and prohibited materials, enforce handling procedures across hubs and sortation centers, service
stations and at each level of our network and raise transportation safety awareness among our workers and others. Each worksite in our network is
required to conduct a general safety assessment with regard to onsite activities, including maintenance as well as non-routine tasks. We train our
employees as well as those of our franchisee partners and service providers and use periodic follow-up training to maintain skills and safety
awareness. We have further improved our safety management system by setting up safety management teams at each worksite. These teams provide
comprehensive onsite safety management training including operational safety, work health and safety, daily transportation safety, goods safety and
security checks.
Technology
We and our partners operate trucks configured with GPS tracking as well as integrated safety features such as ESP body stability systems,
VDS dynamic steering systems, EBS electronically controlled braking systems, hydraulic brakes, ramp-assist starters and ABS anti-lock braking
systems. We are able to provide updates and alerts to drivers, warehouse employees and others involved in our operations as needed. In addition, we
utilize advanced equipment at our facilities to reduce risks to workers involved in sorting and moving goods as well as loading and offloading items
from vehicles. We also employ digital workforce management technology to monitor employee work hours to ensure compliance with regulations
and reduce fatigue-related risks. Using BEST Cloud, we are able to monitor vehicles and goods as they move across our network and system and can
leverage BEST Cloud’s insights to identify risk areas and address them proactively.
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Employees
As of December 31, 2017, 2018 and 2019, we had a total of 8,784, 8,325 and 8,423 employees, respectively. We believe we have a good
working relationship with our employees and have not experienced any significant labor disputes in the past. The majority of our employees are
based in China, and we also have employees in certain other countries.
The following table sets forth details of our employees as of December 31, 2019 by function:
Function
BEST Supply Chain Management
BEST Express
BEST Freight
BEST Store+
Other Service Lines
Technology
Management, Administration and Others(1)
Total
Number of
Employees
1,394
1,657
1,369
1,041
949
871
1,142
8,423
% of Total
16.5 %
19.7 %
16.3 %
12.4 %
11.3 %
10.3 %
13.6 %
100.0 %
(1) Includes management and administration personnel at headquarters and local level.
In addition to our own employees, we engage outsourcing firms that provide large numbers of their employees to work at our facilities. As
of December 31, 2019, over 31,600 outsourced personnel were active in our operations. Our franchisee partners and service providers engage their
own employees in connection with their operations.
In order to maintain a high standard of performance, reliability and safety across our network, we conduct training for our employees as well
as those of our franchisee partners and service providers. We provide these trainings through a variety of programs led by our internal BEST
University initiative, which includes specialized programs for individuals of each job type and level of seniority. Many of our technology
professionals have received training and certifications from globally-recognized technology service organizations.
As required by PRC regulations, we participate in various government statutory employee benefit plans, including social insurance funds,
namely a pension contribution plan, a medical insurance plan, an unemployment insurance plan, a work-related injury insurance plan, a maternity
insurance plan (which shall be consolidated into the medical insurance) and a housing provident fund. 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.
Properties
As part of our asset-light strategy, we currently lease all of the facilities that we occupy from independent third parties. Our headquarters are
located at 2nd Floor, Block A, Huaxing Modern Industrial Park, No. 18 Tangmiao Road, Xihu District, Hangzhou, Zhejiang Province 310013,
People’s Republic of China. As of December 31, 2019, our headquarters had an aggregate gross area of approximately 15,566 sq m. In addition, we
have leased an aggregate of 5.4 million square meters of industrial and warehouse space for the administration and operation of self-operated Cloud
OFCs, hubs and sortation centers as of December 31, 2019.
We believe that the facilities that we currently lease are adequate to meet the needs of our current operations, and that we will be able to
obtain adequate facilities to accommodate our future expansion plans.
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Insurance
We have in place insurance coverage up to a level which we consider to be reasonable and typical for companies in our industry in China.
Our insurance broadly falls under the following categories: life insurance, such as group accident insurance; property loss insurance, such as cargo
transportation insurance; all-risk property insurance; and liability insurance, such as non-motor vehicle liability insurance, public liability insurance
and logistics liability insurance. We also provide benefits to our employees pursuant to local social insurance laws, including pension insurance,
unemployment insurance, work-related injury insurance, maternity insurance (which shall be consolidated into the medical insurance) and medical
insurance.
Competition
Our extensive supply chain solutions encompass a wide range of operational areas, and as a result we may compete with a broad range of
companies, including supply chain management service providers, express and freight delivery service providers, B2B platforms for convenience
stores, SaaS software service providers and logistics brokers.
We compete with total supply chain solution providers, such as JD Logistics and SF Holdings. Certain service lines may also face
competition from other service providers, such as P.G. Logistics and Annto Logistics for supply chain management services; ZTO Express, YTO
Express, STO Express, YUNDA and J&T Express for express services; DEPPON Logistics and ANE Logistics for freight services; JD.com’s
network of convenience stores and Zhongshang Huimin for our BEST Store+ business. In addition, our other services may face competition from
companies that provide similar or competing services.
Legal Proceedings
We may become subject to legal proceedings, investigations, claims and administrative fines incidental to the conduct of our business from
time to time. We are not currently a party to, nor are we aware of, any legal proceeding, investigation or claim which, in the opinion of our
management, is likely to have a material adverse effect on our business, financial condition or results of operations.
Regulatory Matters
The following is a summary of the most significant rules and regulations that affect our business activities in China or our shareholders’
rights to receive dividends and other distributions from us.
Regulations Relating to Foreign Investment
Industry Catalogue and Negative List Relating to Foreign Investment. Investment activities in China by foreign investors used to be
principally governed by the Guidance Catalogue of Industries for Foreign Investment, or the Catalogue, which was promulgated and is amended from
time to time jointly by the Ministry of Commerce, or the MOFCOM, and the National Development and Reform Commission, or the NDRC. On June
28, 2017, the MOFCOM and the NDRC jointly promulgated the Guidance Catalogue of Industry for Foreign Investment (2017), or the 2017
Catalogue, which became effective on July 28, 2017. On June 28, 2018, the MOFCOM and the NDRC jointly promulgated the Special
Administrative Measures for Entrance of Foreign Investment (Negative List) (2018 Version), or the Negative List 2018. The Negative List 2018
replaced the Special Administrative Measures for Access of Foreign Investment (the Negative List for Access of Foreign Investment) set forth under
the 2017 Catalogue. The encouraged foreign investment industry catalogue set forth under the 2017 Catalogue was replaced by the Encouraged
Foreign Investment Catalogue (2019 version), or the Encouraged Industry Catalogue, which was promulgated by the NDRC on June 30, 2019 and
became effective on July 30, 2019.
Pursuant to the Encouraged Industry Catalogue and the Negative List 2019, foreign-invested projects are categorized as encouraged,
restricted and prohibited. Industries that are not listed in either of the Negative List and Encouraged Industry Catalogue are permitted areas for
foreign investments, and are generally open to foreign investment unless specifically restricted by other PRC regulations. Foreign investment
activities in China are subject to the special administrative measures prescribed in the Negative List 2019.
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Pursuant to the Negative List 2019, foreign investments in domestic express delivery services of mail are prohibited, and foreign
investments in value-added telecommunications services (other than business of e-commerce, domestic multiparty communication, store-and-forward
business and call center) are subject to special administrative measures including restriction on foreign shareholding. Therefore, in China we provide
domestic express delivery services of mail through Hangzhou BEST Network, our VIE, and its subsidiaries in China, value-added
telecommunications services (other than those in connection with our BEST UCargo business) through Hangzhou BEST Network, and value-added
telecommunications services in connection with our BEST UCargo Business through Hangzhou BEST IT and its subsidiaries in China.
Our PRC subsidiaries also operate in certain industries which are industries listed in the Encouraged Industry Catalogue, such as road
transportation and software development. Most of our PRC subsidiaries mainly engage in software development, technical services and consultations,
which are industries listed in the Encouraged Industry Catalogue.
Under current PRC law, the establishment of a foreign-invested enterprise is no longer subject to the approval of the MOFCOM or its local
counterparts. The foreign investors or foreign-invested enterprise shall report investment information to competent authority of commerce through
enterprise registration system and Enterprise Credit Information Disclosure System.
Foreign Investment Law. On March 15, 2019, the National People’s Congress of China approved the Foreign Investment Law, which took
effect on January 1, 2020 and replace three existing laws on foreign investments in China, namely, the Sino-Foreign Equity Joint Venture Enterprise
Law, the Sino-Foreign Cooperative Joint Venture Enterprise Law and the Foreign Owned Enterprise Law, together with their implementation rules
and ancillary regulations. The Foreign Investment Law embodies an expected PRC regulatory trend to rationalize its foreign investment regulatory
regime in line with prevailing international practice and legislative efforts to unify corporate legal requirements for both foreign and domestic
invested enterprises in China. The Foreign Investment Law establishes a basic framework for the access to, and the promotion, protection and
administration of foreign investments with a view to investment protection and fair competition.
According to the Foreign Investment Law, “foreign investment” refers to investment activities directly or indirectly conducted by one or
more natural persons, business entities, or other organizations of a foreign country (collectively referred to as “foreign investors”) within China, and
such investment activities include the following situations: (i) a foreign investor, individually or collectively with other investors, establishes a
foreign-invested enterprise within China; (ii) a foreign investor acquires stock shares, equity shares, shares in assets, or other similar rights and
interests of an enterprise within China; (iii) a foreign investor, individually or collectively with other investors, invests in a new project within China;
and (iv) investments in other means as provided by laws, administrative regulations, or the State Council. As such, there is still leeway for future
laws, administrative regulations or provisions of the State Council to classify contractual arrangements as a form of foreign investment. Therefore,
there can be no assurance that our control over our VIEs through contractual arrangements will not be deemed as foreign investment in the future.
See “Item 3. Key Information—D. Risk Factors—Risks Related to Our Corporate Structure—Our current corporate structure and business operations
may be affected by the newly enacted Foreign Investment Law.”
In addition, according to the Foreign Investment Law, the State Council will publish, or approve to publish, a catalogue for special
administrative measures, or the “negative list.” The Foreign Investment Law grants national treatment to foreign-invested entities, except for those
foreign-invested entities that operate in industries deemed to be either “restricted” or “prohibited” in the “negative list.”
On December 26, 2019, the State Council promulgated the Implementation Rules to the Foreign Investment Law, which took effect on
January 1, 2020. The implementation rules further clarified that the state encourages and promotes foreign investment, protects the lawful rights and
interests of foreign investors, regulates foreign investment administration, continues to optimize foreign investment environment, and advances a
higher-level opening.
As required by the State Council, MOFCOM, NDRC and the Ministry of Justice are leading the abolishment or revisions of other foreign
investment related laws, which are inconsistent with the Foreign Investment Law. It may be anticipated that further revisions to regulations relating to
foreign investment would be promulgated.
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Foreign Investment in Road Transportation Businesses. According to the Administrative Provisions for Foreign Investment in the Road
Transportation Industry, promulgated in November 2014 by the Ministry of Transport and the MOFCOM, and its supplements and implementing
rules, investment in a road transportation business (including, among other things, road freight transportation, and flitting, loading, unloading and
storage of road cargo) by a foreign investor is subject to the approval of the relevant provincial counterparts of the Ministry of Transport, and the
newly established foreign-invested enterprise must obtain a road transportation operation permit from the relevant provincial counterparts of the
Ministry of Transport after the completion of other foreign investment registration procedures. The incorporation of any direct or indirect subsidiary
of a foreign-invested enterprise that intends to engage in road transportation business is subject to the same approval procedure. The Administrative
Provisions for Foreign Investment in the Road Transportation Industry were abolished by the Ministry of Transport and the MOFCOM on
October 25, 2018 for the purpose of reducing regulation.
Foreign Investment in Telecommunication Businesses. Foreign direct investment in telecommunications companies in China is governed
by the Regulations for the Administration of Foreign-Invested Telecommunications Enterprises, which was promulgated by the State Council on
December 11, 2001 and recently amended on February 6, 2016. The regulations provide that a foreign investor’s beneficial equity ownership in an
entity providing value-added telecommunications services in China is not permitted to exceed 50%. In addition, the main foreign investor who
invests in a foreign-invested value-added telecommunications enterprise operating the value-added telecommunications business in China must
demonstrate a good track record and experience in operating a value-added telecommunications business, provided such investor is a major one
among the foreign investors investing in a value-added telecommunications enterprise in China. Moreover, foreign investors that meet these
requirements must obtain approvals from the Ministry of Industry and Information Technology, or the MIIT, and the MOFCOM, or their authorized
local counterparts, which retain considerable discretion in granting approvals, for its commencement of value-added telecommunications business in
China.
The MIIT’s Notice Regarding Strengthening Administration of Foreign Investment in Operating Value-Added Telecommunication
Businesses, or the MIIT Notice, issued on July 13, 2006 prohibits holders of these services licenses from leasing, transferring or selling their licenses
in any form, or providing any resources, sites or facilities, to any foreign investors intending to conduct such businesses in China.
Regulations Relating to Express Delivery Services
The PRC Postal Law, which took effect in October 2009 with the latest amendment in 2015, sets out the fundamental rules on the
establishment and operation of an express delivery company. Pursuant to the Postal Law, an enterprise that operates and provides express delivery
services must obtain a courier service operation permit. In order to apply for a business permit for express delivery services, a company must meet all
the requirements as a corporate legal person and satisfy certain prerequisites with respect to its service capacity and management system, and its
registered capital must be no less than RMB500,000 to operate within a province, autonomous region, or municipality directly under the central
government, no less than RMB1,000,000 in the case of cross-provincial operation, and no less than RMB2,000,000 to operate international express
delivery services.
Pursuant to the Administrative Measures for Courier Service Market, or the Courier Market Measures, which was announced by the
Ministry of Transport in 2013, and the Administrative Measures on Courier Service Operation Permits, which was revised by the Ministry of
Transport on November 28, 2019, any entity engaging in express delivery services must obtain a courier service operation permit from the State Post
Bureau or its local counterpart and is subject to their supervision and regulation. Entities applying for a permit to operate express delivery services in
a certain province should apply to the provincial-level postal bureau, while entities applying for a permit to operate express delivery services across
multiple provinces should apply to the State Post Bureau. The State Post Bureau and provincial-level postal bureaus may appoint their subordinate
postal bureau to deal with permit applications. If an entity operates express delivery services without obtaining a courier service operation permit in
accordance with the above measures, it may be compelled to make corrections, subject to the confiscation of its earnings generated from its
unlicensed operation of express delivery services, imposed a fine ranging from RMB50,000 to RMB200,000, and/or ordered to suspend its business
operation for rectification. If a permit-holder does not operate any express delivery services for over six months without due grounds after obtaining
the courier service operation permit, or suspends its business for more than six months without authorization, the postal administrative departments
have the authority to cancel the courier service operation permit of such holder.
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Filing with the postal administrative department is required where an express delivery company sets up branches. The requirements for the
establishment of a branch of express delivery company are specified in the Courier Market Measures. The Courier Market Measures stipulate that
where any express delivery company establishes its branches or business departments, it must register with the local industrial and commercial
administrations where such branches or business departments are located by submitting its express delivery services operation permit and a list of its
branches and, such branches or business departments must, within 20 days after they obtain their relevant business licenses, file with the local postal
administrative department. If an express delivery company fails to complete the required registration and/or filing with the relevant governmental
authority, it may be ordered to rectification and may also be imposed a fine of no more than RMB10,000 or where the circumstances are severe, a
fine ranging from RMB10,000 to RMB50,000, compelled to make corrections, and/or ordered to suspend its business operation for rectification.
Enterprises engaging in express delivery services other than postal enterprises may not engage in posting and mail delivery business exclusively
operated by postal enterprises, and may not deliver any official documents of state organs. The express delivery business must be operated within the
permitted scope and valid term of the courier service operation permit. The courier service operation permit is valid for 5 years upon its issuance and
comes with an annual reporting obligation. The Circular on Implementing the Administrative Measures for the Courier Market and Strengthening the
Administration of Courier Service Operations, which was issued by the State Post Bureau in 2013, further clarifies that the postal administrative
department must examine whether an entity operates express delivery service within the permitted business scope and geographic scope of its courier
service operation permit, and the geographic examination must be carried out down to the district-level within cities. Failure to conduct express
delivery services within the permitted operation scopes would subject the express delivery company to a correction order by the postal administrative
department and a fine from RMB5,000 to RMB30,000.
Moreover, in accordance with the Regulations on Annual Reporting of Operation Permission of Express Delivery Service Business issued
by the State Post Bureau in 2011, an enterprise engaged in express delivery services must complete annual reporting on its operation status for the
previous year with the postal administrative authority which issued its courier service operation permit. Where an express delivery service company
fails to submit its annual report to the relevant postal administrative authority in a timely manner or conceals any facts or commits fraud in its annual
report, such express delivery service company may be imposed a fine ranging from RMB10,000 to RMB30,000.
In accordance with the Decision of the State Council on Issues concerning Cancelling and Adjusting a Batch of Administrative Examination
and Approval Items in February 2015, a company operating express delivery services must apply for and obtain the courier service operation permit
prior to the application of its business license, and the obtaining of courier service operation permit is subject to industrial and commercial
registration with prior examination.
In accordance with the Courier Market Measures, if any express delivery service is carried out through franchise, both the franchisees and
franchisors must obtain the courier service operation permits and any franchisee must run its franchise business within its licensed scope; and the
franchisees and franchisors must enter into written agreements providing the rights and obligations of both parties and the liabilities of both parties in
case of any violation of the legal rights and interests of the users of express delivery services. Any franchisee or franchisor failing to obtain the
courier service operation permit or any franchisee failing to run its franchise business within its licensed scope would be subject to a correction order
by the relevant postal administrative authority and a fine ranging from RMB5,000 to RMB30,000.
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Companies engaging in express delivery service must establish and implement a system for the examination of parcels or articles received
for delivery. Pursuant to the PRC Postal Law and Measures for the Supervision and Administration of Security of the Postal Industry issued by the
Ministry of Transport in 2011 and most recently amended in 2013, express delivery companies must examine the postal articles that would be in the
presence of customers so as to inspect whether the postal articles are prohibited or restricted from express delivery. Express delivery companies must
also examine whether the names, categories and quantity of the postal articles have been properly written down on delivery forms. Any failure to
establish or implement such inspection system, or any unlawful acceptance or delivery of prohibited or restricted parcels/articles may result in the
suspension of the company’s business operation for rectification or even cancellation of its courier service operation permit. Measures for the
Supervision and Administration of Security of the Postal Industry has been replaced by Measures for the Supervision and Administration of Security
of the Posting and Delivery of Postal Industry, which has been announced on January 2, 2020 and entered into effect on February 15, 2020. The
revisions are mainly related to changing of the name, improving certain specific mechanisms, adding matters related to eco-security during the
posting and delivery process, providing details on specific mechanisms, specifying matters related to delegation of postal administrative penalties and
optimizing administrative penalty measures. In addition, the State Postal Office promulgated the Regulation on Implementing the Duties on Main
Body of Safe Production of Postal Enterprises and Express Delivery Enterprises on September 4, 2019, which provides the detailed requirements on
eight aspects relating to safe production, such as the general requirements, organization structure and responsibilities of posts, safety management
system, investment on safe production, education and training, on-site management , management and control of safety risk and examination and
governance of hidden danger as well as emergent management.
BEST Logistics Technologies (China) Co., Ltd., one of our PRC subsidiaries, Hangzhou BEST Network, our VIE, and eight of Hangzhou
BEST Network’s subsidiaries have obtained the courier service operation permits to operate express delivery services. See “Item 3. Key
Information—D. Risk Factors—Risks Relating to Our Business and Industry—Failure of us or our franchisee partners to obtain, maintain or update
necessary licenses and permits may have a material adverse effect on our business, financial condition and results of operation.”
The Interim Regulation on Express Delivery has been revised on March 2, 2019. This regulation was made to promote healthy development
of the industry, ensure safe delivery, protect the legal rights of users, and enhance supervision of the sector. For example, companies engaging in
express delivery service and their branches may establish express delivery end-networks as needed and shall make a filing with the local postal
management department within 20 days of establishment. Furthermore, companies engaging in express delivery service shall implement a
management system regarding users’ information and shall refrain from providing users’ information illegally. Failure to comply with above
provisions on security of users’ information may result in penalties such as order to make corrections, confiscation of illegal income and a fine
ranging from RMB10,000 to RMB50,000, or where the circumstances are severe, a fine ranging from RMB50,000 to RMB100,000, and suspension
of the company’s business operation for rectification or even cancellation of its courier service operation permit. There is uncertainty as to the
application and the implementation of the Interim Regulation on Express Delivery because it is recently promulgated.
Additionally, the Administrative Measures for the Delivery Services of Smart Package Lockers was announced on June 20, 2019 and
became effective on October 1, 2019. These measures supervise and manage the activities such as provision and utilization of smart package lockers.
While our franchisee partners may utilize those smart package lockers in their daily operations, we do not own or operate such smart package lockers.
Regulations Relating to Road Transportation
Pursuant to the Regulations on Road Transportation promulgated by the State Council in April 2004 and most recently amended in March
2019, and the Provisions on Administration of Road Freight Transportation and Stations (Sites) issued by the Ministry of Transport in June 2005 and
most recently amended in June 2019, or the Road Freight Provisions, the business operations of road freight transportation refer to commercial road
freight transportation activities that provide public services. The road freight transportation includes general road freight transportation, special road
freight transportation, road transportation of large articles, and road transportation of dangerous cargos. Special road freight transportation refers to
freight transportation using special vehicles such as vehicles with containers, refrigeration equipment, or tank containers. The Road Freight
Provisions set forth detailed requirements with respect to vehicles and drivers.
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Under the Road Freight Provisions, except those engaging in general cargo transportation with a general cargo vehicle weighing 4,500
kilograms or less, anyone engaging in the business of operating road freight transportation or stations (sites) must obtain a road transportation
operation permit from the local county-level road transportation administrative bureau, and each vehicle used for road freight transportation must
have a road transportation certificate from the same authority. The incorporation of a subsidiary of a road freight transportation operator that intends
to engage in road transportation business is subject to the same approval procedure. If a road freight transportation operator intends to establish a
branch, it should file with the local road transportation administrative bureau where the branch is to be established.
Although the road transportation operation permits have no limitation with respect to geographical scope, several provincial governments in
China, including Shanghai and Beijing, promulgated local rules on administration of road transportation, stipulating that permitted operators of road
freight transportation registered in other provinces should also make filing with the local road transportation administrative bureau where it carries
out its business. The requirement to obtain operation permits with respect to operating road freight stations (sites) was abolished by the State Council
on February 27, 2019.
Interim Measures for the Operation and Administration of Road Freight Transport based on Internet Platforms was promulgated by the
Ministry of Transport and the State Taxation Administration on September 6, 2019 and came into effect on January 1, 2020. An operator of an
internet platform for road freight transport is defined as entity which consolidates and allocates resources using an internet platform as its basis,
undertakes responsibility of transportation for the whole course as carrier, and appoints the actual carrier and enters into a transport contract with it to
undertake the road freight transport mission. Merely providing information intermediary or deal making services will not be deemed as internet
freight transport. Such operator may apply for a road transportation certificate specifying the business scope as “internet freight transport”. Such
entities shall comply with the ICP measures and other relevant laws and regulations regarding operational internet information service and be
equipped with corresponding online service capabilities. The operator of such internet freight transport should set up corresponding mechanisms and
undertake corresponding measures as required by the Safe Production Law of the People’s Republic of China, the E-commerce Law of the People’s
Republic of China, the Law on the Administration of Tax Collection of the People’s Republic of China, the Network Security Law of the People’s
Republic of China and certain other laws, regulations and standards.
BEST Logistics Technologies (China) Co., Ltd., one of our PRC subsidiaries, and Hangzhou BEST Network Technologies Ltd., one of our
VIEs, has obtained road transportation operation permits to operate general road freight transportation while the subsidiaries of another VIE,
Hangzhou BEST IT, are in the process of applying for the road transportation operation permits specifying the business scope as internet freight
transport. See “Item 3. Key Information—D. Risk Factors—Risks Relating to Our Business and Industry—Failure of us or our franchisee partners to
obtain, maintain or update necessary licenses and permits may have a material adverse effect on our business, financial condition and results of
operation.”
Regulations on Cargo Vehicles
Pursuant to the Administrative Provisions concerning the Running of Cargo Vehicles with Out-of-Gauge Goods promulgated by the
Ministry of Transport, which took effect on September 21, 2016, cargo vehicles running on public roads shall not carry cargo weighing more than the
limits prescribed by this regulation and their dimensions shall not exceed those as set forth in the same regulation. Vehicle operators who violate this
regulation may be subject to a fine of up to RMB30,000 for each violation. In the event of repeated violations, the regulatory authority may suspend
the operating license of the vehicle operator and/or revoke the business operation registration of the relevant vehicle.
We rely on trucks and other vehicles owned and operated by third-party trucking companies, while the operation of our fleet is subject to
this new regulation. We have an obligation to educate and manage vehicle operators as well as to urge them to comply with this regulation. We weigh
each cargo truck as they enter and leave our hubs and sortation centers to ensure their compliance with this regulation in terms of cargo weight. If any
truck is not in compliance with this regulation, we may be required to replace it with another vehicle that complies with this regulation. Otherwise,
we may be subject to penalties under this regulation if we continue to operate those trucks that exceed the limits set forth in the regulation.
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Regulations Relating to International Freight Forwarding Business
Regulations on Management of International Freight Forwarders promulgated by the Ministry of Foreign Trade and Economic Cooperation
(now known as the MOFCOM) in 1995 and its detailed rules regulate the business of international freight forwarding. According to the provisions
and its detailed rules, the minimum amount of registered capital must be RMB5 million for an international freight forwarder by sea, RMB3 million
for an international freight forwarder by air and RMB2 million for an international freight forwarder by land or for an entity operating international
express delivery services. Additionally, an international freight forwarder must, when applying for setting up its branches, increase its registered
capital (or the excess amount over its minimum registered capital) by RMB500,000. Furthermore, under the Provisional Measures on Filing of
International Freight Forwarders announced by the MOFCOM in March 2005 and most recently amended in August 2016, all international freight
forwarders and their branches registered with the state industrial and commercial administration must be filed with the MOFCOM or its authorized
agencies.
BEST Logistics Technologies (China) Co., Ltd., one of our PRC subsidiaries, is engaged in the international freight forwarding business and
has made a filing with the relevant agency for carrying out such business.
Regulations Relating to Commercial Franchising
Pursuant to the Regulations on Commercial Franchising promulgated by the State Council in February 2007 and Provisions on
Administration of the Record Filing of Commercial Franchises issued by MOFCOM in December 2011, collectively the Regulations and Provisions
on Commercial Franchising, commercial franchising refers to the business activities where an enterprise that possesses the registered trademarks,
enterprise logos, patents, proprietary technology or any other business resources allows such business resources to be used by another business
operator through contract and the franchisee follows the uniform business model to conduct business operations and pays franchising fees according
to the contract. We and our franchisee partners are therefore subject to regulations on commercial franchising. Under the Regulations and Provisions
on Commercial Franchising, within 15 days of the first conclusion of franchising contract, the franchisor must carry out record-filing with MOFCOM
or its local counterparts and must report the current status of its franchising contracts in the first quarter of each year after record-filing. MOFCOM
announces the names of franchisors who have completed filing on the government website and makes prompt updates. If the franchisor fails to
comply with these Regulations and Provisions on Commercial Franchising, the MOFCOM or its local counterparts have the discretion to take
administrative measures against the franchisor, including fines and public announcements. The Regulations and Provisions on Commercial
Franchising also set forth requirements on the contents of franchising contracts.
We have completed the requisite filings with respect to our BEST Express, BEST Freight and Cloud OFC services. We cannot assure you
that we can update such filing in a timely manner or that our relationships with other existing and future ecosystem participants will not be found to
constitute such regulated commercial franchising in the future. As of the date of this annual report, we have not received any order from any
governmental authorities to make such filing. See “Item 3. Key Information—D. Risk Factors— Risks Relating to Our Business and
Industry—Failure to comply with PRC laws and regulations by us or our franchisee partners may materially and adversely impact our business,
financial condition and results of operations.”
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Regulations Relating to Personal Information Security and Consumer Protection
The Administrative Provisions on the Security of Personal Information of Express Service Users, promulgated by the State Post Bureau in
March 2014, provide for the protection of the personal information of users of express or express delivery services, and the supervision on the
express operations of postal enterprises and express delivery companies. In accordance with these provisions, the state postal administrative
department and its local counterparts are the supervising and administering authority responsible for the security of the personal information of users
of express or express delivery services, and postal enterprises and express delivery companies must establish and refine systems and measures for the
security of such information. Specifically, express delivery companies must enter into confidentiality agreements with their employees regarding the
information of their clients or users to specify confidentiality obligations and liabilities for violation thereof. Where express delivery companies are
entrusted by operators engaging in online shopping, TV shopping, mail-order and other businesses to provide express delivery services, such express
delivery companies must enter into agreements with the said principals, which agreements shall contain provisions safeguarding the security of
information of users of express delivery services. Courier companies operating through franchise are further required to formulate provisions on the
security of information of users of express delivery services in franchising contracts and clarify the security responsibilities between franchisor and
franchisee. A courier company and its employees causing damages to the users of express delivery services by divulging the users’ information is
expected to bear compensation liabilities. If a courier company is found to unlawfully furnish the information of users of express delivery services,
the company and its employees are subject to administrative liabilities or even criminal penalties. A user of express delivery services may further
seek remedies by following the Measures on Settling the Complaints of the Postal Users issued by the State Post Bureau, which took effect in
September 2014. The Postal Users Complaints Settling Center handles the complaints from users on the quality of the express delivery services under
a regime of mediation. We are subject to the above provisions and measures with regard to the security of personal information and believe that we
are currently in compliance with such provisions and measures in all material aspects.
Regulations Relating to Telecommunications and Internet Information Services
Regulations Relating to Telecommunication Businesses
Under the Telecommunications Regulations of the PRC, or the Telecommunications Regulations, promulgated by the State Council on
September 25, 2000 and most recently amended on February 6, 2016, a telecommunication services provider in China must obtain an operating
license from the MIIT or its provincial counterparts. The Telecommunications Regulations categorize all telecommunication services in China as
either basic telecommunications services or value-added telecommunications services. Our online and mobile commerce businesses are classified as
value-added telecommunications services. The Administrative Measures for Telecommunications Business Operating Licensing, which was
promulgated by the MIIT and recently amended on July 3, 2017, further regulate the telecommunications business licensing.
In addition to restricting dealings with foreign investors, the MIIT Notice contains a number of detailed requirements applicable to holders
of value-added telecommunications services licenses, including that license holders or their shareholders must directly own the domain names and
trademarks used in their daily operations and each license holder must possess the necessary facilities for its approved business operations and
maintain such facilities in the regions covered by its license, including maintaining its network and providing Internet security in accordance with the
relevant regulatory standards. The MIIT or its provincial counterpart has the power to require corrective actions after it discovers any non-compliance
of the license holders, and where such license holders fail to take such steps, the MIIT or its provincial counterpart has the power to revoke the value-
added telecommunications services licenses.
Regulations Relating to Internet Information Services
As a subsector of the telecommunications industry, Internet information services are regulated by the Administrative Measures on Internet
Information Services, or the ICP Measures, promulgated on September 25, 2000 by the State Council and amended on January 8, 2011. “Internet
information services” are defined as services that provide information to online users through the Internet. Internet information services providers,
also called Internet content providers, or ICPs, that provide commercial services are required to obtain an operating license from the MIIT or its
provincial counterpart.
To the extent the Internet information services provided relate to certain matters, including news, publication, education or medical and
health care (including pharmaceutical products and medical equipment), approvals must also be obtained from the relevant industry regulators in
accordance with the laws, rules and regulations governing those industries.
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The PRC government has promulgated measures relating to Internet content through various ministries and agencies, including the MIIT,
the News Office of the State Council, the Ministry of Culture and Tourism and the National Radio and Television Administration. In addition to
various approval and license requirements, these measures specifically prohibit Internet activities that result in the dissemination of any content
which is found to contain pornography, promote gambling or violence, instigate crimes, undermine public morality or the cultural traditions of the
PRC or compromise state security or secrets. ICPs must monitor and control the information posted on their websites. If any prohibited content is
found, they must remove such content immediately, keep a record of it and report to the relevant authorities. If an ICP violates these measures, the
PRC government may impose fines and revoke any relevant business operation licenses.
We conduct our value-added telecommunications business through our VIE, Hangzhou BEST Network, which has obtained the requisite
licenses. Certain subsidiaries of our VIE, Hangzhou BEST IT, have obtained such requisite licenses as well.
Regulations Relating to Internet Security
The Criminal Law of the People’s Republic of China, promulgated by the National People’s Congress of China on July 6, 1979 and recently
amended on November 4, 2017, imposes a number of Internet security requirements on Internet service providers. These requirements are mainly
provided in the Ninth Amendment to the Criminal Law of the People’s Republic of China, or the Ninth Amendment. According to the Ninth
Amendment, an Internet service provider who does not perform its duties of security management on information network may be subject to criminal
punishment, if such non-performance results in certain serious consequences.
The Decision in Relation to Protection of the Internet Security, enacted by the Standing Committee of the National People’s Congress of
China on December 28, 2000 and amended on August 27, 2009, provides that certain activities, including but not limited to the following, conducted
through the Internet are subject to criminal punishment: (i) gaining improper entry into a computer or system of strategic importance; (ii) bringing out
abnormal operation of Internet by cultivating or transmitting computer virus or interrupting network without authorization; (iii) disseminating
politically disruptive information or obscenities; (iv) leaking State secrets; (v) spreading false commercial information; (vi) infringing intellectual
property rights; (vii) providing information concerning pornography; or (viii) violating lawful rights of any other national person, legal person or
other institution.
The Regulations of the People’s Republic of China on the Security Protection of Computer Information System, promulgated by the State
Council on February 18, 1994 and amended on January 8, 2011, require that no entity or individual may make use of computer information systems
to engage in activities jeopardizing the interests of the state or collectives or the legitimate rights of the citizens, or endanger the security of computer
information systems. A user of a computer information system shall establish and improve a security management system for its computer
information system. A user of a computer information system is also required to take other security protection measures, such as reporting any
incidents arising from the computer system to the public authority of the local government at or above the county level within 24 hours.
On December 28, 2012, the Standing Committee of the National People’s Congress of China promulgated the Decision on Strengthening
Network Information Protection to enhance the legal protection of information security and privacy on the Internet. On July 16, 2013, the MIIT
promulgated the Provisions on Protection of Personal Information of Telecommunication and Internet Users to regulate the collection and use of
users’ personal information in the provision of telecommunication services and Internet information services in China. Personal information includes
a user’s name, birth date, identification card number, address, phone number, account name, password and other information that can be used for
identifying a user.
On July 1, 2015, the Standing Committee of the National People’s Congress of China promulgated the New National Security Law which
took effect on the same date and replaced the former National Security Law promulgated in 1993. According to the New National Security Law, the
state shall ensure that the information system and data in important areas are secure and controllable. There are uncertainties on how the New
National Security Law will be implemented in practice.
The Network Security Law of the People’s Republic of China, which was promulgated by the Standing Committee of the National People’s
Congress of China on November 7, 2016 and became effective on June 1, 2017, provides that network operators shall comply with laws and
regulations and fulfill their obligations to safeguard security of the network when conducting business and providing services. Those who provide
services through networks shall take technical measures and other necessary measures pursuant to laws, regulations and compulsory national
requirements to safeguard the safe and stable operation of the networks, respond to network security incidents effectively, prevent illegal and criminal
activities, and maintain the integrity, confidentiality and usability of network data.
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On April 11, 2017, the Cyberspace Administration of China announced the Measures for the Security Assessment of Personal Information
and Important Data to be Transmitted Abroad (consultation draft), or the Consultation Draft of Security Assessment Measures. The Consultation
Draft of Security Assessment Measures requires network operators to conduct security assessments and obtain consents from owners of personal
information prior to transmitting personal information and other important data abroad. Moreover, under the Consultation Draft of Security
Assessment Measures, the network operators are required to apply to the relevant regulatory authorities for security assessments under several
circumstances, including but not limited to: (i) if data to be transmitted abroad contains personal information of more than 500,000 users in
aggregate; (ii) if the quantity of the data to be transmitted abroad is more than 1,000 gigabytes; (iii) if data to be transmitted abroad contains
information regarding nuclear facilities, chemical biology, national defense or military projects, population and health, or relates to large-scale
engineering activities, marine environment issues or sensitive geographic information; (iv) if data to be transmitted abroad contains network security
information regarding system vulnerabilities or security protection of critical information infrastructure; (v) if key information infrastructure network
operators transmit personal information and important data abroad; or (vi) if any other data to be transmitted abroad contains information that might
affect national security or public interest and are required to be assessed as determined by the relevant regulatory authorities. On June 13, 2019, the
Cyberspace Administration of China further announced the Measures for the Security Assessment of Personal Information to be Transmitted Abroad
(consultation draft). Both drafts are still under consultation.
Regulations Relating to Finance Leasing
The Administrative Measures on Foreign Investment in the Leasing Industry, or the Leasing Industry Measures, were promulgated by the
MOFCOM on February 3, 2005 and amended on October 28, 2015 to regulate the operation of foreign-invested leasing and finance leasing business.
Under the Leasing Industry Measures, the total assets of the foreign investors of a foreign-funded finance leasing company may not be less than
US$5 million. Foreign-invested finance leasing enterprises may carry out finance leasing activities by way of direct leasing, sub-leasing, sale-
leaseback, leveraged leasing, entrusted leasing and joint leasing. For the purpose of the Leasing Industry Measures, the leasing property shall include,
among others, transportation equipment, such as airplanes, automobiles and ships, etc. This regulation was declared invalid by the MOFCOM in 2018
for the purpose of easing regulation and optimizing service.
The Administrative Measures of Supervision on Finance Leasing Enterprises, or the Finance Leasing Measures, were formulated by the
MOFCOM and became effective on October 1, 2013. According to the Finance Leasing Measures, the MOFCOM and the provincial-level commerce
authorities are in charge of the supervision and administration of finance leasing enterprises. A finance leasing company shall report, according to the
requirements of the MOFCOM, the relevant data in a timely and truthful manner through the National Finance Leasing Company Management
Information System. Since April 20, 2018, the authority was transferred from MOFCOM to China Banking and Insurance Regulatory Commission,
or the CBIRC. On January 8, 2020, CBIRC has announce the Interim Measures on the Supervisory and Management of Financial Leasing Company
(the Consulting Draft) and has been collecting any comments until February 9, 2020.
Xinyuan Financial Leasing (Zhejiang) Co., Ltd., one of our PRC subsidiaries, has obtained an approval to conduct financing lease business
from the competent regulatory authority in the PRC.
Regulations Relating to Retail Industry
Regulations Relating to Consumer Protection
Under the Law on the Protection of the Rights and Interests of Consumers, which was promulgated by the Standing Committee of the
National People’s Congress on October 31, 1993, became effective on January 1, 1994 and was recently amended on October 25, 2013, a business
operator providing a commodity or service to a consumer is subject to a number of requirements, including the following:
● to ensure that commodities and services meet with certain safety requirements;
● to disclose serious defects of a commodity or a service and adopt preventive measures against damage occurrence;
● to provide consumers with true information and to refrain from conducting false advertising;
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● not to set unreasonable or unfair terms for consumers or alleviate or release itself from civil liability for harming the legal rights
and interests of consumers by means of standard contracts, circulars, announcements, shop notices or other means; and
● not to insult or slander consumers or to search the person of, or articles carried by, a consumer or to infringe upon the personal
freedom of a consumer.
Business operators may be subject to civil liabilities for failing to fulfill the obligations discussed above. These liabilities include restoring
the consumer’s reputation, eliminating the adverse effects suffered by the consumer, and offering an apology and compensation for any losses
incurred. The following penalties may also be imposed upon business operators for the infraction of these obligations: issuance of a warning,
confiscation of any illegal income, imposition of a fine, an order to cease business operations, revocation of its business license or imposition of
criminal liabilities under circumstances that are specified in laws and statutory regulations.
Regulations Relating to Product Quality
Pursuant to the Product Quality Law of the PRC, or the Product Quality Law, which was promulgated by the Standing Committee of the
National People’s Congress on February 22, 1993, became effective on September 1, 1993, and was recently amended on December 29, 2018,
business operators, including manufacturers and sellers, are required to assume certain obligations in respect of product quality. Violations of the
Product Quality Law may result in the imposition of fines. In addition, a company in violation of the Product Quality Law may be ordered to suspend
its operations and its business license may be revoked. Criminal liability may be incurred in serious cases. A consumer or other victim who suffers
injury or property losses due to product defects may demand compensation from the manufacturer as well as from the seller. Where the responsibility
lies with the manufacturer, the seller shall, after settling compensation with the consumer, have the right to recover such compensation from the
manufacturer, and vice versa.
Regulations Relating to Pricing
In China, the prices of a very small number of products and services are guided or fixed by the government. According to the Pricing Law,
which was promulgated by Standing Committee of the National People’s Congress on December 29, 1997 and became effective on May 1, 1998,
business operators must, as required by the government departments in charge of pricing, mark the prices explicitly and indicate the service items,
charging standards and other related particulars clearly. Business operators may not charge any fees that are not explicitly indicated. Business
operators must not commit unlawful pricing activities, such as colluding with others to manipulate the market price, using false or misleading prices
to deceive consumers to transact, or conducting price discrimination against other business operators. Failure to comply with the Pricing Law may
subject business operators to administrative sanctions such as warning, ceasing unlawful activities, compensation, confiscating illegal gains and fines.
The business operators may be ordered to suspend business for rectification, or have their business licenses revoked if the circumstances are severe.
We are subject to the Pricing Law as a service provider and believe that our pricing activities are currently in compliance with the law in all material
aspects.
Regulations Relating to Leasing
We currently lease all of the facilities that we occupy from independent third parties. Pursuant to the Law on Administration of Urban Real
Estate which took effect in January 1995 with the latest amendment in August 2019, lessors and lessees are required to enter into a written lease
contract, containing such provisions as the term of the lease, the use of the premises, liability for rent and repair, and other rights and obligations of
both parties. Both lessor and lessee are also required to register the lease with the real estate administration department. Pursuant to implementing
rules stipulated by certain provinces or cities, such as Tianjin, if the lessor and lessee fail to go through the registration procedures, both lessor and
lessee may be subject to warnings, rectifications and/or other penalties.
According to the PRC Contract Law which took effect in October 1999, the lessee may sublease the leased premises to a third party, subject
to the consent of the lessor. Where the lessee subleases the premises, the lease contract between the lessee and the lessor remains valid. The lessor is
entitled to terminate the lease contract if the lessee subleases the premises without the consent of the lessor. In addition, if the lessor transfers the
premises, the lease contract between the lessee and the lessor will still remain valid.
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Pursuant to the PRC Property Law which took effect in October 2007, if a mortgagor leases the mortgaged property before the mortgage
contract is executed, the previously established leasehold interest will not be affected by the subsequent mortgage, but where a mortgagor leases the
mortgaged property after the creation and registration of the mortgage interest, the leasehold interest will be subordinated to the registered mortgage.
Regulations Relating to Intellectual Property Rights
The PRC government has adopted comprehensive legislation governing intellectual property rights, including copyrights, patents,
trademarks and domain names.
Copyright. Copyright in China, including copyrighted software, is principally protected under the Copyright Law and its implementation
rules. Under the Copyright Law, the term of protection for copyrighted software is 50 years.
Patent. The 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 under the State Council is responsible for examining and approving
patent applications. The duration of a patent right is either 10 years or 20 years from the date of application, depending on the type of patent right.
Trademark. The Trademark Law and its implementation rules protect registered trademarks. The PRC Trademark Office of National
Intellectual Property Administration is responsible for the registration and administration of trademarks throughout China. The Trademark Law has
adopted a “first-to-file” principle with respect to trademark registration. Where registration is sought for a trademark that is identical or similar to
another trademark which has already registered or given preliminary examination and approval for use in the same or similar category of
commodities or services, the application for registration of such trademark may be rejected. Trademark registration is effective for a renewable ten-
year period, unless otherwise revoked.
Domain Name. Domain names are protected under the Administrative Measures on the Internet Domain Names promulgated by the MIIT.
The MIIT is the major regulatory body responsible for the administration of the PRC Internet domain names, under supervision of which the China
Internet Network Information Center is responsible for the daily administration of “.cn” domain names and Chinese domain names. Domain name
registration is handled through domain name service agencies established under the relevant regulations, and applicants become domain name holders
upon successful registration.
Regulations Relating to Employment
Pursuant to the Labor Law, which was promulgated by National People’s Congress in January 1995 and amended in December 2018, and
the Labor Contract Law, promulgated by Standing Committee of the National People’s Congress in June 2007 and amended in December 2012,
employers must execute written labor contracts with full-time employees. If an employer fails to enter into a written employment contract with an
employee within one year from the date on which the employment relationship is established, the employer must rectify the situation by entering into
a written employment contract with the employee and pay the employee twice the employee’s salary for the period from the day following the lapse
of one month after the date of establishment of the employment relationship to the day prior to the execution of the written employment contract. All
employers must comply with local minimum wage standards. Violation of the Labor Law and the Labor Contract Law may result in the imposition of
fines and other administrative and criminal liability in the case of serious violation.
In December 2012, the Labor Contract Law was amended to impose more stringent requirements on the use of employees of temp agencies,
who are known in China as “dispatched workers.” Dispatched workers are entitled to equal pay with full-time employees for equal work. Employers
are only allowed to use dispatched workers for temporary, auxiliary or substitutive positions, and the number of dispatched workers may not exceed
10% of the total number of employees.
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Enterprises in China are required by PRC laws and regulations to participate in certain employee benefit plans, including social insurance
funds, namely a pension plan, a medical insurance plan, an unemployment insurance plan, a work-related injury insurance plan and a maternity
insurance plan (which, as provided in Opinions of the General Office of the State Council on Comprehensively Advancing Combined
Implementation of Maternity Insurance and Basic Medical Insurance for Employees which was promulgated on March 6, 2019, shall be consolidated
into the medical insurance), and a housing provident fund, and contribute to the plans or funds in amounts equal to certain percentages of salaries,
including bonuses and allowances, of the employees as specified by the local government from time to time at locations where they operate their
businesses or where they are located. According to the PRC Social Insurance Law, which was promulgated by the Standing Committee of the
National People’s Congress on October 28, 2010 and became effective on July 1, 2011 and recently amended on December 29, 2018, an employer
that fails to make social insurance contributions may be ordered to rectify the non-compliance and pay the required contributions within a stipulated
deadline and be subject to a late fee of up to 0.05% or 0.2% per day, as the case may be. If the employer still fails to rectify the failure to make social
insurance contributions within the stipulated deadline, it may be subject to a fine ranging from one to three times the amount overdue. According to
the Regulations on Management of Housing Fund, which was promulgated by the State Council on April 3, 1999 and recently amended on March 24,
2019, an enterprise that fails to make housing fund contributions may be ordered to rectify the noncompliance and pay the required contributions
within a stipulated deadline; otherwise, an application may be made to a local court for compulsory enforcement. See “Item 3. Key Information—D.
Risk Factors—Risks Related to Doing Business in the People’s Republic of China—The enforcement of the Labor Contract Law of the People’s
Republic of China, or the PRC Labor Contract Law, and other labor-related regulations in the PRC may increase our labor costs, impose limitations
on our labor practices and adversely affect our business and our results of operations, and our failure to comply with PRC labor-related laws may
expose us to penalties.”
Regulations Relating to Foreign Exchange
The principal regulations governing foreign currency exchange in China are the Foreign Exchange Administration Regulations, most
recently amended in August 2008. Payments of current account items, such as profit distributions and trade and service-related foreign exchange
transactions, can usually be made in foreign currencies without prior approval from the SAFE, by complying with certain procedural requirements.
By contrast, approval from or registration with appropriate governmental authorities is required where Renminbi is to be converted into foreign
currency and remitted out of China to pay capital expenses such as the repayment of foreign currency-denominated loans.
On March 30, 2015, SAFE issued the Circular of the State Administration of Foreign Exchange on Reforming the Management Approach
regarding the Settlement of Foreign Exchange Capital of Foreign-invested Enterprises, or SAFE Circular 19. Pursuant to SAFE Circular 19, the
foreign exchange capital of foreign-invested enterprises is subject to the discretional foreign exchange settlement, which means the foreign exchange
capital in the capital account of foreign-invested enterprises upon the confirmation of rights and interests of monetary contribution by the local
foreign exchange bureau (or the book-entry registration of monetary contribution by the banks) may be settled at the banks based on the actual
operation needs of the enterprises. The proportion of discretionary settlement of foreign exchange capital of foreign-invested enterprises is currently
100%. SAFE can adjust such proportion in due time based on the circumstances of international balance of payments. SAFE promulgated the Notice
of the State Administration of Foreign Exchange on Reforming and Standardizing the Foreign Exchange Settlement Management Policy of Capital
Account, or SAFE Circular 16, effective on June 9, 2016, which reiterates some of the rules set forth in SAFE Circular 19, but changes the
prohibition against using RMB capital converted from foreign currency-denominated registered capital of a foreign-invested company to issue RMB
entrusted loans to a prohibition against using such capital to issue loans to non-associated enterprises. Violations of SAFE Circular 19 or SAFE
Circular 16 could result in administrative penalties.
On January 26, 2017, SAFE issued the Notice of State Administration of Foreign Exchange on Improving the Review of Authenticity and
Compliance to Further Promote Foreign Exchange Control, or SAFE Circular 3, which stipulates several capital control measures with respect to the
outbound remittance of profit from domestic entities to offshore entities, including (i) under the principle of genuine transaction, banks shall check
board resolutions regarding profit distribution, the original version of tax filing records and audited financial statements; and (ii) domestic entities
shall hold income to account for previous years’ losses before remitting the profits. Moreover, pursuant to SAFE Circular 3, domestic entities shall
make detailed explanations of the sources of capital and utilization arrangements, and provide board resolutions, contracts and other proof when
completing the registration procedures in connection with an outbound investment.
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The Notice for Further Advancing the Facilitation of Cross-border Trade and Investment, or the SAFE Circular 28, was promulgated by the
SAFE on October 23, 2019. SAFE Circular 28, among other things, allows FIEs to use Renminbi converted from foreign currency-denominated
capital for equity investments in China so long as the equity investment complies with the then-effective Special Administrative Measures for Access
of Foreign Investment (Negative List) and is genuine and legitimate. However, since the SAFE Circular 28 is newly promulgated, it remains
uncertain how the SAFE and competent banks will implement this circular.
Regulations Relating to Dividend Distribution
The principal laws, rules and regulations governing dividend distribution by foreign-invested enterprises in the PRC are the Company Law
of the PRC, as amended, the Foreign Investment Law and its implementation regulations. Under these laws, rules and regulations, foreign-invested
enterprises may pay dividends only out of their accumulated profit, if any, as determined in accordance with PRC accounting standards and
regulations. Both PRC domestic companies and wholly-foreign owned PRC enterprises are required to set aside as general reserves at least 10% of
their after-tax profit each year, until the cumulative amount of such reserves reaches 50% of their registered capital. A PRC company is not permitted
to distribute any profits until any losses from prior fiscal years have been offset. Profits retained from prior fiscal years may be distributed together
with distributable profits from the current fiscal year.
Regulations Relating to Offshore Financing
SAFE promulgated the Circular on Relevant Issues Concerning Foreign Exchange Control on Domestic Residents’ Offshore Investment and
Financing and Roundtrip Investment through Special Purpose Vehicles, or SAFE Circular 37, on July 4, 2014, which replaced the former circular
commonly known as “SAFE Circular 75” promulgated by SAFE on October 21, 2005. SAFE Circular 37 requires PRC residents to register with local
branches of SAFE in connection with their direct establishment or indirect control of an offshore entity, for the purpose of overseas investment and
financing, with such PRC residents’ legally owned assets or equity interests in domestic enterprises or offshore assets or interests, referred to in
SAFE Circular 37 as a “special purpose vehicle.” SAFE Circular 37 further requires amendment to the registration in the event of any significant
changes with respect to the special purpose vehicle, such as increase or decrease of capital contributed by PRC individuals, share transfer or
exchange, merger, division or other material events. In the event that a PRC shareholder holding interests in a special purpose vehicle fails to fulfill
the required SAFE registration, the PRC subsidiaries of that special purpose vehicle may be prohibited from making profit distributions to the
offshore parent and from carrying out subsequent cross-border foreign exchange activities, and the special purpose vehicle may be restricted in its
ability to contribute additional capital into its PRC subsidiary. Moreover, failure to comply with the various SAFE registration requirements
described above could result in liability under PRC law for evasion of foreign exchange controls. According to the Notice on Further Simplifying and
Improving Policies for the Foreign Exchange Administration of Direct Investment released on February 13, 2015 by SAFE, local banks will examine
and handle foreign exchange registration for overseas direct investment, including the initial foreign exchange registration and amendment
registration, under SAFE Circular 37 from June 1, 2015.
We have notified substantial beneficial owners of ordinary shares who we know are PRC residents of their obligations of applications,
filings and amendments as required under SAFE Circular 37 and other related rules. Nevertheless, we may not be aware of the identities of all of our
beneficial owners who are PRC residents. We do not have control over our beneficial owners and there can be no assurance that all of our PRC-
resident beneficial owners will comply with SAFE Circular 37, its implementation rules and other applicable foreign exchange rules, and there is no
assurance that the registration under SAFE Circular 37 and any amendment will be completed in a timely manner, or will be completed at all. The
failure of our beneficial owners who are PRC residents to register or amend their foreign exchange registrations in a timely manner pursuant to SAFE
Circular 37, its implementation rules and other applicable foreign exchange rules, or the failure of future beneficial owners of our company who are
PRC residents to comply with these registration requirements may subject such beneficial owners or our PRC subsidiaries to fines and legal
sanctions. Failure to register or comply with relevant requirements may also limit our ability to contribute additional capital to our PRC subsidiaries
and limit our PRC subsidiaries’ ability to distribute dividends to our company, or we may be penalized by SAFE.
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Regulations Relating to Employee Stock Incentive Plan of Overseas Publicly-Listed Company
Pursuant to SAFE Circular 37, PRC residents who participate in share incentive plans in overseas non-publicly-listed companies may submit
applications to SAFE or its local branches for the foreign exchange registration with respect to offshore special purpose companies. In addition, under
the Notices on Issues concerning the Foreign Exchange Administration for Domestic Individuals Participating in Share Incentive Plans of Overseas
Publicly-Listed Companies, or the Share Option Rules, issued by SAFE on February 15, 2012, PRC residents who are granted shares or share options
by companies listed on overseas stock exchanges under share incentive plans are required to (i) register with SAFE or its local branches, (ii) retain a
qualified PRC agent, which may be a PRC subsidiary of the overseas listed company or another qualified institution selected by the PRC subsidiary,
to conduct the SAFE registration and other procedures with respect to the share incentive plans on behalf of the participants, and (iii) retain an
overseas institution to handle matters in connection with their exercise of share options, purchase and sale of shares or interests and funds transfers.
We are making efforts to comply with these requirements.
The State Administration of Taxation, or SAT, has issued certain circulars concerning employee share options or restricted shares. Under
these circulars, our employees working in China who exercise share options or are granted restricted shares will be subject to PRC individual income
tax. Our PRC subsidiaries have obligations to file documents related to employee share options or restricted shares with relevant tax authorities and
to withhold individual income taxes of those employees who exercise their share options. If our employees fail to pay or we fail to withhold their
income taxes according to relevant laws and regulations, we may face sanctions imposed by the tax authorities or other PRC governmental
authorities.
Regulations Relating to Tax
Under the PRC Enterprise Income Tax Law, or the EIT Law, which became effective on January 1, 2008 and was recently amended on
December 29, 2018, an enterprise established outside the PRC with its “de facto management body” within the PRC is considered a “resident
enterprise” for PRC enterprise income tax purposes and is generally subject to a uniform 25% enterprise income tax rate on its worldwide income.
The Implementing Rules of the Enterprise Income Tax Law further define the term “de facto management body” as the management body that
exercises substantial and overall management and control over the business, personnel, accounts and properties of an enterprise. In 2009, the SAT
issued the Notice Regarding the Determination of Chinese-Controlled Offshore-Incorporated Enterprises as PRC Tax Resident Enterprises on the
Basis of De Facto Management Bodies, or SAT Circular 82, which provides certain specific criteria for determining whether the “de facto
management body” of a PRC-controlled enterprise that is incorporated offshore is located in China. Further to SAT Circular 82, in 2011, the SAT
issued the Administrative Measures for Enterprise Income Tax of Chinese-Controlled Offshore Incorporated Resident Enterprises (Trial), or SAT
Bulletin 45, to provide more guidance on the implementation of SAT Circular 82.
According to SAT Circular 82, an offshore incorporated enterprise controlled by a PRC enterprise or a PRC enterprise group will be
considered a PRC resident enterprise by virtue of having its “de facto management body” in China and will be subject to PRC enterprise income tax
on its worldwide income only if all of the following conditions are met: (i) the senior management and core management departments in charge of its
daily operations function have their presence mainly in the PRC; (ii) its financial and human resources decisions are subject to determination or
approval by persons or bodies in the PRC; (iii) its major assets, accounting books, company seals, and minutes and files of its board of directors and
shareholders’ meetings are located or kept in the PRC; and (iv) more than half of the enterprise’s directors or senior management with voting rights
habitually reside in the PRC.
Although SAT Circular 82 and SAT Bulletin 45 only apply to offshore-incorporated enterprises controlled by PRC enterprises or PRC
enterprise groups and not those controlled by PRC individuals or foreigners, the determination criteria set forth therein may reflect the SAT’s general
position on how the term “de facto management body” could be applied in determining the tax resident status of offshore enterprises, regardless of
whether they are controlled by PRC enterprises, individuals or foreigners.
We do not believe that we meet all of the conditions under SAT Circular 82. We believe that BEST Inc. and our offshore subsidiaries should
not be treated as a “resident enterprise” for PRC tax purposes if the criteria for “de facto management body” as set forth in SAT Circular 82 were
deemed applicable to us. However, as the tax residency status of an enterprise is subject to determination by the PRC tax authorities and uncertainties
remain with respect to the interpretation of the term “de facto management body” as applicable to our offshore entities, we may be treated as a
resident enterprise for PRC tax purposes under the EIT Law, and we may therefore be subject to PRC income tax on our global income. We are
actively monitoring the possibility of “resident enterprise” treatment for the applicable tax years and are evaluating appropriate organizational
changes to avoid this treatment, to the extent possible.
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In the event that BEST Inc. or any of our offshore subsidiaries is considered to be a PRC resident enterprise: BEST Inc. or our offshore
subsidiaries, as the case may be, may be subject to the PRC enterprise income tax at the rate of 25% on our worldwide taxable income; dividend
income that BEST Inc. or our offshore subsidiaries, as the case may be, received from our PRC subsidiaries may be exempt from the PRC
withholding tax; and dividends paid to our overseas shareholders or ADS holders who are non-PRC resident enterprises as well as gains realized by
such shareholders or ADS holders from the transfer of our shares or ADSs may be regarded as PRC-sourced income and as a result be subject to PRC
withholding tax at a rate of up to 10%, subject to any reduction or exemption set forth in relevant tax treaties, and similarly, dividends paid to our
overseas shareholders or ADS holders who are non-PRC resident individuals, as well as gains realized by such shareholders or ADS holders from the
transfer of our shares or ADSs, may be regarded as PRC-sourced income and as a result be subject to PRC withholding tax at a rate of 20%, subject
to any reduction or exemption set forth in relevant tax treaties. See “Item 3. Key Information—D. Risk Factors—Risks Related to Doing Business in
the People’s Republic of China—We may be treated as a resident enterprise for PRC tax purposes under the PRC Enterprise Income Tax Law, and
we may therefore be subject to PRC income tax on our global income” and “Item 3. Key Information—D. Risk Factors— Risks Related to Doing
Business in the People’s Republic of China—Dividends payable to our foreign investors and gains on the sale of our ADSs or Class A ordinary
shares by our foreign investors may become subject to PRC tax.”
On February 3, 2015, the SAT issued the Bulletin on Issues of Enterprise Income Tax on Indirect Transfers of Assets by Non-PRC Resident
Enterprises, or Bulletin 7, which was recently amended on December 29, 2017. Pursuant to this Bulletin, an “indirect transfer” of assets, including
equity interests in a PRC resident enterprise, by non-PRC resident enterprises may be recharacterized and treated as a direct transfer of PRC taxable
assets, if such arrangement does not have a reasonable commercial purpose and was established for the purpose of avoiding payment of PRC
enterprise income tax. As a result, gains derived from such indirect transfer may be subject to PRC enterprise income tax. According to Bulletin 7,
“PRC taxable assets” include assets attributed to an establishment or place of business in China, immovable properties located in China, and equity
investments in PRC resident enterprises, in respect of which gains from their transfer by a direct holder, being a non-PRC resident enterprise, would
be subject to PRC enterprise income taxes. When determining whether there is a “reasonable commercial purpose” of the transaction arrangement,
features to be taken into consideration include: whether the main value of the equity interest of the relevant offshore enterprise derives directly or
indirectly from PRC taxable assets; whether the assets of the relevant offshore enterprise mainly consists of direct or indirect investment in China or
if its income mainly derives from China; whether the offshore enterprise and its subsidiaries directly or indirectly holding PRC taxable assets have
real commercial nature which is evidenced by their actual function and risk exposure; the duration of existence of the business model and
organizational structure; the foreign income tax liabilities arising from the indirect transfer of PRC taxable assets; the replicability of the transaction
by direct transfer of PRC taxable assets; and the tax situation of such indirect transfer and applicable tax treaties or similar arrangements. In respect
of an indirect offshore transfer of assets of a PRC establishment or place of business, the resulting gain is to be included with the enterprise income
tax filing of the PRC establishment or place of business being transferred, and would consequently be subject to PRC enterprise income tax at a rate
of 25%. Where the underlying transfer relates to the immovable properties located in China or to equity investments in a PRC resident enterprise,
which is not related to a PRC establishment or place of business of a non-resident enterprise, a PRC enterprise income tax of 10% would apply,
subject to available preferential tax treatment under applicable tax treaties or similar arrangements, and the party who is obligated to make the
transfer payments has the withholding obligation. Where the payor fails to withhold any or sufficient tax, the transferor shall declare and pay such tax
to the tax authority by itself within the statutory time limit. Bulletin 7 does not apply to transactions of sale of shares by investors through a public
stock exchange where such shares were acquired from a transaction through a public stock exchange. On October 17, 2017, the SAT issued the
Bulletin on Issues Concerning the Withholding of Nonresident Enterprise Income Tax at Source, or Bulletin 37, which, among others, repeals certain
rules related to treatment of situations where a payor has failed to timely withhold tax as stipulated in Bulletin 7. In particular, Bulletin 37 provides
that when a payor as the withholding agent fails to or is unable to perform its withholding duty, on the condition that the relevant non-PRC resident
enterprise voluntarily makes payment before being ordered to do so in a timely manner or within a time limit prescribed by relevant tax authorities,
the tax shall be deemed as having been timely paid. The Bulletin 37 further specifies and clarifies tax withholding methods applicable to income of
non-PRC resident enterprises. There is uncertainty as to the application of Bulletin 7. Especially as Bulletin 7 is lately promulgated, it is not clear
how it will be implemented. Bulletin 7 may be determined by the tax authorities to be applicable to our offshore restructuring transactions or sale of
our ordinary shares or preferred shares, or those of our offshore subsidiaries where non-resident enterprises, being the transferors, were involved.
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Under the Circular on Comprehensively Promoting the Pilot Program of the Collection of Value-added Tax to Replace Business Tax, or
Circular 36, which was promulgated by the Ministry of Finance and the SAT on March 23, 2016 and became effective on May 1, 2016, entities and
individuals engaging in the sale of services, intangible assets or fixed assets within the territory of the PRC are required to pay value-added tax, or
VAT, instead of business tax. According to the Circular 36, our PRC subsidiaries and VIEs are subject to VAT, at a rate of 6% to 17% (13% after
April 1, 2019, pursuant to the Announcement on Policies for Deepening the VAT Reform promulgated by the Ministry of Finance, the SAT and the
General Administration of Customs on March 20, 2019) on proceeds received from customers, and are entitled to a refund for VAT already paid or
borne on the goods purchased by it and utilized in the production of goods or provisions of services that have generated the gross sales proceeds.
Regulations Relating to M&A Rules and Overseas Listing
The Regulations on Mergers and Acquisitions of Domestic Enterprises by Foreign Investors, or the M&A Rules, issued by six PRC
governmental and regulatory agencies, including the MOFCOM and the CSRC, on August 8, 2006 and amended on June 22, 2009, require that an
SPV formed for listing purposes and controlled directly or indirectly by PRC companies or individuals must obtain the approval of the CSRC in the
event that the SPV acquires equity interests in the PRC companies in exchange for the shares of offshore companies.
The application of the M&A Rules remains unclear. Our PRC counsel, King & Wood Mallesons, has advised us that, under current PRC
laws, rules and regulations and the M&A Rules, prior approval from the CSRC is not required under the M&A Rules for our initial public offering
because (i) our PRC subsidiaries were incorporated as foreign-invested enterprises by means of foreign direct investments at the time of their
incorporation, and (ii) we did not acquire any equity interests or assets of a PRC company owned by its controlling shareholders or beneficial owners
who are PRC companies or individuals, as such terms are defined under the M&A Rules. However, as there has been no official interpretation or
clarification of the M&A Rules, there is uncertainty as to how these rules will be implemented in practice. See “Item 3. Key Information—D. Risk
Factors—Risks Related to Doing Business in the People’s Republic of China—Certain PRC regulations establish more complex procedures for
acquisitions conducted by foreign investors that could make it more difficult for us to grow through acquisitions.”
C.
Organizational Structure
Our Corporate Structure
The following diagram illustrates our corporate structure as of the date of this annual report. It omits certain entities that are immaterial to
our results of operations, business and financial condition. Unless otherwise indicated, equity interests depicted in this diagram are held as to 100%.
The relationship between us and Hangzhou BEST Network, one of our VIEs, as illustrated in this diagram is governed by contractual arrangements
and does not constitute equity ownership.
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(1)
(2)
(3)
(4)
(5)
(6)
(7)
(8)
(9)
(10)
(11)
Two PRC individuals, Wei Chen and Lili He, who are relatives of Mr. Shao-Ning Johnny Chou, and Hangzhou Ali Venture Capital
Co., Ltd., a PRC domestic company and consolidated entity of Alibaba, hold 36.285%, 36.285% and 27.43%, respectively, equity interest in
the VIE.
Primarily involved in the provision of BEST Express services.
Primarily involved in the provision of BEST Cloud services.
Primarily involved in the provision of BEST Supply Chain Management and BEST Freight.
Primarily involved in the provision of BEST Store+ services.
Primarily involved in the provision of BEST Supply Chain Management services.
Shareholders’ Voting Rights Proxy Agreement; Exclusive Call Option Agreement.
Shareholders’ Voting Rights Proxy Agreement; Exclusive Call Option Agreement.
Shareholders’ Voting Rights Proxy Agreement; Exclusive Call Option Agreement.
Loan Agreements; Exclusive Call Option Agreement; Shareholders’ Voting Rights Proxy Agreement; Equity Pledge Agreement.
Exclusive Technical Services Agreement; Exclusive Call Option Agreement; Shareholders’ Voting Rights Proxy Agreement; Equity Pledge
Agreement.
Variable Interest Entity Contractual Arrangements
Due to PRC legal restrictions on foreign ownership and investment in, among other areas, domestic mail delivery services as well as value-
added telecommunication business, we, similar to all other entities with foreign-incorporated holding company
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structures operating in our industry in the PRC, provide the services that may be subject to such restrictions in the PRC through Hangzhou BEST
Network Technologies Co., Ltd., or Hangzhou BEST Network, and Hangzhou BEST IT Information Technology Services Co., Ltd., or Hangzhou
BEST IT, our VIEs, both of which are incorporated in the PRC and 100% owned by PRC legal persons. Hangzhou BEST Network holds a courier
service operation permit that allows it to provide domestic mail delivery services in addition to parcel delivery services and an ICP license that allows
it to provide value-added telecommunication services, all of which may constitute part of our comprehensive service offerings. Certain subsidiaries of
Hangzhou BEST IT have obtained ICP licenses that would allow them to provide value-added telecommunication services in connection with our
BEST UCargo business. Two PRC individuals, Wei Chen and Lili He, who are relatives of Mr. Shao-Ning Johnny Chou and Hangzhou Ali Venture
Capital Co., Ltd., a domestic PRC company and consolidated entity of Alibaba, hold 36.285%, 36.285% and 27.43%, respectively, equity interest in
Hangzhou BEST Network. Wei Chen and Lili He each holds 50% equity interest in Hangzhou BEST IT.
We generated 66% of our revenue through our VIEs for the year ended December 31, 2019. We have entered into certain contractual
arrangements which collectively enable us to exercise effective control over the VIEs and receive substantially all of the economic risks and benefits
generated from the operations of the VIEs and their subsidiaries. As a result, we include the financial results of the VIEs and their subsidiaries in our
consolidated financial statements in accordance with U.S. GAAP as if they were our wholly-owned subsidiaries. The following is a summary of the
contractual arrangements that provide us with effective control of Hangzhou BEST Network and its subsidiaries and that enable us to receive
substantially all of the economic benefits from their operations. We have entered into substantially similar contractual arrangements that provide us
with effective control of Hangzhou BEST IT and its subsidiaries and that enable us to receive substantially all of the economic benefits from their
operations and absorb all of the expected losses of Hangzhou BEST IT and its subsidiaries.
Contracts that give us effective control of Hangzhou BEST Network
Loan Agreements
Zhejiang BEST entered into loan agreements with Wei Chen and Lili He in 2011 and with Hangzhou Ali Venture Capital Co., Ltd. in 2015,
respectively. Pursuant to these loan agreements, Zhejiang BEST has granted an interest-free loan to each of Hangzhou BEST Network’s equity
holders, which may only be used for the purpose of a capital contribution to Hangzhou BEST Network. Zhejiang BEST agreed not to ask the
Hangzhou BEST Network’s equity holders to repay the loans unless the relevant equity holder violates its undertakings provided in the loan
agreements. Hangzhou BEST Network’s equity holders undertook, among others, not to transfer any of its equity interests in Hangzhou BEST
Network to any third party. The loans are repayable by such equity holders through a transfer of their equity interests in Hangzhou BEST Network to
Zhejiang BEST or its designated party, in proportion to the amount of the loans to be repaid. The loan agreements remain effective until the relevant
loans are repaid in full or Zhejiang BEST relinquishes its rights under the relevant loan agreements.
Amended and Restated Exclusive Call Option Agreement
Pursuant to the amended and restated exclusive call option agreement among us, Zhejiang BEST, Hangzhou BEST Network and its equity
holders, dated June 21, 2017, Hangzhou BEST Network’s equity holders have granted Zhejiang BEST and us, or a party designated by us or Zhejiang
BEST, the exclusive and irrevocable call option rights to purchase part or all of their equity interests in Hangzhou BEST Network at an exercise price
equal to the minimum price as permitted by applicable Chinese laws. Hangzhou BEST Network has further granted Zhejiang BEST and us, or a party
designated by us or Zhejiang BEST, an exclusive call option to purchase part or all of its assets also at an exercise price equal to the minimum price
as permitted by applicable PRC laws. At our sole discretion, we have the right to decide whether the option and other rights granted under the
agreement will be exercised by us, Zhejiang BEST or a party designated by us. Each of Hangzhou BEST Network’s equity holders may not, among
other things, transfer any part of their equity interests to any party other than to us or Zhejiang BEST, or a party designated by us or Zhejiang BEST,
pledge or create or permit any security interest or similar encumbrance to be created on all or any part of its equity interests, increase or decrease the
registered capital of Hangzhou BEST Network, terminate or cause to terminate any material contracts of Hangzhou BEST Network, or cause
Hangzhou BEST Network to declare or distribute profits, bonuses or dividends. We are obligated, to the extent permitted by PRC laws, to provide
financing support to Hangzhou BEST Network in order to meet the cash flow requirements of its ordinary operations and to offset any loss from such
operations. We and Zhejiang BEST are not entitled to request repayment if Hangzhou BEST Network or its equity holders are unable to repay such
financial support. The amended and restated exclusive call option agreement remains in effect until all the equity interests or assets that are the
subject of the agreement are transferred to us or Zhejiang BEST, or a party designated by us or Zhejiang BEST, or if we or Zhejiang BEST
unilaterally terminate the agreement with 30 days’ prior written notice. Unless otherwise provided by law, Hangzhou BEST Network and its equity
holders are not entitled to unilaterally terminate this agreement under any circumstances.
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Amended and Restated Shareholders’ Voting Rights Proxy Agreement
Pursuant to the amended and restated shareholders’ voting rights proxy agreement among us, Zhejiang BEST, Hangzhou BEST Network
and its equity holders, dated June 21, 2017, each of Hangzhou BEST Network’s equity holders has irrevocably authorized any person designated by
Zhejiang BEST, with our consent, to exercise its rights as an equity holder of Hangzhou BEST Network in a manner approved by us, including but
not limited to the rights to attend and vote at equity holders’ meetings and appoint directors and senior management. The amended and restated proxy
agreement remains effective until such time as the relevant equity holder no longer holds any equity interest in Hangzhou BEST Network.
Amended and Restated Equity Pledge Agreement
Pursuant to the amended and restated equity pledge agreement among Zhejiang BEST, Hangzhou BEST Network and its equity holders,
dated June 21, 2017, the relevant equity holders of Hangzhou BEST Network have pledged all of their equity interests in Hangzhou BEST Network
as a continuing first priority security interest in favor of Zhejiang BEST to secure the outstanding amounts advanced under the relevant loan
agreements described above and to secure the performance of obligations by Hangzhou BEST Network and/or its equity holders under the other
contractual arrangements. Zhejiang BEST is entitled to exercise its right to dispose of the pledged interests held by Hangzhou BEST Network’s
equity holders in the equity of Hangzhou BEST Network and has priority in receiving payment by the application of proceeds from the auction or
sale of such pledged interests, in the event of any breach or default under the loan agreements or other contractual arrangements, if applicable. All of
the equity pledges have been registered with the relevant office of the Administration for Market Regulation in China. The amended and restated
equity pledge agreement will expire when all obligations under this amended and restated equity pledge agreement or under the aforementioned loan
agreements, amended and restated exclusive call option agreement, amended and restated shareholders’ voting rights proxy agreement and amended
and restated exclusive technical services agreement have been satisfied.
Contract that enables us to receive substantially all of the economic benefits from Hangzhou BEST Network
Amended and Restated Exclusive Technical Services Agreement
On June 21, 2017, Hangzhou BEST Network entered into an amended and restated exclusive technical services agreement with Zhejiang
BEST, pursuant to which Zhejiang BEST provides exclusive technical services to Hangzhou BEST Network. In exchange, Hangzhou BEST Network
pays a service fee to Zhejiang BEST that is based on a predetermined formula based on the financial performance of Hangzhou BEST Network.
During the term of this agreement, Zhejiang BEST is entitled to adjust the service fee at its sole discretion without the consent of Hangzhou BEST
Network. Zhejiang BEST will exclusively own any intellectual property arising from the performance of this agreement. This amended and restated
exclusive technical services agreement has an initial contract term of 20 years and may be automatically renewed for another 20 years unless
Zhejiang BEST notifies Hangzhou BEST Network of its intent not to renew with at least three months’ prior notice. Zhejiang BEST is entitled to
terminate the agreement unilaterally with 30 days’ prior written notice, while Hangzhou BEST Network is not entitled to unilaterally terminate this
agreement under any circumstances.
We have been advised by our PRC legal counsel that there are substantial uncertainties regarding the interpretation and application of
current and future PRC laws, rules and regulations. Accordingly, the PRC regulatory authorities may in the future take a view that is contrary to the
opinion of our PRC legal counsel. We have been further advised by our PRC legal counsel that if the PRC government finds that the agreements that
establish the structure for operating our domestic mail delivery services and Internet related value-added business do not comply with PRC
government restrictions on foreign investment in the aforesaid business we engage in, we could be subject to severe penalties including being
prohibited from continuing operations. See “Item 3. Key Information—D. Risk Factors—Risks Related to Our Corporate Structure.”
Subsidiaries of BEST Inc.
An exhibit containing a list of our significant subsidiaries has been filed with this annual report.
D.
Property, Plants and Equipment
Please refer to “B. Business Overview—Properties” for a discussion of our property, plants and equipment.
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ITEM 4A.
UNRESOLVED STAFF COMMENTS
None.
ITEM 5.
OPERATING AND FINANCIAL REVIEW AND PROSPECTS
Unless otherwise stated, the discussion and analysis of our financial condition and results of operation in this section apply to our financial
information as prepared according to U.S. GAAP. You should read the following discussion and analysis of our financial condition and operating
results in conjunction with our consolidated financial statements and the related notes included elsewhere in this annual report. The following
discussion contains forward-looking statements based upon current expectations that involve risks and uncertainties. Our actual results and the timing
of selected events 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.”
A. Operating Results
Overview
Our Chairman and Chief Executive Officer, Mr. Shao-Ning Johnny Chou, founded BEST in 2007, in the belief that technology and business
model innovation can disrupt and transform the inefficient logistics and supply chain industry in China. We are focused on maximizing long-term
value propositions to businesses and consumers in our ecosystem through comprehensive integrated services and enhanced experiences driven by
technology and service quality. Our multi-sided platform combines technology, integrated logistics and supply chain services, last-mile services and
value-added services. We believe we are well positioned to transform the logistics and supply chain industry in China and capture growth
opportunities in the New Retail era.
We have achieved superior revenue growth. Our total revenue increased by 39.9% from RMB19,989.6 million in 2017 to RMB27,961.0
million in 2018, and further increased by 25.8% to RMB35,175.9 million (US$5,052.7 million) in 2019. We had net losses of RMB1,228.1 million,
RMB508.4 million and RMB219.1 million (US$31.5 million) in 2017, 2018 and 2019, respectively. Our gross margin has improved from negative
2.4% in 2017, to 5.2% in 2018 and further to 5.6% in 2019, respectively, as a result of operating leverage and improved operating efficiency.
Our Business Philosophy
Our brand name in Chinese, “
” means hundreds of generations. Our business philosophy is to build and invest for the long-term. Since
inception, we have focused on building a platform to meet evolving market demands with Smart Supply Chain solutions. We are committed to
continuing investment in and enhancement of our platform, which we believe will generate long-term benefits.
Platform Infrastructure. We have invested in and established our proprietary technology infrastructure, which is the backbone of the
integrated solutions we offer, as well as our integrated supply chain service network, which has significant scale and density. With the platform
infrastructure in place, we expect to continue to reap the benefits of our investments.
Comprehensive Solutions. Leveraging our platform, we have successfully launched multiple services, which allow customers to enjoy
comprehensive solutions from a single source. We believe this gives us a strong competitive advantage, especially over monoline service providers.
Our platform also allows us to introduce additional innovative solutions and services, capture more cross-selling opportunities and generate strong
network effects, driving further growth.
Operating Leverage. Our business enjoys significant operating leverage, and as our business continues to expand, we expect to enjoy
greater economies of scale. In addition, we will leverage our technology and synergies across our different services to increase operational efficiency.
Asset-Light Business Model. Our business model allows us to scale quickly while optimizing our levels of capital investment and enables
us to maintain effective control over our network and service quality that will cultivate customer stickiness. See also “Business—Our Competitive
Strengths—Flexible asset-light business model for control and scale” and “Business—Asset-Light Business Model.”
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Guided by our business philosophy, we believe our platform will enable us to continue driving growth, increasing operating leverage and
generating long-term value to our ecosystem participants and our shareholders.
Our Scale and Growth
We have achieved significant scale and growth in our business. The following table illustrates the growth in key operating metrics of our
major service lines:
BEST Supply Chain
Management
Number of orders fulfilled
by self-operated Cloud
OFCs (in thousands) (1)
Number of orders fulfilled
by franchised Cloud
OFCs (in thousands)
BEST Express
Parcel volume (in
thousands) (1)
BEST Freight
Freight volume (tonnage
in thousands) (1)
BEST Store+
Number of store orders
fulfilled
Mar. 31,
2017
Jun. 30,
2017
Sep. 30,
2017
Dec. 31,
2017
Mar. 31,
2018
For the three months ended
Jun. 30,
2018
Sep. 30,
2018
Dec. 31,
2018
Mar. 31,
2019
Jun. 30,
2019
Sep. 30,
2019
Dec. 31,
2019
23,560
32,578
32,537
43,570
31,431
40,645
37,530
54,834
39,462
50,014
45,848
63,590
8,872
11,840
10,514
17,007
13,913
20,532
19,041
28,789
22,502
36,648
40,523
58,317
571,601
917,103
1,010,512
1,270,168
950,498
1,280,050
1,371,055
1,868,489
1,340,540
1,906,863
1,890,842
2,437,959
790
1,095
1,194
1,237
985
1,366
1,474
1,605
1,268
1,730
1,885
2,097
333,876
570,356
702,815
647,044
581,121
870,591
934,936
668,394
555,603
779,914
902,776
681,275
(1)
Includes services performed for external customers both directly and indirectly through our other segments. For discussion of our total segment revenue, which includes both external
revenue and intersegment revenue, please see “—Segment Financial Information.”
Key Factors Affecting Our Results of Operations
We believe that our results of operations are directly affected by the following key factors.
Macroeconomic Trends and Consumption in China
Our results of operations and financial condition are affected by the general factors driving China’s economy, the retail industry, and
logistics and supply chain market. These factors include levels of per capita disposable income, levels of consumer spending, rate of Internet and
mobile penetration, and other general economic conditions in China that affect consumption and business activities in general. Our results of
operations are also affected by seasonal patterns. For example, the fourth quarter has historically been our strongest quarter by volume, led by the
Singles’ Day and December 12 promotion periods. As our customers reduce activity in connection with Chinese holidays, such as Chinese New Year,
the first quarter historically has been a low volume quarter.
In particular, we anticipate additional growth from the trend toward a New Retail paradigm, which is the seamless integration of online and
offline retail enabled by Smart Supply Chain. The emergence of New Retail and transformation of the logistics and supply chain industry affect the
demand for our services and our business opportunities.
Competitive Landscape
We are able to provide comprehensive, integrated supply chain solutions leveraging our technology infrastructure and supply chain service
network, which differentiates us from monoline service providers. Our ability to strengthen our market position as a leading comprehensive supply
chain solution provider and offer innovative services in the New Retail era will continue to affect our results of operations.
Each of our service lines is also subject to trends specific to such services, including market demand and competitive landscape. Therefore,
we also compete with companies providing similar services, especially with respect to more standard services
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such as express and freight services. This will affect the pricing of our services, our ability to acquire customers for such services and our results of
operation.
Service Offerings
We provide a variety of services to meet the needs of our customers. We plan to continue leveraging technology and business model
innovation to expand and enhance our service offerings.
Each of our service offerings may have different revenue sources, cost structures and customer bases and may face different market
conditions. Therefore, the ability to adjust our service offerings to adapt to changing market conditions may impact our results of operations.
Our consolidated results of operations may also be affected by the timing of the launch of new service offerings. We may incur start-up costs
in the early stages. A certain amount of time may be needed to ramp up operations. The timing and trend in revenue growth and profitability of new
services may vary over time.
Our ability to cross-sell various service offerings to existing and new customers will also affect our results of operations.
Operating Leverage and Efficiency
Our ability to control costs, increase operating efficiencies and scale our business effectively may affect our results of operations.
Costs to operate our businesses, including transportation, labor, lease and other costs are subject to factors such as fluctuations in fuel prices,
increases in wage rates and leasing costs, among other things. These factors will affect our ability to control costs.
Our results of operations are also affected by our ability to (i) utilize latest technology to improve efficiencies across our business and data
insights to drive optimization in our services, and (ii) take full advantage of our asset-light business model to expand our business operations in a
cost-effective manner, leverage the resources and operating capabilities of our franchisee partners and transportation service providers, and
dynamically adjust our network design and capacity.
The continued growth of our business and expansion of our market share will impact our ability to benefit from economies of scale,
including optimization of our supply chain service network, reduction of unit costs and the strengthening of our bargaining power with suppliers and
service providers.
Technology and Talent
We have made investments in developing our proprietary technology infrastructure. We believe the further enhancement of our technology
infrastructure is important to our future performance. We expect to continue to make investments for development and implementation of new
technologies. We will continue to hire, train and retain our talent to reinforce our culture of innovation. We have in the past granted and will in the
future grant share-based awards to incentivize and retain talent.
Strategic Acquisitions and Investments
We may selectively pursue acquisitions, investments, joint ventures and partnerships that we believe are strategic and complementary to our
operations and technology. These acquisitions, investments, joint ventures and partnerships may affect our results of operations.
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Critical Accounting Policies and Significant Judgments and Estimates
The preparation of consolidated financial statements in conformity with U.S. GAAP requires us to make estimates and assumptions that
affect the reported amounts of assets and liabilities, disclosures of contingent assets and liabilities at the balance sheet dates and the reported amounts
of revenue and expenses during the reporting periods. Significant estimates and assumptions reflected in our financial statements include, but are not
limited to, allowance for doubtful accounts, fair value measurements of equity instruments with no readily determinable fair value, useful lives of
long-lived assets, the purchase price allocation with respect to business combinations, impairment of long-lived assets and goodwill, realization of
deferred tax assets, uncertain tax positions, and share-based compensation. We base our estimates on historical experience and various other
assumptions that are believed to be reasonable, the results of which form the basis for making judgments about the carrying values of assets and
liabilities. Our actual results could materially differ from those estimates.
Revenue recognition
On January 1, 2018, we adopted ASC 606, Revenues from Contracts with Customers (“ASC 606”) and elected to apply the modified
retrospective approach to contracts that are not completed as of this date. The cumulative effect of initially applying ASC 606 resulted in an increase
to opening accumulated deficit of RMB25,054, which has been recognized on the day of initial application and prior periods were not retrospectively
adjusted.
Commencing on January 1, 2018, revenue is recognized when control of promised goods or services is transferred to our customers in an
amount of consideration to which an entity expects to be entitled to in exchange for those goods or services. We present value-added taxes as a
reduction from revenues. We do not disclose the value of unsatisfied performance obligations for (i) contracts with an original expected length of one
year or less and (ii) contracts for which we recognize revenue at the amount to which it has the right to invoice for services performed.
Our revenue recognition policies effective on the adoption date of ASC 606 are as follows:
Express delivery services
We provide express services that comprise sorting, line-haul and feeder transportation services to our franchisee service stations, which are
also our customers, when parcels (under 15 kg) are dropped off by our franchisee service station customers at our first hub or sortation center.
We offer an integrated service to the franchised service stations that includes last-mile delivery service to end recipients and we act as the
principal that is directly responsible for all parcels sent through our network, from the point when customers drop off the parcels at our first hub or
sortation center all the way through to the point when the parcels are delivered to end recipients.
Customers are required to prepay for express delivery services and we record such amounts as “customer advances and deposits and
deferred revenue” in the balance sheet. The transaction price we earn from our customers are based on the parcel’s weight and route to the end
recipient’s destination. In addition, we provide certain discounts, incentives and rebates based on explicitly agreed upon terms with our customers
that can decrease the transaction price and estimates variable consideration based on the most likely amount to be provided. The amount of variable
consideration included in the transaction price is limited to the amount that will not result in a significant revenue reversal. We review the estimate of
variable consideration and updates the transaction price at the end of each reporting period as necessary. Uncertainties related to the variable
consideration for transactions are resolved in a short time frame. Adjustments to variable consideration are recognized in the period the adjustments
are identified and were insignificant for the periods presented.
Our express delivery services contracts with customers include only one performance obligation. Performance obligations are generally
short-term in nature and with transit days being a week or less for each parcel. We recognize revenue over time as customers receive the benefit of
our services as the goods are delivered from one location to another. As such, express delivery services revenue is recognized proportionally as a
parcel moves from origin to destination and the related costs are recognized as incurred. We use an output method of progress based on time-in-
transit as it best depicts the transfer of control to the customer.
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A minor percentage of our express delivery services are performed by our self-operated service stations for direct customers (“direct
customers express delivery services”) who are the senders of the parcels. We are directly responsible for the parcel from the point it is received from
the senders all the way through the point when the parcels are delivered to end recipients. Direct customer express delivery services revenue is
recognized proportionally as parcels are transported to end recipients and the related costs are recognized as incurred.
Express delivery services revenue also includes initial non-refundable franchise fees. The initial non-refundable franchise fees are
recognized over the franchise period due to the franchisees’ rights to access our logos and brand names which are considered symbolic intellectual
properties. The initial non-refundable franchise fees are negotiated under a separate agreement and represent a very small percentage of revenue for
all periods presented.
Freight delivery services
Similar to express delivery services, we provide freight services that comprise sorting, line-haul and feeder transportation services mainly to
our franchisees, which are also our customers.
We offer an integrated service to our franchisee service stations that includes last-mile delivery service to end recipients and we act as the
principal that is directly responsible for all shipments sent through our network, from the point when customers drop off the shipments at our first hub
or sortation center all the way through to the point when the shipments are delivered to end recipients.
Customers are required to prepay for freight delivery services and we record such amounts as “customer advances and deposits and deferred
revenue” in the balance sheet. The transaction price we earn from our customers are based on the shipment’s weight and route to the end recipient’s
destination.
Our freight delivery services contracts with customers include only one performance obligation. Performance obligations are generally
short-term in nature with transit days being a week or less for each shipment. We recognize revenue over time as customers receive the benefit of our
services as the goods are shipped from one location to another. As such, freight delivery services revenue is recognized proportionally as a shipment
moves from origin to destination and the related costs are recognized as incurred. We use an output method of progress based on time-in-transit as it
best depicts the transfer of control to the customer.
Freight delivery services revenue also includes initial non-refundable franchise fees. The initial non-refundable franchise fees are recognized
over the franchise period due to the franchisees’ rights to access our logos and brand names which are considered symbolic intellectual properties.
The initial non-refundable franchise fees are negotiated under a separate agreement and represent a very small percentage of revenue for all periods
presented.
Supply chain management services
We provide warehouse management, order fulfillment services and transportation services to our offline and online enterprise customers
(“enterprise customers”). We enter into supply chain warehouse management service agreements with these customers to provide warehouse
management and order fulfillment services through our self-operated order fulfillment centers and transportation services agreements for
transportation services. The majority of the contracts have an effective term of one year. Order fulfillment service revenue is generated from various
service fees charged on a volume basis in connection with various order fulfillment services, which may include in-warehouse processing, order
fulfillment, express delivery, freight delivery and other value-added services. Pursuant to the warehouse management service agreements and
transportation services agreements, enterprise customers have the right to terminate the contracts by providing one month’s advance notice.
Therefore, even though the contract term for the majority of the contracts is one year, due to the termination rights provided to enterprise customers,
warehouse management service agreements and transportation services agreements are considered month-to-month service contracts. Enterprise
customers are billed on a monthly basis and make payments according to their granted credit terms which ranges from 5 to 120 days.
Under some situations, enterprise customers may request to add a transportation route or increase the warehouse rental space by entering
into a separate contract with us. The additional services are considered distinct and the service fees are priced at their standalone selling prices, i.e.
they cannot be purchased at a significant or incremental discount. Therefore, we account for this type of contract modification as a separate contract
and the revenue recognized to date on the original contract is not adjusted.
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The warehouse management service agreements comprise various service offerings that can be purchased at the option of the customer.
Although the service options are interrelated, none of the services modify the other services and they are not integrated to provide a combined output.
Each of the service options is substantive and the enterprise customers cannot purchase each additional service at a significant and incremental
discount. Therefore, each service is accounted for as a separate performance obligation. We are the primary obligor and do not outsource any portion
of the order fulfillment services to supply chain franchisee partners. We recognize warehouse management and order fulfillment services revenue
upon completion of the services as that is when we transfer control of the services and have right to payment.
For transportation services, we provide the service of arranging transportation and coordinating shipments to and from locations designated
by our enterprise customers. Each transportation order for delivery of goods from origin to destination is considered a performance obligation.
Performance obligations are generally short-term in nature with transit days being a week or less for each shipment. We recognize transportation
services revenue over time as customers receive the benefit of our services as the goods are shipped from origin to destination. As such,
transportation service revenue is recognized proportionally as a shipment moves from origin to destination and the related costs are recognized as
incurred. We use an output method of progress based on time-in-transit as it best depicts the transfer of control to the customer.
A small percentage of revenue is also earned from supply chain franchisee partners that can access our supply chain network. These
franchisee partners pay an initial non-refundable fee for a comprehensive operating manual and orientation training, as well as an agreed system
usage fee for each order processed through our supply chain network. The initial non-refundable fees and system usage fees were insignificant for all
periods presented.
Store+ services
We recognize revenue upon the delivery of the consumer goods to our convenience store membership customers. Starting in May 2017, we
also generate and recognize revenue upon the sales of merchandise to end consumers by our self-operated convenience stores. We are the principal to
the transaction for the sales of customer goods and merchandise and revenue from these transactions are recognized on a gross basis. Transfer of
control occurs at a point in time once delivery has been completed as we have transferred control of the promised goods to the customer. Generally,
customers are billed upon delivery of the consumer goods while convenience store customers make payment upon checkout of merchandise.
Other services
We mainly provide cross-border logistics coordination services and oversea express delivery services, finance leasing services and UCargo
transportation services. Revenue from interest income on finance leasing related service provided by BEST Capital is recognized using the effective
interest rate method. For cross-border logistic coordination services, oversea express delivery services and UCargo transportation services, revenue is
recognized proportionally as a shipment moves from origin to destination using an output method of progress based on time-in-transit while the
related costs are recognized as incurred. We are the principal to the transaction for these services and revenue from these transactions is recognized
on a gross basis.
Contract assets and liabilities
We enter into contracts with its customers, which may give rise to contract liabilities (deferred revenue) and contract assets (unbilled
revenue). The payment terms and conditions within our contracts vary by the type of service and customers. When the timing of revenue recognition
differs from the timing of payments made by customers, we recognize either unbilled revenue (its performance precedes the billing date) or deferred
revenue (customer payment is received in advance of performance).
Contract assets represent unbilled amounts resulting from provision of transportation services as we have an unconditional right to payment
only once all delivered goods reach their destination. Contract assets are classified as current and the full balance is reclassified to accounts
receivables when the right to payment becomes unconditional.
Contract liabilities are included in “customer advances and deposits and deferred revenue” in the accompanying consolidated balance sheet.
Contract liabilities represent the amount of consideration received upfront from customers related to in-transit shipments that has not yet been
recognized as revenue based on our selected measure of progress and non-refundable franchise fees which are recognized over the franchise period.
We classify contract liabilities as current based on the timing of when we expect to recognize revenue, which typically occurs within a week after
period-end.
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Leases
On January 1, 2019, we adopted ASU 2016-02, Leases (Topic 842), using the modified retrospective transition method and elected the
transition option to use an effective date of January 1, 2019 as the date of initial application. As a result, the comparative periods were not restated.
We elected the package of practical expedients permitted which allows we not to reassess the following at adoption date: (i) whether any
expired or existing contracts are or contains a lease, (ii) the lease classification for any expired or existing leases, and (iii) initial direct costs for any
expired or existing leases (i.e. whether those costs qualify for capitalization under ASU 2016-02). We also elected the short-term lease exemption for
certain classes of underlying assets including office space, warehouses and hub and sortation center facilities and equipment, with a lease term of 12
months or less.
We determine whether an arrangement is or contains a lease at inception. Our accounting policy effective on the adoption date of ASU
2016-02 is as follows:
Sales-type, direct financing and operating leases as Lessor
We classify a lease as a sales-type lease when the lease meets any one of the following criteria at lease commencement:
a. The lease transfers ownership of the underlying asset to the lessee by the end of the lease term.
b. The lease grants the lessee an option to purchase the underlying asset that the lessee is reasonably certain to exercise.
c. The lease term is for a major part of the remaining economic life of the underlying asset.
d. The present value of the sum of the lease payments and any residual value guaranteed by the lessee that is not already reflected in
the lease payments equals or exceeds substantially all of the fair value of the underlying asset.
e. The underlying asset is of such a specialized nature that it is expected to have no alternative use to the Company at the end of the
lease term.
For sales-type leases, when collectability is probable at lease commencement, we derecognize the underlying asset and recognize the net
investment in the lease which is the sum of the lease receivable. Initial direct costs are expensed, at the commencement date, if the fair value of the
underlying asset is different from its carrying amount. Interest income is recognized in financing income over the lease term using the interest
method.
When none of the criteria above are met, we classify a lease as either a direct financing lease or an operating lease. We will classify the lease
as a direct financing lease if (i) the present value of the sum of lease payments and any residual value guaranteed by the lessee and any other third
party unrelated to us equals or exceeds substantially all the fair value of the underlying asset; and (ii) it is probable that we will collect the lease
payments plus any amount necessary to satisfy a residual value guarantee. If both of the criteria above are not met, we will classify the lease as an
operating lease.
The new standard requires lessors within the scope of ASC 942, Financial Services – Depository and Lending, to classify principal payments
received from sales-type and direct financing leases in investing activities in the statement of cash flows. We continue to present cash receipts from
sales-type and direct financing leases as an investing cash inflow.
When we enters into sale-leaseback transactions as lessor, it applies the requirements in ASC 606 by assessing whether a contract exists and
whether the seller-lessee satisfies a performance obligation by transferring control of an asset when determining whether the transfer of an asset shall
be accounted for as a sale of the asset. If the seller-lessor transfers the control of the leased asset to us, it accounts for the purchase of the leased asset
in accordance with ASC360. The subsequent leaseback of the asset is accounted for in accordance with ASC842 in the same manner as any other
lease. If the seller-lease does not transfer the control of the leased asset to us, it is a failed sales-leaseback transaction which is accounted for as a
financing. We do not recognize the transferred asset and records the amounts paid as other financing receivables for which the current portion is
included in “Prepayments and other current assets” and the non-current portion is included in "Other non-current assets" in the consolidated balance
sheet as of December 31, 2019.
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Financing lease and operating lease as Lessee
We classify a lease as a financing lease when the lease meets any one of the criteria specified as (a) to (e) in the “Sales-type, direct financing
and operating leases as Lessor” policy at lease commencement. When none of the criteria are met, we classify a lease as an operating lease.
For both operating and financing leases, we record a lease liability and corresponding right-of-use (ROU) asset at lease commencement.
Lease terms are based on the non-cancellable term of the lease and may contain options to extend the lease when it is reasonably certain that we will
exercise the option. Lease liabilities represent the present value of the lease payments not yet paid, discounted using the discount rate for the lease at
lease commencement.
We estimate its incremental borrowing rate for its leases at the commencement date to determine the present value of future lease payments
when the implicit rate is not readily determinable in the lease. In estimating its incremental borrowing rate, we consider its credit rating and publicly
available data of borrowing rates for loans of similar amount, currency and term as the lease.
Operating leases are presented as “Operating lease ROU assets” and “Operating lease liabilities”. Lease liabilities that become due within
one year of the balance sheet date are classified as current liabilities. At lease commencement, operating lease ROU assets represent the right to use
underlying assets for their respective lease terms and are recognized at amounts equal to the lease liabilities adjusted for any lease payments made
prior to the lease commencement date, less any lease incentives received and any initial direct costs incurred by us.
After lease commencement, operating lease liabilities are measured at the present value of the remaining lease payments using the discount
rate determined at lease commencement. Operating lease ROU assets are measured at the amount of the lease liabilities and further adjusted for
prepaid or accrued lease payments, the remaining balance of any lease incentives received, unamortized initial direct costs and impairment of the
ROU assets, if any. Operating lease expense is recognized as a single cost on a straight-line basis over the lease term.
Financing lease ROU assets are included in “Property and equipment” and “Financing lease liabilities” on the consolidated balance sheet.
Lease liabilities that become due within one year of the balance sheet date are classified as current liabilities. Financing lease ROU assets are
amortized on a straight-line basis from the lease commencement date. After initial measurement, the carrying value of financing lease liabilities are
increased to reflect interest at a constant rate and reduced to reflect any lease payments made during the period.
Leases that have a term of 12 months or less at the commencement date (“short-term leases”) are not included in operating lease ROU assets
and operating lease liabilities. Lease expense for the short-term leases are recognized on a straight-line basis over the lease term.
The adoption of the standard did not have significant impact our consolidated statements of comprehensive loss or cash flows.
When we enter into sale-leaseback transactions as a seller-lessee, it applies the requirements in ASC 606 by assessing whether a contract
exists and whether it satisfies a performance obligation by transferring control of an asset when determining whether the transfer of an asset shall be
accounted for as a sale of the asset. If we transfer the control of an asset to the buyer-lessor, it accounts for the transfer of the asset as a sale and
recognizes a corresponding gain or loss on disposal. The subsequent leaseback of the asset is accounted for in accordance with ASC842 in the same
manner as any other lease. If we do not transfer the control of an asset to the buyer-lessor, the failed sale-leaseback transaction is accounted for as a
financing. We do not derecognize the transferred asset and accounts for proceeds received as borrowings for which the current portion is included in
“Accrued expenses and other liabilities” and the non-current portion is included in "Other non-current liabilities" in the consolidated balance sheets.
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Share-based compensation
Awards granted to employees
We apply ASC 718, Compensation—Stock Compensation, or ASC 718, to account for our employee share-based payments. In accordance
with ASC 718, we determined whether an award should be classified and accounted for as a liability award or equity award. All of our share-based
awards to employees were classified as equity awards and are recognized in the consolidated financial statements based on their grant date fair
values. For awards only with service conditions, we have elected to recognize compensation expense using the straight-line method for all awards
granted with graded vesting based on service conditions provided that the amount of compensation cost recognized at any date is at least equal to the
portion of the grant date value of the options that are vested at that date. For awards with performance and service conditions, we use the accelerated
method for all awards granted with graded vesting. We account for forfeitures as they occur.
With the assistance of an independent third party valuation firm, we determined the fair value of the stock options granted to employees. The
binomial option pricing model was applied in determining the estimated fair value of the options granted to employees.
Awards granted to non-employees
We account for equity instruments issued to non-employees in accordance with ASC 505-50, Equity—Equity-based payments to non-
employees. All transactions in which goods or services are received in exchange for equity instruments are accounted for based on the fair value of
the consideration received or the fair value of the equity instrument issued, whichever is more reliably measurable. The measurement date of the fair
value of the equity instrument issued is the date on which the counterparty’s performance is completed as there is no associated performance
commitment. On July 1, 2018, we early adopted ASU 2018-07: Compensation — Stock Compensation (Topic 718): Improvements to Nonemployee
Share-Based Payment Accounting (“ASU 2018-07”) which aligns the measurement and classification guidance for share-based payments to
nonemployees with that for employees, with certain exceptions. ASU 2018-07 is required to be adopted on a modified retrospective basis through a
cumulative-effect adjustment to accumulated deficit as of the beginning of the fiscal year of adoption. Nonemployee share-based payment awards
within the scope of ASC 718 are measured at grant-date fair value. There was no material impact on the consolidated financial statements from the
adoption of ASU 2018-07.
Modification of awards
A change in any of the terms or conditions of the awards is accounted for as a modification of the award. Incremental compensation cost is
measured as the excess, if any, of the fair value of the modified award over the fair value of the original award immediately before its terms are
modified, measured based on the fair value of the awards and other pertinent factors at the modification date. For vested awards, we recognize
incremental compensation cost in the period the modification occurs. For unvested awards, we recognize over the remaining requisite service period,
the sum of the incremental compensation cost and the remaining unrecognized compensation cost for the original award on the modification date. If
the fair value of the modified award is lower than the fair value of the original award immediately before modification, the minimum compensation
cost we recognize is the cost of the original award.
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Significant Factors, Assumptions and Methodologies Used in Determining Fair Value
The fair value of each share option grant is estimated using the binomial option-pricing model. The model requires the input of highly
subjective assumptions including the estimated expected share price volatility and, the share price upon which (i.e. the exercise multiple) the
employees are likely to exercise share options. We historically have been a private company and lack information on our share price volatility.
Therefore, we estimate our expected share price volatility based on the historical volatility of a group of similar companies, which are publicly-
traded. When selecting these public companies on which we have based our expected share price volatility, we selected companies with
characteristics similar to us, including the invested capital’s value, business model, risk profiles, position within the industry, and with historical
share price information sufficient to meet the contractual life of our share-based awards. We will continue to apply this process until a sufficient
amount of historical information regarding the volatility of our own share price becomes available. For the exercise multiple, as a private company,
we were not able to develop an exercise pattern as a reference, thus the exercise multiple is based on management’s estimation, which we believe is
representative of the future exercise pattern of the options. The risk-free interest rates for the periods within the contractual life of the option are
based on the U.S. Treasury yield curve in effect during the period the options were granted. Expected dividend yield is based on the fact that we have
never paid, and do not expect to pay cash dividends in the foreseeable future.
The assumptions adopted to estimate the fair value of share options using the binomial option pricing model were as follows:
Risk-free interest rate
Expected volatility range
Suboptimal exercise factor
Fair market value per share as at valuation date
2017
2.32% - 2.41%
40.5% - 44.1%
2.20
US$5.08 - $11.24
2018
2.74% - 2.78%
44.3% - 46.9%
2.20
US$8.30 - $9.55
2019
—
—
—
—
These assumptions represented our best estimates, but the estimates involve inherent uncertainties and the application of our judgment. As a
result, if factors change and we use significantly different assumptions or estimates when valuing our share options, our share-based compensation
expense could be materially different.
Consolidation of variable interest entities
Due to PRC legal restrictions on foreign ownership and investment in, among other areas, domestic mail delivery services as well as value-
added telecommunication business, we provide the services that may be subject to such restrictions in the PRC through our VIEs.
Despite the lack of technical majority ownership, our wholly owned subsidiaries, Zhejiang BEST and BEST Logistics China, have effective
control of Hangzhou BEST Network and Hangzhou BEST IT, respectively, through a series of contractual arrangements, or the Contractual
Agreements, and a parent-subsidiary relationship exists between Zhejiang BEST and Hangzhou BEST Network and between BEST Logistics China
and Hangzhou BEST IT. The equity interests of the VIEs are legally held by Chinese individuals, or the respective nominee shareholders. Through
the Contractual Agreements, the respective nominee shareholders of the VIEs effectively assign all of their voting rights underlying their equity
interests in the VIEs to Zhejiang BEST and BEST Logistics China, as applicable. In addition, through the terms of the Contractual Agreements,
Zhejiang BEST and BEST Logistics China demonstrate their abilities and intention to continue to exercise the ability to absorb substantially all of the
profits and all of the expected losses of Hangzhou BEST Network and Hangzhou BEST IT, as applicable. As a result of the Contractual Agreements,
we have the power to direct the activities of the VIEs that most significantly impact their economic performances and, is entitled to substantially all
of the economic benefits from the VIEs through Zhejiang BEST and BEST Logistics China, respectively. Therefore, we consolidate the VIEs in
accordance with SEC Regulation SX-3A-02 and Accounting Standards Codification, or ASC, topic 810-10, Consolidation: Overall.
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With respect to Hangzhou BEST Network, in June 2017, the power and the rights pursuant to the Proxy Agreement were effectively
reassigned from Zhejiang BEST to BEST Inc., resulting in BEST Inc. having the power to direct the activities of Hangzhou BEST Network that most
significantly impact Hangzhou BEST Network’s economic performance. In addition, BEST Inc. is obligated to absorb the expected losses of
Hangzhou BEST Network through the financial support provided pursuant to the amended and restated Equity Option Agreement. Therefore, we
determined BEST Inc. to be most closely associated with Hangzhou BEST Network within the group of related parties, and BEST Inc. has replaced
Zhejiang BEST as the primary beneficiary of Hangzhou BEST Network since June 2017. As Hangzhou BEST Network was subject to indirect
control by us through Zhejiang BEST immediately before and direct control immediately after the Contractual Agreements were supplemented, we
accounted for the change in primary beneficiary of Hangzhou BEST Network as a common control transaction based on the carrying amount of the
net assets transferred. With respect to the Contractual Agreements concerning Hangzhou BEST IT, which were executed in October 2019 (with the
loan agreement updated in April 2020), as BEST Inc. is a party to the Proxy Agreement and the Equity Option Agreement, we determined that BEST
Inc. is the primary beneficiary of Hangzhou BEST IT commencing on the date of execution of such Contractual Agreements as BEST Inc. has
obtained the power to direct the activities of Hangzhou BEST IT that most significantly impact its economic performance, is entitled to substantially
all of the economic benefits from, and is also obligated to absorb the expected losses of, Hangzhou BEST IT through BEST Logistics China. At the
same time, BEST Logistics China transferred its equity interests in BEST UCargo and its subsidiaries to BEST IT. As the restructuring transaction to
transfer the assets and liabilities relating to the UCargo transportation services business described above are between entities under common control
and do not change the control at the ultimate parent level, the transaction was accounted for as a common control transaction based on the carrying
amount of the net assets transferred.
For more information on consolidation of the variable interest entities, see Note 1 to our audited consolidated financial statements appearing
elsewhere in this annual report.
Goodwill
We assess goodwill for impairment in accordance with ASC 350-20, Intangibles—Goodwill and Other: Goodwill, or ASC 350-20, which
requires that goodwill be tested for impairment at the reporting unit level at least annually and more frequently upon the occurrence of certain events,
as defined by ASC 350-20.
We have determined that there are five reporting units (that also represent operating segments). Goodwill was allocated to four reporting
units as of December 31, 2018 and 2019. We have the option to assess qualitative factors first to determine whether it is necessary to perform the
two-step test in accordance with ASC 350-20. If we believe, as a result of the qualitative assessment, that it is more-likely-than-not that the fair value
of the reporting unit is less than its carrying amount, the two-step quantitative impairment test described above is required. Otherwise, no further
testing is required. 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.
In performing the two-step quantitative impairment test, the first step compares the carrying amount of the reporting unit to the fair value of
the reporting unit based on estimated fair value using a combination of the income approach and the market approach. If the fair value of the
reporting unit exceeds the carrying value of the reporting unit, goodwill is not impaired and we are not required to perform further testing. If the
carrying value of the reporting unit exceeds the fair value of the reporting unit, then we must perform the second step of the impairment test in order
to determine the implied fair value of the reporting unit’s goodwill. The fair value of the reporting unit is allocated to its assets and liabilities in a
manner similar to a purchase price allocation in order to determine the implied fair value of the reporting unit goodwill. If the carrying amount of the
goodwill is greater than its implied fair value, the excess is recognized as an impairment loss in general and administrative expenses.
For the years ended December 31, 2017, 2018 and 2019, we performed a qualitative assessment for the Express delivery and Freight
delivery services reporting units based on the requirements of ASC 350-20. We evaluated all relevant factors, weighed all factors in their entirety and
concluded that it was not more likely than not that the fair values of the express delivery and Freight delivery services reporting units were less than
their respective carrying amounts. Therefore, further impairment testing on goodwill was unnecessary as of December 31, 2018 and 2019,
respectively.
For the years ended December 31, 2018 and 2019, we performed a quantitative assessment for the remaining reporting units by estimating
the fair value of the reporting units based on an income approach. The fair values of these remaining reporting units exceeded their respective
carrying values and therefore, goodwill related to these reporting units was not impaired.
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Impairment of long-lived assets other than goodwill
We evaluate our long-lived assets, including fixed assets and intangible assets with finite lives, for impairment whenever events or changes
in circumstances, such as a significant adverse change to market conditions that will impact the future use of the assets, indicate that the carrying
amount of an asset may not be fully recoverable. When these events occur, we evaluate the recoverability of long-lived assets by comparing the
carrying amount of the assets to the future undiscounted cash flows expected to result from the use of the assets and their eventual disposition. If the
sum of the expected undiscounted cash flows is less than the carrying amount of the assets, we recognize an impairment loss based on the excess of
the carrying amount of the assets over their fair value. Impairment losses are included in general and administrative expenses.
Components of Results of Operations
Revenue
The following table sets forth our revenue from different service lines and as a percentage of our total revenue for the periods indicated:
Revenue:
Express
Freight
Supply chain management
Store+
Others
Total revenue
For the year ended December 31,
2017
RMB
% of
Revenue
2018
RMB
% of
Revenue
(in thousands)
2019
RMB
US$
% of
Revenue
12,786,279
3,178,044
1,600,952
2,226,034
198,253
19,989,562
64.0 %
15.9 %
8.0 %
11.1 %
1.0 %
100.0 %
17,702,869
4,102,610
2,074,414
2,845,002
1,236,084
27,960,979
63.3 %
14.7 %
7.4 %
10.2 %
4.4 %
100.0 %
21,807,598
5,224,355
2,190,414
2,817,202
3,136,320
35,175,889
3,132,465
750,432
314,633
404,666
450,504
5,052,700
62.0 %
14.9 %
6.2 %
8.0 %
8.9 %
100.0 %
Note: Revenue in the table above represents revenue from external customers.
Express
As most of the service stations in our express delivery network are operated by our franchisee partners, we derive the vast majority of our
express service revenue from franchisee partners. We generate a small portion of our express service revenue from direct customers that use our
express service.
Our express service revenue from franchisee partners is mainly generated from an integrated fee comprised of (i) a fixed-amount waybill fee
for each parcel processed through our network, and (ii) a delivery service fee based on parcel weight, route and the scope of our services and
responsibilities.
Prior to 2017, we were not responsible for last-mile delivery of the parcels unless we directly operated the destination service stations and,
therefore, pick-up service stations were directly liable to destination service stations for their delivery service charges. Starting in 2017, in order to
enhance the parcel delivery experience and our control over service quality throughout our network, we revised our arrangements with franchisee
partners and the scope of our service. As a result, we became the principal that is directly responsible for last-mile delivery of all parcels processed
through our network, and we are liable to senders for damage to or loss of parcels in connection with last-mile delivery. Therefore, in consideration
of such expanded scope of services and increased responsibilities, we increased the fee that we charge to pick-up service stations. We provide the
last-mile delivery service through either destination franchised service stations under our supervision or our self-operated service stations and are
responsible for paying service fees to such destination franchised service stations for the provision of last-mile delivery services, which are recorded
in our cost of revenue.
Our express service revenue also includes handling fees and service charges for certain value-added services, such as cash on delivery, or
COD, facilitation. In addition, we generate revenue from sales to franchisee partners of ancillary items, such as BEST-branded packing materials.
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Our express service revenue is primarily driven by our parcel volume and the fees we collect from our franchisee partners and direct
customers for each parcel processed through our network. We determine and periodically evaluate and adjust our fee levels based on prevailing
market conditions, our operating costs and service quality.
Freight
We have historically derived most of our freight service revenue from franchisee partners which operate substantially all of the service
stations in our freight network, with a small amount derived from our direct customers for whom we provide door-to-door freight services.
The components of our freight service revenue are similar to that of our express service revenue. See “—Components of Results of
Operations—Revenue—Express” above. As with our express service revenue, starting in 2017, in order to enhance the freight delivery experience
and our control over service quality throughout our network, we revised our arrangements with franchisee partners and the scope of our service. As a
result, we became the principal that is directly responsible for last-mile delivery of all goods processed through our network, and we are liable to
senders for damage to or loss of goods in connection with last-mile delivery. Therefore, in consideration of such expanded scope of services and
increased responsibilities, we increased the fee that we charge to pick-up service stations. We provide the last-mile delivery service through
destination franchised service stations under our supervision and are responsible for paying service fees to such destination franchised service stations
for the provision of last-mile delivery services, which are recorded in our cost of revenue. We also generate freight service revenue from value-added
services such as pre-shipment inspection, cargo insurance, COD facilitation, evidence of delivery, upstairs delivery and installation services.
Our freight service revenue is primarily driven by our freight volume and the fees we collect from our franchisee partners. We determine and
periodically evaluate and adjust our fee levels based on prevailing market conditions, our operating costs and service quality.
Supply Chain Management
We generate supply chain management service revenue primarily from order fulfillment services and transportation services. Our order
fulfillment service revenue is mainly generated from service fees paid by our customers for order fulfillment services offered through our self-
operated Cloud OFCs. We also generate a small amount of order fulfillment service revenue from service system usage fee for each order processed
through our network and other fees charged to franchisee partners operating Cloud OFCs.
Order fulfillment service revenue of our self-operated Cloud OFCs is generated from various service fees charged on a volume basis in
connection with various order fulfillment services, which include warehouse management, in-warehouse processing, order fulfillment, transportation
services and value-added services. Transportation from our self-operated Cloud OFCs is included in order fulfillment service revenue.
Transportation service revenue is generated from transportation of goods to and from locations designated by our customers, such as their
factories, warehouses, distributors, stores, end-customers or consumers, including to our Cloud OFCs.
Our supply chain management service revenue is primarily driven by the number of orders fulfilled, the volume of the goods we process and
the fees we negotiate with our customers. The fees we charge primarily depend on the scope of services they require, their size and scale, and the
estimated amount of business volume.
Store+
We generate BEST Store+ revenue primarily from sales of merchandise to our membership stores. We acquired WOWO in May 2017, and
since then, also generate revenue from sales of merchandise by our self-operated convenience stores to consumers.
Our BEST Store+ revenue is primarily driven by the number of membership stores we serve and the volume of merchandise we sell to them
through our B2B platform Dianjia.com as well as merchandise we sold to end customers through self-operated convenience stores. As most of the
merchandise sold are standard consumer products, they are generally priced taking into account prevailing market rates and geographical locations of
the stores.
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Others
We also generate revenue from other business activities, including financing lease activities of BEST Capital, cross-border supply chain
solutions and international transportation services of BEST Global as well as UCargo transportation services. As we continue to expand these
services and introduce new service lines, our revenue generated from other services may increase in the future.
Cost of Revenue
Our cost of revenue primarily consists of costs of transportation, labor, lease and materials; operating costs for hubs and sortation centers;
depreciation and other costs. The following table presents our costs of revenue by service lines for the periods indicated:
Cost of revenue
Express
Freight
Supply chain management
Store+
Others
Total cost of revenue
Express
For the year ended December 31,
2017
RMB
2018
RMB
2019
RMB
US$
(in thousands)
12,435,550
3,362,652
1,502,570
2,072,912
130,327
19,504,011
16,915,801
3,946,032
1,970,105
2,589,883
1,098,021
26,519,842
20,779,992
4,934,937
2,052,006
2,495,503
2,954,425
33,216,863
2,984,859
708,859
294,752
358,457
424,377
4,771,304
Cost of revenue for our express services mainly consists of (i) transportation costs paid to third-party service providers operating the routes
in our network mainly connecting our hubs and sortation centers, (ii) labor costs for our hub and sortation center operations, including costs paid to
outsourced workers, (iii) lease costs for our hubs and sortation centers and self-operated service stations, and (iv) starting from January 1, 2017, costs
related to last-mile delivery services. Starting in 2017, in order to enhance the parcel delivery experience and our control over service quality
throughout our network, we revised our arrangements with franchisee partners and the scope of our service to provide that we are directly responsible
for last-mile delivery services. Other cost of revenue for express services includes costs for materials, depreciation of property and equipment, and
utility and maintenance payments related to our operations.
Cost of revenue for our express services is comprised of fixed costs, such as lease costs, other facility costs and equipment costs, as well as
variable costs, such as outsourced labor costs and materials used in our operations. As operational scale increases over time, we will generally be able
to reduce unit fixed costs. Transportation costs are variable in nature but we are able to enjoy scale benefits by increasing capacity utilization of fleet
for our core routes connecting our hubs and sortation centers and by employing larger vehicles to satisfy greater delivery volumes to drive lower unit
transportation costs.
Freight
Cost of revenue for our freight services generally corresponds to the cost components of our express delivery services.
Supply Chain Management
Cost of revenue for our supply chain management services primarily consists of costs associated with our self-operated Cloud OFCs and
transportation costs paid to transportation service providers. Costs associated with our self-operated Cloud OFCs primarily include labor costs, lease
costs, equipment depreciation, costs of materials, such as for labeling and packing, utility and maintenance payments.
Some of these costs are relatively fixed in nature, such as lease and equipment costs. Other costs are more variable in nature, such as
transportation, outsourced labor and materials costs. The launch of new self-operated Cloud OFCs or new projects will generally incur start-up costs
in the early stages and requires time to ramp-up business volume. As operational scale increases over time, we will generally be able to reduce unit
fixed costs.
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Store+
Cost of revenue for our BEST Store+ services primarily includes procurement cost for merchandise that we sell to our membership stores
through our B2B platform Dianjia.com and, following our acquisition of WOWO in May 2017, merchandise that we sell to consumers through our
self-operated convenience stores. We normally procure such merchandise directly from brands or top-layer distributors.
Others
Cost of revenue for our other services corresponds to our direct costs incurred in the provision of those services.
Operating Expenses
Our operating expenses consist of selling expenses, general and administrative expenses, and research and development expenses. The
following table sets forth a breakdown of our operating expenses for the periods indicated:
Selling expenses
General and administrative expenses
Research and development expenses
Total operating expenses
Selling Expenses
For the year ended December 31,
2017
RMB
2018
RMB
2019
RMB
US$
(in thousands)
694,852
928,188
139,009
1,762,049
893,859
1,020,671
184,581
2,099,111
931,914
1,109,545
243,392
2,284,851
133,861
159,376
34,961
328,198
Our selling expenses primarily consist of (i) salaries and benefit expenses for our network management personnel responsible for managing
relationships with our franchisee partners and membership stores, our customer service personnel and other sales and marketing personnel,
(ii) shipping and handling costs relating to the delivery of merchandise to our membership stores, and (iii) travel, marketing and advertising expenses.
As our business grows, and in particular, as the BEST Store+ network expands, our selling expenses are expected to increase.
General and Administrative Expenses
Our general and administrative expenses consist primarily of salaries and benefit expenses for management and administrative personnel,
depreciation and amortization expenses, office expenses, travel expenses, legal, accounting and other professional fees and impairment losses. We
expect general and administrative expenses to increase as we continue to hire additional staff and increase office space in connection with business
growth.
Research and Development Expenses
Research and development expenses consist primarily of salaries and benefits for our research and development personnel and depreciation
of property and equipment. We expect research and development expenses to increase in the future along with continued development of and
investment in our technology infrastructure.
Share-Based Compensation
We account for share options granted to our employees, directors and consultants in accordance with ASC 718 prior to 2018 and ASU 2018-
07: “Compensation — Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting” starting in 2018. We are
required to classify share options and restricted share units granted to our employees, directors and consultants as equity awards and recognize share-
based compensation expense based on the fair value of such equity awards with the share-based compensation expense recognized over the period in
which the recipient is required to provide service in exchange for the equity awards.
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See “—Critical Accounting Policies and Significant Judgments and Estimates—Share-based Compensation” in this section for a description
of how we account for the compensation expenses from share-based payment transactions. You may find additional information on our share
incentive plans as well as our options granted as of the date of this annual report in the section entitled “Management—Share Incentive Plans.”
Results of Operations
The following table sets forth our consolidated statements of comprehensive loss data for the years indicated. This information should be
read together with our consolidated financial statements and related notes included elsewhere in this annual report. The operating results in any
period are not necessarily indicative of the results you may expect for future periods.
Revenue
Express
Freight
Supply chain management
Store+
Others
Total revenue
Cost of revenue
Express
Freight
Supply chain management
Store+
Others
Total cost of revenue
Gross profit
Selling expenses
General and administrative expenses
Research and development expenses
Total operating expenses
Loss from operations
Interest income
Interest expense
Foreign exchange loss
Other income
Other expense
Loss before income tax and share of net loss of equity investees
Income tax expense
Loss before share of net loss of equity investees
Share of net loss of equity investees
Net loss
Net loss attributable to non-controlling interests
Net loss attributable to BEST Inc.
Year Ended December 31, 2019 Compared to Year Ended December 31, 2018
Revenue
For the year ended December 31,
2017
RMB
2018
RMB
2019
RMB
US$
(in thousands)
12,786,279
3,178,044
1,600,952
2,226,034
198,253
19,989,562
(12,435,550)
(3,362,652)
(1,502,570)
(2,072,912)
(130,327)
(19,504,011)
485,551
(694,852)
(928,188)
(139,009)
(1,762,049)
(1,276,498)
75,056
(47,154)
(6,320)
56,035
(18,507)
(1,217,388)
(9,856)
(1,227,244)
(816)
(1,228,060)
(167)
(1,227,893)
17,702,869
4,102,610
2,074,414
2,845,002
1,236,084
27,960,979
(16,915,801)
(3,946,032)
(1,970,105)
(2,589,883)
(1,098,021)
(26,519,842)
1,441,137
(893,859)
(1,020,671)
(184,581)
(2,099,111)
(657,974)
102,821
(75,060)
(6,533)
171,370
(30,672)
(496,048)
(11,887)
(507,935)
(456)
(508,391)
(403)
(507,988)
21,807,598
5,224,355
2,190,414
2,817,202
3,136,320
35,175,889
(20,779,992)
(4,934,937)
(2,052,006)
(2,495,503)
(2,954,425)
(33,216,863)
1,959,026
(931,914)
(1,109,545)
(243,392)
(2,284,851)
(325,825)
95,440
(79,486)
(6,420)
152,305
(36,437)
(200,423)
(18,290)
(218,713)
(355)
(219,068)
(16,652)
(202,416)
3,132,465
750,432
314,633
404,666
450,504
5,052,700
(2,984,859)
(708,859)
(294,752)
(358,457)
(424,377)
(4,771,304)
281,396
(133,861)
(159,376)
(34,961)
(328,198)
(46,802)
13,709
(11,417)
(922)
21,877
(5,234)
(28,789)
(2,627)
(31,416)
(51)
(31,467)
(2,392)
(29,075)
Our revenue increased by 25.8% to RMB35,175.9 million (US$5,052.7 million) in 2019 from RMB27,961.0 million in 2018 due to
increases in revenue across most of our service lines, as discussed below.
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Beginning in January 2020, the COVID-19 outbreak that resulted in travel restrictions and quarantines in China has negatively affected our
operations in the country and caused lower productivity from late January to early March 2020. Our total revenue declined for January and February
2020 on a year-over-year basis. By the end of March 2020, we had fully recovered our services across China, including all hubs and warehouses for
express services, freight services and supply chain management services. However, as the COVID-19 outbreak has further spread outside China and
it is uncertain as to whether the COVID-19 outbreak will continue to be contained in China, we are still in the process of evaluating the magnitude of
COVID-19’s impact on our operations and we are unable to quantify the ensuing financial impact at this time. For a detailed description of the risks
associated with the COVID-19 outbreak, see “Item 3.D. Key Information—Risk Factors—Risks Related to Our Business—We face risks related to
natural disasters, extreme weather conditions, health epidemics and other catastrophic incidents, which could significantly disrupt our operations.”
Express. Our express service revenue increased by 23.2% to RMB21,807.6 million (US$3,132.5 million) in 2019 from RMB17,702.9
million in 2018. This increase in revenue was primarily due to a 38.5% increase in parcel volume, partially offset by 11.1% decrease in average
revenue per parcel.
Freight. Our freight service revenue increased by 27.3% to RMB5,224.4 million (US$750.4 million) in 2019 from RMB4,102.6 million in
2018. This increase in revenue was primarily due to a 28.5% increase in freight volume.
Supply Chain Management. Our supply chain management service revenue increased by 5.6% to RMB2,190.4 million (US$314.6 million)
in 2019 from RMB2,074.4 million in 2018. Such increase was primarily attributable to an increase in total number of orders fulfilled by Cloud OFCs,
partially offset by a decrease in average revenue per order fulfilled.
Store+. Our BEST Store+ service revenue decreased by 1.0% to RMB2,817.2 million (US$404.7 million) in 2019 from RMB2,845.0 million
in 2018, primarily due to a decrease of the number of orders fulfilled for membership stores, offset by an increase in the number of orders fulfilled for
branded stores. The number of store orders fulfilled for membership stores decreased to 2,120,196 in 2019 by 17.1% compared to 2018, while the
number of orders fulfilled for branded stores increased to 799,372 in 2019 by 49.8% compared to 2018.
Others. Revenue from our other services increased by 153.7% to RMB3,136.3 million (US$450.5 million) in 2019 from RMB1,236.1
million in 2018, primarily due to increased revenue generated from BEST UCargo’s external customers, BEST Global’s expanded operations in
Southeast Asia and BEST Capital’s financing solutions to ecosystem participants.
Cost of Revenue
Our cost of revenue increased by 25.3% to RMB33,216.9 million (US$4,771.3 million) in 2019 from RMB26,519.8 million in 2018. The
increase was primarily attributable to increases in cost of revenue across most of our various service lines, as discussed below. Cost of revenue as a
percentage of revenue decreased to 94.4% in 2019 from 94.8% in 2018, which was primarily due to increased operating leverage and continued
efforts in cost reduction, network optimization and operational improvement.
Express. Cost of revenue for our express services increased by 22.8% to RMB20,780.0 million (US$2,984.9 million) in 2019 from
RMB16,915.8 million in 2018. This increase in cost of revenue was primarily attributable to a 38.5% increase in parcel volume to 7,576.2 million in
2019 from 5,470.1 million in 2018, which resulted in higher last-mile and transportation costs. Cost of revenue as a percentage of revenue from our
express delivery services decreased to 95.3% in 2019 from 95.6% in 2018, primarily due to economies of scale resulting from significant increase in
our parcel volume, network optimization, as well as increased operational efficiency resulting from proactive cost-control measures and continuous
technology improvements and applications.
Freight. Cost of revenue for our freight services increased by 25.1% to RMB4,935.0 million (US$708.9 million) in 2019 from RMB3,946.0
million in 2018. This increase in cost of revenue was primarily attributable to increased freight volume, which increased by 28.5% to 7.0 million
tonnes in 2019 from 5.4 million tonnes in 2018. Cost of revenue as a percentage of revenue from our freight services decreased to 94.5% in 2019
from 96.2% in 2018, primarily due to economies of scale resulting from significant increase in our freight volume, network optimization and
expansion of e-commerce business.
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Supply Chain Management. Cost of revenue for our supply chain management services increased by 4.2% to RMB2,052.0 million
(US$294.8 million) in 2019 from RMB1,970.1 million in 2018. This increase in cost of revenue was primarily due to the 21% increase in the number
of orders fulfilled by our self-operated Cloud OFCs, partially offset by operational efficiency improvement in labor and transportation cost. The
number of orders fulfilled by our self-operated Cloud OFCs increased to 198.9 million in 2019 from 164.4 million in 2018. The number of our self-
operated Cloud OFCs decreased to 108 as of December 31, 2019 from 115 as of December 31, 2018. Cost of revenue as a percentage of revenue
from our supply chain management services decreased to 93.7% in 2019 from 95.0% in 2018, primarily due to improved operational efficiency and
continued focus on optimizing customer profiles.
Store+. Cost of revenue for our BEST Store+ services decreased by 3.6% to RMB2,495.5 million (US$358.5 million) in 2019 from
RMB2,589.9 million in 2018, primarily due to the decrease in number of orders fulfilled for membership stores resulting from ongoing efforts to
improve order quality and margin. Cost of revenue as a percentage of revenue from our BEST Store+ services decreased to 88.6% in 2019 from
91.0% in 2018, primarily due to the order quality improvements as mentioned above.
Others. Cost of revenue for our other services increased by 169.1% to RMB2,954.4 million (US$424.4 million) in 2019 from RMB1,098.0
million in 2018 primarily in connection with increased volume generated from BEST UCargo’s service to external customers and BEST Global’s
expanded operations in Southeast Asia.
Operating Expenses
Operating expenses increased by 8.8% to RMB2,284.9 million (US$328.2 million) in 2019 from RMB2,099.1 million in 2018. Operating
expenses as a percentage of our total revenue decreased to 6.5% in 2019 from 7.5% in 2018. This decrease was mainly due to faster growth in
revenue and economies of scale.
Selling Expenses. Selling expenses increased by 4.3% to RMB931.9 million (US$133.9 million) in 2019 from RMB893.9 million in 2018.
This increase was attributable to the growth of our operations, primarily attributable to the business expansion in Southeast Asia.
General and Administrative Expenses. General and administrative expenses increased by 8.7% to RMB1,109.5 million (US$159.4 million)
in 2019 from RMB1,020.7 million in 2018. This increase was primarily attributable to increased staff costs in connection with the growth of our
operations, partially offset by the economies of scale and improved operating efficiencies.
Research and Development Expenses. Research and development expenses increased by 31.9% to RMB243.4 million (US$35.0 million) in
2019 from RMB184.6 million in 2018. This increase was primarily due to increased investments in technology and research and development
professionals to drive operating efficiency.
Interest Income
Our interest income decreased to RMB95.4 million (US$13.7 million) in 2019 from RMB102.8 million in 2018, primarily due to the
changes in average short-term investments balance during 2019 compared with 2018.
Interest Expense
Our interest expenses increased to RMB79.5 million (US$11.4 million) in 2019 from RMB75.1 million in 2018, primarily a result of
increased short-term bank loan in 2019 compared with 2018, as we incur multiple Renminbi-denominated bank borrowings to satisfy working capital
requirements while we held a significant amount of bank deposits in foreign currencies outside China, as well as the interest incurred due to the
issuance of convertible senior notes in September 2019.
Foreign Exchange Loss
We recorded a foreign exchange loss of RMB6.4 million (US$0.9 million) in 2019 as compared to RMB6.5 million in 2018, which mainly
reflected the fluctuation in exchange rates between Renminbi and U.S. dollars during the respective years.
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Other Income
Other income decreased to RMB152.3 million (US$21.9 million) in 2019 from RMB171.4 million in 2018, primarily due to a decrease in
unrealized gains in our equity investments without readily determinable fair value measured using the measurement alternative of RMB50.5 million,
partially offset by an increase in government subsidies.
Other Expense
Other expenses increased to RMB36.4 million (US$5.2 million) in 2019 from RMB30.7 million in 2018, primarily reflecting various
miscellaneous expenses.
Income Tax Expense
Income tax expense increased to RMB18.3 million (US$2.6 million) in 2019 and RMB11.9 million in 2018, reflecting increased taxable
income from certain of our PRC subsidiaries.
Net Loss
As a result of the foregoing, net loss decreased to RMB219.1 million (US$31.5 million) in 2019 from RMB508.4 million in 2018.
Year Ended December 31, 2018 Compared to Year Ended December 31, 2017
Revenue
Our revenue increased by 39.9% to RMB27,961.0 million in 2018 from RMB19,989.6 million in 2017 due to increases in revenue across
various service lines, as discussed below.
Express. Our express service revenue increased by 38.5% to RMB17,702.9 million in 2018 from RMB12,786.3 million in 2017. This
increase in revenue was primarily due to a 45.1% increase in parcel volume, as a result of greater demand for express delivery services and increase
in our market share.
Freight. Our freight service revenue increased by 29.1% to RMB4,102.6 million in 2018 from RMB3,178.0 million in 2017. This increase
in revenue was primarily the result of greater freight volume, which increased by 25.8% and a 2.6% increase in average revenue per tonne, compared
to 2017. The increase in average revenue per tonne was primarily due to upward price adjustments and a greater proportion of long-distance freight
volumes in connection with the expansion of our freight network.
Supply Chain Management. Our supply chain management service revenue increased by 29.6% to RMB2,074.4 million in 2018 from
RMB1,601.0 million in 2017. Such increase was primarily attributable to an increase in fulfillment and transportation revenue from both existing and
new customers.
Store+. Our BEST Store+ service revenue increased by 27.8% to RMB2,845.0 million in 2018 from RMB2,226.0 million in 2017, primarily
due to an increase in merchandise sales to branded and membership stores. The number of store orders fulfilled increased by 28.6% compared to
2017.
Others. Revenue from our other services increased by 523.5% to RMB1,236.1 million in 2018 from RMB198.3 million in 2017, primarily
due to increased revenue generated from BEST UCargo’s external customers, BEST Global’s expanded operations and BEST Capital’s financing
solutions to our ecosystem participants.
Cost of Revenue
Our cost of revenue increased by 36.0% to RMB26,519.8 million in 2018 from RMB19,504.0 million in 2017. The increase was primarily
attributable to increases in cost of revenue across our various service lines, as discussed below. Cost of revenue as a percentage of revenue decreased
to 94.8% in 2018 from 97.6% in 2017, which was primarily attributable to increased operating leverage and continued efforts in cost reduction,
network optimization and operational improvement.
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Express. Cost of revenue for our express services increased by 36.0% to RMB16,915.8 million in 2018 from RMB12,435.6 million in
2017. This increase in cost of revenue was primarily attributable to a 45.1% increase in parcel volume to 5,470.1 million in 2018 from 3,769.4
million in 2017, which resulted in higher last-mile and transportation costs. Cost of revenue as a percentage of revenue from our express delivery
services decreased to 95.6% in 2018 from 97.3% in 2017, primarily due to economies of scale resulting from significant increase in our parcel
volume, network optimization, as well as increased operational efficiency resulting from proactive cost-control measures and continuous technology
improvements and applications.
Freight. Cost of revenue for our freight services increased by 17.3% to RMB3,946.0 million in 2018 from RMB3,362.7 million in 2017.
This increase in cost of revenue was primarily attributable to increased freight volume, which increased by 25.8% to 5.4 million tonnes in 2018 from
4.3 million tonnes in 2017. Cost of revenue as a percentage of revenue from our freight services decreased to 96.2% in 2018 from 105.8% in 2017,
primarily due to economies of scale resulting from significant increase in our freight volume, as well as increased operational efficiency resulting
from our proactive cost-control measures and continuous technology improvements and applications.
Supply Chain Management. Cost of revenue for our supply chain management services increased by 31.1% to RMB1,970.1 million in 2018
from RMB1,502.6 million in 2017. This increase in cost of revenue was primarily due to the 24.3% increase in the number of orders fulfilled by our
self-operated Cloud OFCs and the addition of new self-operated Cloud OFCs, which resulted in additional lease, transportation, and labor costs. The
number of orders fulfilled by our self-operated Cloud OFCs increased to 164.4 million in 2018 from 132.2 million in 2017. The number of our self-
operated Cloud OFCs increased to 115 as of December 31, 2018 from 99 as of December 31, 2017. Cost of revenue as a percentage of revenue from
our supply chain management services increased to 95.0% in 2018 from 93.9% in 2017, primarily due to ramp-up of certain self-operated Cloud
OFCs.
Store+. Cost of revenue for our BEST Store+ services increased by 24.9% to RMB2,589.9 million in 2018 from RMB2,072.9 million in
2017, primarily due to the significant increase in the amount of merchandise sold to membership stores as well as the cost of revenue attributable to
WOWO following its acquisition in May 2017. Cost of revenue as a percentage of revenue from our BEST Store+ services decreased to 91.0% in
2018 from 93.1% in 2017, primarily due to a reduction in average procurement cost driven by the significant increase in volume purchased from
merchandise suppliers resulting from an expansion of sales volume in 2018.
Others. Cost of revenue for our other services increased by 742.5% to RMB1,098.0 million in 2018 from RMB130.3 million in 2017 in
connection with increased revenue generation from BEST UCargo, BEST Capital and BEST Global.
Operating Expenses
Operating expenses increased by 19.1% to RMB2,099.1 million in 2018 from RMB1,762.0 million in 2017. Operating expenses as a
percentage of our total revenue decreased to 7.5% in 2018 from 8.8% in 2017. This decrease was mainly due to faster growth in revenue and
economies of scale as well as reduction of share-based compensation expense.
Selling Expenses. Selling expenses increased by 28.6% to RMB893.9 million in 2018 from RMB694.9 million in 2017. This increase was
primarily attributable to increased selling expenses in connection with the growth of our operations, an increase in shipping and handling costs
related to the delivery of merchandise to our branded and membership stores.
General and Administrative Expenses. General and administrative expenses increased by 10.0% to RMB1,020.7 million in 2018 from
RMB928.2 million in 2017. This increase was primarily attributable to increased staff costs in connection with the growth of our operations, partially
offset by a reduction in share-based compensation expenses allocated to general and administrative functions.
Research and Development Expenses. Research and development expenses increased by 32.8% to RMB184.6 million in 2018 from
RMB139.0 million in 2017. This increase was primarily due to increased investments in technology and research and development professionals,
partially offset by a reduction in share-based compensation expenses allocated to research and development functions.
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Interest Income
Our interest income increased to RMB102.8 million in 2018 from RMB75.1 million in 2017, primarily due to higher yields generated from
our cash and cash equivalents, restricted cash and short-term investment balance.
Interest Expense
Our interest expenses increased to RMB75.1 million in 2018 from RMB47.2 million in 2017, primarily a result of increased short-term bank
loan in 2018 compared with 2017, as we incur multiple Renminbi-denominated bank borrowings to satisfy working capital requirements while we
held a significant amount of bank deposits in foreign currencies outside China.
Foreign Exchange (Loss) Gain
We recorded a foreign exchange loss of RMB6.5 million in 2018 as compared to RMB 6.3 million in 2017, primarily due to changes in
exchange rates between Renminbi and U.S. dollars during the respective years.
Other Income
Other income increased to RMB171.4 million in 2018 from RMB56.0 million in 2017, primarily due to unrealized gains in our equity
investments without readily determinable fair value measured using the measurement alternative, an increase in government subsidies and other
miscellaneous fees.
Other Expense
Other expenses increased to RMB30.7 million in 2018 from RMB18.5 million in 2017, primarily reflecting various miscellaneous expenses.
Income Tax Expense
Income tax expense increased to RMB11.9 million in 2018 and RMB9.9 million in 2017, reflecting increased taxable income from certain of
our PRC subsidiaries.
Net Loss
As a result of the foregoing, net loss decreased to RMB508.4 million in 2018 from RMB1,228.1 million in 2017.
B.
Liquidity and Capital Resources
Our primary sources of liquidity have been issuance of equity securities, redeemable convertible preferred shares, convertible senior notes
and short-term borrowings, which have historically been sufficient to meet our working capital and capital expenditure requirements.
As of December 31, 2019, we had cash and cash equivalents of RMB1,994.7 million (US$286.5 million) and restricted cash (current
portion) of RMB1,786.8 million (US$256.7 million). As of December 31, 2019, we had short-term bank loans of RMB2,510.5 million (US$360.6
million), of which RMB1,550.5 million (US$222.7 million) were cash-collateralized. The weighted average interest rate for the outstanding short-
term bank loans as of December 31, 2019 was 4.27%. We also had borrowing from third party financing lease companies of RMB 40.0 million
(US$5.8 million) as well as securitization debt of RMB104.9 million (US$15.1 million), which are due within the next 12 months as of December 31,
2019.
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Based on our current level of operations and available cash, we believe our cash and cash equivalents, cash generated from our operations
will provide sufficient liquidity to fund our current obligations, projected working capital requirements, debt service requirements and capital
spending requirements for at least the next 12 months. However, we may require additional cash resources due to changing business conditions or
other future developments, including any investments or acquisitions we may decide to selectively pursue. If our existing cash resources are
insufficient to meet our requirements, we may seek to sell equity or equity-linked securities, debt securities or borrow from banks. We cannot assure
you that financing will be available in the amounts we need or on terms acceptable to us, if at all. The sale of additional equity securities, including
convertible debt securities, would result in additional dilution to our shareholders. The incurrence of indebtedness and issuance of debt securities
would result in debt service obligations and could result in operating and financial covenants that restrict our operations and our ability to pay
dividends to our shareholders.
As a holding company with no material operations of our own, we are a corporation separate and apart from our subsidiaries and our VIEs
and, therefore, must provide for our own liquidity. We conduct our operations in China primarily through our PRC subsidiaries and VIEs. As a result,
our ability to pay dividends and to finance any debt we may incur depends upon dividends paid by our subsidiaries. If our PRC subsidiaries or any
newly formed 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 respective retained earnings, if any, as
determined in accordance with Chinese accounting standards and regulations. Under applicable PRC laws and regulations, our PRC subsidiaries are
each required to set aside a portion of its after-tax profits each year to fund certain statutory reserves, and funds from such reserves may not be
distributed to us as cash dividends except in the event of liquidation of such subsidiaries. These statutory limitations affect, and future covenant debt
limitations might affect, our PRC subsidiaries’ ability to pay dividends to us. We currently believe that such limitations will not impact our ability to
meet our ongoing short-term cash obligations although we cannot assure you that such limitations will not affect our ability in the future to meet our
short-term cash obligations and to distribute dividends to our shareholders. See “Item 3. Key Information—D. Risk Factors—Risks Related to Doing
Business in the People’s Republic of China—We rely to a significant extent on dividends and other distributions on equity paid by our principal
operating subsidiaries to fund offshore cash and financing requirements. Any limitation on the ability of our operating subsidiaries to make payments
to us could have a material and adverse impact on our ability to operate our business” and “—Statutory Reserves.”
The following table sets forth a summary of the movements of our cash and cash equivalents for the periods indicated:
Net cash generated from operating activities
Net cash used in investing activities
Net cash generated from financing activities
Effect of exchange rate changes on cash, cash equivalents and restricted cash
Net (decrease)/increase in cash, cash equivalents and restricted cash
Cash, cash equivalents and restricted cash at the beginning of the year
Cash, cash equivalents and restricted cash at the end of the year
Operating Activities
For the year ended December 31,
2017
RMB
2018
RMB
2019
RMB
US$
(in thousands)
25,602
(4,105,923)
3,730,859
(48,241)
(397,703)
3,380,532
2,982,829
637,204
(1,230,953)
557,149
53,179
16,579
2,982,829
2,999,408
852,833
(1,912,482)
2,011,812
5,644
957,807
2,999,408
3,957,215
122,502
(274,711)
288,978
811
137,580
430,838
568,418
Net cash generated from operating activities was RMB852.8 million (US$122.5 million) in 2019, compared to RMB637.2 million generated
from operating activities in 2018. This increase was primarily due to a decrease of RMB289.3 million (US$41.6 million) in net loss, which was
mainly attributable to economies of scale resulting from a significant increase in our parcel and freight volume, as well as an increase in operational
efficiency resulting from proactive cost-control measures and continuous technology improvements and applications. Our Express and Freight
segments drove the significant improvement in profitability. Gross profit margin for express delivery services increased from 4.4% in 2018 to 4.7%
in 2019 and revenue generated from express delivery services increased by RMB4,104.7 million (US$589.6 million), while gross profit margin for
freight delivery services increased from 3.8% in 2018 to 5.5% in 2019 and revenue generated from freight delivery services increased by
RMB1,121.7 million (US$161.1 million). In addition, due to improved operating leverage and efficiencies and cost-control measures, our
expenditures for employee compensation, rental costs and selling and general administrative expenses increased at a slower rate than our growth in
revenues.
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The largest source of operating cash flows are service fees for express and freight delivery services collected from our customers. Our
customers are required to prepay these service fees before they drop off parcels and freight shipments at our self-operated service stations, hubs or
sortation centers. At the same time, our major suppliers, such as our fleet of independent transportation service providers, grant us credit terms
ranging from 30 to 90 days, which allows us to pay for our transportation costs after we have received cash from customers and complete the
services. Due to the business models of our express and freight delivery services described above and the continued growth and expansion of our
operations, our net cash generated from operating activities increased significantly.
Net cash generated from operating activities increased to RMB637.2 million in 2018 from RMB25.6 million in 2017. This increase was
primarily due to a decrease of RMB719.7 million in net loss, which was mainly attributable to economies of scale resulting from a significant
increase in our parcel and freight volume, as well as an increase in operational efficiency resulting from proactive cost-control measures and
continuous technology improvements and applications. Our Express and Freight segments drove the significant improvement in profitability. Gross
profit margin for express delivery services increased from 2.7% in 2017 to 4.4% in 2018 and revenue generated from express delivery services
increased by RMB4,916.6 million, while gross profit margin for freight delivery services increased from negative 5.8% in 2017 to positive 3.8% in
2018 and revenue generated from freight delivery services increased by RMB924.6 million. In addition, due to improved operating leverage and
efficiencies and cost-control measures, our expenditures for employee compensation, rental costs and selling and general administrative expenses
increased at a slower rate than our growth in revenues. Due to the business models of our express and freight delivery services described above and
the continued growth and expansion of our operations, the improvement in profitability of these two business segments led to the increase in our net
operating cash inflow from 2017 to 2018.
Investing Activities
Net cash used in investing activities was RMB1,912.5 million (US$274.7 million) in 2019, which was primarily due to (i) payments for
purchase of property and equipment of RMB1,497.7 million (US$215.1 million), which property and equipment were used in the expansion and
optimization of our express service, freight service and supply chain service network; and (ii) origination of lease rental and other financing
receivables of RMB850.2 million (US$122.1 million), mainly for financing lease related services provided to franchisee partners and transportation
service providers. The above factors were partially offset by receipt of repayment on lease rental and other financing receivables—principal portion
in an aggregate amount of RMB697.4 million (US$100.2 million).
Net cash used in investing activities was RMB1,231.0 million in 2018, which was primarily due to (i) origination of lease rental and other
financing receivables of RMB1,556.2 million, mainly for financing lease related services provided to franchisee partners and transportation service
providers; and (ii) payments for purchase of property and equipment of RMB1,077.8 million, which property and equipment were used in the
expansion and optimization of our express service, freight service and supply chain service network. The above factors were partially offset by a net
change in short-term investments of RMB1,398.7 million, which were proceeds from maturities of short-term investments of RMB5,729.6 million
offset by purchase of short-term investments of RMB4,330.9 million.
Net cash used in investing activities was RMB4,105.9 million in 2017, which was primarily due to payments for purchase of property and
equipment used in the expansion and optimization of our express service, freight service and supply chain service network.
Financing Activities
Net cash generated from financing activities was RMB2,011.8 million (US$289.0 million) in 2019, which was mainly due to (i) proceeds
from issuance of convertible senior notes of RMB1,378.3 million (US$198.0 million), partially offset by the acquisition of capped calls of RMB159.1
million (US$22.9 million); (ii) proceeds from short-term bank loans of RMB3,810.1 million (US$547.3 million), partially offset by repayment of
short-term bank loans of RMB3,215.4 million (US$461.9 million); and (iii) proceeds from issuance of asset-backed securities of RMB262.3 million
(US$37.7 million), partially offset by repayment of asset-backed securities of RMB157.4 million (US$22.6 million).
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Net cash generated from financing activities was RMB557.1 million in 2018, which was mainly due to proceeds from short-term bank loans
of RMB3,417.7 million, partially offset by repayment of short-term bank loans of RMB2,851.2 million.
Net cash generated from financing activities was RMB3,730.9 million in 2017, which was primarily due to proceeds from issuance of
American depositary shares, net of issuance cost, of RMB3,130.2 million and proceeds from short-term bank loans of RMB1,901.9 million, partially
offset by the repayment of short-term bank loans of RMB1,189.4 million.
Convertible Senior Notes
In September 2019, we completed an offering of US$200 million aggregate principal amount of 1.75% convertible senior notes due 2024
(including full exercise of the initial purchasers’ option to purchase additional notes), including US$100 million principal amount of notes sold to an
entity affiliated with Alibaba Group Holding Limited. These convertible senior notes were offered to qualified institutional buyers in reliance on the
exemption from registration provided by Rule 144A under the Securities Act, and to certain non-U.S. persons in offshore transactions in reliance on
Regulation S under the Securities Act. The notes will mature on October 1, 2024. Holders may convert their notes at their option at any time prior to
the close of business on the second scheduled trading day immediately preceding the maturity date. Upon conversion, we will cause to be delivered,
for each US$1,000 principal amount of converted notes, a number of ADSs equal to the conversion rate. The notes may be converted into our ADSs
at an initial conversion rate of 141.8440 ADSs per US$1,000 principal amount of notes (equivalent to an initial conversion price of approximately
US$7.05 per ADS), which rate is subject to adjustment in some events but will not be adjusted for any accrued and unpaid interest.
Segment Financial Information
The table below provides a summary of our operating segment results for the years ended December 31, 2017, 2018 and 2019, which have
been derived from the notes to our consolidated financial statements included elsewhere in this annual report.
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With the exception of the below, all segment information in this annual report is presented after inter-segment eliminations:
Revenue:
Express
Freight
Supply Chain Management
Store +
Others
Inter-segment eliminations
Total revenue
Cost of revenue:
Express
Freight
Supply Chain Management
Store +
Others
Inter-segment eliminations
Total cost of revenue
Gross (loss)/profit:
Express
Freight
Supply Chain Management
Store +
Others
Inter-segment eliminations
Total gross profit
For the year ended December 31,
2017
RMB
2018
RMB
2019
RMB
US$
(in thousands)
12,850,067
3,178,850
1,854,356
2,226,034
649,784
(769,529)
19,989,562
12,508,090
3,363,457
1,746,999
2,072,912
573,581
(761,028)
19,504,011
341,977
(184,607)
107,357
153,122
76,203
(8,501)
485,551
17,740,176
4,115,606
2,326,487
2,845,141
2,759,499
(1,825,930)
27,960,979
16,953,251
3,963,172
2,224,749
2,590,022
2,609,846
(1,821,198)
26,519,842
786,925
152,434
101,738
255,119
149,653
(4,732)
1,441,137
21,839,107
5,233,542
2,381,848
2,817,202
4,398,603
(1,494,413)
35,175,889
21,150,925
4,997,270
2,270,514
2,495,503
3,611,969
(1,309,318)
33,216,863
688,182
236,272
111,334
321,699
786,634
(185,095)
1,959,026
3,136,991
751,751
342,131
404,666
631,820
(214,659)
5,052,700
3,038,140
717,813
326,139
358,457
518,827
(188,072)
4,771,304
98,851
33,938
15,992
46,209
112,993
(26,587)
281,396
The inter-segment eliminations for the periods indicated above mainly consisted of (i) segment revenue of the Express segment and Freight
segment generated from services provided to the Supply Chain Management segment, (ii) segment revenue of Supply Chain Management segment
generated from services provided to the Store+ segment and (iii) segment revenue of the Others segment generated from services provided to our
Supply Chain Management, Express and Freight segments, all of which were eliminated as intergroup transactions as a result of consolidation.
Year Ended December 31, 2019 Compared to Year Ended December 31, 2018
Revenue by Segment
Segment revenue of our Supply Chain Management segment, Express segment and Freight segment increased from 2018 to 2019 primarily
due to increase in segment revenue from external customers. Segment revenue of our Store+ segment decreased from 2018 to 2019 primarily due to a
decrease in the number of orders fulfilled for membership stores, partially offset by an increase in the number of orders fulfilled for branded stores.
For additional information regarding these trends, please see “—Results of Operations—Year Ended December 31, 2019 Compared to Year Ended
December 31, 2018.” Others segment revenue increased from 2018 to 2019 primarily due to increases in segment revenue generated from services
provided by BEST UCargo to external customers and our Supply Chain Management, Express and Freight segments, as well as segment revenue
generated from our Global service line.
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Cost of Revenue by Segment
Segment cost of revenue of our Supply Chain Management segment, Express segment and Freight segment increased from 2018 to 2019
primarily due to increases in lease, transportation and labor costs commensurate with significant increases in volume and expansion of the services
provided by our company to its customers. Segment cost of revenue of our Store+ segment decreased from 2018 to 2019 due to the decrease of
merchandise sold by our BEST Store+ business in line with the decrease of revenue. For additional information regarding these trends, please see
“—Results of Operations—Year Ended December 31, 2019 Compared to Year Ended December 31, 2018.” Others segment cost of revenue
increased from 2018 to 2019 primarily due to segment cost of revenue attributable to services provided by BEST UCargo to external customers and
to our Supply Chain Management, Express and Freight segments, as well as the increased cost with expansion of our BEST Global business to
Thailand and Vietnam.
Year Ended December 31, 2018 Compared to Year Ended December 31, 2017
Revenue by Segment
Segment revenue of our Supply Chain Management segment, Express segment, Freight segment and Store+ segment increased from 2017 to
2018 primarily due to increase in segment revenue from external customers. For additional information regarding these trends, please see “—Results
of Operations—Year Ended December 31, 2018 Compared to Year Ended December 31, 2017.” Others segment revenue increased from 2017 to
2018 primarily due to increases in segment revenue generated from services provided by BEST UCargo to our Supply Chain Management, Express
and Freight segments, as well as segment revenue generated from financing lease services provided by BEST Capital to our ecosystem participants.
Cost of Revenue by Segment
Segment cost of revenue of our Supply Chain Management segment, Express segment, Freight segment and Store+ segment increased from
2017 to 2018 primarily due to increases in lease, transportation and labor costs commensurate with significant increases in volume and expansion of
the services provided by our company to its customers, as well as an increase in the amount of merchandise sold by our BEST Store+ business. For
additional information regarding these trends, please see “—Results of Operations—Year Ended December 31, 2018 Compared to Year Ended
December 31, 2017.” Others segment cost of revenue increased from 2017 to 2018 primarily due to segment cost of revenue attributable to services
provided by BEST UCargo to our Supply Chain Management, Express and Freight segments.
Statutory Reserves
Under applicable PRC laws and regulations, foreign-invested enterprises in China are required to provide for certain statutory reserves,
namely a general reserve, an enterprise expansion fund and a staff welfare and bonus fund. Pursuant to such laws and regulations, we may pay
dividends only out of our after-tax profits, if any, determined in accordance with Chinese accounting standards and regulations. Further, we are
required to allocate at least 10% of our after-tax profits to fund the general reserve until such reserve has reached 50% of our registered capital. In
addition, we may also set aside, at our or our Board’s discretion, a portion of our after-tax profits to fund the employee welfare and bonus fund. These
reserves may only be used for specific purposes and are not distributable to us in the form of loans, advances, or cash dividends.
As of December 31, 2018 and 2019, our PRC subsidiaries had appropriated RMB3,771 and RMB4,641 (US$667), respectively, in its
statutory reserves.
Recent Accounting Pronouncements
Please see Note 2 to our consolidated financial statements included elsewhere in this annual report.
C.
Research and Development, Patents and Licenses, etc.
Technology and Service Offering Development
See “Item 4. Information on the Company—B. Business Overview—Our Technology Infrastructure” and “Item 4. Information on the
Company—B. Business Overview—Our Service Offerings.”
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Intellectual Property
See “Item 4. Information on the Company—B. Business Overview—Intellectual Property.”
D.
Trend Information
Please refer to “—A. Results of Operations” for a discussion of the most recent trends in our services, sales and marketing as of the end of
2019. In addition, please refer to discussions included in such Item for a discussion of known trends, uncertainties, demands, commitments or events
that we believe are reasonably likely to have a material effect on our net sales and operating revenues, income from continuing operations,
profitability, liquidity or capital resources, or that would cause reported financial information to be not necessarily indicative of our future operating
results or financial condition.
E.
Off-Balance Sheet Arrangements
We have not entered into any financial guarantees or other commitments to guarantee the payment obligations of any unconsolidated third
parties. In addition, we have not entered into any derivative contracts that are indexed to our shares and classified as shareholders’ 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. Moreover, 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.
F.
Tabular Disclosure of Contractual Obligations
The following table sets forth our contractual obligations and commercial commitments as of December 31, 2019:
Short-term bank loans
Borrowings from third party financing lease companies (1)
Securitization debt
Convertible senior notes (1), (3)
Financing lease obligations
Operating lease obligations (2)
Capital expenditure commitments
Total
Total
2,510,500
81,278
104,899
1,395,240
4,205
5,671,457
963,841
10,731,420
Less than 1
Year
2,510,500
40,167
104,899
—
1,643
1,343,383
963,841
4,964,433
Payment due by period
1 – 3 Years
3 – 5 Years
More than 5 Years
(in thousands of RMB)
—
41,111
—
—
2,018
2,034,058
—
2,077,187
—
—
—
1,395,240
544
1,345,741
—
2,741,525
—
—
—
—
—
948,275
—
948,275
(1) The amounts disclosed represent future contractual payments for the principal portion of the borrowing which may differ from the balances recognized on our consolidated balance
sheet as of December 31, 2019, which are accounted for on an amortized cost basis and accreted up to the principal amounts due at the repayment date.
(2) Operating lease obligations represent our obligations for leasing offices, warehouses, hub and sortation center facilities and equipment, which include all future cash outflows under
ASC Topic 842, Leases. Please see “Leases” under Note 9 to our audited consolidated financial statements.
(3) The aggregate scheduled maturities of RMB1,395.2 million (US$200.0 million) of the convertible senior notes will be repaid when they become due in 2024, assuming no
conversion or redemption prior to the maturity and convertible senior note bondholders hold the notes until maturity.
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G.
Safe Harbor
This annual report contains forward-looking statements that involve risks and uncertainties, including statements based on our current
expectations, assumptions, estimates and projections about us and our industry. These statements involve known and unknown risks, uncertainties
and other factors that may cause our actual results, performance or achievements to be materially different from those expressed or implied by the
forward-looking statements. In some cases, these forward-looking statements can be identified by words or phrases such as “may,” “will,” “expect,”
“anticipate,” “aim,” “estimate,” “intend,” “plan,” “believe,” “potential,” “continue,” “is/are likely to” or other similar expressions. The forward-
looking statements included in this annual report relate to, among others:
● our goals and growth strategies;
● our future business development, financial condition and results of operations;
● trends in the logistics and supply chain industry in China and globally;
● competition in our industry;
● fluctuations in general economic and business conditions in China and other regions where we operate;
● the regulatory environment in which we and companies integral to our ecosystem operate;
● our proposed use of proceeds from our initial public offering; and
● assumptions underlying or related to any of the foregoing.
This annual report also contains market data relating to the logistics and supply chain industry in China, including market position, market
size, and growth rates of the markets in which we operate, that are based on industry publications and reports. Statistical data in these publications
and reports also include projections based on a number of assumptions. The logistics and supply chain industry in China may not grow at the rates
projected by market data, or at all. The failure of these markets to grow at the projected rates may have a material adverse effect on our business and
the market price of our ADSs. If any one or more of the assumptions underlying the market data turns out to be incorrect, actual results may differ
from the projections based on these assumptions. In addition, projections, assumptions and estimates of our future performance and the future
performance of the industry in which we operate is necessarily subject to a high degree of uncertainty and risk due to a variety of factors, including
those described in “Risk Factors” and elsewhere in this annual report. You should not place undue reliance on these forward-looking statements.
The forward-looking statements made in this annual report relate only to events or information as of the date on which the statements are
made in this annual report. Except as required by law, we undertake no obligation to update any forward-looking statements to reflect events or
circumstances after the date on which the statements are made or to reflect the occurrence of unanticipated events. You should read this annual report
and the documents that we have referred to in this annual report and have filed as exhibits to this annual report, completely and with the
understanding that our actual future results may be materially different from what we expect.
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ITEM 6.
DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES
A.
Directors and Senior Management
The following table sets forth certain information relating to our current directors, executive officers and senior management as of the date
of this annual report:
Name
Shao-Ning Johnny Chou
Lin Wan
Jun Chen
Mark Qiu
George Chow
Quan Hao
Wenbiao Li
Gloria Fan
Mangli Zhang
Shaohua Zhou
Tao Liu
Bo Liu
Xingjun Yuan
Feng Dong
Yanbing Zhang
Jimei Liu
Age
58
44
46
55
52
61
53
55
63
47
43
48
45
37
44
48
Position/Title
Chairman and chief executive officer
Director
Director
Director
Director, chief strategy and investment officer
Director
Director
Chief financial officer
Senior vice president, general manager of supply chain management service line
Senior vice president, general manager of express service line
Senior vice president, general manager of freight service line
Senior vice president, general manager of store+ service line
Vice president, general manager of UCargo service line
General manager of financial service line
Senior vice president of engineering, general manager of cloud service line
Senior vice president of human resources and administration
Mr. Shao-Ning Johnny Chou is our founder, and has served as our chairman and chief executive officer since 2007. Prior to founding our
company, he served as a global vice president and Greater China president of Google with responsibility for Google’s sales and marketing in Greater
China from 2005 to 2006. From 1996 to 2005, Mr. Chou served as president of UTStarcom China with responsibility for China operations. From
1986 to 1996, Mr. Chou served as a director of wireless software and system development with AT&T Bell Laboratory. From 1978 to 1980,
Mr. Chou studied computer science at Fudan University. Mr. Chou earned a bachelor’s degree in science, specializing in electrical engineering, from
City College of New York, a master’s degree in science, specializing in engineering science, from Princeton University, and an MBA from Rutgers
University. Mr. Chou was nominated by himself as a Founder Director under our amended and restated memorandum and articles of incorporation.
Mr. Lin Wan has been a director of our company since March 2018. Mr. Wan has been the president of Cainiao Network, where he
oversees strategic planning and business operation, since January 2017. Before that, Mr. Wan had been a vice president of Cainiao Network since
2014. Prior to joining Cainiao Network, he served as director of global transportation strategy of Amazon. Mr. Wan currently serves as a board
member of Global Standards 1 (GS1). He received a Ph.D. in operational research & industrial engineering from The University of Texas at Austin.
Mr. Jun Chen has been a director of our company since 2015. Mr. Jun Chen is currently a vice president of Alibaba Group Holding
Limited. He is also a managing director of Alibaba strategic investment group and the investment head of Alibaba new retail fund. Mr. Chen has over
20 years of experience in strategy management and investment, strategic market development, and business and financial advisory services. He has
been in charge of strategic investments by Alibaba Group in various types of companies, including high-growth private companies and public
companies listed in the PRC and overseas. The portfolio companies he manages are in a wide spectrum of industries such as retail, logistics, travel,
healthcare, sports, and software and solutions. Prior to joining Alibaba Group in 2011, Mr. Chen worked for SAP, a Fortune 500 high-tech software
company from 1999 to 2011, taking roles including strategic adviser in the office of CEO and industry director. From 1995 to 1998, he worked as an
auditor for Arthur Andersen Consulting Co. Ltd. Mr. Chen holds a bachelor’s degree in international finance and accounting from Shanghai
University, and received an EMBA degree from INSEAD. Mr. Chen was nominated to our board of directors by Alibaba Investment Limited
pursuant to the shareholders agreement. Mr. Chen was nominated by Alibaba and Cainiao Network as an Alibaba Director under our amended and
restated memorandum and articles of incorporation.
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Mr. Mark Qiu has been a director of our company since 2011. Mr. Qiu is the founder, and since May 2005, has served as the chief
executive officer and managing director of China Renaissance Capital Investment Inc., a private equity investment management company. From
2001 to March 2005, Mr. Qiu served as a senior vice president (chief financial officer until year end of 2004) of CNOOC Limited, a company
principally engaged in the exploration, development and production of oil and gas. From 1998 to 2000, Mr. Qiu was with Salomon Smith Barney, last
as the head of its Asia oil and gas investment banking group. From 1993 to 1997, Mr. Qiu held various positions with Atlantic Richfield Corporation
(ARCO), an integrated oil and gas company. From 1990 to 1993, Mr. Qiu served as a staff consultant with RHR International, a succession planning
consulting firm. Mr. Qiu also serves as a director of certain other companies affiliated with China Renaissance Capital Investment Inc. Mr. Qiu
received a bachelor’s degree in science, specializing in management psychology, from Hangzhou University in China, a Ph.D. and a Master of
Science degree in decision science from the University of Texas at Arlington, and an MBA from the Sloan School of Management at the
Massachusetts Institute of Technology. Mr. Qiu was nominated to our board of directors by affiliates of China Renaissance Capital Investment Inc.
(referred to as the “CR Entities” under “Principal and Selling Shareholders”) pursuant to the shareholders agreement.
Mr. George Chow joined as our chief strategy and investment officer in 2017 and has served as our director since September 2017.
Mr. Chow brings with him over 22 years of experience in investment banking, trading and risk management. From 2004 to 2017, he served as a
managing director at Credit Suisse, having held several senior positions in securities and investment banking division, including most recently the
Co-Head of Investment Banking and Capital Markets for Greater China. He also worked for UBS and Merrill Lynch. Mr. Chow received an MBA in
finance from the Stern School of Business at New York University. He is Mr. Shao-Ning Johnny Chou’s brother. Mr. Chow was nominated by
Mr. Shao-Ning Johnny Chou as a Founder Director under our amended and restated memorandum and articles of incorporation.
Ms. Quan Hao has served as our independent director since September 2017. Ms. Hao currently also serves as an independent non-
executive director of Legend Holdings Corporation and HSBC Bank (China) Company Limited. From 2001 to 2015, Ms. Hao had been a partner of
KPMG China, and originally joined KPMG USA in 1993. From 1982 to 1989, Ms. Hao served as a lecturer at Renmin University of China. Ms. Hao
received a bachelor’s degree in economics from Renmin University of China and an MBA degree from Temple University. Ms. Hao obtained her
certified public accountant qualification in the PRC and California, USA.
Mr. Wenbiao Li has served as our independent director since September 2017. Mr. Li has served as a managing director of Walden
International since 2008 and as a managing partner of Kaiwu Walden Capital, L.P. since 2013. From 2004 to 2007, Mr. Li served as a director of
mobile engineering at Google. From 2000 to 2003, Mr. Li served as a vice president of engineering with Skire, Inc. From 1997 to 1999, Mr. Li
served as a director of engineering at Internet Image, Inc. Mr. Li also serves as a director of Union Optech Co., Ltd. Mr. Li received a bachelor’s
degree in computer engineering from Huazhong University of Science and Technology, a master’s degree in computer science from the University of
San Francisco, and an EMBA degree from Golden Gate University.
Ms. Gloria Fan currently services as our chief financial officer. Prior to joining us in November 2019, she served as CFO of Corporate
Visions, Inc., a software as a service company, from September 2015. Previously Ms. Fan spent nearly 10 years as CFO for a number of clean
technology companies, including Bridgelux, Inc. and ClearEdge Powers, Inc. From 1999 to 2006, Ms. Fan worked at UTStarcom Inc. where she held
senior management roles including Vice President of Finance and Global Business Operations and oversaw the company’s listing on the NASDAQ.
Ms. Fan passed the U.S. CPA exam, and she holds a Master of Science degree from Purdue University.
Ms. Mangli Zhang currently serves as the senior vice president and general manager of our supply chain management service line, and
served as our vice president of operations from 2007 to 2011. Prior to joining us in 2007, Ms. Zhang held various positions with UTStarcom China as
manager of the contract execution department, director of business operations, and vice president of business operations in China from 1996 to 2007.
From 1993 to 1996, Ms. Zhang served as a department manager of Zhejiang Province Economic and Construction Development Consulting
Company. From 1982 to 1993, Ms. Zhang served as a product development engineer in the technology division, and served as vice president of the
quality management division, of Hangzhou Wireless Equipment Factory. Ms. Zhang received a bachelor’s degree in wireless electronic engineering
from Zhejiang University.
Mr. Shaohua Zhou currently serves as the senior vice president and general manager of our express service line. Prior to joining us in 2009,
Mr. Zhou held various positions with UTStarcom China as regional project manager, global service solution business unit general manager of the
western region and general manager of the Chongqing branch from 2002 to 2008. Mr. Zhou also previously worked with Motorola and China
Mobile. Mr. Zhou received a bachelor’s degree in communication engineering from Beijing University of Posts and Telecommunications.
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Mr. Tao Liu currently serves as the senior vice president and general manager of our freight service line. Before that, between 2009 and
2017, he had held various positions with our company as deputy general manager of our freight service line, general manager of our Shanghai branch,
and general manager of our Shandong branch. Prior to joining us, Mr. Liu served as a deputy general manager at Shandong Zitong International
Logistics Company from 2007 to 2009. From 2000 to 2004, Mr. Liu held various positions with Zhilian Logistics (a group company of China Kejian
Co., Ltd.) as assistant to general manager, general manager of its Jinan branch, general manager of the Northern China region, and then general
manager of Shandong Zhongtie Modern Logistics and Technology Co. Ltd., a joint venture established by Zhilian Logistics and China Railway Jinan
Group. Mr. Liu received a bachelor’s degree in international business administration from Shandong University of Finance and Economics.
Mr. Bo Liu currently serves as the senior vice president and general manager of our store+ service line. Prior to joining us in 2007, Mr. Liu
held various positions with UTStarcom China as Shandong branch general manager, national director of the technology marketing department and
regional general manager from 2000 to 2007. From 1997 to 2000, Mr. Liu held various positions with Motorola as a manager of technology
marketing, sales manager, and manager of the business operations department. Mr. Liu currently also serves as chairman of the board of Sichuan
WOWO Supermarket Chain Management Ltd. Mr. Liu received a bachelor’s degree in industrial electric automation from China University of
Mining and Technology.
Mr. Xingjun Yuan currently serves as the vice president and general manager of our UCargo service line. Before that, between 2011 and
2018, Mr. Yuan had held various positions with our company as warehouse manager and transportation director of our supply chain management
service line. Prior to joining us, Mr. Yuan had served as a logistics manager at UTStarcom China. Mr. Yuan passed the examination of CILT and
received his master’s degree in international trade and finance from Leeds Metropolitan University (now known as Leeds Beckett University).
Mr. Feng Dong currently serves as general manager of our financial service line. Prior to joining us in 2015, Mr. Dong had held various
positions at the Hangzhou branch of China Guangfa Bank, including product supervisor at the Global Transaction Services (GTS) department. Mr.
Dong graduated from Southwestern University.
Mr. Yanbing Zhang currently serves as our senior vice president of engineering and the general manager of our cloud service line. Prior to
joining us, Mr. Zhang served as a senior project manager at the IT department of UTStarcom China from 2004 to 2007. From 2003 to 2004,
Mr. Zhang served as a project manager at China TravelSky Holding Company. Mr. Zhang received a bachelor’s degree in computer science from the
National University of Defense Technology and a master’s degree in computer science from the University of Karlsruhe (now known as the
Karlsruhe Institute of Technology).
Ms. Jimei Liu currently serves as our senior vice president of human resources and administration. Prior to joining us, Ms. Liu served as the
director of human resources at UTStarcom China from 2000 to 2007. From 1996 to 2000, Ms. Liu served as the training supervisor at Ting Hsin
International Group. Ms. Liu received a bachelor’s degree in machinery design and manufacturing from Central South University and an executive
master of business administration degree from the University of Texas at Arlington.
B.
Compensation
For the year ended December 31, 2019, we paid an aggregate of approximately US$3.0 million in cash to our executive officers and
directors. Our PRC subsidiaries and consolidated affiliated entities are required by law to make contributions equal to certain percentages of each
employee’s salary for his or her pension insurance, medical insurance, housing fund, unemployment insurance and other statutory benefits. Other
than the above-mentioned statutory contributions mandated by applicable PRC law, we have not set aside or accrued any amount to provide pension,
retirement or other similar benefits to our executive officers and directors. No executive officer is entitled to any severance benefits upon termination
of his or her employment with our company except as required under applicable PRC law.
Share Incentive Plans
2008 Equity and Performance Incentive Plan
Our 2008 equity and performance incentive plan provides for the grant of options or restricted share units, which we refer to collectively as
awards. Up to 20,934,684 ordinary shares upon exercise of awards may be granted under the 2008 equity and performance incentive plan. We believe
that the 2008 equity and performance incentive plan will aid us in attracting, motivating and retaining employees, non-employee directors, officers
and consultants through the granting of awards.
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Administration
The 2008 equity and performance incentive plan is administered by our board of directors or our compensation committee or any person to
whom the board shall delegate any of its authority under the plan. The plan administrator is authorized to interpret the plan and to determine the
provisions of each award.
Change in Control
In the event of a change in control or another transaction having a similar effect, then the plan administrator may, in its sole discretion,
adjust the number of ordinary shares subject to options then held by a participant in the plan as needed to prevent dilution or enlargement of the
participant’s rights that otherwise would result from such event. The plan administrator may also, in its sole direction, provide in substitution for the
participant’s rights such alternative consideration as it may determine to be equitable in the circumstances. A “change of control” under the 2008
equity and performance incentive plan is defined as (i) a sale of our company for cash consideration approved by our shareholders, (ii) our company
is merged into or with another entity, resulting in our original shareholders, namely, Mr. Shao-Ning Johnny Chou, Mr. George Chow, Mr. Shaohan
Joe Chou, Mr. David Hsiaoming Ting and The 2012 MKB Irrevocable Trust ceasing to own, collectively with their affiliates, the largest percentage
of the outstanding securities of our company, (iii) the sale or transfer of all or substantially all of our assets to another entity, other than one of our
subsidiaries, resulting in our original shareholders, namely, Mr. Shao-Ning Johnny Chou, Mr. George Chow, Mr. Shaohan Joe Chou, Mr. David
Hsiaoming Ting and The 2012 MKB Irrevocable Trust ceasing to own, collectively with their affiliates, the largest percentage of the outstanding
securities of our company, or (iv) our shareholders approve the liquidation or dissolution of our company.
Term
The 2008 equity and performance incentive plan expired in June 2018. Awards made under the plan on or prior to the date of its termination
will continue in effect subject to the terms of the plan and the award.
Vesting Schedule
In general, the plan administrator determines, or the award agreement specifies, the vesting schedule.
Amendment and Termination of Plan
Our board of directors may at any time amend, alter or discontinue the 2008 equity and performance incentive plan, subject to certain
exceptions.
Granted Options
As of February 29, 2020, we had outstanding options with respect to 4,246,560 ordinary shares that have been granted to our directors,
officers, employees and consultants, or the option holders, under the 2008 equity and performance incentive plan.
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The table below summarizes, as of February 29, 2020, the options we had granted to our directors and executive officers under the 2008
equity and performance incentive plan:
Name
George Chow
Mangli Zhang
Shaohua Zhou
Tao Liu
Bo Liu
Xingjun Yuan
Feng Dong
Yanbing Zhang
Jimei Liu
Number of
shares
underlying
options
granted
*
*
*
*
*
*
*
*
*
Exercise
price
(US$ per
share)
0.75
0.75
0.50 or 0.75
0.50 or 0.75
0.75
0.75
0.75
0.01, 0.50 or 0.75
0.01 or 0.75
Grant date
Expiration date
June 30, 2017
Various dates from June 30, 2008
to September 30, 2017
Various dates from December 31,
2009 to September 30, 2017
Various dates from June 30, 2009
to Sep 30, 2017
Various dates from June 30, 2008
to September 30, 2017
Various dates from December 31,
2011 to December 31, 2017
Various dates from June 30, 2016
to December 31, 2017
Various dates from June 30, 2008
to September 30, 2017
Various dates from June 30, 2008
to September 30, 2017
June 30, 2032
Various dates from June 30, 2018
to September 30, 2032
Various dates from December 31,
2024 to September 30, 2032
Various dates from June 30, 2024
to Sep 30, 2032
Various dates from June 30, 2027
to September 30, 2032
Various dates from December 31,
2026 to December 31, 2032
Various dates June 30, 2031 to
December 31, 2032
Various dates from June 30, 2023
to September 30, 2032
Various dates from June 30, 2023
to September 30, 2032
* Less than 1% of our total ordinary shares outstanding on an as-converted basis.
All of our option grant agreements under the 2008 equity and performance incentive plan provide that the options may not be exercised
before the first date on which the ADSs are publicly traded on the New York Stock Exchange, or the listing date. In July 2017, we granted a
conditional, one-time waiver of this restriction for certain option holders, and pursuant to this waiver, vested options with respect to an aggregate of
12,599,520 ordinary shares were exercised by their holders in July 2017. These option holders have paid the exercise price to us in full.
2017 Equity Incentive Plan
In September 2017, we adopted our 2017 equity incentive plan, pursuant to which equity-based awards may be granted to eligible
participants. The purpose of the 2017 equity incentive plan is to attract and retain the services of key personnel and to provide means for directors,
officers, employees, consultants and advisors to acquire and maintain an interest in us, which interest may be measured by reference to the value of
Class A ordinary shares.
The 2017 equity incentive plan provides for an aggregate amount of no more than 10,000,000 Class A ordinary shares to be issued pursuant
to equity-based awards granted under the plan. In addition, the number of Class A ordinary shares available for issuance under the 2017 equity
incentive plan automatically increased by a maximum of 2% of our total outstanding shares at the end of preceding calendar year on January 1, 2019
and will automatically be increased on every January 1 thereafter for eight years, provided that the aggregate amount of shares which may be subject
to awards granted under the plan does not exceed 10% of our total outstanding shares at the end of the preceding calendar year. As a result, as of
January 1, 2020, the maximum aggregate number of shares which may be issued pursuant to all awards under the 2017 equity incentive plan has been
increased to 20,025,938 Class A ordinary shares. No more than 10,000,000 Class A ordinary shares may be issued upon the exercise of incentive
stock options. Generally, if any award (or portion thereof) under the 2017 equity incentive plan terminates, expires, lapses or is cancelled for any
reason without being vested or exercised, as applicable, the Class A ordinary shares subject to such award will again be available for future grant.
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Granted Options and Restricted Share Units
As of February 29, 2020, we had outstanding restricted share units with respect to 6,815,989 ordinary shares that have been granted to our
directors, officers, employees and consultants under the 2017 equity incentive plan.
The table below summarizes, as of February 29, 2020, the share-based awards we had granted to our directors and executive officers under
the 2017 equity incentive plan, which were all restricted share units:
Name
Shao-Ning Johnny Chou
Number of
restricted
share units
granted
*
Mark Qiu
George Chow
Quan Hao
Wenbiao Li
Gloria Fan
Mangli Zhang
Shaohua Zhou
Tao Liu
Bo Liu
Xingjun Yuan
Feng Dong
Yanbing Zhang
Jimei Liu
*
*
*
*
*
*
*
*
*
*
*
*
*
Grant date
Various dates from June 1, 2018 to January 1,
2020
Various dates from February 1, 2018 to February
1, 2020
Various dates from March 1, 2018 to August 1,
2019
Various dates from February 1, 2018 to February
1, 2020
Various dates from February 1, 2018 to February
1, 2020
November 30, 2019
Various dates from March 1, 2018 to March 1,
2019
Various dates from March 1, 2018 to March 1,
2019
Various dates from March 1, 2018 to August 1,
2019
Various dates from March 1, 2018 to March 1,
2019
Various dates from March 1, 2018 to August 1,
2019
Various dates from March 1, 2018 to March 1,
2019
Various dates from March 1, 2018 to March 1,
2019
Various dates from March 1, 2018 to March 1,
2019
Expiration date
Various dates from June 1, 2028 to January 1,
2030
Various dates from February 1, 2028 to February
1, 2030
Various dates from March 1, 2028 to August 1,
2029
Various dates from February 1, 2028 to February
1, 2030
Various dates from February 1, 2028 to February
1, 2030
November 30, 2029
Various dates from March 1, 2028 to March 1,
2029
Various dates from March 1, 2028 to March 1,
2029
Various dates from March 1, 2028 to August 1,
2029
Various dates from March 1, 2028 to March 1,
2029
Various dates from March 1, 2028 to August 1,
2029
Various dates from March 1, 2028 to March 1,
2029
Various dates from March 1, 2028 to March 1,
2029
Various dates from March 1, 2028 to March 1,
2029
* Less than 1% of our total ordinary shares outstanding on an as-converted basis.
Administration
The 2017 equity incentive plan will be administered by our board of directors, our compensation committee, or any other committee of
board of directors or any member(s) of the board of directors or officer(s) who have been delegated any authority pursuant to the 2017 equity
incentive plan. The plan administrator is authorized to interpret the plan and to determine the provisions of each award including the number of
shares covered, the type of award, the exercise price, if applicable, and the vesting schedule. In addition, the plan administrator may (i) select the
recipients of awards, (ii) prescribe the forms of award agreements and amend any award agreement (subject to certain limitations), (iii) allow a
participant to satisfy minimum tax withholding obligations by withholding shares to be issued pursuant to an award and (iv) to make other decisions
and determinations as provided in the 2017 equity incentive plan.
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Change in Control
In the event of a change in control, the plan administrator may, in its sole discretion, (i) adjust the number and kind of shares and prices
subject to awards then held by a participant in the 2017 equity incentive plan in connection with the assumption, conversion or replacement of any
award (as the plan administrator determines to be reasonable, equitable and appropriate) (ii) accelerate the vesting, in whole or in part, of any award,
or (iii) purchase any award for an amount of cash or shares (in accordance with the terms of the 2017 equity incentive plan). In the event a successor
or surviving company refuses to assume, convert or replace an award, then the outstanding awards shall fully vest. A “change of control” under the
2017 equity incentive plan is defined as (i) an amalgamation, arrangement, merger, consolidation or scheme of arrangement in which our company is
not the surviving entity, except for a transaction the principal purpose of which is to change the jurisdiction in which our company is incorporated or
which following such transaction the holders of our company’s voting shares immediately prior to such transaction own more than fifty percent
(50%) of the voting shares of the surviving entity; (ii) the sale, transfer or other disposition of all or substantially all of the assets of our company
(other than to one of our subsidiaries); (iii) the completion of a voluntary or insolvent liquidation or dissolution of our company; (iv) any takeover,
reverse takeover, scheme of arrangement, or series of related transactions culminating in a reverse takeover or scheme of arrangement (including, but
not limited to, a tender offer followed by a takeover or reverse takeover) in which our company survives but (A) the shares of our company
outstanding immediately prior to such transaction are converted or exchanged by virtue of the transaction into other property, whether in the form of
shares, securities, cash or otherwise, or (B) the shares carrying more than 50% of the total combined voting power of our company’s then issued and
outstanding shares are transferred to a person or persons different from those who held such shares immediately prior to such transaction culminating
in such takeover, reverse takeover or scheme of arrangement, or (C) our company issues new voting shares in connection with any such transaction
such that holders of the our company’s voting shares immediately prior to the transaction no longer hold more than 50% of the voting shares of our
company after the transaction; or (v) the acquisition in a single or series of related transactions by any person or related group of persons (other than
employees of our company or any of its affiliates or entities established for the benefit of the employees of our company or any of its affiliates) of
(A) control of our board of directors or the ability to appoint a majority of the members of our board of directors, or (B) beneficial ownership (within
the meaning of Rule 13d-3 under the Exchange Act) of shares carrying more than 50% of the total combined voting power of the our company’s then
issued and outstanding shares.
Term
Unless terminated earlier, the 2017 equity incentive plan will expire ten years from the date the 2017 equity incentive plan becomes
effective. Awards made under the 2017 equity incentive plan on or prior to the date of its termination will continue in effect subject to the terms of
the 2017 equity incentive plan and the applicable award agreement.
Vesting Schedule
In general, the plan administrator determines the vesting schedule of each award as evidenced by an award agreement. The plan
administrator may accelerate the vesting of any award.
Amendment and Termination of Plan
Our board of directors, in its sole discretion, may at any time amend, alter or discontinue the 2017 equity incentive plan, subject to certain
exceptions.
C.
Board Practices
Board of Directors
Pursuant to our ninth amended and restated articles of association currently in effect, our board of directors consists of seven directors,
including (i) Mr. Shao-Ning Johnny Chou and Mr. George Chow, or the Founder Directors, who were nominated by our founder, Mr. Shao-Ning
Johnny Chou; (ii) Mr. Lin Wan and Mr. Jun Chen, or collectively, the Alibaba Directors, who were nominated by Alibaba (including Cainiao
Network); and (iii) Ms. Quan Hao, Mr. Mark Qiu and Mr. Wenbiao Li, who are independent directors. As long as Mr. Shao-Ning Johnny Chou is a
director, he will serve as the chairman of the board.
Unless otherwise determined by our shareholders in a general meeting, our board will consist of not less than three directors.
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There is no requirement for our directors to own any shares in our company in order for them to qualify as a director.
Committees of the Board of Directors
Our board of directors has established an audit committee, a compensation committee, and a corporate governance and nominating
committee. As a foreign private issuer, we are permitted to follow home country corporate governance practices under the Corporate Governance
Rules of the New York Stock Exchange.
Audit Committee
Our audit committee consists of Ms. Quan Hao, Mr. Mark Qiu and Mr. Wenbiao Li. Ms. Quan Hao is the chairman of our audit committee.
Each of Ms. Quan Hao and Mr. Mark Qiu satisfies the criteria of an audit committee financial expert as set forth under the applicable rules of the
SEC. Each of Ms. Quan Hao, Mr. Mark Qiu and Mr. Wenbiao Li satisfies the requirements for an “independent director” within the meaning of
Section 303A of the Corporate Governance Rules of the New York Stock Exchange, or the NYSE, and meets the criteria for independence set forth
in Rule 10A-3 of the U.S. Securities Exchange Act of 1934, as amended, or the Exchange Act. Our audit committee consists solely of independent
directors.
The audit committee oversees our accounting and financial reporting processes and the audits of our financial statements. Our audit
committee is responsible for, among other things:
● selecting, and evaluating the qualifications, performance and independence of, the independent auditor;
● pre-approving or, as permitted, approving auditing and non-auditing services permitted to be performed by the independent auditor;
● considering the adequacy of our internal accounting controls and audit procedures;
● reviewing with the independent auditor any audit problems or difficulties and management’s response;
● reviewing and approving related party transactions between us and our directors, senior management and other persons specified in
Item 7B of Form 20-F;
● reviewing and discussing the quarterly financial statements and annual audited financial statements with management and the
independent auditor;
● establishing procedures for the receipt, retention and treatment of complaints received from our employees regarding accounting,
internal accounting controls or auditing matters and the confidential, anonymous submission by our employees of concerns
regarding questionable accounting or auditing matters;
● meeting separately, periodically, with management, internal auditors and the independent auditor; and
● reporting regularly to the full board of directors.
Compensation Committee
Our compensation committee consists of Mr. Mark Qiu, Mr. Lin Wan and Mr. George Chow. Mr. Mark Qiu is the chairman of our
compensation committee. Mr. Mark Qiu satisfies the requirements for an “independent director” within the meaning of Section 303A of the NYSE
Corporate Governance Rules.
Our compensation committee is responsible for, among other things:
● reviewing, evaluating and, if necessary, revising our overall compensation policies;
● reviewing and evaluating the performance of our directors and executive officers and determining the compensation of our directors
and executive officers;
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● reviewing and approving our executive officers’ employment agreements with us;
● determining performance targets for our executive officers with respect to our annual bonus plan and share incentive plans;
● administering our share incentive plans in accordance with the terms thereof; and
● carrying out such other matters that are specifically delegated to the compensation committee by our board of directors from time to
time.
Corporate Governance and Nominating Committee
Our corporate governance and nominating committee consists of Mr. Shao-Ning Johnny Chou, Mr. Lin Wan and Mr. Wenbiao Li.
Mr. Shao-Ning Johnny Chou is the chairman of our corporate governance and nominating committee. Mr. Wenbiao Li satisfies the requirements for
an “independent director” within the meaning of Section 303A of the NYSE Corporate Governance Rules.
Our corporate governance and nominating committee is responsible for, among other things:
● selecting the board nominees for election by the shareholders or appointment by the board;
● periodically reviewing with the board the current composition of the board with regards to characteristics such as independence,
knowledge, skills, experience and diversity;
● making recommendations on the frequency and structure of board meetings and monitoring the functioning of the committees of
the board; and
● advising the board periodically with regards to significant developments in corporate governance law and practices as well as our
compliance with applicable laws and regulations, and making recommendations to the board on corporate governance matters.
Duties of Directors
Under Cayman Islands law, all of our directors owe fiduciary duties to our company, including a duty of loyalty, a duty to act honestly and a
duty to act in good faith and in a manner they believe to be in our best interests. Our directors must also exercise their powers only for a proper
purpose. 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, as amended and restated from time to time. Our company has the right to seek damages if a duty owed by any of our directors is
breached. In limited exceptional circumstances, a shareholder may have the right to seek damages in our name if a duty owed by our directors is
breached.
A director who is in any way, whether directly or indirectly, interested in a contract or proposed contract with our company is required to
declare the nature of his interest at a meeting of our directors. Subject to the rules of the New York Stock Exchange and disqualification by the
chairman of the relevant board meeting, a director may vote in respect of any contract, proposed contract, or arrangement notwithstanding that he
may be interested therein, and if he does so his vote shall be counted and he may be counted in the quorum at any meeting of our directors at which
any such contract or proposed contract or arrangement is considered. Our directors may exercise all the powers of our company to borrow money,
and to mortgage or charge its undertaking, property and uncalled capital, and issue debentures, debenture stock or other securities whenever money is
borrowed or as security for any debt, liability or obligation of the company or of any third party.
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Terms of Directors and Officers
Mr. Shao-Ning Johnny Chou may remove any Founder Director from office by written notice to us; Alibaba may remove any Alibaba
Director from office by written notice to us; and our shareholders may remove any of our directors from office by a special resolution. In addition, a
director will cease to be a director if he or she becomes bankrupt or makes any arrangement or composition with his or her creditors, dies or is found
to be or becomes of unsound mind, resigns, or is absent from meetings of the board for three consecutive meetings without special leave of absence
from the board and the board resolves that his or her office be vacated.
If a Founder Director ceases to be a director for any reason, Mr. Shao-Ning Johnny Chou will have the right to appoint another Founder
Director as long as Mr. Shao-Ning Johnny Chou and his affiliates hold any of our shares. If an Alibaba Director ceases to be a director for any reason,
Alibaba will have the right to appoint another Alibaba Director as long as Alibaba (including Cainiao Network) and their affiliates hold any of our
shares. If the aggregate number of shares held by Alibaba (including Cainiao Network) and their affiliates represent less than 10% of our total
outstanding shares, Alibaba will not be able to exercise such appointment right if there is one remaining Alibaba Director on our board, and Alibaba
may be required to remove one Alibaba Director if there are two Alibaba Directors on our board.
By special resolution, our shareholders may appoint any person to be a director, either to fill a vacancy resulting from the removal of a
director by special resolution or as an addition to the existing board. Our board may, by the affirmative vote of a simple majority of the remaining
directors present and voting at a board meeting, appoint any person as a director in order to fill a vacancy other than as a result of the removal of a
director by our shareholders, Mr. Shao-Ning Johnny Chou or Alibaba.
D.
Employees
See “Item 4. Information on the Company—B. Business Overview—Employees.”
E.
Share Ownership
The following table sets forth information with respect to the beneficial ownership, within the meaning of Rule 13d-3 under the Exchange
Act, of our ordinary shares, as of February 29, 2020 by:
● each of our directors and executive officers;
● our directors and executive officers as a group; and
● each person known to us to own beneficially 5.0% or more of our ordinary shares.
Beneficial ownership is determined in accordance with the rules of the SEC and includes voting or investment power with respect to the
securities. 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 or other right or the conversion of any
other security.
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The calculations in the table below are based on (i) 247,783,865 Class A ordinary shares, (ii) 94,075,249 Class B ordinary shares, and (iii)
47,790,698 Class C ordinary shares, that were issued and outstanding as of February 29, 2020. The aforesaid 247,783,865 Class A ordinary shares
excludes the 2,864,587 Class A ordinary shares issued to our depositary bank as of February 29, 2020 and reserved for future issuances of ADSs
upon exercise or vesting of awards granted under our share incentive plans that are not deemed outstanding for the purpose of calculating percentage
ownership and voting power in this annual report.
Shao-Ning Johnny Chou
Lin Wan
Jun Chen
Mark Qiu
George Chow
Quan Hao
Wenbiao Li
Gloria Fan
Mangli Zhang
Shaohua Zhou
Tao Liu
Bo Liu
Xingjun Yuan
Feng Dong
Yanbing Zhang
Jimei Liu
Directors and Executive officers as a
Group
Alibaba Group Holding Limited(1)
Shao-Ning Johnny Chou
CR Entities (2)
The Goldman Sachs Group, Inc.(3)
Class A
Class B
Class C
Number
Percentage
Number
Percentage
Number
Percentage
Voting
Power****
*
—
—
*
6,653,937
*
*
—
*
*
*
*
*
*
*
*
8,240,829
24,184,400
*
33,548,304
12,702,068
*
—
—
*
2.7
*
*
—
*
*
*
*
*
*
*
*
3.3
9.2
*
13.5
5.1
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
94,075,249
—
—
—
—
100.0
—
—
—
47,790,698
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
47,790,698
—
47,790,698
—
—
100.0
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
100.0
—
100.0
—
—
46.4
—
—
**
**
**
**
—
**
**
**
**
**
**
**
**
46.6
46.2
46.4
1.1
0.4
*
**
***
****
Beneficially owns less than 1% of our total ordinary shares outstanding on an as-converted basis.
Holds less than 1% of voting power of our total ordinary shares outstanding.
The business address for our directors and executive officers is 2nd Floor, Block A, Huaxing Modern Industry Park, No. 18 Tangmiao Road,
Xihu District, Hangzhou, Zhejiang Province 310013, People’s Republic of China.
For each person and group included in this column, percentage of voting power is calculated by dividing the voting power beneficially
owned by such person or group by the voting power of all of our Class A, Class B and Class C ordinary shares as a single class. In respect of
matters requiring a shareholder vote, each Class A ordinary share is entitled to one vote, each Class B ordinary share is entitled to 15 votes,
and each Class C ordinary share is entitled to 30 votes. Each Class B ordinary share or Class C 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 or Class C ordinary
shares, Class B ordinary shares are not convertible to Class C ordinary shares, and Class C ordinary shares are not convertible into Class B
ordinary shares under any circumstances.
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(1)
(2)
(3)
The number of ordinary shares beneficially owned was reported in an Amendment No. 2 to Schedule 13D filed by Alibaba Group Holding
Limited, Alibaba Investment Limited and other reporting persons on September 19, 2019, and consists of (i) 10,000,000 Class A ordinary
shares represented by ADSs held by Alibaba Investment Limited, (ii) 14,184,400 Class A ordinary shares, represented by ADSs, convertible
at any time from 1.75% Convertible Senior Notes Due 2024 in the principal amount of US$100,000,000 at the option of Alibaba Investment
Limited, the holder of such senior notes issued by us in September 2019, (iii) 75,831,692 Class B ordinary shares held by Alibaba
Investment Limited, and (iv) 18,243,557 Class B ordinary shares held by Cainiao Smart Logistics Investment Limited. Alibaba Group
Holding Limited is a public company listed on the New York Stock Exchange. Alibaba Investment Limited is a British Virgin Islands
company wholly owned by Alibaba Group Holding Limited. Cainiao Smart Logistics Investment Limited is a British Virgin Islands
company wholly owned by Cainiao Smart Logistics Network Limited, a company incorporated under the laws of the Cayman Islands.
Alibaba Group Holding Limited owned a 63% equity interest in Cainiao Smart Logistics Network Limited as of November 8, 2019 as
disclosed in the current report on Form 6-K filed with the SEC by Alibaba Group Holding Limited on November 8, 2019. Beneficial
ownership of the Class B ordinary shares held by Cainiao Smart Logistics Investment Limited is attributed to Alibaba Group Holding
Limited as a result of its ownership of the 63% equity interest in Cainiao Smart Logistics Network Limited. The registered address of
Alibaba Group Holding Limited is the offices of Trident Trust Company (Cayman) Limited, Fourth Floor, One Capital Place, P.O. Box 847,
George Town, Grand Cayman, Cayman Islands.
The number of ordinary shares beneficially owned was reported in a Schedule 13G filed by the CR Entities and other reporting persons on
February 14, 2019 and consists of (i) 25,778,872 Class A ordinary shares held by Florence Star Worldwide Limited, and (ii) 7,769,432
Class A ordinary shares held by Brackenhill Tower Limited. Florence Star Worldwide Limited and Brackenhill Tower Limited are
collectively referred to as the CR Entities. Each of Florence Star Worldwide Limited and Brackenhill Tower Limited is a limited liability
company established in the British Virgin Islands, and each of them has its registered address at Trident Chambers, P.O. Box 146, Road
Town, Tortola, British Virgin Islands. The CR Entities are special purpose vehicles of both China Harvest Fund II, L.P. and China Harvest
Co-Investors II, L.P., or the China Harvest Funds. The general partner of the China Harvest Funds is China Renaissance Capital Investment
II, L.P. The general partner of China Renaissance Capital Investment II, L.P. is China Renaissance Capital II GP. The voting powers and
investment powers of the CR Entities are exercised in accordance with the direction of the board of directors of China Renaissance Capital II
GP. Mark Qiu is a member of such board of directors and disclaims beneficial ownership in the aforesaid shares except to the extent of his
pecuniary interest therein through his partnership interest in the China Harvest Funds.
The number of ordinary shares beneficially owned was reported in a Schedule 13G filed by The Goldman Sachs Group, Inc. and other
reporting persons on February 14, 2020 and consists of an aggregate of 12,702,068 Class A ordinary shares owned by Broad Street Principal
Investments, L.L.C., Bridge Street 2014, L.P., Stone Street 2014, L.P., MBD 2014, L.P., Bridge Street 2014 Offshore, L.P., Stone Street
2014 Offshore, L.P. and MBD 2014 Offshore, L.P. (collectively, the “GS Stockholders”), and are owned, or may be deemed to, or to have
been beneficially owned, by Goldman Sachs & Co. LLC (“Goldman Sachs”) and The Goldman Sachs Group, Inc. (“GS Group”). MBD
Advisors, L.L.C. is a wholly-owned subsidiary of GS Group and is the general partner of MBD 2014, L.P. and MBD 2014 Offshore, L.P.,
and Bridge Street Opportunity Advisors, L.L.C. is a wholly-owned subsidiary of GS Group and is the general partner of the other GS
Investing Entities. Goldman Sachs is a subsidiary of GS Group. Goldman Sachs owns certain of the shares on behalf of managed accounts
and is the investment manager of the GS Stockholders. Each of the GS Group, Broad Street Principal Investments, L.L.C., MBD Advisors,
L.L.C. and Bridge Street Opportunity Advisors, L.L.C. is a limited liability company incorporated in Delaware. Each of MBD 2014, L.P.,
Bridge Street 2014, L.P. and Stone Street 2014, L.P. is a Delaware limited partnership. Goldman Sachs is a limited liability company
incorporated in New York. Each of Bridge Street 2014 Offshore, L.P., Stone Street 2014 Offshore, L.P. and MBD 2014 Offshore, L.P. is a
Cayman Islands limited partnership.
To our knowledge, as of February 29, 2020, 160,346,712 Class A ordinary shares or 64.7% of our outstanding Class A ordinary shares were
held by eight record holders in the United States, including our ADS depositary bank, which held 152,172,268 Class A ordinary shares or 61.4% of
our outstanding Class A ordinary shares (excluding 2,864,587 Class A ordinary shares issued and reserved for future issuances of ADSs upon
exercise or vesting of awards granted under our share incentive plans). Because many of these shares are held by brokers or other nominees, we
cannot ascertain the exact number of beneficial shareholders with addresses in the United States. As of February 29, 2020, 47,790,698 Class C
ordinary shares representing all of our outstanding Class C ordinary shares were held by one record holder in the United States, namely, Shao-Ning
Johnny Chou, our founder, chairman and chief executive officer.
We are not aware of any arrangement that may, at a subsequent date, result in a change of control of our company.
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ITEM 7.
MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS
A.
Major Shareholders
See “Item 6. Directors, Senior Management and Employees—E. Share Ownership”
B.
Related Party Transactions
Contractual Arrangements with our Variable Interest Entity and its Shareholders
See “Item 4. Information on the Company—C. Organizational Structure—Variable Interest Entity Contractual Arrangements.”
Convertible Senior Notes
In September 2019, we completed an offering of US$200 million aggregate principal amount of 1.75% convertible senior notes due 2024
(including full exercise of the initial purchasers’ option to purchase additional notes), including US$100 million principal amount of notes sold to an
entity affiliated with Alibaba Group Holding Limited. The notes will mature on October 1, 2024. Holders may convert their notes at their option into
our ADSs at an initial conversion rate of 141.8440 ADSs per US$1,000 principal amount of notes (equivalent to an initial conversion price of
approximately US$7.05 per ADS), which rate is subject to adjustment in some events but will not be adjusted for any accrued and unpaid interest.
Shareholders Agreement
On April 5, 2016, we, our subsidiaries, Hangzhou BEST Network, and all of our then-existing shareholders entered into the shareholders
agreement, as amended on September 6, 2017, which replaced and superseded our previous shareholders agreements. The shareholders agreement
addresses certain matters in relation to shareholder rights, corporate governance arrangements and other related obligations. Except for the
shareholder and director nomination right of Alibaba Investment Limited, or AIL, with respect to Hangzhou BEST Network, a VIE, our non-compete
undertaking to AIL and certain registration rights, all other rights and obligations of us and the shareholders under the shareholders agreement
terminated upon completion of our initial public offering.
Other Transactions with Certain Directors and Affiliates
See “Item 6. Directors, Senior Management and Employees—B. Compensation.”
Share Incentive Plans
See “Item 6. Directors, Senior Management and Employees—B. Compensation—Share Incentive Plans.”
Other Transactions with Related Parties
We provided supply chain management and express delivery services to Cainiao Network, and the related service fees amounted to
RMB490.0 million, RMB652.4 million and RMB814.9 (US$117.0 million) for the years ended December 31, 2017, 2018 and 2019, respectively. As
of December 31, 2017, 2018 and 2019, we had balances of RMB164.9 million, RMB197.5 million and RMB241.0 million (US$34.6 million),
respectively, due from Cainiao Network, which represent service fees payable to us.
Cainiao Network leased warehouses to us resulting in rental expense of RMB8.7 million, RMB9.1 million and RMB9.9 million (US$1.4
million) for the years ended December 31, 2017, 2018 and 2019, respectively. Cainiao Network introduced customers to us and we incurred
commission fees of nil, RMB3.5 million and RMB0.2 million (US$0.02 million) to Cainiao Network for the years ended December 31, 2017, 2018
and 2019, respectively. Cainiao Network also paid on our behalf certain operating costs of RMB19.9 million, RMB 16.4 million and RMB9.9 million
(US$1.4 million) for the years ended December 31, 2017, 2018 and 2019, respectively. As of December 31,2018 and 2019, we had a balance of
RMB12.4 million and RMB6.1 million (US$0.9 million), respectively, due to Cainiao Network, which represents rental expenses, commission fees
and operating costs payable by us.
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Alibaba Cloud Computing Co. Ltd. (“Ali Cloud”), an affiliate of Alibaba, provided certain cloud services to us resulting in service expense
incurred by us of nil, RMB4.8 million and RMB9.7 million (US$1.4 million) for the years ended December 31, 2017, 2018 and 2019, respectively.
As of December 31, 2018 and 2019, we had a balance of nil and RMB 0.4 million (US$0.06 million), respectively, due from Ali Could, which
represents service fees prepaid to Ali Cloud.
We provided express delivery service to Lazada Express Limited (“Lazada”), an affiliate of Alibaba, and the related service fees amounted
to nil, nil and RMB10.7 million (US$1.5 million) for the years ended December 31, 2017, 2018 and 2019, respectively. As of December 31, 2018 and
2019, we had a balance of nil and RMB5.3 million (US$0.8 million), respectively, due from Lazada, which represents service fees payable to us.
C.
Interests of Experts and Counsel
Not applicable.
ITEM 8.
FINANCIAL INFORMATION
A.
Consolidated Statements and Other Financial Information
Please refer to Item 18 for a list of our annual consolidated financial statements filed as part of this annual report on Form 20-F.
Legal Proceedings
See “Item 4. Information on the Company—B. Business Overview—Legal Proceedings.”
Dividend Policy and Distributions
Since our inception, we have not declared or paid any dividends on our shares. We do not have any present plan to pay any dividends on our
ordinary shares or ADSs in the foreseeable future. We intend to retain most, if not all, of our available funds and any future earnings to operate and
expand our business.
Any future determination to pay dividends will be made at the discretion of our board of directors, subject to certain requirements of
Cayman Islands law. Under Cayman Islands law, a Cayman Islands company may pay a dividend out of either profit or share premium account,
provided that in no circumstances may a dividend be paid if this would result in the company being unable to pay its debts as they fall due in the
ordinary course of business. Even if our directors decide to pay dividends, the form, frequency and amount of dividends will be based on a number of
factors, including our future operations and earnings, capital requirements and surplus, general financial condition, contractual restrictions and other
factors that the board of directors may deem relevant. If we pay any dividends on our ordinary shares, we will pay those dividends which are payable
in respect of the underlying Class A ordinary shares represented by our ADSs to the depositary, as the registered holder of such Class A ordinary
shares, and the depositary then will pay such amounts to our ADS holders in proportion to the underlying Class A ordinary shares represented by the
ADSs held by such ADS holders, subject to the terms of the deposit agreement, including the fees and expenses payable thereunder. Cash dividends
on our Class A ordinary shares, if any, will be paid in U.S. dollars.
We are a holding company incorporated in the Cayman Islands. In order for us to distribute any dividends to our shareholders and ADS
holders, we rely on dividends distributed by our subsidiaries in China and other jurisdictions. Distributions from our subsidiaries to us may be subject
to various local taxes, such as withholding tax. In addition, regulations in China currently permit payment of dividends of a Chinese company only
out of accumulated distributable after-tax profits as determined in accordance with its articles of association and the accounting standards and
regulations in China.
B.
Significant Changes
We have not experienced any significant changes since the date of our audited consolidated financial statements included in this annual
report.
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ITEM 9.
THE OFFER AND LISTING
A.
Offer and Listing Details
Our ADSs, each representing one of our Class A ordinary shares, have been listed on the New York Stock Exchange since September 20,
2017 under the symbol “BSTI.” Our ticker symbol on the New York Stock Exchange changed from “BSTI” to BEST” effective at the start of trading
on February 19, 2019.
B. Plan of Distribution
Not applicable.
C. Markets
Our ADSs, each representing one of our Class A ordinary shares, have been trading on the New York Stock Exchange since September 20,
2017. From September 20, 2017 to February 18, 2019, our ticker symbol on the New York Stock Exchange was “BSTI.” Our ticker symbol on the
New York Stock Exchange changed from “BSTI” to BEST” effective at the start of trading on February 19, 2019.
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 incorporate by reference into this annual report the description of our ninth amended and restated memorandum and articles of
association contained in our Form F-1 registration statement (File No. 333-218959), as amended, initially filed with the Securities and Exchange
Commission on June 26, 2017. Our shareholders adopted our ninth amended and restated memorandum and articles of association on September 6,
2017.
C. Material Contracts
In the past three fiscal years, we have not entered into any material contracts other than in the ordinary course of business or other than those
disclosed elsewhere in this annual report.
D. Exchange Controls
See “Item 4. Information on the Company—B. Business Overview—Regulatory Matters—Regulations Relating to Foreign Exchange.”
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E. Taxation
Cayman Islands Taxation
The Cayman Islands currently levies no taxes on individuals or corporations based upon profits, income, gains or appreciation and there is
no taxation in the nature of inheritance tax or estate duty. There are no other taxes likely to be material to us levied by the Government of the Cayman
Islands except for stamp duties which may be applicable on instruments executed in, or after execution brought within, the jurisdiction of the Cayman
Islands. The Cayman Islands is not a party to any double tax treaties which are applicable to any payments made to or by our company. There are no
exchange control regulations or currency restrictions in the Cayman Islands.
Payments of dividends and capital in respect of our ordinary shares and ADSs will not be subject to taxation in the Cayman Islands and no
withholding will be required on the payment of dividends or capital to any holder of our ordinary shares or ADSs, nor will gains derived from the
disposal of our ordinary shares or ADSs be subject to Cayman Islands income or corporation tax. No stamp duty is payable in respect of the issue of
our ordinary shares or on an instrument of transfer in respect of our ordinary shares.
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:
(1) 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
(2) 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 March 18, 2008.
People’s Republic of China Taxation
In March 2007, the National People’s Congress of China enacted the Enterprise Income Tax Law, which became effective on January 1,
2008 and was recently amended on December 29, 2018. The Enterprise Income Tax Law provides that enterprises organized under the laws of
jurisdictions outside China with their “de facto management bodies” located within China may be considered China resident enterprises and therefore
subject to Chinese enterprise income tax at the rate of 25% on their worldwide income. The Implementing Rules of the Enterprise Income Tax Law
further defines the term “de facto management body” as the management body that exercises substantial and overall management and control over
the business, personnel, accounts and properties of an enterprise. In April 2009, the State Administration of Taxation issued a circular, known as SAT
Circular 82, which provides certain specific criteria for determining whether the “de facto management body” of a PRC-controlled enterprise that is
incorporated offshore is located in China. Further to SAT Circular 82, in 2011, the State Administration of Taxation issued the Administrative
Measures for Enterprise Income Tax of Chinese-Controlled Offshore Incorporated Resident Enterprises (Trial), or SAT Bulletin 45, to provide more
guidance on the implementation of SAT Circular 82.
According to SAT Circular 82, an offshore incorporated enterprise controlled by a PRC enterprise or a PRC enterprise group will be
considered a PRC tax resident by virtue of having its “de facto management body” in China and will be subject to PRC enterprise income tax on its
worldwide income only if all of the following conditions are met: (i) the senior management and core management departments in charge of its daily
operations function have their presence mainly in the PRC; (ii) its financial and human resources decisions are subject to determination or approval
by persons or bodies in the PRC; (iii) its major assets, accounting books, company seals, and minutes and files of its board of directors and
shareholders’ meetings are located or kept in the PRC; and (iv) more than half of the enterprise’s directors or senior management with voting rights
habitually reside in the PRC.
Although SAT Circular 82 and SAT Bulletin 45 only apply to offshore enterprises controlled by PRC enterprises or PRC enterprise groups,
not those controlled by PRC individuals or foreigners, the determination criteria set forth therein may reflect the State Administration of Taxation’s
general position on how the “de facto management body” test could be applied in determining the tax resident status of offshore enterprises,
regardless of whether they are controlled by PRC enterprises, individuals or foreigners.
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Although a substantial majority of the members of our management team are located in the PRC, we believe that BEST Inc. is not a PRC
resident enterprise for PRC tax purposes. BEST Inc. is not controlled by a PRC enterprise or PRC enterprise group and we do not believe that BEST
Inc. meets all of the conditions above. BEST Inc. is a company incorporated outside the PRC. As a holding company, its key assets are its ownership
interests in its subsidiaries, which are located outside the PRC. However, the tax resident status of an enterprise is subject to determination by the
PRC tax authorities and uncertainties remain with respect to the interpretation of the term “de facto management body.”
If the PRC tax authorities determine that BEST Inc. is a PRC resident enterprise for enterprise income tax purposes, we may be required to
withhold a 10% withholding tax from dividends we pay to our shareholders that are non-resident enterprises, including the holders of our ADSs. In
addition, non-resident enterprise shareholders (including our ADS holders) may be subject to a 10% PRC tax on gains realized on the sale or other
disposition of ADSs or ordinary shares, if such income is treated as sourced from within the PRC. Furthermore, if we are deemed a PRC resident
enterprise, dividends payable to our non-PRC individual shareholders (including our ADS holders) and any gain realized on the transfer of ADSs or
ordinary shares by such shareholders may be subject to PRC tax at a rate of 20% unless a reduced rate is available under an applicable tax treaty. It is
also unclear whether non-PRC shareholders of BEST Inc. would be able to claim the benefits of any tax treaties between their country of tax
residence and the PRC in the event that BEST Inc. is treated as a PRC resident enterprise.
Material U.S. Federal Income Tax Considerations
The following summary describes the material U.S. federal income tax consequences of the purchase, ownership and disposition of our
ADSs and ordinary shares as of the date hereof. This summary is only applicable to ADSs and ordinary shares held as capital assets by a U.S. Holder
(as defined below).
As used herein, the term “U.S. Holder” means a beneficial owner of our ADSs or ordinary shares that is for U.S. federal income tax
purposes:
● an individual citizen or resident of the U.S.;
● a corporation (or other entity treated as a corporation for U.S. federal income tax purposes) created or organized in or under the
laws of the U.S., any state thereof or the District of Columbia;
● an estate the income of which is subject to U.S. federal income taxation regardless of its source; or
● a trust if it (i) is subject to the primary supervision of a court within the U.S. and one or more U.S. persons have the authority to
control all substantial decisions of the trust or (ii) has a valid election in effect under applicable U.S. Treasury regulations to be
treated as a U.S. person.
The discussion below is based upon the provisions of the Internal Revenue Code of 1986, as amended, or the Code, and regulations, rulings
and judicial decisions thereunder as of the date hereof, and such authorities may be replaced, revoked or modified so as to result in U.S. federal
income tax consequences different from those discussed below. In addition, this summary is based, in part, upon representations made by the
depositary to us and assumes that the deposit agreement, and all other related agreements, will be performed in accordance with their terms.
This summary does not represent a detailed description of the U.S. federal income tax consequences applicable to you if you are subject to
special treatment under the U.S. federal income tax laws, including if you are:
● a U.S. expatriate or one of certain former citizens or long-term residents of the U.S.;
● a broker or dealer in securities or currencies;
● a financial institution;
● a regulated investment company;
● a real estate investment trust;
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● an insurance company;
● a tax-exempt organization or governmental organization;
● a person holding our ADSs or ordinary shares as part of a hedging, integrated or conversion transaction, a constructive sale or a
straddle;
● a trader in securities that has elected the mark-to-market method of accounting for your securities;
● a person liable for alternative minimum tax;
● a person who acquired the ADSs or ordinary shares pursuant to the exercise of any employee share option or otherwise as
compensation;
● a person who owns or is deemed to own 10% or more of our stock (by vote or value);
● a partnership or other pass-through entity for U.S. federal income tax purposes;
● a person required to accelerate the recognition of any item of gross income with respect to our ADSs or ordinary shares as a result
of such income being recognized on an applicable financial statement; or
● a person whose “functional currency” is not the U.S. dollar.
If a partnership (or other entity treated as a partnership for U.S. federal income tax purposes) holds our ADSs or ordinary shares, the tax
treatment of a partner will generally depend upon the status of the partner and the activities of the partnership. If you are a partner of a partnership
holding our ADSs or ordinary shares, you should consult your tax advisors.
This summary does not contain a detailed description of all the U.S. federal income tax consequences to you in light of your
particular circumstances and does not address the Medicare tax on net investment income or the effects of any state, local or non-U.S. tax
laws. If you are considering the purchase, ownership or disposition of our ADSs or ordinary shares, you should consult your own tax
advisors concerning the U.S. federal income tax consequences to you in light of your particular situation as well as any consequences arising
under other United States federal tax laws and the laws of any other taxing jurisdiction.
ADSs
If you hold ADSs, for U.S. federal income tax purposes, you generally will be treated as the owner of the underlying ordinary shares that are
represented by such ADSs. Accordingly, deposits or withdrawals of ordinary shares for ADSs will not be subject to U.S. federal income tax.
Taxation of Dividends
Subject to the discussion under “—Passive Foreign Investment Company” below, the gross amount of any distributions on the ADSs or
ordinary shares (including any amounts withheld to reflect PRC withholding taxes) will be taxable as dividends, to the extent paid out of our current
or accumulated earnings and profits, as determined under U.S. federal income tax principles. To the extent that the amount of any distribution
exceeds our current and accumulated earnings and profits, as determined under U.S. federal income tax principles, the distribution ordinarily would
be treated, first, as a tax-free return of capital, causing a reduction in the adjusted basis of the ADSs or ordinary shares (thereby increasing the amount
of gain, or decreasing the amount of loss, to be recognized by you on a subsequent disposition of the ADSs or ordinary shares), and, second, the
balance in excess of adjusted basis generally would be taxed as capital gain recognized on a sale or exchange. However, we do not expect to
determine our earnings and profits in accordance with U.S. federal income tax principles. Therefore, you should expect that distributions will
generally be reported to the Internal Revenue Service, or IRS, and taxed to you as dividends (as discussed above), even if they might ordinarily be
treated as a tax-free return of capital or as capital gain.
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Any dividends that you receive (including withheld taxes) will be includable in your gross income as ordinary income on the day actually or
constructively received by you, in the case of the ordinary shares, or by the depositary, in the case of ADSs. Such dividends will not be eligible for
the dividends received deduction allowed to corporations under the Code.
With respect to non-corporate U.S. Holders, certain dividends received from a qualified foreign corporation may be subject to reduced rates
of taxation. A foreign corporation is treated as a qualified foreign corporation with respect to dividends received from that corporation on ordinary
shares (or ADSs backed by such shares) that are readily tradable on an established securities market in the U.S. U.S. Treasury Department guidance
indicates that our ADSs (which are listed on the New York Stock Exchange), but not our common shares, are readily tradable on an established
securities market in the U.S. Thus, subject to the discussion under “—Passive Foreign Investment Company” below, we believe that dividends we
pay on our ADSs will meet the conditions required for the reduced tax rate. Since we do not expect that our ordinary shares will be listed on an
established securities market, we do not believe that dividends that we pay on our ordinary shares that are not represented by ADSs will meet the
conditions required for these reduced tax rates. There also can be no assurance that our ADSs will continue to be readily tradable on an established
securities market in later years. Consequently, there can be no assurance that dividends paid on our ADSs will continue to be afforded the reduced tax
rates. A qualified foreign corporation also includes a foreign corporation that is eligible for the benefits of certain income tax treaties with the U.S. In
the event that we are deemed to be a PRC resident enterprise under the PRC tax law (see “—People’s Republic of China Taxation” above), we may
be eligible for the benefits of the income tax treaty between the U.S. and the PRC, or the Treaty. In that case, dividends we pay on our ordinary
shares would be eligible for the reduced rates of taxation whether or not the shares are readily tradable on an established securities market in the U.S.,
and whether or not the shares are represented by ADSs. Non-corporate U.S. Holders that do not meet a minimum holding period requirement during
which they are not protected from the risk of loss or that elect to treat the dividend income as “investment income” pursuant to Section 163(d)(4) of
the Code will not be eligible for the reduced rates of taxation regardless of our status as a qualified foreign corporation. In addition, the rate reduction
will not apply to dividends if the recipient of a dividend is obligated to make related payments with respect to positions in substantially similar or
related property. This disallowance applies even if the minimum holding period has been met. You should consult your own tax advisors regarding
the application of these rules given your particular circumstances.
Non-corporate U.S. Holders will not be eligible for reduced rates of taxation on any dividends received from us if we are a passive foreign
investment company, or PFIC, in the taxable year in which such dividends are paid or in the preceding taxable year (see “—Passive Foreign
Investment Company” below).
In the event that we are deemed to be a PRC resident enterprise under the PRC tax law, you may be subject to PRC withholding taxes on
dividends paid to you with respect to the ADSs or ordinary shares. See “—People’s Republic of China Taxation.” In that case, subject to certain
conditions and limitations (including a minimum holding period requirement), PRC withholding taxes on dividends may be treated as foreign taxes
eligible for credit against your U.S. federal income tax liability. For purposes of calculating the foreign tax credit, dividends paid on the ADSs or
ordinary shares will be treated as foreign-source income and will generally constitute passive category income. The rules governing the foreign tax
credit are complex. You are urged to consult your tax advisor regarding the availability of the foreign tax credit under your particular circumstances.
Passive Foreign Investment Company
Based on the past and projected composition of our income and assets, and the valuation of our assets, including goodwill, we do not believe
we were a PFIC for our taxable year ended December 31, 2019 and we do not expect to become one in future taxable years, although there can be no
assurance in this regard, since the determination of our PFIC status cannot be made until the end of a taxable year and depends significantly on the
composition of our assets and income throughout the year.
In general, we will be a PFIC for any taxable year in which:
● at least 75% of our gross income is passive income, or
● at least 50% of the value (based on a quarterly average) of our assets is attributable to assets that produce or are held for the
production of passive income.
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For this purpose, passive income generally includes dividends, interest, royalties and rents (other than royalties and rents derived in the
active conduct of a trade or business and not derived from a related person), as well as gains from the sale of assets (such as stock) that produce
passive income, foreign currency gains, and certain other categories of income. If we own at least 25% (by value) of the stock of another corporation,
we will be treated, for purposes of determining whether we are a PFIC, as owning our proportionate share of the other corporation’s assets and
receiving our proportionate share of the other corporation’s income. However, it is not entirely clear how the contractual arrangements between us
and our VIEs will be treated for purposes of the PFIC rules. For U.S. federal income tax purposes, we consider ourselves to own the stock of our
VIEs. If it is determined, contrary to our view, that we do not own the stock of our VIEs for U.S. federal income tax purposes (for instance, because
the relevant Chinese authorities do not respect these arrangements), that would alter the composition of our income and assets for purposes of testing
our PFIC status, and may cause us to be treated as a PFIC.
The determination of whether we are a PFIC is made annually. Accordingly, it is possible that we may become a PFIC in the current or any
future taxable year due to changes in our asset or income composition. Because we have valued our goodwill based on the market value of our ADSs,
a decrease in the price of our ADSs may also result in our becoming a PFIC. If we are a PFIC for any taxable year during which you hold our ADSs
or common shares, you will be subject to special tax rules discussed below.
If we are a PFIC for any taxable year during which you hold our ADSs or ordinary shares and you do not make a timely mark-to-market
election, as described below, you will be subject to special tax rules with respect to any “excess distribution” received and any gain realized from a
sale or other disposition, including a pledge, of ADSs or ordinary shares. Distributions received in a taxable year that are greater than 125% of the
average annual distributions received during the shorter of the three preceding taxable years or your holding period for the ADSs or ordinary shares
will be treated as excess distributions. Under these special tax rules:
● the excess distribution or gain will be allocated ratably over your holding period for the ADSs or ordinary shares,
● the amount allocated to the current taxable year, and any taxable year prior to the first taxable year in which we were a PFIC, will
be treated as ordinary income, and
● the amount allocated to each other year will be subject to tax at the highest tax rate in effect for that year and the interest charge
generally applicable to underpayments of tax will be imposed on the resulting tax attributable to each such year.
The tax liability for amounts allocated to taxable years prior to the year of disposition or excess distribution cannot be offset by any net
operating losses for such years, and gains (but not losses) realized on the sale or other disposition of the ADSs or ordinary shares cannot be treated as
capital, even if you hold the ADSs or ordinary shares as capital assets.
Although the determination of whether we are a PFIC is made annually, if we are a PFIC for any taxable year in which you hold our ADSs
or ordinary shares, you will generally be subject to the special tax rules described above for that year and for each subsequent year in which you hold
the ADSs or ordinary shares (even if we do not qualify as a PFIC in any subsequent years). However, if we cease to be a PFIC, you can avoid the
continuing impact of the PFIC rules by making a special election to recognize gain as if your ADSs or ordinary shares had been sold on the last day
of the last taxable year during which we were a PFIC. You are urged to consult your own tax advisor about this election.
In certain circumstances, in lieu of being subject to the special tax rules discussed above, you may make a mark-to-market election with
respect to your ADSs or ordinary shares provided such ADSs or ordinary shares are treated as “marketable stock.” The ADSs or ordinary shares
generally will be treated as marketable stock if the ADSs or ordinary shares are “regularly traded” on a “qualified exchange or other market” (within
the meaning of the applicable Treasury regulations). Under current law, the mark-to-market election may be available to holders of ADSs because the
ADSs are listed on the New York Stock Exchange, which constitutes a qualified exchange, although there can be no assurance that the ADSs will be
“regularly traded” for purposes of the mark-to-market election. It should also be noted that only the ADSs and not the ordinary shares are listed on
the New York Stock Exchange. Consequently, if you are a holder of ordinary shares that are not represented by ADSs, you generally will not be
eligible to make a mark-to-market election.
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If you make an effective mark-to-market election, for each taxable year that we are a PFIC, you will include as ordinary income the excess
of the fair market value of your ADSs at the end of the year over your adjusted basis in the ADSs. You will be entitled to deduct as an ordinary loss
in each such year the excess of your adjusted basis in the ADSs over their fair market value at the end of the year, but only to the extent of the net
amount previously included in income as a result of the mark-to-market election. If you make an effective mark-to-market election, any gain you
recognize upon the sale or other disposition of your ADSs in a year that we are a PFIC will be treated as ordinary income and any loss will be treated
as ordinary loss, but only to the extent of the net amount previously included in income as a result of the mark-to-market election. If you make a
mark-to-market election, any distributions we make would generally be subject to the rules discussed above under “—Taxation of Dividends” except
the lower rate applicable to qualified dividend income would not apply.
Your adjusted basis in the ADSs will be increased by the amount of any income inclusion and decreased by the amount of any deductions
under the mark-to-market rules. If you make a mark-to-market election it will be effective for the taxable year for which the election is made and all
subsequent taxable years unless the ADSs are no longer regularly traded on a qualified exchange or other market, or the IRS consents to the
revocation of the election. Because a mark-to-market election cannot be made for equity interests in any lower-tier PFICs that we own, you may
continue to be subject to the PFIC rules with respect to your indirect interest in any investments held by us that are treated as an equity interest in a
PFIC for U.S. federal income tax purposes (as discussed below). You are urged to consult your tax advisor about the availability of the mark-to-
market election, and whether making the election would be advisable in your particular circumstances.
A different election, known as the “qualified electing fund” or “QEF” election, under Section 1295 of the Code is generally available to
holders of PFIC stock, but requires that the corporation provide the holders with a “PFIC Annual Information Statement” containing certain
information necessary for the election, including the holder’s pro rata share of the corporation’s earnings and profits and net capital gains for each
taxable year, computed according to U.S. federal income tax principles. We do not intend, however, to determine our earnings and profits or net
capital gain under U.S. federal income tax principles, nor do we intend to provide U.S. Holders with a PFIC Annual Information Statement.
Therefore, you should not expect to be eligible to make this election.
If we are a PFIC for any taxable year during which you hold our ADSs or ordinary shares and any of our non-U.S. subsidiaries is also a
PFIC, you will be treated as owning a proportionate amount (by value) of the shares of the lower-tier PFIC for purposes of the application of these
rules. You are urged to consult your tax advisors about the application of the PFIC rules to any of our subsidiaries.
You will generally be required to file IRS Form 8621 if you hold our ADSs or ordinary shares in any year in which we are classified as a
PFIC. You are urged to consult your tax advisors concerning the U.S. federal income tax consequences of holding ADSs or ordinary shares if we are
considered a PFIC in any taxable year.
Taxation of Capital Gains
For U.S. federal income tax purposes, you will recognize taxable gain or loss on any sale or exchange of ADSs or ordinary shares in an
amount equal to the difference between the amount realized for the ADSs or ordinary shares and your adjusted basis in the ADSs or ordinary shares.
Subject to the discussion under “—Passive Foreign Investment Company” above, such gain or loss will generally be capital gain or loss and will
generally be long-term capital gain or loss if you have held the ADSs or ordinary shares for more than one year. Long-term capital gains of non-
corporate U.S. Holders (including individuals) are eligible for reduced rates of taxation. The deductibility of capital losses is subject to limitations.
Any gain or loss recognized by you will generally be treated as U.S. source gain or loss for foreign tax credit limitation purposes. However, if we are
treated as a PRC resident enterprise for PRC tax purposes and PRC tax is imposed on any gain, and if you are eligible for the benefits of the Treaty,
you may elect to treat such gain as PRC source gain. If you are not eligible for the benefits of the Treaty or you fail to make the election to treat any
gain as PRC source, then you may not be able to use the foreign tax credit arising from any PRC tax imposed on the disposition of our ADSs or
ordinary shares unless such credit can be applied (subject to applicable limitations) against U.S. federal income tax due on other income derived from
foreign sources in the same income category (generally, the passive category). You are urged to consult your tax advisors regarding the tax
consequences if any PRC tax is imposed on gain on a disposition of our ordinary shares or ADSs, including the availability of the foreign tax credit
and the election to treat any gain as PRC source, under your particular circumstances.
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Information Reporting and Backup Withholding
In general, information reporting will apply to dividends in respect of our ADSs or ordinary shares and the proceeds from the sale, exchange
or other disposition of our ADSs or ordinary shares that are paid to you within the U.S. (and in certain cases, outside the U.S.), unless you are an
exempt recipient such as a corporation. A backup withholding tax may apply to such payments if you fail to provide a taxpayer identification number
or certification of exempt status or fail to report in full dividend and interest income. U.S. Holders that are required to establish their exempt status
generally must provide such certification on IRS Form W-9. U.S. Holders should consult their tax advisors regarding the application of the U.S.
information reporting and backup withholding rules.
Backup withholding is not an additional tax and any amounts withheld under the backup withholding rules will be allowed as a refund or a
credit against your U.S. federal income tax liability provided the required information is furnished to the IRS in a timely manner.
F.
Dividends and Paying Agents
Not applicable.
G.
Statement by Experts
Not applicable.
H.
Documents on Display
We have filed this annual report on Form 20-F, including exhibits, with the SEC. As allowed by the SEC, in Item 19 of this annual report,
we incorporate by reference certain information we filed with the SEC. This means that we can disclose important information to you by referring
you to another document filed separately with the SEC. The information incorporated by reference is considered to be part of this annual report.
You may read and copy this annual report, including the exhibits incorporated by reference in this annual report, at the SEC’s Public
Reference Room at 100 F Street, N.E., Washington, D.C. 20549 and at the SEC’s regional offices in New York, New York, and Chicago, Illinois.
You can also request copies of this annual report, including the exhibits incorporated by reference in this annual report, upon payment of a
duplicating fee, by writing to the SEC’s Public Reference Room for information.
The SEC also maintains a website that contains reports, proxy statements and other information about issuers, such as us, who file
electronically with the SEC. The address of that website is http://www.sec.gov. The information on that website is not a part of this annual report.
I.
Subsidiary Information
Not applicable.
ITEM 11. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Interest Rate Risk
Our exposure to interest rate risk primarily relates to interest expenses incurred in respect of bank borrowings, capital lease obligations and
interest income generated by excess cash, which is mostly held in interest-bearing bank deposits. We have not significantly used derivative financial
instruments in our investment portfolio. Interest earning instruments and interest-bearing obligations carry a degree of interest rate risk. We have not
been exposed to, nor do we anticipate being exposed to, material risks due to changes in market interest rates. However, our future interest income
and interest expenses may fluctuate due to changes in market interest rates.
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Foreign Exchange Risk
Substantially all of our revenue and expenses are denominated in Renminbi. We do not believe that we currently have any significant direct
foreign exchange risk and have not used any derivative financial instruments to hedge exposure to such risk. Although in general our exposure to
foreign exchange risks should be limited, the value of your investment in our ADSs will be affected by the exchange rate between the U.S. dollar and
the Renminbi because the value of our business is effectively denominated in Renminbi, while our ADSs will be traded in U.S. dollars.
The conversion of Renminbi into foreign currencies, including U.S. dollars, is based on rates set by the PBOC. The Chinese government
allowed the Renminbi to appreciate by more than 20% against the U.S. dollar between July 2005 and July 2008. Between July 2008 and June 2010,
the exchange rate between the Renminbi and the U.S. dollar had been stable and traded within a narrow band. Since June 2010, the Chinese
government has allowed the Renminbi to appreciate slowly against the U.S. dollar, though there have been periods when the Renminbi has
depreciated against the U.S. dollar. In particular, on August 11, 2015, the PBOC allowed the Renminbi to depreciate by approximately 2% against the
U.S. dollar. It is difficult to predict how long the current situation may last and when and how the relationship between the Renminbi and the U.S.
dollar may change again.
We have historically incurred short-term borrowings in Renminbi to fund our working capital requirements in the PRC while holding
significant U.S. dollar balances. To the extent that we need to convert U.S. dollars into Renminbi for our operations, appreciation of the Renminbi
against the U.S. dollar would have an adverse effect on the Renminbi amount we receive from the conversion. Conversely, if we decide to convert
Renminbi into U.S. dollars for the purpose of making payments for dividends on our ordinary shares or ADSs or for other business purposes,
appreciation of the U.S. dollar against the Renminbi would have a negative effect on the U.S. dollar amounts available to us.
Inflation
Since our inception, inflation in China has not materially affected our results of operations. According to the National Bureau of Statistics of
China, the year-over-year percent changes in the consumer price index were increases of 1.6%, 2.1% and 2.9% in 2017, 2018 and 2019, respectively.
Although we have not been materially affected by inflation in the past, we may be affected if China experiences higher rates of inflation in the future.
Commodity Price Risk
Our exposure to commodity price risk primarily relates to the fuel price in connection with our transportation network. The price and
availability of fuel are subject to fluctuations due to changes in the level of global oil production, seasonality, weather, global politics and other
factors. Historically, fluctuations in the price of fuel, especially gasoline, have been the commodity with the greatest impact on our results of
operations. Despite the recent decline in fuel prices, there is a risk that fuel prices could rise in future periods. In the event of significant fuel price
rise, our transportation expenses may rise and our gross income may decrease if we are unable to adopt any effective cost control-measures or pass on
the incremental costs to our customers in the form of service surcharges.
We are also exposed to a lesser degree to the price of paper used in packing of the parcels and other goods we ship and the price of
electricity that powers our technology and that is used in our facilities.
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.
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D.
American Depositary Shares
In September 2017, we appointed Citibank, N.A., or Citibank, as the depositary bank for our ADR program. We entered into a deposit
agreement with Citibank, as depositary, and all holders from time to time of our ADRs on September 22, 2017.
Fees and Charges
As an ADS holder, you will be required to pay the following fees under the terms of the deposit agreement:
Service
Fees
● Issuance of ADSs (e.g., an issuance of ADS upon a deposit of
Up to U.S. 5¢ per ADS issued
Class A ordinary shares, upon a change in the ADS(s)-to-Class A
ordinary share(s) ratio, or for any other reason), excluding ADS
issuances as a result of distributions of Class A ordinary shares
● Cancellation of ADSs (e.g., a cancellation of ADSs for delivery of
deposited property, upon a change in the ADS(s)-to-Class A
ordinary share(s) ratio, or for any other reason)
Up to U.S. 5¢ per ADS cancelled
● Distribution of cash dividends or other cash distributions (e.g., upon
Up to U.S. 5¢ per ADS held
a sale of rights and other entitlements)
● Distribution of ADSs pursuant to (i) stock dividends or other free
stock distributions, or (ii) exercise of rights to purchase additional
ADSs
Up to U.S. 5¢ per ADS held
● Distribution of securities other than ADSs or rights to purchase
Up to U.S. 5¢ per ADS held
additional ADSs (e.g., upon a spin-off)
● ADS Services
Up to U.S. 5¢ per ADS held on the applicable record date
(s) established by the depositary bank
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As an ADS holder you will also be responsible to pay certain charges such as:
● taxes (including applicable interest and penalties) and other governmental charges;
● the registration fees as may from time to time be in effect for the registration of Class A ordinary shares on the share register and
applicable to transfers of Class A ordinary shares to or from the name of the custodian, the depositary bank or any nominees upon
the making of deposits and withdrawals, respectively;
● certain cable, telex and facsimile transmission and delivery expenses;
● the expenses and charges incurred by the depositary bank in the conversion of foreign currency;
● the fees and expenses incurred by the depositary bank in connection with compliance with exchange control regulations and other
regulatory requirements applicable to Class A ordinary shares, ADSs and ADRs; and
● the fees and expenses incurred by the depositary bank, the custodian, or any nominee in connection with the servicing or delivery of
deposited property.
ADS fees and charges payable upon (i) the issuance of ADSs, and (ii) the cancellation of ADSs are charged to the person to whom the ADSs
are issued (in the case of ADS issuances) and to the person whose ADSs are cancelled (in the case of ADS cancellations). In the case of ADSs issued
by the depositary bank into DTC, the ADS issuance and cancellation fees and charges may be deducted from distributions made through DTC, and
may be charged to the DTC participant(s) receiving the ADSs being issued or the DTC participant(s) holding the ADSs being cancelled, as the case
may be, on behalf of the beneficial owner(s) and will be charged by the DTC participant(s) to the account of the applicable beneficial owner(s) in
accordance with the procedures and practices of the DTC participants as in effect at the time. ADS fees and charges in respect of distributions and the
ADS service fee are charged to the holders as of the applicable ADS record date. In the case of distributions of cash, the amount of the applicable
ADS fees and charges is deducted from the funds being distributed. In the case of (i) distributions other than cash and (ii) the ADS service fee,
holders as of the ADS record date will be invoiced for the amount of the ADS fees and charges and such ADS fees and charges may be deducted
from distributions made to holders of ADSs. For ADSs held through DTC, the ADS fees and charges for distributions other than cash and the ADS
service fee may be deducted from distributions made through DTC, and may be charged to the DTC participants in accordance with the procedures
and practices prescribed by DTC and the DTC participants in turn charge the amount of such ADS fees and charges to the beneficial owners for
whom they hold ADSs.
In the event of refusal to pay the depositary bank 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 bank fees from any distribution to be made to the ADS holder.
Certain of the depositary fees and charges (such as the ADS services fee) may become payable shortly after the closing of the ADS offering. Note
that the fees and charges you may be required to pay may vary over time and may be changed by us and by the depositary bank. You will receive
prior notice of such changes. The depositary bank may reimburse us for certain expenses incurred by us in respect of the ADR program, by making
available a portion of the ADS fees charged in respect of the ADR program or otherwise, upon such terms and conditions as we and the depositary
bank agree from time to time.
Payments by Depositary
In early 2020, we received total payments of approximately US$2.1 million from Citibank, the depositary bank for our ADR program for
reimbursement of investor relations expenses and other program-related expenses, after deduction of applicable U.S. taxes, for the year 2019.
ITEM 13.
DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES
PART II
None.
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ITEM 14.
MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS
A.
Modifications of Rights
See “Item 10. Additional Information—B. Memorandum and Articles of Association” for a description of the rights of securities holders,
which remain unchanged.
E.
Use of Proceeds
The following “Use of Proceeds” information relates to the registration statement on Form F-1, as amended (File No. 333-218959) in
relation to our initial public offering, which was declared effective by the SEC on September 19, 2017. In September 2017, we completed our initial
public offering in which we issued and sold an aggregate of 49,750,000 ADSs, representing 49,750,000 Class A ordinary shares, resulting in net
proceeds to us of approximately US$472.2 million. Citigroup Global Markets Inc., Credit Suisse Securities (USA) LLC, Goldman Sachs (Asia)
L.L.C., J.P. Morgan Securities LLC and Deutsche Bank Securities Inc. were the representatives of the underwriters for our initial public offering.
For the period from September 19, 2017, the date that the F-1 Registration Statement was declared effective by the SEC, to December 31,
2019, we used approximately US$360.7 million of the net proceeds from our initial public offering to expand and optimize our express, freight and
supply chain service network as well as for us to provide financing services to our ecosystem participants through BEST Capital. We still intend to
use the remainder of the proceeds from our initial public offering, as disclosed in our registration statements on Form F-1, for (i) continued
investments in our technology infrastructure and development of additional services and solutions, (ii) further expansion of our integrated logistics
and supply chain service network and BEST Store+ network, and (iii) general corporate purposes, including the acquisition of, or investment in,
technologies, solutions or businesses that complement our existing business, although we have no present commitments or agreements to enter into
any acquisitions or investments.
ITEM 15.
CONTROLS AND PROCEDURES
Disclosure Controls and Procedures
We maintain disclosure controls and procedures designed to provide reasonable assurance that information required to be disclosed in
reports filed under the Exchange Act is recorded, processed, summarized and reported within the specified time periods and accumulated and
communicated to our management, including our principal executive officer and principal accounting officer, as appropriate, to allow timely
decisions regarding required disclosure.
Our management, under the supervision and with the participation of our principal executive officer and our principal accounting officer,
evaluated the effectiveness of our disclosure controls and procedures, as defined in Rules 13a-15(e) or 15d-15(e) promulgated under the Exchange
Act, as of December 31, 2019. Based on that evaluation, our principal executive officer and principal accounting officer have concluded that our
disclosure controls and procedures are effective in ensuring that material information required to be disclosed in this annual report is recorded,
processed, summarized and reported to them for assessment, and required disclosure is made within the time period specified in the rules and forms
of the Commission.
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 defined in Rules 13a-
15(f) and 15d-15(f) under the Exchange Act. As required by Rule 13a-15(c) of the Exchange Act, our management conducted an evaluation of our
company’s internal control over financial reporting as of December 31, 2019 based on the framework in Internal Control — Integrated Framework
(2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on this evaluation, our management concluded
that our internal control over financial reporting was effective as of December 31, 2019.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of
any evaluation of effectiveness of our internal control over financial reporting to future periods are subject to the risks that controls may become
inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
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Our independent registered public accounting firm, Ernst & Young Hua Ming LLP, has audited the effectiveness of our internal control over
financial reporting as of December 31, 2019, as stated in its report, which appears on page F-4 of this annual report.
Changes in Internal Control over Financial Reporting
There were no 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 control over financial reporting.
ITEM 16A.
AUDIT COMMITTEE FINANCIAL EXPERT
Our Board of Directors has determined that each of Ms. Quan Hao and Mr. Mark Qiu, who is an independent director, qualifies as an audit
committee financial expert as defined in Item 16A of the instruction to Form 20-F.
ITEM 16B.
CODE OF ETHICS
We have adopted a code of business conduct and ethics which applies to our directors, employees, advisors and officers, including our Chief
Executive Officer and Chief Financial Officer. No changes have been made to the code of business conduct and ethics since its adoption and no
waivers have been granted therefrom to our directors or employees. We have filed our code of business conduct as an exhibit to our F-1 registration
statement (File No. 333-218959), as amended, initially filed with the Securities and Exchange Commission on June 26, 2017, and a copy is available
to any shareholder upon request. This code of business conduct and ethics is also available on our website at ir.best-inc.com.
ITEM 16C.
PRINCIPAL ACCOUNTANT FEES AND SERVICES
The following table sets forth the aggregate fees by categories specified below in connection with certain professional services rendered by
Ernst & Young Hua Ming LLP, for the years indicated.
Audit Fees(1)
All Other Fees(2)
Total
For the Years Ended
December 31,
2018
2019
(In thousands of US dollars)
1,681
210
1,891
1,599
—
—
(1) “Audit Fees” represents the aggregate fees billed for each of the fiscal years listed for professional services rendered by our principal auditors for
the audit of our annual financial statements and assistance with and review of documents filed with the SEC and other statutory and regulatory
filings.
(2) “All Other Fees” represents transaction advisory services related to certain restructuring in each of the fiscal years listed for services rendered by
our principal auditors associated with certain due diligence projects in 2019.
Pre-Approval Policies and Procedures
Our audit committee is responsible for the oversight of our independent accountants’ work. The policy of our audit committee is to pre-
approve all audit and non-audit services provided by Ernst & Young Hua Ming LLP, including audit services as 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
None.
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ITEM 16E.
PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS
In November 2019, we announced the adoption of a share repurchase program in an aggregate amount of up to US$100 million worth of our
outstanding ADSs from time to time over a period of 18 months, or the 2019 Share Repurchase Program. We did not repurchase any ADS in 2019,
being the period covered by this annual report.
ITEM 16F.
CHANGE IN REGISTRANT’S CERTIFYING ACCOUNTANT
Not applicable.
ITEM 16G.
CORPORATE GOVERNANCE
We are a “foreign private issuer” (as such term is defined in Rule 3b-4 under the Exchange Act), and our ADSs, each representing one
Class A ordinary share, are listed on the New York Stock Exchange. Under Section 303A of the New York Stock Exchange Listed Company Manual,
New York Stock Exchange listed companies that are foreign private issuers are permitted to follow home country practice in lieu of the corporate
governance provisions specified by the New York Stock Exchange with limited exceptions. The following summarizes some significant ways in
which our corporate governance practices differ from those followed by domestic companies under the listing standards of the New York Stock
Exchange.
● In respect of independent directors on our board of directors: As our home country practice does not require a majority of our board
of directors to be independent, only three of our seven directors are independent.
● In respect of the oversight of our executive officer compensation and director nominations matters: As our home country practice
does not require independent director oversight of executive officer compensation and director nomination matters, our
compensation and corporate governance and nominating committees are not comprised solely of independent directors.
ITEM 16H.
MINE SAFETY DISCLOSURE
Not applicable.
ITEM 17.
FINANCIAL STATEMENTS
PART III
The Registrant has elected to provide the financial statements and related information specified in Item 18.
ITEM 18.
FINANCIAL STATEMENTS
The consolidated financial statements of BEST Inc. are included at the end of this annual report.
ITEM 19. EXHIBITS
Exhibit
Number
1.1
2.1
Description of Exhibits
Ninth Amended and Restated Memorandum and Articles of Association of the Registrant (incorporated by reference to Exhibit
3.2 to our Registration Statement on Form F-1 (File No. 333-218959), initially filed with the Securities and Exchange
Commission on June 26, 2017).
Registrant’s Form of American Depositary Receipt evidencing American Depositary Shares (incorporated by reference to
Exhibit (a) to our Registration Statement on Form F-6 (File No. 333-220361) filed with the Securities and Exchange
Commission on September 6, 2017 with respect to American depositary shares representing our Class A ordinary shares).
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Exhibit
Number
2.2
2.3
*2.4
4.1
4.2
4.3
4.4
4.5
4.6
4.7
4.8
Registrant’s Specimen of Ordinary Share Certificate (incorporated by reference Exhibit 4.1 to our Registration Statement on
Form F-1 (File No. 333-218959), initially filed with the Securities and Exchange Commission on June 26, 2017).
Description of Exhibits
Form of Deposit Agreement between the Registrant and Citibank, N.A., as depositary (incorporated by reference to Exhibit (a)
to our Registration Statement on Form F-6 (File No. 333-220361) filed with the Securities and Exchange Commission on
September 6, 2017 with respect to American depositary shares representing our Class A ordinary shares).
Description of Securities Registered under Section 12 of the Securities Exchange Act of 1934
Seventh Amended and Restated Shareholders Agreement among the Registrant, its then shareholders, subsidiaries and variable
interest entity, dated April 5, 2016 (incorporated by reference to Exhibit 4.4 to our Registration Statement on Form F-1 (File
No. 333-218959), initially filed with the Securities and Exchange Commission on June 26, 2017).
Amendment No. 1 to Seventh Shareholders Agreement, as adopted by shareholder resolutions on September 6, 2017
(incorporated by reference to Exhibit 4.5 to our Registration Statement on Form F-1 (File No. 333-218959), initially filed with
the Securities and Exchange Commission on June 26, 2017).
Loan Agreement between Zhejiang BEST Technology Co., Ltd., Wei Chen and Lili He, dated October 12, 2011 (English
Translation) (incorporated by reference to Exhibit 10.1 to our Registration Statement on Form F-1 (File No. 333-218959),
initially filed with the Securities and Exchange Commission on June 26, 2017).
Loan Agreement between Zhejiang BEST Technology Co., Ltd. and Hangzhou Ali Venture Capital Co., Ltd., dated February
15, 2015 (English Translation) (incorporated by reference to Exhibit 10.2 to our Registration Statement on Form F-1 (File No.
333-218959), initially filed with the Securities and Exchange Commission on June 26, 2017).
Amended and Restated Exclusive Technical Services Agreement between Hangzhou BEST Network Technologies Co., Ltd.
and Zhejiang BEST Technology Co., Ltd., dated June 21, 2017 (English Translation) (incorporated by reference to Exhibit
10.3 to our Registration Statement on Form F-1 (File No. 333-218959), initially filed with the Securities and Exchange
Commission on June 26, 2017).
Amended and Restated Equity Pledge Agreement concerning Hangzhou BEST Network Technologies Co., Ltd., among Wei
Chen, Lili He, Hangzhou Ali Venture Capital Co., Ltd., Zhejiang BEST Technology Co., Ltd. and Hangzhou BEST Network
Technologies Co., Ltd., dated June 21, 2017 (English Translation) (incorporated by reference to Exhibit 10.4 to our
Registration Statement on Form F-1 (File No. 333-218959), initially filed with the Securities and Exchange Commission on
June 26, 2017).
Amended and Restated Shareholders’ Voting Rights Proxy Agreement concerning Hangzhou BEST Network Technologies
Co., Ltd., among Wei Chen, Lili He, Hangzhou Ali Venture Capital Co., Ltd., BEST Logistics Technologies Limited, Zhejiang
BEST Technology Co., Ltd. and Hangzhou BEST Network Technologies Co., Ltd., dated June 21, 2017 (English Translation)
(incorporated by reference to Exhibit 10.5 to our Registration Statement on Form F-1 (File No. 333-218959), initially filed
with the Securities and Exchange Commission on June 26, 2017).
Amended and Restated Exclusive Call Option Agreement concerning Hangzhou BEST Network Technologies Co., Ltd.,
among Wei Chen, Lili He, Hangzhou Ali Venture Capital Co., Ltd., BEST Logistics Technologies Limited, Zhejiang BEST
Technology Co., Ltd. and Hangzhou BEST Network Technologies Co., Ltd., dated June 21, 2017 (English Translation)
(incorporated by reference to Exhibit 10.6 to our Registration Statement on Form F-1 (File No. 333-218959), initially filed
with the Securities and Exchange Commission on June 26, 2017).
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Exhibit
Number
4.9
4.10
4.11
4.12
4.13
4.14
4.15
4.16
4.17
*4.18
*4.19
*4.20
*4.21
BEST Logistics Technologies Limited Series G Preferred Share Purchase Agreement, among the Registrant, its then
shareholders, subsidiaries and variable interest entity and certain investors named therein, dated January 18, 2016 (incorporated
by reference to Exhibit 10.7 to our Registration Statement on Form F-1 (File No. 333-218959), initially filed with the
Securities and Exchange Commission on June 26, 2017).
Description of Exhibits
BEST Logistics Technologies Limited Series G-2 Preferred Share Purchase Agreement, among the Registrant, its then
shareholders, subsidiaries and variable interest entity and certain investors named therein, dated April 5, 2016 (incorporated by
reference to Exhibit 10.8 to our Registration Statement on Form F-1 (File No. 333-218959), initially filed with the Securities
and Exchange Commission on June 26, 2017).
Share Repurchase Agreement, among the Registrant and certain selling shareholders named therein, dated April 5, 2016
(incorporated by reference to Exhibit 10.9 to our Registration Statement on Form F-1 (File No. 333-218959), initially filed
with the Securities and Exchange Commission on June 26, 2017).
Form of Indemnification Agreement between the Registrant and its directors and executive officers (incorporated by reference
to Exhibit 10.10 to our Registration Statement on Form F-1 (File No. 333-218959), initially filed with the Securities and
Exchange Commission on June 26, 2017).
Form of Employment Agreement between the Registrant and its executive officers who are not PRC citizens (incorporated by
reference to Exhibit 10.11 to our Registration Statement on Form F-1 (File No. 333-218959), initially filed with the Securities
and Exchange Commission on June 26, 2017).
Form of Employment Agreement between the Registrant and its executive officers who are PRC citizens (English Translation)
(incorporated by reference to Exhibit 10.12 to our Registration Statement on Form F-1 (File No. 333-218959), initially filed
with the Securities and Exchange Commission on June 26, 2017).
Form of Letter of Commitment and Non-Compete between the Registrant and its executive officers who are PRC citizens
(incorporated by reference to Exhibit 10.13 to our Registration Statement on Form F-1 (File No. 333-218959), initially filed
with the Securities and Exchange Commission on June 26, 2017).
BEST Logistics Technologies Limited 2008 Equity and Performance Incentive Plan (incorporated by reference to Exhibit
10.14 to our Registration Statement on Form F-1 (File No. 333-218959), initially filed with the Securities and Exchange
Commission on June 26, 2017).
BEST Inc. 2017 Equity Incentive Plan (incorporated by reference to Exhibit 10.15 to our Registration Statement on Form F-1
(File No. 333-218959), initially filed with the Securities and Exchange Commission on June 26, 2017).
Indenture, dated September 17, 2019, between the Registrant and Citicorp International Limited, as Trustee, relating to the
issuance of the Registrant’s 1.75% Convertible Senior Notes due 2024 in the aggregate principal amount of US$200 million.
Loan Agreement between BEST Logistics Technology (China) Co., Ltd., Wei Chen and Lili He, dated April 8, 2020 (English
Translation).
Exclusive Technical Services Agreement between Hangzhou Baisheng Investment Management Co., Ltd. (later renamed as
Hangzhou BEST Information Technology Services Co., Ltd.) and BEST Logistics Technology (China) Co., Ltd., dated
October 23, 2019 (English Translation).
Equity Pledge Agreement concerning Hangzhou Baisheng Investment Management Co., Ltd. (later renamed as Hangzhou
BEST Information Technology Services Co., Ltd.), among Wei Chen, Lili He, BEST Logistics Technology (China) Co., Ltd.
and Hangzhou Baisheng Investment Management Co., Ltd. (later renamed as Hangzhou BEST Information Technology
Services Co., Ltd.), dated October 23, 2019 (English Translation).
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Exhibit
Number
*4.22
*4.23
*8.1
11.1
*12.1
*12.2
**13.1
**13.2
*15.1
*15.2
Shareholders’ Voting Rights Proxy Agreement concerning Hangzhou Baisheng Investment Management Co., Ltd. (later
renamed as Hangzhou BEST Information Technology Services Co., Ltd.), among Wei Chen, Lili He, BEST Inc., BEST
Logistics Technology (China) Co., Ltd. and Hangzhou Baisheng Investment Management Co., Ltd. (later renamed as
Hangzhou BEST Information Technology Services Co., Ltd.), dated October 23, 2019 (English Translation).
Description of Exhibits
Exclusive Call Option Agreement concerning Hangzhou Baisheng Investment Management Co., Ltd. (later renamed as
Hangzhou BEST Information Technology Services Co., Ltd.), among Wei Chen, Lili He, BEST Inc. BEST Logistics
Technology (China) Co., Ltd. and Hangzhou Baisheng Investment Management Co., Ltd. (later renamed as Hangzhou BEST
Information Technology Services Co., Ltd.), dated October 23, 2019 (English Translation).
List of Subsidiaries.
Code of Business Conduct of the Registrant (incorporated by reference to Exhibit 99.1 to our Registration Statement on Form
F-1 (File No. 333-218959), initially filed with the Securities and Exchange Commission on June 26, 2017).
Certification of our Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
Certification of our Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
Certification of our Principal Executive Officer pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002
Certification of our Principal Financial Officer pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002
Consent of Independent Registered Public Accounting Firm
Consent of King and Wood Mallesons
*101.INS
XBRL Instance Document.
*101.SCH
XBRL Taxonomy Extension Schema Document.
*101.CAL
XBRL Taxonomy Extension Calculation Linkbase Document.
*101.DEF
XBRL Taxonomy Extension Definition Linkbase Document.
*101.LAB
XBRL Taxonomy Extension Labels Linkbase Document.
*101.PRE
XBRL Taxonomy Extension Presentation Linkbase Document.
*104 Cover Page Interactive Data File (embedded within the Inline XBRL document)
* Filed herewith
** Furnished herewith
144
Table of Contents
The registrant hereby certifies that it meets all of the requirements for filing on Form 20-F and that it has duly caused and authorized the
undersigned to sign this annual report on its behalf.
SIGNATURES
Date: April 17, 2020
BEST Inc.
By:
/s/ Shao-Ning Johnny Chou
Name:
Title:
Shao-Ning Johnny Chou
Chairman and Chief Executive Officer
145
Table of Contents
BEST INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Reports of Independent Registered Public Accounting Firm
Consolidated Balance Sheets as of December 31, 2018 and 2019
Consolidated Statements of Comprehensive Loss for the Years Ended December 31, 2017, 2018 and 2019
Consolidated Statements of Cash Flows for the Years Ended December 31, 2017, 2018 and 2019
Consolidated Statements of Changes in Shareholders’ (Deficit)/Equity for the Years Ended December 31, 2017, 2018 and 2019
Notes to the Consolidated Financial Statements
Page
F-2 - F-4
F-5 - F-6
F-7 – F-7
F-8 – F-8
F-9 - F10
F-11 - F69
F-1
Table of Contents
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Shareholders and Board of Directors of BEST Inc.
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of BEST Inc. (the “Company”) as of December 31, 2018 and 2019, the related
consolidated statements of comprehensive loss, cash flows and changes in shareholders’ (deficit)/equity for each of the three years in the period
ended December 31, 2019, and the related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated
financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2018 and 2019, and the results of
its operations and its cash flows for each of the three years in the period ended December 31, 2019, in conformity with U.S. generally accepted
accounting principles.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”), the
Company’s internal control over financial reporting as of December 31, 2019, based on criteria established in Internal Control-Integrated Framework
issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework), and our report dated April 17, 2020
expressed an unqualified opinion thereon.
Adoption of New Accounting Standards
As discussed in Note 2 to the consolidated financial statements, the Company changed its method for accounting for revenue from contracts with
customers using a modified retrospective approach in the year ended December 31, 2018 and changed its method for accounting for leases using a
modified retrospective approach in the year ended December 31, 2019.
Basis for Opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s
financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect
to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange
Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included
performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing
procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the
financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as
evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
F-2
Table of Contents
Critical Audit Matter
The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated or
required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the financial statements and (2)
involved our especially challenging, subjective or complex judgments. The communication of the critical audit matter does not alter in any way our
opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a
separate opinion on the critical audit matter or on the account or disclosure to which it relates.
Description of the Matter
How We Addressed the Matter in Our Audit
Goodwill impairment assessment for the Store+ reporting unit
At December 31, 2019, the Company’s total goodwill was RMB490,986 thousand of
which RMB201,668 thousand is allocated to the Store+ reporting unit. As discussed in
Note 2 of the consolidated financial statements, goodwill is tested for impairment at
least annually at the reporting unit level. For the year ended December 31, 2019, the
Group performed a quantitative assessment for the Store+ reporting unit by estimating
the fair value of the reporting unit based on an income approach.
Auditing management’s annual goodwill impairment test for the Store+ reporting unit
was complex and highly judgmental due to the significant estimation required by
management in determining the fair value of the reporting unit. In particular, the fair
value estimate was sensitive to significant assumptions such as the discount rate,
revenue growth rates and operating margin, which are affected by expectations about
future market or economic conditions.
We obtained an understanding, evaluated the design and tested the operating
effectiveness of controls over the Company’s goodwill impairment assessment process,
including management’s review of the significant assumptions used in estimating the
fair value of the Store+ reporting unit.
To test the estimated fair value of the Store+ reporting unit, we performed audit
procedures that included, among others, assessing the valuation methodology and
testing the significant assumptions discussed above and the underlying data used by the
Company in its quantitative assessment. We compared the revenue growth rates and
operating margins used by management to the historical performance of the reporting
unit, current industry and economic trends and other relevant external data. We involved
our valuation specialists to assist in benchmarking the discount rate used by
management to comparable companies. We recalculated the fair value of the Store+
reporting unit based on management’s significant assumptions and compared it to the
carrying value. We also performed sensitivity analyses of the significant assumptions to
evaluate the change in the fair value of the reporting unit that would result from changes
in the assumptions.
/s/ Ernst & Young Hua Ming LLP
We have served as the Company’s auditor since 2016.
Shanghai, The People’s Republic of China
April 17, 2020
F-3
Table of Contents
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Shareholders and Board of Directors of BEST Inc.
Opinion on Internal Control Over Financial Reporting
We have audited BEST Inc.’s internal control over financial reporting as of December 31, 2019, based on criteria established in Internal
Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) (the “COSO
criteria”). In our opinion, BEST Inc. (the “Company”) maintained, in all material respects, effective internal control over financial reporting as of
December 31, 2019, based on the COSO criteria.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”), the
consolidated balance sheets of the Company as of December 31, 2018 and 2019, the related consolidated statements of comprehensive loss, cash
flows and changes in shareholders’ (deficit)/equity for each of the three years in the period ended December 31, 2019, and the related notes and our
report dated April 17, 2020 expressed an unqualified opinion thereon.
Basis for Opinion
The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the
effectiveness of internal control over financial reporting included in the accompanying Management’s Annual Report on Internal Control Over
Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are
a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S.
federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects.
Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing
and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we
considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
Definition and Limitations of Internal Control Over Financial Reporting
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 (1) pertain to the maintenance of records that, in reasonable detail,
accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) 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 (3) 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/ Ernst & Young Hua Ming LLP
Shanghai, The People’s Republic of China
April 17, 2020
F-4
Table of Contents
BEST INC.
CONSOLIDATED BALANCE SHEETS
AS OF DECEMBER 31, 2018 and 2019
(Amounts in thousands of Renminbi (“RMB”) and U.S. dollars (“US$”),
except for number of shares and per share data)
ASSETS
Current assets:
Cash and cash equivalents
Restricted cash
Accounts and notes receivables, net of allowance of RMB25,105 and RMB86,152 (US$12,375) as of December 31,
2018 and 2019, respectively
Inventories
Prepayments and other current assets
Short-term investments
Lease rental receivables
Amounts due from related parties
Total current assets
Non-current assets:
Property and equipment, net
Intangible assets, net
Goodwill
Long-term investments
Non-current deposits
Other non-current assets
Operating lease right-of-use assets
Lease rental receivables
Restricted cash
Total non-current assets
Total assets
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities (including current liabilities of the consolidated VIEs without recourse to the primary beneficiary
of RMB4,357,649 and RMB5,967,835 (US$857,225) as of December 31, 2018 and 2019, respectively):
Short-term bank loans
Securitization debt
Accounts and notes payable
Accrued expenses and other liabilities
Customer advances and deposits and deferred revenue
Operating lease liabilities
Financing lease liabilities
Amounts due to related parties
Income tax payable
Total current liabilities
Non-current liabilities (including non-current liabilities of the consolidated VIEs without recourse to the primary
beneficiary of RMB4,357,649 and RMB1,967,870 (US$282,668) as of December 31, 2018 and 2019, respectively):
Convertible senior notes
Operating lease liabilities
Financing lease liabilities
Deferred tax liabilities
Other non-current liabilities
Total non-current liabilities
Total liabilities
Notes
2018
RMB
As at December 31
2019
RMB
2019
US$
5
6
9
21
7
8
11
10
9
9
12
14
13
9
9
21
16
15
9
9
16
1,630,444
1,278,326
1,046,844
151,031
1,904,846
1,007,329
613,439
197,488
7,829,747
2,064,657
143,810
469,076
214,339
77,043
45,531
—
1,431,441
90,638
4,536,535
12,366,282
1,782,900
—
2,851,557
2,238,785
1,219,230
—
2,851
12,429
5,767
8,113,519
—
—
745
25,356
86,504
112,605
8,226,124
1,994,683
1,786,832
1,229,083
140,006
2,582,577
1,057,598
650,912
246,758
9,688,449
2,939,379
121,587
490,986
230,855
127,191
262,129
4,378,804
1,077,776
175,700
9,804,407
19,492,856
2,510,500
104,899
3,391,383
2,023,263
1,489,510
1,035,252
1,363
6,140
7,358
10,569,668
1,360,208
3,482,634
2,072
25,806
137,184
5,007,904
15,577,572
286,518
256,662
176,547
20,111
370,964
151,914
93,498
35,445
1,391,659
422,215
17,465
70,526
33,160
18,270
37,652
628,976
154,813
25,238
1,408,315
2,799,974
360,611
15,068
487,141
290,622
213,955
148,705
196
882
1,057
1,518,237
195,382
500,249
298
3,707
19,705
719,341
2,237,578
The accompanying notes are an integral part of the consolidated financial statements.
F-5
Table of Contents
BEST INC.
CONSOLIDATED BALANCE SHEETS
AS OF DECEMBER 31, 2018 and 2019 (CONTINUED)
(Amounts in thousands of Renminbi (“RMB”) and U.S. dollars (“US$”),
except for number of shares and per share data)
Commitments and contingencies
Shareholders' equity:
Class A ordinary shares (par value of US$0.01 per share as of December 31, 2018 and 2019; 1,858,134,053 shares
authorized as of December 31, 2018 and 2019; 250,648,452 shares issued and outstanding as of December 31,
2018 and 2019, respectively)
Class B ordinary shares (par value of US$0.01 per share as of December 31, 2018 and 2019; 94,075,249 shares
authorized, issued and outstanding as of December 31, 2018 and 2019, respectively)
Class C ordinary shares (par value of US$0.01 per share as of December 31, 2018 and 2019; 47,790,698 shares
authorized, issued and outstanding as of December 31, 2018 and 2019, respectively)
Additional paid in capital
Accumulated deficit
Accumulated other comprehensive income
BEST Inc. shareholders’ equity
Non-controlling interests
Total shareholders’ equity
Total liabilities and shareholders’ equity
Notes
2018
RMB
As at December 31
2019
RMB
2019
US$
24
20
20
20
26
16,532
6,178
3,278
19,407,460
(15,419,256)
123,923
4,138,115
2,043
4,140,158
12,366,282
16,532
6,178
3,278
19,353,400
(15,621,672)
163,196
3,920,912
(5,628)
3,915,284
19,492,856
2,375
887
471
2,779,942
(2,243,913)
23,442
563,204
(808)
562,396
2,799,974
The accompanying notes are an integral part of the consolidated financial statements.
F-6
Table of Contents
Revenue from third parties
Express delivery
Freight delivery
Supply chain management
Store +
Others
Revenue from related parties
Express delivery
Supply chain management
Others
Total revenue
Cost of revenue
Express delivery
Freight delivery
Supply chain management
Store +
Others
Total cost of revenue
Gross profit
Selling expenses
General and administrative expenses
Research and development expenses
Total operating expenses
Loss from operations
Interest income
Interest expense
Foreign exchange loss
Other income
Other expense
Loss before income tax and share of net loss of equity investees
Income tax expense
Loss before share of net loss of equity investees
Share of net loss of equity investees
Net loss
Net loss attributable to non-controlling interests
Net loss attributable to BEST Inc.
Net loss per Class A, Class B and Class C ordinary share:
Basic
Diluted
Shares used in net loss per share computation:
Class A ordinary shares:
Basic
Diluted
Class B ordinary shares:
Basic
Diluted
Class C ordinary shares:
Basic
Diluted
Other comprehensive (loss)/income, net of tax of nil
Foreign currency translation adjustments
Comprehensive loss
Comprehensive loss attributable to non-controlling interests
Comprehensive loss attributable to BEST Inc.
BEST INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
FOR THE YEARS ENDED DECEMBER 31, 2017, 2018 and 2019
(Amounts in thousands of Renminbi (“RMB”) and U.S. dollars (“US$”),
except for number of shares and per share data)
Notes
2017
RMB
2018
RMB
2019
RMB
2019
US$
For the Years ended December 31,
21
21
21
16
18
18
18
18
18
18
18
18
12,667,734
3,178,044
1,229,498
2,226,034
198,253
19,499,563
118,545
371,454
—
489,999
19,989,562
(12,435,550)
(3,362,652)
(1,502,570)
(2,072,912)
(130,327)
(19,504,011)
485,551
(694,852)
(928,188)
(139,009)
(1,762,049)
(1,276,498)
75,056
(47,154)
(6,320)
56,035
(18,507)
(1,217,388)
(9,856)
(1,227,244)
(816)
(1,228,060)
(167)
(1,227,893)
(8.28)
(8.28)
73,900,022
148,237,982
26,547,262
26,547,262
47,790,698
47,790,698
(133,767)
(1,361,827)
(167)
(1,361,660)
17,526,449
4,102,610
1,598,482
2,845,002
1,236,084
27,308,627
176,420
475,932
—
652,352
27,960,979
(16,915,801)
(3,946,032)
(1,970,105)
(2,589,883)
(1,098,021)
(26,519,842)
1,441,137
(893,859)
(1,020,671)
(184,581)
(2,099,111)
(657,974)
102,821
(75,060)
(6,533)
171,370
(30,672)
(496,048)
(11,887)
(507,935)
(456)
(508,391)
(403)
(507,988)
(1.32)
(1.32)
242,542,728
384,408,675
94,075,249
94,075,249
47,790,698
47,790,698
111,590
(396,801)
(403)
(396,398)
21,533,330
5,224,355
1,656,402
2,817,202
3,119,048
34,350,337
274,268
534,012
17,272
825,552
35,175,889
(20,779,992)
(4,934,937)
(2,052,006)
(2,495,503)
(2,954,425)
(33,216,863)
1,959,026
(931,914)
(1,109,545)
(243,392)
(2,284,851)
(325,825)
95,440
(79,486)
(6,420)
152,305
(36,437)
(200,423)
(18,290)
(218,713)
(355)
(219,068)
(16,652)
(202,416)
(0.52)
(0.52)
246,614,615
388,480,562
94,075,249
94,075,249
47,790,698
47,790,698
39,273
(179,795)
(16,652)
(163,143)
3,093,069
750,432
237,927
404,666
448,023
4,934,117
39,396
76,706
2,481
118,583
5,052,700
(2,984,859)
(708,859)
(294,752)
(358,457)
(424,377)
(4,771,304)
281,396
(133,861)
(159,376)
(34,961)
(328,198)
(46,802)
13,709
(11,417)
(922)
21,877
(5,234)
(28,789)
(2,627)
(31,416)
(51)
(31,467)
(2,392)
(29,075)
(0.07)
(0.07)
5,641
(25,826)
(2,392)
(23,434)
The accompanying notes are an integral part of the consolidated financial statements.
F-7
Table of Contents
BEST INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 2017, 2018 and 2019
(Amounts in thousands of Renminbi (“RMB”) and U.S. dollars (“US$”)
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss
Adjustments to reconcile net loss to net cash generated from operating activities:
Share of net loss of equity investees
Fair value change of equity investments without readily determinable fair values under the measurement alternative
Deferred income tax
Depreciation and amortization
Lease expense to reduce operating lease right-of -use assets
Share-based compensation
Accretion on secured bank borrowings and convertible senior notes
Allowance for doubtful accounts and inventory provision
(Gain)/Loss on disposal of property and equipment
Gain on disposal of an equity method investment
Gain on disposal of a subsidiary
Foreign exchange loss
Changes in operating assets and liabilities:
Accounts and notes receivable
Inventories
Prepayment and other current assets
Amounts due from related parties
Non-current deposits
Other non-current assets
Lease rental receivables-interest portion
Accounts and notes payable
Income tax payable
Customer advances and deposits and deferred revenue
Accrued expenses and other liabilities
Amounts due to related parties
Other non-current liabilities
Operating lease liabilities
Net cash generated from operating activities
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property and equipment
Origination of lease rental and other financing receivables
Receipt of repayment on lease and other financing receivables-principal portion
Disposal of property and equipment and intangible assets
Cash paid for business acquisitions (net of cash acquired of RMB2,737, RMB nil and RMB5,176 (US$742) for the years ended
December 31, 2017, 2018 and 2019, respectively)
Acquisition of intangible assets
Disposal of an equity method investment
Proceeds from disposal of a subsidiary
Acquisition of long-term investments
Proceeds from maturities of short-term investments
Purchase of short-term investments
Other investing activities, net
Net cash used in investing activities
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from short-term bank loans
Repayment of short-term bank loans
Proceeds from convertible senior notes, net of issuance costs
Purchase of capped calls
Proceeds from issuance of asset-backed securities to external investors, net of issuance costs
Principal repayment of borrowings from external investors
Borrowings for machinery and electronic equipment
Principal repayment of borrowings for machinery and electronic equipment loans
Proceeds from other financing activities
Principal repayment of financing lease liabilities
Contributions from non-controlling interest shareholders
Payment of deferred initial public offering costs
Proceeds from initial public offering, net of issuance costs
Proceeds from the exercise of share options
Repurchase of redeemable convertible preferred shares
Net cash generated from financing activities
Exchange rate effect on cash, cash equivalents and restricted cash
Net (decrease)/increase in cash, cash equivalents and restricted cash
Cash, cash equivalents and restricted cash at the beginning of the year
Cash, cash equivalents and restricted cash at the end of the year
Reconciliation of cash, cash equivalents and restricted cash:
Cash and cash equivalents
Restricted cash – current
Restricted cash – non-current
Total cash, cash equivalents and restricted cash shown in the statement of cash flows
Supplemental disclosures of cash flow information:
Income taxes paid
Interest expense paid
Supplemental disclosures of non-cash investing and financing activities:
Purchase of property and equipment included in accrued expenses and other liabilities
Proceeds from disposal of property and equipment included in prepayment and other current assets
Acquisition of property and equipment through financing leases
Purchase consideration for business acquisitions included in accrued expenses and other liabilities
Deferred IPO costs included in accrued expenses and other liabilities
Notes
2017
RMB
For the Years ended December 31,
2018
RMB
2019
RMB
2019
US$
(1,228,060)
(508,391)
(219,068)
10
16
19
10
4
4
15
15
14
14
13
13
13
816
—
(1,680)
363,909
—
298,963
—
18,394
(3,065)
—
—
6,320
(268,272)
(21,324)
(466,118)
(81,592)
(18,178)
(27,037)
—
619,421
162
233,394
573,637
12,011
13,901
—
25,602
(749,734)
(722,257)
97,727
45,156
(313,958)
(26,830)
—
—
(13,902)
2,678,724
(5,058,426)
(42,423)
(4,105,923)
1,901,884
(1,189,417)
—
—
—
—
—
—
—
(13,523)
—
—
3,130,197
48
(98,330)
3,730,859
(48,241)
(397,703)
3,380,532
2,982,829
1,240,431
1,652,653
89,745
2,982,829
368
46,531
121,735
18,351
9,055
26,497
9,836
456
(64,628)
(6,332)
461,612
—
109,107
—
60,001
12,345
—
—
6,533
(415,318)
10,485
(231,408)
(32,594)
(7,918)
(9,055)
—
636,015
5,138
283,794
316,658
(473)
11,177
—
637,204
(1,077,784)
(1,556,178)
309,403
44,092
(45,012)
(1,487)
—
—
(113,000)
5,729,611
(4,330,900)
(189,698)
(1,230,953)
3,417,700
(2,851,184)
—
—
—
—
—
—
—
(5,459)
2,446
(9,836)
—
3,482
—
557,149
53,179
16,579
2,982,829
2,999,408
1,630,444
1,278,326
90,638
2,999,408
4,595
74,611
252,265
—
3,596
12,335
—
355
(14,155)
450
492,778
773,512
98,504
17,760
113,059
8,130
(22)
(4,040)
6,420
(283,114)
13,198
(481,604)
(49,270)
(50,148)
1,901
(6,738)
643,709
717
270,280
177,905
(6,289)
11,186
(662,583)
852,833
(1,497,723)
(850,150)
697,380
25,444
(29,661)
(4,711)
450
100
(3,144)
2,509,477
(2,554,217)
(205,727)
(1,912,482)
3,810,095
(3,212,486)
1,375,355
(159,138)
262,316
(157,417)
94,000
(14,470)
1,054
(1,215)
8,318
—
—
5,400
—
2,011,812
5,644
957,807
2,999,408
3,957,215
1,994,683
1,786,832
175,700
3,957,215
16,249
68,846
128,457
—
3,435
11,095
—
(31,467)
51
(2,033)
65
70,783
111,108
14,149
2,551
16,240
1,168
(3)
(580)
922
(40,667)
1,896
(69,178)
(7,077)
(7,203)
273
(968)
92,463
103
38,823
25,552
(903)
1,607
(95,173)
122,502
(215,134)
(122,116)
100,172
3,655
(4,261)
(677)
65
14
(452)
360,464
(366,890)
(29,551)
(274,711)
547,286
(461,444)
197,557
(22,859)
37,679
(22,612)
13,502
(2,078)
151
(175)
1,195
—
—
776
—
288,978
811
137,580
430,838
568,418
286,518
256,662
25,238
568,418
2,334
9,889
18,452
—
494
1,594
—
The accompanying notes are an integral part of the consolidated financial statements.
F-8
Table of Contents
BEST INC.
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ (DEFICIT)/EQUITY
FOR THE YEARS ENDED DECEMBER 31, 2017, 2018 and 2019
(Amounts in thousands of Renminbi (“RMB”) and U.S. dollars (“US$”), except for number of shares)
Balance as of January 1, 2017
Net loss for the year
Other comprehensive loss
Share-based compensation
Acquisition of subsidiaries
Acquisition of non-controlling interests
Issuance of Class A ordinary shares in connection with initial public offering (Note 20)
Exercise of share options (Note 20)
Conversion of redeemable convertible preferred shares (Note 20)
Balance as of December 31, 2017 in RMB
Ordinary Shares (Note 20)
Number of
shares
60,000,000
—
—
—
—
—
49,750,000
730,000
264,034,399
374,514,399
Amount
RMB
4,116
—
—
—
—
—
3,283
48
17,339
24,786
Additional
paid-in
capital
RMB
—
—
—
298,963
—
—
3,117,078
—
15,824,871
19,240,912
Accumulated
other
comprehensive
income
RMB
146,100
—
(133,767)
—
—
—
—
—
—
12,333
Accumulated
deficit
RMB
(13,658,321)
(1,227,893)
—
—
—
—
—
—
—
(14,886,214)
Non-
controlling
interests
RMB
—
(167)
—
—
91,623
(90,778)
—
—
—
678
Total
shareholders'
(deficit)/equity
RMB
(13,508,105)
(1,228,060)
(133,767)
298,963
91,623
(90,778)
3,120,361
48
15,842,210
4,392,495
The accompanying notes are an integral part of the consolidated financial statements.
F-9
Table of Contents
BEST INC.
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ (DEFICIT)/EQUITY
FOR THE YEARS ENDED DECEMBER 31, 2017, 2018 and 2019
(Amounts in thousands of Renminbi (“RMB”) and U.S. dollars (“US$”), except for number of shares)
Balance as of December 31, 2017
Cumulative effect of accounting change
Net loss for the year
Other comprehensive income
Share-based compensation
Contributions from non-controlling interest shareholders
Acquisition of non-controlling interests (Note 4)
Newly deposited and issued to Citibank, N.A. (“Citi”) (Note
20)
Settlement of exercised share options and vested restricted
shares with shares held by Citi (Note 20)
Exercise of share options and vesting of restricted shares
(Note 20)
Balance as of December 31, 2018 in RMB
Balance as of December 31, 2018
Net loss for the year
Other comprehensive income
Share-based compensation
Purchase of capped calls
Contributions from non-controlling interest shareholders
Acquisition of non-controlling interests (Note 4)
Settlement of exercised share options and vested restricted
shares with shares held by Citi (Note 20)
Exercise of share options and vesting of restricted shares
(Note 20)
Balance as of December 31, 2019 in RMB
Balance as of December 31, 2019 in US$
Ordinary Shares (Note 20)
Number of
shares
Amount
RMB
374,514,399
—
—
—
—
—
—
18,000,000
(12,903,413)
12,903,413
392,514,399
392,514,399
—
—
—
—
—
—
24,786
—
—
—
—
—
—
—
—
1,202
25,988
25,988
—
—
—
—
—
—
Additional
paid-in
capital
RMB
19,240,912
—
—
—
109,107
—
(167)
—
—
57,608
19,407,460
19,407,460
—
—
98,504
(159,138)
—
—
Accumulated
other
comprehensive
income
RMB
12,333
—
—
111,590
—
—
—
—
—
—
123,923
123,923
—
39,273
—
—
—
—
Accumulated
deficit
RMB
(14,886,214)
(25,054)
(507,988)
—
—
—
—
—
—
—
(15,419,256)
(15,419,256)
(202,416)
—
—
—
—
—
Non-
controlling
interests
RMB
678
—
(403)
—
—
2,446
(678)
—
—
—
2,043
2,043
(16,652)
—
—
—
8,318
663
Total
shareholders'
equity
RMB
4,392,495
(25,054)
(508,391)
111,590
109,107
2,446
(845)
—
—
58,810
4,140,158
4,140,158
(219,068)
39,273
98,504
(159,138)
8,318
663
(2,056,804)
—
—
—
—
—
—
2,056,804
392,514,399
—
—
25,988
3,733
6,574
19,353,400
2,779,942
—
163,196
23,442
—
(15,621,672)
(2,243,913)
—
(5,628)
(808)
6,574
3,915,284
562,396
The accompanying notes are an integral part of the consolidated financial statements.
F-10
Table of Contents
BEST INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2017, 2018 AND 2019
(Amounts in thousands of Renminbi (“RMB”) and US dollars (“US$”)
except for number of shares and per share data)
1. ORGANIZATION AND BASIS OF PRESENTATION
The Company is a limited liability company incorporated in the Cayman Islands on March 3, 2008.
The Company does not conduct any substantive operations on its own but instead conducts its primary business operations through its
subsidiaries, variable interest entities (the “VIEs") and VIEs' subsidiaries, which are mainly located in the People’s Republic of China (the “PRC”).
The accompanying consolidated financial statements include the financial statements of the Company, its subsidiaries, VIEs and VIEs' subsidiaries.
The Company, its subsidiaries, VIEs and VIEs' subsidiaries are hereinafter collectively referred to as the “Group”.
The Group is principally engaged in the business of providing express delivery services, freight delivery services, supply chain management
services, store+ services and other value-added services. The Group’s principal geographic market is in the PRC. On June 22, 2017, the Company
revised its name from Best Logistics Technologies Limited to BEST Inc. effective immediately.
On September 20, 2017, the Company completed its initial public offering (“IPO”) on the New York Stock Exchange (Note 20).
F-11
Table of Contents
BEST INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2017, 2018 AND 2019 (CONTINUED)
(Amounts in thousands of Renminbi (“RMB”) and US dollars (“US$”)
except for number of shares and per share data)
1. ORGANIZATION AND BASIS OF PRESENTATION (CONTINUED)
Details of the Company’s principal subsidiaries, VIEs and VIEs’ subsidiaries as of December 31, 2019 are as follows:
Name of Company
Subsidiaries:
Eight Hundred Logistics Technologies Corporation
("BEST BVI")
BEST Logistics Technologies Limited
("BEST HK")
BEST Capital Inc.
(“BEST Capital”)
BEST Capital Holding Limited
(“BEST Capital BVI”)
BEST Capital Management Limited
(“BEST Capital HK”)
BEST Logistics Technologies (China) Co., Ltd.
("BEST China")
BEST Store Network (Hangzhou) Co., Ltd.
("BEST Store")
Zhejiang BEST Technology Co., Ltd.
("BEST Technology")
Xinyuan Financial Leasing (Zhejiang) Co., Ltd.
(“BEST Finance”)
BEST Logistics Technologies (Ningbo Free Trade Zone)
Co., Ltd.
("BEST Ningbo")
VIEs
Hangzhou BEST Network Technologies Co., Ltd.
("BEST Network")
Hangzhou BEST Information Technology Services Co., Ltd.
(“BEST Information Technology”) (formerly known as
Hangzhou Baisheng Investment Management Co., Ltd.)
(“Baisheng”)
VIE’s subsidiaries:
Sichuan Wowo Supermarket Chain Co., Ltd.
(“Wowo”)
Shanxi Wowo Supermarket Chain Co., Ltd.
(“Shanxi Wowo”)
BEST UCargo Technologies (Hangzhou) Co., Ltd
(“BEST Ucargo”)
Place of
incorporation,
registration and
business
British Virgin Islands
("BVI")
Hong Kong
("HK")
Cayman Islands
Date of
incorporation/acquisition
Percentage of
equity interest
attributable
to the Company
Principal activities
May 22, 2007
May 29, 2007
December 13, 2017
December 13, 2017
December 20, 2017
April 23, 2008
May16, 2013
July 26, 2007
January 15, 2015
100 %
100 %
100 %
100 %
100 %
100 %
100 %
100 %
100 %
Investment holding
Investment holding
Investment holding
Investment holding
Investment holding
Freight delivery and Supply chain
management services
Store + services
Logistics technical services
Financial services
May 22, 2015
100 %
Supply chain management services
August 22, 2007
October 23, 2019
May 4, 2017
October 15, 2018
September 8, 2017
Nil
Nil
Nil
Nil
Nil
Express delivery services
Ucargo transportation services
Convenience store operations
Convenience store operations
Ucargo transportation services
BVI
HK
PRC
PRC
PRC
PRC
PRC
PRC
PRC
PRC
PRC
PRC
F-12
Table of Contents
BEST INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2017, 2018 AND 2019 (CONTINUED)
(Amounts in thousands of Renminbi (“RMB”) and US dollars (“US$”)
except for number of shares and per share data)
1. ORGANIZATION AND BASIS OF PRESENTATION (CONTINUED)
To comply with PRC laws and regulations which prohibit foreign investors invest in any domestic mail delivery services, the Group
operates its express delivery services in the PRC through its VIEs. Despite the lack of technical majority ownership, BEST Technology has effective
control of BEST Network through a series of contractual arrangements (the “Contractual Agreements”) and a parent-subsidiary relationship exists
between BEST Technology and BEST Network. The equity interests of BEST Network are legally held by PRC individuals (the “nominee
shareholders”). Through the Contractual Agreements, the nominee shareholders of BEST Network effectively assign all of their voting rights
underlying their equity interests in BEST Network to BEST Technology. In addition, through the terms of the Contractual Agreements, BEST
Technology demonstrates its ability and intention to continue to exercise the ability to absorb substantially all of the profits and all of the expected
losses of BEST Network. As a result of the Contractual Agreements, the Company has the power to direct the activities of BEST Network that most
significantly impact its economic performance and, is entitled to substantially all of the economic benefits from BEST Network through BEST
Technology. Therefore, the Company consolidates BEST Network in accordance with SEC Regulation SX-3A-02 and Accounting Standards
Codification ("ASC") 810-10, Consolidation: Overall.
The following is a summary of the Contractual Agreements.
Loan Agreements
BEST Technology has granted interest-free loans with an aggregate amount of RMB13,780 to the nominee shareholders of BEST Network
for the purpose of providing funds necessary for the capital injection of BEST Network. The loans are only repayable by the nominee shareholders
through a transfer of his or her equity interests in BEST Network to BEST Technology or its designated party unless the nominee shareholders are in
breach of the agreement, in which BEST Technology can request immediate repayment of the loans. The loan agreements are effective until full
repayment of the loans or BEST Technology agrees to waive the loan.
Exclusive Technical Support and Service Agreement
Pursuant to the Exclusive Technical Support and Service Agreement between BEST Technology and BEST Network, BEST Technology has
the exclusive right to provide services to BEST Network related to BEST Network’s business, including but not limited to the management,
development and maintenance of software, databases and websites, training and recruitment of employees and other services required by BEST
Network. In return, BEST Network agrees to pay a service fee that is based on a predetermined formula based on the financial performance of BEST
Network. The Exclusive Technical Support and Service Agreement is valid for 20 years and will be automatically renewed on an annual basis unless
both parties agree to terminate the agreement.
Exclusive Option Agreement
Under the Exclusive Option Agreement among BEST Technology, BEST Network and nominee shareholders of BEST Network, BEST
Technology has (i) an exclusive option to purchase, when and to the extent permitted under PRC laws, all or part of the equity interests in BEST
Network or all or part of the assets held by BEST Network and (ii) an exclusive right to cause the nominee shareholders to transfer their equity
interest in BEST Network to BEST Technology or any designated third party. BEST Technology has the sole discretion to decide when to exercise
the option, whether in part or full. The exercise price of the option to purchase all or part of the equity interests in BEST Network or assets held by
BEST Network will be the minimum amount of consideration permitted under the then-applicable PRC laws. Any proceeds received by the nominee
shareholders from the exercise of the option exceeding the loan amount, distribution of profits or dividends, shall be remitted to BEST Technology,
to the extent permitted under PRC laws. The Exclusive Option Agreement will remain in effect until all the equity interests or the assets held by
BEST Network are transferred to BEST Technology or its designated party. BEST Technology may terminate the Exclusive Option Agreement at
their sole discretion, whereas under no circumstances may BEST Network or its nominee shareholders terminate this agreement.
F-13
Table of Contents
BEST INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2017, 2018 AND 2019 (CONTINUED)
(Amounts in thousands of Renminbi (“RMB”) and US dollars (“US$”)
except for number of shares and per share data)
1. ORGANIZATION AND BASIS OF PRESENTATION (CONTINUED)
Proxy Agreement
Pursuant to the Proxy Agreement between BEST Technology, BEST Network and its nominee shareholders, each of BEST Network’s
shareholders agreed to entrust all the rights to exercise their voting power to the person designated by BEST Technology. The nominee shareholders
irrevocably authorize the person designated by BEST Technology as its attorney-in-fact (“AIF”) to exercise on such nominee shareholder’s behalf
any and all rights that such shareholder has in respect of its equity interests in BEST Network. BEST Technology has the right to replace the
authorized AIF at any time upon written notice but not consent from the other parties. The Proxy Agreement has a term of 20 years and is subject to
automatic renewal on an annual basis unless it is terminated by BEST Technology at its sole discretion. The nominee shareholders may not terminate
the Proxy Agreement or revoke the appointment of the AIF without BEST Technology’s prior written consent.
Equity Pledge Agreement
Under the Equity Pledge Agreement among BEST Technology, BEST Network and its nominee shareholders; the nominee shareholders of
BEST Network have pledged all of their equity interests in BEST Network in favor of BEST Technology to secure the performance by BEST
Network and its nominee shareholders under the various contractual agreements, including the Exclusive Technical Support and Service Agreement,
Loan Agreements and Exclusive Option Agreement described above. The nominee shareholders further undertake that they will remit any
distributions as a result in connection with such shareholder’s equity interests in BEST Network to BEST Technology, to the extent permitted by
PRC laws. If BEST Network or any of their respective nominee shareholders breach any of their respective contractual obligations under the above
agreements, BEST Technology, as pledgee, will be entitled to certain rights, including the right to sell, transfer or dispose the pledged equity interest.
The nominee shareholders of BEST Network agree not to create any encumbrance on or otherwise transfer or dispose of their respective equity
interest in BEST Network, without the prior consent of BEST Technology. The Equity Pledge Agreement will be valid until BEST Network and
their respective shareholders fulfill all contractual obligations under the above agreements.
Through the design of the Contractual Agreements, the nominee shareholders of BEST Network effectively assigned their full voting rights
to BEST Technology, which gives BEST Technology the power to direct the activities that most significantly impact BEST Network’s economic
performance. In addition, BEST Technology is entitled to substantially all of the economic benefits from BEST Network. As a result of these
Contractual Agreements, BEST Technology is determined to be the primary beneficiary of BEST Network.
In June 2017, the Contractual Agreements were supplemented by the following terms:
a) Exclusive Technical Support and Service Agreement
● BEST Technology has the right to unilaterally adjust the service fee;
● The agreement is valid for 20 years and will be automatically renewed on an annual basis unless terminated by BEST
Technology at its sole discretion, whereas under no circumstances may BEST Network terminate this agreement.
F-14
Table of Contents
BEST INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2017, 2018 AND 2019 (CONTINUED)
(Amounts in thousands of Renminbi (“RMB”) and US dollars (“US$”)
except for number of shares and per share data)
1. ORGANIZATION AND BASIS OF PRESENTATION (CONTINUED)
b) Exclusive Option Agreement
● To ensure that the cash flow requirements of BEST Network’s daily operations are met and/or to set off any losses that may be
incurred, the Company is obliged, only to the extent permissible under PRC laws, to provide financial support to BEST
Network, whether or not BEST Network actually incurs any such operational loss. The Company will not request repayment if
BEST Network or its nominee shareholders are unable to do so;
● Without the Company’s prior consent, BEST Network and its nominee shareholders shall not enter into any material
agreements outside of the ordinary course of business;
● The Company, at its sole discretion, has the right to decide whether the option and other rights granted under the agreement
will be exercised by the Company, BEST Technology or its designated party.
c) Proxy Agreement
● The Proxy Agreement is valid as long as the nominee shareholders remain shareholders of BEST Network;
● The appointment of any individuals to exercise the powers and rights assigned pursuant to the Proxy Agreement requires the
approval of the Company. All the activities in relation to such powers and rights assigned are directed and approved by
the Company.
As a result, the power and the rights pursuant to the Proxy Agreement have since been effectively reassigned to the Company which has the
power to direct the activities of BEST Network that most significantly impact BEST Network’s economic performance. The Company is also
obligated to absorb the expected losses of BEST Network through the financial support as described above. The Company and BEST Technology, as
a group of related parties,hold all of the variable interests of BEST Network. The Company has been determined to be most closely associated with
BEST Network within the group of related parties and has replaced BEST Technology as the primary beneficiary of BEST Network since June 2017.
As BEST Network was subject to indirect control by the Company through BEST Technology immediately before and direct control immediately
after the Contractual Agreements were supplemented, the change of the primary beneficiary of BEST Network was accounted for as a common
control transaction based on the carrying amount of the net assets transferred.
To comply with changes to PRC laws and regulations that became effective in 2020 which prohibit foreign ownership of more than 50% of
the equity interests in companies that engage in value-added telecommunication services, the Group effected a restructuring of its UCargo
transportation services business. In October 2019, BEST China, the nominee shareholders of BEST Information Technology and the Company signed
a series of Contractual Arrangements, through which, the Company obtained the power to direct the activities of BEST Information Technology that
most significantly impact its economic performance and, is entitled to substantially all of the economic benefits from and is also obligated to absorb
the expected losses of BEST Information Technology through BEST China. The Contractual Agreements executed by BEST China, the nominee
shareholders of BEST Information Technology and the Company have similar terms as those described above between BEST Technology, BEST
Network and its nominee shareholders. As a result, the Company is the primary beneficiary of BEST Information Technology and consolidates the
entity in accordance with ASC810-10. At the same time, BEST China transferred its equity interests in BEST Ucargo and its subsidiaries to BEST
Information Technology. As the restructuring transaction to transfer the assets and liabilities relating to the UCargo transportation services business
described above are between entities under common control and do not change the control at the ultimate parent level, the transaction was accounted
for as a common control transaction based on the carrying amount of the net assets transferred.
F-15
Table of Contents
BEST INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2017, 2018 AND 2019 (CONTINUED)
(Amounts in thousands of Renminbi (“RMB”) and US dollars (“US$”)
except for number of shares and per share data)
1. ORGANIZATION AND BASIS OF PRESENTATION (CONTINUED)
In the opinion of the Company’s PRC legal counsel, (i) the ownership structure relating to the VIEs complies with current PRC laws and
regulations; and (ii) the Company, BEST Technology and BEST China's contractual arrangements with the respective VIEs and VIEs' nominee
shareholders are valid, binding and enforceable on all parties to these arrangements and do not violate current PRC laws or regulations.
The carrying amounts of the assets, liabilities and the results of operations of the VIEs and VIEs' subsidiaries included in the Company’s
consolidated balance sheets and statements of comprehensive loss are as follows:
ASSETS
Current assets:
Cash and cash equivalents
Restricted cash
Accounts and notes receivables, net
Inventories
Prepayments and other current assets
Short-term investments
Amounts due from related parties
Total current assets
Non-current assets:
Property and equipment, net
Intangible assets, net
Goodwill
Other non-current assets
Operating lease right-of-use assets
Restricted cash
Total non-current assets
Total assets
LIABILITIES
Current liabilities:
Short-term bank loans
Accounts and notes payable
Accrued expenses and other liabilities
Customer advances and deposits and deferred revenue
Operating lease liabilities
Amounts due to related parties
Income tax payable
Total current liabilities
Operating lease liabilities
Deferred tax liabilities
Other non-current liabilities
Total non-current liabilities
Total liabilities
2018
RMB
As at December 31
2019
RMB
2019
US$
251,531
46,506
215,070
79,896
995,505
135,019
79,867
1,803,394
1,418,007
111,409
430,763
12,741
—
16,455
1,989,375
3,792,769
735,000
1,399,578
1,232,916
989,880
—
1,640,124
275
5,997,773
—
26,817
81,826
108,643
6,106,416
619,459
412,134
224,793
57,527
1,437,173
150,692
195,811
3,097,589
2,273,190
104,017
430,763
46,022
2,221,337
38,096
5,113,425
8,211,014
819,000
2,071,644
1,197,583
1,277,944
493,844
2,631,540
—
8,491,555
1,809,753
25,080
133,037
1,967,870
10,459,425
88,980
59,199
32,289
8,263
206,437
21,646
28,127
444,941
326,523
14,941
61,875
6,611
319,075
5,472
734,497
1,179,438
117,642
297,573
172,022
183,565
70,936
377,997
—
1,219,735
259,955
3,603
19,110
282,668
1,502,403
The revenue-producing assets that are held by the VIEs comprise mainly of machinery and electronic equipment, express delivery software
and domain name. The VIEs contributed an aggregate of 66%, 66% and 66% of the Group’s consolidated revenue for the years ended December 31,
2017, 2018 and 2019, respectively, after elimination of inter-company transactions. As of December 31, 2019, there was no pledge or
collateralization of the VIEs’ assets that can only be used to settled obligations of the VIEs.
F-16
Table of Contents
BEST INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2017, 2018 AND 2019 (CONTINUED)
(Amounts in thousands of Renminbi (“RMB”) and US dollars (“US$”)
except for number of shares and per share data)
1. ORGANIZATION AND BASIS OF PRESENTATION (CONTINUED)
Other than the amounts due to related parties (which are eliminated upon consolidation) all remaining liabilities of the VIEs are without
recourse to the primary beneficiary. The Company did not provide or intend to provide financial or other supports not previously contractually
required to the VIEs during the years presented.
Total revenue
Net (loss)/profit
Net cash generated from operating activities
Net cash used in investing activities
Net cash generated from financing activities
For the years ended December 31,
2017
RMB
13,251,443
(221,601)
215,575
(656,571)
267,017
2018
RMB
18,462,434
116,889
828,383
(820,490)
165,376
2019
RMB
23,047,895
46,704
1,002,531
(1,293,953)
1,030,277
2019
US$
3,310,623
6,707
144,005
(185,865)
147,991
In June 2019, BEST Finance transferred certain lease rental and other financing receivables to a securitization vehicle through Xinyuan
Leasing Asset Backed Special Plan (the “Plan”). The Group acts as the servicer of the Plan by providing payment collection services for the
underlying lease rental receivables and holds significant variable interests in the Plan through holding the subordinated tranche of asset-backed debt
securities and the guarantee provided, from which the Group has the obligation to absorb losses of the Plan that could potentially be significant to the
Plan. Accordingly, the Group is considered the primary beneficiary of the Plan and has consolidated the Plan's assets, liabilities, results of operations,
and cash flows in the accompanying consolidated financial statements.
Amounts due from related parties
Total current assets
Restricted cash
Amounts due from related parties
Total non-current assets
Total assets
Securitization debt
Amounts due to related parties
Total current liabilities
Amounts due to related parties
Total non-current liabilities
Total liabilities
Net cash used in operating activities
Net cash used in investing activities
Net cash generated from financing activities
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of presentation
As at December 31,
2018
RMB
As at December 31,
2019
RMB
2019
US$
—
—
—
—
—
—
—
—
—
—
—
—
157,345
157,345
40,000
140,000
180,000
337,345
107,820
49,525
157,345
180,000
180,000
337,345
2017
RMB
—
—
—
As at December 31,
2019
2018
RMB
RMB
(297,345)
—
337,345
—
—
—
22,601
22,601
5,745
20,110
25,855
48,456
15,487
7,114
22,601
25,855
25,855
48,456
2019
US$
(42,711)
—
48,457
The accompanying consolidated financial statements have been prepared in accordance with United States generally accepted accounting
principles (“U.S. GAAP”).
F-17
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BEST INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2017, 2018 AND 2019 (CONTINUED)
(Amounts in thousands of Renminbi (“RMB”) and US dollars (“US$”)
except for number of shares and per share data)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Principles of Consolidation
The consolidated financial statements of the Group include the financial statements of the Company, its subsidiaries, the VIEs and VIEs'
subsidiaries for which the Company is the primary beneficiary. All significant intercompany balances and transactions between the Company, its
subsidiaries and VIEs have been eliminated on consolidation.
Use of estimates
The preparation of consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities, disclosures of contingent assets and liabilities at the balance sheet dates and the
reported amounts of revenue and expenses during the reporting periods. Significant estimates and assumptions reflected in the Group’s financial
statements include, but are not limited to, allowance for doubtful accounts, fair value measurements of equity instruments without readily
determinable fair values, incremental borrowing rates for operating lease liabilities, standalone selling prices related to lease and non-lease
components in the Company's lease arrangements, useful lives of long-lived assets, the purchase price allocation with respect to business
combinations, impairment of long-lived assets and goodwill, realization of deferred tax assets, uncertain tax positions and share-based compensation.
Management bases the estimates on historical experience and various other assumptions that are believed to be reasonable, the results of which form
the basis for making judgments about the carrying values of assets and liabilities. Actual results could materially differ from those estimates.
Convenience translation
Amounts in U.S. dollars are presented for the convenience of the reader and are translated at the noon buying rate of RMB6.9618 per
US$1.00 on December 31, 2019 in the City of New York for cable transfers of RMB as certified for customs purposes by the Federal Reserve Bank
of New York. No representation is made that the RMB amounts could have been, or could be, converted into US$ at such rate.
Foreign currency
The functional currency of the Company's subsidiaries located outside the PRC is determined based on the criteria of ASC Topic 830,
Foreign Currency Matters. The Company’s subsidiaries, VIEs and VIEs' subsidies located in the PRC determined their functional currency to be
Renminbi (the “RMB”). The Company uses the RMB as its reporting currency.
Each entity in the Group maintains its financial records in its own functional currency. Transactions denominated in foreign currencies are
measured at the exchange rates prevailing on the transaction dates. Monetary assets and liabilities denominated in foreign currencies are remeasured
at the exchange rates prevailing at the balance sheet date. Non-monetary items that are measured in terms of historical cost in foreign currency are
remeasured using the exchange rates at the dates of the initial transactions. Exchange gains and losses are included in the consolidated statements of
comprehensive loss.
The Company uses the average exchange rate for the year and the exchange rate at the balance sheet date to translate the operating results
and financial position, respectively. Translation differences are recorded in accumulated other comprehensive income, a component of
shareholders’ (deficit)/equity.
F-18
Table of Contents
BEST INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2017, 2018 AND 2019 (CONTINUED)
(Amounts in thousands of Renminbi (“RMB”) and US dollars (“US$”)
except for number of shares and per share data)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Cash and cash equivalents
Cash and cash equivalents consist of cash on hand and demand deposits or other highly liquid investments placed with banks or other
financial institutions which are unrestricted as to withdrawal and use and have original maturities of less than three months.
Restricted cash
The Group’s restricted cash mainly represents (a) deposits held in designated bank accounts for issuance of notes payable and short-term
loans; (b) security deposits required by the Group’s operating leases for sortation centers and warehouses; and (c) deposits held in a designated bank
account of the Plan which can only be utilized for repayment of the Series A and B tranches when there is default of the underlying lease rental and
other financing receivables (Note 14). As of December 31, 2018 and December 31,2019, the restricted cash related to the deposits held in
designated bank accounts as pledged security of notes payable was RMB34,979 and RMB135,663 (US$19,487), respectively. The restricted cash
related to deposits held in designated bank accounts as pledged security of short-term loans are disclosed in Note 12.
Short-term investments
The Group’s short-term investments comprise primarily of cash deposits at fixed or floating rates based on daily bank deposit rates with
maturities ranging from three months to one year.
Accounts receivable and notes receivable, and allowance for doubtful accounts
Accounts and notes receivable are carried at net realizable value. An allowance for doubtful accounts is recorded when collection of the full
amount is no longer probable. In evaluating the collectability of receivable balances, the Group considers specific evidence including the aging of the
receivable, the customer’s payment history, its current credit-worthiness and current economic trends. Accounts and notes receivable are written off
after all collection efforts have ceased.
Property and equipment, net
Property and equipment are stated at cost and are depreciated using the straight-line method over the estimated useful lives of the assets,
as follows:
Category
Machinery and electronic equipment
Motor vehicles
Leasehold improvements
Estimated Useful Life
3 - 10 years
3 years
Lesser of useful life or lease term
Repair and maintenance costs are charged to expense as incurred, whereas the cost of renewals and betterments that extend the useful lives
of property and equipment are capitalized as additions to the related assets. Retirements, sales and disposals of assets are recorded by removing the
cost and accumulated depreciation from the asset and accumulated depreciation accounts with any resulting gain or loss reflected in the consolidated
statements of comprehensive loss.
F-19
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BEST INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2017, 2018 AND 2019 (CONTINUED)
(Amounts in thousands of Renminbi (“RMB”) and US dollars (“US$”)
except for number of shares and per share data)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Property and equipment, net (continued)
Direct costs that are related to the construction of property and equipment, and incurred in connection with bringing the assets to their
intended use are capitalized as construction in progress. Construction in progress is transferred to specific property and equipment, and the
depreciation of these assets commences when the assets are ready for their intended use.
Change in estimate useful life of certain machinery and electronic equipment
In accordance with its policy, the Group reviews the estimated useful lives of its property and equipment on an ongoing basis. This review
indicated that the actual lives of certain machinery and electronic equipment at its hubs and sortation centers were longer than the estimated useful
lives used for depreciation purposes. As a result, effective July 1, 2019, the Group changed the estimated useful lives of these machinery and
equipment from five years to ten years to better reflect the periods for which these assets are expected to remain in service. For the year ended
December 31, 2019, the effect of this change in estimate reduced depreciation expense, net loss, basic loss per share and diluted loss per share by
RMB94,984 (US$13,644), RMB94,984 (US$13,644), RMB0.24 (US$0.03) and RMB0.24 (US$0.03), respectively.
Business Combinations
The Group accounts for its business combinations using the purchase method of accounting in accordance with ASC 805, Business
Combinations (“ASC 805”). The purchase method of accounting requires that the consideration transferred to be allocated to the assets, including
separately identifiable assets and liabilities the Group acquired, based on their estimated fair values. The consideration transferred in an acquisition is
measured as the aggregate of the fair values at the date of exchange of the assets given, liabilities incurred, and equity instruments issued as well as
the contingent considerations and all contractual contingencies as of the acquisition date. The costs directly attributable to the acquisition are
expensed as incurred. Identifiable assets, liabilities and contingent liabilities acquired or assumed are measured separately at their fair values as of the
acquisition date, irrespective of the extent of any non-controlling interests. The excess of (i) the total cost of acquisition, fair value of the non-
controlling 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 is recognized directly in earnings. The Company adopted Accounting Standards Update ("ASU") No. 2017-01, Business Combinations
(Topic 802): Clarifying the Definition of a Business, in determining whether it has acquired a business from January 1, 2018 on a prospective basis
and there was no material impact on the consolidated financial statements.
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. The Group determines the discount rates to be used based on the risk inherent in the
related entity’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.
Goodwill
The Group assesses goodwill for impairment in accordance with ASC 350-20, Intangibles—Goodwill and Other: Goodwill (“ASC 350-20”),
which requires that goodwill be tested for impairment at the reporting unit level at least annually and more frequently upon the occurrence of certain
events.
F-20
Table of Contents
BEST INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2017, 2018 AND 2019 (CONTINUED)
(Amounts in thousands of Renminbi (“RMB”) and US dollars (“US$”)
except for number of shares and per share data)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Goodwill (continued)
The Group has determined it has five reporting units (that also represent operating segments). Goodwill was allocated to four reporting units
as of December 31, 2018 and 2019, respectively (Note 11). The Group has the option to assess qualitative factors first to determine whether it is
necessary to perform the two-step test in accordance with ASC 350-20. If the Group believes, as a result of the qualitative assessment, that it is more-
likely-than-not that the fair value of the reporting unit is less than its carrying amount, the two-step quantitative impairment test described above is
required. Otherwise, no further testing is required. In the qualitative assessment, the Group considers primary factors such as industry and market
considerations, overall financial performance of the reporting unit, and other specific information related to the operations.
In performing the two-step quantitative impairment test, the first step compares the carrying amount of the reporting unit to the fair value of
the reporting unit based on estimated fair value using a combination of the income approach and the market approach. If the fair value of the
reporting unit exceeds the carrying value of the reporting unit, goodwill is not impaired and the Group is not required to perform further testing. If the
carrying value of the reporting unit exceeds the fair value of the reporting unit, then the Group must perform the second step of the impairment test in
order to determine the implied fair value of the reporting unit’s goodwill. The fair value of the reporting unit is allocated to its assets and liabilities in
a manner similar to a purchase price allocation in order to determine the implied fair value of the reporting unit goodwill. If the carrying amount of
the goodwill is greater than its implied fair value, the excess is recognized as an impairment loss in general and administrative expenses.
Intangible assets
Intangible assets with finite lives are carried at cost less accumulated amortization. All intangible assets with finite lives are amortized using
the straight-line method over the estimated useful lives.
Intangible assets have weighted average estimated useful lives from the date of purchase as follows:
Category
Customer relationships
Software
Domain name
Brand name
Others
Estimated Useful Life
3.89 years
3.42 years
10 years
20 years
2.23 years
Impairment of long-lived assets other than goodwill
The Group evaluates its long-lived assets, including fixed assets and intangible assets with finite lives, for impairment whenever events or
changes in circumstances, such as a significant adverse change to market conditions that will impact the future use of the assets, indicate that the
carrying amount of an asset may not be fully recoverable. When these events occur, the Group evaluates the recoverability of long-lived assets by
comparing the carrying amount of the assets to the future undiscounted cash flows expected to result from the use of the assets and their eventual
disposition. If the sum of the expected undiscounted cash flows is less than the carrying amount of the assets, the Group recognizes an impairment
loss based on the excess of the carrying amount of the assets over their fair value. Impairment losses if any, are included in general and administrative
expense.
F-21
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BEST INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2017, 2018 AND 2019 (CONTINUED)
(Amounts in thousands of Renminbi (“RMB”) and US dollars (“US$”)
except for number of shares and per share data)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Fair value measurements of financial instruments
The Company applies ASC 820, Fair Value Measurements and Disclosures ("ASC 820"). ASC 820 defines fair value, establishes a
framework for measuring fair value and expands disclosures about fair value measurements. ASC 820 requires disclosures to be provided for fair
value measurements.
ASC 820 establishes a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value as follows:
Level 1—Observable inputs that reflect quoted prices (unadjusted) for identical assets or liabilities in active markets.
Level 2—Includes other inputs that are directly or indirectly observable in the marketplace.
Level 3—Unobservable inputs which are supported by little or no market activity.
ASC 820 describes three main approaches to measuring the fair value of assets and liabilities: (1) market approach; (2) income approach;
and (3) cost 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 cost approach is based on the amount
that would currently be required to replace an asset.
Financial instruments include cash and cash equivalents, restricted cash, accounts and notes receivables, certain other current assets, short-
term investments, due from related parties, long-term investments, certain other non-current assets, accounts and notes payable, short-term bank
loans, securitization debt, convertible senior notes and amounts due to related parties, certain other current liabilities and certain other non-current
liabilities. The carrying values of the financial instruments included in current assets and liabilities approximate their fair values due to their short-
term maturities. The carrying amount of other non-current financial assets, convertible senior notes and other non-current financial liabilities
approximates its fair value due to the fact that the related interest rates approximate market rates for similar debt instruments of comparable
maturities.
Inventories
Inventories are comprised of finished goods. The Group’s finished goods consists of (i) low value consumables used in performing express
delivery services, freight delivery services and supply chain management services such as handheld terminals, packing materials and uniforms
emblazoned with the logo “BEST” (“accessories”); and (ii) fast-moving consumer goods such as beverage and drinks, snacks and daily necessities to
be sold on the Group’s Store+ online business-to-business platform and in retail stores (“consumer goods”). Inventories are stated at the lower of cost
and net realizable value. Net realizable value is the estimated selling price in the ordinary course of business, less applicable variable selling
expenses. Cost of accessories is accounted for using the weighted average cost method. Cost of purchased consumer goods are accounted for using
the first-in first-out method for Store+ online business prior to January 1, 2018 and the weighted average cost method for Wowo, respectively.
Adjustments are recorded to write down the cost of inventory to the estimated market value due to the slow-moving merchandise and damaged
goods. Write-downs are recorded in cost of revenue in the consolidated statements of comprehensive loss.
Starting in 2018, the Group elected to change the inventory costing method for the Store+ online business from the first-in first-out method
to the weighted average cost method. The impact of the change in accounting principle was immaterial to all periods presented and thus, not applied
retrospectively.
F-22
Table of Contents
BEST INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2017, 2018 AND 2019 (CONTINUED)
(Amounts in thousands of Renminbi (“RMB”) and US dollars (“US$”)
except for number of shares and per share data)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Revenue recognition
On January 1, 2018, the Group adopted ASC 606, Revenues from Contracts with Customers (“ASC 606”) and elected to apply the modified
retrospective approach to contracts that are not completed as of this date. The cumulative effect of initially applying ASC 606 resulted in an increase
to opening accumulated deficit of RMB25,054, which has been recognized on the day of initial application and prior periods were not retrospectively
adjusted.
Commencing on January 1, 2018, revenue is recognized when control of promised goods or services is transferred to the Group’s customers
in an amount of consideration to which an entity expects to be entitled to in exchange for those goods or services. The Group presents value-added
taxes as a reduction from revenues. The Group does not disclose the value of unsatisfied performance obligations for (i) contracts with an original
expected length of one year or less and (ii) contracts for which the Group recognizes revenue at the amount to which it has the right to invoice for
services performed.
The Group’s revenue recognition policies effective on the adoption date of ASC 606 are as follows:
Express delivery services
The Group provides express services that comprise of sorting, line-haul and feeder transportation services to its franchisee service stations,
which are also the Group’s customers, when parcels (under 15 kg) are dropped off by the Group’s franchisee service station customers at the Group’s
first hub or sortation center.
The Group offers an integrated service to the franchised service stations that includes last-mile delivery service to end recipients and acts as
the principal that is directly responsible for all parcels sent through its network, from the point when customers drop off the parcels at the Group’s
first hub or sortation center all the way through to the point when the parcels are delivered to end recipients.
F-23
Table of Contents
BEST INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2017, 2018 AND 2019 (CONTINUED)
(Amounts in thousands of Renminbi (“RMB”) and US dollars (“US$”)
except for number of shares and per share data)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Revenue recognition (continued)
Express delivery services (continued)
Customers are required to prepay for express delivery services and the Group records such amounts as “customer advances and deposits and
deferred revenue” in the consolidated balance sheets. The transaction price the Group earns from its customers are based on the parcel’s weight and
route to the end recipient’s destination. In addition, the Group provides certain discounts, incentives and rebates based on explicitly agreed upon
terms with its customers that can decrease the transaction price and estimates variable consideration based on the most likely amount to be provided.
The amount of variable consideration included in the transaction price is limited to the amount that will not result in a significant revenue reversal.
The Group reviews the estimate of variable consideration and updates the transaction price at the end of each reporting period as necessary.
Uncertainties related to the estimates of variable consideration are resolved in a short time frame. Adjustments to variable consideration are
recognized in the period the adjustments are identified and were insignificant for the periods presented.
The Group’s express delivery services contracts with customers include only one performance obligation. Performance obligations are
generally short-term in nature and with transit days being a week or less for each parcel. The Group recognizes revenue over time as customers
receive the benefit of the Group’s services as the goods are delivered from one location to another. As such, express delivery services revenue is
recognized proportionally as a parcel moves from origin to destination and the related costs are recognized as incurred. The Group uses an output
method of progress based on time-in-transit as it best depicts the transfer of control to the customer.
A minor percentage of the Group’s express delivery services are performed by the group through its integrated express delivery service
network for direct customers (“direct customer express delivery services”), who are the senders of the parcels. The Group is directly responsible for
the parcel from the point it is received from the senders all the way through the point when the parcels are delivered to end recipients. Direct
customer express delivery services revenue is recognized proportionally as parcels are transported to end recipients and the related costs are
recognized as incurred.
Express delivery services revenue also includes initial non-refundable franchise fees. The initial non-refundable franchise fees are
recognized over the franchise period due to the franchisees’ rights to access the Group’s logos and brand names which are considered symbolic
intellectual properties. The initial non-refundable franchise fees are negotiated under a separate agreement and represent a very small percentage of
revenue for all periods presented.
Freight delivery services
Similar to express delivery services, the Group provides freight services that comprise of sorting, line-haul and feeder transportation services
mainly to its franchisees, which are also the Group’s customers. The Group offers an integrated service to franchisee service stations that includes
last-mile delivery service to end recipients and acts as the principal that is directly responsible for all shipments sent through its network, from the
point when customers drop off the shipments at the Group’s first hub or sortation center all the way through to the point when the shipments are
delivered to end recipients.
Customers are required to prepay for freight delivery services and the Group records such amounts as “Customer advances and deposits and
deferred revenue” in the consolidated balance sheets. The transaction price the Group earns from its customers are based on the shipment’s weight
and route to the end recipient’s destination.
F-24
Table of Contents
BEST INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2017, 2018 AND 2019 (CONTINUED)
(Amounts in thousands of Renminbi (“RMB”) and US dollars (“US$”)
except for number of shares and per share data)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Revenue recognition (continued)
Freight delivery services (continued)
The Group’s freight delivery services contracts with customers include only one performance obligation. Performance obligations are
generally short-term in nature with transit days being a week or less for each shipment. The Group recognizes revenue over time as customers receive
the benefit of the Group’s services as the goods are shipped from one location to another. As such, freight delivery services revenue is recognized
proportionally as a shipment moves from origin to destination and the related costs are recognized as incurred. The Group uses an output method of
progress based on time-in-transit as it best depicts the transfer of control to the customer.
Freight delivery services revenue also includes initial non-refundable franchise fees. The initial non-refundable franchise fees are recognized
over the franchise period due to the franchisees’ rights to access the Group’s logos and brand names which are considered symbolic intellectual
properties. The initial non-refundable franchise fees are negotiated under a separate agreement and represent a very small percentage of revenue for
all periods presented.
Supply chain management services
The Group provide warehouse management, order fulfillment services and transportation services to its offline and online enterprise
customers ("enterprise customers"). The Group enters into supply chain warehouse management service agreements with these customers to provide
warehouse management and order fulfillment services through its self-operated order fulfillment centers and also enters into transportation services
agreements to provide transportation services. The majority of these contracts having an effective term of one year. Order fulfillment services
revenue is generated from various service fees charged on a volume basis in connection with various order fulfillment services, which may include
in-warehouse processing, order fulfillment, express delivery, freight delivery and other value-added services. Pursuant to the warehouse management
service agreements and transportation services agreements, enterprise customers have the right to terminate the contracts by providing a one-month
advance notice. Therefore, even though the contract term for the majority of the contracts is one year, due to the termination rights provided to
enterprise customers, warehouse management service agreements and transportation services agreements are considered month-to-month service
contracts. Enterprise customers are billed on a monthly basis and make payments according to their granted credit terms which ranges from 5 to 120
days.
Under some situations, enterprise customers may request to add a transportation route or increase the warehouse rental space by entering
into a separate contract with the Group. The additional services are considered distinct and the service fees are priced at their standalone selling
prices, i.e. they cannot be purchased at a significant or incremental discount. Therefore, the Group accounts for this type of contract modification as a
separate contract and the revenue recognized to date on the original contract is not adjusted.
The warehouse management service agreements comprise various service offerings that can be purchased at the option of the customer.
Although the service options are interrelated, none of the services modify the other services and they are not integrated to provide a combined output.
Each of the service options is substantive and the enterprise customers cannot purchase each additional service at a significant and incremental
discount. Therefore, each service is accounted for as a separate performance obligation. The Group is the primary obligor and does not outsource any
portion of the order fulfillment services to supply chain franchisee partners. The Group recognizes warehouse management and order fulfillment
services revenue upon completion of the services as that is when the Group transfers control of the services and has right to payment.
F-25
Table of Contents
BEST INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2017, 2018 AND 2019 (CONTINUED)
(Amounts in thousands of Renminbi (“RMB”) and US dollars (“US$”)
except for number of shares and per share data)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Revenue recognition (continued)
Supply chain management services (continued)
For transportation services, the Group provides the service of arranging transportation and coordinating shipments to and from locations
designated by its enterprise customers. Each transportation order for delivery of goods from origin to destination is considered a performance
obligation. Performance obligations are generally short-term in nature with transit days being a week or less for each shipment. The Group recognizes
transportation services revenue over time as customers receive the benefit of the services as the goods are shipped from origin to destination. As such,
transportation services revenue is recognized proportionally as a shipment moves from origin to destination and the related costs are recognized as
incurred. The Group use an output method of progress based on time-in-transit as it best depicts the transfer of control to the customer.
A small percentage of revenue is also earned from supply chain franchisee partners that can access the Group’s supply chain network. These
franchisee partners pay an initial non-refundable fee for a comprehensive operating manual and orientation training, as well as an agreed system
usage fee for each order processed through the Group’s supply chain network. The initial non-refundable fees and system usage fees were
insignificant for all periods presented.
Store+ services
The Group recognizes revenue upon the delivery of the consumer goods to its convenience store membership customers. For the Group's
self-operated convenience stores, revenue recognized upon the sales of merchandise to end consumers. The Group is the principal to the transaction
for the sales of customer goods and merchandise and revenue from these transactions are recognized on a gross basis. Transfer of control occurs at a
point in time once delivery has been completed as the Group has transferred control of the promised goods to the customer. Generally, customers are
billed upon delivery of the consumer goods while convenience store customers make payment upon checkout of merchandise.
Other services
The Group mainly provides cross-border logistic coordination services and oversea express delivery services, finance leasing services and
Ucargo transportation services. Revenue from interest income on lease rental and other financing receivables is recognized using the effective interest
rate method. For cross-border logistic coordination services, oversea express delivery services and Ucargo transportation services, revenue is
recognized proportionally as a shipment moves from origin to destination using an output method of progress based on time-in-transit while the
related costs are recognized as incurred. The Group is the principal to the transaction for these services and revenue from these transactions is
recognized on a gross basis.
Contract assets and liabilities
The Group enters into contracts with its customers, which may give rise to contract liabilities (deferred revenue) and contract assets
(unbilled revenue). The payment terms and conditions within the Group’s contracts vary by the type of service and customers. When the timing of
revenue recognition differs from the timing of payments made by customers, the Group recognizes either unbilled revenue (its performance precedes
the billing date) or deferred revenue (customer payment is received in advance of performance).
Contract assets represent unbilled amounts resulting from provision of transportation services as the Group has an unconditional right to
payment only once all delivered goods reach their destination. Contract assets are classified as current and the full balance is reclassified to accounts
receivables when the right to payment becomes unconditional. The balance of contract assets was insignificant as of December 31, 2018 and 2019.
F-26
Table of Contents
BEST INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2017, 2018 AND 2019 (CONTINUED)
(Amounts in thousands of Renminbi (“RMB”) and US dollars (“US$”)
except for number of shares and per share data)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Revenue recognition (continued)
Contract assets and liabilities (continued)
Contract liabilities are included in “Customer advances and deposits and deferred revenue” in the accompanying consolidated balance sheet.
Contract liabilities represent the amount of consideration received upfront from customers related to in-transit shipments that has not yet been
recognized as revenue based on our selected measure of progress and non-refundable franchise fees which are recognized over the franchise period.
The Group classifies contract liabilities as current based on the timing of when the Group expects to recognize revenue, which typically occurs within
a week after period-end.
The balances of contract liabilities arising from contracts with customers as of December 31, 2018 and 2019 were as follows:
Balance at
December 31,
2018
RMB
Balance at
December 31,
2019
RMB
Balance at
December 31,
2019
US$
Contract liabilities
639,912
871,833
125,231
Revenue recognized in the year ended December 31, 2019 that was included in the contract liability balance at the beginning of the period
was RMB588,181 (US$ 84,487). This revenue was driven primarily by express and freight delivery performance obligations being satisfied.
For contract costs associated with obtaining a contract such as commissions incurred with obtaining a contract, the Group capitalizes the
incremental contract costs and amortizes the capitalized contract costs using a straight-line basis over the term of the contract. The capitalized
contract costs as of December 31, 2018 and 2019 and the related amortization during the years ended December 31, 2018 and 2019 was insignificant.
Transfer of financial assets
The Group accounts for transfers of financial assets in accordance with ASC 860, Transfers and Servicing (“ASC 860”). For a transfer of
financial assets considered as a sale, the assets would be removed from the Group’s consolidated balance sheet. If the conditions for a sale required
by ASC 860 are not met, the transfer is considered to be a secured borrowing and the assets remain on the consolidated balance sheet while the sale
proceeds are recognized as a liability.
Pursuant to ASC 860, the issuance of debt securities securitized by the Group’s lease rental and other financing receivables arising from its
financing lease business (Note 14) and the factoring of intercompany note receivables to domestic banks (Note 12) do not constitute a sale of the
underlying financial assets for accounting purposes due to the recourse obligations retained by the Group. Therefore, these transactions are accounted
for as secured borrowings on the consolidated balance sheet and the financial assets are not derecognized.
F-27
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BEST INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2017, 2018 AND 2019 (CONTINUED)
(Amounts in thousands of Renminbi (“RMB”) and US dollars (“US$”)
except for number of shares and per share data)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Cost of revenue
Cost of revenue consists primarily of transportation costs including last-mile delivery service fees, cost of express and freight delivery
accessories, operating costs for the delivery platforms, hubs and sortation centers, operating costs for the supply chain management network,
purchased consumer goods, salaries and benefits of related personnel, depreciation, rental costs, and other related operating costs.
Selling expenses
Advertising costs are expensed when incurred and are included in selling expenses in the consolidated statements of comprehensive loss. For
the years ended December 31, 2017, 2018 and 2019, advertising expenses were RMB15,401, RMB24,131 and RMB35,958 (US$5,165), respectively.
Selling expenses include shipping and handling costs incurred for the Store + services segment comprising of costs for operating and
staffing the Group’s warehouses, packaging and outbound shipping to customers. Shipping and handling costs amounted to RMB203,916,
RMB224,815 and RMB190,857 (US$27,415) for the years ended December 31, 2017, 2018 and 2019, respectively.
Selling expenses also include retail store occupancy costs such as rent, depreciation, amortization and overhead expenses incurred for
Wowo, which is included in the Store+ services segment. Retail store occupancy costs amounted to RMB70,450, RMB106,590 and RMB132,830
(US$19,080) for the years ended December 31, 2017, 2018 and 2019, respectively.
Government subsidies
Government subsidies primarily consist of financial subsidies received from local governments for operating a business in their jurisdictions
and compliance with specific policies promoted by the local governments. There are no defined rules and regulations to govern the criteria necessary
for companies to receive such benefits, and the amount of financial subsidy is determined at the discretion of the relevant government authorities. For
the government subsidies with no further conditions to be met, the amounts are recorded as non-operating income in “Other income” if the subsidies
are with non-operating nature, or as a reduction of specific cost or expenses if such subsidies are intended to compensate such amounts. The
government subsidies with certain operating conditions are recorded as liabilities when received and will be recorded as “Other income” or as a
reduction of specific cost or expenses when the conditions are met.
Leases
On January 1, 2019, the Group adopted ASU 2016-02, Leases (Topic 842), using the modified retrospective transition method and elected
the transition option to use an effective date of January 1, 2019 as the date of initial application. As a result, the comparative periods were not
restated.
The Group has elected the package of practical expedients permitted which allows the Group not to reassess the following at adoption date:
(i) whether any expired or existing contracts are or contains a lease, (ii) the lease classification for any expired or existing leases, and (iii) initial
direct costs for any expired or existing leases (i.e. whether those costs qualify for capitalization under ASU 2016-02). The Group also elected the
short-term lease exemption for certain classes of underlying assets including office space, warehouses and hub and sortation center facilities and
equipment, with a lease term of 12 months or less.
F-28
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BEST INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2017, 2018 AND 2019 (CONTINUED)
(Amounts in thousands of Renminbi (“RMB”) and US dollars (“US$”)
except for number of shares and per share data)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Leases (continued)
The Group determines whether an arrangement is or contains a lease at inception. The Group’s accounting policy effective on the adoption
date of ASU 2016-02 is as follows:
Sales-type, direct financing and operating leases as Lessor
The Group classifies a lease as a sales-type lease when the lease meets any one of the following criteria at lease commencement:
a. The lease transfers ownership of the underlying asset to the lessee by the end of the lease term.
b. The lease grants the lessee an option to purchase the underlying asset that the lessee is reasonably certain to exercise.
c. The lease term is for a major part of the remaining economic life of the underlying asset.
d. The present value of the sum of the lease payments and any residual value guaranteed by the lessee that is not already reflected in
the lease payments equals or exceeds substantially all of the fair value of the underlying asset.
e. The underlying asset is of such a specialized nature that it is expected to have no alternative use to the Company at the end of the
lease term.
For sales-type leases, when collectability is probable at lease commencement, the Group derecognizes the underlying asset and recognizes
the net investment in the lease which is the sum of the lease receivable. Initial direct costs are expensed, at the commencement date, if the fair value
of the underlying asset is different from its carrying amount. Interest income is recognized in financing income over the lease term using the interest
method.
When none of the criteria above are met, the Group classifies a lease as either a direct financing lease or an operating lease. The Group will
classify the lease as a direct financing lease if (i) the present value of the sum of lease payments and any residual value guaranteed by the lessee and
any other third party unrelated to the Group equals or exceeds substantially all the fair value of the underlying asset; and (ii) it is probable that the
Group will collect the lease payments plus any amount necessary to satisfy a residual value guarantee. If both of the criteria above are not met, the
Group will classify the lease as an operating lease.
The new standard requires lessors within the scope of ASC 942, Financial Services – Depository and Lending, to classify principal payments
received from sales-type and direct financing leases in investing activities in the statement of cash flows. The Company continues to present cash
receipts from sales-type and direct financing leases as an investing cash inflow. For the year ended December 31, 2019, total cash originations and
cash receipts from sales-type and direct financing leases were RMB365,525 (US$52,504) and RMB620,896 (US$89,186), respectively.
Sale-leaseback transactions as Lessor
When the Group enters into sale-leaseback transactions as lessor, it applies the requirements in ASC 606 by assessing whether a contract
exists and whether the seller-lessee satisfies a performance obligation by transferring control of an asset when determining whether the transfer of an
asset shall be accounted for as a sale of the asset. If the seller-lessor transfers the control of the leased asset to the Group, it accounts for the purchase
of the leased asset in accordance with ASC360. The subsequent leaseback of the asset is accounted for in accordance with ASC842 in the same
manner as any other lease. If the seller-lease does not transfer the control of the leased asset to the Group, it is a failed sales-leaseback transaction
which is accounted for as a financing. The Group does not recognize the transferred asset and records the amounts paid as other financing receivables
for which the current portion is included in “Prepayments and other current assets” and the non-current portion is included in "Other non-current
assets" in the Group’s consolidated balance sheet as of December 31, 2019.
F-29
Table of Contents
BEST INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2017, 2018 AND 2019 (CONTINUED)
(Amounts in thousands of Renminbi (“RMB”) and US dollars (“US$”)
except for number of shares and per share data)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Leases (continued)
Financing lease and operating lease as Lessee
The Group classifies a lease as a financing lease when the lease meets any one of the criteria specified as (a) to (e) in the “Sales-type, direct
financing and operating leases as Lessor” policy at lease commencement. When none of the criteria are met, the Group classifies a lease as an
operating lease.
For both operating and financing leases, the Group records a lease liability and corresponding right-of-use (ROU) asset at lease
commencement. Lease terms are based on the non-cancellable term of the lease and may contain options to extend the lease when it is reasonably
certain that the Group will exercise the option. Lease liabilities represent the present value of the lease payments not yet paid, discounted using the
discount rate for the lease at lease commencement.
The Group estimates its incremental borrowing rate for its leases at the commencement date to determine the present value of future lease
payments when the implicit rate is not readily determinable in the lease. In estimating its incremental borrowing rate, the Group considers its credit
rating and publicly available data of borrowing rates for loans of similar amount, currency and term as the lease.
Operating leases are presented as “Operating lease ROU assets” and “Operating lease liabilities”. Lease liabilities that become due within
one year of the balance sheet date are classified as current liabilities. At lease commencement, operating lease ROU assets represent the right to use
underlying assets for their respective lease terms and are recognized at amounts equal to the lease liabilities adjusted for any lease payments made
prior to the lease commencement date, less any lease incentives received and any initial direct costs incurred by the Group.
After lease commencement, operating lease liabilities are measured at the present value of the remaining lease payments using the discount
rate determined at lease commencement. Operating lease ROU assets are measured at the amount of the lease liabilities and further adjusted for
prepaid or accrued lease payments, the remaining balance of any lease incentives received, unamortized initial direct costs and impairment of the
ROU assets, if any. Operating lease expense is recognized as a single cost on a straight-line basis over the lease term.
Financing lease ROU assets are included in “Property and equipment” and “Financing lease liabilities” on the consolidated balance sheet.
Lease liabilities that become due within one year of the balance sheet date are classified as current liabilities. Financing lease ROU assets are
amortized on a straight-line basis from the lease commencement date. After initial measurement, the carrying value of financing lease liabilities are
increased to reflect interest at a constant rate and reduced to reflect any lease payments made during the period.
Leases that have a term of 12 months or less at the commencement date (“short-term leases”) are not included in operating lease ROU assets
and operating lease liabilities. Lease expense for the short-term leases are recognized on a straight-line basis over the lease term.
F-30
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BEST INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2017, 2018 AND 2019 (CONTINUED)
(Amounts in thousands of Renminbi (“RMB”) and US dollars (“US$”)
except for number of shares and per share data)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Leases (continued)
Financing lease and operating lease as Lessee (continued)
The cumulative effect of the changes made to the Group’s consolidated balance sheet as of January 1, 2019 for the adoption of ASU 2016-
02 is as follows:
Assets:
Prepayments and other current assets
Operating lease ROU assets
Liabilities:
Operating lease liabilities (current)
Operating lease liabilities (non-current)
Accrued expenses and other liabilities
Balance as of
December 31, 2018
RMB
Adjustments due to the
adoption of
ASU 2016-02
RMB
Balance as of
January 1, 2019
RMB
1,904,846
—
—
—
(2,238,785)
(219,438)
3,568,886
1,685,408
3,568,886
(641,323)
(2,955,716)
247,591
(641,323)
(2,955,716)
(1,991,194)
The impact of adopting ASU 2016-02 on the Group’s consolidated balance sheet as of December 31, 2019 are as follows:
Assets:
Prepayments and other current assets
Operating lease ROU assets
Liabilities:
Operating lease liabilities (current)
Operating lease liabilities (non-current)
Accrued expenses and other liabilities
As reported
RMB
Legacy GAAP
RMB
Effect of the
adoption of
ASU 2016-02
Higher/(lower)
RMB
2,582,577
4,378,804
2,818,815
—
(236,238)
4,378,804
(1,035,252)
(3,482,634)
(2,023,263)
—
—
(2,398,584)
(1,035,252)
(3,482,634)
375,321
The adoption of the standard did not have significant impact to the Group’s consolidated statements of comprehensive loss or cash flows for
the year ended December 31, 2019.
F-31
Table of Contents
BEST INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2017, 2018 AND 2019 (CONTINUED)
(Amounts in thousands of Renminbi (“RMB”) and US dollars (“US$”)
except for number of shares and per share data)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Leases (continued)
Sale-leaseback transactions as Lessee
When the Group enters into sale-leaseback transactions as a seller-lessee, it applies the requirements in ASC 606 by assessing whether a
contract exists and whether the it satisfies a performance obligation by transferring control of an asset when determining whether the transfer of an
asset shall be accounted for as a sale of the asset. If the Group transfers the control of an asset to the buyer-lessor, it accounts for the transfer of the
asset as a sale and recognizes a corresponding gain or loss on disposal. The subsequent leaseback of the asset is accounted for in accordance with
ASC842 in the same manner as any other lease. If the Group does not transfer the control of an asset to the buyer-lessor, the failed sale-leaseback
transaction is accounted for as a financing. The Group does not derecognize the transferred asset and accounts for proceeds received as borrowings
for which the current portion is included in “Accrued expenses and other liabilities” and the non-current portion is included in "Other non-current
liabilities" in the Group’s consolidated balance sheets.
Research and Development Expenses
Research and development expenses primarily consist of salaries and benefits for research and development personnel and depreciation of
property and equipment. The Group expenses research and development costs as they are incurred.
Comprehensive loss
Comprehensive loss is defined as the changes in equity of the Group during a period from transactions and other events and circumstances
excluding transactions resulting from investments by owners and distributions to owners. Among other disclosures, ASC 220, Comprehensive
Income , requires that all items that are required to be recognized under current accounting standards as components of comprehensive loss be
reported in a financial statement that is displayed with the same prominence as other financial statements. For each of the periods presented, the
Group’s comprehensive loss includes net loss and foreign currency translation adjustments, and is presented in the consolidated statements of
comprehensive loss.
Income taxes
The Group follows the liability method of accounting for income taxes in accordance with ASC 740, Income Taxes (“ASC 740”). Under this
method, deferred tax assets and liabilities are determined based on the difference between the financial reporting and tax bases of assets and liabilities
using enacted tax rates that will be in effect in the period in which the differences are expected to reverse. The Group records a valuation allowance to
offset deferred tax assets if based on the weight of available evidence, it is more-likely-than-not that some portion, or all, of the deferred tax assets
will not be realized. The effect on deferred taxes of a change in tax rate is recognized in tax expense in the period that includes the enactment date of
the change in tax rate.
The Group accounted for uncertainties in income taxes in accordance with ASC 740. Interest and penalties arising from underpayment of
income taxes shall be computed in accordance with the related PRC tax law. The amount of interest expense is computed by applying the applicable
statutory rate of interest to the difference between the tax position recognized and the amount previously taken or expected to be taken in a tax return.
Interest and penalties recognized in accordance with ASC 740 are classified in the consolidated statements of comprehensive loss as income
tax expense.
F-32
Table of Contents
BEST INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2017, 2018 AND 2019 (CONTINUED)
(Amounts in thousands of Renminbi (“RMB”) and US dollars (“US$”)
except for number of shares and per share data)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Income taxes (continued)
The Group recognizes in its consolidated financial statements the impact of a tax position if a tax return position or future tax position is
“more likely than not” to prevail based on the facts and technical merits of the position. Tax positions that meet the “more likely than not”
recognition threshold are measured at the largest amount of tax benefit that has a greater than fifty percent likelihood of being realized upon
settlement. The Group’s estimated liability for unrecognized tax benefits included in “Other non-current liabilities” in the accompanying consolidated
balance sheets is periodically assessed for adequacy and may be affected by changing interpretations of laws, rulings by tax authorities, changes
and/or developments with respect to tax audits, and expiration of the statute of limitations. The actual benefits ultimately realized may differ from the
Group’s estimates. As each audit is concluded, adjustments, if any, are recorded in the Group’s consolidated financial statements. Additionally, in
future periods, changes in facts, circumstances, and new information may require the Group to adjust the recognition and measurement estimates with
regard to individual tax positions. Changes in recognition and measurement estimates are recognized in the period in which the changes occur.
Share-based compensation
Awards granted to employees
The Group applies ASC 718, Compensation—Stock Compensation (“ASC 718”), to account for its employee share-based payments. In
accordance with ASC 718, the Group determines whether an award should be classified and accounted for as a liability award or equity award. All
the Group’s share-based awards to employees were classified as equity awards and are recognized in the consolidated financial statements based on
their grant date fair values. For awards only with service conditions, the Group has elected to recognize compensation expense using the straight-line
method for awards granted with graded vesting provided that the amount of compensation cost recognized at any date is at least equal to the portion
of the grant date value of the options that are vested at that date. For awards with performance and service conditions, the Group uses the accelerated
method for awards granted with graded vesting. The Group accounts for forfeitures as they occur.
The Group, with the assistance of an independent third-party valuation firm, determined the fair value of the share options granted to
employees. The binomial option pricing model was applied in determining the estimated fair value of the options granted to employees.
Awards granted to non-employees
The Group has accounted for equity instruments issued to non-employees in accordance with the provisions ASC 505-50, Equity-based
payments to non-employees. All transactions in which goods or services are received in exchange for equity instruments are accounted for based on
the fair value of the consideration received or the fair value of the equity instrument issued, whichever is more reliably measurable. The measurement
date of the fair value of the equity instrument issued is the date on which the counterparty’s performance is completed as there is no associated
performance commitment. On July 1, 2018, the Group early adopted ASU 2018-07: Compensation — Stock Compensation (Topic 718):
Improvements to Nonemployee Share-Based Payment Accounting (“ASU 2018-07”) which aligns the measurement and classification guidance for
share based payments to nonemployees with that for employees, with certain exceptions. ASU 2018-07 is required to be adopted on a modified
retrospective basis through a cumulative-effect adjustment to accumulated deficit as of the beginning of the fiscal year of adoption. Nonemployee
share-based payment awards within the scope of ASC 718 are measured at grant-date fair value. There was no material impact on the consolidated
financial statements from the adoption of ASU 2018-07.
F-33
Table of Contents
BEST INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2017, 2018 AND 2019 (CONTINUED)
(Amounts in thousands of Renminbi (“RMB”) and US dollars (“US$”)
except for number of shares and per share data)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Share-based compensation (continued)
Modification of awards
A change in any of the terms or conditions of the awards is accounted for as a modification of the award. Incremental compensation cost is
measured as the excess, if any, of the fair value of the modified award over the fair value of the original award immediately before its terms are
modified, measured based on the fair value of the awards and other pertinent factors at the modification date. For vested awards, the Group
recognizes incremental compensation cost in the period the modification occurs. For unvested awards, the Group recognizes over the remaining
requisite service period, the sum of the incremental compensation cost and the remaining unrecognized compensation cost for the original award on
the modification date. If the fair value of the modified award is lower than the fair value of the original award immediately before modification, the
minimum compensation cost the Group recognizes is the cost of the original award.
Long-term investments
After the adoption of ASC 321 from January 1, 2018, the Group accounts for investments in an investee over which the Group does not have
significant influence and which do not have readily determinable fair value using the measurement alternative, which is defined as cost, less
impairments, adjusted by observable price changes. The Group makes a qualitative assessment of whether the investment is impaired at each
reporting date. If a qualitative assessment indicates that the investment is impaired, the Group estimates the investment’s fair value in accordance
with ASC 820. If the fair value is less than the investment’s carrying value, the Group recognizes an impairment loss equal to the difference between
the carrying value and fair value.
Investments in entities in which the Group can exercise significant influence and holds an investment in voting common stock or in-
substance common stock (or both) of the investee but does not own a majority equity interest or control are accounted for using the equity method of
accounting in accordance with ASC 323, Investments-Equity Method and Joint Ventures (“ASC 323”). Under the equity method, the Group initially
records its investments at cost. The Group subsequently adjusts the carrying amount of the investments to recognize the Group’s proportionate share
of each equity investee’s net income/(loss) into earnings after the date of investments. The Group evaluates the equity method investments for
impairment under ASC 323. An impairment loss on the equity method investments is recognized in earnings when the decline in value is determined
to be other-than-temporary.
Loss per share
In accordance with ASC 260, Earnings Per Share (“ASC 260”), basic loss per share is computed by dividing net loss attributable to ordinary
shareholders by the weighted average number of unrestricted ordinary shares outstanding during the year using the two-class method. Under the two-
class method, net loss is allocated between ordinary shares and other participating securities based on their participating rights. The Group’s Class A,
Class B and Class C ordinary shares (Note 20) are participating securities. Diluted loss per share is calculated by dividing net loss attributable to
ordinary shareholders as adjusted for the effect of dilutive ordinary equivalent shares, if any, by the weighted average number of ordinary and dilutive
ordinary equivalent shares outstanding during the period. Ordinary equivalent shares consist of the ordinary shares issuable upon the conversion of
the Group’s redeemable convertible preferred shares and convertible senior notes using the if-converted method and ordinary shares issuable upon
the exercise of the share options and vesting of restricted share units, using the treasury stock method. Ordinary share equivalents are excluded from
the computation of diluted loss per share if their effects would be anti-dilutive.
F-34
Table of Contents
BEST INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2017, 2018 AND 2019 (CONTINUED)
(Amounts in thousands of Renminbi (“RMB”) and US dollars (“US$”)
except for number of shares and per share data)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Loss per share (continued)
For the years ended December 31, 2017,2018 and 2019, the two-class method is applicable because the Company has three classes of
ordinary shares outstanding, Class A, Class B and Class C ordinary shares, respectively. The participating rights (liquidation and dividend rights) of
the holders of the Company’s Class A, Class B and Class C ordinary shares are identical, except with respect to voting and conversion (Note 20). In
accordance with ASC 260, the undistributed loss for each year is allocated based on the contractual participation rights of the Class A, Class B and
Class C ordinary shares, respectively. As the liquidation and dividend rights are identical, the undistributed loss is allocated on a proportionate basis.
Segment reporting
In accordance with ASC 280, Segment Reporting, operating segments are defined as components of an enterprise for which separate
financial information is available that is regularly evaluated by the chief operating decision maker (“CODM”), or decision making group, in
deciding how to allocate resources and in assessing performance. The Group’s CODM is the Chief Executive Officer and each of its major service
lines is a discrete operating and reportable segment.
Recent accounting pronouncements
In January 2017, the FASB issued ASU 2017-04, Simplifying the Test for Goodwill Impairment (“ASU 2017-04”), which simplifies the
accounting for goodwill impairment by eliminating Step two from the goodwill impairment test. The guidance is effective for annual and interim
impairment tests performed in periods beginning after December 15, 2019. Early adoption is permitted for all entities for annual and interim goodwill
impairment testing dates on or after January 1, 2017. The guidance should be applied on a prospective basis. The Group does not believe the adoption
of this standard will have a material impact on its consolidated financial statements.
In June 2016, the FASB issued ASU No. 2016-13, Financial Instrument – Credit Losses (Topic 326): Measurement of Credit Losses on
Financial Instruments (“ASU 2016-13”). The guidance requires the measurement and recognition of expected credit losses for financial assets held at
amortized cost. ASU 2016-13 replaces the existing incurred loss impairment model with an expected loss methodology, which will result in more
timely recognition of credit losses. The guidance will be effective for fiscal years and interim periods beginning after December 15, 2019 and early
adoption is permitted for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. In November 2018, the
FASB issued ASU No. 2018-19, Codification Improvements to Topic 326, Financial Instruments—Credit Losses, which clarifies that receivables
arising from operating leases should be accounted for in accordance with ASC Topic 842, Leases instead of ASC Subtopic 326-20.
The Group does not believe the adoption of this standard will have a material impact on its consolidated financial statements.
In August 2018, the FASB issued ASU No. 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework—Changes to the
Disclosure Requirements for Fair Value Measurement which eliminates, adds and modifies certain disclosure requirements for fair value
measurements. Under the guidance, public companies will be required to disclose the range and weighted average used to develop significant
unobservable inputs for Level 3 fair value measurements. The guidance is effective for all entities for fiscal years beginning after December 15, 2019
and for interim periods within those fiscal years, but entities are permitted to early adopt either the entire standard or only the provisions that
eliminate or modify the requirements. The Group does not expect a significant impact from adoption of this standard on its consolidated financial
statements.
F-35
Table of Contents
BEST INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2017, 2018 AND 2019 (CONTINUED)
(Amounts in thousands of Renminbi (“RMB”) and US dollars (“US$”)
except for number of shares and per share data)
3. CONCENTRATION OF RISKS
Concentration of credit risk
Assets that potentially subject the Group to significant concentration of credit risk primarily consist of cash and cash equivalents, restricted
cash, accounts receivable and lease rental and other financing receivables. As of December 31, 2018 and 2019, RMB2,817,959 and RMB3,785,060
(US$ 543,690), respectively, of the Group’s cash and cash equivalents and restricted cash were primarily deposited in financial institutions located in
the PRC, which management believes are of high credit quality.
Accounts receivable are typically unsecured and derived from revenue earned from customers mainly in the PRC, which are exposed to
credit risk. The risk is mitigated by credit evaluations the Group performs on its customers and its ongoing monitoring process of outstanding
balances. The Group maintains reserves for estimated credit losses, which have generally been within its expectations.
The Group is exposed to default risk on its lease rental and other financing receivables amounting to RMB2,044,880 and RMB2,136,847
(US$306,939) as of December 31, 2018 and 2019. The Group regularly reviews the creditworthiness and lease rental and other financing receivables
are fully collateralized by assets the Group can repossess in the event of default. The Group assesses the allowance for credit losses related to lease
rental and other financing receivables on a quarterly basis, either on an individual or collective basis. The Group maintains reserves for estimated
credit losses, which have generally been within its expectations.
The Group is able to take as collateral certain operating assets which it is able to monitor and repossess for rapid utilization and/or
monetization in the event of a default. In addition, as most of the parties to which the Group provides financial services are the Group’s ecosystem
participants, the Group has substantial knowledge about their business and operations and can monitor their financial position and their usage of
collateralized assets.
Business, customer, political, social and economic risks
The Group participates in a dynamic logistics and supply chain management industry and believes that changes in any of the following areas
could have a material adverse effect on the Group’s future financial position, results of operations or cash flows: changes in the overall demand for
services; competitive pressures due to new entrants; advances and new trends in new technologies and industry standards; changes in certain strategic
relationships or customer relationships; regulatory considerations; and risks associated with the Group’s ability to attract and retain employees
necessary to support its growth. The Group’s operations could be also adversely affected by significant political, economic and social uncertainties in
the PRC.
Domestic mail delivery service-related businesses and planned value-added telecommunication services in connection with UCargo business
since 2020 are subject to significant restrictions under current PRC laws and regulations. Specifically, foreign investors are not allowed to invest in
any domestic mail delivery service business. Currently, the Group conducts its operations in China through contractual arrangements entered between
the Company, its PRC subsidiaries and VIEs. The relevant regulatory authorities may find the current contractual arrangements and businesses to be
in violation of any existing or future PRC laws or regulations. If so, the relevant regulatory authorities would have broad discretion in dealing with
such violations. In addition, if the current ownership structure of the Company and its contractual arrangements with the VIEs are found to be in
violation of any existing or future PRC laws and regulations, the Company may be required to restructure its ownership structure and operations in
the PRC to comply with the changing and new PRC laws and regulations. The Company may not be able to operate or control the VIEs, which may
result in deconsolidation of the VIEs.
No single customer or supplier accounted for more than 10% of revenues or cost of revenues for the years ended December 31, 2017, 2018
and 2019.
F-36
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BEST INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2017, 2018 AND 2019 (CONTINUED)
(Amounts in thousands of Renminbi (“RMB”) and US dollars (“US$”)
except for number of shares and per share data)
3. CONCENTRATION OF RISKS (CONTINUED)
Currency convertibility risk
The Group primarily transacts all of its business in RMB, which is not freely convertible into foreign currencies. On January 1, 1994, the
PRC government abolished the dual rate system and introduced a single rate of exchange as quoted daily by the PBOC. However, the unification of
the exchange rates does not imply that the RMB may be readily convertible into United States dollars or other foreign currencies. All foreign
exchange transactions continue to take place either through the PBOC or other banks authorized to buy and sell foreign currencies at the exchange
rates quoted by the PBOC. Approval of foreign currency payments by the PBOC or other institutions requires submitting a payment application form
together with suppliers’ invoices, shipping documents and signed contracts.
Foreign currency exchange rate risk
From July 21, 2005, the RMB is permitted to fluctuate within a narrow and managed band against a basket of certain foreign currencies. For
RMB against U.S. dollars, there was appreciation of 5.8% in the year ended December 31, 2017 and depreciation of 5.0% and 1.6% in the years
ended December 31, 2018 and 2019, respectively. It is difficult to predict how market forces or PRC or U.S. government policy may impact the
exchange rate between the RMB and the U.S. dollars in the future.
To the extent that the Company needs to convert U.S. dollars into RMB for capital expenditures and working capital and other business
purposes, appreciation of RMB against the U.S. dollar would have an adverse effect on the RMB amount the Company would receive from the
conversion. Conversely, if the Company decides to convert RMB into U.S. dollars for the purpose of making payments for dividends on ordinary
shares, strategic acquisitions or investments or other business purposes, appreciation of the U.S. dollar against RMB would have a negative effect on
the U.S. dollar amount available to the Company. In addition, a significant depreciation of the RMB against the U.S. dollar may significantly reduce
the U.S. dollar equivalent of the Company’s earnings or losses.
F-37
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BEST INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2017, 2018 AND 2019 (CONTINUED)
(Amounts in thousands of Renminbi (“RMB”) and US dollars (“US$”)
except for number of shares and per share data)
4. BUSINESS COMBINATIONS
Acquisition of Wowo
On May 4, 2017, the Group acquired a 62.5% and 79.17% equity interest in Wowo and Chengdu Yidanshi Food Co. Ltd (“YDS”),
respectively. The acquisitions were accounted for as a single business combination as they are considered linked transactions given the acquisition
agreements were entered into at or around the same time with the same counterparties. Wowo operates convenience stores that are supported by
certain services provided by YDS, which is not considered a principal part of the business. The Group acquired Wowo in order to accumulate first-
hand experience and know-how in convenience store operation for a total cash consideration RMB208,377.
Goodwill recognized represents the expected synergies from integrating the Wowo and YDS operations with the existing Store+services and
is not tax deductible. The purchase price allocation for the acquisitions was based on a valuation determined by the Group with the assistance of an
independent third-party valuation firm. The following table summarizes the fair values of the assets acquired and liabilities assumed at the date of
acquisition.
Consideration:
Cash
Less:
Cash
Inventories
Other current assets
Brand name
Other non-current assets
Short-term bank loans
Other current liabilities
Other non-current liabilities
Deferred tax liabilities
Non controlling interests
Goodwill
RMB
208,377
2,737
53,003
162,220
116,600
28,419
(3,500)
(152,882)
(57,509)
(30,264)
(91,623)
181,176
The non-controlling interests on acquisition date was measured by applying the equity percentage held by minority shareholders and a
discount for lack of control premium to the fair value of the acquired business of Wowo and YDS, which was determined using an income approach.
The significant inputs were revenue growth rates, gross margin rates, gross margin ratios, weighted-average cost of capital, and terminal growth rates.
Identifiable intangible assets acquired include Wowo’s brand name, which was valued using a relief from royalty approach and has an estimated
remaining useful life of 20 years.
On August 14, 2017, the Group acquired the remaining non-controlling interest of Wowo resulting in the Group becoming the sole
shareholder of Wowo for a total cash consideration of RMB90,778, which represented the carrying amount of the non-controlling interest on the
acquisition date. The acquisition of the non-controlling interest by the Group was accounted for as an equity transaction. The non-controlling interests
balance as at December 31, 2018 of RMB678 is attributable to the minority shareholders of YDS.
On March 14, 2018, the Group acquired the remaining non-controlling interest of YDS and became the sole shareholder of YDS for a total
cash consideration of RMB845. The acquisition of the non-controlling interest by the Group was accounted for as an equity transaction.
On December 2, 2019, the Group disposed all of their equity interests in YDS and recognized a gain on disposal of its subsidiary of
RMB4,040 (US$580) which was recorded in “Other income” in the consolidated statement of comprehensive loss.
F-38
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BEST INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2017, 2018 AND 2019 (CONTINUED)
(Amounts in thousands of Renminbi (“RMB”) and US dollars (“US$”)
except for number of shares and per share data)
4. BUSINESS COMBINATIONS (CONTINUED)
Acquisition of Wowo (continued)
The unaudited pro forma information for the year ended December 31, 2017 set forth below gives effect to the acquisition as if it had
occurred at the beginning of the period. The pro forma results have been calculated after applying the Company's accounting policies and including
adjustments primarily related to the amortization of acquired intangible assets, and income tax effects, as applicable. The pro forma information does
not include any impact of transaction synergies and is presented for informational purposes only and is not necessarily indicative of the results of
operations that actually would have been occurred had the acquisition been consummated as of that time or that may result in the future:
Revenue
Net loss
Acquisitions in 2018 and 2019
Year ended December 31, 2017
Pro forma
(unaudited)
RMB
20,167,825
(1,228,161)
As reported
RMB
19,989,562
(1,228,060)
As reported
US$
3,072,339
(188,749)
During the year ended December 31, 2018, the Group completed an acquisition of a convenience store operation to complement its existing
businesses and achieve synergies. The purchase consideration was not significant. Results of the acquired business have been included in the Group’s
consolidated financial statements since the acquisition date. Goodwill recognized in 2018 represents the expected synergies from integrating the
convenience store operations and is not tax deductible.
On July 1, 2019, the Group completed an acquisition of an overseas express delivery service operation to complement its existing businesses
and achieve synergies. The purchase consideration was not significant. Results of the acquired business have been included in the Group’s
consolidated financial statements since the acquisition date. Goodwill recognized in 2019 represents the expected synergies from integrating the
express delivery service operations and is not tax deductible.
The actual results of operations after the acquisition date and pro-forma results of operations for these acquisitions have not been presented
because the effects of these acquisitions were insignificant.
F-39
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BEST INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2017, 2018 AND 2019 (CONTINUED)
(Amounts in thousands of Renminbi (“RMB”) and US dollars (“US$”)
except for number of shares and per share data)
5. ACCOUNTS AND NOTES RECEIVABLE, NET
Accounts and notes receivable, net, consists of the following:
Accounts receivable
Notes receivable
Allowance for doubtful accounts
Accounts and notes receivable, net
The movements in the allowance for doubtful accounts were as follows:
Balance at beginning of the year
Additions
Write-offs
Balance at end of the year
6. PREPAYMENTS AND OTHER CURRENT ASSETS
As at December 31
2018
RMB
1,059,129
12,820
(25,105)
1,046,844
2019
RMB
1,287,232
28,003
(86,152)
1,229,083
2019
US$
184,900
4,022
(12,375)
176,547
2017
RMB
(6,708)
(18,958)
19,872
(5,794)
As at December 31
2019
RMB
(25,105)
(105,984)
44,937
(86,152)
2018
RMB
(5,794)
(60,183)
40,872
(25,105)
2019
US$
(3,606)
(15,224)
6,455
(12,375)
As of December 31, 2018 and 2019, VAT prepayments amounting to RMB697,112 and RMB1,067,858 (US$153,388), respectively, are
included in prepayments and other current assets.
7. PROPERTY AND EQUIPMENT, NET
Machinery and electronic equipment
Leasehold improvements
Motor vehicles
Construction in progress
Less: accumulated depreciation
2018
RMB
1,794,624
952,789
5,410
493,121
3,245,944
(1,181,287)
2,064,657
As at December 31
2019
RMB
2,571,548
1,192,607
5,264
725,221
4,494,640
(1,555,261)
2,939,379
2019
US$
369,380
171,307
756
104,171
645,614
(223,399)
422,215
The Group acquired certain machinery and electronic equipment by entering into financing leases. The gross amount and the accumulated
depreciation of these machinery and electronic equipment were RMB29,167 and RMB19,176, respectively, as of December 31, 2018 and
RMB30,462 (US$ 4,376) and RMB22,566 (US$ 3,241), respectively, as of December 31, 2019. Future minimum lease payments are disclosed in
Note 9. Depreciation expense of property and equipment, including assets under financing leases, was RMB347,567, RMB437,139 and RMB465,874
(US$66,919) for the years ended December 31, 2017, 2018 and 2019, respectively.
As of December 31, 2018 and 2019, the balances of construction in progress were RMB493,121 and RMB725,221 (US$104,171),
respectively, which were related to the construction of warehouses, hubs and sortation centers and related equipment.
F-40
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BEST INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2017, 2018 AND 2019 (CONTINUED)
(Amounts in thousands of Renminbi (“RMB”) and US dollars (“US$”)
except for number of shares and per share data)
8. INTANGIBLE ASSETS, NET
Customer relationships
Brand name
Software
Domain name
Others
Less: accumulated amortization
2018
RMB
10,449
116,600
56,346
1,329
6,130
190,854
(47,044)
143,810
As at December 31
2019
RMB
10,449
116,600
61,027
1,329
6,130
195,535
(73,948)
121,587
2019
US$
1,501
16,748
8,765
191
881
28,086
(10,621)
17,465
Amortization expense of intangible assets was RMB16,342, RMB24,473 and RMB26,904 (US$3,864) for the years ended December 31,
2017, 2018 and 2019, respectively. Estimated amortization expense relating to the existing intangible assets with finite lives for each of the next
five years is as follows:
2020
2021
2022
2023
2024
RMB
USD
17,210
9,868
6,952
6,326
6,245
46,601
2,472
1,417
999
909
897
6,694
No impairment losses were recognized for the years ended December 31, 2017, 2018 and 2019, respectively.
9. LEASES
Leases of motor vehicles and logistic equipment as Lessor
The Group provides direct financing and sales-type leases of motor vehicles and logistic equipment, primarily to transportation service
providers that meet the Group’s credit assessment requirements. The lease terms range from two to ten years, do not contain contingent rental income
clauses, and are fully collateralized by assets the Group can repossess in the event of default. Initial direct costs were insignificant for all periods
presented. The lease agreements include lease payments that are fixed, do not contain residual value guarantees or variable lease payments. The
Group generally either grants the lessee an option at the end of the lease term to purchase the underlying asset that the lessee is reasonably certain to
exercise or ownership of the underlying asset transfers to the lessee for a nominal amount.
F-41
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BEST INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2017, 2018 AND 2019 (CONTINUED)
(Amounts in thousands of Renminbi (“RMB”) and US dollars (“US$”)
except for number of shares and per share data)
9. LEASES (CONTINUED)
Leases of motor vehicles and logistic equipment as Lessor (continued)
The net investment in direct financing and sales-type leases are presented as “Lease rental receivables” on the consolidated balance sheets as
follows:
Current assets:
Direct financing leases
Sales-type leases
Non-current assets:
Direct financing leases
Sales-type leases
Total
The net investment in direct financing and sales-type leases consisted of:
Total minimum lease payments receivable
Less: Executory costs
Minimum lease payments receivable
Less: Allowance for un-collectables
Net minimum lease payments receivable
Unguaranteed residuals
Less: Unearned income
Net investment in financing leases
Current portion
Non-current portion
2018
RMB
613,439
—
613,439
1,431,441
—
1,431,441
2,044,880
As at December 31
2019
RMB
570,182
80,730
650,912
859,936
217,840
1,077,776
1,728,688
2019
US$
81,902
11,596
93,498
123,522
31,291
154,813
248,311
2018
RMB
2,340,674
—
2,340,674
—
2,340,674
—
(295,794)
2,044,880
613,439
1,431,441
As at December 31
2019
RMB
2019
US$
1,963,359
—
1,963,359
(11,014)
1,952,345
—
(223,657)
1,728,688
650,912
1,077,776
282,019
—
282,019
(1,582)
280,437
—
(32,126)
248,311
93,498
154,813
For the years ended December 31, 2017, 2018 and 2019, the Group recorded RMB62,174, RMB125,225 and RMB139,394 (US$20,022) of
interest income from direct financing and sales-type leases as a lessor in “Revenue - Others” on its consolidated statements of comprehensive loss.
Losses incurred with respect to default on lease receivables were insignificant for all periods presented. As of December 31, 2018 and 2019,
the allowance of lease rental receivables were RMB nil and RMB11,014 (US$1,582), respectively. Accordingly, risk of default with respect to these
receivables is remote.
F-42
Table of Contents
BEST INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2017, 2018 AND 2019 (CONTINUED)
(Amounts in thousands of Renminbi (“RMB”) and US dollars (“US$”)
except for number of shares and per share data)
9. LEASES (CONTINUED)
Leases of motor vehicles and logistic equipment as Lessor (continued)
Future minimum lease payments to be received for the direct financing and sales-type leases for each of the five succeeding fiscal years as of
the December 31, 2019 are as follows:
For the year ending December 31, 2020
For the year ending December 31, 2021
For the year ending December 31, 2022
For the year ending December 31, 2023
For the year ending December 31, 2024
Thereafter
Total minimum lease payments
Unearned income
Net investment in direct financing and sales-type leases
Failed sale-leaseback transactions as buyer-lessor
As at December 31
2018
RMB
748,377
735,913
475,313
214,554
107,120
59,397
2,340,674
(295,794)
2,044,880
As at December 31
2019
RMB
762,491
605,661
318,962
158,503
71,383
35,345
1,952,345
(223,657)
1,728,688
US$
109,525
86,998
45,816
22,768
10,254
5,076
280,437
(32,126)
248,311
The Group has certain failed sales-leaseback transactions of certain motor vehicles and logistic equipment in which the Group acts as buyer-
lessor but the seller-lessee does not transfer the control of the leased asset to the Group. The internal rate of return is used in the computation of
interest income which is recorded in “Revenue - Others” in the Group’s consolidated statement of comprehensive loss and was insignificant for the
years ended December 31, 2017, 2018 and 2019. As of December 31, 2019, the Group recorded RMB189,642 (US$27,240) under "Prepayments and
other current assets" and RMB218,517 (US$31,388) under "Other non-current assets", respectively.
Financing and operating leases as Lessee
The Group has operating leases for certain offices, warehouses, hub and sortation center facilities and equipment and financing leases for
certain machinery and electronic equipment as a lessee.
The Group’s lease agreements include lease payments that are fixed, do not contain material residual value guarantees or variable lease
payments. The leases have remaining lease terms of up to twenty years. Certain lease agreements include terms with options to extend the lease,
however none of these have been recognized in the Company’s operating lease ROU assets or operating lease liabilities since those options were not
reasonably certain to be exercised. The Group’s leases do not contain restrictions or covenants that restrict the Group from incurring other financial
obligations. The Group’s lease agreements may contain lease and non-lease components. Non-lease components primarily include payments for
maintenance and utilities. Consideration for lease and non-lease components are allocated on a relative standalone selling price basis.
F-43
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BEST INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2017, 2018 AND 2019 (CONTINUED)
(Amounts in thousands of Renminbi (“RMB”) and US dollars (“US$”)
except for number of shares and per share data)
9. LEASES (CONTINUED)
Financing and operating leases as Lessee (continued)
The components of lease cost were as follows:
Operating lease cost
Short-term lease cost
Financing lease cost:
Amortization of ROU assets
Interest
Total lease cost
Other information
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases
Operating cash flows from financing leases
Financing cash flows from financing leases
ROU assets obtained in exchange for new operating lease liabilities
ROU obtained in exchange for new finance lease liabilities
Weighted-average remaining lease term (in years):
Operating leases
Financing leases
Weighted-average discount rate:
Operating leases
Financing leases
For the year ended December 31, 2019
RMB
1,272,499
126,840
3,390
304
US$
182,784
18,219
487
44
1,403,033
201,534
For the year ended December 31, 2019
RMB
US$
1,288,410
304
1,215
1,583,430
1,054
185,069
44
175
227,445
151
5.38
2.75
7.78 %
7.38 %
For the year ended December 31, 2019, total operating and short-term lease costs of RMB1,269,946 (US$182,416), RMB93,738
(US$13,465), and RMB35,655 (US$5,122) were recorded in cost of revenue, selling expenses, general and administrative expenses, respectively.
Total expenses under operating leases were RMB981,737 and RMB1,083,889 for the years ended December 31, 2017 and 2018,
respectively.
F-44
Table of Contents
BEST INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2017, 2018 AND 2019 (CONTINUED)
(Amounts in thousands of Renminbi (“RMB”) and US dollars (“US$”)
except for number of shares and per share data)
9. LEASES (CONTINUED)
Financing and operating leases as Lessee (continued)
Future minimum lease payments for operating and financing leases as of December 31, 2019 are as follows:
For the year ended December 31,2020
For the year ended December 31,2021
For the year ended December 31,2022
For the year ended December 31,2023
For the year ended December 31,2024
Thereafter
Total minimum lease payments
Less: imputed interest
Total lease liability balance
Operating Leases
RMB
1,343,383
1,112,846
921,212
779,506
566,235
948,275
5,671,457
1,153,571
4,517,886
US$
192,965
159,850
132,324
111,969
81,335
136,211
814,654
165,700
648,954
Minimum payments related to leases not yet commenced as of December 31, 2019
310,004
44,529
10. LONG-TERM INVESTMENTS
Equity investments without readily determinable fair value
Financing leases
RMB
US$
1,643
1,399
619
506
38
—
4,205
770
3,435
—
236
201
89
73
5
—
604
110
494
—
Equity investments without readily determinable fair value were accounted for as cost method investments prior to adopting ASC 321 on
January 1, 2018. As of December 31, 2017, the carrying amount of the Company’s cost method investments was RMB 30,000. In accordance with
ASC 321, the Company elected to use the measurement alternative to measure such investments at cost, less any impairment, plus or minus changes
resulting from observable price changes in orderly transactions for identical or similar investments of the same issuer, if any. As of December 31,
2018 and 2019, the carrying amount of the Company’s equity investments was RMB207,628 and RMB224,927 (US$32,309), net of RMB nil and
RMB nil (US$ nil) in accumulated impairment, respectively. During the years ended December 31, 2018 and 2019, certain equity investments were
remeasured based on observable price changes in orderly transactions for an identical or similar investment of the same issuer and the aggregate
carrying amount of these investments was RMB94,628 and RMB119,927 (US$17,226) as of December 31, 2018 and 2019.
Unrealized gains (upward adjustments) and losses (downward adjustments and impairment) resulting from observable price changes of
equity securities without readily determinable fair values for the years ended December 31, 2018 and 2019 were RMB64,628 and RMB nil, and
RMB14,155 (US$2,033) and RMB nil (US$ nil), respectively.
Net unrealized gains and losses for equity securities held were RMB64,628 and RMB14,155 (US$2,033) for the year ended December 31,
2018 and 2019. Net realized gains and losses on equity securities sold were RMB nil, and RMB nil (US$ nil) for the years ended December 31, 2018
and 2019 , respectively.
Equity method investments
In 2015, the Group completed the investment in Hangzhou Dezhi Logistic Co., Ltd. (“Dezhi”) through the subscription of newly issued
ordinary shares representing 30% equity interest in Dezhi. Total consideration for the investment in Dezhi was RMB300 in cash. The Group accounts
for the investment in Dezhi as an equity method investment due to its significant influence over the entity. On October 29, 2019, the Group disposed
of its equity interest in Dezhi and realized a gain on disposal of RMB22 (US$3).
F-45
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BEST INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2017, 2018 AND 2019 (CONTINUED)
(Amounts in thousands of Renminbi (“RMB”) and US dollars (“US$”)
except for number of shares and per share data)
10. LONG-TERM INVESTMENTS (CONTINUED)
Equity method investments (continued)
On January 22, 2017, the Group completed the investment in Hangzhou Jinye Technology Co., Ltd. (“Jinye”) through the subscription of
newly issued ordinary shares representing a 13.73% equity interest in Jinye. Total consideration for the investment in Jinye was RMB7,652 in cash.
The Group accounts for the investment in Jinye as an equity method investment due to its significant influence over the entity, as the Group has one
board seat out of five in Jinye. During the year ended December 31, 2018, the Group’s investment was diluted to 13.04% due to Jinye’s closing of
equity financing raised from investors.
The carrying amount of the equity method investments were RMB6,711 and RMB5,928 (US$851) as of December 31, 2018 and 2019,
respectively. There were no impairment indicators for the equity method investments and no impairment losses were recognized for the years ended
December 31, 2017, 2018 and 2019, respectively. Selected financial information of the equity method investees have not been presented as the
effects were not material.
11. GOODWILL
Balance as of January 1, 2018
Goodwill acquired
Balance as of December 31, 2018
Goodwill acquired
Balance as of December 31, 2019
Balance as of December 31, 2019 (US$)
Express
delivery
241,623
—
241,623
—
241,623
34,707
Reporting units/operating segment
Freight
delivery
5,580
—
5,580
—
5,580
802
Others
20,205
—
20,205
21,910
42,115
6,049
Store+
181,176
20,492
201,668
—
201,668
28,968
Total
448,584
20,492
469,076
21,910
490,986
70,526
For the years ended December 31, 2017, 2018 and 2019, the Group performed a qualitative assessment for the Express delivery and Freight
delivery services reporting units based on the requirements of ASC 350-20. The Group evaluated all relevant factors, weighed all factors in their
entirety and concluded that it was not more-likely-than-not that the fair values of the Express delivery and Freight delivery services reporting units
were less than their respective carrying amounts. Therefore, further impairment testing on goodwill was unnecessary as of December 31, 2018 and
2019, respectively.
For the years ended December 31, 2017, 2018 and 2019, the Group performed a quantitative assessment for the remaining reporting units by
estimating the fair value of the reporting units based on an income approach which involved significant management judgment, estimates and
assumptions such as the discount rate, revenue growth rates and operating margin. The fair values of the remaining reporting units exceeded their
respective carrying values and therefore, goodwill related to these reporting units was not impaired.
No impairment losses were recognized for the years ended December 31, 2017, 2018 and 2019.
F-46
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BEST INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2017, 2018 AND 2019 (CONTINUED)
(Amounts in thousands of Renminbi (“RMB”) and US dollars (“US$”)
except for number of shares and per share data)
12. SHORT-TERM BANK LOANS
Short-term bank loans guaranteed by subsidiaries within the Group
Short-term bank loans pledged by deposits
Secured bank borrowings
As at December 31
2018
RMB
740,000
1,042,900
—
1,782,900
2019
RMB
960,000
1,159,000
391,500
2,510,500
2019
US$
137,895
166,481
56,235
360,611
During 2019, the Group factored certain intercompany notes receivables with a total face value of RMB471,500 (US$67,727) to several
domestic banks for total proceeds of RMB458,864 (US$65,912) at effective interest rates ranging from 2.67% to 3.86% ("the receivable factoring
transaction"). As the factoring of notes receivables was with recourse, the receivable factoring transaction did not qualify as a transfer of financial
assets to be considered as a sale under ASC 860 and was accounted for as a secured borrowing. The note receivables remain on the consolidated
balance sheet while the proceeds are recognized as secured bank borrowings included in "Short-term bank loans".
Short-term bank loans consisted of several bank loans denominated in RMB. The total deposits in restricted cash pledged for short-term
bank loans and secured bank borrowings was RMB1,166,744 and RMB1,590,025 (US$228,393) as of December 31, 2018 and December 31, 2019,
respectively. The weighted average interest rate for the outstanding borrowings as of December 31, 2018 and December 31, 2019, was 4.80% and
4.27% respectively. The total intercompany notes receivables pledged for secured bank borrowings was RMB nil and RMB 391,500 (US$56,235) as
of December 31, 2018 and 2019.
13. ACCRUED EXPENSES AND OTHER LIABILITIES
Accrued expenses and other liabilities consist of the following:
Salary and welfare payable
Accrual for purchases of property and equipment
Accrued expenses
Borrowings for electronic machinery and equipment
Payable for business acquisitions
Others
As at December 31
2018
RMB
1,164,401
252,265
277,479
—
12,335
532,305
2,238,785
2019
RMB
1,228,253
128,457
81,576
40,036
11,095
533,846
2,023,263
2019
US$
176,427
18,452
11,718
5,751
1,594
76,680
290,622
Payable for business acquisitions mainly represents the amount to be paid to the original shareholders at the end of the escrow periods or
consideration to be paid for other acquisitions based on their respective payment schedules.
F-47
Table of Contents
BEST INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2017, 2018 AND 2019 (CONTINUED)
(Amounts in thousands of Renminbi (“RMB”) and US dollars (“US$”)
except for number of shares and per share data)
13. ACCRUED EXPENSES AND OTHER LIABILITIES (CONTINUED)
In the year ended December 31, 2019, the Group received total proceeds of RMB94,000 (US$13,502) from third-party financing lease
companies (buyer-lessor) for which the Group acts as seller-lessee but did not transfer the control of leased machinery and electronic equipment to
the buyer-lessor. These failed sales-leaseback transactions were accounted for as financing transactions. Pursuant to the terms of the agreements, the
weighted average effective interest rate of the outstanding borrowings was 8.06% and repayments are to be made over a weighted average period of
2.47 years. At the end of the repayment schedule, the Group is entitled to obtain ownership of these equipment for nominal consideration. For the
year ended December 31, 2019, interest costs incurred was not material. As of December 31, 2019, the Group recorded the current portion of the
borrowings of RMB40,036 (US$5,751) in "Accrued expenses and other liabilities" and the non-current portion of borrowings of RMB41,451
(US$5,954) in "Other non-current liabilities", respectively. As of December 31, 2019, RMB40,167 (US$5,770), RMB31,333 (US$4,501) and
RMB9,778 (US$1,404) of the borrowings are due in 2020, 2021 and 2022, respectively. These borrowings were partially collateralized by the
Company's electronic machinery and equipment with a total carrying value of RMB61,488 (US$8,832) as of December 31, 2019.
14. SECURITIZATION DEBT
In June 2019, BEST Finance transferred certain lease rental and other financing receivables totaling RMB705,033 (US$102,700) with
remaining lease terms ranging from one to four years originating from its finance leasing services business to a securitization vehicle. The
securitization vehicle created Xinyuan Leasing Asset Backed Special Plan (the “Plan”) and contemporaneously issued debt securities securitized by
the transferred lease rental receivables (“asset-backed securities”) to qualified institution investors on the Shanghai Stock Exchange and raised total
proceeds of RMB262,316 (US$37,679) under the Plan , net of issuance costs for the securitization transaction of RMB6,684 (US$974). The Plan
consists of three tranches: Series A tranche with a stated interest of 5.5% maturing no later than 2020, Series B tranche with a stated interest of 6.5%
maturing no later than 2020 and a subordinated tranche maturing no later than 2023. The Group also provided a guarantee to the Plan to secure the
full repayment of the principal and interest of the Series A and B tranches of the Plan issued to external investors.
The Group acts as the servicer of the Plan by providing payment collection services for the underlying lease rental receivables and holds
significant variable interests in the Plan through holding all of the subordinated tranche of asset-backed debt securities maturing no later than 2023
and the guarantee provided, from which the Group has the obligation to absorb losses of the Plan that could potentially be significant to the Plan.
Accordingly, the Group is considered the primary beneficiary of the Plan and has consolidated the Plan’s assets, liabilities, results of operations, and
cash flows in the accompanying consolidated financial statements.
As a result of the series of transactions described above, the maturity dates of the Series A and B tranches of the Plan issued to external
investors were considered borrowings from external investors. The proceeds from borrowings from external investors is a financing activity and
reported as “Proceeds from issuance of asset-backed securities, net of issuance costs” on the consolidated statements of cash flows. Repayments on
the borrowings totaled RMB157,417 (US$22,612) during 2019 from external investors were made according to the payment schedule.
As of December 31, 2019, the outstanding borrowings from external investors was RMB104,899 (US$15,068) which is repayable within
one year and is included in “Securitization debt” on the consolidated balance sheets. The weighted average effective interest rate for the outstanding
securitization debt was 11.36% as of December 31, 2019.
15. CONVERTIBLE SENIOR NOTES
On September 17, 2019, the Company issued US$200,000 convertible senior notes (the “Notes”) to several initial purchasers. The Notes are
senior, unsecured obligations of the Company, and interest is payable semi-annually in arrears at a rate of 1.75% per annum on April 1 and October 1
of each year, beginning on April 1, 2020. The Notes will mature on October 1, 2024 unless redeemed, repurchased or converted prior to such date.
F-48
Table of Contents
BEST INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2017, 2018 AND 2019 (CONTINUED)
(Amounts in thousands of Renminbi (“RMB”) and US dollars (“US$”)
except for number of shares and per share data)
15. CONVERTIBLE SENIOR NOTES (CONTINUED)
The Notes holders have the right, at their option, to convert the outstanding principal amount of the Notes, in whole or in part in integral
multiples of $1 principal amount (i) upon satisfaction of one or more of the conversion conditions as defined in the indenture for the Notes prior to
the close of business day immediately preceding October 1, 2024; or (ii) anytime on or after October 1, 2024 until the close of business on the second
scheduled trading day immediately preceding the maturity date (the “Conversion Option”).
The initial conversion rate for the Notes is 141.844 of the Company’s American depositary shares (“ADSs ”) per US$1,000 principal
amount of the Notes, which is equivalent to an initial conversion price of US$7.05 per ADS, subject to certain anti-dilution and make-whole
fundamental change adjustments but is not adjusted for any accrued and unpaid interest. Upon conversion, the Company is required to deliver ADSs
to such converting holders and both issuer and holders have no other settlement options.
The holders may require the Company to repurchase all or a portion of the Notes for cash on September 30, 2022 at a repurchase price equal
to 100% of the principal amount of the Notes to be repurchased, plus accrued and unpaid interest to, but excluding, the repurchase date.
If certain events of default, changes in tax laws of the relevant taxing jurisdiction or fundamental change as defined in the indenture for the
Notes were to occur, the outstanding obligations under the Notes could be immediately due and payable (the “Contingent Redemption Options”). The
Company will pay additional interest, at its election, as the sole remedy relating to the failure to comply with certain reporting obligations as defined
in the indenture of the Notes. In addition, the Notes provide its holders with additional interest equal to the fair value of any dividends received by the
holders of the Company’s ordinary shares (the “Contingent Interest Features”).
The Company evaluated the embedded conversion features contained in the Notes and determined that the Conversion Option was not
required to be bifurcated because it met the scope exception provided for under ASC 815-10-15-74(a).
The Company also evaluated the embedded Contingent Redemption Options and Contingent Interest Features contained in the Notes in
accordance with ASC 815 to determine if these features require bifurcation. The Contingent Redemption Options were not required to be bifurcated
because they are considered to be clearly and closely related to the debt host, as the Notes were not issued at a substantial discount and are
redeemable at par.
The Contingent Interest Features are not considered to be clearly and closely related to the debt host and met the definition of a derivative.
However, the fair value of the Contingent Interest Features on the issuance date and at December 31, 2019 was not significant. In addition, the
Company assessed whether the additional interest payments need to be accrued as a liability in accordance with ASC 450. Since the likelihood of the
occurrence of such default events is determined to be remote, the Company did not accrue additional interest expense for the year ended December
31, 2019. The Company will continue to assess the accrual for these additional interest payment liabilities at each reporting date.
Furthermore, no beneficial conversion feature was recognized for the Notes as the fair value per ADS at the commitment date was US$5.53,
which was less than the most favorable conversion price.
In connection with the issuance of the Notes, the Company also purchased capped call options on the Company’s ADS with certain
counterparties at a price of US$22,500 (equivalent to RMB159,138), which was recorded as a reduction of the Company’s additional paid-in capital
on the consolidated balance sheet with no subsequent changes in fair value recorded. The capped call exercise price is equal to the Notes’ initial
conversion price and the cap price is US$10.0 per ADS, subject to certain adjustments under the terms of the capped call transactions. The capped
call transactions are expected to reduce potential dilution to existing holders of the ordinary shares and ADSs of the Company upon conversion of the
Notes with such reduction subject to a cap.
F-49
Table of Contents
BEST INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2017, 2018 AND 2019 (CONTINUED)
(Amounts in thousands of Renminbi (“RMB”) and US dollars (“US$”)
except for number of shares and per share data)
15. CONVERTIBLE SENIOR NOTES (CONTINUED)
The net proceeds from the issuance of the Notes were US$194,457 (equivalent to RMB1,375,355), after deducting underwriting discounts
and offering expenses of US$5,543 (equivalent to RMB39,205) from the initial proceeds of US$200,000.
As of December 31, 2019, the principal amount of the Notes was RMB1,395,240 (US$200,000), unamortized debt discount was
RMB35,032 (US$4,618) and the net carrying amount of the Notes was RMB1,360,208 (US$195,382).
For the year ended December 31, 2019, the amount of interest cost recognized relating to both the contractual interest coupon and
amortization of the discount on the Notes was RMB10,894 (US$1,565). As of December 31, 2019, the Notes will be accreted up to the principal
amount of US$200,000 (equivalent to RMB1,395,240) over a remaining period of 2.75 years.
The aggregate scheduled maturities of RMB1,395,240 (US$200,000) of the Notes will be repaid when they become due in 2024, assuming
no conversion, redemption prior to the maturity and convertible senior note bondholders hold the Notes until maturity.
16. TAXATION
Cayman Islands
Under the current laws of the Cayman Islands, the Company is not subject to tax on income or capital gains. In addition, upon payments of
dividends by the Company to its shareholders, no withholding tax is imposed.
British Virgin Islands
Under the current laws of the British Virgin Islands, BEST BVI is not subject to tax on income or capital gains. In addition, upon payments
of dividends by BEST BVI to its shareholders, no withholding tax is imposed.
Hong Kong
The subsidiaries incorporated in Hong Kong are subject to income tax at the rate of 16.5% on the estimated assessable profits arising in
Hong Kong. For the years ended December 31, 2017, 2018 and 2019, the Group did not make any provisions for Hong Kong profit tax as there were
no assessable profits derived from or earned in Hong Kong for any of the periods presented. Under the Hong Kong tax law, BEST HK and BEST
Capital HK are exempted from income tax on their foreign-derived income and there are no withholding taxes in Hong Kong on remittance of
dividends.
China
The current enterprise income tax law (“EIT Law”) applies a uniform 25% enterprise income tax (“EIT”) rate to both foreign invested
enterprises and domestic enterprises.
F-50
Table of Contents
BEST INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2017, 2018 AND 2019 (CONTINUED)
(Amounts in thousands of Renminbi (“RMB”) and US dollars (“US$”)
except for number of shares and per share data)
16. TAXATION (CONTINUED)
The EIT Law treats enterprises established outside of the PRC with "effective management and control" located in the PRC as PRC resident
enterprises for tax purposes. The term "effective management and control" is generally defined as exercising management and control over the
business, personnel, accounting, properties, etc. of an enterprise. Any companies located in jurisdictions outside of the PRC, if considered a PRC
resident enterprise for tax purposes, would be subject to the PRC enterprise income tax at the rate of 25% on their worldwide income commencing on
January 1, 2008. As of December 31, 2019, the Company has not accrued for PRC tax on such basis as the Group's non-PRC entities had zero
assessable profits in the PRC for the period after January 1, 2008. The Group will continue to monitor the tax status of its non-PRC entities with
regards to the PRC tax resident enterprise rules.
Pursuant to relevant laws and regulations in the PRC and with approval from tax authorities in charge, one of the Group's subsidiaries, BEST
Technology, qualified as a High and New Technology Enterprise ("HNTE"), and is entitled to the preferential tax rate of 15% for three years from
2016 to 2018. During 2019, BEST Technology has renewed the HNTE certificate for three years from 2019 to 2021.
Withholding tax on undistributed dividends
The EIT law also imposes a withholding income tax of 10% on dividends distributed by a foreign invested enterprise (“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. According to the Arrangement between the Mainland of China and the Hong Kong Special Administrative
Region for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with respect to Taxes On Income 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 directly owns at least 25% of the shares of the FIE).
PRC
Non-PRC
For the year ended December 31,
2017
RMB
(1,229,979)
12,591
(1,217,388)
2018
RMB
(523,221)
27,173
(496,048)
2019
RMB
(287,511)
87,088
(200,423)
2019
US$
(41,298)
12,509
(28,789)
The current and deferred components of income tax expense appearing in the consolidated statements of comprehensive loss are as follows:
Current income tax
Deferred income tax
For the year ended December 31,
2017
RMB
(11,536)
1,680
(9,856)
2018
RMB
(18,219)
6,332
(11,887)
2019
RMB
(17,840)
(450)
(18,290)
2019
US$
(2,562)
(65)
(2,627)
F-51
Table of Contents
BEST INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2017, 2018 AND 2019 (CONTINUED)
(Amounts in thousands of Renminbi (“RMB”) and US dollars (“US$”)
except for number of shares and per share data)
16. TAXATION (CONTINUED)
A reconciliation of the differences between the PRC statutory tax rate and the Group’s effective tax rate for enterprise income tax is
as follows:
Loss before income taxes and share of net loss of equity investees
Income tax computed at the statutory tax rate of 25%
Non-deductible expenses
Effect of different tax rates in different jurisdictions and preferential tax rate
Research and development expenses deduction
Non-taxable income
Over-accrued EIT for previous years
Deferred tax expense
Tax rate change
Expired tax loss
Change in valuation allowance
F-52
For the year ended December 31,
2017
RMB
(1,217,388)
304,346
(113,139)
(4,220)
9,441
13,985
(154)
(19,362)
—
(31,373)
(169,380)
(9,856)
2018
RMB
(496,048)
124,012
(76,056)
(4,826)
12,248
17,097
(8,770)
(4,140)
16,771
(13,482)
(74,741)
(11,887)
2019
RMB
(200,423)
50,106
(74,083)
(9,949)
19,552
17,489
(1,245)
2,876
(4,578)
(2,201)
(16,257)
(18,290)
2019
US$
(28,789)
7,197
(10,641)
(1,429)
2,808
2,512
(179)
413
(658)
(316)
(2,334)
(2,627)
Table of Contents
BEST INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2017, 2018 AND 2019 (CONTINUED)
(Amounts in thousands of Renminbi (“RMB”) and US dollars (“US$”)
except for number of shares and per share data)
16. TAXATION (CONTINUED)
Deferred tax
Deferred tax assets, non-current
Accrued expenses
Customer advances and deposits
Allowance for doubtful accounts and inventory provision
Depreciation and amortization expense
Net operating losses carrying forward
Total deferred tax assets
Valuation allowance*
Total deferred tax assets net of valuation allowance
As at December 31
2018
RMB
2019
RMB
2019
US$
357,259
47,233
7,476
40,305
719,878
1,172,151
(1,155,994)
16,157
363,107
34,571
28,278
101,565
692,352
1,219,873
(1,172,251)
47,622
52,157
4,966
4,062
14,589
99,450
175,224
(168,384)
6,840
*
The Group recorded a full valuation allowance against deferred tax assets of those subsidiaries and VIEs that are in a three-year cumulative
financial loss position and are not forecasting profits in the near future as of December 31, 2018 and 2019. In making such determination, the
Group also evaluates a variety of factors including the Group’s operating history, accumulated deficit, existence of taxable temporary differences
and reversal periods.
Deferred tax liabilities
Fair value changes on private equity investments
Accrued revenue recognition difference
Long-lived assets arising from acquisition
Total deferred tax liabilities
2018
RMB
As at December 31
2019
RMB
16,157
—
25,356
41,513
19,696
27,926
25,806
73,428
2019
US$
2,829
4,011
3,707
10,547
As of December 31, 2019, the Company has net operating losses of RMB3,300,414 (US$474,075) primarily from its subsidiaries and VIEs
in the PRC, which can be carried forward per tax regulation to offset future net profit for income tax purposes. The net operating loss carry forwards
as of December 31, 2019 will expire in years 2020 to 2029 if not utilized. As of December 31, 2019, the Company intends to permanently reinvest
the undistributed earnings from foreign subsidiaries to fund future operations. As of December 31, 2019, the total amount of undistributed earnings
from its PRC subsidiaries as well as VIEs was RMB81,539 (US$11,712). The amount of unrecognized deferred tax liabilities for temporary
differences related to investments in foreign subsidiaries are not determined because such a determination is not practicable.
F-53
Table of Contents
BEST INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2017, 2018 AND 2019 (CONTINUED)
(Amounts in thousands of Renminbi (“RMB”) and US dollars (“US$”)
except for number of shares and per share data)
16. TAXATION (CONTINUED)
Unrecognized tax benefits
As of December 31, 2018 and 2019, the Company recorded an unrecognized tax benefit of RMB132,808 and RMB191,473 (US$27,503)
respectively, of which RMB nil and RMB nil (US$ nil), respectively, are presented on a net basis against the deferred tax assets related to tax loss
carry forwards on the consolidated balance sheets. This primarily represents the estimated income tax expense the Group would pay should its
income tax returns have been prepared in accordance with the current PRC tax laws and regulations. It is possible that the amount of uncertain tax
position will change in the next twelve months; however, an estimate of the range of the possible outcomes cannot be made at this time. As of
December 31, 2018 and 2019, unrecognized tax benefits of RMB16,698 and RMB (1,446) (US$(208)), respectively, if ultimately recognized, will
impact the effective tax rate. A roll-forward of unrecognized tax benefits is as follows:
Beginning balance
Additions
Decreases
Ending balance
2018
RMB
106,376
27,786
(1,354)
132,808
As at December 31
2019
RMB
132,808
64,410
(5,745)
191,473
2019
US$
19,077
9,251
(825)
27,503
During the years ended December 31, 2017, 2018 and 2019, the Company recorded insignificant late payment interest expense as part of
income tax expense and did not incur any penalties.
In general, the PRC tax authority has up to five years to conduct examinations of the Company’s tax filings. Accordingly, the PRC
subsidiaries’ and the VIEs and its subsidiaries’ tax years 2014 through 2019 remain open to examination by the taxing jurisdictions.
17. RESTRICTED NET ASSETS
The Company’s ability to pay dividends is primarily dependent on the Company receiving distributions of funds from its subsidiaries.
Relevant PRC statutory laws and regulations permit payments of dividends by the Group’s PRC subsidiaries only out of its retained earnings, if any,
as determined in accordance with PRC accounting standards and regulations. The results of operations reflected in the financial statements prepared
in accordance with U.S. GAAP differ from those reflected in the statutory financial statements of the Company’s PRC subsidiaries.
In accordance with the Regulations on Enterprises with Foreign Investment of China and its Articles of Association, the Company’s PRC
subsidiaries, being a foreign-invested enterprise established in the PRC, are required to provide certain statutory reserves, namely the general reserve
fund, enterprise expansion fund and staff welfare and bonus fund, all of which are appropriated from net profit as reported in its PRC statutory
accounts. The Company’s PRC subsidiaries are required to allocate at least 10% of its annual after-tax profit to the general reserve fund until such
fund has reached 50% of its registered capital based on the enterprise’s PRC statutory accounts. Appropriations to the enterprise expansion fund and
staff welfare and bonus fund are at the discretion of the Board of Directors of the PRC subsidiaries. These reserves can only be used for specific
purposes and are not transferable to the Company in the form of loans, advances, or cash dividends.
F-54
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BEST INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2017, 2018 AND 2019 (CONTINUED)
(Amounts in thousands of Renminbi (“RMB”) and US dollars (“US$”)
except for number of shares and per share data)
17. RESTRICTED NET ASSETS (CONTINUED)
In accordance with the PRC Company Laws, the Company’s VIEs and its subsidiaries must make appropriations from their annual after-tax
profits as reported in their PRC statutory accounts to non-distributable reserve funds, namely statutory surplus fund, statutory public welfare fund and
discretionary surplus fund. The VIEs and its subsidiaries are required to allocate at least 10% of their after-tax profits to the statutory surplus fund
until such fund has reached 50% of their respective registered capital. Appropriations to the discretionary surplus fund are made at the discretion of
the Board of Directors of the VIEs and its subsidiaries. These reserves can only be used for specific purposes and are not transferable to the Company
in the form of loans, advances, or cash dividends.
As of December 31, 2018, and 2019, the Company’s PRC subsidiaries had appropriated RMB3,771 and RMB4,641 (US$667) of statutory
reserves , respectively, which are included in shareholder's equity.
Under PRC laws and regulations, there are restrictions on the Company’s PRC subsidiaries, the VIEs and its subsidiaries with respect to
transferring certain of their net assets to the Company either in the form of dividends, loans, or advances. Amounts restricted include paid-in capital
and surplus reserves of the Company’s PRC subsidiaries and the VIEs and its subsidiaries, totaling RMB4,664,305 (US$ 669,985) as of December
31, 2019; therefore in accordance with Rules 504 and 4.08(e)(3) of Regulation S-X, the condensed parent company only financial statements as of
December 31, 2018 and 2019 and for each of the three years in the period ended December 31, 2019 are disclosed in Note 28.
Furthermore, cash transfers from the Company’s PRC subsidiaries to its subsidiaries outside of China are subject to PRC government
control of currency conversion. Shortages in the availability of foreign currency may restrict the ability of the PRC subsidiaries and consolidated
VIEs to remit sufficient foreign currency to pay dividends or other payments to the Company, or otherwise satisfy their foreign currency denominated
obligations.
F-55
Table of Contents
BEST INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2017, 2018 AND 2019
(Amounts in thousands of Renminbi (“RMB”) and US dollars (“US$”)
except for number of shares and per share data)
18. LOSS PER SHARE
Basic and diluted loss per share for each of the years presented are calculated as follows:
2017
2017
2017
2018
2018
2018
2019
2019
2019
2019
2019
2019
Class A
RMB
Class B
RMB
Class C
RMB
Class A
RMB
Class B
RMB
Class C
RMB
Class A
RMB
Class A
US$
Class B
RMB
Class B
US$
Class C
RMB
Class C
US$
Basic loss per share:
Numerator:
Net loss attributable to
ordinary
shareholders—basic
Denominator:
Weighted average
number of ordinary
shares
outstanding—basic
Basic loss per share
(612,133)
(219,898)
(395,862)
(320,514)
(124,319)
(63,155)
(128,498)
(18,458)
(49,017)
(7,040)
(24,901)
(3,577)
73,900,022
26,547,262
47,790,698
242,542,728
94,075,249
47,790,698
246,614,615
246,614,615
94,075,249
94,075,249
47,790,698
47,790,698
(8.28)
(8.28)
(8.28)
(1.32)
(1.32)
(1.32)
(0.52)
(0.07)
(0.52)
(0.07)
(0.52)
(0.07)
F-56
Table of Contents
BEST INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2017, 2018 AND 2019 (CONTINUED)
(Amounts in thousands of Renminbi (“RMB”) and US dollars (“US$”)
except for number of shares and per share data)
18. LOSS PER SHARE (CONTINUED)
2017
2017
2017
2018
2018
2018
2019
2019
2019
2019
2019
2019
Class A
RMB
Class B
RMB
Class C
RMB
Class A
RMB
Class B
RMB
Class C
RMB
Class A
RMB
Class A
US$
Class B
RMB
Class B
US$
Class C
RMB
Class C
US$
Diluted loss per share:
Numerator:
Net loss attributable to
ordinary
shareholders—basic
Reallocation of net loss
attributable to ordinary
shareholders as a result
of conversion of Class C
and Class B to Class A
ordinary shares (Note
20)
Net loss attributable to
ordinary
shareholders—diluted
Denominator:
Weighted average number
of ordinary shares
outstanding—basic
Conversion of Class C and
Class B to Class A
ordinary shares (Note
20)
Weighted average number
of ordinary shares
outstanding - diluted
Diluted loss per share
(612,133)
(219,898)
(395,862)
(320,514)
(124,319)
(63,155)
(128,498)
(18,458)
(49,017)
(7,040)
(24,901)
(3,577)
(615,760)
—
—
(187,474)
—
—
(73,918)
(10,617)
—
—
—
—
(1,227,893)
(219,898)
(395,862)
(507,988)
(124,319)
(63,155)
(202,416)
(29,075)
(49,017)
(7,040)
(24,901)
(3,577)
73,900,022
26,547,262
47,790,698
242,542,728
94,075,249
47,790,698
246,614,615
246,614,615
94,075,249
94,075,249
47,790,698
47,790,698
74,337,960
—
— 141,865,947
—
— 141,865,947
141,865,947
—
—
—
—
148,237,982
26,547,262
47,790,698
384,408,675
94,075,249
47,790,698
388,480,562
388,480,562
94,075,249
94,075,249
47,790,698
47,790,698
(8.28)
(8.28)
(8.28)
(1.32)
(1.32)
(1.32)
(0.52)
(0.07)
(0.52)
(0.07)
(0.52)
(0.07)
For the years ended December 31, 2017, 2018 and 2019, the two-class method is applicable because the Company has three classes
of ordinary shares outstanding, Class A, Class B and Class C ordinary shares, respectively (Note 20). The effects of all outstanding share
options, restricted share units and convertible senior notes were excluded from the computation of diluted loss per share for the years ended
December 31, 2017, 2018 and 2019 as their effects would be anti-dilutive.
F-57
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19. SHARE-BASED PAYMENTS
2008 Stock Incentive Plan (the “2008 Plan”)
On June 4, 2008, the shareholders and Board of Directors of the Company approved the 2008 Plan, which is administrated by the Board of
Directors and has a term of 10 years from the date of adoption. Under the 2008 Plan, the Company reserved 10,000,000 ordinary shares of the
Company to its eligible employees, directors and officers of the Group and consultants. The purpose of the 2008 Plan is to attract and retain key
employees, directors, officers and consultants of outstanding ability and to motivate them to exert their best efforts on behalf of the Group by
providing incentives through granting awards. On October 25, 2011 and January 15, 2015, the shareholders and Board of Directors of the Company
approved a resolution to increase the share option pool under the 2008 Plan to 16,239,033 and 20,934,684 ordinary shares, respectively.
The options granted under the 2008 Plan have a contractual term of 15 years and will become vested (but not exercisable) either
(i) immediately upon grant; or (ii) with respect to 25% of the options on the first anniversary of the vesting period, and thereafter in thirty-six equal
monthly installments of 2.09% each on the last day of every month that has elapsed following the first anniversary of the vesting period until the
options are 100% vested.
The grantee can exercise vested options after the commencement date of exercise and before the earlier of: 1) its contractual term (i.e. 15
years after its grant date); or 2) 90 days after the grantee terminates their employment if the vested options have not been exercised. The
commencement date of exercise is upon the Company’s IPO.
In July 2017, 12,599,520 vested options were exercised pursuant to a conditional one-time waiver of the "exercisable upon the Company's
IPO" condition by the Group (the "early exercise"). The early exercise was not considered substantive for accounting purposes in accordance with
ASC 718-10-55-31.
2017 Stock Incentive Plan
In September 2017, the Company's shareholders and Board of Directors approved the 2017 Equity Incentive Plan (the "2017 Plan"). The
2017 Plan provides for an aggregate amount of no more than 10,000,000 Class A ordinary shares to be issued. In addition, the number of Class A
ordinary shares available to be issued under the 2017 Plan will automatically be increased by a maximum of 2% of the Company's total outstanding
shares at the end of the preceding calendar year on January 1, 2019 and on every January 1 thereafter for eight years, provided that the aggregate
amount of shares which may be subject to awards granted under the 2017 Plan does not exceed 10% of the Company's total outstanding shares at the
end of the preceding calendar year.
The options granted under the 2017 Plan have a contractual term no more than 10 years and will become vested with respect to 25% of the
options on the first anniversary of the vesting period, and thereafter in thirty six equal monthly installments of 2.09% each on the last day of every
month that has elapsed following the first anniversary of the vesting period until the options are 100% vested.
The grantee can exercise vested options after the commencement date of exercise and before the earlier of: 1) its contractual term (i.e. 10
years after its grant date); or 2) 90 days after the grantee terminates their employment if the vested options have not been exercised.
The restricted Class A ordinary shares (“Restricted Shares”) granted under the 2017 Plan have the same terms as the share options except
that Restricted Shares do not require exercise and will become vested with respect to 25% of the Restricted Shares on the first, second, third and
fourth anniversary of the vesting period until the Restricted Shares are 100% vested.
F-58
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BEST INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2017, 2018 AND 2019 (CONTINUED)
(Amounts in thousands of Renminbi (“RMB”) and US dollars (“US$”)
except for number of shares and per share data)
19. SHARE-BASED PAYMENTS (CONTINUED)
Options granted to employees
The options granted to employees are accounted for as equity awards and measured at their grant date fair values. Given that the inability of
the grantees to exercise these options until the completion of the IPO constitutes a performance condition that is not considered probable until the
IPO completion date on September 20, 2017, the Company did not recognize any compensation expense until the IPO occurred. Upon the IPO
completion date, the Company immediately recognized expenses associated with options that were vested as of the IPO completion date amounting
to RMB6,017, RMB13,172, RMB119,654, and RMB24,268 included in cost of revenues, selling expense, general and administrative expenses and
research and development expenses, respectively. In addition, the Company recognizes the remaining compensation expenses over the remaining
service requisite period using the accelerated method.
A summary of the employee share option activity under the 2008 Plan is stated below:
Outstanding, December 31, 2018
Granted
Exercised
Forfeited/Expired
Outstanding, December 31, 2019
Vested and expected to vest at December 31, 2019
Exercisable at December 31, 2019
Number of
options
4,294,256
—
(1,177,249)
(325,549)
2,791,458
2,791,458
1,926,205
Weighted-
average
exercise price
US$
Weighted-
average
grant-date
fair value
US$
0.75
—
0.75
0.75
0.75
0.75
0.75
6.65
—
5.86
8.05
6.83
6.83
6.14
Weighted-
average
remaining
contractual
term
Years
Aggregate
intrinsic
Value
US$
12.95
14,430
12.01
12.01
11.79
13,428
13,428
9,266
The aggregate intrinsic value in the table above represents the difference between the closing share price on the last trading day in 2019 and
the option’s respective exercise price. Total intrinsic value of options exercised for the years ended December 31, 2018 and 2019 was RMB792,192
and RMB860,607 (US$123,618) respectively.
The total weighted average grant-date fair value of the share option awards granted during the years ended December 31, 2017 and 2018
were US$8.63 and US$9.55 , respectively. No share option awards were granted during the year ended December 31, 2019. The total fair value of the
equity awards vested during the years ended December 31, 2017, 2018 and 2019 were RMB 87,812, RMB101,966 and RMB48,452 (US$6,960)
respectively.
There were no new grants of share option awards during the year ended December 31, 2019 or any outstanding share options under the 2017
Plan as of December 31, 2018 and 2019, respectively.
As of December 31, 2019, the unrecognized compensation cost related to 865,253 unvested share options expected to vest was RMB24,722
(US$3,551). This unrecognized compensation will be recognized over an estimated weighted-average amortization period of 1.50 years. Total
unrecognized compensation cost may be adjusted for actual forfeitures occurring in the future.
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BEST INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2017, 2018 AND 2019 (CONTINUED)
(Amounts in thousands of Renminbi (“RMB”) and US dollars (“US$”)
except for number of shares and per share data)
19. SHARE-BASED PAYMENTS (CONTINUED)
Options granted to non-employees
Modification of non-employee options
On June 21, 2017 (“Modification Date”), all outstanding options granted to non-employees under the 2008 Plan amounting to 1,500,154
options (except for 50,000 options granted to one external consultant) were modified to be fully vested on the Modification Date, and exercisable
upon the Company’s IPO. Therefore, upon the IPO completion date, the Company immediately recognized expenses amounting to RMB117,578
associated with those non-employee options under the 2008 Plan that are vested as of the IPO completion date. In addition, the Company recognizes
the remaining compensation expenses for the one external consultant over the remaining service requisite period using the accelerated method.
A summary of the non-employee share option activity under the 2008 Plan is stated below:
Outstanding, December 31, 2018
Granted
Exercised
Forfeited
Outstanding, December 31, 2019
Vested and expected to vest at December 31, 2019
Exercisable at December 31, 2019
Number of
options
1,574,623
—
(102,946)
—
1,471,677
1,471,677
1,471,677
Weighted-
average
exercise price
US$
Weighted-
average
grant-date
fair value
US$
0.70
—
0.30
—
0.70
0.70
0.70
2.47
—
2.20
—
2.47
2.47
2.42
Weighted-
average
remaining
contractual
term
Years
Aggregate
intrinsic
Value
US$
9.67
4,657
8.67
8.67
8.60
7,645
7,645
7,149
The aggregate intrinsic value in the table above represents the difference between the closing stock price on the last trading day in 2019 and
the option’s respective exercise price. Total intrinsic value of options exercised for the years ended December 31, 2017, 2018 and 2019 was RMB nil,
RMB15,703 and RMB19,677 (US$2,826), respectively.
The total weighted average grant date fair value of the non-employee share option awards granted during the years ended December 31,
2017 and 2018 were US$9.05, US$9.06 per option, respectively. The Company did not grant any non-employee share option awards for the year
ended December 31, 2019. The total fair value of the equity awards vested during the years ended December 31, 2017, 2018 and 2019 were
RMB118,002, RMB21,199 and RMB770 (US$111), respectively.
There were no new grants of non-employee share option awards during the year ended December 31, 2019 or any outstanding non-employee
share options under the 2017 Plan as of December 31, 2018 and 2019, respectively.
As of December 31, 2019, there was no remaining unrecognized non-employee share-based compensation expenses.
F-60
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BEST INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2017, 2018 AND 2019 (CONTINUED)
(Amounts in thousands of Renminbi (“RMB”) and US dollars (“US$”)
except for number of shares and per share data)
19. SHARE-BASED PAYMENTS (CONTINUED)
Grant date fair value of employee and non-employee share options
The grant date fair value of share options was determined using the binomial option valuation model, with the assistance from an
independent third-party appraiser. The binomial model requires the input of subjective assumptions, including the expected share price volatility and
the suboptimal early exercise factor. For expected volatilities, the Company has made reference to historical volatilities of several comparable
companies. The suboptimal early exercise factor was estimated based on the Company’s expectation of exercise behavior of the grantees. The risk-
free rate for periods within the contractual life of the share options is based on the market yield of U.S. treasury bonds in effect at the time of grant.
Prior to the IPO, the estimated fair value of the ordinary shares, at the option grant dates, was determined with the assistance from an independent
third-party appraiser. Subsequent to the IPO, the fair value of the ordinary shares is the price of the Company’s publicly traded shares. The
Company’s management is ultimately responsible for the determination of the estimated fair value of its ordinary shares.
The assumptions used to estimate the grant date fair value of the share options granted to employees and non-employees are as follows:
Risk-free interest rate
Expected volatility range
Suboptimal exercise factor
Fair market value per ordinary share
Restricted Shares
2017
2.32% ~ 2.41%
40.5% ~ 44.1%
2.20
US$5.08 ~ $11.24
For the year ended December 31,
2018
2019
2.74% ~ 2.78%
44.3% ~ 46.9%
2.20
US$8.30 ~ $9.55
—
—
—
—
The following table summarizes the Company's Restricted Shares activity under the 2017 Plan:
Outstanding, December 31, 2018
Granted
Vested and issued
Forfeited
Outstanding, December 31, 2019
Vested and expected to vest at December 31, 2019
Weighted-
average
grant-date fair
value
US$
10.44
5.65
10.45
8.43
7.28
Number of
shares
3,171,099
4,354,211
(767,196)
(422,900)
6,335,214
6,335,214
The weighted average grant-date fair value of Restricted Shares granted during the year ended December 31, 2019 was US$5.65, which was
derived from the fair value of the underlying ordinary shares. As of December 31, 2019, there was RMB258,620 (US$37,148) of total unrecognized
share-based compensation expenses related to unvested Restricted Shares expected to vest which are expected to be recognized over a weighted-
average period of 2.88 years. Total unrecognized compensation cost may be adjusted for actual forfeitures occurring in the future. During the year
ended December 31, 2019, the Group granted 9,413 Restricted Shares to non-employees, which were fully vested and issued during the year.
F-61
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BEST INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2017, 2018 AND 2019 (CONTINUED)
(Amounts in thousands of Renminbi (“RMB”) and US dollars (“US$”)
except for number of shares and per share data)
19. SHARE-BASED PAYMENTS (CONTINUED)
The following table summarizes the total share-based compensation expense recognized by the Company:
Cost of revenue
Selling expenses
General and administrative expenses
Research and development expenses
Total share-based compensation expenses
20. SHAREHOLDERS' EQUITY
For the year ended December 31,
2017
RMB
6,799
14,244
251,312
26,608
298,963
2018
RMB
2,003
6,007
91,982
9,115
109,107
2019
RMB
1,771
8,788
80,736
7,209
98,504
2019
US$
254
1,262
11,597
1,036
14,149
Upon the completion of the Company’s IPO on September 20, 2017, all the outstanding Series A, Series B, Series C, Series D, Series E,
Series F, Series G-1 and Series G-2 preferred shares preferred (collectively the “Preferred Shares”) issued by the Company prior to the IPO were
automatically converted into 264,034,399 ordinary shares and all outstanding ordinary shares, were re-designated into 182,168,452 Class A ordinary
shares, 94,075,249 Class B ordinary shares and 47,790,698 Class C ordinary shares, respectively. The participating rights (liquidation and dividend
rights) of the Class A, Class B and Class C ordinary shares are identical, except with respect to voting and conversion rights. Holders of Class A,
Class B and Class C ordinary shares shall vote together as one class on all resolutions submitted to a vote by the shareholders (except with respect to
the modification of the rights of any class of ordinary shares). Each share of Class A, Class B and Class C ordinary shares entitle the holder thereof to
one vote per share, fifteen votes per share and thirty votes per share on all matters subject to vote at the Company’s general meetings, respectively,
and each share of Class B and Class C ordinary share is convertible into one Class A ordinary share at any time at the option of the holder thereof.
Each holder of Class B ordinary shares or Class C ordinary shares can exercise their conversion right by delivering a written notice to the Company
that specifies the number of Class B or Class C ordinary shares they elect to convert into Class A ordinary shares. In no event shall Class A ordinary
shares be convertible into Class B or Class C ordinary shares, Class B ordinary shares be convertible into Class C ordinary shares, nor shall Class C
ordinary shares be convertible into Class B ordinary shares.
On September 20, 2017, the Company completed its IPO on the New York Stock Exchange. The Company offered 45,000,000 ADSs
representing 45,000,000 Class A ordinary shares at US$10.00 per ADS. Additionally, the underwriters exercised their options to purchase an
additional 4,750,000 and 2,000,000 ADSs at US$10.00 per ADS, representing 4,750,000 and 2,000,000 Class A ordinary shares, from the Company
and selling shareholders, respectively. Net proceeds from the IPO including the over-allotment option after deducting underwriting discounts were
RMB3,151,007. Deferred IPO costs of RMB30,646 were recorded as a reduction of the proceeds from the IPO in shareholders’ equity.
Upon completion of the IPO, all outstanding 264,034,399 Preferred Shares were converted on a one-for-one basis into 169,959,150 Class A
ordinary shares and 94,075,249 Class B ordinary shares, respectively, and the related aggregate carrying value of RMB15,842,210 was reclassified
from mezzanine equity to shareholders’ equity. Upon completion of the IPO, all 60,000,000 outstanding ordinary shares were converted on a one-for-
one basis into 12,209,302 Class A ordinary shares and 47,790,698 Class C ordinary shares, respectively.
For the years ended December 31, 2017, 2018 and 2019, 730,000, 12,903,413 and 2,056,804 Class A ordinary shares were issued pursuant
to exercise of share options and vesting of Restricted Shares, respectively.
F-62
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BEST INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2017, 2018 AND 2019 (CONTINUED)
(Amounts in thousands of Renminbi (“RMB”) and US dollars (“US$”)
except for number of shares and per share data)
20. SHAREHOLDERS' EQUITY (CONTINUED)
On February 1, 2018 and September 5, 2018, the Company issued and transferred 16,000,000 and 2,000,000 Class A ordinary shares
respectively to Citi, its depositary bank to be issued to employees and non-employees upon the exercise of vested share options and vesting of
Restricted Shares under the 2008 Stock Incentive Plan and 2017 Stock Incentive Plan. As of December 31, 2019, 14,960,217 ordinary shares out of
these 18,000,000 ordinary shares had been issued to employees and non-employees. Therefore, as of December 31, 2019, 3,039,783 Class A ordinary
shares remain available for future issuance.
As of December 31, 2018, the Company had ordinary shares outstanding comprising of 250,648,452 Class A ordinary shares, 94,075,249
Class B ordinary shares and 47,790,698 of Class C ordinary shares, respectively. As of December 31, 2019, the Company had ordinary shares
outstanding comprising of 250,648,452 Class A ordinary shares, 94,075,249 Class B ordinary shares and 47,790,698 Class C ordinary shares,
respectively. No Class B or Class C ordinary shares were converted into Class A ordinary shares for the years ended December 31, 2017, 2018 and
2019, respectively.
In November 2019, the Board of Directors of the Company authorized a share repurchase program (“2019 Share Repurchase Program”),
pursuant to which the Company is authorized to repurchase its own issued and outstanding ADSs up to an aggregate value of US$100 million from
the open market over a period of 18 months in accordance with applicable securities laws from time to time. As of December 31, 2019, the Company
had not repurchased any ADSs under the 2019 Share Repurchase Program.
21. RELATED PARTY TRANSACTIONS
a) Related Parties
Name of Related Parties
Zhejiang Cainiao Supply Chain Management Co. Ltd (“Cainiao”)
Alibaba Cloud Computing Co. Ltd (“Ali Cloud”)
Lazada Express Limited (“Lazada”)
Relationship with the Group
Entity controlled by a principal shareholder of the Group
Entity controlled by a principal shareholder of the Group
Entity controlled by a principal shareholder of the Group
b) The Group had the following related party transactions:
Rendering of express delivery and supply chain management services:
Cainiao
Lazada
Rental of warehouse as a lessee:
Cainiao
F-63
For the years ended December 31,
2017
RMB
489,999
—
489,999
2018
RMB
652,352
—
652,352
2019
RMB
814,855
10,697
825,552
2019
US$
117,046
1,537
118,583
For the years ended December 31,
2017
RMB
2018
RMB
2019
RMB
2019
US$
8,731
9,076
9,916
1,424
Table of Contents
BEST INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2017, 2018 AND 2019 (CONTINUED)
(Amounts in thousands of Renminbi (“RMB”) and US dollars (“US$”)
except for number of shares and per share data)
21. RELATED PARTY TRANSACTIONS (CONTINUED)
b) The Group had the following related party transactions: (continued)
Operating costs paid on behalf of the Company:
Cainiao
Commission fee paid to related party:
Cainiao
Operating costs paid to related party:
Ali Cloud
c) The Group had the following related party balances at the end of the year:
Amounts due from related parties:
Cainiao
Ali Cloud
Lazada
Amounts due to related parties:
Cainiao
22. SEGMENT REPORTING
For the years ended December 31,
2017
RMB
2018
RMB
2019
RMB
2019
US$
19,892
16,433
9,874
1,418
For the years ended December 31,
2017
RMB
2018
RMB
2019
RMB
2019
US$
—
3,489
160
23
For the years ended December 31,
2017
RMB
2018
RMB
2019
RMB
2019
US$
—
4,756
9,669
1,389
2018
RMB
197,488
—
—
197,488
As at December 31
2019
RMB
241,021
388
5,349
246,758
2019
US$
34,621
56
768
35,445
2018
RMB
As at December 31
2019
RMB
2019
US$
12,429
6,140
882
The Group has determined that it operates in five operating segments: (1) Supply chain management services, (2) Express delivery services,
(3) Freight delivery services, (4) Store + services, and (5) Others. The “Others” category principally relates to finance leasing services, cross-border
logistic services and UCargo transportation services. The operating segments also represented the reporting segments.
F-64
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BEST INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2017, 2018 AND 2019 (CONTINUED)
(Amounts in thousands of Renminbi (“RMB”) and US dollars (“US$”)
except for number of shares and per share data)
22. SEGMENT REPORTING (CONTINUED)
The chief operating decision maker ("CODM") has been identified as the Chief Executive Officer. The CODM assess the performance of the
operating segments based on the measures of revenues, costs of revenues and gross profit. Other than the information provided below, the CODM
does not use any other measures by segments. The Group currently does not allocate assets to its operating segments, as the CODM does not use such
information to allocate resources to or evaluate the performance of the operating segments. As most of the Group’s long-lived assets are located in
the PRC and most of the Group’s revenues are derived from the PRC, no geographical information is presented.
The table below provides a summary of the Group’s operating segment results for the years ended December 31, 2017, 2018 and 2019:
Revenue:
Express delivery
Freight delivery
Supply chain management
Store +
Others
Inter-segment*
Total revenue
Cost of revenue:
Express delivery
Freight delivery
Supply chain management
Store +
Others
Inter-segment*
Total cost of revenue
Gross (loss)/profit:
Express delivery
Freight delivery
Supply chain management
Store +
Others
Inter-segment*
Total gross profit
For the year ended December 31,
2017
RMB
2018
RMB
2019
RMB
2019
US$
12,850,067
3,178,850
1,854,356
2,226,034
649,784
(769,529)
19,989,562
12,508,090
3,363,457
1,746,999
2,072,912
573,581
(761,028)
19,504,011
341,977
(184,607)
107,357
153,122
76,203
(8,501)
485,551
17,740,176
4,115,606
2,326,487
2,845,141
2,759,499
(1,825,930)
27,960,979
16,953,251
3,963,172
2,224,749
2,590,022
2,609,846
(1,821,198)
26,519,842
786,925
152,434
101,738
255,119
149,653
(4,732)
1,441,137
21,839,107
5,233,542
2,381,848
2,817,202
4,398,603
(1,494,413)
35,175,889
21,150,925
4,997,270
2,270,514
2,495,503
3,611,969
(1,309,318)
33,216,863
688,182
236,272
111,334
321,699
786,634
(185,095)
1,959,026
3,136,991
751,751
342,131
404,666
631,820
(214,659)
5,052,700
3,038,140
717,813
326,139
358,457
518,827
(188,072)
4,771,304
98,851
33,938
15,992
46,209
112,993
(26,587)
281,396
(*) The inter-segment eliminations mainly consist of (i) express delivery services provided by the Express delivery services segment to the Supply
chain management services segment; and (ii) supply chain management services provided by the Supply chain management services segment to
the Store + services segment, and (iii) services provided by the Others segment to the Express delivery services, Freight delivery services and
Supply chain management services segment, for the years ended December 31, 2017, 2018 and 2019, respectively.
F-65
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BEST INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2017, 2018 AND 2019 (CONTINUED)
(Amounts in thousands of Renminbi (“RMB”) and US dollars (“US$”)
except for number of shares and per share data)
23. FAIR VALUE MEASUREMENTS
The following tables illustrate the fair value measurement hierarchy of the Group’s financial instruments:
Non-recurring fair value measurement for:
Long-term investments
Non-recurring fair value measurement for:
Long-term investments
Fair value measurements as at December 31, 2018 using
Quoted
prices in
active
markets
(Level 1)
RMB
Significant
observable
inputs
(Level 2)
RMB
Significant
unobservable
inputs
(Level 3)
RMB
Total
RMB
—
—
94,628
94,628
Quoted
prices in
active
markets
(Level 1)
RMB
Fair value measurements as at December 31, 2019 using
Significant
observable
inputs
(Level 2)
RMB
Significant
unobservable
inputs
(Level 3)
RMB
Total
RMB
—
—
119,927
119,927
The Group recognized a gain of RMB64,628 and RMB14,155 (US$2,033) for measuring equity investments at fair value using the
measurement alternative resulting from the observable price changes occurring in the years ended December 31, 2018 and 2019, respectively.
The Group had no financial assets and liabilities measured and recorded at fair value on a recurring basis as of December 31, 2018 and 2019.
24. COMMITMENTS AND CONTINGENCIES
Capital expenditure commitments
The Group has commitments for the construction of warehouses and equipment of RMB963,841 (US$138,447) at December 31, 2019,
which are scheduled to be paid within one year.
Contingencies
From time to time, the Group is subject to legal proceedings, investigations, and claims incidental to the conduct of its business. The Group
is currently not involved in any legal or administrative proceedings that may have a material adverse impact on the Group’s business, financial
position or results of operations.
F-66
Table of Contents
BEST INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2017, 2018 AND 2019 (CONTINUED)
(Amounts in thousands of Renminbi (“RMB”) and US dollars (“US$”)
except for number of shares and per share data)
25. EMPLOYEE DEFINED CONTRIBUTION PLAN
Full time employees of the Group in the PRC participate in a government mandated defined contribution plan, pursuant to which certain
pension benefits, medical care, employee housing fund and other welfare benefits are provided to employees. Chinese labor regulations require that
the Group’s PRC subsidiaries, VIEs and its subsidiaries make contributions to the government for these benefits based on certain percentages of the
employees’ salaries. The Group has no legal obligation for the benefits beyond the contributions made. The total amounts for such employee benefits,
which were expensed as incurred, were RMB219,646, RMB221,117 and RMB210,656 (US$30,259) for the years ended December 31, 2017, 2018
and 2019, respectively.
26. ACCUMULATED OTHER COMPREHENSIVE INCOME
Balance as of January 1 , 2017
Foreign currency translation adjustments, net of tax of nil
Balance as of December 31, 2017
Foreign currency translation adjustments, net of tax of nil
Balance as of December 31, 2018
Foreign currency translation adjustments, net of tax of nil
Balance as of December 31, 2019
Balance as of December 31, 2019 (US$)
RMB
146,100
(133,767)
12,333
111,590
123,923
39,273
163,196
23,442
There have been no reclassifications out of accumulated other comprehensive income to net loss for all the periods presented.
27. SUBSEQUENT EVENT
Beginning in January 2020, the novel coronavirus (COVID-19) outbreak has negatively impacted the Group’s operations in China and
resulted in lower productivity from late January to early March due to travel restrictions and quarantines. The Group's total revenue declined for
January and February of 2020 as compared to the same period in the prior year. By the end of March, the Group's service have fully recovered
nationwide, including all hubs and warehouses for Express delivery service, Freight delivery service and Supply Chain management service. As the
COVID-19 outbreak has further spread outside the PRC and it is uncertain as to whether the COVID-19 outbreak will continue to be contained in the
PRC, the Group is unable to reasonably estimate the magnitude of COVID-19's impact on its operations and the related financial impact at this time.
F-67
Table of Contents
BEST INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2017, 2018 AND 2019 (CONTINUED)
(Amounts in thousands of Renminbi (“RMB”) and US dollars (“US$”)
except for number of shares and per share data)
28. CONDENSED FINANCIAL INFORMATION OF THE PARENT COMPANY
Condensed Balance Sheets
Current assets:
Cash
Prepayments and other current assets
Total current assets
Non-current assets:
Other non—current assets
Investments in subsidiaries and VIEs
Total non—current assets:
Total assets
Current liabilities:
Accrued liabilities and other payables
Non-current liabilities:
Long-term payable due to subsidiaries
Convertible senior notes
Total liabilities
Shareholders’ equity
Class A ordinary shares (par value of US$0.01 per share as of December 31, 2018 and 2019; 1,858,134,053 shares authorized as of
December 31, 2018 and 2019; 250,648,452 and 250,648,452 shares issued and outstanding as of December 31, 2018 and 2019,
respectively)
Class B ordinary shares (par value of US$0.01 per share as of December 31, 2018 and 2019; 94,075,249 shares authorized, issued and
outstanding as of December 31, 2018 and 2019, respectively)
Class C ordinary shares (par value of US$0.01 per share as of December 31, 2018 and 2019; 47,790,698 shares authorized, issued and
outstanding as of December 31, 2018 and 2019, respectively)
Notes
20
20
20
As at December 31
2018
RMB
5,350
5,405
10,755
3,811
4,322,463
4,326,274
4,337,029
14,401
184,513
—
198,914
2019
RMB
9,933
5,511
15,444
5,909
5,343,503
5,349,412
5,364,856
8,805
74,931
1,360,208
1,443,944
16,532
6,178
3,278
19,407,460
(15,419,256)
123,923
4,138,115
4,337,029
16,532
6,178
3,278
19,353,400
(15,621,672)
163,196
3,920,912
5,364,856
Additional paid in capital
Accumulated deficit
Accumulated other comprehensive income
BEST Inc. shareholders’ equity
Total liabilities and shareholders’ equity
Condensed Statements of Comprehensive Loss
Operating expenses
General and administrative expenses
Operating loss
Share of losses of subsidiaries and VIEs
Interest expense
Interest income
Net loss attributable to ordinary shareholders
Other comprehensive (loss)/income, net of tax of nil
Foreign currency translation adjustments
Comprehensive loss
2017
RMB
For the year ended December 31,
2018
RMB
2019
RMB
(30)
(30)
(1,227,847)
(30)
14
(1,227,893)
(6,610)
(6,610)
(501,396)
—
18
(507,988)
(2,698)
(2,698)
(188,962)
(10,756)
—
(202,416)
(133,767)
(1,361,660)
111,590
(396,398)
39,273
(163,143)
F-68
2019
US$
1,427
792
2,219
849
767,546
768,395
770,614
1,265
10,763
195,382
207,410
2,375
887
471
2,779,942
(2,243,913)
23,442
563,204
770,614
2019
US$
(388)
(388)
(27,142)
(1,545)
—
(29,075)
5,641
(23,434)
Table of Contents
BEST INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2017, 2018 AND 2019 (CONTINUED)
(Amounts in thousands of Renminbi (“RMB”) and US dollars (“US$”)
except for number of shares and per share data)
28. CONDENSED FINANCIAL INFORMATION OF THE PARENT COMPANY (CONTINUED)
Condensed Statements of Cash Flows
Net cash generate from operating activities
Net cash used in investing activities
Net cash generated from financing activities
Net increase/(decrease) in cash and cash equivalents
Cash and cash equivalents at beginning of the year
Cash and cash equivalents at end of the year
Basis of presentation
2017
RMB
56,730
(3,069,955)
3,031,915
18,690
20,445
39,135
For the year ended December 31,
2018
RMB
3,132
(41,166)
4,249
(33,785)
39,135
5,350
2019
RMB
4,218
(1,224,149)
1,224,514
4,583
5,350
9,933
2019
US$
606
(175,838)
175,891
659
768
1,427
For the presentation of the parent company only condensed financial information, the Company records its investments in subsidiaries and
VIEs under the equity method of accounting as prescribed in ASC 323. Such investments are presented on the condensed balance sheets as
“Investments in subsidiaries and VIEs” and the subsidiaries’ and VIE’s losses as “Share of losses of subsidiaries and VIEs” on the condensed
statements of comprehensive loss.
The subsidiaries did not pay any dividends to the Company for the periods presented.
The Company does not have significant commitments or long-term obligations as of the period end other than those presented.
The parent company only financial statements should be read in conjunction with the Company’s consolidated financial statements.
F-69
Exhibit 2.4
DESCRIPTION OF THE REGISTRANT’S SECURITIES REGISTERED PURSUANT TO SECTION 12 OF THE SECURITIES
EXCHANGE ACT OF 1934
As of December 31, 2019, BEST Inc. (the “company”, “we”, “us” and “our”) had the following series of securities registered pursuant to Section 12
(b) of the Exchange Act:
Title of each class
Trading symbol
Name of each exchange on which registered
Class A ordinary shares, par value US$0.01 per share*
American depositary shares,
each representing one Class A ordinary share
BEST
New York Stock Exchange
*
Not for trading, but only in connection with the listing on the New York Stock Exchange of American depositary shares.
Description of Ordinary Shares (Items 9.A.3, 9.A.5, 9.A.6, 9.A.7, 10.B.3, 10.B.4, 10.B.6, 10.B.7, 10.B.8, 10.B.9 and 10.B.10 of Form 20-F)
General
We are an exempted company incorporated in the Cayman Islands with limited liability and our affairs are governed by our ninth amended
memorandum and articles of association currently in effect, which we refer to as our articles, and the Companies Law (2020 Revision) of the Cayman
Islands, which we refer to as the Cayman Companies Law, and the common law of the Cayman Islands. In June 2017, we changed our name to
BEST Inc.
Each Class A ordinary share of our company has par value of US$0.01 per share. The number of Class A ordinary shares that had been issued
as of December 31, 2019 is provided on the cover of our annual report on Form 20-F for the year ended December 31, 2019.
All of our issued and outstanding ordinary shares are fully paid and non-assessable. Our ordinary shares are issued in registered form, and are
issued when registered in our register of members (shareholders). Our shareholders who are non-residents of the Cayman Islands may freely hold and
vote their ordinary shares. Our articles prohibit us from issuing shares to bearer.
Dividends
The holders of our ordinary shares are entitled to such dividends as may be declared by our board of directors. Under the laws of the Cayman
Islands, our company may pay a dividend out of either profit or share premium account, provided that in no circumstances may a dividend be paid if
this would result in our company being unable to pay its debts as they fall due in the ordinary course of business.
Voting Rights
Our outstanding share capital consists of Class A ordinary shares, Class B ordinary shares and Class C ordinary shares. Holders of Class A
ordinary shares are entitled to one (1) vote per share, holders of Class B ordinary shares are entitled to fifteen (15) votes per share and holders of
Class C ordinary shares are entitled to thirty (30) votes per share, in respect of matters requiring the votes of shareholders of our Company.
Voting at any meeting of shareholders is by a show of hands, unless a poll is demanded by the chairman of the meeting or one or more
shareholders present in person or by proxy who together hold shares which carry in aggregate not less than 10% of all votes attaching to all of our
shares in issue and entitled to vote, and, unless a poll is so demanded, a declaration by the chairman of that a resolution has, on a show of hands, been
carried or carried unanimously, or by a particular majority, or lost and an entry to that effect in the minutes of the proceedings of our company, shall
be conclusive evidence of the fact, without proof of the number of proportion of the votes recorded in favor of, or against that resolution.
Our articles provide that all questions submitted to our shareholders for approval at a general meeting must be decided by a special resolution,
except where a greater majority is required by our articles or by the Cayman Companies Law. A special resolution must be passed by a majority of
not less than two-thirds of the votes cast by such of our shareholders as, being entitled to do so, vote in person or by proxy at a general meeting, or
alternatively may be passed by a unanimous written resolution signed by all the shareholders of our company, as permitted by the Cayman
Companies Law and our articles.
Transfer of Shares
Any of our shareholders may transfer all or any of his or her ordinary shares by an instrument of transfer in any usual or common form or any
other form approved by our board of directors, executed by or on behalf of the transferor.
Our board of directors may, in its absolute discretion, decline to register any transfer of any ordinary share that has not been fully paid up or is
subject to a company 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;
the relevant fee related to the transfer has been paid to us; and
in the case of any transfer to joint holders, the transfer is not to more than four joint holders.
If our directors refuse to register a transfer, they shall within one month after the date on which the instrument of transfer was lodged, to send to
each of the transferor and the transferee notice of such refusal.
Winding Up
On the solvent winding up of our company, if the assets available for distribution amongst our shareholders shall be more than sufficient to
repay the whole of the share capital at the commencement of the winding up, the surplus shall be distributed amongst our shareholders in proportion
to the par value of the shares held by them at the commencement of the winding up, subject to a deduction from those shares in respect of which there
are monies due, of all monies payable to our company for unpaid calls or otherwise. If our assets available for distribution in respect of a solvent
winding up are insufficient to repay all of the paid-up capital, the assets will be distributed so that the losses are borne by our shareholders in
proportion to the par value of the shares held by them. On the insolvent winding up of our company, where the liabilities of our company exceed its
assets, those assets will be distributed to creditors and the shareholders will not receive any assets.
The liquidator may, with the sanction of a special resolution of our shareholders, divide amongst the shareholders in species or in kind the
whole or any part of the assets of our company, and may for such purpose set such value as the liquidator deems fair upon any property to be divided
as aforesaid and may determine how the division shall be carried out as between our shareholders or different classes of shareholders.
We are a “limited liability” company registered under the Cayman Companies Law, and under the Cayman Companies Law, the liability of our
shareholders is limited to the amount, if any, unpaid on the shares respectively held by them. Our memorandum of association contains a declaration
that the liability of our members is so limited.
Redemption, Repurchase and Surrender of Ordinary Shares
We may issue shares on terms that such shares are subject to redemption, at our option or at the option of the holders thereof, on such terms and
in such manner as may be determined by our board of directors. Our company may also repurchase any of our shares provided that the manner and
terms of such purchase have been approved by our board of directors or by special resolution of our shareholders (but no repurchase may be made
contrary to the terms or manner recommended by our directors), or as otherwise authorized by our articles. Under the Cayman Companies Law, the
redemption or repurchase of any share may be paid out of our company’s profits or out of the proceeds of a new issue of shares made for the purpose
of such redemption or repurchase, or out of capital (including share premium account and capital redemption reserve) if our company can,
immediately following such payment, pay its debts as they fall due in the ordinary course of business. In addition, under the Cayman Companies Law
no such share may be redeemed or repurchased (i) unless it is fully paid up, (ii) if such redemption or repurchase would result in there being no shares
outstanding or (iii) if the company has commenced liquidation. In addition, our company may accept the surrender of any fully paid share for no
consideration.
Calls on Ordinary Shares and Forfeiture of Ordinary Shares
Our board of directors may from time to time make calls upon shareholders (or any of them) for any amounts unpaid on their ordinary shares
provided that no call shall be payable earlier than one month from the last call. The ordinary shares that have been called upon and remain unpaid are
subject to forfeiture.
General Meetings of Shareholders
As a Cayman Islands exempted company, we are not obliged by the Cayman Companies Law to call shareholders’ annual general meetings.
Our articles provide that we may (but are not obliged to) in each year hold a general meeting as our annual general meeting in which case we shall
specify the meeting as such in the notices calling it, and the annual general meeting shall be held at such time and place as may be determined by
our directors.
Shareholders’ general meetings may be convened by a majority of our board of directors or by our chairman. Advance notice of at least ten
calendar days is required for the convening of our annual general shareholders’ meeting (if any) and any other general meeting of our shareholders. A
quorum required for any general meeting of shareholders consists of at least one shareholder present or by proxy, holding shares which carry in
aggregate not less than one-third of all votes attaching to all of our shares in issue and entitled to vote.
The Cayman Companies Law provides shareholders with only limited rights to requisition a general meeting, and does not provide
shareholders with any right to put any proposal before a general meeting. However, these rights may be provided in a company’s articles of
association. Our articles provide that upon the requisition of shareholders holding shares which carry in aggregate not less than one-third of the votes
attaching to all issued and outstanding shares of our company entitled to vote at general meetings, our board will convene an extraordinary general
meeting and put the resolutions so requisitioned to a vote at such meeting. However, our articles do not provide our shareholders with any right to put
any proposals before annual general meetings or extraordinary general meetings not called by such shareholders.
Proceedings of Board of Directors
Our articles provide that our business is to be managed and conducted by our board of directors. The quorum necessary for board meetings may
be fixed by the board and, unless so fixed at another number, will be a majority of the directors then in office.
Our articles provide that the board may from time to time at its discretion exercise all powers of our company to raise capital or borrow money,
to mortgage or charge all or any part of the undertaking, property and assets (present and future) and uncalled capital of our company and issue
debentures, bonds and other securities of our company, whether outright or as collateral security for any debt, liability or obligation of our company
or of any third party.
Changes in Capital
Our shareholders may from time to time by special resolution:
(cid:120)
increase our share capital by such sum, to be divided into shares of such classes and amount, as the resolution shall prescribe;
(cid:120)
(cid:120)
(cid:120)
consolidate and divide all or any of our share capital into shares of a larger amount than our existing shares;
sub-divide our existing shares, or any of them, into shares of a smaller amount; or
cancel any shares which, at the date of the passing of the resolution, have not been taken or agreed to be taken by any person and
diminish the amount of our share capital by the amount of the shares so cancelled.
Our shareholders may by special resolution, subject to confirmation by the Grand Court of the Cayman Islands on an application by our
company for an order confirming such reduction, reduce our share capital or any capital redemption reserve in any manner permitted by law.
Inspection of Books and Records
Holders of our ordinary shares will have no general right under the Cayman Companies 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.
Exempted Company
We are an exempted company with limited liability duly incorporated and validly existing under the Cayman Companies Law. The Cayman
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 for the exemptions and privileges listed below:
(cid:120)
(cid:120)
(cid:120)
(cid:120)
(cid:120)
(cid:120)
(cid:120)
(cid:120)
an exempted company does not have to file an annual return of its shareholders with the Registrar of Companies of the
Cayman Islands;
an exempted company’s register of members is not open to inspection;
an exempted company does not have to hold an annual general meeting;
an exempted company may issue no par value, negotiable or bearer shares;
an exempted company may obtain an undertaking against the imposition of any future taxation (such undertakings are usually given
for 20 years in the first instance);
an exempted company may register by way of continuation in another jurisdiction and be deregistered in the Cayman Islands;
an exempted company may register as a limited duration company; and
an exempted company 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 that shareholder’s shares
of the company (except in exceptional circumstances, such as involving fraud, the establishment of an agency relationship or an illegal or improper
purpose or other circumstances in which a court may be prepared to pierce or lift the corporate veil). We are subject to reporting and other
informational requirements of the Exchange Act, as applicable to foreign private issuers. We follow home country practice for certain corporate
governance practices which may differ from the Corporate Governance Rules of the New York Stock Exchange. The listing requirements of the
New York Stock Exchange require that every listed company hold an annual general meeting of shareholders. In addition, our articles allow our
directors to call extraordinary general meetings of our shareholders pursuant to the procedures set forth in our articles.
Differences in Corporate Law
The Cayman Companies Law is derived, to a large extent, from the older Companies Acts of England, but does not follow recent statutory
enactments in England and accordingly there are significant differences between the Cayman Companies Law and the current Companies Act of
England. In addition, the Cayman Companies Law differs from laws applicable to U.S. corporations and their shareholders. Set forth below is a
summary of certain significant differences between the provisions of the Cayman Companies Law applicable to us and the laws applicable to
companies incorporated in the State of Delaware.
Mergers and Similar Arrangements
The Cayman Companies Law permits mergers and consolidations between Cayman Islands companies and between Cayman Islands companies
and non-Cayman Islands companies. For these purposes, (i) ”merger” means the merging of two or more constituent companies and the vesting of
their undertaking, property and liabilities in one of such companies as the surviving company, and (ii) a “consolidation” means the combination of
two or more constituent companies into a consolidated company and the vesting of the undertaking, property and liabilities of such companies in the
consolidated company. In order to effect such a merger or consolidation, the directors of each constituent company must approve a written plan of
merger or consolidation, which must then be authorized by (i) a special resolution of the shareholders of each constituent company, and (ii) such
other authorization, if any, as may be specified in such constituent company’s articles of association. The plan must be filed with the Registrar of
Companies of the Cayman Islands together with a declaration with respect to, among other things, the solvency of the consolidated or surviving
company, a list of the assets and liabilities of each constituent company and an undertaking that a copy of the certificate of merger or consolidation
will be given to the members and creditors of each constituent company and that notification of the merger or consolidation will be published in the
Cayman Islands Gazette. Court approval is not required for a merger or consolidation which is effected in compliance with these statutory
procedures.
A merger between a Cayman Islands parent company and its Cayman Islands subsidiary or subsidiaries does not require authorization by a
resolution of shareholders. For this purpose a subsidiary is a company of which at least 90% of the issued shares entitled to vote are owned by the
parent company.
The consent of each holder of a fixed or floating security interest of a constituent company is required unless this requirement is waived by a
court in the Cayman Islands.
Except in certain limited circumstances, a shareholder of a Cayman Islands constituent company who dissents from the merger or consolidation
is entitled to payment of the fair value of his or her shares (which, if not agreed between the parties, will be determined by the Grand Court of the
Cayman Islands) upon dissenting from a merger or consolidation, provide the dissenting shareholder complies strictly with the procedures set out in
the Cayman Companies Law. The exercise of such dissenter rights will preclude the exercise by the dissenting shareholder of any other rights to
which he or she might otherwise be entitled by virtue of holding shares, except for the right to seek relief on the grounds that the merger or
consolidation is void or unlawful.
Separately from the statutory provisions relating to mergers and consolidations, the Cayman Companies Law also contains statutory provisions
that facilitate the reconstruction and amalgamation of companies by way of schemes of arrangement, provided that the arrangement is approved by a
majority in number of each class of shareholders or creditors with whom the arrangement is to be made, and who must, in addition, represent three-
fourths in value of each such class of shareholders or creditors, as the case may be, that are present and voting either in person or by proxy at a
meeting, or meetings, convened for that purpose. The convening of the meetings and subsequently the arrangement must be sanctioned by the Grand
Court of the Cayman Islands. While a dissenting shareholder has the right to express to the court the view that the transaction ought not to be
approved, the court can be expected to approve the arrangement if it determines that:
(cid:120)
(cid:120)
(cid:120)
(cid:120)
the statutory provisions as to the required majority vote have been met;
the shareholders have been fairly represented at the meeting in question and the statutory majority are acting bona fide without
coercion of the minority to promote interests adverse to those of the class;
the arrangement is such that may be reasonably approved by an intelligent and honest man of that class acting in respect of his
interest; and
the arrangement is not one that would more properly be sanctioned under some other provision of the Cayman Companies Law.
The Cayman Companies Law also contains a statutory power of compulsory acquisition which may facilitate the “squeeze out” of dissentient
minority shareholder upon a tender offer. When a tender offer is made and accepted by holders of 90% in value of the shares affected within four
months of the offer being made, the offeror may, within a two-month period commencing on the expiration of such four month period, require the
holders of the remaining shares to transfer such shares on the terms of the offer. An objection can be made to the Grand Court of the Cayman
Islands but this is unlikely to succeed in the case of an offer which has been so approved unless there is evidence of fraud, bad faith or collusion.
If an arrangement and reconstruction is thus approved, or if a tender offer is made and accepted, a dissenting shareholder would have no rights
comparable to appraisal rights, which would otherwise ordinarily be available to dissenting shareholders of Delaware corporations, providing rights
to receive payment in cash for the judicially determined value of the shares.
Shareholders’ Suits
In principle, we will normally be the proper plaintiff to sue for a wrong done to us as a company and as a general rule, a derivative action may
not be brought by a minority shareholder. However, based on English law authorities, which would in all likelihood be of persuasive authority in the
Cayman Islands, the Cayman Islands court can be expected to follow and apply the common law principles (namely the rule in Foss v. Harbottle and
the exceptions thereto) so that a non-controlling shareholder may be permitted to commence a class action against or derivative actions in the name of
the company to challenge:
(cid:120)
(cid:120)
(cid:120)
an act which is illegal or ultra vires with respect to the company and is therefore incapable of ratification by the shareholders;
an act which, although not ultra vires, requires authorization by a qualified (or special) majority (that is, more than a simple majority)
which has not been obtained; and
an act which constitutes a “fraud on the minority” where the wrongdoers are themselves in control of the company.
Indemnification of Directors and Executive Officers and Limitation of Liability
The Cayman Companies Law does not limit the extent to which a company’s articles of association may provide for indemnification of officers
and directors, except to the extent any such provision may be held by the Cayman Islands courts to be contrary to public policy, such as to provide
indemnification against civil fraud or the consequences of committing a crime. Our articles provide that we shall indemnify our officers and directors
against all actions, proceedings, costs, charges, expenses, losses, damages or liabilities incurred or sustained by such directors or officer, other than
by reason of such person’s dishonesty, willful default or fraud, in or about the conduct of our company’s business or affairs (including as a result of
any mistake of judgment) or in the execution or discharge of his duties, powers, authorities or discretions, including without prejudice to the
generality of the foregoing, any costs, expenses, losses or liabilities incurred by such director or officer in defending (whether successfully or
otherwise) any civil proceedings concerning our company or its affairs in any court whether in the Cayman Islands or elsewhere. This standard of
conduct is generally the same as permitted under the Delaware General Corporation Law for a Delaware corporation. In addition, we have entered
into indemnification agreements with our directors and executive officers that provide such persons with additional indemnification beyond that
provided in our articles.
Insofar as indemnification for liabilities arising under the Securities Act may be permitted to our directors, officers or persons controlling us
under the foregoing provisions, we have been informed that, in the opinion of the SEC, such indemnification is against public policy as expressed in
the Securities Act and is therefore unenforceable.
Anti-Takeover Provisions in Our Articles
Some provisions of our articles may discourage, delay or prevent a change in control of our company or management that shareholders may
consider favorable, including provisions that authorize our board of directors to issue preferred shares in one or more series and to designate the
price, rights, preferences, privileges and restrictions of such preferred shares without any further vote or action by our shareholders.
However, under Cayman Islands law, our directors may only exercise the rights and powers granted to them under our articles, as amended and
restated from time to time, for a proper purpose and in what they believe in good faith to be in the best interests of our company.
Directors’ Fiduciary Duties
Under Delaware corporate law, a director of a Delaware corporation has a fiduciary duty to the corporation and its shareholders. This duty has
two components: the duty of care and the duty of loyalty. The duty of care requires that a director act in good faith, with the care that an ordinarily
prudent person would exercise under similar circumstances. Under this duty, a director must inform himself of, and disclose to shareholders, all
material information reasonably available regarding a significant transaction. The duty of loyalty requires that a director act in a manner he or she
reasonably believes to be in the best interests of the corporation. He or she must not use his or her corporate position for personal gain or advantage.
This duty prohibits self-dealing by a director and mandates that the best interests of the corporation and its shareholders take precedence over any
interest possessed by a director, officer or controlling shareholder and not shared by the shareholders generally. In general, actions of a director are
presumed to have been made on an informed basis, in good faith and in the honest belief that the action taken was in the best interests of the
corporation. However, this presumption may be rebutted by evidence of a breach of one of the fiduciary duties. Should such evidence be presented
concerning a transaction by a director, a director must prove the procedural fairness of the transaction, and that the transaction was of fair value to the
corporation.
As a matter of Cayman law, a director of a Cayman Islands company is in the position of a fiduciary with respect to the company and therefore
he owes the following duties to the company—a duty to act bona fide in the best interests of the company, a duty not to make a profit based on his or
her position as director (unless the company permits him to do so), a duty not to put himself in a position where the interests of the company conflict
with his or her personal interest or his or her duty to a third party, and a duty to exercise powers for the purpose for which such powers were
intended. A director of a Cayman Islands company owes to the company a duty to act with skill and care. It was previously considered that a director
need not exhibit in the performance of his or her duties a greater degree of skill than may reasonably be expected from a person of his or her
knowledge and experience. However, English and Commonwealth courts have moved towards an objective standard with regard to the required skill
and care and these authorities are likely to be followed in the Cayman Islands.
Shareholder Proposals
Under the Delaware General Corporation Law, a shareholder has the right to put any proposal before the annual meeting of shareholders,
provided it complies with the notice provisions in the governing documents. The Delaware General Corporation Law does not provide shareholders
an express right to put any proposal before the annual meeting of shareholders, but in keeping with common law, Delaware corporations generally
afford shareholders an opportunity to make proposals and nominations provided that they comply with the notice provisions in the certificate of
incorporation or bylaws. A special meeting may be called by the board of directors or any other person authorized to do so in the governing
documents, but shareholders may be precluded from calling special meetings.
The Cayman Companies Law provides shareholders with only limited rights to requisition a general meeting, and does not provide
shareholders with any right to put any proposal before a general meeting. However, these rights may be provided in a company’s articles of
association. Our articles allow our shareholders holding shares which carry in aggregate not less than one-third of the votes attaching to all issued and
outstanding shares of our company entitled to vote at general meetings to requisition an extraordinary general meeting of our shareholders, in which
case our board is obliged to convene an extraordinary general meeting and to put the resolutions so requisitioned to a vote at such meeting. Our
articles provide no other right to put any proposals before annual general meetings or extraordinary general meetings. As a Cayman Islands exempted
company, we are not obligated by law to call shareholders’ annual general meetings. However, our corporate governance guidelines require us to call
such meetings every year.
Cumulative Voting
Under the Delaware General Corporation Law, cumulative voting for elections of directors is not permitted unless the corporation’s certificate
of incorporation specifically provides for it. Cumulative voting potentially facilitates the representation of minority shareholders on a board of
directors since it permits the minority shareholder to cast all the votes to which the shareholder is entitled on a single director, which increases the
shareholder’s voting power with respect to electing such director. Cayman Islands law does not prohibit cumulative voting, but our articles do not
provide for cumulative voting. As a result, our shareholders are not afforded any less protections or rights on this issue than shareholders of a
Delaware corporation.
Removal of Directors
Under the Delaware General Corporation Law, a director of a corporation with a classified board may be removed only for cause with the
approval of a majority of the outstanding shares entitled to vote, unless the certificate of incorporation provides otherwise. Under our articles,
directors may be removed by special resolution of our shareholders.
Transactions with Interested Shareholders
The Delaware General Corporation Law contains a business combination statute applicable to Delaware public corporations whereby, unless
the corporation has specifically elected not to be governed by such statute by amendment to its certificate of incorporation or bylaws that is approved
by its shareholders, it is prohibited from engaging in certain business combinations with an “interested shareholder” for three years following the date
that such person becomes an interested shareholder. An interested shareholder generally is a person or a group who or which owns or owned 15% or
more of the target’s outstanding voting stock or who or which is an affiliate or associate of the corporation and owned 15% or more of the
corporation’s outstanding voting stock within the past three years. This has the effect of limiting the ability of a potential acquirer to make a two-
tiered bid for the target in which all shareholders would not be treated equally. The statute does not apply if, among other things, prior to the date on
which such shareholder becomes an interested shareholder, the board of directors approves either the business combination or the transaction which
resulted in the person becoming an interested shareholder. This encourages any potential acquirer of a Delaware corporation to negotiate the terms of
any acquisition transaction with the target’s board of directors.
Cayman Islands law has no comparable statute. As a result, we cannot avail ourselves of the types of protections afforded by the Delaware
business combination statute. However, although Cayman Islands law does not regulate transactions between a company and its significant
shareholders, the fiduciary duties owed by our directors do require that such transactions must be entered into bona fide in the best interests of the
company and for a proper corporate purpose and not with the effect of constituting a fraud on the minority shareholders.
Dissolution; Winding Up
Under the Delaware General Corporation Law, unless the board of directors approves the proposal to dissolve, dissolution must be approved by
shareholders holding 100% of the total voting power of the corporation. Only if the dissolution is initiated by the board of directors may it be
approved by a simple majority of the corporation’s outstanding shares. Delaware law allows a Delaware corporation to include in its certificate of
incorporation a supermajority voting requirement in connection with dissolutions initiated by the board of directors.
Under the Cayman Companies Law, our company may be wound up by either a special resolution of our members or, if our company is unable
to pay its debts as they fall due, by an ordinary resolution of our members. In addition, a company may be wound up by an order of the courts of the
Cayman Islands. The court has authority to order winding up in a number of specified circumstances including where it is, in the opinion of the court,
just and equitable to do so or if our company is insolvent.
Variation of Rights of Shares
Under the Delaware General Corporation Law, a corporation may vary the rights of a class of shares with the approval of a majority of the
outstanding shares of such class, unless the certificate of incorporation provides otherwise. Under our articles, if our share capital is divided into more
than one class of shares, we may materially and adversely vary the rights attached to any class only with the consent in writing of the holders of not
less than three-fourths of the shares of that class or with the sanction of a special resolution passed at a separate meeting of the holders of the shares
of that class.
Amendment of Governing Documents
Under the Delaware General Corporation Law, a corporation’s certificate of incorporation may be amended only if adopted and declared
advisable by the board of directors and approved by a majority of the outstanding shares entitled to vote, and the bylaws may be amended with the
approval of a majority of the outstanding shares entitled to vote and may, if so provided in the certificate of incorporation, also be amended by the
board of directors. Under the Cayman Companies Law and our articles, our articles may only be amended by special resolution of our shareholders.
Rights of Non-Resident or Foreign Shareholders
There are no limitations imposed by our articles on the rights of non-resident or foreign shareholders to hold or exercise voting rights on our
shares. In addition, there are no provisions in our articles governing the ownership threshold above which shareholder ownership must be disclosed.
Directors’ Power to Issue Shares
Under our articles, our board of directors is empowered to issue or allot shares or grant options, restricted shares, restricted share units, share
appreciation rights, dividend equivalent rights, warrants and analogous equity-based rights with or without preferred, deferred, qualified or other
special rights or restrictions. In particular, pursuant to our articles, our board of directors has the authority, without further action by the shareholders,
to issue all or any part of our capital and to fix the designations, powers, preferences, privileges, and relative participating, optional or special rights
and the qualifications, limitations or restrictions therefrom, including dividend rights, conversion rights, voting rights, terms of redemption and
liquidation preferences, any or all of which may be greater than the rights of our ordinary shares. Our board of directors, without shareholder
approval, may issue preferred shares with voting, conversion or other rights that could adversely affect the voting power and other rights of holders of
our ordinary shares. Subject to the directors’ duty of acting in the best interest of our company, preferred shares can be issued quickly with terms
calculated to delay or prevent a change in control of us or make removal of management more difficult. Additionally, the issuance of preferred shares
may have the effect of decreasing the market price of the ordinary shares, and may adversely affect the voting and other rights of the holders of
ordinary shares.
Description of Debt Securities, Warrants and Rights and Other Securities (Items 12.A, 12.B and 12.C of Form 20-F)
None.
Description of American Depositary Shares (Items 12.D.1 and 12.D.2 of Form 20-F)
Citibank, N.A. acts as the depositary bank for the American Depositary Shares. Citibank’s depositary offices are located at 388 Greenwich
Street, New York, New York 10013. The depositary bank typically appoints a custodian to safekeep the securities on deposit. In this case, the
custodian is Citibank, N.A. – Hong Kong, located at 9/F., Citi Tower, One Bay East, 83 Hoi Bun Road, Kwun Tong, Kowloon, Hong Kong.
We have appointed Citibank as depositary bank pursuant to a deposit agreement. A copy of the deposit agreement is on file with the SEC under
cover of a Registration Statement on Form F-6. You may obtain a copy of the deposit agreement from the SEC’s Public Reference Room at 100 F
Street, N.E., Washington, D.C. 20549 and from the SEC’s website (www.sec.gov). Please refer to Registration Number 333-220361 when retrieving
such copy.
We are providing you with a summary description of the material terms of the ADSs and of your material rights as an owner of ADSs. Please
remember that summaries by their nature lack the precision of the information summarized and that the rights and obligations of an owner of ADSs
will be determined by reference to the terms of the deposit agreement and not by this summary. We urge you to review the deposit agreement in its
entirety. The portions of this summary description that are italicized describe matters that may be relevant to the ownership of ADSs but that may not
be contained in the deposit agreement.
Each ADS represents the right to receive, and to exercise the beneficial ownership interests in, one Class A ordinary share that is on deposit
with the depositary bank and/or custodian. An ADS also represents the right to receive, and to exercise the beneficial interests in, any other property
received by the depositary bank or the custodian on behalf of the owner of the ADS but that has not been distributed to the owners of ADSs because
of legal restrictions or practical considerations. We and the depositary bank may agree to change the ADS-to-Class A ordinary share ratio by
amending the deposit agreement. This amendment may give rise to, or change, the depositary fees payable by ADS owners. The custodian, the
depositary bank and their respective nominees hold all deposited property for the benefit of the holders and beneficial owners of ADSs. The
deposited property does not constitute the proprietary assets of the depositary bank, the custodian or their nominees. Beneficial ownership in the
deposited property under the terms of the deposit agreement is vested in the beneficial owners of the ADSs. The depositary bank, the custodian and
their respective nominees are the record holders of the deposited property represented by the ADSs for the benefit of the holders and beneficial
owners of the corresponding ADSs. A beneficial owner of ADSs may or may not be the holder of ADSs. Beneficial owners of ADSs are able to
receive, and to exercise beneficial ownership interests in, the deposited property only through the registered holders of the ADSs, the registered
holders of the ADSs (on behalf of the applicable ADS owners) only through the depositary bank, and the depositary bank (on behalf of the owners of
the corresponding ADSs) directly, or indirectly, through the custodian or their respective nominees, in each case upon the terms of the deposit
agreement.
If you become an owner of ADSs, you will become a party to the deposit agreement and therefore will be bound to its terms and to the terms of
any ADR that represents your ADSs. The deposit agreement and the ADR specify our rights and obligations as well as your rights and obligations as
owner of ADSs and those of the depositary bank. As an ADS holder you appoint the depositary bank to act on your behalf in certain circumstances.
The deposit agreement and the ADRs are governed by New York law. However, our obligations to the holders of Class A ordinary shares continue to
be governed by the laws of the Cayman Islands, which may be different from the laws in the United States.
In addition, applicable laws and regulations may require you to satisfy reporting requirements and obtain regulatory approvals in certain
circumstances. You are solely responsible for complying with such reporting requirements and obtaining such approvals. Neither the depositary bank,
the custodian, us or any of their or our respective agents or affiliates shall be required to take any actions whatsoever on your behalf to satisfy such
reporting requirements or obtain such regulatory approvals under applicable laws and regulations.
As an owner of ADSs, we do not treat you as one of our shareholders and you do not have direct shareholder rights. The depositary bank holds
on your behalf the shareholder rights attached to the Class A ordinary shares underlying your ADSs. As an owner of ADSs you are able to exercise
the shareholders rights for the Class A ordinary shares represented by your ADSs through the depositary bank only to the extent contemplated in the
deposit agreement. To exercise any shareholder rights not contemplated in the deposit agreement you, as an ADS owner, need to arrange for the
cancellation of your ADSs and become a direct shareholder.
The manner in which you own the ADSs (e.g., in a brokerage account vs. as registered holder, or as holder of certificated vs. uncertificated
ADSs) may affect your rights and obligations, and the manner in which, and extent to which, the depositary bank’s services are made available to
you. As an owner of ADSs, you may hold your ADSs either by means of an ADR registered in your name, through a brokerage or safekeeping
account, or through an account established by the depositary bank in your name reflecting the registration of uncertificated ADSs directly on the
books of the depositary bank (commonly referred to as the “direct registration system” or “DRS”). The direct registration system reflects the
uncertificated (book-entry) registration of ownership of ADSs by the depositary bank. Under the direct registration system, ownership of ADSs is
evidenced by periodic statements issued by the depositary bank to the holders of the ADSs. The direct registration system includes automated
transfers between the depositary bank and The Depository Trust Company (“DTC”), the central book-entry clearing and settlement system for equity
securities in the United States. If you decide to hold your ADSs through your brokerage or safekeeping account, you must rely on the procedures of
your broker or bank to assert your rights as ADS owner. Banks and brokers typically hold securities such as the ADSs through clearing and
settlement systems such as DTC. The procedures of such clearing and settlement systems may limit your ability to exercise your rights as an owner of
ADSs. Please consult with your broker or bank if you have any questions concerning these limitations and procedures. All ADSs held through DTC
are registered in the name of a nominee of DTC. This summary description assumes you have opted to own the ADSs directly by means of an ADS
registered in your name and, as such, we will refer to you as the “holder.” When we refer to “you,” we assume the reader owns ADSs and will own
ADSs at the relevant time.
The registration of the Class A ordinary shares in the name of the depositary bank or the custodian shall, to the maximum extent permitted by
applicable law, vest in the depositary bank or the custodian the record ownership in the applicable Class A ordinary shares with the beneficial
ownership rights and interests in such Class A ordinary shares being at all times vested with the beneficial owners of the ADSs representing the
Class A ordinary shares. The depositary bank or the custodian shall at all times be entitled to exercise the beneficial ownership rights in all deposited
property, in each case only on behalf of the holders and beneficial owners of the ADSs representing the deposited property.
Dividends and Distributions
As a holder of ADSs, you generally have the right to receive the distributions we make on the securities deposited with the custodian. Your
receipt of these distributions may be limited, however, by practical considerations and legal limitations. Holders of ADSs will receive such
distributions under the terms of the deposit agreement in proportion to the number of ADSs held as of the specified record date, after deduction of the
applicable fees, taxes and expenses.
Distributions of Cash
Whenever we make a cash distribution for the securities on deposit with the custodian, we will deposit the funds with the custodian. Upon
receipt of confirmation of the deposit of the requisite funds, the depositary bank will arrange for the funds received in a currency other than
U.S. dollars to be converted into U.S. dollars and for the distribution of the U.S. dollars to the holders, subject to the laws and regulations of the
Cayman Islands.
The conversion into U.S. dollars will take place only if practicable and if the U.S. dollars are transferable to the United States. The depositary
bank will apply the same method for distributing the proceeds of the sale of any property (such as undistributed rights) held by the custodian in
respect of securities on deposit.
The distribution of cash will be made net of the fees, expenses, taxes and governmental charges payable by holders under the terms of the
deposit agreement. The depositary bank will hold any cash amounts it is unable to distribute in a non-interest bearing account for the benefit of the
applicable holders and beneficial owners of ADSs until the distribution can be effected or the funds that the depositary bank holds must be escheated
as unclaimed property in accordance with the laws of the relevant states of the United States.
Distributions of Class A Ordinary Shares
Whenever we make a free distribution of Class A ordinary shares for the securities on deposit with the custodian, we will deposit the applicable
number of Class A ordinary shares with the custodian. Upon receipt of confirmation of such deposit, the depositary bank will either distribute to
holders new ADSs representing the Class A ordinary shares deposited or modify the ADS-to-Class A ordinary share ratio, in which case each ADS
you hold will represent rights and interests in the additional Class A ordinary shares so deposited. Only whole new ADSs will be distributed.
Fractional entitlements will be sold and the proceeds of such sale will be distributed as in the case of a cash distribution.
The distribution of new ADSs or the modification of the ADS-to-Class A ordinary share ratio upon a distribution of Class A ordinary shares
will be made net of the fees, expenses, taxes and governmental charges payable by holders under the terms of the deposit agreement. In order to pay
such taxes or governmental charges, the depositary bank may sell all or a portion of the new Class A ordinary shares so distributed.
No such distribution of new ADSs will be made if it would violate a law (e.g., the U.S. securities laws) or if it is not operationally practicable.
If the depositary bank does not distribute new ADSs as described above, it may sell the Class A ordinary shares received upon the terms described in
the deposit agreement and will distribute the proceeds of the sale as in the case of a distribution of cash.
Distributions of Rights
Whenever we intend to distribute rights to subscribe for additional Class A ordinary shares, we will give prior notice to the depositary bank and
we will assist the depositary bank in determining whether it is lawful and reasonably practicable to distribute rights to subscribe for additional ADSs
to holders.
The depositary bank will establish procedures to distribute rights to subscribe for additional ADSs to holders and to enable such holders to
exercise such rights if it is lawful and reasonably practicable to make the rights available to holders of ADSs, and if we provide all of the
documentation contemplated in the deposit agreement (such as opinions to address the lawfulness of the transaction). You may have to pay fees,
expenses, taxes and other governmental charges to subscribe for the new ADSs upon the exercise of your rights. The depositary bank is not obligated
to establish procedures to facilitate the distribution and exercise by holders of rights to subscribe for new Class A ordinary shares other than in the
form of ADSs.
The depositary bank will not distribute the rights to you if:
(cid:120) We do not timely request that the rights be distributed to you or we request that the rights not be distributed to you; or
(cid:120) We fail to deliver satisfactory documents to the depositary bank; or
(cid:120)
It is not reasonably practicable to distribute the rights.
The depositary bank will sell the rights that are not exercised or not distributed if such sale is lawful and reasonably practicable. The proceeds
of such sale will be distributed to holders as in the case of a cash distribution. If the depositary bank is unable to sell the rights, it will allow the rights
to lapse.
Elective Distributions
Whenever we intend to distribute a dividend payable at the election of shareholders either in cash or in additional shares, we will give prior
notice thereof to the depositary bank and will indicate whether we wish the elective distribution to be made available to you. In such case, we will
assist the depositary bank in determining whether such distribution is lawful and reasonably practicable.
The depositary bank will make the election available to you only if it is reasonably practicable and if we have provided all of the
documentation contemplated in the deposit agreement. In such case, the depositary bank will establish procedures to enable you to elect to receive
either cash or additional ADSs, in each case as described in the deposit agreement.
If the election is not made available to you, you will receive either cash or additional ADSs, depending on what a shareholder in the Cayman
Islands would receive upon failing to make an election, as more fully described in the deposit agreement.
Other Distributions
Whenever we intend to distribute property other than cash, Class A ordinary shares or rights to subscribe for additional Class A ordinary shares
we will notify the depositary bank in advance and will indicate whether we wish such distribution to be made to you. If so, we will assist the
depositary bank in determining whether such distribution to holders is lawful and reasonably practicable.
If it is reasonably practicable to distribute such property to you and if we provide to the depositary bank all of the documentation contemplated
in the deposit agreement, the depositary bank will distribute the property to the holders in a manner it deems practicable.
The distribution will be made net of fees, expenses, taxes and governmental charges payable by holders under the terms of the deposit
agreement. In order to pay such taxes and governmental charges, the depositary bank may sell all or a portion of the property received.
The depositary bank will not distribute the property to you and will sell the property if:
(cid:120) We do not request that the property be distributed to you or if we request that the property not be distributed to you; or
(cid:120) We do not deliver satisfactory documents to the depositary bank; or
(cid:120)
The depositary bank determines that all or a portion of the distribution to you is not reasonably practicable.
The proceeds of such a sale will be distributed to holders as in the case of a cash distribution.
Redemption
Whenever we decide to redeem any of the securities on deposit with the custodian, we will notify the depositary bank in advance. If it is
practicable and if we provide all of the documentation contemplated in the deposit agreement, the depositary bank will provide notice of the
redemption to the holders.
The custodian will be instructed to surrender the shares being redeemed against payment of the applicable redemption price. The depositary
bank will convert into U.S. dollars upon the terms of the deposit agreement the redemption funds received in a currency other than U.S. dollars and
will establish procedures to enable holders to receive the net proceeds from the redemption upon surrender of their ADSs to the depositary bank. You
may have to pay fees, expenses, taxes and other governmental charges upon the redemption of your ADSs. If less than all ADSs are being redeemed,
the ADSs to be retired will be selected by lot or on a pro rata basis, as the depositary bank may determine.
Changes Affecting Class A Ordinary Shares
The Class A ordinary shares held on deposit for your ADSs may change from time to time. For example, there may be a change in nominal or
par value, split-up, cancellation, consolidation or any other reclassification of such Class A ordinary shares or a recapitalization, reorganization,
merger, consolidation or sale of assets of the Company.
If any such change were to occur, your ADSs would, to the extent permitted by law and the deposit agreement, represent the right to receive the
property received or exchanged in respect of the Class A ordinary shares held on deposit. The depositary bank may in such circumstances deliver new
ADSs to you, amend the deposit agreement, the ADRs and the applicable Registration Statement(s) on Form F-6, call for the exchange of your
existing ADSs for new ADSs and take any other actions that are appropriate to reflect as to the ADSs the change affecting the Class A ordinary
shares. If the depositary bank may not lawfully distribute such property to you, the depositary bank may sell such property and distribute the net
proceeds to you as in the case of a cash distribution.
Issuance of ADSs Upon Deposit of Class A Ordinary Shares
The depositary bank may create ADSs on your behalf if you or your broker deposit Class A ordinary shares with the custodian. The depositary
bank will deliver these ADSs to the person you indicate only after you pay any applicable issuance fees and any charges and taxes payable for the
transfer of the Class A ordinary shares to the custodian. Your ability to deposit Class A ordinary shares and receive ADSs may be limited by U.S. and
Cayman Islands legal considerations applicable at the time of deposit.
The issuance of ADSs may be delayed until the depositary bank or the custodian receives confirmation that all required approvals have been
given and that the Class A ordinary shares have been duly transferred to the custodian. The depositary bank will only issue ADSs in whole numbers.
When you make a deposit of Class A ordinary shares, you will be responsible for transferring good and valid title to the depositary bank. As
such, you will be deemed to represent and warrant that:
The Class A ordinary shares are duly authorized, validly issued, fully paid, non-assessable and legally obtained.
(cid:120)
(cid:120) All preemptive (and similar) rights, if any, with respect to such Class A ordinary shares have been validly waived or exercised.
(cid:120) You are duly authorized to deposit the Class A ordinary shares.
(cid:120)
The Class A ordinary shares presented for deposit are free and clear of any lien, encumbrance, security interest, charge, mortgage or
adverse claim, and are not, and the ADSs issuable upon such deposit will not be, “restricted securities” (as defined in the deposit
agreement).
The Class A ordinary shares presented for deposit have not been stripped of any rights or entitlements.
(cid:120)
If any of the representations or warranties are incorrect in any way, we and the depositary bank may, at your cost and expense, take any and all
actions necessary to correct the consequences of the misrepresentations.
Transfer, Combination and Split Up of ADRs
As an ADR holder, you will be entitled to transfer, combine or split up your ADRs and the ADSs evidenced thereby. For transfers of ADRs,
you will have to surrender the ADRs to be transferred to the depositary bank and also must:
(cid:120)
(cid:120)
(cid:120)
(cid:120)
ensure that the surrendered ADR is properly endorsed or otherwise in proper form for transfer;
provide such proof of identity and genuineness of signatures as the depositary bank deems appropriate;
provide any transfer stamps required by the State of New York or the United States; and
pay all applicable fees, charges, expenses, taxes and other government charges payable by ADR holders pursuant to the terms of the
deposit agreement, upon the transfer of ADRs.
To have your ADRs either combined or split up, you must surrender the ADRs in question to the depositary bank with your request to have
them combined or split up, and you must pay all applicable fees, charges and expenses payable by ADR holders, pursuant to the terms of the deposit
agreement, upon a combination or split up of ADRs.
Withdrawal of Class A Ordinary Shares Upon Cancellation of ADSs
As a holder, you will be entitled to present your ADSs to the depositary bank for cancellation and then receive the corresponding number of
underlying Class A ordinary shares at the custodian’s offices. Your ability to withdraw the Class A ordinary shares held in respect of the ADSs may
be limited by U.S. and Cayman Islands considerations applicable at the time of withdrawal. In order to withdraw the Class A ordinary shares
represented by your ADSs, you will be required to pay to the depositary bank the fees for cancellation of ADSs and any charges and taxes payable
upon the transfer of the Class A ordinary shares. You assume the risk for delivery of all funds and securities upon withdrawal. Once canceled, the
ADSs will not have any rights under the deposit agreement.
If you hold ADSs registered in your name, the depositary bank may ask you to provide proof of identity and genuineness of any signature and
such other documents as the depositary bank may deem appropriate before it will cancel your ADSs. The withdrawal of the Class A ordinary shares
represented by your ADSs may be delayed until the depositary bank receives satisfactory evidence of compliance with all applicable laws and
regulations. Please keep in mind that the depositary bank will only accept ADSs for cancellation that represent a whole number of securities
on deposit.
You will have the right to withdraw the securities represented by your ADSs at any time except for:
(cid:120)
Temporary delays that may arise because (i) the transfer books for the Class A ordinary shares or ADSs are closed, or (ii) Class A
ordinary shares are immobilized on account of a shareholders’ meeting or a payment of dividends.
(cid:120) Obligations to pay fees, taxes and similar charges.
(cid:120)
Restrictions imposed because of laws or regulations applicable to ADSs or the withdrawal of securities on deposit.
The deposit agreement may not be modified to impair your right to withdraw the securities represented by your ADSs except to comply with
mandatory provisions of law.
Voting Rights
As a holder, you generally have the right under the deposit agreement to instruct the depositary bank to exercise the voting rights for the
Class A ordinary shares represented by your ADSs. The voting rights of holders of Class A ordinary shares are described above under the heading
“Description of Ordinary Shares — Voting Rights.”
At our request, the depositary bank will distribute to you any notice of shareholders’ meeting received from us together with information
explaining how to instruct the depositary bank to exercise the voting rights of the securities represented by ADSs.
If the depositary bank timely receives voting instructions from a holder of ADSs, it will endeavor to vote the securities (in person or by proxy)
represented by the holder’s ADSs in accordance with such voting instructions as follows:
(cid:120)
(cid:120)
In the event of voting by show of hands, the depositary bank will vote (or cause the custodian to vote) all Class A ordinary shares held
on deposit at that time in accordance with the voting instructions received from a majority of holders of ADSs who provide timely
voting instructions.
In the event of voting by poll, the depositary bank will vote (or cause the Custodian to vote) the Class A ordinary shares held on
deposit in accordance with the voting instructions received from the holders of ADSs.
In the event of voting by poll, holders of ADSs in respect of which no timely voting instructions have been received shall be deemed to have
instructed the depositary bank to give a discretionary proxy to a person designated by us to vote the Class A ordinary shares represented by such
holders’ ADSs; provided, that no such instructions shall be deemed given and no such discretionary proxy shall be given with respect to any matter as
to which we inform the depositary bank that we do not wish such proxy to be given; provided, further, that no such discretionary proxy shall be given
(x) with respect to any matter as to which we inform the depositary that (i) there exists substantial opposition, or (ii) the rights of holders of ADSs or
the shareholders of our company will be materially adversely affected, and (y) in the event that the vote is on a show of hands.
Please note that the ability of the depositary bank to carry out voting instructions may be limited by practical and legal limitations and the terms
of the securities on deposit. We cannot assure you that you will receive voting materials in time to enable you to return voting instructions to the
depositary bank in a timely manner.
Fees and Charges
As an ADS holder, you will be required to pay the following fees under the terms of the deposit agreement:
(cid:120) Issuance of ADSs (e.g., an issuance of ADS upon a deposit of
Up to U.S. 5¢ per ADS issued
Service
Fees
Class A ordinary shares, upon a change in the ADS(s)-to-Class A
ordinary share(s) ratio, or for any other reason), excluding ADS
issuances as a result of distributions of Class A ordinary shares
(cid:120) Cancellation of ADSs (e.g., a cancellation of ADSs for delivery of
deposited property, upon a change in the ADS(s)-to-Class A
ordinary share(s) ratio, or for any other reason)
Up to U.S. 5¢ per ADS cancelled
(cid:120) Distribution of cash dividends or other cash distributions (e.g., upon
Up to U.S. 5¢ per ADS held
a sale of rights and other entitlements)
(cid:120) Distribution of ADSs pursuant to (i) stock dividends or other free
stock distributions, or (ii) exercise of rights to purchase additional
ADSs
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 (e.g., upon a spin-off)
(cid:120) ADS Services
Up to U.S. 5¢ per ADS held on the applicable record date(s) established
by the depositary bank
As an ADS holder you will also be responsible to pay certain charges such as:
(cid:120)
(cid:120)
(cid:120)
(cid:120)
(cid:120)
(cid:120)
taxes (including applicable interest and penalties) and other governmental charges;
the registration fees as may from time to time be in effect for the registration of Class A ordinary shares on the share register and
applicable to transfers of Class A ordinary shares to or from the name of the custodian, the depositary bank or any nominees upon the
making of deposits and withdrawals, respectively;
certain cable, telex and facsimile transmission and delivery expenses;
the expenses and charges incurred by the depositary bank in the conversion of foreign currency;
the fees and expenses incurred by the depositary bank in connection with compliance with exchange control regulations and other
regulatory requirements applicable to Class A ordinary shares, ADSs and ADRs; and
the fees and expenses incurred by the depositary bank, the custodian, or any nominee in connection with the servicing or delivery of
deposited property.
ADS fees and charges payable upon (i) the issuance of ADSs, and (ii) the cancellation of ADSs are charged to the person to whom the ADSs
are issued (in the case of ADS issuances) and to the person whose ADSs are cancelled (in the case of ADS cancellations). In the case of ADSs issued
by the depositary bank into DTC, the ADS issuance and cancellation fees and charges may be deducted from distributions made through DTC, and
may be charged to the DTC participant(s) receiving the ADSs being issued or the DTC participant(s) holding the ADSs being cancelled, as the case
may be, on behalf of the beneficial owner(s) and will be charged by the DTC participant(s) to the account of the applicable beneficial owner(s) in
accordance with the procedures and practices of the DTC participants as in effect at the time. ADS fees and charges in respect of distributions and the
ADS service fee are charged to the holders as of the applicable ADS record date. In the case of distributions of cash, the amount of the applicable
ADS fees and charges is deducted from the funds being distributed. In the case of (i) distributions other than cash and (ii) the ADS service fee,
holders as of the ADS record date will be invoiced for the amount of the ADS fees and charges and such ADS fees and charges may be deducted
from distributions made to holders of ADSs. For ADSs held through DTC, the ADS fees and charges for distributions other than cash and the ADS
service fee may be deducted from distributions made through DTC, and may be charged to the DTC participants in accordance with the procedures
and practices prescribed by DTC and the DTC participants in turn charge the amount of such ADS fees and charges to the beneficial owners for
whom they hold ADSs.
In the event of refusal to pay the depositary bank 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 bank fees from any distribution to be made to the ADS holder. Certain
of the depositary fees and charges (such as the ADS services fee) may become payable shortly after the closing of the ADS offering. Note that the
fees and charges you may be required to pay may vary over time and may be changed by us and by the depositary bank. You will receive prior notice
of such changes. The depositary bank may reimburse us for certain expenses incurred by us in respect of the ADR program, by making available a
portion of the ADS fees charged in respect of the ADR program or otherwise, upon such terms and conditions as we and the depositary bank agree
from time to time.
Amendments and Termination
We may agree with the depositary bank to modify the deposit agreement at any time without your consent. We undertake to give holders
30 days’ prior notice of any modifications that would materially prejudice any of their substantial rights under the deposit agreement. We will not
consider to be materially prejudicial to your substantial rights any modifications or supplements that are reasonably necessary for the ADSs to be
registered under the Securities Act or to be eligible for book-entry settlement, in each case without imposing or increasing the fees and charges you
are required to pay. In addition, we may not be able to provide you with prior notice of any modifications or supplements that are required to
accommodate compliance with applicable provisions of law.
You will be bound by the modifications to the deposit agreement if you continue to hold your ADSs after the modifications to the deposit
agreement become effective. The deposit agreement cannot be amended to prevent you from withdrawing the Class A ordinary shares represented by
your ADSs (except as permitted by law).
We have the right to direct the depositary bank to terminate the deposit agreement. Similarly, the depositary bank may in certain circumstances
on its own initiative terminate the deposit agreement. In either case, the depositary bank must give notice to the holders at least 30 days before
termination. Until termination, your rights under the deposit agreement will be unaffected.
After termination, the depositary bank will continue to collect distributions received (but will not distribute any such property until you request
the cancellation of your ADSs) and may sell the securities held on deposit. After the sale, the depositary bank will hold the proceeds from such sale
and any other funds then held for the holders of ADSs in a non-interest bearing account. At that point, the depositary bank will have no further
obligations to holders other than to account for the funds then held for the holders of ADSs still outstanding (after deduction of applicable fees, taxes
and expenses).
In connection with any termination of the deposit agreement, the depositary bank may make available to owners of ADSs a means to withdraw
the Class A ordinary shares represented by ADSs and to direct the depositary of such Class A ordinary shares into an unsponsored American
depositary share program established by the depositary bank. The ability to receive unsponsored American depositary shares upon termination of the
deposit agreement would be subject to satisfaction of certain U.S. regulatory requirements applicable to the creation of unsponsored American
depositary shares and the payment of applicable depositary fees.
Books of Depositary
The depositary bank will maintain ADS holder records at its depositary office. You may inspect such records at such office during regular
business hours but solely for the purpose of communicating with other holders in the interest of business matters relating to the ADSs and the deposit
agreement.
The depositary bank will maintain in New York facilities to record and process the issuance, cancellation, combination, split-up and transfer of
ADSs. These facilities may be closed from time to time, to the extent not prohibited by law.
Limitations on Obligations and Liabilities
The deposit agreement limits our obligations and the depositary bank’s obligations to you. Please note the following:
(cid:120) We and the depositary bank are obligated only to take the actions specifically stated in the deposit agreement without negligence or
(cid:120)
(cid:120)
bad faith.
The depositary bank disclaims any liability for any failure to carry out voting instructions, for any manner in which a vote is cast or
for the effect of any vote, provided it acts in good faith and in accordance with the terms of the deposit agreement.
The depositary bank disclaims any liability for any failure to determine the lawfulness or practicality of any action, for the content of
any document forwarded to you on our behalf or for the accuracy of any translation of such a document, for the investment risks
associated with investing in Class A ordinary shares, for the validity or worth of the Class A ordinary shares, for any tax consequences
that result from the ownership of ADSs, for the credit-worthiness of any third party, for allowing any rights to lapse under the terms of
the deposit agreement, for the timeliness of any of our notices or for our failure to give notice.
(cid:120) We and the depositary bank will not be obligated to perform any act that is inconsistent with the terms of the deposit agreement.
(cid:120) We and the depositary bank disclaim any liability if we or the depositary bank are prevented or forbidden from or subject to any civil
or criminal penalty or restraint on account of, or delayed in, doing or performing any act or thing required by the terms of the deposit
agreement, by reason of any provision, present or future of any law or regulation, or by reason of present or future provision of any
provision of our Articles of Association, or any provision of or governing the securities on deposit, or by reason of any act of God or
war or other circumstances beyond our control.
(cid:120) We and the depositary bank disclaim any liability by reason of any exercise of, or failure to exercise, any discretion provided for in the
deposit agreement or in our Articles of Association or in any provisions of or governing the securities on deposit.
(cid:120) We and the depositary bank further disclaim any liability for any action or inaction in reliance on the advice or information received
from legal counsel, accountants, any person presenting Class A ordinary shares for deposit, any holder of ADSs or authorized
representatives thereof, or any other person believed by either of us in good faith to be competent to give such advice or information.
(cid:120) We and the depositary bank also disclaim liability for the inability by a holder to benefit from any distribution, offering, right or other
benefit that is made available to holders of Class A ordinary shares but is not, under the terms of the deposit agreement, made
available to you.
(cid:120) We and the depositary bank may rely without any liability upon any written notice, request or other document believed to be genuine
and to have been signed or presented by the proper parties.
(cid:120) We and the depositary bank also disclaim liability for any consequential or punitive damages for any breach of the terms of the
deposit agreement.
(cid:120) No disclaimer of any Securities Act liability is intended by any provision of the deposit agreement.
(cid:120) Nothing in the deposit agreement gives rise to a partnership or joint venture, or establishes a fiduciary relationship, among us, the
depositary bank and you as ADS holder.
(cid:120) Nothing in the deposit agreement precludes Citibank (or its affiliates) from engaging in transactions in which parties adverse to us or
the ADS owners have interests, and nothing in the deposit agreement obligates Citibank to disclose those transactions, or any
information obtained in the course of those transactions, to us or to the ADS owners, or to account for any payment received as part of
those transactions.
Pre-Release Transactions
Subject to the terms and conditions of the deposit agreement, the depositary bank may issue to broker/dealers ADSs before receiving a deposit
of Class A ordinary shares or release Class A ordinary shares to broker/dealers before receiving ADSs for cancellation. These transactions are
commonly referred to as “pre-release transactions,” and are entered into between the depositary bank and the applicable broker/dealer. The deposit
agreement limits the aggregate size of pre-release transactions (not to exceed 30% of the Class A ordinary shares on deposit in the aggregate) and
imposes a number of conditions on such transactions (e.g., the need to receive collateral, the type of collateral required, the representations required
from brokers, etc.). The depositary bank may retain the compensation received from the pre-release transactions.
Taxes
You will be responsible for the taxes and other governmental charges payable on the ADSs and the securities represented by the ADSs. We, the
depositary bank and the custodian may deduct from any distribution the taxes and governmental charges payable by holders and may sell any and all
property on deposit to pay the taxes and governmental charges payable by holders. You will be liable for any deficiency if the sale proceeds do not
cover the taxes that are due.
The depositary bank may refuse to issue ADSs, to deliver, transfer, split and combine ADRs or to release securities on deposit until all taxes
and charges are paid by the applicable holder. The depositary bank and the custodian may take reasonable administrative actions to obtain tax refunds
and reduced tax withholding for any distributions on your behalf. However, you may be required to provide to the depositary bank and to the
custodian proof of taxpayer status and residence and such other information as the depositary bank and the custodian may require to fulfill legal
obligations. You are required to indemnify us, the depositary bank and the custodian for any claims with respect to taxes based on any tax benefit
obtained for you.
Foreign Currency Conversion
The depositary bank will arrange for the conversion of all foreign currency received into U.S. dollars if such conversion is practical, and it will
distribute the U.S. dollars in accordance with the terms of the deposit agreement. You may have to pay fees and expenses incurred in converting
foreign currency, such as fees and expenses incurred in complying with currency exchange controls and other governmental requirements.
If the conversion of foreign currency is not practical or lawful, or if any required approvals are denied or not obtainable at a reasonable cost or
within a reasonable period, the depositary bank may take the following actions in its discretion:
(cid:120)
Convert the foreign currency to the extent practical and lawful and distribute the U.S. dollars to the holders for whom the conversion
and distribution is lawful and practical.
(cid:120) Distribute the foreign currency to holders for whom the distribution is lawful and practical.
(cid:120) Hold the foreign currency (without liability for interest) for the applicable holders.
Governing Law
The deposit agreement and the ADRs are interpreted in accordance with the laws of the State of New York. The rights of holders of Class A
ordinary shares (including Class A ordinary shares represented by ADSs) are governed by the laws of the Cayman Islands.
Exhibit 4.18
EXECUTION VERSION
BEST Inc.
and
Citicorp International Limited as Trustee
INDENTURE
dated as of September 17, 2019
1.75% CONVERTIBLE SENIOR NOTES DUE 2024
Confidential
TABLE OF CONTENTS
ARTICLE 1
DEFINITIONS
Section 1.01
Definitions
Section 1.02
References to Interest
ARTICLE 2
ISSUE, DESCRIPTION, EXECUTION, REGISTRATION AND EXCHANGE OF NOTES
Section 2.01
Designation and Amount
Section 2.02
Form of Notes
Section 2.03
Date and Denomination of Notes; Payments of Interest and Defaulted Amounts
Section 2.04
Execution, Authentication and Delivery of Notes
Section 2.05
Exchange and Registration of Transfer of Notes; Restrictions on Transfer; Depositary
Section 2.06
Mutilated, Destroyed, Lost or Stolen Notes
Section 2.07
Temporary Notes
Section 2.08
Cancellation of Notes Paid, Converted, Etc.
Section 2.09
CUSIP Numbers
Section 2.10
Additional Notes; Repurchases
ARTICLE 3
SATISFACTION AND DISCHARGE
Section 3.01
Satisfaction and Discharge
ARTICLE 4
PARTICULAR COVENANTS OF THE COMPANY
Section 4.01
Payment of Principal and Interest
Section 4.02
Maintenance of Office or Agency
Section 4.03
Appointments to Fill Vacancies in Trustee’s Office
Section 4.04
Provisions as to Paying Agent
Section 4.05
Existence
Section 4.06
Rule 144A Information Requirement and Annual Reports
Section 4.07
Additional Amounts
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Section 4.08
Stay, Extension and Usury Laws
Section 4.09
Compliance Certificate; Statements as to Defaults
Section 4.10
Further Instruments and Acts
ARTICLE 5
LISTS OF HOLDERS AND REPORTS BY THE COMPANY AND THE TRUSTEE
Section 5.01
Lists of Holders
Section 5.02
Preservation and Disclosure of Lists
ARTICLE 6
DEFAULTS AND REMEDIES
Section 6.01
Events of Default
Section 6.02
Acceleration; Rescission and Annulment
Section 6.03
Additional Interest
Section 6.04
Payments of Notes on Default; Suit Therefor
Section 6.05
Application of Monies Collected by Trustee
Section 6.06
Proceedings by Holders
Section 6.07
Proceedings by Trustee
Section 6.08
Remedies Cumulative and Continuing
Section 6.09
Direction of Proceedings and Waiver of Defaults by Majority of Holders
Section 6.10
Notice of Defaults and Events of Default
Section 6.11
Undertaking to Pay Costs
ARTICLE 7
CONCERNING THE TRUSTEE
Section 7.01
Duties and Responsibilities of Trustee
Section 7.02
Reliance on Documents, Opinions, Etc.
Section 7.03
No Responsibility for Recitals, Etc.
Section 7.04
Trustee, Paying Agent, Transfer Agent, Conversion Agent or Note Registrar May Own Notes
Section 7.05
Monies to Be Held in Trust
Section 7.06
Compensation and Expenses of Trustee
Section 7.07
Officers’ Certificate as Evidence
Section 7.08
Eligibility of Trustee
Section 7.09
Resignation or Removal of Trustee
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Section 7.10
Acceptance by Successor Trustee
Section 7.11
Succession by Merger, Etc.
Section 7.12
Trustee’s Application for Instructions from the Company
ARTICLE 8
CONCERNING THE HOLDERS
Section 8.01
Action by Holders
Section 8.02
Proof of Execution by Holders
Section 8.03
Who Are Deemed Absolute Owners
Section 8.04
Company-Owned Notes Disregarded
Section 8.05
Revocation of Consents; Future Holders Bound
ARTICLE 9
HOLDERS’ MEETINGS
Section 9.01
Purpose of Meetings
Section 9.02
Call of Meetings by Trustee
Section 9.03
Call of Meetings by Company or Holders
Section 9.04
Qualifications for Voting
Section 9.05
Regulations
Section 9.06
Voting
Section 9.07
No Delay of Rights by Meeting
ARTICLE 10
SUPPLEMENTAL INDENTURES
Section 10.01
Supplemental Indentures Without Consent of Holders
Section 10.02
Supplemental Indentures with Consent of Holders
Section 10.03
Effect of Supplemental Indentures
Section 10.04 Notation on Notes
Section 10.05
Evidence of Compliance of Supplemental Indenture to Be Furnished Trustee
ARTICLE 11
CONSOLIDATION, MERGER, SALE, CONVEYANCE AND LEASE
Section 11.01 Company May Consolidate, Etc. on Certain Terms
Section 11.02
Successor Corporation to Be Substituted
Section 11.03 Opinion of Counsel to Be Given to Trustee
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ARTICLE 12
IMMUNITY OF INCORPORATORS, STOCKHOLDERS, OFFICERS AND DIRECTORS
Section 12.01
Indenture and Notes Solely Corporate Obligations
ARTICLE 13
INTENTIONALLY OMITTED
ARTICLE 14
CONVERSION OF NOTES
Section 14.01 Conversion Privilege
Section 14.02 Conversion Procedure; Settlement Upon Conversion
Section 14.03
Increased Conversion Rate Applicable to Certain Notes Surrendered in Connection with Make-
Whole Fundamental Change
Section 14.04 Adjustment of Conversion Rate
Section 14.05 Adjustments of Prices
Section 14.06 Ordinary Shares to Be Fully Paid
Section 14.07
Effect of Recapitalizations, Reclassifications and Changes of the Ordinary Shares
Section 14.08 Certain Covenants
Section 14.09 Responsibility of Trustee
Section 14.10
Notice to Holders Prior to Certain Actions
Section 14.11
Stockholder Rights Plans
Section 14.12
Termination of Depositary Receipt Program
ARTICLE 15
REPURCHASE OF NOTES AT OPTION OF HOLDERS
Section 15.01 Repurchase at Option of Holders
Section 15.02 Repurchase at Option of Holders Upon a Fundamental Change
Section 15.03 Withdrawal of Repurchase Notice or Fundamental Change Repurchase Notice
Section 15.04 Deposit of Repurchase Price or Fundamental Change Repurchase Price
Section 15.05 Covenant to Comply with Applicable Laws Upon Repurchase of Notes
ARTICLE 16
OPTIONAL REDEMPTION
Section 16.01 Optional Redemption for Changes in the Tax Law of the Relevant Taxing Jurisdiction
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ARTICLE 17
MISCELLANEOUS PROVISIONS
Section 17.01
Provisions Binding on Company’s Successors
Section 17.02 Official Acts by Successor Corporation
Section 17.03 Addresses for Notices, Etc.
Section 17.04 Governing Law; Jurisdiction
Section 17.05
Service of Process
Section 17.06
Evidence of Compliance with Conditions Precedent; Certificates and Opinions of Counsel to
Trustee
Section 17.07
Legal Holidays
Section 17.08 No Security Interest Created
Section 17.09 Benefits of Indenture
Section 17.10
Table of Contents, Headings, Etc.
Section 17.11
Execution in Counterparts
Section 17.12
Severability
Section 17.13 Waiver of Jury Trial
Section 17.14
Force Majeure
Section 17.15 Calculations
Exhibit A
Exhibit B
Form of Note
Form of Authorization Certificate
EXHIBIT
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A-1
B-1
INDENTURE dated as of September 17, 2019 between BEST INC., a Cayman Islands exempted company, as issuer
(the “Company,” as more fully set forth in Section 1.01) and CITICORP INTERNATIONAL LIMITED, a restricted licence
bank incorporated and domiciled in Hong Kong, as trustee (the “Trustee,” as more fully set forth in Section 1.01).
W I T N E S S E T H:
WHEREAS, for its lawful corporate purposes, the Company has duly authorized the issuance of its 1.75%
Convertible Senior Notes due 2024 (the “Notes”), initially in an aggregate principal amount not to exceed US$175,000,000
(as increased by an amount equal to aggregate principal amount of any additional Notes purchased by the Initial Purchasers
pursuant to the exercise of their option to purchase additional Notes as set forth in the Purchase Agreement), subject to
Section 2.10, and in order to provide the terms and conditions upon which the Notes are to be authenticated, issued and
delivered, the Company has duly authorized the execution and delivery of this Indenture; and
WHEREAS, the Form of Note, the certificate of authentication to be borne by each Note, the Form of Notice of
Conversion, the Form of Fundamental Change Repurchase Notice, the Form of Repurchase Notice and the Form of
Assignment and Transfer to be borne by the Notes are to be substantially in the forms hereinafter provided; and
WHEREAS, all acts and things necessary to make the Notes, when executed by the Company and authenticated and
delivered by the Trustee, as in this Indenture provided, the valid, binding and legal obligations of the Company, and this
Indenture a valid agreement according to its terms, have been done and performed, and the execution of this Indenture and
the issuance hereunder of the Notes have in all respects been duly authorized.
NOW, THEREFORE, THIS INDENTURE WITNESSETH:
That in order to declare the terms and conditions upon which the Notes are, and are to be, authenticated, issued and
delivered, and in consideration of the premises and of the purchase and acceptance of the Notes by the Holders thereof, the
Company covenants and agrees with the Trustee for the equal and proportionate benefit of the respective Holders from time
to time of the Notes (except as otherwise provided below), as follows:
ARTICLE 1
DEFINITIONS
Section 1.01 Definitions. The terms defined in this Section 1.01 (except as herein otherwise expressly provided or
unless the context otherwise requires) for all purposes of this Indenture and of any indenture supplemental hereto shall have
the respective meanings specified in this Section 1.01. The words “herein,” “hereof,” “hereunder,” and words of similar
import refer to this Indenture as a whole and not to any particular Article, Section or other subdivision. The terms defined in
this Article include the plural as well as the singular.
“Additional ADSs” shall have the meaning specified in Section 14.03(a).
“Additional Amounts” shall have the meaning specified in Section 4.07(a).
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“Additional Interest” means all amounts, if any, payable pursuant to Section 4.06(d), Section 4.06(e) and Section
6.03, as applicable.
“ADS” means an American Depositary Share, issued pursuant to the Deposit Agreement, representing one Ordinary
Share of the Company as of the date of this Indenture, and deposited with the ADS Custodian.
“ADS Custodian” means Citibank, N.A., with respect to the ADSs delivered pursuant to the Deposit Agreement, or
any successor entity thereto.
“ADS Depositary” means Citibank, N.A., as depositary for the ADSs, or any successor entity thereto.
“ADS Price” shall have the meaning specified in Section 14.03(c).
“Affiliate” of any specified Person means any other Person directly or indirectly controlling or controlled by or
under direct or indirect common control with such specified Person. For the purposes of this definition, “control,” when
used with respect to any specified Person means the power to direct or cause the direction of the management and policies of
such Person, directly or indirectly, whether through the ownership of voting securities, by contract or otherwise; and the
terms “controlling” and “controlled” have meanings correlative to the foregoing.
“Affiliate Notes” means Regulation S Notes that are held or beneficially owned by the Alibaba Purchaser that
purchased such Notes in the initial offering thereof or its “affiliate”, to the extent the Company believes that such holder or
beneficial owner is an “affiliate” of the Company or was “affiliate” of the Company at any time during the three months
immediately preceding the date of such determination, and “Affiliate Note” means any of them. The term “affiliate” shall
have the meaning defined in Rule 144.
“Agents” means the Paying Agent, the Transfer Agent, the Note Registrar and the Conversion Agent.
“Alibaba Affiliate Notes” means any Regulation S Notes that are held or beneficially owned by the Alibaba
Purchaser who purchased such Notes in the initial offering thereof or its “affiliate”, to the extent the Company believes that
such Holder or beneficial owner is an “affiliate” of the Company or was an “affiliate” of the Company at any time during the
immediately preceding three months. The term “affiliate” shall have the meaning defined in Rule 144.
“Alibaba Purchaser” means an Affiliate of Alibaba Group Holding Limited.
“Applicable Law” means any law or regulation including, but not limited to: (i) any statute or regulation; (ii) any
rule or practice of any Authority by which any party is bound or with which it is accustomed to comply; (iii) any agreement
between any Authorities; and (iv) any customary agreement between any Authority and any party.
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Confidential
“Applicable PRC Rate” means (i) in the case of deduction or withholding of People’s Republic of China income
tax, 10%, (ii) in the case of deduction or withholding of, or reduction for, People’s Republic of China value added tax
(including any related local levies), 6.72%, or (iii) in the case of deduction or withholding of, or reduction for, both People’s
Republic of China income tax and People’s Republic of China value added tax (including any related local levies), 16.72%.
“applicable taxes” shall have the meaning specified in Section 4.07(a).
“Authority” means any competent regulatory, prosecuting, Tax or governmental authority in any jurisdiction.
“Board of Directors” means the board of directors of the Company or a committee of such board duly authorized to
act for it hereunder.
“Board Resolution” means a copy of a resolution certified by Mr. Shao-Ning Johnny Chou in his capacity as a
director of the Company to have been duly adopted by the Board of Directors, and to be in full force and effect on the date
of such certification, and delivered to the Trustee.
“Business Day” means, with respect to any Note, each Monday, Tuesday, Wednesday, Thursday and Friday that is
not a day on which banking institutions in the State of New York are authorized or obligated by law or executive order to
close.
“Capital Stock” means, for any entity, any and all shares, interests, rights to purchase, warrants, options,
participations or other equivalents of or interests in (however designated) stock issued by that entity.
“Change in Tax Law” shall have the meaning specified in Section 16.01.
“Clause A Distribution” shall have the meaning specified in Section 14.04(c).
“Clause B Distribution” shall have the meaning specified in Section 14.04(c).
“Clause C Distribution” shall have the meaning specified in Section 14.04(c).
“close of business” means 5:00 p.m. (New York City time).
“Code” means the U.S. Internal Revenue Code of 1986, as amended.
“Commission” means the U.S. Securities and Exchange Commission.
“Common Equity” of any Person means ordinary share capital or common stock of such Person that is generally
entitled (a) to vote in the election of directors of such Person or (b) if such Person is not a corporation, to vote or otherwise
participate in the selection of the governing body, partners, managers or others that will control the management or policies
of such Person.
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“Company” shall have the meaning specified in the first paragraph of this Indenture, and subject to the provisions of
Article 11, shall include its successors and assigns.
“Company Notice” shall have the meaning specified in Section 15.01(a).
“Company Order” means a written order of the Company, signed by an Officer of the Company and delivered to
the Trustee.
“Conversion Agent” shall have the meaning specified in Section 4.02.
“Conversion Date” shall have the meaning specified in Section 14.02(c).
“Conversion Obligation” shall have the meaning specified in Section 14.01.
“Conversion Rate” shall have the meaning specified in Section 14.01.
“Corporate Trust Office” means the designated corporate trust office of the Trustee at which at any particular time
its corporate trust business shall be administered, which office at the date hereof is located at 20 Floor Citi Tower, One Bay
East, 83 Hoi Bun Road, Kwun Tong, Kowloon, Hong Kong, or such other address as the Trustee may designate from time to
time by notice to the Holders and the Company, or the corporate trust office of any successor trustee (or such other address
as such successor trustee may designate from time to time by notice to the Holders and the Company).
th
“Default” means any event that is, or after notice or passage of time, or both, would be, an Event of Default.
“Defaulted Amounts” means any amounts on any Note (including, without limitation, the Redemption Price, the
Repurchase Price, the Fundamental Change Repurchase Price, principal and interest) that are payable but are not punctually
paid or duly provided for.
“Deposit Agreement” means the deposit agreement dated as of September 22, 2017, by and among the Company,
the ADS Depositary and the holders and beneficial owners of the ADSs delivered thereunder or, if amended or
supplemented as provided therein, as so amended or supplemented.
“Depositary” means, with respect to each Global Note, the Person specified in Section 2.05(c) as the Depositary
with respect to such Notes, until a successor shall have been appointed and become such pursuant to the applicable
provisions of this Indenture, and thereafter, “Depositary” shall mean or include such successor.
“Distributed Property” shall have the meaning specified in Section 14.04(c).
“Effective Date” shall have the meaning specified in Section 14.03(c).
“Event of Default” shall have the meaning specified in Section 6.01.
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“Ex-Dividend Date” means the first date on which the ADSs trade on the applicable exchange or in the applicable
market, regular way, without the right to receive the issuance, dividend or distribution in question, from the Company or, if
applicable, from the seller of the ADSs on such exchange or market (in the form of due bills or otherwise) as determined by
such exchange or market.
“Exchange Act” means the Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated
thereunder.
“Existing Principal Shareholder” means any of Mr. Shao-Ning Johnny Chou or Alibaba Group Holding Limited,
in each case, together with any other “person” or “group” subject to aggregation or attribution of the Common Equity of the
Company (including Common Equity held in the form of ADSs) with the respective Existing Principal Shareholder under
Section 13(d) of the Exchange Act, and “Existing Principal Shareholders” refers to both of them.
“Expiring Rights” means any rights, options or warrants to purchase Ordinary Shares or ADSs that expire on or
prior to the Maturity Date.
“FATCA” shall have the meaning specified in Section 4.07(a)(i)(D).
“Form of Assignment and Transfer” shall mean the “Form of Assignment and Transfer” attached as Attachment 4
to the Form of Note attached hereto as Exhibit A.
“Form of Fundamental Change Repurchase Notice” shall mean the “Form of Fundamental Change Repurchase
Notice” attached as Attachment 2 to the Form of Note attached hereto as Exhibit A.
“Form of Notice of Conversion” shall mean the “Form of Notice of Conversion” attached as Attachment 1 to the
Form of Note attached hereto as Exhibit A.
“Form of Repurchase Notice” shall mean the “Form of Repurchase Notice” attached as Attachment 3 to the Form
of Note attached hereto as Exhibit A.
“Fractional ADS” shall have the meaning specified in Section 14.02(a).
“Fundamental Change” shall be deemed to have occurred at the time after the Notes are originally issued if any of
the following occurs:
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(a)
(A) A “person” or “group” within the meaning of Section 13(d) of the Exchange Act, other than the
Company, its Subsidiaries, the employee benefit plans of the Company and its Subsidiaries or any of the Existing
Principal Shareholder, files a Schedule TO or any schedule, form or report under the Exchange Act disclosing that
such person or group has become the direct or indirect “beneficial owner,” as defined in Rule 13d-3 under the
Exchange Act, of: (i) the Company’s Common Equity (including Common Equity held in the form of ADSs)
representing more than 50% of the voting power of the Company’s Common Equity entitled to vote generally in the
election of the Board of Directors, or (ii) Ordinary Shares representing more than 50% of the outstanding Ordinary
Shares (including Ordinary Shares held in the form of ADSs), or (B) either of the Existing Principal Shareholders or
both of them, in the aggregate, have become the direct or indirect “beneficial owners” of the Ordinary Shares
(including the Ordinary Shares held in the form of ADSs but excluding any Ordinary Shares that any such party does
not actually own, but instead “beneficially owns” solely as the result of “beneficially owning” any of the Class B or
Class C ordinary shares of the Company, as the case may be) representing, in total, more than 50% of the number of
outstanding Ordinary Shares, based on any Schedule TO or any schedule, form or report under the Exchange Act
disclosing the same filed by the relevant Existing Principal Shareholder (or any other “person” or “group” subject to
aggregation or attribution of the Common Equity of the Company with such Existing Principal Shareholder under
Section 13(d) of the Exchange Act), provided that, as used in this clause (a), the terms “beneficial owner” and
“beneficially own” have the meaning defined in Rule 13d-3 under the Exchange Act;
(b)
the consummation of (A) any recapitalization, reclassification or change of the Ordinary Shares or the
ADSs (other than changes resulting from a subdivision or combination) as a result of which the Ordinary Shares or
the ADSs would be converted into, or exchanged for, stock, other securities, other property or assets; (B) any share
exchange, consolidation or merger of the Company pursuant to which the Ordinary Shares or the ADSs will be
converted into cash, securities or other property; or (C) any sale, lease or other transfer in one transaction or a series
of transactions of all or substantially all of the consolidated assets of the Company and its Subsidiaries and Variable
Interest Entities, taken as a whole, to any Person other than one of the Company’s wholly-owned Subsidiaries;
provided, however, that a transaction described in clause (B) in which the holders of all classes of the Company’s
Common Equity (including Common Equity held in the form of ADSs) immediately prior to such transaction own,
directly or indirectly, more than 50% of all classes of Common Equity of the continuing or surviving corporation or
transferee or the parent thereof immediately after such transaction in substantially the same proportions vis-a-vis
each other as such ownership immediately prior to such transaction shall not be a Fundamental Change pursuant to
this clause (b);
(c)
the shareholders of the Company approve any plan or proposal for the liquidation or dissolution of
the Company;
(d)
the ADSs (or other Common Equity or ADSs in respect of Common Equity underlying the Notes)
cease to be listed or quoted on any of The New York Stock Exchange, The NASDAQ Global Select Market or The
NASDAQ Global Market (or any of their respective successors); or
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(e)
any change in or amendment to the laws, regulations and rules of the People’s Republic of China or
the official interpretation or official application thereof (a “Change in Law”) that results in (x) the Company, its
Subsidiaries and its Variable Interest Entities (collectively, the “Company Group”) (as in existence immediately
subsequent to such Change in Law), as a whole, being legally prohibited from operating substantially all of the
business operations conducted by the Company Group (as in existence immediately prior to such Change in Law) as
of the last date of the period described in the Company’s consolidated financial statements for the most recent fiscal
quarter and (y) the Company’s being unable to continue to derive substantially all of the economic benefits from the
business operations conducted by the Company Group (as in existence immediately prior to such Change in Law) in
the same manner as reflected in the Company’s consolidated financial statements for the most recent fiscal quarter;
provided that the Company has not furnished to the Trustee on or before the 20th calendar day after the date of such
Change in Law an opinion from an independent financial advisor or an independent legal counsel stating either (x)
that the Company is able to continue to derive substantially all of the economic benefits from the business operations
conducted by the Company Group (as in existence immediately prior to such Change in Law), taken as a whole, as
reflected in the Company’s consolidated financial statements for the most recent fiscal quarter (including after giving
effect to any corporate restructuring or reorganization plan of the Company Group) or (y) that such Change in Law
would not materially adversely affect the Company’s ability to make principal and interest payments on the Notes
when due or to effect the conversion of the Notes in accordance herewith,
provided, however, that a transaction or event described in clause (b) above shall not constitute a Fundamental Change, if at
least 90% of the consideration received or to be received by holders of the ADSs, excluding cash payments for Fractional
ADSs, in connection with such transaction or event consists of shares of Common Equity or ADSs in respect of Common
Equity that are listed or quoted on any of The New York Stock Exchange, The NASDAQ Global Select Market or The
NASDAQ Global Market (or any of their respective successors) or will be so listed or quoted when issued or exchanged in
connection with such transaction or event that would otherwise constitute a Fundamental Change under clause (b) of the
definition thereof and as a result of such transaction or event, the Notes become convertible into such consideration,
excluding cash payments for Fractional ADSs, provided further that an event that is not considered a Fundamental Change
pursuant to this proviso shall not be a Fundamental Change solely because such event could also be subject to clause (a) of
this definition.
“Fundamental Change Company Notice” shall have the meaning specified in Section 15.02(c).
“Fundamental Change Repurchase Date” shall have the meaning specified in Section 15.02(a).
“Fundamental Change Repurchase Notice” shall have the meaning specified in Section 15.02(b)(i).
“Fundamental Change Repurchase Price” shall have the meaning specified in Section 15.02(a).
“Global Note” shall have the meaning specified in Section 2.05(b).
“Holder,” as applied to any Note, or other similar terms (but excluding the term “beneficial holder”), shall mean any
Person in whose name at the time a particular Note is registered on the Note Register.
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“Indenture” means this instrument as originally executed or, if amended or supplemented as herein provided, as so
amended or supplemented.
“Initial Purchasers” means Credit Suisse Securities (USA) LLC, J.P. Morgan Securities LLC and Goldman Sachs
(Asia) L.L.C., as representatives of the several initial purchasers named in the Purchase Agreement.
“Interest Payment Date” means each April 1 and October 1 of each year or, if the relevant date is not a Business
Day, the immediately following Business Day, beginning on April 1, 2020.
“Last Reported Sale Price” of the ADSs on any date means the closing sale price per ADS (or if no closing sale
price is reported, the average of the bid and ask prices or, if more than one in either case, the average of the average bid and
the average ask prices) on that date as reported in composite transactions for the principal U.S. national or regional securities
exchange on which the ADSs are traded. If the ADSs are not listed for trading on a U.S. national or regional securities
exchange on the relevant date, the “Last Reported Sale Price” shall be the last quoted bid price for the ADSs in the over-the-
counter market on the relevant date as reported by OTC Markets Group Inc. or a similar organization. If the ADSs are not
so quoted, the “Last Reported Sale Price” shall be the average of the mid-point of the last bid and ask prices for the ADSs on
the relevant date from each of at least three nationally recognized independent investment banking firms selected by the
Company for this purpose.
“Make-Whole Fundamental Change” means any transaction or event described in clause (a), (b), (d) or (e) of the
definition of Fundamental Change (determined after giving effect to any exceptions to or exclusions from such definition,
including in the proviso immediately succeeding clause (e) of the definition thereof, but without regard to the proviso in
clause (b) of the definition thereof).
“Maturity Date” means October 1, 2024.
“Merger Event” shall have the meaning specified in Section 14.07(a).
“Note” or “Notes” shall have the meaning specified in the first paragraph of the recitals of this Indenture.
“Notes Fungibility Date” means the date, if any, following the Resale Restriction Termination Date on which all of
the Rule 144A Notes and (if any) all of the Regulation S Notes (other than the Affiliate Notes) are no longer Restricted
Securities, do not bear the restrictive legend required by Section 2.05(c), are fungible for U.S. securities law purposes and
are assigned an identical, unrestricted CUSIP number.
“Note Register” shall have the meaning specified in Section 2.05(a).
“Note Registrar” shall have the meaning specified in Section 2.05(a).
“Notice of Conversion” shall have the meaning specified in Section 14.02(b).
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“Offering Memorandum” means the preliminary offering memorandum dated September 11, 2019, as
supplemented by the pricing term sheet dated September 12, 2019, relating to the offering and sale of the Notes.
“Officer” means, with respect to the Company, the Chief Executive Officer and the Chief Strategy and Investment
Officer.
“Officers’ Certificate” when used with respect to the Company, means a certificate that is delivered to the Trustee
and that is signed by an Officer of the Company. Each such certificate shall include the statements provided for in Section
17.06 if and to the extent required by the provisions of such Section. The Officer giving an Officers’ Certificate pursuant to
Section 4.09 shall be the principal executive, financial or accounting officer of the Company.
“open of business” means 9:00 a.m. (New York City time).
“Opinion of Counsel” means an opinion in writing signed by legal counsel and in a form reasonably acceptable to
the Trustee, who may be counsel to the Company, or other counsel acceptable to the Trustee, that is delivered to the Trustee,
which opinion may contain customary exceptions and qualifications as to the matters set forth therein. Each such opinion
shall include the statements provided for in Section 17.06 if and to the extent required by the provisions of such Section
17.06.
“Ordinary Shares” means Class A ordinary shares of the Company, par value US$0.01 per share, at the date of this
Indenture, subject to Section 14.07.
“outstanding,” when used with reference to Notes, shall, subject to the provisions of Section 8.04, mean, as of any
particular time, all Notes authenticated and delivered by the Trustee under this Indenture, except:
(a)
(b)
(c)
Notes repurchased by the Company upon a Fundamental Change pursuant to Section 15.02;
Notes theretofore cancelled by the Note Registrar or accepted by the Note Registrar for cancellation;
Notes, or portions thereof, that have become due and payable and in respect of which monies in the
necessary amount shall have been deposited with the Trustee or with any Paying Agent (other than the Company) or
shall have been set aside and segregated in trust by the Company (if the Company shall act as its own Paying Agent);
(d)
Notes that have been paid pursuant to Section 2.06 or Notes in lieu of which, or in substitution for
which, other Notes shall have been authenticated and delivered pursuant to the terms of Section 2.06 unless proof
satisfactory to the Trustee is presented that any such Notes are held by protected purchasers in due course;
(e)
Notes converted pursuant to Article 14 and required to be cancelled pursuant to Section 2.08;
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(f)
(g)
Notes redeemed other than pursuant to Section 2.10; and
Notes repurchased by the Company pursuant to the third sentence of Section 2.10.
“Paying Agent” shall have the meaning specified in Section 4.02.
“Person” means an individual, a corporation, a limited liability company, an association, a partnership, a joint
venture, a joint stock company, a trust, an unincorporated organization or a government or an agency or a political
subdivision thereof.
“Physical Notes” means permanent certificated Notes in registered form issued in denominations of US$1,000
principal amount and multiples thereof.
“Predecessor Note” of any particular Note means every previous Note evidencing all or a portion of the same debt
as that evidenced by such particular Note; and, for the purposes of this definition, any Note authenticated and delivered
under Section 2.06 in lieu of or in exchange for a mutilated, lost, destroyed or stolen Note shall be deemed to evidence the
same debt as the mutilated, lost, destroyed or stolen Note that it replaces.
“Purchase Agreement” means that certain Purchase Agreement, dated as of September 12, 2019, among the
Company and the Initial Purchasers.
“Record Date” means, with respect to any dividend, distribution or other transaction or event in which the holders of
ADSs (or other applicable security) have the right to receive any cash, securities or other property or in which ADSs (or
other applicable security) are exchanged for or converted into any combination of cash, securities or other property, the date
fixed for determination of security holders entitled to receive such cash, securities or other property (whether such date is
fixed by the Board of Directors, statute, contract or otherwise).
“Redemption Date” shall have the meaning specified in Section 16.01.
“Redemption Reference Date” shall have the meaning specified in Section 14.03(g).
“Redemption Reference Price” shall have the meaning specified in Section 14.03.
“Redemption Price” shall have the meaning specified in Section 16.01.
“Reference Property” shall have the meaning specified in Section 14.07(a).
“Regular Record Date,” with respect to any Interest Payment Date, shall mean the March 15 or September 15
(whether or not such day is a Business Day) immediately preceding the applicable April 1 or October 1 Interest Payment
Date, respectively.
“Regulation S” means Regulation S under the Securities Act or any successor to such regulation.
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“Regulation S Notes” means the Notes, if any, initially offered and sold outside the United States pursuant to
Regulation S.
“Relevant Taxing Jurisdiction” shall have the meaning specified in Section 4.07(a).
“Repurchase Date” shall have the meaning specified in Section 15.01(a).
“Repurchase Expiration Time” shall have the meaning specified in Section 15.01(a).
“Repurchase Notice” shall have the meaning specified in Section 15.01(a).
“Repurchase Price” shall have the meaning specified in Section 15.01(a).
“Resale Restriction Termination Date” shall have the meaning specified in Section 2.05(c).
“Responsible Officer” means, when used with respect to the Trustee, any officer within the Corporate Trust Office
of the Trustee, including any vice president, assistant vice president, assistant secretary, assistant treasurer, trust officer or
any other officer of the Trustee who customarily performs functions similar to those performed by the Persons who at the
time shall be such officers, respectively, or to whom any corporate trust matter is referred because of such Person’s
knowledge of and familiarity with the particular subject and, in each case, who shall have direct responsibility for the
administration of this Indenture.
“Restricted Securities” shall have the meaning specified in Section 2.05(c).
“Rule 144” means Rule 144 as promulgated under the Securities Act.
“Rule 144A” means Rule 144A as promulgated under the Securities Act.
“Rule 144A Notes” means the notes initially offered and sold pursuant to Rule 144A.
“Securities Act” means the Securities Act of 1933, as amended, and the rules and regulations promulgated
thereunder.
“Scheduled Trading Day” means a day that is scheduled to be a Trading Day.
“Significant Subsidiary” means a Subsidiary of the Company that meets the definition of “significant subsidiary” in
Article 1, Rule 1-02 of Regulation S-X under the Exchange Act. Each of the Company’s Variable Interest Entities will be
deemed to be a “subsidiary” for purposes of the definition of “significant subsidiary” in Article 1, Rule 1-02 of Regulation
S-X.
“Spin-Off” shall have the meaning specified in Section 14.04(c).
“Subsidiary” means, with respect to any Person, any corporation, association, partnership or other business entity of
which more than 50% of the total voting power of shares of Capital Stock or other interests (including partnership interests)
entitled (without regard to the occurrence of any contingency) to vote in the election of directors, managers, general partners
or trustees thereof is at the time owned or controlled, directly or indirectly, by (i) such Person; (ii) such Person and one or
more Subsidiaries of such Person; or (iii) one or more Subsidiaries of such Person.
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“Successor Company” shall have the meaning specified in Section 11.01(a).
“Tax” means any present or future taxes, duties, assessments or governmental charges of whatever nature imposed,
levied, collected, withheld or assessed by or on behalf of any Authority having power to tax.
“Trading Day” means a day on which (i) trading in the ADSs (or other security for which a closing sale price must
be determined) generally occurs on The New York Stock Exchange or, if the ADSs (or such other security) are not then
listed on The New York Stock Exchange, on the principal other U.S. national or regional securities exchange on which the
ADSs (or such other security) are then listed or, if the ADSs (or such other security) are not then listed on a U.S. national or
regional securities exchange, on the principal other market on which the ADSs (or such other security) are then traded and
(ii) a Last Reported Sale Price for the ADSs (or closing sale price for such other security) is available on such securities
exchange or market; provided that if the ADSs (or such other security) are not so listed or traded, “Trading Day” means a
Business Day.
“transfer” shall have the meaning specified in Section 2.05(c) and Section 2.05(e), as applicable.
“Transfer Agent” shall have the meaning specified in Section 4.02.
“Trigger Event” shall have the meaning specified in Section 14.04(c).
“Trust Indenture Act” means the Trust Indenture Act of 1939, as amended, as it was in force at the date of
execution of this Indenture; provided, however, that in the event the Trust Indenture Act of 1939 is amended after the date
hereof, the term “Trust Indenture Act” shall mean, to the extent required by such amendment, the Trust Indenture Act of
1939, as so amended.
“Trustee” means the Person named as the “Trustee” in the first paragraph of this Indenture until a successor trustee
shall have become such pursuant to the applicable provisions of this Indenture, and thereafter “Trustee” shall mean or
include each Person who is then a Trustee hereunder.
“unit of Reference Property” shall have the meaning specified in Section 14.07(a).
“U.S. Person” shall have the meaning as such term is defined under Regulation S.
“Valuation Period” shall have the meaning specified in Section 14.04(c).
“Variable Interest Entities” means, with respect to any Person, any corporation, association or other entity which is
or is required to be consolidated with such Person under Accounting Standards Codification subtopic 810-10, Consolidation:
Overall (including any changes, amendments or supplements thereto) or, if such person prepares its financial statements in
accordance with accounting principles other than the accounting principles generally accepted in the United States of
America, the equivalent of Accounting Standards Codification subtopic 810-10, Consolidation: Overall under such
accounting principles.
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Section 1.02 References to Interest. Unless the context otherwise requires, any reference to interest on, or in respect
of, any Note in this Indenture shall be deemed to include Additional Interest if, in such context, Additional Interest is, was or
would be payable pursuant to any of Section 4.06(d), Section 4.06(e) and Section 6.03. Unless the context otherwise
requires, any express mention of Additional Interest in any provision hereof shall not be construed as excluding Additional
Interest in those provisions hereof where such express mention is not made.
ARTICLE 2
ISSUE, DESCRIPTION, EXECUTION, REGISTRATION AND EXCHANGE OF NOTES
Section 2.01 Designation and Amount. The Notes shall be designated as the “1.75% Convertible Senior Notes due
2024.” The aggregate principal amount of Notes that may be authenticated and delivered under this Indenture is initially
limited to US$175,000,000 (as increased by an amount equal to the aggregate principal amount of any additional Notes
purchased by the Initial Purchasers pursuant to the exercise of their option to purchase additional Notes as set forth in the
Purchase Agreement), subject to Section 2.10 and except for Notes authenticated and delivered upon registration or transfer
of, or in exchange for, or in lieu of other Notes pursuant to Section 2.05, Section 2.06, Section 2.07, Section 10.04, Section
14.02 and Section 15.04.
Section 2.02 Form of Notes. The Notes and the Trustee’s certificate of authentication to be borne by such Notes
shall be substantially in the respective forms set forth in Exhibit A, the terms and provisions of which shall constitute, and
are hereby expressly incorporated in and made a part of this Indenture. To the extent applicable, the Company and the
Trustee, by their execution and delivery of this Indenture, expressly agree to such terms and provisions and to be bound
thereby.
Any Global Note may be endorsed with or have incorporated in the text thereof such legends or recitals or changes
not inconsistent with the provisions of this Indenture as may be required by the Depositary, or as may be required to comply
with any Applicable law or any regulation thereunder or with the rules and regulations of any securities exchange or
automated quotation system upon which the Notes may be listed or traded or designated for issuance or to conform with any
usage with respect thereto, or to indicate any special limitations or restrictions to which any particular Notes are subject.
Any of the Notes may have such letters, numbers or other marks of identification and such notations, legends or
endorsements as the Officers executing the same may approve (execution thereof to be conclusive evidence of such
approval) and as are not inconsistent with the provisions of this Indenture, or as may be required to comply with any law or
with any rule or regulation made pursuant thereto or with any rule or regulation of any securities exchange or automated
quotation system on which the Notes may be listed or designated for issuance, or to conform to usage or to indicate any
special limitations or restrictions to which any particular Notes are subject.
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Each Global Note shall represent such principal amount of the outstanding Notes as shall be specified therein and
shall provide that it shall represent the aggregate principal amount of outstanding Notes from time to time endorsed thereon
and that the aggregate principal amount of outstanding Notes represented thereby may from time to time be increased or
reduced to reflect redemptions, repurchases, cancellations, conversions, transfers or exchanges permitted hereby. Any
endorsement of the Global Note to reflect the amount of any increase or decrease in the amount of outstanding Notes
represented thereby shall be made by the Trustee or the Note Registrar in such manner and upon instructions given by the
Holder of such Notes in accordance with this Indenture. Payment of principal (including the Redemption Price, the
Repurchase Price and the Fundamental Change Repurchase Price, if applicable) of, and accrued and unpaid interest on, the
Global Note shall be made to the Holder of such Note on the date of payment, unless a record date or other means of
determining Holders eligible to receive payment is provided for herein.
Section 2.03 Date and Denomination of Notes; Payments of Interest and Defaulted Amounts. (a) The Notes shall be
issuable in registered form without coupons in denominations of US$1,000 principal amount and integral multiples
thereof. Each Note shall be dated the date of its authentication and shall bear interest from, and including, the date specified
on the face of such Note. Accrued interest on the Notes shall be computed on the basis of a 360-day year composed of
twelve 30-day months and, for partial months, on the basis of actual days elapsed over a 30-day month.
(b)
The Person in whose name any Note (or its Predecessor Note) is registered on the Note Register at the close
of business on any Regular Record Date with respect to any Interest Payment Date shall be entitled to receive the interest
payable on such Interest Payment Date. Interest shall be payable at the office or agency of the Company maintained by the
Company for such purposes, which shall initially be at the specified office of the Paying Agent, or, if any Note is a Global
Note, in accordance with the procedures of the Depositary. Interest on Physical Notes shall be payable (A) if Citibank, N.A.
acts as the Paying Agent, to each Holder by wire transfer in immediately available funds to the account within the United
States specified by the Holder, and (B) if the Company acts as the Paying Agent, (i) to Holders having an aggregate
principal amount of US$5,000,000 or less, by check mailed (at the Company’s expense) to the Holders of such Notes and
(ii) to Holders having an aggregate principal amount of more than US$5,000,000, either by check mailed (at the Company’s
expense) to each Holder or, upon application by such a Holder to the Note Registrar not later than the relevant Regular
Record Date, by wire transfer in immediately available funds to that Holder’s account within the United States, which
application shall remain in effect until the Holder notifies, in writing, the Note Registrar to the contrary. The Company shall
pay or cause the Paying Agent to pay interest on any Global Note by wire transfer of immediately available funds to the
account of the Depositary or its nominee.
(c)
Any Defaulted Amounts shall forthwith cease to be payable to the Holder on the relevant payment date but
shall accrue interest per annum at the rate per annum borne by the Notes plus one percent, subject to the enforceability
thereof under Applicable Law, from, and including, such relevant payment date, and such Defaulted Amounts together with
such interest thereon shall be paid by the Company, at its election in each case, as provided in clause (i) or (ii) below:
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(i)
The Company may elect to make payment of any Defaulted Amounts to the Persons in whose names
the Notes (or their respective Predecessor Notes) are registered at the close of business on a special record date for
the payment of such Defaulted Amounts, which shall be fixed in the following manner. The Company shall notify
the Trustee in writing of the amount of the Defaulted Amounts proposed to be paid on each Note and the date of the
proposed payment (which shall be not less than 25 days after the receipt by the Trustee of such notice, unless the
Trustee in its sole discretion shall consent to an earlier date), and at the same time the Company shall deposit with
the Trustee an amount of money equal to the aggregate amount to be paid in respect of such Defaulted Amounts or
shall make arrangements satisfactory to the Trustee for such deposit on or prior to the date of the proposed payment,
such money when deposited to be held in trust for the benefit of the Persons entitled to such Defaulted Amounts as in
this clause provided. Thereupon the Company shall fix a special record date for the payment of such Defaulted
Amounts which shall be not more than 15 days and not less than 10 days prior to the date of the proposed payment,
and not less than 10 days after the receipt by the Trustee of the notice of the proposed payment. The Company shall
promptly notify the Trustee in writing of such special record date and the Trustee, in the name and at the expense of
the Company, shall cause notice of the proposed payment of such Defaulted Amounts and the special record date
therefor to be mailed, first-class postage prepaid (at the Company’s expense), to each Holder at its address as it
appears in the Note Register, not less than 10 days prior to such special record date. Notice of the proposed payment
of such Defaulted Amounts and the special record date therefor having been so mailed, such Defaulted Amounts
shall be paid to the Persons in whose names the Notes (or their respective Predecessor Notes) are registered at the
close of business on such special record date and shall no longer be payable pursuant to the following clause (ii) of
this Section 2.03(c).
(ii)
The Company may make payment of any Defaulted Amounts in any other lawful manner not
inconsistent with the requirements of any securities exchange or automated quotation system on which the Notes
may be listed or designated for issuance, and upon such notice as may be required by such exchange or automated
quotation system, if, after notice given by the Company to the Trustee of the proposed payment pursuant to this
clause, such manner of payment shall be deemed practicable by the Trustee.
Section 2.04 Execution, Authentication and Delivery of Notes. The Notes shall be signed in the name and on behalf
of the Company by the manual or facsimile signature of its Chief Executive Officer. With the delivery of this Indenture, the
Company is furnishing, and from time to time thereafter may furnish, a certificate substantially in the form of Exhibit B
(an “Authorization Certificate”) identifying and certifying the incumbency and specimen (and/or facsimile) signatures of
its active authorized Officers. Until the Trustee receives a subsequent Authorization Certificate, the Trustee shall be entitled
to conclusively rely on the last Authorization Certificate delivered to it for purposes of determining the relevant authorized
Officers. Typographical and other minor errors or defects in any signature shall not affect the validity or enforceability of
any Note which has been duly authenticated and delivered by the Trustee.
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At any time and from time to time after the execution and delivery of this Indenture, the Company may deliver Notes
executed by the Company to the Trustee for authentication, together with a Company Order for the authentication and
delivery of such Notes, and the Opinion of Counsel contemplated in the immediately following paragraph, and the Trustee in
accordance with such Company Order shall authenticate and deliver such Notes, without any further action by the Company
hereunder. The Company Order shall specify the amount of Notes to be authenticated (including the initial amount of Rule
144A Notes and the initial amount of Regulation S Notes), the applicable rate at which interest will accrue on such Notes,
the date on which the original issuance of such Notes is to be authenticated, the date from which interest will begin to
accrue, the date or dates on which interest on such Notes will be payable and the date on which the principal of such Notes
will be payable and other terms relating to such Notes. The Trustee shall thereupon authenticate and deliver said Notes to or
upon the written order of the Company (as set forth in such Company Order).
The Trustee shall have the right to decline to authenticate and deliver any Notes under this Section (a) unless and
until it receives from the Company a Company Order instructing it to so authenticate and deliver such Notes and, if
requested by the Trustee, an Officers’ Certificate and an Opinion of Counsel in accordance with Section 17.06 hereof, and
including a statement that the Notes, when authenticated and delivered by the Trustee, will constitute valid and legally
binding obligations of the Company, enforceable in accordance with their terms, subject to customary exceptions; (b) if the
Trustee determines that such action may not lawfully be taken; or (c) if the Trustee determines that such action would
expose the Trustee to personal liability, unless indemnity and/or security and/or pre-funding satisfactory to the Trustee
against such liability is provided to the Trustee and the Note Registrar.
Only such Notes as shall bear thereon a certificate of authentication substantially in the form set forth on the form of
Note attached as Exhibit A hereto, executed manually by an authorized officer of the Trustee, shall be entitled to the benefits
of this Indenture or be valid or obligatory for any purpose. Such certificate by the Trustee upon any Note executed by the
Company shall be conclusive evidence that the Note so authenticated has been duly authenticated and delivered hereunder
and that the Holder is entitled to the benefits of this Indenture.
In case any Officer of the Company who shall have signed any of the Notes shall cease to be such Officer before the
Notes so signed shall have been authenticated and delivered by the Trustee, or disposed of by the Company, such Notes
nevertheless may be authenticated and delivered or disposed of as though the Person who signed such Notes had not ceased
to be such Officer of the Company; and any Note may be signed on behalf of the Company by such Persons as, at the actual
date of the execution of such Note, shall be the Officers of the Company, although at the date of the execution of this
Indenture any such Person was not such an Officer.
Section 2.05 Exchange and Registration of Transfer of Notes; Restrictions on Transfer;Depositary. (a) The
Company shall cause to be kept at the specified office a register (the register maintained in such office or in any other office
or agency of the Company designated pursuant to Section 4.02, the “Note Register”) in which, subject to such reasonable
regulations as it may prescribe, the Company shall provide for the registration of Notes and of transfers of Notes. Such
register shall be in written form or in any form capable of being converted into written form within a reasonable period of
time. Citibank, N.A. is hereby initially appointed the “Note Registrar” and “Transfer Agent” for the purpose of
registering Notes and transfers of Notes as herein provided. The Company may appoint one or more co-Note Registrars in
accordance with Section 4.02.
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Prior to the Notes Fungibility Date, upon surrender for registration of transfer of any Rule 144A Note or Regulation
S Note, as the case may be, to the Note Registrar or any co-Note Registrar, and satisfaction of the requirements for such
transfer set forth in this Section 2.05, the Company shall execute, and, upon receipt of a Company Order, the Trustee shall
authenticate and deliver, in the name of the designated transferee or transferees, one or more new Rule 144A Notes or
Regulation S Notes, as the case may be, of any authorized denominations and of a like aggregate principal amount and
bearing such restrictive legends as may be required by this Indenture. Following the Notes Fungibility Date, upon surrender
for registration of transfer of any Note (other than an Affiliate Note) to the Note Registrar or any co-Note Registrar, and
satisfaction of the requirements for such transfer set forth in this Section 2.05, the Company shall execute, and the Trustee
shall authenticate and deliver, in the name of the designated transferee or transferees, one or more new Notes of any
authorized denominations and of a like aggregate principal amount and not bearing the restrictive legends required by
Section 2.05(c).
Prior to the Notes Fungibility Date, Rule 144A Notes and Regulation S Notes, as the case may be, may be exchanged
for other Rule 144A Notes or Regulation S Notes, as the case may be, of any authorized denominations and of a like
aggregate principal amount, upon surrender of the Rule 144A Notes or Regulation S Notes, as the case may be, to be
exchanged at any such office or agency maintained by the Company pursuant to Section 4.02. Whenever any Rule 144A
Notes or Regulation S Notes, as the case may be, are so surrendered for exchange, the Company shall execute, and the
Trustee shall authenticate and deliver, the Rule 144A Notes or Regulation S Notes, as the case may be, that the Holder
making the exchange is entitled to receive, bearing registration numbers not contemporaneously outstanding. Following the
Notes Fungibility Date, Notes (other than an Affiliate Note) may be exchanged for other Notes of any authorized
denominations and of a like aggregate principal amount but not bearing the restrictive legend required by Section 2.05(c),
upon surrender of the Notes to be exchanged at any such office or agency maintained by the Company pursuant to Section
4.02. Whenever any Notes are so surrendered for exchange, the Company shall execute, and the Trustee shall authenticate
and deliver, the Notes that the Holder making the exchange is entitled to receive, bearing registration numbers not
contemporaneously outstanding.
All Notes presented or surrendered for registration of transfer or for exchange, repurchase or conversion shall (if so
required by the Company, the Trustee, the Note Registrar or any co-Note Registrar) be duly endorsed, or be accompanied by
a written instrument or instruments of transfer in form satisfactory to the Company and duly executed, by the Holder thereof
or its attorney-in-fact duly authorized in writing.
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No service charge shall be imposed by the Company, the Transfer Agent, the Note Registrar, any co-Note Registrar
or the Paying Agent for any exchange or registration of transfer of Notes, but the Company and/or the Trustee may require a
Holder to pay a sum sufficient to cover any documentary, stamp, issue, transfer or similar Tax required in connection
therewith as a result of the name of the Holder of new Notes issued upon such exchange or registration of transfer being
different from the name of the Holder of the old Notes surrendered for exchange or registration of transfer. The Company
shall pay the ADS Depositary’s fees for issuance of the ADSs.
None of the Company, the Trustee, the Note Registrar or any co-Note Registrar shall be required to exchange or
register a transfer of (i) any Notes surrendered for conversion or, if a portion of any Note is surrendered for conversion, such
portion thereof surrendered for conversion, (ii) any Notes, or a portion of any Note, surrendered for repurchase (and not
withdrawn) in accordance with Article 15 or (iii) any Notes selected for redemption in accordance with Article 16.
All Notes issued upon any registration of transfer or exchange of Notes in accordance with this Indenture shall be the
valid obligations of the Company, evidencing the same debt, and entitled to the same benefits under this Indenture as the
Notes surrendered upon such registration of transfer or exchange.
The Trustee shall have no responsibility or obligation to any direct or indirect participant or any other Person with
respect to the accuracy of the books or records, or the acts or omissions, of the Depositary or its nominee or of any
participant or member thereof, with respect to any ownership interest in the Notes or with respect to the delivery to any
direct or indirect participant or other Person (other than the Depositary and any other registered Holder of Notes) of any
notice (including any notice of redemption pursuant to Article 16) or the payment of any amount, under or with respect to
such Notes. All notices and communications to be given to the Holders and all payments to be made to Holders under the
Notes shall be given or made only to or upon the order of the registered Holders (which shall be the Depositary or its
nominee in the case of a Global Note). The rights of beneficial owners in any Global Note shall be exercised only through
the Depositary subject to the customary procedures of the Depositary. The Trustee and the Agents may rely and shall be
fully protected in relying upon information furnished by the Depositary with respect to its direct or indirect participants.
The Trustee and the Agents shall not have any obligation or duty to monitor, determine or inquire as to compliance
with any restrictions on transfer imposed under this Indenture or under Applicable Law with respect to any transfer of any
interest in any Note (including any transfers between or among the members of, or participants in, the Depositary or among
the beneficial owners in any Global Note(s)) other than to require delivery of such certificates and other documentation or
evidence as are expressly required by, and to do so if and when expressly required by, the terms of this Indenture, and to
examine the same to determine substantial compliance as to form with the express requirements hereof.
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(b)
So long as the Notes are eligible for book-entry settlement with the Depositary, unless otherwise required by
law, subject to the fourth paragraph from the end of Section 2.05(c) all Notes shall be represented by one or more Notes in
global form (each, a “Global Note”) registered in the name of the Depositary or the nominee of the Depositary. The transfer
and exchange of beneficial interests in a Global Note that does not involve the issuance of a Physical Note shall be effected
through the Depositary in accordance with this Indenture (including the restrictions on transfer set forth herein) and the
procedures of the Depositary therefor. Prior to the Notes Fungibility Date, the Rule 144A Notes shall be represented by one
or more Global Notes and the Regulation S Notes shall be represented by one or more separate Global Notes. Following the
Notes Fungibility Date, the Rule 144A Notes and the Regulation S Notes (other than an Affiliate Note) may be represented
by one or more of the same Global Notes.
(c)
Every Note that bears or is required under this Section 2.05(c) to bear the legend set forth in this Section 2.05
(c) (together with any ADSs (including the Ordinary Shares represented thereby) delivered upon conversion of the Notes
that are required to bear the legend set forth in Section 2.05(d), collectively, the “Restricted Securities”) shall be subject to
the restrictions on transfer set forth in this Section 2.05(c) (including the legend set forth below), unless such restrictions on
transfer shall be eliminated or otherwise waived by written consent of the Company, and the Holder of each such Restricted
Security, by such Holder’s acceptance thereof, agrees to be bound by all such restrictions on transfer. As used in this
Section 2.05(c) and Section 2.05(d), the term “transfer” encompasses any sale, pledge, transfer or other disposition
whatsoever of any Restricted Security.
Until the date (the “Resale Restriction Termination Date”) that is the later of (1) the date that is one year after the last date
of original issuance of the Notes, or such shorter period of time as permitted by Rule 144 under the Securities Act or any
successor provision thereto, and (2) such later date, if any, as may be required by Applicable Law, any certificate evidencing
Rule 144A Notes or Regulation S Notes, as applicable (and all securities issued in exchange therefor or substitution thereof,
other than ADSs (including the Ordinary Shares represented thereby) issued upon conversion thereof, which shall bear the
legend set forth in Section 2.05(d), if applicable) shall bear a legend in substantially the following form (unless such Notes
have been transferred pursuant to a registration statement that has become or been declared effective under the Securities
Act and that continues to be effective at the time of such transfer, or pursuant to the exemption from registration provided by
Rule 144 under the Securities Act or any similar provision then in force under the Securities Act, or unless otherwise agreed
by the Company in writing, with notice thereof to the Trustee):
(i) Legend for Rule 144A Notes:
THIS SECURITY, THE AMERICAN DEPOSITARY SHARES DELIVERABLE UPON CONVERSION OF THIS
SECURITY AND THE CLASS A ORDINARY SHARES REPRESENTED THEREBY HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”),
ARE “RESTRICTED SECURITIES” WITHIN THE MEANING OF RULE 144 UNDER THE SECURITIES ACT
OR CONTRACTUALLY RESTRICTED SECURITIES, AND MAY NOT BE OFFERED, SOLD, PLEDGED OR
OTHERWISE TRANSFERRED EXCEPT IN ACCORDANCE WITH THE FOLLOWING SENTENCE. BY ITS
ACQUISITION HEREOF OR OF A BENEFICIAL INTEREST HEREIN, THE ACQUIRER:
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(1) REPRESENTS THAT IT AND ANY ACCOUNT FOR WHICH IT IS ACTING IS (a) A
“QUALIFIED INSTITUTIONAL BUYER” (WITHIN THE MEANING OF RULE 144A UNDER THE
SECURITIES ACT) OR (b) NOT A U.S. PERSON AND IS LOCATED OUTSIDE THE UNITED
STATES (WITHIN THE MEANING OF REGULATION S UNDER THE SECURITIES ACT) AND THAT IT
EXERCISES SOLE INVESTMENT DISCRETION WITH RESPECT TO EACH SUCH ACCOUNT AND
THAT IT AND ANY SUCH ACCOUNT IS NOT, AND HAS NOT BEEN FOR THE
IMMEDIATELY PRECEDING THREE MONTHS, AN AFFILIATE OF BEST INC. (THE “COMPANY”),
AND
(2) AGREES FOR THE BENEFIT OF THE COMPANY THAT IT WILL NOT OFFER, SELL,
PLEDGE OR OTHERWISE TRANSFER THIS SECURITY OR ANY BENEFICIAL INTEREST HEREIN
PRIOR TO THE DATE THAT IS THE LATER OF (X) ONE YEAR AFTER THE LAST ORIGINAL ISSUE
DATE HEREOF OR SUCH SHORTER PERIOD OF TIME AS PERMITTED BY RULE 144 UNDER THE
SECURITIES ACT OR ANY SUCCESSOR PROVISION THERETO AND (Y) SUCH LATER DATE, IF
ANY, AS MAY BE REQUIRED BY APPLICABLE LAW, EXCEPT:
(A) TO THE COMPANY OR ANY SUBSIDIARY THEREOF, OR
(B) PURSUANT TO A REGISTRATION STATEMENT WHICH HAS BECOME EFFECTIVE
UNDER THE SECURITIES ACT, OR
(C) TO A QUALIFIED INSTITUTIONAL BUYER IN COMPLIANCE WITH RULE 144A
UNDER THE SECURITIES ACT, OR
(D) TO A NON U.S. PERSON LOCATED OUTSIDE THE UNITED STATES IN
ACCORDANCE WITH REGULATIONS UNDER THE SECURITIES ACT, OR
(E) PURSUANT TO AN EXEMPTION FROM REGISTRATION PROVIDED BY RULE 144
UNDER THE SECURITIES ACT (IF AVAILABLE).
PRIOR TO THE REGISTRATION OF ANY TRANSFER IN ACCORDANCE WITH (2)(E) ABOVE, THE
COMPANY, THE DEPOSITARY AND THE TRUSTEE RESERVE THE RIGHT TO REQUIRE THE DELIVERY
OF SUCH LEGAL OPINIONS, CERTIFICATIONS OR OTHER EVIDENCE AS MAY REASONABLY BE
REQUIRED IN ORDER TO DETERMINE THAT THE PROPOSED TRANSFER IS BEING MADE IN
COMPLIANCE WITH THE SECURITIES ACT AND APPLICABLE STATE SECURITIES LAWS. NO
REPRESENTATION IS MADE AS TO THE AVAILABILITY OF ANY EXEMPTION FROM THE
REGISTRATION REQUIREMENTS OF THE SECURITIES ACT.
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NO AFFILIATE (AS DEFINED IN RULE 144 UNDER THE SECURITIES ACT) OF THE COMPANY OR
PERSON THAT HAS BEEN AN AFFILIATE (AS DEFINED IN RULE 144 UNDER THE SECURITIES ACT)
OF THE COMPANY DURING THE THREE IMMEDIATELY PRECEDING MONTHS MAY PURCHASE,
OTHERWISE ACQUIRE OR OWN THIS NOTE, THE AMERICAN DEPOSITARY SHARES DELIVERABLE
UPON CONVERSION HEREOF AND THE CLASS A ORDINARY SHARES REPRESENTED THEREBY, OR A
BENEFICIAL INTEREST HEREIN OR THEREIN.
(ii) Legend for Regulation S Notes:
THIS SECURITY, THE AMERICAN DEPOSITARY SHARES DELIVERABLE UPON CONVERSION OF THIS
SECURITY AND THE CLASS A ORDINARY SHARES REPRESENTED THEREBY HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”), ARE
“RESTRICTED SECURITIES” WITHIN THE MEANING OF RULE 144 UNDER THE SECURITIES ACT OR
CONTRACTUALLY RESTRICTED SECURITIES, AND MAY NOT BE OFFERED, SOLD, PLEDGED OR
OTHERWISE TRANSFERRED EXCEPT IN ACCORDANCE WITH THE FOLLOWING SENTENCE. BY ITS
ACQUISITION HEREOF OR OF A BENEFICIAL INTEREST HEREIN, THE ACQUIRER:
(1)
REPRESENTS THAT IT AND ANY ACCOUNT FOR WHICH IT IS ACTING IS (a) A
“QUALIFIED INSTITUTIONAL BUYER” (WITHIN THE MEANING OF RULE 144A UNDER THE
SECURITIES ACT) OR (b) NOT A U.S. PERSON AND IS LOCATED OUTSIDE THE UNITED
STATES (WITHIN THE MEANING OF REGULATION S UNDER THE SECURITIES ACT) AND THAT
IT EXERCISES SOLE INVESTMENT DISCRETION WITH RESPECT TO EACH SUCH ACCOUNT
AND THAT IT AND ANY SUCH ACCOUNT IS NOT, AND HAS NOT BEEN FOR THE
IMMEDIATELY PRECEDING THREE MONTHS, AN AFFILIATE OF BEST INC. (THE “COMPANY”)
(OTHER THAN AN ENTITY AFFILIATED WITH ALIBABA GROUP HOLDING LIMITED (THE
“ALIBABA PURCHASER”) THAT PURCHASED REGULATION S NOTES IN THE
INITIAL OFFERING THEREOF AND ITS RESPECTIVE AFFILIATES), AND
(2)
AGREES FOR THE BENEFIT OF THE COMPANY THAT IT WILL NOT OFFER, SELL,
PLEDGE OR OTHERWISE TRANSFER THIS SECURITY OR ANY BENEFICIAL INTEREST HEREIN
PRIOR TO THE DATE THAT IS THE LATER OF (X) ONE YEAR AFTER THE LAST ORIGINAL
ISSUE DATE HEREOF OR SUCH SHORTER PERIOD OF TIME AS PERMITTED BY RULE 144
UNDER THE SECURITIES ACT OR ANY SUCCESSOR PROVISION THERETO AND (Y) SUCH
LATER DATE, IF ANY, AS MAY BE REQUIRED BY APPLICABLE LAW, EXCEPT:
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(A)
(B)
TO THE COMPANY OR ANY SUBSIDIARY THEREOF, OR
PURSUANT TO A REGISTRATION STATEMENT WHICH HAS BECOME
EFFECTIVE UNDER THE SECURITIES ACT, OR
(C)
TO A QUALIFIED INSTITUTIONAL BUYER IN COMPLIANCE WITH RULE
144A UNDER THE SECURITIES ACT, OR
(D)
TO A NON U.S. PERSON LOCATED OUTSIDE THE UNITED STATES IN
ACCORDANCE WITH REGULATIONS UNDER THE SECURITIES ACT, OR
(E)
PURSUANT TO AN EXEMPTION FROM REGISTRATION PROVIDED BY
RULE 144 UNDER THE SECURITIES ACT (IF AVAILABLE).
PRIOR TO THE REGISTRATION OF ANY TRANSFER IN ACCORDANCE WITH (2)(E) ABOVE, THE
COMPANY, THE DEPOSITARY AND THE TRUSTEE RESERVE THE RIGHT TO REQUIRE THE DELIVERY
OF SUCH LEGAL OPINIONS, CERTIFICATIONS OR OTHER EVIDENCE AS MAY REASONABLY BE
REQUIRED IN ORDER TO DETERMINE THAT THE PROPOSED TRANSFER IS BEING MADE IN
COMPLIANCE WITH THE SECURITIES ACT AND APPLICABLE STATE SECURITIES LAWS. NO
REPRESENTATION IS MADE AS TO THE AVAILABILITY OF ANY EXEMPTION FROM THE
REGISTRATION REQUIREMENTS OF THE SECURITIES ACT.
NO AFFILIATE (AS DEFINED IN RULE 144 UNDER THE SECURITIES ACT) OF THE COMPANY OR
PERSON THAT HAS BEEN AN AFFILIATE (AS DEFINED IN RULE 144 UNDER THE SECURITIES ACT)
OF THE COMPANY DURING THE THREE IMMEDIATELY PRECEDING MONTHS (OTHER THAN THE
ALIBABA PURCHASER THAT PURCHASED REGULATION S NOTES IN THE INITIAL OFFERING
THEREOF AND ITS RESPECTIVE AFFILIATES) MAY PURCHASE, OTHERWISE ACQUIRE OR OWN THIS
NOTE, THE AMERICAN DEPOSITARY SHARES DELIVERABLE UPON CONVERSION HEREOF AND THE
CLASS A ORDINARY SHARES REPRESENTED THEREBY, OR A BENEFICIAL INTEREST HEREIN OR
THEREIN.]
No transfer of any Note prior to the Resale Restriction Termination Date will be registered by the Note Registrar
unless the applicable box on the Form of Assignment and Transfer has been checked. Notwithstanding the foregoing, Notes
which in whole or in part constitute an Affiliate Note shall at all times bear the foregoing legend set forth in this Section 2.05
(c)(ii) unless removed in connection with a transfer pursuant to a registration statement that has become effective under the
Securities Act and that continues to be effective at the time of such transfer, or sold pursuant to the exemption from
registration provided by Rule 144).
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Any Note other than an Affiliate Note (or security issued in exchange or substitution therefor) as to which such
restrictions on transfer shall have expired in accordance with their terms may, upon surrender of such Note for exchange to
the Note Registrar in accordance with the provisions of this Section 2.05, be exchanged for a new Note or Notes, of like
tenor and aggregate principal amount, which shall not bear the restrictive legend required by this Section 2.05(c) and shall
not be assigned a restricted CUSIP number. The Company shall be entitled to instruct the Trustee and the Agents in writing
to so surrender any Global Note as to which such restrictions on transfer shall have expired in accordance with their terms
for exchange, and, upon such instruction, the Trustee shall so surrender such Global Note for exchange; and any new Global
Note so exchanged therefor shall not bear the restrictive legend specified in this Section 2.05(c) and shall not be assigned a
restricted CUSIP number. The Company shall promptly notify the Trustee and the Agents in writing upon the occurrence of
the Resale Restriction Termination Date and after a registration statement, if any, with respect to the Notes or the ADSs
(including the Ordinary Shares represented thereby) issued upon conversion of the Notes has been declared effective under
the Securities Act.
Notwithstanding any other provisions of this Indenture (other than the provisions set forth in this Section 2.05(c)), a
Global Note may not be transferred as a whole or in part except (i) by the Depositary to a nominee of the Depositary or by a
nominee of the Depositary to the Depositary or another nominee of the Depositary or by the Depositary or any such nominee
to a successor Depositary or a nominee of such successor Depositary and (ii) for transfers of portions of a Global Note in
certificated form made upon request of a member of, or a participant in, the Depositary (for itself or on behalf of a beneficial
owner) by written notice given to the Trustee by or on behalf of the Depositary in accordance with customary procedures of
the Depositary and in compliance with this Section 2.05(c).
The Depositary shall be a clearing agency registered under the Exchange Act. The Company initially appoints The
Depository Trust Company to act as Depositary with respect to each Global Note. Initially, each Global Note shall be issued
to the Depositary, registered in the name of Cede & Co., as the nominee of the Depositary, and deposited with Citibank,
N.A. as custodian for Cede & Co.
If (i) the Depositary notifies the Company at any time that the Depositary is unwilling or unable to continue as
depositary for the Global Notes and a successor depositary is not appointed within 90 days, (ii) the Depositary ceases to be
registered as a clearing agency under the Exchange Act and a successor depositary is not appointed within 90 days or (iii) an
Event of Default with respect to the Notes has occurred and is continuing and a beneficial owner of any Note requests that
its beneficial interest therein be issued as a Physical Note, the Company shall execute, and the Trustee, upon receipt of the
Opinion of Counsel contemplated by Section 2.04 and a Company Order for the authentication and delivery of Notes, shall
authenticate and deliver (x) in the case of clause (iii), a Physical Note to such beneficial owner in a principal amount equal
to the principal amount of such Note corresponding to such beneficial owner’s beneficial interest and (y) in the case of
clause (i) or (ii), Physical Notes to each beneficial owner of the related Global Notes (or a portion thereof) in an aggregate
principal amount equal to the aggregate principal amount of such Global Notes in exchange for such Global Notes, and upon
delivery of the Global Notes to the Note Registrar such Global Notes shall be cancelled.
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Physical Notes issued in exchange for all or a part of the Global Note pursuant to this Section 2.05(c) shall be
registered in such names and in such authorized denominations as the Depositary, pursuant to instructions from its direct or
indirect participants or otherwise, shall instruct the Note Registrar in writing. Upon execution and authentication, the Note
Registrar shall deliver such Physical Notes to the Persons in whose names such Physical Notes are so registered.
At such time as all interests in a Global Note have been converted, cancelled, repurchased, redeemed or transferred,
such Global Note shall be, upon receipt thereof, cancelled by the Note Registrar in accordance with standing procedures and
existing instructions of the Depositary. At any time prior to such cancellation, if any interest in a Global Note is exchanged
for Physical Notes, converted, cancelled, repurchased, redeemed or transferred to a transferee who receives Physical Notes
therefor or any Physical Note is exchanged or transferred for part of such Global Note, the principal amount of such Global
Note shall, in accordance with the standing procedures and existing instructions of the Depositary, be appropriately reduced
or increased, as the case may be, and an endorsement shall be made on such Global Note, by the Note Registrar, to reflect
such reduction or increase.
None of the Company, the Trustee, the Agents, any agent of the Company or any agent of the Trustee shall have any
responsibility or liability to any beneficial owner of a Global Note, a member of, or a participant in, the Depositary or any
other Person for any aspect of the records relating to or payments or delivery of any securities or property to be made on
account of beneficial ownership interests of a Global Note or maintaining, supervising or reviewing any records relating to
such beneficial ownership interests or for the delivery to any beneficial owner of a Global Note, a member of, or a
participant in, the Depositary or any other Person (other than the Depositary) of any notice (including any Fundamental
Change Repurchase Notice or notice of redemption).
None of the Company, the Trustee, the Agents or any agent of the Company or the Trustee shall have responsibility
or liability for any act or omission of the Depositary. All notices and communications to be given to the Holders and all
payments to be made to Holders in respect of the Notes shall be given or made only to, or upon the order of, the registered
Holder(s) (which shall be the Depositary or its nominee in the case of a Global Note).
(d)
Until the Resale Restriction Termination Date, any certificate representing ADSs (including the Ordinary
Shares represented thereby) issued upon conversion of such Note shall bear a legend in substantially the following form
(unless the Note or such ADSs (including the Ordinary Shares represented thereby) has been transferred pursuant to a
registration statement that has become or been declared effective under the Securities Act and that continues to be effective
at the time of such transfer, or pursuant to the exemption from registration provided by Rule 144 or any similar provision
then in force under the Securities Act, or such ADS or the Ordinary Shares represented thereby have been issued upon
conversion of Notes that have been transferred pursuant to a registration statement that has become or been declared
effective under the Securities Act and that continues to be effective at the time of such transfer, or pursuant to the exemption
from registration provided by Rule 144 under the Securities Act or any similar provision then in force under the Securities
Act, or unless otherwise agreed by the Company with written notice thereof to the Note Registrar and any transfer agent for
the ADSs):
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THESE AMERICAN DEPOSITARY SHARES AND THE CLASS A ORDINARY SHARES REPRESENTED
THEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
“SECURITIES ACT”), ARE “RESTRICTED SECURITIES” WITHIN THE MEANING OF RULE 144 UNDER
THE SECURITIES ACT OR CONTRACTUALLY RESTRICTED SECURITIES, AND MAY NOT BE OFFERED,
SOLD, PLEDGED OR OTHERWISE TRANSFERRED EXCEPT IN ACCORDANCE WITH THE FOLLOWING
SENTENCE. BY ITS ACQUISITION HEREOF OR OF A BENEFICIAL INTEREST HEREIN, THE ACQUIRER:
(1) REPRESENTS THAT IT AND ANY ACCOUNT FOR WHICH IT IS ACTING IS (a) A
“QUALIFIED INSTITUTIONAL BUYER” (WITHIN THE MEANING OF RULE 144A UNDER THE
SECURITIES ACT) OR (b) NOT A U.S. PERSON AND IS LOCATED OUTSIDE THE UNITED
STATES (WITHIN THE MEANING OF REGULATION S UNDER THE SECURITIES ACT) AND THAT IT
EXERCISES SOLE INVESTMENT DISCRETION WITH RESPECT TO EACH SUCH ACCOUNT AND
THAT IT AND ANY SUCH ACCOUNT IS NOT, AND HAS NOT BEEN FOR THE
IMMEDIATELY PRECEDING THREE MONTHS AN AFFILIATE OF BEST INC. (THE “COMPANY”),
AND
(2) AGREES FOR THE BENEFIT OF THE COMPANY THAT IT WILL NOT OFFER, SELL,
PLEDGE OR OTHERWISE TRANSFER THIS SECURITY OR ANY BENEFICIAL INTEREST HEREIN
PRIOR TO THE DATE THAT IS THE LATER OF (X) ONE YEAR AFTER THE LAST ORIGINAL ISSUE
DATE OF THE SERIES OF NOTES UPON THE CONVERSION OF WHICH THIS SECURITY WAS
ISSUED OR SUCH SHORTER PERIOD OF TIME AS PERMITTED BY RULE 144 UNDER
THE SECURITIES ACT OR ANY SUCCESSOR PROVISION THERETO AND (Y) SUCH LATER DATE, IF
ANY, AS MAY BE REQUIRED BY APPLICABLE LAW, EXCEPT:
(A) TO THE COMPANY OR ANY SUBSIDIARY THEREOF, OR
(B) PURSUANT TO A REGISTRATION STATEMENT WHICH HAS BECOME
EFFECTIVE UNDER THE SECURITIES ACT, OR
(C) TO A QUALIFIED INSTITUTIONAL BUYER IN COMPLIANCE WITH RULE 144A
UNDER THE SECURITIES ACT, OR
(D) TO A NON-U.S. PERSON LOCATED OUTSIDE THE UNITED STATES IN
ACCORDANCE WITH REGULATION S UNDER THE SECURITIES ACT, OR
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(E) PURSUANT TO AN EXEMPTION FROM REGISTRATION PROVIDED BY RULE
144 UNDER THE SECURITIES ACT (IF AVAILABLE).
PRIOR TO THE REGISTRATION OF ANY TRANSFER IN ACCORDANCE WITH (2)(E) ABOVE, THE
COMPANY, THE DEPOSITARY AND THE TRUSTEE FOR THE COMPANY’S AMERICAN DEPOSITARY SHARES
RESERVE THE RIGHT TO REQUIRE THE DELIVERY OF SUCH LEGAL OPINIONS, CERTIFICATIONS OR
OTHER EVIDENCE AS MAY REASONABLY BE REQUIRED IN ORDER TO DETERMINE THAT THE PROPOSED
TRANSFER IS BEING MADE IN COMPLIANCE WITH THE SECURITIES ACT AND APPLICABLE STATE
SECURITIES LAWS. NO REPRESENTATION IS MADE AS TO THE AVAILABILITY OF ANY EXEMPTION FROM
THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT.
NO AFFILIATE (AS DEFINED IN RULE 144 UNDER THE SECURITIES ACT) OF THE COMPANY OR
PERSON THAT HAS BEEN AN AFFILIATE (AS DEFINED IN RULE 144 UNDER THE SECURITIES ACT) OF THE
COMPANY DURING THE THREE IMMEDIATELY PRECEDING MONTHS MAY PURCHASE, OTHERWISE
ACQUIRE OR OWN THE AMERICAN DEPOSITARY SHARES EVIDENCED HEREBY OR A BENEFICIAL
INTEREST THEREIN.
Any such ADSs as to which such restrictions on transfer shall have expired in accordance with their terms may, upon
surrender of the certificates representing such ADSs for exchange in accordance with the procedures of the transfer agent for
the ADSs, be exchanged for a new certificate or certificates for a like aggregate number of ADSs, which shall not bear the
restrictive legend required by this Section 2.05(d).
Notwithstanding the foregoing, any ADSs received upon conversion of an Affiliate Note shall at all times bear the
foregoing legend unless removed in connection with a transfer pursuant to a registration statement that has become effective
under the Securities Act and that continues to be effective at the time of such transfer, or sold pursuant to the exemption
from registration provided by Rule 144.
(e)
Any Note or ADS delivered upon the conversion or exchange of any Note that is repurchased or owned or
purchased by any Affiliate of the Company may not be resold by such Affiliate (or Holder that was an Affiliate of the
Company at any time during three months preceding the resale) unless registered under the Securities Act or resold pursuant
to an exemption from, or in a transaction not subject to, the registration requirements of the Securities Act in a transaction
that results in such Note or ADS, as the case may be, no longer being a “restricted security” (as defined under Rule 144
under the Securities Act). The Company shall cause any Note that is repurchased or owned by it to be surrendered to the
Note Registrar for cancellation in accordance with Section 2.08.
(f)
Until the Resale Restriction Termination Date, prior to any sale of Regulation S Notes, the ADSs deliverable
upon conversion thereof or the Ordinary Shares represented thereby, to a qualified institutional buyer in compliance with
Rule 144A, the Holder thereof shall deliver to the Company, the Trustee, the Transfer Agent and/or Depositary, as the case
may be, written confirmation that the prospective purchaser is a Person such Holder reasonably believes is a “qualified
institutional buyer” (within the meaning of Rule 144A) that is purchasing for its own account or for the account of another
qualified institutional buyer and to whom notice is given that the transfer is being made in reliance on Rule 144A.
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Section 2.06 Mutilated, Destroyed, Lost or Stolen Notes. In case any Note shall become mutilated or be destroyed,
lost or stolen, the Company in its discretion may execute, and upon receipt of a Company Order and the Opinion of Counsel
contemplated in Section 2.04, the Trustee shall authenticate and deliver, a new Note, bearing a registration number not
contemporaneously outstanding, in exchange and substitution for the mutilated Note, or in lieu of and in substitution for the
Note so destroyed, lost or stolen. In every case the applicant for a substituted Note shall furnish to the Company and to the
Trustee such security and/or indemnity as may be required by them to save each of them harmless from any loss, liability,
cost or expense caused by or connected with such substitution, and, in every case of destruction, loss or theft, the applicant
shall also furnish to the Company and to the Trustee evidence to their satisfaction of the destruction, loss or theft of such
Note and of the ownership thereof.
The Trustee may authenticate any such substituted Note and deliver the same upon the receipt of a Company Order
and of such security and/or indemnity as the Trustee and the Company may require. No service charge shall be imposed by
the Company, the Transfer Agent, the Note Registrar, any co-Note Registrar or the Paying Agent upon the issuance of any
substitute Note, but the Company, the Trustee, the Note Registrar, any co-Note Registrar or the Paying Agent may require a
Holder to pay a sum sufficient to cover any documentary, stamp, issue, transfer or similar Tax required in connection
therewith as a result of the name of the Holder of the new substitute Note being different from the name of the Holder of the
old Note that became mutilated or was destroyed, lost or stolen. In case any Note that has matured or is about to mature or
has been surrendered for repurchase (and not withdrawn) in accordance with Article 15 or has been selected for redemption
in accordance with Article 16 or is about to be converted in accordance with Article 14 shall become mutilated or be
destroyed, lost or stolen, the Company may, in its sole discretion, instead of issuing a substitute Note, pay or authorize the
payment of or convert or authorize the conversion of the same (without surrender thereof except in the case of a mutilated
Note), as the case may be, if the applicant for such payment or conversion shall furnish to the Company and to the Trustee
such security and/or indemnity as may be required by them to save each of them harmless for any loss, liability, cost or
expense caused by or connected with such substitution, and, in every case of destruction, loss or theft, evidence satisfactory
to the Company, and the Trustee evidence of their satisfaction of the destruction, loss or theft of such Note and of the
ownership thereof.
Every substitute Note issued pursuant to the provisions of this Section 2.06 by virtue of the fact that any Note is
destroyed, lost or stolen shall constitute an additional contractual obligation of the Company, whether or not the destroyed,
lost or stolen Note shall be found at any time, and shall be entitled to all the benefits of (but shall be subject to all the
limitations set forth in) this Indenture equally and proportionately with any and all other Notes duly issued hereunder. To
the extent permitted by law, all Notes shall be held and owned upon the express condition that the foregoing provisions are
exclusive with respect to the replacement, payment, redemption, conversion or repurchase of mutilated, destroyed, lost or
stolen Notes and shall preclude any and all other rights or remedies notwithstanding any law or statute existing or hereafter
enacted to the contrary with respect to the replacement, payment, redemption, conversion or repurchase of negotiable
instruments or other securities without their surrender.
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Section 2.07 Temporary Notes. Pending the preparation of Physical Notes, the Company may execute and the
Trustee shall, upon receipt of a Company Order and Opinion of Counsel contemplated in Section 2.04, authenticate and
deliver temporary Notes (printed or lithographed). Temporary Notes shall be issuable in any authorized denomination, and
substantially in the form of the Physical Notes but with such omissions, insertions and variations as may be appropriate for
temporary Notes, all as may be determined by the Company. Every such temporary Note shall be executed by the Company
and authenticated by the Trustee upon the same conditions and in substantially the same manner, and with the same effect,
as the Physical Notes. Without unreasonable delay, the Company shall execute and deliver to the Trustee Physical Notes
(other than any Global Note) and thereupon any or all temporary Notes (other than any Global Note) may be surrendered in
exchange therefor, at each office or agency maintained by the Company pursuant to Section 4.02 and the Trustee shall upon
receipt of a Company Order authenticate and deliver in exchange for such temporary Notes an equal aggregate principal
amount of Physical Notes. Such exchange shall be made by the Company at its own expense and without any charge
therefor. Until so exchanged, the temporary Notes shall in all respects be entitled to the same benefits and subject to the
same limitations under this Indenture as Physical Notes authenticated and delivered hereunder.
Section 2.08 Cancellation of Notes Paid, Converted, Etc. The Company shall cause all Notes surrendered for the
purpose of payment, repurchase, redemption, registration of transfer or exchange or conversion, if surrendered to any Person
other than the Paying Agent (including any of the Company’s agents, Subsidiaries or Affiliates), to be delivered and
surrendered to the Note Registrar for cancellation. All Notes delivered to the Note Registrar shall be cancelled promptly by
it, and no Notes shall be authenticated in exchange thereof except as expressly permitted by any of the provisions of this
Indenture. The Note Registrar shall dispose of cancelled Notes in accordance with its customary procedures and, after such
disposition, shall deliver a certificate of such cancellation and disposition to the Company, at the Company’s prior written
request in a Company Order.
Section 2.09 CUSIP Numbers. The Company in issuing the Notes may use “CUSIP” numbers (if then generally in
use), and, if so, the Trustee shall use “CUSIP” numbers in all notices issued to Holders as a convenience to such Holders;
provided that the Trustee shall have no liability for any defect in “CUSIP” numbers as they appear on any Note or notice and
any such notice may state that no representation is made as to the correctness of such numbers either as printed on the Notes
or on such notice and that reliance may be placed only on the other identification numbers printed on the Notes. The
Company shall promptly notify the Trustee and the Agents in writing of any change in the “CUSIP” numbers. Prior to the
Notes Fungibility Date, the Rule 144A Notes and the Regulation S Notes shall have different “CUSIP” numbers. Following
the Notes Fungibility Date, the Rule 144A Notes and the Regulation S Notes shall have the same “CUSIP” number;
provided the Company shall cause any Affiliate Notes to bear a different “CUSIP” or “ISIN” number.
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Section 2.10 Additional Notes; Repurchases. The Company may, without the consent of, or notice to, the Holders
and notwithstanding Section 2.01, reopen this Indenture and issue additional Notes hereunder with the same terms as the
Notes initially issued hereunder (except for any differences in the issue price, the issue date and interest accrued, if any, and,
if applicable, restrictions on transfer in respect of such additional Notes) in an unlimited aggregate principal amount;
provided that if any such additional Notes are not fungible with the Notes initially issued hereunder for U.S. federal income
tax or securities law purposes, such additional Notes shall have a separate CUSIP, ISIN or other identifying number from
both the Rule 144A Notes and the Regulation S Notes. Prior to the issuance of any such additional Notes, the Company
shall deliver to the Trustee a Company Order, an Officers’ Certificate and an Opinion of Counsel, such Officers’ Certificate
and Opinion of Counsel to cover such matters, in addition to those required by Sections 17.06 and 2.04, as the Trustee shall
reasonably request. In addition, the Company may, to the extent permitted by law, and directly or indirectly (regardless of
whether such Notes are surrendered to the Company), repurchase Notes in the open market or otherwise, whether by the
Company or through its Subsidiaries or through a private or public tender or exchange offer or through counterparties to
private agreements. The Company shall cause any Notes so repurchased to be surrendered to the Note Registrar for
cancellation in accordance with Section 2.08 and upon receipt of a Company Order, the Paying Agent shall cancel all Notes
so surrendered and such Notes shall no longer be considered outstanding under this Indenture upon their repurchase. The
Company may also enter into cash-settled swaps or other derivatives with respect to the Notes. For the avoidance of doubt,
any Notes underlying such cash-settled swaps or other derivatives shall not be required to be surrendered to the Note
Registrar for cancellation in accordance with Section 2.08 and will continue to be considered outstanding for purposes of
this Indenture, subject to the provisions of Section 8.04.
ARTICLE 3
SATISFACTION AND DISCHARGE
Section 3.01 Satisfaction and Discharge. This Indenture shall upon request of the Company contained in an
Officers’ Certificate cease to be of further effect, and the Trustee, at the expense of the Company, shall execute proper
instruments acknowledging satisfaction and discharge of this Indenture, when (a) (i) all Notes theretofore authenticated and
delivered (other than (x) Notes which have been destroyed, lost or stolen and which have been replaced or paid as provided
in Section 2.06 and (y) Notes for whose payment money has theretofore been deposited in trust or segregated and held in
trust by the Company and thereafter repaid to the Company or discharged from such trust, as provided in Section 4.04(d))
have been delivered to the Note Registrar for cancellation; or (ii) the Company has deposited with the Trustee or delivered
to Holders, as applicable, after the Notes have become due and payable, whether on the Maturity Date, a Redemption Date,
the Repurchase Date, any Fundamental Change Repurchase Date, upon conversion or otherwise, cash and/or (solely to
satisfy the Company’s Conversion Obligation, if applicable) ADSs sufficient to pay all of (or satisfy such Conversion
Obligation in respect of) the outstanding Notes and all other sums due and payable under this Indenture by the Company;
and (b) the Company has delivered to the Trustee an Officers’ Certificate and an Opinion of Counsel, each stating that all
conditions precedent herein provided for relating to the satisfaction and discharge of this Indenture have been complied
with. Notwithstanding the satisfaction and discharge of this Indenture, the obligations of the Company to the Trustee and
the Agents under Section 7.06 shall survive.
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ARTICLE 4
PARTICULAR COVENANTS OF THE COMPANY
Section 4.01 Payment of Principal and Interest. The Company covenants and agrees that it will cause to be paid the
principal (including the Redemption Price, the Repurchase Price and the Fundamental Change Repurchase Price, if
applicable) of, and accrued and unpaid interest on, each of the Notes at the places, at the respective times and in the manner
provided herein and in the Notes.
Section 4.02 Maintenance of Office or Agency. The Company will maintain in the Borough of Manhattan, The City
of New York, an office or agency (which initially will be the specified office of the relevant Agent) where the Notes may be
surrendered for registration of transfer or exchange or for presentation for payment or repurchase (“Paying Agent”) or for
conversion (“Conversion Agent”) and where notices and demands to or upon the Company in respect of the Notes and this
Indenture may be served. The Company will give prompt written notice to the Trustee of the location, and any change in the
location, of such office or agency. If at any time the Company shall fail to maintain any such required office or agency or
shall fail to furnish the Trustee with the address thereof, such presentations, surrenders, notices and demands may be made
or served at the Corporate Trust Office or the corporate trust office of the Trustee in the Borough of Manhattan, The City of
New York; provided, however, that the legal service of process against the Company shall in no circumstance be made at an
office or agency of the Trustee.
The Company may also from time to time designate as co-Note Registrars one or more other offices or agencies
where the Notes may be presented or surrendered for any or all such purposes and may from time to time rescind such
designations; provided that no such designation or rescission shall in any manner relieve the Company of its obligation to
maintain an office or agency in the Borough of Manhattan, The City of New York, for such purposes. The Company will
give prompt written notice to the Trustee of any such designation or rescission and of any change in the location of any such
other office or agency. The terms “Paying Agent” and “Conversion Agent” include any such additional or other offices or
agencies, as applicable.
The Company hereby initially designates Citibank, N.A. as the Paying Agent, Note Registrar, Transfer Agent and
Conversion Agent and the office or agency of Citibank, N.A., 388 Greenwich Street, New York, New York 10013, United
States of America, each shall be considered as one such office or agency of the Company for each of the aforesaid purposes.
In acting hereunder and in connection with the Notes, the Paying Agent, Conversion Agent, Custodian, and Note
Registrar shall act solely as an agent of the Company and will not assume any fiduciary duty or relationship of agency or
trust for or with any of the beneficial owners or Holder(s).
Section 4.03 Appointments to Fill Vacancies in Trustee’s Office. The Company, whenever necessary to avoid or fill
a vacancy in the office of Trustee, will appoint, in the manner provided in Section 7.09, a trustee, so that there shall at all
times be a trustee hereunder.
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Section 4.04 Provisions as to Paying Agent. (a) If the Company shall appoint a Paying Agent other than the Trustee,
the Company will cause such Paying Agent to execute and deliver to the Trustee an instrument in which such agent shall
agree with the Trustee, subject to the provisions of this Section 4.04:
(i)
that it will hold all sums held by it as such agent for the payment of the principal (including the
Redemption Price, the Repurchase Price and the Fundamental Change Repurchase Price, if applicable) of, and
accrued and unpaid interest on, the Notes for the benefit of the Holders of the Notes;
(ii)
that it will give the Trustee prompt notice of any failure by the Company to make any payment of the
principal (including the Redemption Price, the Repurchase Price and the Fundamental Change Repurchase Price, if
applicable) of, and accrued and unpaid interest on, the Notes when the same shall be due and payable; and
(iii)
that at any time during the continuance of an Event of Default, upon request of the Trustee, it will
forthwith pay to the Trustee all sums so held.
The Company shall, on or before each due date of the principal (including the Redemption Price, the Repurchase
Price and the Fundamental Change Repurchase Price, if applicable) of, or accrued and unpaid interest on, the Notes, deposit
with the Paying Agent a sum sufficient to pay such principal (including the Redemption Price, the Repurchase Price and the
Fundamental Change Repurchase Price, if applicable) or accrued and unpaid interest and (unless such Paying Agent is the
Trustee) the Company will promptly notify the Trustee of any failure to take such action; provided that if such deposit is
made on the due date, such deposit must be received by the Paying Agent by 11:00 a.m., New York City time, on such date;
provided, further, that to the extent such deposit is received by Paying Agent after 11:00 a.m., New York City time, on any
such due date, such deposit will be deemed deposited on the next Business Day. The Paying Agent shall not be bound to
make any payment until it has received, in immediately available and cleared funds, an amount which shall be sufficient to
pay, as applicable, the aggregate amount of principal (including the Redemption Price, the Repurchase Price and the
Fundamental Change Repurchase Price, if applicable) of, or accrued and unpaid interest on, the Notes when such principal
or interest shall become due and payable. The Paying Agent shall not be responsible or liable for any delay in making the
payment if it does not receive funds before 11:00 a.m. one Business Day prior to the payment date. The Company shall use
reasonable efforts to procure that, before 11:00 a.m., New York City time, on the second Business Day before each payment
date, the bank effecting payment for it has confirmed by email or facsimile to the Paying Agent the payment instructions
relating to such payment.
(b)
If the Company shall act as its own Paying Agent, it will, on or before each due date of the principal
(including the Redemption Price, the Repurchase Price and the Fundamental Change Repurchase Price, if applicable) of, and
accrued and unpaid interest on, the Notes, set aside, segregate and hold in trust for the benefit of the Holders of the Notes a
sum sufficient to pay such principal (including the Redemption Price, the Repurchase Price and the Fundamental Change
Repurchase Price, if applicable) and accrued and unpaid interest so becoming due and will promptly notify the Trustee in
writing of any failure to take such action and of any failure by the Company to make any payment of the principal (including
the Redemption Price, the Repurchase Price and the Fundamental Change Repurchase Price, if applicable) of, or accrued and
unpaid interest on, the Notes when the same shall become due and payable. Upon an Event of Default under Section 6.01(i)
or Section 6.01(j) hereof, the Trustee shall automatically become the Paying Agent.
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(c)
Anything in this Section 4.04 to the contrary notwithstanding, the Company may, at any time, for the
purpose of obtaining a satisfaction and discharge of this Indenture, or for any other reason, pay, cause to be paid or deliver to
the Trustee all sums or amounts held by the Company in trust or by any Paying Agent as required by this Section 4.04, such
sums or amounts to be held by the Trustee upon the trusts herein contained and upon such payment or delivery by the
Company or any Paying Agent to the Trustee, the Company or such Paying Agent shall be released from all further liability
but only with respect to such sums or amounts.
(d)
Any money deposited with the Trustee or any Paying Agent, or then held by the Company, in trust for the
payment of principal (including the Redemption Price, the Repurchase Price and the Fundamental Change Repurchase Price,
if applicable) of, and accrued and unpaid interest on, any Note and remaining unclaimed for two years after such principal
(including the Redemption Price, the Repurchase Price and the Fundamental Change Repurchase Price, if applicable) or
interest has become due and payable shall be paid or delivered, as the case may be, to the Company on request of the
Company contained in an Officers’ Certificate, or (if then held by the Company) shall be discharged from such trust; and the
Holder of such Note shall thereafter, as an unsecured general creditor, look only to the Company for payment thereof, and
all liability of the Trustee or such Paying Agent with respect to such money, and all liability of the Company as trustee
thereof, shall thereupon cease; provided, however, that the Trustee or such Paying Agent, before being required to make any
such repayment or delivery, may at the expense of the Company cause to be published once, in a newspaper published in the
English language, customarily published on each Business Day and of general circulation in The Borough of Manhattan,
The City of New York, notice that such money remains unclaimed and that, after a date specified therein, which shall not be
less than 30 days from the date of such publication, any unclaimed balance of such money then remaining will be repaid or
delivered to the Company.
Section 4.05 Existence. Subject to Article 11, the Company shall do or cause to be done all things necessary to
preserve and keep in full force and effect its corporate existence. The Company shall promptly provide the Trustee with
written notice of any change to its name, jurisdiction of incorporation or change to its corporate organization.
Section 4.06 Rule 144A Information Requirement and Annual Reports. (a) At any time the Company is not subject
to Section 13 or 15(d) of the Exchange Act, the Company shall, so long as any of the Notes, any ADSs deliverable upon
conversion thereof or any Ordinary Shares underlying ADSs deliverable upon conversion thereof shall, at such time,
constitute “restricted securities” within the meaning of Rule 144(a)(3) under the Securities Act, promptly provide to the
Trustee and shall, upon written request, provide to any Holder, beneficial owner or prospective purchaser of such Notes or
the ADSs deliverable upon conversion of such Notes, the information required to be delivered pursuant to Rule 144A(d)(4)
under the Securities Act to facilitate the resale of such Notes or ADSs pursuant to Rule 144A. The Company shall take such
further action as any Holder or beneficial owner of such Notes or such ADSs may reasonably request to the extent from time
to time required to enable such Holder or beneficial owner to sell such Notes or ADSs in accordance with Rule 144A, as
such rule may be amended from time to time.
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(b)
The Company shall provide to the Trustee within 15 days after the same are required to be filed with the
Commission, copies of any documents or reports that the Company is required to file with the Commission pursuant to
Section 13 or 15(d) of the Exchange Act (giving effect to any applicable grace period provided by Rule 12b-25 under the
Exchange Act). Any such document or report that the Company files with the Commission via the Commission’s EDGAR
system (or any successor thereto) shall be deemed to be provided to the Trustee for purposes of this Section 4.06(b) at the
time such documents are filed via the EDGAR system (or any successor thereto). The Trustee shall not be responsible for
determining whether such filings have been made and have no obligation to determine if and when the Company’s
statements, reports or documents are publically available and/or accessible electronically.
(c)
Delivery of the reports and documents described in subsection (b) above to the Trustee is for informational
purposes only, and the Trustee’s receipt of such shall not constitute actual or constructive notice or knowledge of any
information contained therein or determinable from information contained therein, including the Company’s compliance
with any of its covenants hereunder (as to which the Trustee is entitled to conclusively rely on an Officers’ Certificate).
(d)
If, at any time during the six-month period beginning on, and including, the date that is six months after the
last date of original issuance of the Notes, the Company fails to timely file any document or report that it is required to file
with the Commission pursuant to Section 13 or 15(d) of the Exchange Act, as applicable (after (i) giving effect to all
applicable grace periods thereunder and (ii) other than reports on Form 6-K to the extent such reports are not required to
satisfy the “current public information” requirement of Rule 144), or the Notes are not otherwise freely tradable pursuant to
Rule 144 by Holders other than the Company’s Affiliates or Holders that were the Company’s Affiliates at any time during
the three months immediately preceding (as a result of restrictions pursuant to U.S. securities laws or the terms of this
Indenture or the Notes), the Company shall pay Additional Interest on the Notes. Such Additional Interest shall accrue on
the Notes at the rate of 0.50% per annum of the principal amount of the Notes outstanding for each day during such period
for which the Company’s failure to file has occurred and is continuing or the period during which the Notes are not freely
tradable, as the case may be, by Holders other than Affiliates of the Company (or Holders that were Affiliates of the
Company during the three months immediately preceding). As used in this Section 4.06(d), documents or reports that the
Company is required to “file” with the Commission pursuant to Section 13 or 15(d) of the Exchange Act does not include
documents or reports that the Company furnishes to the Commission pursuant to Section 13 or 15(d) of the Exchange Act.
(e)
If, and for so long as, (x) the restrictive legend on the Notes specified in Section 2.05(c) has not been
removed, (y) the Notes are assigned a restricted CUSIP or (z) the Notes are not otherwise freely tradable pursuant to Rule
144 by Holders without restrictions pursuant to U.S. securities laws or the terms of this Indenture or the Notes (in each case
(x), (y) and (z), except for the Notes that are owned by the Company’s Affiliates or Holders that were the Company’s
Affiliates at any time during the three months immediately preceding) as of the 370th day after the last date of original
issuance of the Notes, the Company shall pay Additional Interest on the Notes at a rate equal to 0.50% per annum of the
principal amount of Notes outstanding until (x) the restrictive legend on the Notes has been removed in accordance with
Section 2.05(c), (y) the Notes have been assigned an unrestricted CUSIP and (z) the Notes are freely tradable by Holders
thereof without restrictions pursuant to U.S. securities laws or the terms of this Indenture or the Notes (in each case (x), (y)
and (z), except for the Notes that are owned by the Company’s Affiliates or Holders that were the Company’s Affiliates at
any time during the three months immediately preceding.
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(f)
Additional Interest will be payable in arrears on each Interest Payment Date following accrual in the same
manner as regular interest on the Notes.
(g)
The Additional Interest that is payable in accordance with Section 4.06(d) or Section 4.06(e) shall be in
addition to, and not in lieu of, any Additional Interest that may be payable as a result of the Company’s election pursuant to
Section 6.03. In no event shall Additional Interest accrue on any day under the terms of this Indenture (taking any
Additional Interest payable pursuant to Section 4.06(d) and Section 4.06(e) together with any Additional Interest payable
pursuant to Section 6.03) at an annual rate in excess of 0.50%, in the aggregate, for any violation or Default caused by the
Company’s failure to be current in respect of its Exchange Act reporting obligations.
(h)
If Additional Interest is payable by the Company pursuant to Section 4.06(d) or Section 4.06(e), the
Company shall deliver to the Trustee and the Paying Agent an Officers’ Certificate to that effect stating (i) the amount of
such Additional Interest that is payable and (ii) the date on which such Additional Interest is payable. Unless and until a
Responsible Officer of the Trustee receives at the Corporate Trust Office such a certificate, the Trustee and the Paying
Agent may assume without inquiry that no such Additional Interest is payable. If the Company has paid such Additional
Interest directly to the Persons entitled to it, the Company shall deliver to the Trustee an Officers’ Certificate setting forth
the particulars of such payment.
Section 4.07 Additional Amounts. (a) All payments and deliveries made by, or on behalf of, the Company or any
successor to the Company under or with respect to this Indenture and the Notes, including, but not limited to, payments of
principal (including, if applicable, the Redemption Price, the Repurchase Price and the Fundamental Change Repurchase
Price), premium, if any, payments of interest, including any Additional Interest, and deliveries of ADSs or any other
consideration due on conversion of a Note (together with payments of cash for any Fractional ADS entitlement or other
consideration), shall be made without withholding, deduction or reduction for any other collection at source for, or on
account of, any present or future taxes, duties, assessments or governmental charges of whatever nature imposed or
levied (including any penalties and interest related thereto) (“applicable taxes”) unless such withholding, deduction or
reduction is required by law or by regulation or governmental policy having the force of law. In the event that any such
withholding, deduction or reduction is so required by or within (1) the Cayman Islands or the People’s Republic of China,
(2) any jurisdiction in which the Company or any successor are, for tax purposes, incorporated, organized or resident or
doing business or (3) any jurisdiction from or through which payment is made or deemed made (each of (1), (2) and (3), and
in each case, any political subdivision or taxing authority thereof or therein, as applicable, a “Relevant Taxing
Jurisdiction”), the Company or any successor to the Company shall pay or deliver to each Holder such additional amounts
of cash, ADSs or other consideration, as applicable (“Additional Amounts”) as may be necessary to ensure that the net
amount received by the beneficial owners of the Notes after such withholding, deduction or reduction (and after deducting
any taxes on the Additional Amounts) shall equal the amounts that would have been received by such beneficial owner had
no such withholding, deduction or reduction been required; provided that no Additional Amounts shall be payable:
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(1)
for or on account of:
(A) any applicable taxes that would not have been imposed but for:
(i) the existence of any present or former connection between the relevant Holder or
beneficial owner of such Note and the Relevant Taxing Jurisdiction, other than merely acquiring or
holding such Note, receiving ADSs (together with payment of cash for any Fractional ADS) or other
consideration upon conversion of such Note or the receipt of payments or the exercise or enforcement of
rights thereunder, including, without limitation, such Holder or beneficial owner being or having been a
national, domiciliary or resident of such Relevant Taxing Jurisdiction or treated as a resident thereof or
being or having been physically present or engaged in a trade or business therein or having had a
permanent establishment therein;
(ii) the presentation of such Note (in cases in which presentation is required) more than 30
days after the later of the date on which the payment of the principal of (including the Redemption Price,
the Repurchase Price and Fundamental Change Repurchase Price, if applicable) and interest on such Note
or the delivery of ADSs (together with payment of cash for any Fractional ADS) upon conversion of such
Note became due and payable pursuant to the terms thereof or was made or duly provided for (except to
the extent that the Holder or beneficial owner would have been entitled to Additional Amounts had the
Note been presented on the last day of such 30 day period); or
(iii) the failure of the Holder or beneficial owner to comply with a timely written request from
the Company or any successor of the Company, addressed to the Holder, to the extent such Holder or
beneficial owner is legally entitled, to provide certification, information, documents or other evidence
concerning such Holder’s or beneficial owner’s nationality, residence, identity or connection with the
Relevant Taxing Jurisdiction, or to make any declaration or satisfy any other reporting requirement
relating to such matters, if and to the extent that due and timely compliance with such request is required
by statute, regulation or administrative practice of the Relevant Taxing Jurisdiction in order to reduce or
eliminate any withholding or deduction as to which Additional Amounts would have otherwise been
payable to such Holder or beneficial owner; provided that, in the case of applicable taxes imposed by the
People’s Republic of China, the provision of any certification, information, documents, or other evidence
described in this clause (1)(A)(iii) would not be materially more onerous, in form, in procedure, or in the
substance of information disclosed, to a Holder or beneficial owner than comparable information or other
reporting requirements imposed under U.S. tax law, regulations and administrative practice (such as U.S.
Internal Revenue Service Forms W-8BEN, W-8BEN-E and W-9, or any successor forms), and reasonable
procedure for the collection of such documentation has been implemented and is in effect at the time that
such written request is received;
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(B) any estate, inheritance, gift, sale, transfer, personal property or similar applicable tax or excise tax
imposed on transfer of the Notes;
(C) any applicable tax that is payable otherwise than by withholding, deduction or any other collection
at source from payments or deliveries under or with respect to the Notes;
(D) any applicable tax required to be withheld or deducted under Sections 1471 to 1474 of the Code
(or any amended or successor versions of such Sections that is substantively comparable and not materially more
onerous to comply with) (“FATCA”), any regulations or other official guidance thereunder, any
intergovernmental agreement or agreement pursuant to Section 1471(b)(1) of the Code entered into in connection
with FATCA, or any law, regulation or other official guidance enacted in any jurisdiction implementing FATCA
or an intergovernmental agreement; or
(E) any combination of applicable taxes referred to in the preceding clauses (A), (B), (C) or (D); or
(2)
with respect to any payment of the principal of (including the Redemption Price, the Repurchase Price and
the Fundamental Change Repurchase Price, if applicable), premium, if any, or interest, including any Additional Interest, on,
such Note or the delivery of ADSs (together with payment of cash for any Fractional ADS) upon conversion of such Note to
a Holder, if the Holder is a fiduciary, partnership or person other than the sole beneficial owner of that payment or delivery
to the extent that such payment or delivery would be required to be included in the income under the laws of the Relevant
Taxing Jurisdiction, for tax purposes, of a beneficiary or settlor with respect to the fiduciary, a partner or member of that
partnership or a beneficial owner who would not have been entitled to such Additional Amounts had that beneficiary, settlor,
partner, member or beneficial owner been the Holder thereof.
(b)
The Company or its successor shall pay and indemnify each Holder and beneficial owner for any present or
future stamp, issue, registration, value added, court or documentary taxes, or any other excise or property taxes, charges or
similar levies or taxes (including penalties, interest and any other reasonable expenses related thereto) which are levied by
any Relevant Taxing Jurisdiction (and in the case of enforcement, any jurisdiction) on the execution, delivery, registration or
enforcement of any of the Notes, this Indenture or any other document or instrument referred to therein or the receipt of
payments with respect thereto (including the receipt of ADSs (together with payment of cash for any Fractional ADS) or
other consideration due upon conversion).
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(c)
If the Company or its successor becomes obligated to pay Additional Amounts with respect to any payment
or delivery under or with respect to the Notes, the Company or its successor shall deliver to the Trustee and the Paying
Agent, if other than the Trustee, on a date that is at least 30 days prior to the date of that payment or delivery (unless the
obligation to pay Additional Amounts arises after the 30th day prior to that payment or delivery date, in which case the
Company or its successor shall notify the Trustee and the Paying Agent promptly thereafter) an Officers’ Certificate stating
the fact that Additional Amounts will be payable and the amount estimated to be so payable. The Officers’ Certificate must
also set forth any other information reasonably necessary to enable the Paying Agent or the Trustee (on behalf of the
Company and subject to receipt of funds from the Company pursuant to the last paragraph in Section 4.04(a)), as the case
may be, to pay Additional Amounts to Holders on the relevant payment or delivery date. The Trustee and the Paying Agent
shall be entitled to rely solely on such Officers’ Certificate as conclusive proof that such payments are necessary and that the
estimate of such Additional Amounts set forth in such Officers’ Certificate is accurate. The Company or its successor shall
provide the Trustee and the Paying Agent with documentation reasonably satisfactory to the Trustee and the Paying Agent
evidencing the payment of Additional Amounts.
(d)
The Company or its successor shall make all withholdings and deductions required by law and shall remit
the full amount deducted or withheld to the relevant tax authority in accordance with Applicable Law. The Company or its
successor shall provide to the Paying Agent a certified copy of an official receipt or, if official receipts are not obtainable, an
Officer’s Certificate evidencing the payment of any applicable Taxes so deducted or withheld. The Company or its successor
will attach to each certified copy or other document a certificate stating the amount of such applicable Taxes paid per $1,000
principal amount of the Notes then outstanding. Copies of those receipts or other documentation, as the case may be, shall be
made available by the Paying Agent to the Holders of the Notes upon written request.
(e)
Any reference in this Indenture or the Notes in any context to the delivery of ADSs (together with payment
of cash for any Fractional ADS) or other consideration upon conversion of any Note or the payment of principal of
(including the Redemption Price, the Repurchase Price and Fundamental Change Repurchase Price, if applicable) and any
premium or interest (including any Additional Interest) on any Note or any other amount payable with respect to such Note,
shall be deemed to include payment of Additional Amounts to the extent that, in such context, Additional Amounts are, were
or would be payable with respect to that amount pursuant to this Section 4.07.
(f)
The foregoing obligations shall survive termination, defeasance or discharge of this Indenture or any transfer
by a Holder or beneficial owner of its Notes and will apply mutatis mutandis to any jurisdiction in which any successor to
the Company is then, for tax purposes, incorporated, organized or resident or doing business (or any political subdivision or
taxing authority thereof or therein) or any jurisdiction from or through which payment under or with respect to the Notes is
made or deemed made by or on behalf of such successor (or any political subdivision or taxing authority thereof or therein).
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Section 4.08 Stay, Extension and Usury Laws. The Company covenants (to the extent that it may lawfully do so) that
it shall not at any time insist upon, plead, or in any manner whatsoever claim or take the benefit or advantage of, any stay,
extension or usury law or other law that would prohibit or forgive the Company from paying all or any portion of the
principal of or interest on the Notes as contemplated herein, wherever enacted, now or at any time hereafter in force, or that
may affect the covenants or the performance of this Indenture; and the Company (to the extent it may lawfully do so) hereby
expressly waives all benefit or advantage of any such law, and covenants that it will not, by resort to any such law, hinder,
delay or impede the execution of any power herein granted to the Trustee, but will suffer and permit the execution of every
such power as though no such law had been enacted.
Section 4.09 Compliance Certificate; Statements as to Defaults. The Company shall deliver to the Trustee within
120 days after the end of each fiscal year of the Company (beginning with the fiscal year ending on December 31, 2019) an
Officers’ Certificate stating that a review has been conducted of the Company’s activities under this Indenture and the
Company has fulfilled its obligations hereunder, and whether the authorized Officers thereof have knowledge of any Default
by the Company that occurred and is continuing and, if so, specifying each such Default and the nature thereof. Delivery of
such reports and documents to the Trustee is for informational purposes only, and the Trustee’s receipt of such shall not
constitute constructive notice of any information contained therein or determinable from information contained therein.
In addition, the Company shall deliver to the Trustee, as soon as possible, and in any event within 30 days after the
Company becomes aware of the occurrence of any Default, an Officers’ Certificate setting forth the details of such Default,
its status and the action that the Company is taking or proposing to take in respect thereof. The Trustee shall have no
responsibility to take any steps to ascertain whether any Event of Default or Default has occurred, and until (i) a Responsible
Officer of the Trustee has received an Officers’ Certificate regarding such an occurrence, or (ii) the Trustee has received
written notice at the Corporate Trust Office from the Holders of at least 25% in aggregate principal amount of the Notes then
outstanding regarding such an occurrence, the Trustee is entitled to assume, without liability, that no Event of Default or
Default has occurred.
Section 4.10 Further Instruments and Acts. The Company will execute and deliver such further instruments and do
such further acts as may be reasonably necessary or proper to carry out more effectively the purposes of this Indenture.
ARTICLE 5
LISTS OF HOLDERS AND REPORTS BY THE COMPANY AND THE TRUSTEE
Section 5.01 Lists of Holders. The Company covenants and agrees that it will furnish or cause to be furnished to the
Trustee, semi-annually, not more than 15 days after each March 15 and September 15 in each year beginning with March 15,
2020, and at such other times as the Trustee may request in writing, within 14 days after receipt by the Company of any such
request (or such lesser time as the Trustee may reasonably request in order to enable it to timely provide any notice to be
provided by it hereunder), a list in such form as the Trustee may reasonably require of the names and addresses of the
Holders as of a date not more than 15 days (or such other date as the Trustee may reasonably request in order to so provide
any such notices) prior to the time such information is furnished, except that no such list need be furnished so long as
Citibank, N.A. is acting as Note Registrar.
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Section 5.02 Preservation and Disclosure of Lists. The Trustee shall preserve, in as current a form as is reasonably
practicable, all information as to the names and addresses of the Holders contained in the most recent list furnished to it as
provided in Section 5.01 or maintained by the Trustee in its capacity as Note Registrar, if so acting. The Trustee may
destroy any list furnished to it as provided in Section 5.01 upon receipt of a new list so furnished.
ARTICLE 6
DEFAULTS AND REMEDIES
Section 6.01 Events of Default. The following events shall be “Events of Default” with respect to the Notes:
(a)
default in any payment of interest or Additional Amounts, if any, on any Note when due and payable and the
default continues for a period of 30 days;
(b)
default in the payment of principal of any Note when due and payable on the Maturity Date, upon
redemption, upon any required repurchase, upon declaration of acceleration or otherwise;
(c)
failure by the Company to comply with its obligation to convert the Notes in accordance with this Indenture
upon exercise of a Holder’s conversion right and such failure continues for a period of three Business Days;
(d)
failure by the Company to issue notices in connection with redemption in respect of a Change in Tax Law in
accordance with Section 16.01 or Section 14.03(g), a Company Notice in accordance with Section 15.01(a), a Fundamental
Change Company Notice in accordance with Section 15.02(c) or a notice of a Make-Whole Fundamental Change in
accordance with Section 14.03(a), in each case, when due and such failure continues for a period of five Business Days;
(e)
(f)
failure by the Company to comply with its obligations under Article 11;
failure by the Company for 60 days after written notice from the Trustee or by the Trustee at the request of
the Holders of at least 25% in aggregate principal amount of the Notes then outstanding has been received by the Company
to comply with any of its other agreements contained in the Notes or this Indenture;
(g)
default by the Company or any Significant Subsidiary of the Company with respect to any mortgage,
agreement or other instrument under which there may be outstanding, or by which there may be secured or evidenced, any
indebtedness for money borrowed in excess of US$25 million (or the foreign currency equivalent thereof) in the aggregate
of the Company and/or any such Significant Subsidiary, whether such indebtedness now exists or shall hereafter be created
(i) resulting in such indebtedness becoming or being declared due and payable or (ii) constituting a failure to pay the
principal or interest of any such debt when due and payable at its stated maturity, upon required repurchase, upon
declaration of acceleration or otherwise;
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(h)
a final judgment for the payment of US$25 million (or the foreign currency equivalent thereof) or more
(excluding any amounts covered by insurance) rendered against the Company or any Significant Subsidiary of the Company,
which judgment is not paid, bonded or otherwise discharged or stayed within 60 days after (i) the date on which the right to
appeal thereof has expired if no such appeal has commenced, or (ii) the date on which all rights to appeal have been
extinguished;
(i)
the Company or any Significant Subsidiary shall commence a voluntary case or other proceeding seeking
liquidation, reorganization or other relief with respect to the Company or any such Significant Subsidiary or its debts under
any bankruptcy, insolvency or other similar law now or hereafter in effect or seeking the appointment of a trustee, receiver,
liquidator, custodian or other similar official of the Company or any such Significant Subsidiary or any substantial part of its
property, or shall consent to any such relief or to the appointment of or taking possession by any such official in an
involuntary case or other proceeding commenced against it, or shall make a general assignment for the benefit of creditors,
or shall fail generally to pay its debts as they become due; or
(j)
an involuntary case or other proceeding shall be commenced against the Company or any Significant
Subsidiary seeking liquidation, reorganization or other relief with respect to the Company or such Significant Subsidiary or
its debts under any bankruptcy, insolvency or other similar law now or hereafter in effect or seeking the appointment of a
trustee, receiver, liquidator, custodian or other similar official of the Company or such Significant Subsidiary or any
substantial part of its property, and such involuntary case or other proceeding shall remain undismissed and unstayed for a
period of 30 consecutive days.
Section 6.02 Acceleration; Rescission and Annulment. If one or more Events of Default shall have occurred and be
continuing (whatever the reason for such Event of Default and whether it shall be voluntary or involuntary or be effected by
operation of law or pursuant to any judgment, decree or order of any court or any order, rule or regulation of any
administrative or governmental body), then, and in each and every such case (other than an Event of Default specified in
Section 6.01(i) or Section 6.01(j) with respect to the Company or any of its Significant Subsidiaries), unless the principal of
all of the Notes shall have already become due and payable, the Trustee may by written notice in writing to the Company, or
the Holders of at least 25% in aggregate principal amount of the Notes then outstanding determined in accordance with
Section 8.04, by notice in writing to the Company and to the Trustee may, and the Trustee at the written request of such
Holders shall (subject to being indemnified and/or secured and/or pre-funded to its satisfaction), declare 100% of the
principal of, and accrued and unpaid interest on, all the Notes to be due and payable immediately, and upon any such
declaration the same shall become and shall automatically be immediately due and payable, notwithstanding anything
contained in this Indenture or in the Notes to the contrary. If an Event of Default specified in Section 6.01(i) or Section 6.01
(j) with respect to the Company or any of its Significant Subsidiaries occurs and is continuing, 100% of the principal of, and
accrued and unpaid interest on, all Notes shall become and shall automatically be immediately due and payable without any
action on the part of the Trustee and the Holders. If an Event of Default occurs and is continuing, all agents of the Company
appointed under this Indenture (including the Agents) will be required to act on the direction of the Trustee.
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The immediately preceding paragraph, however, is subject to the conditions that if, at any time after the principal of
the Notes shall have been so declared due and payable, and before any judgment or decree for the payment of the monies
due shall have been obtained or entered as hereinafter provided, the Company shall pay or shall deposit with the Trustee a
sum sufficient to pay installments of accrued and unpaid interest upon all Notes and the principal of any and all Notes that
shall have become due otherwise than by acceleration (with interest on overdue installments of accrued and unpaid interest
to the extent that payment of such interest is enforceable under Applicable Law, and on such principal at the rate per annum
borne by the Notes plus one percent) and amounts due to the Trustee pursuant to Section 7.06, and if (1) rescission would
not conflict with any judgment or decree of a court of competent jurisdiction and (2) any and all existing Events of Default
under this Indenture, other than the nonpayment of the principal of and accrued and unpaid interest on Notes that shall have
become due solely by such acceleration, shall have been cured or waived pursuant to Section 6.09, then and in every such
case (except as provided in the immediately succeeding sentence) the Holders of a majority in aggregate principal amount of
the Notes then outstanding, by written notice to the Company and to the Trustee, may waive all Defaults or Events of
Default with respect to the Notes and rescind and annul such declaration and its consequences and such Default shall cease
to exist, and any Event of Default arising therefrom shall be deemed to have been cured for every purpose of this Indenture;
but no such waiver or rescission and annulment shall extend to or shall affect any subsequent Default or Event of Default, or
shall impair any right consequent thereon. Notwithstanding anything to the contrary herein, no such waiver or rescission
and annulment shall extend to or shall affect any Default or Event of Default resulting from (i) the nonpayment of the
principal of, or accrued and unpaid interest on, any Notes, (ii) a failure to repurchase any Notes when required or (iii) a
failure to pay or deliver, as the case may be, the consideration due upon conversion of the Notes.
Section 6.03 Additional Interest. Notwithstanding anything in this Indenture or in the Notes to the contrary, to the
extent the Company elects, the sole remedy for Event of Default relating to the Company’s failure to comply with its
obligations as set forth in Section 4.06(b) shall after the occurrence of such an Event of Default consist exclusively of the
right to receive Additional Interest on the Notes at a rate equal to:
(a)
0.25% per annum of the principal amount of the Notes outstanding for each day during the period beginning
on, and including, the date on which such an Event of Default first occurs and ending on the earlier of (i) the date on which
such Event of Default is cured or validly waived and (ii) the 180th day immediately following, and including, the date on
which such Event of Default first occurred; and
(b)
if such Event of Default has not been cured or validly waived prior to the 181st day immediately following,
and including, the date on which such Event of Default first occurred, 0.50% per annum of the principal amount of the Notes
outstanding for each day during the period beginning on, and including, the 181st day immediately following, and including,
the date on which such an Event of Default first occurred and ending on the earlier of (i) the date on which such Event of
Default is cured or validly waived and (ii) the 271st day immediately following, and including, the date on which such Event
of Default first occurred.
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Interest payable pursuant to this Section 6.03 shall be in addition to, not in lieu of, any Additional Interest payable
pursuant to Section 4.06(d) or Section 4.06(e). In no event shall Additional Interest accrue on the Notes on any day under
this Indenture (taking any Additional Interest payable pursuant to this Section 6.03 together with any Additional Interest
payable pursuant to Section 4.06(d) and Section 4.06(e)) at an annual rate accruing in excess of 0.50%, in the aggregate, for
any violation or Default caused by the Company’s failure to be current in respect of its Exchange Act reporting
obligations. If the Company so elects, such Additional Interest shall be payable in the same manner and on the same dates
as regular interest on the Notes. On the 271st day after such Event of Default (if the Event of Default with respect to the
Company’s obligations under Section 4.06(b) is not cured or waived prior to such 271st day), the Notes will be subject to
acceleration as provided in Section 6.02. In the event the Company does not elect to pay Additional Interest following an
Event of Default in accordance with this Section 6.03 or the Company elected to make such payment but does not pay the
Additional Interest when due, the Notes shall be subject to acceleration as provided in Section 6.02.
In order to elect to pay Additional Interest as the sole remedy during the first 180 days after the occurrence of any
Event of Default described in the immediately preceding paragraph, the Company must notify in writing all Holders of the
Notes, the Trustee and the Paying Agent of such election prior to the beginning of such 180-day period. Upon the failure to
timely give such notice, the Notes shall be immediately subject to acceleration as provided in Section 6.02.
Section 6.04 Payments of Notes on Default; Suit Therefor. If an Event of Default described in clause (a) or (b) of
Section 6.01 shall have occurred, the Company shall, upon demand of the Trustee acting in its own discretion or at the
request of Holders of at least 25% in aggregate principal amount of the Notes then outstanding determined in accordance
with Section 8.04 and subject to indemnity and/or security and/or pre-funding satisfactory to the Trustee, pay to the Trustee,
for the benefit of the Holders of the Notes, the whole amount then due and payable on the Notes for principal and interest, if
any, with interest on any overdue principal and interest, if any, at the rate per annum borne by the Notes at such time plus
one percent, and, in addition thereto, such further amount as shall be sufficient to cover any amounts due to the Trustee and
the Agents under Section 7.06. If the Company shall fail to pay such amounts forthwith upon such demand, the Trustee, in
its own name and as trustee of an express trust, may institute a judicial proceeding for the collection of the sums so due and
unpaid, may prosecute such proceeding to judgment or final decree and may enforce the same against the Company or any
other obligor upon the Notes and collect the moneys adjudged or decreed to be payable in the manner provided by law out of
the property of the Company or any other obligor upon the Notes, wherever situated.
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In the event there shall be pending proceedings for the bankruptcy or for the reorganization of the Company or any
other obligor on the Notes under Title 11 of the United States Code, or any other Applicable Law, or in case a receiver,
assignee or trustee in bankruptcy or reorganization, liquidator, sequestrator or similar official shall have been appointed for
or taken possession of the Company or such other obligor, the property of the Company or such other obligor, or in the event
of any other judicial proceedings relative to the Company or such other obligor upon the Notes, or to the creditors or
property of the Company or such other obligor, the Trustee, irrespective of whether the principal of the Notes shall then be
due and payable as therein expressed or by declaration or otherwise and irrespective of whether the Trustee shall have made
any demand pursuant to the provisions of this Section 6.04, shall be entitled and empowered, by intervention in such
proceedings or otherwise, to file and prove a claim or claims for the whole amount of principal and accrued and unpaid
interest, if any, in respect of the Notes, and, in case of any judicial proceedings, to file such proofs of claim and other papers
or documents and to take such other actions as it may deem necessary or advisable in order to have the claims of the Trustee
(including any claim for the compensation, properly incurred expenses, properly incurred disbursements and advances of the
Trustee, its agents and counsel) and of the Holders allowed in such judicial proceedings relative to the Company or any
other obligor on the Notes, its or their creditors, or its or their property, and to collect and receive any monies or other
property payable or deliverable on any such claims, and to distribute the same after the deduction of any amounts due to the
Trustee under Section 7.06; and any receiver, assignee or trustee in bankruptcy or reorganization, liquidator, custodian or
similar official is hereby authorized by each of the Holders to make such payments to the Trustee, as administrative
expenses, and, in the event that the Trustee shall consent to the making of such payments directly to the Holders, to pay to
the Trustee any amount due to it for compensation, properly incurred expenses, advances and properly incurred
disbursements, including agents and counsel fees and expenses, and including any other amounts due to the Trustee under
Section 7.06, incurred by it up to the date of such distribution. To the extent that such payment of compensation, properly
incurred expenses, advances and properly incurred disbursements out of the estate in any such proceedings shall be denied
for any reason, payment of the same shall be secured by a lien on, and shall be paid out of, any and all distributions,
dividends, monies, securities and other property that the Holders of the Notes may be entitled to receive in such proceedings,
whether in liquidation or under any plan of reorganization or arrangement or otherwise.
Nothing herein contained shall be deemed to authorize the Trustee to authorize or consent to or accept or adopt on
behalf of any Holder any plan of reorganization, arrangement, adjustment or composition affecting such Holder or the rights
of any Holder thereof, or to authorize the Trustee to vote in respect of the claim of any Holder in any such proceeding.
All rights of action and of asserting claims under this Indenture, or under any of the Notes, may be enforced by the
Trustee without the possession of any of the Notes, or the production thereof at any trial or other proceeding relative thereto,
and any such suit or proceeding instituted by the Trustee shall be brought in its own name or as trustee of an express trust,
and any recovery of judgment shall, after provision for the payment of the compensation, properly incurred expenses,
properly incurred disbursements and advances of the Trustee, its agents and counsel, be for the ratable benefit of the Holders
of the Notes.
In any proceedings brought by the Trustee (and in any proceedings involving the interpretation of any provision of
this Indenture to which the Trustee shall be a party) the Trustee shall be held to represent all the Holders of the Notes, and it
shall not be necessary to make any Holders of the Notes parties to any such proceedings.
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In case the Trustee shall have proceeded to enforce any right under this Indenture and such proceedings shall have
been discontinued or abandoned because of any waiver pursuant to Section 6.09 or any rescission and annulment pursuant to
Section 6.02 or for any other reason or shall have been determined adversely to the Trustee, then and in every such case the
Company, the Holders, and the Trustee shall, subject to any determination in such proceeding, be restored respectively to
their several positions and rights hereunder, and all rights, remedies and powers of the Company, the Holders, and the
Trustee shall continue as though no such proceeding had been instituted.
Section 6.05 Application of Monies Collected by Trustee. Any monies collected by the Trustee pursuant to this
Article 6 with respect to the Notes shall be applied in the following order, at the date or dates fixed by the Trustee for the
distribution of such monies, upon presentation of the several Notes, and stamping thereon the payment, if only partially paid,
and upon surrender thereof, if fully paid:
First, to the payment of all amounts due to the Trustee, including to its agents and counsel, under Section 7.06,
including indemnity payments, and all fees, costs and expenses due to the Paying Agent, the Transfer Agent, the Conversion
Agent and the Note Registrar;
Second, in case the principal of the outstanding Notes shall not have become due and be unpaid, to the payment of
interest on, the Notes in default in the order of the date due of the payments of such interest, with interest (to the extent that
such interest has been collected by the Trustee) upon such overdue payments at the rate per annum borne by the Notes at
such time (including, without duplication, any additional interest on such overdue payments pursuant to Section 6.04), such
payments to be made ratably to the Persons entitled thereto;
Third, in case the principal of the outstanding Notes shall have become due, by declaration or otherwise, and be
unpaid to the payment of the whole amount (including, if applicable, the payment of the Redemption Price, Repurchase
Price or Fundamental Change Repurchase Price and any cash due upon conversion) then owing and unpaid upon the Notes
for principal and interest, if any, with interest on the overdue principal and, to the extent that such interest has been collected
by the Trustee, upon overdue installments of interest at the rate per annum borne by the Notes at such time plus one percent,
and in case such monies shall be insufficient to pay in full the whole amounts so due and unpaid upon the Notes, then to the
payment of such principal (including, if applicable, the Redemption Price, Repurchase Price or Fundamental Change
Repurchase Price and the cash due upon conversion) and interest without preference or priority of principal over interest, or
of interest over principal or of any installment of interest over any other installment of interest, or of any Note over any other
Note, ratably to the aggregate of such principal (including, if applicable, the Redemption Price, Repurchase Price or
Fundamental Change Repurchase Price) and accrued and unpaid interest; and
Fourth, to the payment of the remainder, if any, to the Company.
Section 6.06 Proceedings by Holders. Except to enforce the right to receive payment of principal (including, if
applicable, the Redemption Price, the Repurchase Price or Fundamental Change Repurchase Price) or interest when due, or
the right to receive payment or delivery of the consideration due upon conversion, no Holder of any Note shall have any
right by virtue of or by availing of any provision of this Indenture to institute any suit, action or proceeding in equity or at
law upon or under or with respect to this Indenture, or for the appointment of a receiver, trustee, liquidator, custodian or
other similar official, or for any other remedy hereunder, unless:
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(a)
such Holder previously shall have given to the Trustee written notice of an Event of Default and of the
continuance thereof, as herein provided;
(b)
Holders of at least 25% in aggregate principal amount of the Notes then outstanding shall have made written
request upon the Trustee to institute such action, suit or proceeding in its own name as Trustee hereunder;
(c)
such Holders shall have offered, and if requested, provided, to the Trustee security and/or indemnity and/or
pre-funding satisfactory to it against any loss, liability or expense to be incurred therein or thereby;
(d)
the Trustee has not complied with such request for 60 days after its receipt of such notice, request and offer
of security and/or indemnity and/or pre-funding; and
(e)
no written direction that, in the opinion of the Trustee, is inconsistent with such written request shall have
been given to the Trustee by the Holders of a majority of the aggregate principal amount of the Notes then outstanding
within such 60-day period pursuant to Section 6.09,
it being understood and intended, and being expressly covenanted by the taker and Holder of every Note with every other
taker and Holder and the Trustee that no one or more Holders shall have any right in any manner whatever by virtue of or by
availing of any provision of this Indenture to affect, disturb or prejudice the rights of any other Holder, or to obtain or seek
to obtain priority over or preference to any other such Holder, or to enforce any right under this Indenture, except in the
manner herein provided and for the equal, ratable and common benefit of all Holders (except as otherwise provided herein),
it being understood that the Trustee does not have an affirmative duty to ascertain whether or not any actions or forbearances
by a Holder are prejudicial to any other Holders. For the protection and enforcement of this Section 6.06, each and every
Holder and the Trustee shall be entitled to such relief as can be given either at law or in equity.
Notwithstanding any other provision of this Indenture and any provision of any Note, the right of any Holder to
receive payment or delivery, as the case may be, of (x) the principal (including the Redemption Price, the Repurchase Price
and the Fundamental Change Repurchase Price, if applicable) of, (y) accrued and unpaid interest on, and (z) the
consideration due upon conversion of, such Note, on or after the respective due dates expressed or provided for in such Note
or in this Indenture, or to institute suit for the enforcement of any such payment or delivery, as the case may be, on or after
such respective dates against the Company shall not be impaired or affected without the consent of such Holder.
Section 6.07 Proceedings by Trustee. In case of an Event of Default, the Trustee may in its discretion proceed to
protect and enforce the rights vested in it by this Indenture by such appropriate judicial proceedings as are necessary to
protect and enforce any of such rights, either by suit in equity or by action at law or by proceeding in bankruptcy or
otherwise, whether for the specific enforcement of any covenant or agreement contained in this Indenture or in aid of the
exercise of any power granted in this Indenture, or to enforce any other legal or equitable right vested in the Trustee by this
Indenture or by law.
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Section 6.08 Remedies Cumulative and Continuing. Except as provided in the last paragraph of Section 2.06, all
powers and remedies given by this Article 6 to the Trustee or to the Holders shall, to the extent permitted by law, be deemed
cumulative and not exclusive of any thereof or of any other powers and remedies available to the Trustee or the Holders of
the Notes, by judicial proceedings or otherwise, to enforce the performance or observance of the covenants and agreements
contained in this Indenture, and no delay or omission of the Trustee or of any Holder of any of the Notes to exercise any
right or power accruing upon any Default or Event of Default shall impair any such right or power, or shall be construed to
be a waiver of any such Default or Event of Default or any acquiescence therein; and, subject to the provisions of Section
6.06, every power and remedy given by this Article 6 or by law to the Trustee or to the Holders may be exercised from time
to time, and as often as shall be deemed expedient, by the Trustee or by the Holders.
Section 6.09 Direction of Proceedings and Waiver of Defaults by Majority of Holders. The Holders of a majority of
the aggregate principal amount of the Notes at the time outstanding determined in accordance with Section 8.04 shall have
the right to direct the time, method and place of conducting any proceeding for any remedy available to the Trustee or
exercising any trust or power conferred on the Trustee with respect to Notes; provided, however, that (a) such direction shall
not be in conflict with any rule of law or with this Indenture, and (b) the Trustee may take any other action deemed proper
by the Trustee that is not inconsistent with such direction, and (c) subject to Section 7, the Trustee will be under no
obligation to exercise any of the rights or powers under this Indenture at the request or direction of any of the Holders unless
such Holders have offered to, and if requested, provided the Trustee security and/or prefunding and/or indemnity satisfactory
to the Trustee against any loss, liability or expense that might be incurred by it in compliance with such request or
direction. The Trustee may refuse to follow any direction that would involve the Trustee in personal liability, or if it is not
provided with security and/or indemnity and/or pre-funding to its satisfaction, or that the Trustee determines is unduly
prejudicial to the rights of any other Holder (it being understood, subject to Section 7, that the Trustee does not have an
affirmative duty to ascertain whether or not any such directions are unduly prejudicial to any other Holder). In addition, the
Trustee will not be required to expend its own funds under any circumstances. The Holders of a majority in aggregate
principal amount of the Notes at the time outstanding determined in accordance with Section 8.04 may on behalf of the
Holders of all of the Notes (x) waive any past Default or Event of Default hereunder and its consequences except (i) a
default in the payment of accrued and unpaid interest on, or the principal (including, if applicable, the Redemption Price,
Repurchase Price or Fundamental Change Repurchase Price) of, the Notes when due that has not been cured pursuant to the
provisions of Section 6.02, (ii) a failure by the Company to pay or deliver, or cause to be delivered, as the case may be, the
consideration due upon conversion of the Notes or (iii) a default in respect of a covenant or provision hereof which under
Article 10 cannot be modified or amended without the consent of each Holder of an outstanding Note affected; and (y)
rescind any resulting acceleration of the Notes and its consequences if (i) the Trustee has been paid all amounts owing to the
Trustee under Section 7.06 hereunder, (ii) such rescission would not conflict with any judgment or decree of a court of
competent jurisdiction and (iii) all existing Events of Default (other than nonpayment of the principal of, and interest on, the
Notes that have become due solely by such acceleration) have been cured or waived. Upon any such waiver the Company,
the Trustee and the Holders of the Notes shall be restored to their former positions and rights hereunder; but no such waiver
shall extend to any subsequent or other Default or Event of Default or impair any right consequent thereon. Whenever any
Default or Event of Default hereunder shall have been waived as permitted by this Section 6.09, said Default or Event of
Default shall for all purposes of the Notes and this Indenture be deemed to have been cured and to be not continuing; but no
such waiver shall extend to any subsequent or other Default or Event of Default or impair any right consequent thereon.
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Section 6.10 Notice of Defaults and Events of Default. If a Default or Event of Default occurs and is continuing and
is notified in writing to the Trustee, the Trustee shall, within 90 days after the occurrence and continuance of such Default or
Event of Default or, if later, within 15 days after written notice thereof is provided to the Trustee, mail to all Holders (at the
Company’s expense) as the names and addresses of such Holders appear upon the Note Register, notice of all Defaults so
notified in writing, unless such Defaults shall have been cured or waived before the giving of such notice; provided that the
Trustee shall not be deemed to have knowledge of any occurrence of a Default or Event of Default unless it has received
written notice thereof, with a reference to this Indenture. Except in the case of a Default in the payment of the principal of
(including the Redemption Price, the Repurchase Price and the Fundamental Change Repurchase Price, if applicable), or
accrued and unpaid interest on, any of the Notes or a Default in the payment or delivery of the consideration due upon
conversion, the Trustee shall be protected in withholding such notice if and so long as the Trustee (in its sole discretion) in
good faith determines that the withholding of such notice is in the interests of the Holders.
Section 6.11 Undertaking to Pay Costs. All parties to this Indenture agree, and each Holder of any Note by its
acceptance thereof shall be deemed to have agreed, that any court may, in its discretion, require, in any suit for the
enforcement of any right or remedy under this Indenture, or in any suit against the Trustee for any action taken or omitted by
it as Trustee, the filing by any party litigant in such suit of an undertaking to pay the costs of such suit and that such court
may in its discretion assess costs, including attorneys’ fees and expenses, against any party litigant in such suit, having due
regard to the merits and good faith of the claims or defenses made by such party litigant; provided that the provisions of this
Section 6.11 (to the extent permitted by law) shall not apply to any suit instituted by or against the Trustee, to any suit
instituted by any Holder, or group of Holders, holding in the aggregate more than 10% in principal amount of the Notes at
the time outstanding determined in accordance with Section 8.04, or to any suit instituted by any Holder for the enforcement
of the payment of the principal of or accrued and unpaid interest on any Note (including, but not limited to, the Redemption
Price and the Repurchase Price and Fundamental Change Repurchase Price with respect to the Notes being repurchased as
provided in this Indenture) on or after the due date expressed or provided for in such Note or to any suit for the enforcement
of the right to convert any Note in accordance with the provisions of Article 14.
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ARTICLE 7
CONCERNING THE TRUSTEE
Section 7.01 Duties and Responsibilities of Trustee. The Trustee, prior to the occurrence of an Event of Default and
after the curing or waiver of all Events of Default that may have occurred, undertakes to perform such duties and only such
duties as are specifically set forth in this Indenture and no implied covenants or obligations will be read into the Indenture
against the Trustee. In case an Event of Default, of which the Trustee has actual written notice, has occurred that has not
been cured or waived the Trustee shall exercise such of the rights and powers vested in it by this Indenture, and use the same
degree of care and skill in its exercise, as a prudent person would exercise or use under the circumstances in the conduct of
such person’s own affairs; provided that if an Event of Default occurs and is continuing, the Trustee will be under no
obligation to exercise any of the rights or powers under this Indenture at the request or direction of any of the Holders unless
such Holders have offered, and if requested, provided, to the Trustee indemnity and/or security and/or pre-funding
satisfactory to it against any cost, loss, liability or expense that might be incurred by it in compliance with such request or
direction. The Trustee shall not be deemed to have knowledge of any Default or Event of Default unless it has received an
actual written notice thereof.
No provision of this Indenture shall be construed to relieve the Trustee from liability for its own grossly negligent
action, its own grossly negligent failure to act or its own willful misconduct, except that:
(a)
prior to the occurrence of an Event of Default and after the curing or waiving of all Events of Default that
may have occurred:
(i)
the duties and obligations of the Trustee shall be determined solely by the express provisions of this
Indenture, and the Trustee shall not be liable except for the performance of such duties and obligations as are
specifically set forth in this Indenture and no implied covenants or obligations shall be read into this Indenture
against the Trustee; and
(ii)
in the absence of gross negligence and willful misconduct on the part of the Trustee, as proven in a
non-appealable decision of a court of competent jurisdiction, the Trustee may conclusively and without liability rely,
as to the truth of the statements and the correctness of the opinions expressed therein, upon any certificates or
opinions furnished to the Trustee and conforming to the requirements of this Indenture; but, in the case of any such
certificates or opinions that by any provisions hereof are specifically required to be furnished to the Trustee, the
Trustee shall be under a duty to examine the same to determine whether or not they conform to the requirements of
this Indenture (but need not confirm or investigate the accuracy of any mathematical calculations or other facts,
statements, opinions or conclusions stated therein);
(b)
the Trustee shall not be liable for any error of judgment made in good faith by a Responsible Officer or
Responsible Officers of the Trustee, unless it shall be proved in a non-appealable decision in a court of competent
jurisdiction that the Trustee was grossly negligent in ascertaining the pertinent facts;
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(c)
the Trustee shall not be liable with respect to any action taken or omitted to be taken by it in good faith in
accordance with the written direction of the Holders of not less than a majority of the aggregate principal amount of the
Notes at the time outstanding determined as provided in Section 8.04 relating to the time, method and place of conducting
any proceeding for any remedy available to the Trustee, or exercising any trust or power conferred upon the Trustee, under
this Indenture;
(d)
whether or not therein provided, every provision of this Indenture relating to the conduct or affecting the
liability of, or affording protection to, the Trustee shall be subject to the provisions of this Section;
(e)
the Trustee shall not be liable in respect of any payment (as to the correctness of amount, entitlement to
receive or any other matters relating to payment) or notice effected by the Company or any Paying Agent or any records
maintained by any Note Registrar with respect to the Notes;
(f)
if any party fails to deliver a notice relating to an event the fact of which, pursuant to this Indenture, requires
notice to be sent to the Trustee, the Trustee may conclusively and without liability rely on its failure to receive such notice as
reason to act as if no such event occurred;
(g)
(h)
[RESERVED];
the rights, immunities, privileges, disclaimers from liability and protections (including the right to
compensation and indemnity) afforded to the Trustee pursuant to this Article 7 shall also be afforded to the Agents and other
Person employed to act hereunder;
(i)
the Trustee shall have no duty to inquire, no duty to determine and no duty to monitor as to the performance
of the Company’s covenants in this Indenture or the financial performance of the Company; the Trustee shall be entitled to
assume, until it has received written notice in accordance with this Indenture, that the Company is properly performing its
duties hereunder;
(j)
notwithstanding any other provision of this Indenture, the Trustee and the Paying Agent shall be entitled to
make a deduction or withholding from any payment which it makes under the Notes for or on account of any Tax, if and
only to the extent so required by Applicable Law, in which event the Trustee and the Paying Agent shall make such payment
after such deduction or withholding has been made and shall account to the relevant Authority within the time allowed for
the amount so deducted or withheld;
(k)
the Trustee will be under no obligation to exercise any of its rights or powers under this Indenture at the
request or direction of any of the Holders unless such Holders have offered, and if requested, provided, to the Trustee
indemnity and/or security and/or pre-funding satisfactory to it against any costs, expenses and liabilities that might be
incurred by it in compliance with such requests or direction.
(l)
before the Trustee or any Agent acts or refrains from acting, it may require an Officers’ Certificate or an
Opinion of Counsel prepared and delivered at the cost of the Company conforming to Section 17.06 and the Trustee and the
Agents may rely conclusively on such certificate or opinion and will not be liable for any action it takes or omits to take in
good faith in reliance on such Officers’ Certificate or Opinion of Counsel;
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(m)
in connection with the exercise by it of its trusts, powers, authorities or discretions (including, without
limitation, any modification, waiver, authorization or determination), the Trustee shall have regard to the general interests of
the Holders as a class but shall not have regard to any interests arising from circumstances particular to individual Holders
(whatever their number) and in particular, but without limitation, shall not have regard to the consequences of the exercise of
its trusts, powers, authorities or discretions for individual Holders (whatever their number) resulting from their being for any
purpose domiciled or resident in, or otherwise connected with, or subject to the jurisdiction of, any country, state or territory;
and
(n)
the Trustee is not obliged to do or omit to do anything which in its reasonable opinion, would or may be
illegal or would constitute a breach of any fiduciary duty or duty of confidentiality, or any law, rule, regulation, or any
decree, order or judgment of any court, or practice, request, direction, notice, announcement or similar action (whether or
not having the force of law) of any relevant government, government agency, regulatory authority, stock exchange or self-
regulatory organization to which the Trustee is subject. The Trustee may without liability do anything which is, in its
reasonable opinion, necessary to comply with any such law, directive or regulations.
(o)
None of the provisions contained in this Indenture shall require the Trustee to expend or risk its own funds or
otherwise incur personal financial liability in the performance of any of its duties or in the exercise of any of its rights or
powers.
Section 7.02 Reliance on Documents, Opinions, Etc. Except as otherwise provided in Section 7.01:
(a)
the Trustee and the Agents may conclusively and without liability rely and shall be fully protected in acting
upon any resolution, certificate, statement, instrument, opinion, report, notice, request, consent, order, bond, Note, coupon or
other paper or document (whether in its original or facsimile form) believed by it in good faith to be genuine and to have
been signed or presented by the proper party or parties;
(b)
any request, direction, order or demand of the Company mentioned herein shall be sufficiently evidenced by
an Officers’ Certificate (unless other evidence in respect thereof be herein specifically prescribed); and any Board
Resolution may be evidenced to the Trustee by a copy thereof certified by the Secretary or an Assistant Secretary of the
Company;
(c)
the Trustee and the Agents may consult with counsel of their selection and require an Opinion of Counsel
and any advice of such counsel or Opinion of Counsel shall be full and complete authorization and protection in respect of
any action taken or omitted by it hereunder in good faith and in accordance with such advice or Opinion of Counsel;
(d)
the Trustee shall not be bound to make any investigation into the facts or matters stated in any resolution,
certificate, statement, instrument, opinion, report, notice, request, direction, consent, order, bond, debenture or other paper or
document, but the Trustee, in its discretion, may make such further inquiry or investigation into such facts or matters as it
may see fit, and, if the Trustee shall determine to make such further inquiry or investigation, it shall be entitled to examine
the books, records and premises of the Company, personally or by agent or attorney at the expense of the Company and shall
incur no liability of any kind by reason of such inquiry or investigation;
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(e)
the Trustee may execute any of the trusts or powers hereunder or perform any duties hereunder either directly
or by or through agents, delegates, custodians, nominees or attorneys and the Trustee shall not be responsible for any
misconduct or negligence on the part of any agent, delegate, representative, custodian, nominee or attorney appointed by it
with due care hereunder;
(f)
(g)
the permissive rights of the Trustee enumerated herein shall not be construed as duties;
under no circumstances and notwithstanding any contrary provision included herein, neither the Trustee, the
Paying Agent, the Conversion Agent, the Transfer Agent nor the Note Registrar shall be responsible or liable for special,
indirect, punitive, or consequential damages or loss of any kind whatsoever (including, but not limited to, loss of profit)
whether or not foreseeable and irrespective of whether any of them have been advised of the likelihood of such loss or
damage and regardless of the form of action; this provision shall remain in full force and effect notwithstanding the
discharge of the Notes, the termination of this Indenture or the resignation, replacement or removal of the Trustee, the
Paying Agent, the Conversion Agent, the Transfer Agent and the Note Registrar;
(h)
the Trustee, the Paying Agent, the Conversion Agent, the Transfer Agent and the Note Registrar may refrain
from taking any action in any jurisdiction if the taking of such action in that jurisdiction would, in its opinion based upon
legal advice in the relevant jurisdiction, be contrary to any law of that jurisdiction or, to the extent applicable, of Hong Kong
or New York; furthermore, the Trustee may also refrain from taking such action if it would otherwise render it liable to any
person in that jurisdiction, Hong Kong or New York or if, in its opinion based on such legal advice, it would not have the
power to do the relevant thing in that jurisdiction by virtue of any Applicable Law in that jurisdiction or in New York or if it
is determined by any court or other competent Authority in that jurisdiction that it does not have such power;
(i)
the Trustee shall not be required to give any bond or surety in respect of the execution of the trusts, and/or
performance of its powers and duties hereunder;
(j)
the Trustee may request that the Company deliver Officers’ Certificates setting forth the names of individuals
and their titles and specimen signatures of officers authorized at such time to take specified actions pursuant to this
Indenture, which Officers’ Certificates may be signed by any Person authorized to sign an Officers’ Certificate, as the case
may be, including any Person specified as so authorized in any such certificate previously delivered and not superseded;
(k)
the Trustee shall not be responsible or liable for any action it takes or omits to take in good faith which it
reasonably believes to be authorized or within its rights or powers;
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(l)
neither the Trustee nor any of its directors, officers, employees, agents or affiliates shall be responsible for
nor have any duty to monitor the performance or any action of the Company, or any of their respective directors, members,
officers, agents, affiliates or employee, nor shall it have any liability in connection with the malfeasance or nonfeasance by
such party. The Trustee shall not be responsible for any inaccuracy in the information obtained from the Company or for any
inaccuracy or omission in the records which may result from such information or any failure by the Trustee to perform its
duties as set forth herein as a result of any inaccuracy or incompleteness of such information;
(m)
neither the Trustee nor any Agent thereof shall have any responsibility or liability for any actions taken or
not taken by the Depositary;
(n)
The Company understands that Citigroup and its subsidiaries are a global financial organization that operates
in and provides services and products to clients through affiliates and subsidiaries located in multiple jurisdictions (such
global financial organization, the "Citi Group"). The Company also understands that the Citi Group may centralize in one
or more affiliates, subsidiaries or unaffiliated service providers certain activities, including audit, accounting, administration,
risk management, legal, compliance, sales, marketing, relationship management, and the storage, maintenance, aggregation,
processing and analysis of information and data regarding the Company. Consequently, the Company hereby consents and
authorizes the Trustee to disclose to other members of the Citi Group (and their respective officers, directors and employees)
and third parties selected by any of them, wherever situated, information and data regarding the Company, its employees and
representatives, and any accounts established pursuant to this Indenture and the Notes in connection with the foregoing
activities. To the extent that information and data includes personal data encompassed by relevant data protection legislation
applicable to the Company, the Company represents and warrants that it is authorized to provide the foregoing consents and
authorizations and that the disclosure to the Trustee will comply with the relevant data protection legislation. The Company
acknowledges and agrees that information concerning it may be disclosed to unaffiliated service providers who are required
to maintain the confidentiality of such information, to governmental and regulatory authorities in jurisdictions where the Citi
Group operates, and otherwise as required by law;
(o)
The Company hereby irrevocably waives, in favor of the Trustee, any conflict of interest which may arise by
virtue of the Trustee acting in various capacities under this Indenture or for other customers of the Trustee. The Company
acknowledges that the Trustee and its respective affiliates (together, the “Trustee Parties”) may have interests in, or may be
providing or may in the future provide financial or other services to other parties with interests which the Company may
regard as conflicting with its interests and may possess information (whether or not material to the Company) other than as a
result of the Trustee acting as trustee hereunder, that the Trustee may not be entitled to share with the Company. The Trustee
will not disclose confidential information obtained from the Company (without its consent) to any of the Trustee's other
customers nor will it use on the Company's behalf any confidential information obtained from any other customer. Without
prejudice to the foregoing, the Company agrees that the Trustee Parties may deal (whether for its own or its customers’
account) in, or advise on, securities of any party and that such dealing or giving of advice, will not constitute a conflict of
interest for the purposes of this Indenture; and
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(p)
The statutory duty of care set out in Section 3A of the Trustee Ordinance (Cap. 29) of Hong Kong, as
amended by the Trust Law (Amendment) Ordinance 2013, shall not apply to the duties of the Trustee in relation to this
Indenture.
Section 7.03 No Responsibility for Recitals, Etc. The recitals, statements, warranties and representations contained
herein and in the Notes (except in the Trustee’s certificate of authentication) shall be taken as the statements of the
Company, and the Trustee and the Agents assume no responsibility for the correctness of the same. The Trustee makes no
representations as to the accuracy or correctness of the same or for any failure by the Company or any other party to disclose
events that may have occurred and may affect the significance or accuracy of such information, or the execution, legality,
effectiveness, adequacy, genuineness, validity, enforceability or admissibility in evidence of this Indenture or of the
Notes. The Trustee shall not be accountable for the use or application by the Company of any Notes or the proceeds of any
Notes authenticated and delivered by the Trustee in conformity with the provisions of this Indenture. Notwithstanding the
generality of the foregoing, each Holder shall be solely responsible for making its own independent appraisal of, and
investigation into, the financial condition, creditworthiness, condition, affairs, status and nature of the Company, and the
Trustee shall not at any time have any responsibility for the same and each Holder shall not rely on the Trustee in respect
thereof.
Section 7.04 Trustee, Paying Agent, Transfer Agent, Conversion Agent or Note Registrar May Own Notes. The
Trustee, any Paying Agent, any Transfer Agent, any Conversion Agent or Note Registrar, in its individual or any other
capacity, may engage in business and contractual relationships with the Company or its Affiliates and may become the
owner or pledgee of Notes with the same rights it would have if it were not the Trustee, Paying Agent, Transfer Agent,
Conversion Agent or Note Registrar, and nothing herein shall obligate any of them to account for any profits earned from
any business or transactional relationship.
Section 7.05 Monies to Be Held in Trust. All monies received by the Trustee shall, until used or applied as herein
provided, be held in trust for the purposes for which they were received. Money held by the Trustee in trust or by the Paying
Agent hereunder need not be segregated from other funds except to the extent required by law. Neither the Trustee nor the
Paying Agent shall be under any liability for interest on any money received by it hereunder.
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Section 7.06 Compensation and Expenses of Trustee. (a) The Company covenants and agrees to pay to the Trustee
from time to time, and the Trustee shall be entitled to, compensation for all services rendered by it hereunder in any capacity
(which shall not be limited by any provision of law in regard to the compensation of a trustee of an express trust) as
mutually agreed to in writing between the Trustee and the Company (which sum shall be paid free and clear of deduction
and withholding on account of taxation, set-off and counterclaim), and the Company will pay or reimburse the Trustee upon
its request for all expenses, disbursements and advances properly incurred or made by the Trustee in accordance with any of
the provisions of this Indenture in any capacity thereunder (including the compensation and the properly incurred expenses
and disbursements of its agents and counsel and of all Persons not regularly in its employ) except any such expense,
disbursement or advance as shall have been caused by its gross negligence or willful misconduct as proven in a non-
appealable decision in a court of competent jurisdiction. The Company also covenants to indemnify the Trustee (which for
the purposes of this Section 7.06 shall be deemed to include its officers, directors, agents, counsel, employees, successors
and assigns) in any capacity under this Indenture (including without limitation as Note Registrar, Transfer Agent,
Conversion Agent and Paying Agent) and any other document or transaction entered into in connection herewith, and to
hold it harmless against, any loss, claim, damage, liability or expense (whether arising from third party claims or claims by
or against the Company) incurred without gross negligence or willful misconduct on the part of the Trustee, its officers,
directors, agents, counsel, employees, successors or assigns, as the case may be, as proven in a non-appealable decision of a
court of competent jurisdiction, and arising out of or in connection with the acceptance or administration of this Indenture or
in any other capacity hereunder, including the costs and expenses of defending themselves against any claim of liability
(including, without limitation, any and all properly incurred attorney’s fees and expenses) in the process of enforcing this
indemnity. The obligations of the Company under this Section 7.06 to compensate or indemnify the Trustee and to pay or
reimburse the Trustee for expenses, disbursements and advances shall be secured by a senior claim to which the Notes are
hereby made subordinate on all money or property held or collected by the Trustee, except, subject to the effect of Section
6.05, funds held in trust herewith for the benefit of the Holders of particular Notes. The Trustee’s right to receive payment
of any amounts due under this Section 7.06 shall not be subordinate to any other liability or indebtedness of the Company
and to secure the Company’s payment obligations under this Section 7.06, the Trustee shall have a lien prior to the Notes on
all money or property held or collected by the Trustee, in its capacity as the Trustee, other than money or property held in
trust to pay principal of and interest, if any, on particular Notes. The indemnity under this Section 7.06(a) is payable upon
demand by the Trustee. The obligation of the Company under this Section 7.06(a) shall survive the satisfaction and
discharge of the Notes, the termination or discharge of this Indenture and the resignation, replacement or removal or the
Trustee. The indemnification provided in this Section 7.06(a) shall extend to the officers, directors, agents, counsel and
employees of the Trustee and any successor Trustee hereunder. Subject to Section 7.02(e), any gross negligence or willful
misconduct of any agent, delegate, attorney or representative, in each case, of the Trustee, shall not affect indemnification of
the Trustee.
Without prejudice to any other rights available to the Trustee under Applicable Law, when the Trustee and its agents
incur expenses or render services after an Event of Default specified in Section 6.01(i) or Section 6.01(j) occurs, the
expenses and the compensation for the services are intended to constitute expenses of administration under any bankruptcy,
insolvency or similar laws. If a Default or Event of Default shall have occurred or if the Trustee finds it expedient or
necessary or is requested by the Company and/or the Holders to undertake duties which are of an exceptional nature or
otherwise outside the scope of the Trustee’s normal duties under this Indenture, the Company will pay such additional
remuneration as the Company and the Trustee may separately agree in writing.
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The obligations of the Company under this paragraph (a) shall survive the payment of the Notes, the termination or
discharge of the Indenture and the resignation, replacement or removal of the Trustee, the Paying Agent, the Conversion
Agent and the Note Registrar.
(b)
The Paying Agent, the Conversion Agent, the Transfer Agent and the Note Registrar shall be entitled to the
compensation to be agreed upon in writing with the Company for all services rendered by it under this Indenture, and the
Company agrees promptly to pay such compensation and to reimburse the Paying Agent, the Conversion Agent, the Transfer
Agent and the Note Registrar for its out-of-pocket expenses (including fees and expenses of counsel) properly incurred by it
in connection with the services rendered by it under this Indenture. The Company hereby agrees to indemnify the Paying
Agent, the Conversion Agent, the Transfer Agent and the Note Registrar and their respective officers, directors, agents and
employees and any successors thereto for, and to hold it harmless against, any loss, liability or expense (including fees and
expenses of counsel) properly incurred without gross negligence or willful misconduct on its part arising out of or in
connection with its acting as the Paying Agent, the Conversion Agent, the Transfer Agent and the Note Registrar. The
obligations of the Company under this paragraph (b) shall survive the payment of the Notes, the termination or discharge of
the Indenture and the resignation, replacement or removal of the Paying Agent, the Conversion Agent, the Transfer Agent
and the Note Registrar. For the avoidance of doubt, in the event of any repurchase, the Company shall pay the Paying Agent
additional compensation (to be agreed between the Company and the Paying Agent) for performing duties in respect of any
repurchase where it is acting in a capacity similar to a tender agent.
Section 7.07 Officers’ Certificate as Evidence. Except as otherwise provided in Section 7.01, whenever in the
administration of the provisions of this Indenture the Trustee shall deem it necessary or desirable that a matter be proved or
established prior to taking or omitting any action hereunder, such matter (unless other evidence in respect thereof be herein
specifically prescribed) may be deemed to be conclusively proved and established by an Officers’ Certificate delivered to
the Trustee, and such Officers’ Certificate shall be full warrant to the Trustee for any action taken or omitted by it under the
provisions of this Indenture upon the faith thereof.
Section 7.08 Eligibility of Trustee. There shall at all times be a Trustee hereunder which shall be a Person that is
eligible pursuant to the Trust Indenture Act to act as such and has a combined capital and surplus of at least
US$50,000,000. If such Person publishes reports of condition at least annually, pursuant to law or to the requirements of
any supervising or examining Authority, then for the purposes of this Section, the combined capital and surplus of such
Person shall be deemed to be its combined capital and surplus as set forth in its most recent report of condition so
published. If at any time the Trustee shall cease to be eligible in accordance with the provisions of this Section, it shall
resign immediately in the manner and with the effect hereinafter specified in this Article.
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Section 7.09 Resignation or Removal of Trustee. (a) The Trustee may at any time resign by giving 30 days written
notice of such resignation to the Company and by mailing notice thereof to the Holders at their addresses as they shall
appear on the Note Register. Upon receiving such notice of resignation, the Company shall promptly appoint a successor
trustee by written instrument, in duplicate, executed by order of the Board of Directors, one copy of which instrument shall
be delivered to the resigning Trustee and one copy to the successor trustee. If no successor trustee shall have been so
appointed and have accepted appointment within 30 days after the mailing of such notice of resignation to the Holders, the
resigning Trustee may, (i) at the expense of the Company, appoint a successor trustee; and/or (ii) at the expense of the
Company, upon ten Business Days’ notice to the Company and the Holders, petition any court of competent jurisdiction for
the appointment of a successor trustee, or any Holder who has been a bona fide holder of a Note or Notes for at least six
months (or since the date of this Indenture) may, subject to the provisions of Section 6.11, on behalf of himself or herself
and all others similarly situated, petition any such court for the appointment of a successor trustee. Such court may
thereupon, after such notice, if any, as it may deem proper and prescribe, appoint a successor trustee.
(b)
In case at any time any of the following shall occur:
(i)
the Trustee shall cease to be eligible in accordance with the provisions of Section 7.08 and shall fail to
resign after written request therefor by the Company or by any such Holder, or
(ii)
the Trustee shall become incapable of acting, or shall be adjudged a bankrupt or insolvent, or a
receiver of the Trustee or of its property shall be appointed, or any public officer shall take charge or control of the
Trustee or of its property or affairs for the purpose of rehabilitation, conservation or liquidation,
then, in either case, the Company may by a Board Resolution remove the Trustee and appoint a successor trustee by written
instrument, in duplicate, executed by order of the Board of Directors, one copy of which instrument shall be delivered to the
Trustee so removed and one copy to the successor trustee, or, subject to the provisions of Section 6.11, any Holder who has
been a bona fide holder of a Note or Notes for at least six months (or since the date of this Indenture) may, on behalf of
himself or herself and all others similarly situated, petition any court of competent jurisdiction for the removal of the Trustee
and the appointment of a successor trustee. Such court may thereupon, after such notice, if any, as it may deem proper and
prescribe, remove the Trustee and appoint a successor trustee.
(c)
The Holders of a majority in aggregate principal amount of the Notes at the time outstanding, as determined
in accordance with Section 8.04, may at any time remove the Trustee and nominate a successor trustee that shall be deemed
appointed as successor trustee unless within ten days after notice to the Company of such nomination the Company objects
thereto, in which case the Trustee so removed (at the expense of the Company) or any Holder, upon the terms and conditions
and otherwise as in Section 7.09(a) provided, may petition any court of competent jurisdiction for an appointment of a
successor trustee.
(d)
Any resignation or removal of the Trustee and appointment of a successor trustee pursuant to any of the
provisions of this Section 7.09 shall become effective upon acceptance of appointment by the successor trustee as provided
in Section 7.10.
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Section 7.10 Acceptance by Successor Trustee. Any successor trustee appointed as provided in Section 7.09 shall
execute, acknowledge and deliver to the Company and to its predecessor trustee an instrument accepting such appointment
hereunder, and thereupon the resignation or removal of the predecessor trustee shall become effective and such successor
trustee, without any further act, deed or conveyance, shall become vested with all the rights, powers, duties and obligations
of its predecessor hereunder, with like effect as if originally named as Trustee herein; but, nevertheless, on the written
request of the Company or of the successor trustee, the trustee ceasing to act shall, upon payment of any amounts then due to
it pursuant to the provisions of Section 7.06, execute and deliver an instrument transferring to such successor trustee all the
rights and powers of the trustee so ceasing to act. Upon request of any such successor trustee, the Company shall execute
any and all instruments in writing for more fully and certainly vesting in and confirming to such successor trustee all such
rights and powers. Any trustee ceasing to act shall, nevertheless, retain a senior claim to which the Notes are hereby made
subordinate on all money or property held or collected by such trustee as such, except for funds held in trust for the benefit
of Holders of particular Notes, to secure any amounts then due to it pursuant to the provisions of Section 7.06.
No successor trustee shall accept appointment as provided in this Section 7.10 unless at the time of such acceptance
such successor trustee shall be eligible under the provisions of Section 7.08.
Upon acceptance of appointment by a successor trustee as provided in this Section 7.10, each of the Company and
the successor trustee, at the written direction and at the expense of the Company shall mail or cause to be mailed notice of
the succession of such trustee hereunder to the Holders at their addresses as they shall appear on the Note Register. If the
Company fails to mail such notice within ten days after acceptance of appointment by the successor trustee, the successor
trustee shall cause such notice to be mailed at the expense of the Company.
Section 7.11 Succession by Merger, Etc. Any corporation or other entity into which the Trustee may be merged or
converted or with which it may be consolidated, or any corporation or other entity resulting from any merger, conversion or
consolidation to which the Trustee shall be a party, or any corporation or other entity succeeding to all or substantially all of
the corporate trust business of the Trustee (including the administration of this Indenture), shall be the successor to the
Trustee hereunder without the execution or filing of any paper or any further act on the part of any of the parties hereto;
provided that in the case of any corporation or other entity succeeding to all or substantially all of the corporate trust
business of the Trustee such corporation or other entity shall be eligible under the provisions of Section 7.08.
In case at the time such successor to the Trustee shall succeed to the trusts created by this Indenture, any of the Notes
shall have been authenticated but not delivered, any such successor to the Trustee may adopt the certificate of authentication
of any predecessor trustee, and deliver such Notes so authenticated; and in case at that time any of the Notes shall not have
been authenticated, any successor to the Trustee may authenticate such Notes either in the name of any predecessor trustee
hereunder or in the name of the successor trustee; and in all such cases such certificates shall have the full force which it is
anywhere in the Notes or in this Indenture provided that the certificate of the Trustee shall have; provided, however, that the
right to adopt the certificate of authentication of any predecessor trustee or to authenticate Notes in the name of any
predecessor trustee shall apply only to its successor or successors by merger, conversion or consolidation.
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Section 7.12 Trustee’s Application for Instructions from the Company. Any application by the Trustee for written
instructions from the Company (other than with regard to any action proposed to be taken or omitted to be taken by the
Trustee that affects the rights of the Holders of the Notes under this Indenture) may, at the option of the Trustee, set forth in
writing any action proposed to be taken or omitted by the Trustee under this Indenture and the date on and/or after which
such action shall be taken or such omission shall be effective. The Trustee shall not be liable for any action taken by, or
omission of, the Trustee in accordance with a proposal included in such application on or after the date specified in such
application (which date shall not be less than three Business Days after the date any officer that the Company has indicated
to the Trustee should receive such application actually receives such application, unless any such officer shall have
consented in writing to any earlier date), unless, prior to taking any such action (or the effective date in the case of any
omission), the Trustee shall have received written instructions in accordance with this Indenture in response to such
application specifying the action to be taken or omitted.
ARTICLE 8
CONCERNING THE HOLDERS
Section 8.01 Action by Holders. Whenever in this Indenture it is provided that the Holders of a specified percentage
of the aggregate principal amount of the Notes may take any action (including the making of any demand or request, the
giving of any notice, consent or waiver or the taking of any other action), the fact that at the time of taking any such action,
the Holders of such specified percentage have joined therein may be evidenced (a) by any instrument or any number of
instruments of similar tenor executed by Holders in person or by agent or proxy appointed in writing, or (b) by the record of
the Holders voting in favor thereof at any meeting of Holders duly called and held in accordance with the provisions of
Article 9, or (c) by a combination of such instrument or instruments and any such record of such a meeting of
Holders. Whenever the Company or the Trustee solicits the taking of any action by the Holders of the Notes, the Company
or the Trustee may fix, but shall not be required to, in advance of such solicitation, a date as the record date for determining
Holders entitled to take such action. The record date if one is selected shall be not more than fifteen days prior to the date of
commencement of solicitation of such action.
Section 8.02 Proof of Execution by Holders. Subject to the provisions of Section 7.01, Section 7.02 and Section
9.05, proof of the execution of any instrument by a Holder or its agent or proxy shall be sufficient if made in accordance
with such reasonable rules and regulations as may be prescribed by the Trustee or in such manner as shall be satisfactory to
the Trustee. The holding of Notes shall be proved by the Note Register or by a certificate of the Note Registrar. The record
of any Holders’ meeting shall be proved in the manner provided in Section 9.06.
Section 8.03 Who Are Deemed Absolute Owners. The Company, the Trustee, any Paying Agent, any Transfer Agent,
any Conversion Agent and any Note Registrar may deem the Person in whose name a Note shall be registered upon the Note
Register to be, and may treat it as, the absolute owner of such Note (whether or not such Note shall be overdue and
notwithstanding any notation of ownership or other writing thereon made by any Person other than the Company or any
Note Registrar) for the purpose of receiving payment of or on account of the principal of and (subject to Section 2.03)
accrued and unpaid interest on such Note, for the purpose of conversion of such Note and for all other purposes; and neither
the Company nor the Trustee nor any Paying Agent nor any Conversion Agent nor any Transfer Agent nor any Note
Registrar shall be affected by any notice to the contrary. All such payments or deliveries so made to any Holder for the time
being, or upon its order, shall be valid, and, to the extent of the sums or ADSs so paid or delivered, effectual to satisfy and
discharge the liability for monies payable or ADSs deliverable upon any such Note.
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Notwithstanding anything to the contrary in this Indenture or the Notes following an Event of Default, any Holder of a
beneficial interest in a Global Note may directly enforce against the Company, without the consent, solicitation, proxy,
authorization or any other action of the Depositary or any other Person, such Holder’s right to exchange such beneficial
interest for a Note in certificated form in accordance with the provisions of this Indenture.
Section 8.04 Company-Owned Notes Disregarded. In determining whether the Holders of the requisite aggregate
principal amount of Notes have concurred in any direction, consent, waiver or other action under this Indenture, Notes that
are owned by the Company, by any Subsidiary or Variable Interest Entity thereof or by any Affiliate of the Company or any
Subsidiary or Variable Interest Entity thereof (including the Alibaba Affiliate Notes) shall be disregarded and deemed not to
be outstanding for the purpose of any such determination; provided that for the purposes of determining whether the Trustee
shall be protected in relying on any such direction, consent, waiver or other action only Notes in respect of which a
Responsible Officer is notified in writing shall be so disregarded. Notes so owned that have been pledged in good faith may
be regarded as outstanding for the purposes of this Section 8.04 if the pledgee shall establish its right to so act with respect to
such Notes and that the pledgee is not the Company, a Subsidiary or Variable Interest Entity thereof or an Affiliate of the
Company or a Subsidiary or Variable Interest Entity thereof. Within five days of acquisition of the Notes by any of the
above described persons or entities or at the request of the Trustee, the Company shall furnish to the Trustee promptly an
Officers’ Certificate listing and identifying all Notes, if any, known by the Company to be owned or held by or for the
account of any of the above described Persons; and, subject to Section 7.01, the Trustee shall be entitled to accept such
Officers’ Certificate as conclusive evidence of the facts therein set forth and of the fact that all Notes not listed therein are
outstanding for the purpose of any such determination.
Section 8.05 Revocation of Consents; Future Holders Bound. At any time prior to (but not after) the evidencing to
the Trustee, as provided in Section 8.01, of the taking of any action by the Holders of the percentage of the aggregate
principal amount of the Notes specified in this Indenture in connection with such action, any Holder of a Note that is shown
by the evidence to be included in the Notes the Holders of which have consented to such action may, by filing written notice
with the Trustee at its Corporate Trust Office and upon proof of holding as provided in Section 8.02, revoke such action so
far as concerns such Note. Except as aforesaid, any such action taken by the Holder of any Note shall be conclusive and
binding upon such Holder and upon all future Holders and owners of such Note and of any Notes issued in exchange or
substitution therefor or upon registration of transfer thereof, irrespective of whether any notation in regard thereto is made
upon such Note or any Note issued in exchange or substitution therefor or upon registration of transfer thereof.
ARTICLE 9
HOLDERS’ MEETINGS
Section 9.01 Purpose of Meetings. A meeting of Holders may be called at any time and from time to time pursuant
to the provisions of this Article 9 for any of the following purposes:
(a)
to give any notice to the Company or to the Trustee or to give any directions to the Trustee permitted under
this Indenture, or to consent to the waiving of any Default or Event of Default hereunder and its consequences, or to take any
other action authorized to be taken by Holders pursuant to any of the provisions of Article 6;
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(b)
to remove the Trustee and nominate a successor trustee pursuant to the provisions of Article 7;
(c)
Section 10.02; or
to consent to the execution of an indenture or indentures supplemental hereto pursuant to the provisions of
(d)
to take any other action authorized to be taken by or on behalf of the Holders of any specified aggregate
principal amount of the Notes under any other provision of this Indenture or under Applicable Law.
Section 9.02 Call of Meetings by Trustee. The Trustee may (in its sole discretion and without obligation) at any time
call a meeting of Holders to take any action specified in Section 9.01, to be held at such time and at such place as the Trustee
shall determine. Notice of every meeting of the Holders, setting forth the time and the place of such meeting and in general
terms the action proposed to be taken at such meeting and the establishment of any record date pursuant to Section 8.01,
shall be mailed to Holders of such Notes at their addresses as they shall appear on the Note Register. Such notice shall also
be mailed to the Company. Such notices shall be mailed not less than 20 nor more than 90 days prior to the date fixed for
the meeting.
Any meeting of Holders shall be valid without notice if the Holders of all Notes then outstanding are present in
person or by proxy or if notice is waived before or after the meeting by the Holders of all Notes then outstanding, and if the
Company and the Trustee are either present by duly authorized representatives or have, before or after the meeting, waived
notice.
Section 9.03 Call of Meetings by Company or Holders. In case at any time the Company, pursuant to a Board
Resolution, or the Holders of at least 10% of the aggregate principal amount of the Notes then outstanding, shall have
requested the Company to call a meeting of Holders, by written request setting forth in reasonable detail the action proposed
to be taken at the meeting, and the Company shall not have mailed the notice of such meeting within 20 days after receipt of
such request, then the Trustee or such Holders may determine the time and the place for such meeting and may call such
meeting to take any action authorized in Section 9.01, by mailing notice thereof as provided in Section 9.02.
Section 9.04 Qualifications for Voting. To be entitled to vote at any meeting of Holders a Person shall (a) be a
Holder of one or more Notes on the record date pertaining to such meeting or (b) be a Person appointed by an instrument in
writing as proxy by a Holder of one or more Notes on the record date pertaining to such meeting. The only Persons who
shall be entitled to be present or to speak at any meeting of Holders shall be the Persons entitled to vote at such meeting and
their counsel and any representatives of the Trustee and its counsel and any representatives of the Company and its counsel.
Section 9.05 Regulations. Notwithstanding any other provisions of this Indenture, the Trustee may make such
reasonable regulations as it may deem advisable for any meeting of Holders, in regard to proof of the holding of Notes and
of the appointment of proxies, and in regard to the appointment and duties of inspectors of votes, the submission and
examination of proxies, certificates and other evidence of the right to vote, and such other matters concerning the conduct of
the meeting as it shall think fit.
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The Trustee shall, by an instrument in writing, appoint a temporary chairman of the meeting, unless the meeting shall
have been called by the Company or by Holders as provided in Section 9.03, in which case the Company or the Holders
calling the meeting, as the case may be, shall in like manner appoint a temporary chairman. A permanent chairman and a
permanent secretary of the meeting shall be elected by vote of the Holders of a majority in principal amount of the Notes
represented at the meeting and entitled to vote at the meeting.
Subject to the provisions of Section 8.04, at any meeting of Holders each Holder or proxyholder shall be entitled to
one vote for each US$1,000 principal amount of Notes held or represented by him or her; provided, however, that no vote
shall be cast or counted at any meeting in respect of any Note challenged as not outstanding and ruled by the chairman of the
meeting to be not outstanding. The chairman of the meeting shall have no right to vote other than by virtue of Notes held by
it or instruments in writing as aforesaid duly designating it as the proxy to vote on behalf of other Holders. Any meeting of
Holders duly called pursuant to the provisions of Section 9.02 or Section 9.03 may be adjourned from time to time by the
Holders of a majority of the aggregate principal amount of Notes represented at the meeting, whether or not constituting a
quorum, and the meeting may be held as so adjourned without further notice.
Minutes shall be made of all resolutions and proceedings at every meeting and, if purporting to be signed by the
chairman of that meeting or of the next succeeding meeting of Holders of the Notes, shall be conclusive evidence of the
matters in them. Until the contrary is proved every meeting for which minutes have been so made and signed shall be
deemed to have been duly convened and held and all resolutions passed or proceedings transacted at it to have been duly
passed and transacted.
Section 9.06 Voting. The vote upon any resolution submitted to any meeting of Holders shall be by written ballot on
which shall be subscribed the signatures of the Holders or of their representatives by proxy and the outstanding principal
amount of the Notes held or represented by them. The permanent chairman of the meeting shall appoint two inspectors of
votes who shall count all votes cast at the meeting for or against any resolution and who shall make and file with the
secretary of the meeting their verified written reports in duplicate of all votes cast at the meeting. A record in duplicate of
the proceedings of each meeting of Holders shall be prepared by the secretary of the meeting and there shall be attached to
said record the original reports of the inspectors of votes on any vote by ballot taken thereat and affidavits by one or more
Persons having knowledge of the facts setting forth a copy of the notice of the meeting and showing that said notice was
mailed as provided in Section 9.02. The record shall show the principal amount of the Notes voting in favor of or against
any resolution. The record shall be signed and verified by the affidavits of the permanent chairman and secretary of the
meeting and one of the duplicates shall be delivered to the Company and the other to the Trustee to be preserved by the
Trustee, the latter to have attached thereto the ballots voted at the meeting.
Any record so signed and verified shall be conclusive evidence of the matters therein stated.
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Section 9.07 No Delay of Rights by Meeting. Nothing contained in this Article 9 shall be deemed or construed to
authorize or permit, by reason of any call of a meeting of Holders or any rights expressly or impliedly conferred hereunder
to make such call, any hindrance or delay in the exercise of any right or rights conferred upon or reserved to the Trustee or
to the Holders under any of the provisions of this Indenture or of the Notes.
ARTICLE 10
SUPPLEMENTAL INDENTURES
Section 10.01 Supplemental Indentures Without Consent of Holders. The Company, when authorized by the
resolutions of the Board of Directors, and the Trustee, at the Company’s expense and direction, may from time to time and at
any time amend or supplement this Indenture or the Notes for one or more of the following purposes:
(a)
(b)
to cure any ambiguity, omission, defect or inconsistency;
to provide for the assumption by a Successor Company of the obligations of the Company under this
Indenture and the Notes pursuant to Article 11;
(c)
(d)
(e)
to add guarantees or any credit enhancements of similar nature with respect to the Notes;
to secure the Notes;
to add to the covenants or Events of Defaults of the Company for the benefit of the Holders or surrender any
right or power conferred upon the Company;
(f)
upon the occurrence of any transaction or event described in Section 14.07(a), to (i) provide that the Notes
are convertible into Reference Property, subject to Section 14.02, and (ii) effect the related changes to the terms of the Notes
described under Section 14.07(a), in each case, in accordance with Section 14.07;
(g)
(h)
(i)
Indenture; or
to make any change that does not adversely affect the rights of any Holder;
to comply with the rules of the Depositary, including the DTC;
to evidence and provide for the acceptance of the appointment of a successor trustee in accordance with this
(j)
to conform the provisions of this Indenture or the Notes to the “Description of the Notes” section of the
Offering Memorandum.
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Upon the written request of the Company, the Trustee is hereby authorized to join with the Company in the execution
of any such amendment or supplement to this Indenture or the Notes, to make any further appropriate agreements and
stipulations that may be therein contained, unless such supplemental indenture affects the Trustee’s and/or any Agent’s (as
the case may be) own rights, duties, privileges, liabilities or immunities under this Indenture or otherwise, in which case the
Trustee may in its discretion, but shall not be obligated to, enter into such supplemental indenture. The Trustee may seek an
Officers’ Certificate and an Opinion of Counsel, at the Company’s expense, that any such amendment or supplement to this
Indenture or the Notes is authorized and permitted by the terms of this Indenture, that all conditions precedent hereto have
been satisfied, and that such supplemental Indenture or amendment is the legal, valid and binding obligation of the
Company, enforceable against the Company in accordance with its terms.
Any amendment or supplement to this Indenture or the Notes authorized by the provisions of this Section 10.01 may
be executed by the Company and the Trustee without the consent of the Holders of any of the Notes at the time outstanding,
notwithstanding any of the provisions of Section 10.02.
Section 10.02 Supplemental Indentures with Consent of Holders. With the consent (evidenced as provided in Article
8) of the Holders of at least a majority of the aggregate principal amount of the Notes then outstanding (determined in
accordance with Article 8 and including, without limitation, consents obtained in connection with a repurchase of, or tender
or exchange offer for, Notes), the Company, when authorized by the resolutions of the Board of Directors, and the Trustee,
at the Company’s expense, may from time to time and at any time enter into an indenture or indentures supplemental hereto
for the purpose of adding any provisions to or changing in any manner or eliminating any of the provisions of this Indenture
or any supplemental indenture or the Notes or of modifying in any manner the rights of the Holders; provided, however,
that, without the consent of each Holder of an outstanding Note affected, no such supplemental indenture shall:
(a)
(b)
reduce the amount of Notes whose Holders must consent to an amendment or waiver;
alter the manner of calculation or rate of accrual of interest on any Note or change the time of payment of
any instalment of interest on any Note;
(c)
(d)
(e)
reduce the principal of or change the Maturity Date of any Note;
make any change that adversely affects the conversion rights of any Note;
reduce the Repurchase Price payable on the Repurchase Date, the Fundamental Change Repurchase Price or
the Redemption Price of any Note or amend or modify in any manner adverse to the Holders the Company’s obligation to
make such payments, whether through an amendment or waiver of provisions in the covenants, definitions or otherwise;
(f)
(g)
(h)
make any Note payable in a currency other than U.S. dollars or change any Note’s place of payment;
change the ranking of the Notes;
impair the right of any Holder to receive payment of principal and interest on such Holder’s Notes on or after
the due dates therefor or to institute suit for the enforcement of any payment on or with respect to such Holder’s Note;
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(i)
change the Company’s obligation to pay Additional Amounts on any Note; or
(j)
modify provisions with respect to modification, amendment or waiver (including waiver of events of default),
except to increase the percentage required for modification, amendment or waiver or to provide for consent of each affected
Holder of Notes.
Upon the written request of the Company, and upon the filing with the Trustee of evidence of the consent of Holders
as aforesaid and subject to Section 10.05, the Trustee shall join with the Company in the execution of such supplemental
indenture unless (i) the Trustee has not received an Officers’ Certificate and an Opinion of Counsel that such supplemental
indenture is authorized and permitted by the terms of this Indenture and not contrary to law or (ii) such supplemental
indenture affects the Trustee’s and/or Agent’s (as the case may be) own rights, duties, privileges, liabilities or immunities
under this Indenture or otherwise, in which case the Trustee may in its discretion, but shall not be obligated to, enter into
such supplemental indenture.
Holders do not need under this Section 10.02 to approve the particular form of any proposed supplemental
indenture. It shall be sufficient if such Holders approve the substance thereof. After any supplemental indenture becomes
effective under Section 10.01 or Section 10.02, the Company shall send to the Holders (with a copy to the Trustee) a notice
briefly describing such supplemental indenture. However, the failure to give such notice to all the Holders, or any defect in
the notice, will not impair or affect the validity of the supplemental indenture.
Section 10.03 Effect of Supplemental Indentures. Upon the execution of any supplemental indenture pursuant to the
provisions of this Article 10, this Indenture shall be and be deemed to be modified and amended in accordance therewith and
the respective rights, limitation of rights, obligations, duties, privileges, liabilities and immunities under this Indenture of the
Trustee, the Company and the Holders shall thereafter be determined, exercised and enforced hereunder subject in all
respects to such modifications and amendments and all the terms and conditions of any such supplemental indenture shall be
and be deemed to be part of the terms and conditions of this Indenture for any and all purposes.
Section 10.04 Notation on Notes. Notes authenticated and delivered after the execution of any supplemental
indenture pursuant to the provisions of this Article 10 may, at the Company’s expense, bear a notation in form approved by
the Trustee as to any matter provided for in such supplemental indenture. If the Company or the Trustee shall so determine,
new Notes so modified as to conform, in the opinion of the Trustee and the Board of Directors, to any modification of this
Indenture contained in any such supplemental indenture may, at the Company’s expense, be prepared and executed by the
Company, authenticated by the Trustee upon receipt of a Company Order and the Opinion of Counsel contemplated in
Section 2.04 and delivered in exchange for the Notes then outstanding, upon surrender of such Notes then outstanding.
Section 10.05 Evidence of Compliance of Supplemental Indenture to Be Furnished Trustee. In addition to the
documents required by Section 17.06, the Trustee shall receive an Officers’ Certificate and an Opinion of Counsel as
conclusive evidence that any supplemental indenture executed pursuant hereto complies with the requirements of this Article
10, is permitted or authorized by this Indenture, is the valid and binding obligation of the Company and enforceable against
it in accordance with its terms, and is not contrary to law.
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ARTICLE 11
CONSOLIDATION, MERGER, SALE, CONVEYANCE AND LEASE
Section 11.01 Company May Consolidate, Etc. on Certain Terms. Subject to the provisions of Section 11.02, the
Company shall not consolidate with, merge with or into, or sell, convey, transfer or lease all or substantially all of the
consolidated assets of the Company, its Subsidiaries and its Variable Interest Entities, taken as a whole, to another Person,
unless:
(a)
the resulting, surviving or transferee Person (the “Successor Company”), if not the Company, shall be a
corporation organized and existing under the laws of the United States, any State thereof, the District of Columbia, the
Cayman Islands, the British Virgin Islands, Bermuda or Hong Kong and the Successor Company (if not the Company) shall
expressly assume, by supplemental indenture, all of the obligations of the Company under the Notes and this Indenture
(including, for the avoidance of doubt, the obligation to pay Additional Amounts pursuant to Section 4.07);
(b)
if the Company will not be the Successor Company, the Company shall have, at or prior to the effective date
of such transaction, delivered to the Trustee an Officers’ Certificate and an Opinion of Counsel, each stating that the
execution and delivery of the supplemental indenture do not conflict with the requirements set forth in the Indenture and that
all conditions precedent to the execution and delivery of such supplemental indenture have been satisfied and such Opinion
of Counsel also stating that the Notes and this Indenture are the legal, valid, binding and enforceable obligations of the
Successor Company;
(c)
immediately after giving effect to such transaction, no Default or Event of Default shall have occurred and be
continuing under this Indenture with respect to the Notes;
(d)
the Company shall have undertaken commercially reasonable efforts to restructure the Notes so that, after
giving effect to such transaction, any conversion of the Notes will be exempt from the registration requirements of the
Securities Act pursuant to Section 3(a)(9) thereof;
(e)
if, upon the occurrence of any such transaction, (x) the Notes would become convertible pursuant to the
terms of this Indenture into securities issued by an issuer other than the Successor Company, and (y) such Successor
Company is a wholly owned subsidiary of the issuer of such securities into which the Notes have become convertible, such
other issuer shall fully and unconditionally guarantee on a senior basis the Successor Company’s obligations under the
Notes; and
(f)
other conditions specified in this Indenture are met.
For purposes of this Section 11.01, the sale, conveyance, transfer or lease of all or substantially all of the assets of
one or more Subsidiaries or Variable Interest Entities of the Company to another Person, which properties and assets, if held
by the Company instead of such Subsidiaries or Variable Interest Entities, would constitute all or substantially all of the
assets of the Company on a consolidated basis, shall be deemed to be the sale, conveyance, transfer or lease of all or
substantially all of the consolidated assets of the Company to another Person.
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Section 11.02 Successor Corporation to Be Substituted. In case of any such consolidation, merger, sale, conveyance,
transfer or lease and upon the assumption by the Successor Company, by supplemental indenture, executed and delivered to
the Trustee and satisfactory in form to the Trustee, of the due and punctual payment of the principal of and accrued and
unpaid interest on all of the Notes (including, for the avoidance of doubt, any Additional Amounts), the due and punctual
delivery or payment, as the case may be, of any consideration due upon conversion of the Notes (including, for the
avoidance of doubt, any Additional Amounts) and the due and punctual performance of all of the covenants and conditions
of this Indenture to be performed by the Company, such Successor Company (if not the Company) shall succeed to and,
except in the case of a lease of all or substantially all of the Company’s properties and assets, shall be substituted for the
Company, with the same effect as if it had been named herein as the party of the first part. Such Successor Company
thereupon may cause to be signed, and may issue either in its own name or in the name of the Company any or all of the
Notes issuable hereunder which theretofore shall not have been signed by the Company and delivered to the Trustee; and,
upon the written order of such Successor Company instead of the Company and subject to all the terms, conditions and
limitations in this Indenture prescribed, the Trustee shall authenticate and shall deliver, or cause to be authenticated and
delivered, any Notes that previously shall have been signed and delivered by the Officers of the Company to the Trustee for
authentication, and any Notes that such Successor Company thereafter shall cause to be signed and delivered to the Trustee
for that purpose. All the Notes so issued shall in all respects have the same legal rank and benefit under this Indenture as the
Notes theretofore or thereafter issued in accordance with the terms of this Indenture as though all of such Notes had been
issued at the date of the execution hereof. In the event of any such consolidation, merger, sale, conveyance or transfer (but
not in the case of a lease), upon compliance with this Article 11 the Person named as the “Company” in the first paragraph
of this Indenture (or any successor that shall thereafter have become such in the manner prescribed in this Article 11) may be
dissolved, wound up and liquidated at any time thereafter and, except in the case of a lease, such Person shall be released
from its liabilities as obligor and maker of the Notes and from its obligations under this Indenture and the Notes.
In case of any such consolidation, merger, sale, conveyance, transfer or lease, such changes in phraseology and form
(but not in substance) may be made in the Notes thereafter to be issued as may be appropriate.
Section 11.03 Opinion of Counsel to Be Given to Trustee. No consolidation, merger, sale, conveyance, transfer or
lease shall be effective unless the Trustee shall receive an Officers’ Certificate and an Opinion of Counsel as conclusive
evidence that any such consolidation, merger, sale, conveyance, transfer or lease and any such assumption and, if a
supplemental indenture is required in connection with such transaction, such supplemental indenture, complies with the
provisions of this Article 11, that all conditions precedent thereto have been satisfied and that the Notes and such
supplemental indenture are the legal, valid and binding obligations of the Successor Company, enforceable against it in
accordance with its terms, subject to customary assumptions, qualifications, and exceptions.
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ARTICLE 12
IMMUNITY OF INCORPORATORS, STOCKHOLDERS, OFFICERS AND DIRECTORS
Section 12.01 Indenture and Notes Solely Corporate Obligations. No recourse for the payment of the principal of or
accrued and unpaid interest on any Note, nor for any claim based thereon or otherwise in respect thereof, and no recourse
under or upon any obligation, covenant or agreement of the Company in this Indenture or in any supplemental indenture or
in any Note, nor because of the creation of any indebtedness represented thereby, shall be had against any incorporator,
stockholder, employee, agent, Officer or director or Subsidiary, as such, past, present or future, of the Company or of any
successor corporation, either directly or through the Company or any successor corporation, whether by virtue of any
constitution, statute or rule of law, or by the enforcement of any assessment or penalty or otherwise; it being expressly
understood that all such liability is hereby expressly waived and released as a condition of, and as a consideration for, the
execution of this Indenture and the issue of the Notes.
ARTICLE 13
INTENTIONALLY OMITTED
ARTICLE 14
CONVERSION OF NOTES
Section 14.01 Conversion Privilege. Subject to and upon compliance with the provisions of this Article 14, each
Holder of a Note shall have the right, at such Holder’s option, to convert all or any portion (if the portion to be converted is
US$1,000 principal amount or an integral multiple thereof) of such Note at any time prior to the close of business on the
second Scheduled Trading Day immediately preceding the Maturity Date into ADSs at an initial conversion rate of 141.8440
ADSs (subject to adjustment as provided in this Article 14, the “Conversion Rate”) per US$1,000 principal amount of
Notes (subject to the settlement provisions of Section 14.02, the “Conversion Obligation”).
Section 14.02 Conversion Procedure; Settlement Upon Conversion.
(a)
Upon conversion of any Note, the Company shall cause to be delivered to the converting Holder, in respect
of each US$1,000 principal amount of Notes being converted, a number of ADSs equal to the Conversion Rate in effect
immediately prior to the close of business on the relevant Conversion Date, together with a cash payment, if applicable, in
lieu of any fractional ADSs (“Fractional ADSs”) (assuming delivery of the maximum number of ADSs due upon
conversion that do not represent a fractional ADS) in accordance with subsection (j) of this Section 14.02, on the third
Business Day immediately following the relevant Conversion Date; provided that, if a Conversion Date occurs (i) following
the Regular Record Date immediately preceding the Maturity Date, subject to clause (ii) below, the Company shall cause
such delivery (and payment, if applicable) to be made on the Maturity Date or (ii) after the Ordinary Shares have been
replaced by the Reference Property consisting solely of cash in accordance with Section 14.07, the Company shall cause the
consideration due in respect of the conversion to be paid to the converting Holder on the tenth Business Day immediately
following the related Conversion Date. For the avoidance of doubt, neither the Trustee nor any Agent shall have any
responsibility to deliver ADSs upon conversion of any Note to any person or deal with cash payments in relation to
conversions.
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(b)
Subject to Section 14.02(e), before any Holder of a Note shall be entitled to convert a Note as set forth
above, such Holder shall (i) in the case of a Global Note, comply with the procedures of the Depositary in effect at that time
and, if required, pay funds equal to interest payable on the next Interest Payment Date to which such Holder is not entitled
and/or all transfer or similar Taxes as set forth in Section 14.02(h), and complete, manually sign and deliver a duly
completed irrevocable notice to the Conversion Agent as set forth in the Form of Notice of Conversion (or a facsimile
thereof) (a “Notice of Conversion”) and (ii) in the case of a Physical Note (1) complete, manually sign and deliver a duly
completed irrevocable Notice of Conversion to the Conversion Agent at the specified office of the Conversion Agent and
state in writing therein the principal amount of Notes to be converted and the name or names (with addresses) in which such
Holder wishes the certificate or certificates for any ADSs to be delivered upon settlement of the Conversion Obligation to be
registered, (2) surrender such Notes, duly endorsed to the Company or in blank (and accompanied by appropriate
endorsement and transfer documents) to the Conversion Agent and the Trustee as set forth in the Form of Notice of
Conversion, (3) if required, furnish appropriate endorsements and transfer documents and (4) if required, pay funds equal to
interest payable on the next Interest Payment Date to which such Holder is not entitled as set forth in Section 14.02(h), and
(5) if required, pay any transfer or similar Taxes set forth in Section 14.02(e). The Trustee (and if different, the Conversion
Agent) shall notify the Company of any conversion pursuant to this Article 14 on the Conversion Date for such
conversion. No Notice of Conversion with respect to any Notes may be delivered and no Notes may be surrendered by a
Holder for conversion thereof if such Holder has also delivered a Repurchase Notice or Fundamental Change Repurchase
Notice to the Company in respect of such Notes and not validly withdrawn such Repurchase Notice or Fundamental Change
Repurchase Notice in accordance with Section 15.03. A Notice of Conversion shall be deposited in duplicate at the office of
any Conversion Agent on any Business Day from 9:00 a.m. to 3:00 p.m. at the location of the Conversion Agent to which
such Notice of Conversion is delivered. Any Notice of Conversion and any Physical Note (if issued) deposited outside the
hours specified or on a day that is not a Business Day at the location of the Conversion Agent shall for all purposes be
deemed to have been deposited with that Conversion Agent between 9:00 a.m. and 3:00 p.m. on the next Business Day.
If more than one Note shall be surrendered for conversion at one time by the same Holder, the Conversion Obligation
with respect to such Notes shall be computed on the basis of the aggregate principal amount of the Notes (or specified
portions thereof to the extent permitted thereby) so surrendered. None of the Agents of the Trustee shall have any
responsibility whatsoever with respect to the issuance and delivery of the ADSs to the converting Holder.
(c)
A Note shall be deemed to have been converted immediately prior to the close of business on the date (the
“Conversion Date”) that the Holder has complied with the requirements set forth in subsection (b) above. The Company
shall issue or cause to be issued, and deliver or cause to be delivered to such Holder, or such Holder’s nominee or nominees,
certificates or a book-entry transfer through the Depositary for the full number of ADSs to which such Holder shall be
entitled in satisfaction of the Company’s Conversion Obligation.
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(d)
In case any Note shall be surrendered for partial conversion, the Company shall execute and, upon receipt of
a Company Order, instruct the Trustee who shall authenticate and deliver to or upon the written order of the Holder of the
Note so surrendered a new Note or Notes in authorized denominations in an aggregate principal amount equal to the
unconverted portion of the surrendered Note, without payment of any service charge by the converting Holder but, if
required by the Company or Trustee, with payment of a sum sufficient to cover any transfer tax or similar governmental
charge required by law or that may be imposed in connection therewith as a result of the name of the Holder of the new
Notes issued upon such conversion being different from the name of the Holder of the old Notes surrendered for such
conversion.
(e)
If a Holder submits a Note for conversion, the Company shall pay any documentary, stamp, issue, transfer or
similar Tax due on the delivery of the ADSs upon conversion of the Notes (or the issuance of the underlying Ordinary
Shares), unless the Tax is due because the Holder requests any ADSs (or such Ordinary Shares) to be issued in a name other
than the Holder’s name, in which case the Holder shall pay that Tax. The Company may refuse to deliver the certificates
representing the ADSs (or the Ordinary Shares) being issued in a name other than the Holder’s name until the Company
receives a sum sufficient to pay any Tax that is due by such Holder in accordance with the immediately preceding
sentence. The Company shall pay and/or indemnify each Holder and beneficial owners of Notes and/or ADSs issuable upon
conversion of the Notes for applicable fees and expenses payable to, or withheld by, the ADS Depositary (including, for the
avoidance of doubt, by means of a reduction in any amounts or property payable or deliverable in respect of any ADSs or in
the value of deposited amounts or property represented by any ADSs) for the issuance of all ADSs deliverable upon
conversion (including, with respect to any ADSs subject to restricted CUSIP and/or restrictive legends upon issuance, any of
the foregoing with respect to the removal of any such restrictions from such ADSs).
(f)
Except as provided in Section 14.04, no adjustment shall be made for dividends on any ADSs delivered upon
the conversion of any Note as provided in this Article 14.
(g)
Upon the conversion of an interest in a Global Note, the Trustee shall make a notation on such Global Note
as to the reduction in the principal amount represented thereby. The Company shall notify the Trustee in writing of any
conversion of Notes effected through any Conversion Agent other than the Trustee.
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(h)
Upon conversion, a Holder shall not receive any separate cash payment for accrued and unpaid interest, if
any, except as set forth below. The Company’s settlement of the Conversion Obligation shall be deemed to satisfy in full its
obligation to pay the principal amount of the Note and accrued and unpaid interest, if any, to, but not including, the relevant
Conversion Date. As a result, accrued and unpaid interest, if any, to, but not including, the relevant Conversion Date shall
be deemed to be paid in full rather than cancelled, extinguished or forfeited. Notwithstanding the foregoing, if Notes are
converted after the close of business on a Regular Record Date, Holders of such Notes as of the close of business on such
Regular Record Date will receive the full amount of interest payable on such Notes on the corresponding Interest Payment
Date notwithstanding the conversion. Notes surrendered for conversion during the period from the close of business on any
Regular Record Date to the open of business on the immediately following Interest Payment Date must be accompanied by
funds equal to the amount of interest payable on the Notes so converted; provided that no such payment shall be required (1)
for conversions following the close of business on the Regular Record Date immediately preceding the Maturity Date; (2) if
the Company has specified a Redemption Date that is after a Regular Record Date and on or prior to the third Business Day
immediately succeeding the corresponding Interest Payment Date; (3) if the Company has specified a Fundamental Change
Repurchase Date that is after a Regular Record Date and on or prior to the third Business Day immediately succeeding the
corresponding Interest Payment Date; or (4) to the extent of any Defaulted Amounts, if any Defaulted Amounts exist at the
time of conversion with respect to such Note. Therefore, for the avoidance of doubt, all Holders of record as of the close of
business on the Regular Record Date immediately preceding the Maturity Date shall receive the full interest payment due on
the Maturity Date in cash regardless of whether their Notes have been converted following such Regular Record Date.
(i)
The Person in whose name the certificate for any ADSs delivered upon conversion is registered shall be
treated as a holder of record of such ADSs as of the close of business on the relevant Conversion Date. Upon a conversion
of Notes, such Person shall no longer be a Holder of such Notes surrendered for conversion.
(j)
The Company shall not issue any Fractional ADS upon conversion of the Notes and shall instead pay cash in
lieu of any Fractional ADS deliverable upon conversion based on the Last Reported Sale Price of the ADSs on the relevant
Conversion Date (or if such Conversion Date is not a Trading Day, the immediately preceding Trading Day).
(k)
In accordance with the Deposit Agreement, the Company shall issue to the ADS Custodian such Ordinary
Shares required for the issuance of the ADSs upon conversion of the Notes, plus written delivery instructions (if requested
by the ADS Depositary or the ADS Custodian) for such ADSs, and any other information or documentation and shall
comply with the Deposit Agreement, in each case, as required by the ADS Depositary or the ADS Custodian in connection
with each issue of Ordinary Shares and issuance and delivery of ADSs.
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Section 14.03 Increased Conversion Rate Applicable to Certain Notes Surrendered in Connection with Make-Whole
Fundamental Change. (a) If a Make-Whole Fundamental Change occurs prior to the Maturity Date and a Holder elects to
convert its Notes in connection with such Make-Whole Fundamental Change, the Company shall, under the circumstances
described below, increase the Conversion Rate for the Notes so surrendered for conversion by a number of additional ADSs
(the “Additional ADSs”), as described below. A conversion of Notes shall be deemed for these purposes to be “in
connection with” such Make-Whole Fundamental Change if the relevant Notice of Conversion is received by the Conversion
Agent from, and including, the Effective Date of the Make-Whole Fundamental Change up to, and including, the close of
business on the second Business Day immediately prior to the related Fundamental Change Repurchase Date (or, in the case
of a Make-Whole Fundamental Change that would have been a Fundamental Change but for the proviso in clause (b) of the
definition thereof, the 35th Trading Day immediately following the Effective Date of such Make-Whole Fundamental
Change). The Company shall provide written notification to Holders and the Trustee (and the Conversion Agent, if other
than the Trustee) of the Effective Date of any Make-Whole Fundamental Change and issue a press release announcing such
Effective Date no later than five Business Days after such Effective Date.
(b)
Upon surrender of Notes for conversion in connection with a Make-Whole Fundamental Change, the
Company shall cause to be delivered ADSs, including the Additional ADSs, in accordance with Section 14.02; provided,
however, that if, at the effective time of a Make-Whole Fundamental Change described in clause (b) of the definition of
Fundamental Change, the Reference Property following such Make-Whole Fundamental Change is composed entirely of
cash, for any conversion of Notes following the Effective Date of such Make-Whole Fundamental Change, the Conversion
Obligation shall be calculated based solely on the ADS Price for the transaction and shall be deemed to be an amount of cash
per US$1,000 principal amount of converted Notes equal to the Conversion Rate (including any adjustment for Additional
ADSs), multiplied by such ADS Price.
(c)
The number of Additional ADSs, if any, by which the Conversion Rate shall be increased shall be
determined by reference to the table below, based on the date on which the Make-Whole Fundamental Change occurs or
becomes effective (the “Effective Date”) and the price (the “ADS Price”) paid (or deemed to be paid) per ADS in the
Make-Whole Fundamental Change. If the holders of the ADSs receive in exchange for their ADSs only cash in a Make-
Whole Fundamental Change described in clause (b) of the definition of Fundamental Change, the ADS Price shall be the
cash amount paid per ADS. Otherwise, the ADS Price shall be the average of the Last Reported Sale Prices of the ADSs
over the five Trading Day period ending on, and including, the Trading Day immediately preceding the Effective Date of the
Make-Whole Fundamental Change.
(d)
The ADS Prices set forth in the column headings of the table below shall be adjusted as of any date on which
the Conversion Rate of the Notes is otherwise adjusted. The adjusted ADS Prices shall equal the ADS Prices applicable
immediately prior to such adjustment, multiplied by a fraction, the numerator of which is the Conversion Rate immediately
prior to such adjustment giving rise to the ADS Price adjustment and the denominator of which is the Conversion Rate as so
adjusted. The number of Additional ADSs set forth in the table below shall be adjusted in the same manner and at the same
time as the Conversion Rate as set forth in Section 14.04.
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(e)
The following table sets forth the number of Additional ADSs to be received per US$1,000 principal amount
of Notes pursuant to this Section 14.03 for each ADS Price and Effective Date set forth below:
Effective Date
September 17, 2019
October 1, 2020
October 1, 2021
October 1, 2022
October 1, 2023
October 1, 2024
$5.53
38.9878
38.9878
38.9878
38.9878
38.9878
38.9878
$6.00
32.1208
32.3247
31.6808
27.2600
25.7748
24.8227
$6.50
26.4677
26.0558
24.7005
20.9465
18.3195
12.0022
$7.05
21.6893
20.8529
19.0919
15.8452
12.5645
0.0000
$8.00
15.8685
14.6929
12.7633
10.0975
6.6606
0.0000
$10.00
9.1887
8.0113
6.4521
4.5858
2.2124
0.0000
$15.00
3.6436
3.0155
2.3067
1.5308
0.7458
0.0000
$20.00
1.9613
1.6304
1.2675
0.8775
0.4614
0.0000
$25.00
1.1749
0.9873
0.7805
0.5542
0.2980
0.0000
$30.00
0.7234
0.6121
0.4871
0.3489
0.1896
0.0000
$35.00
0.4391
0.3722
0.2946
0.2097
0.1133
0.0000
$40.00
0.2534
0.2139
0.1658
0.1145
0.0588
0.0000
ADS Price
The exact ADS Prices and Effective Dates may not be set forth in the table above, in which case:
(i)
if the ADS Price is between two ADS Prices in the table above or the Effective Date is between two
Effective Dates in the table, the number of Additional ADSs shall be determined by a straight-line interpolation
between the number of Additional ADSs set forth for the higher and lower ADS Prices and the earlier and later
Effective Dates, as applicable, based on a 365-day year;
(ii)
if the ADS Price is greater than US$40.00 per ADS (subject to adjustment in the same manner as the
ADS Prices set forth in the column headings of the table above pursuant to subsection (d) above), no Additional
ADSs shall be added to the Conversion Rate; and
(iii)
if the ADS Price is less than US$5.53 per ADS (subject to adjustment in the same manner as the ADS
Prices set forth in the column headings of the table above pursuant to subsection (d) above), no Additional ADSs
shall be added to the Conversion Rate.
Notwithstanding the foregoing, in no event shall the Conversion Rate per US$1,000 principal amount of Notes exceed
180.8318 ADSs, subject to adjustment in the same manner as the Conversion Rate pursuant to Section 14.04.
(f)
(g)
Nothing in this Section 14.03 shall prevent an adjustment to the Conversion Rate pursuant to Section 14.04.
If the Holder elects to convert its Notes in connection with the Company’s election to redeem the Notes in
respect of a Change in Tax Law pursuant to Section 16.01, the Conversion Rate shall be increased by a number of additional
ADSs determined pursuant to this Section 14.03(g). The Company shall settle conversions of Notes as described in Section
14.02 and, for the avoidance of doubt, pay Additional Amounts, if any, with respect to any such conversion.
A conversion shall be deemed to be in connection with the Company’s election to redeem the Notes in respect of a
Change in Tax Law if such conversion occurs during the period from, and including, the date the Company provides the
related notice of redemption to Holders until the close of business on the second Business Day immediately preceding the
Redemption Date (or, if the Company fails to pay the Redemption Price, such later date on which the Company pays the
Redemption Price).
Simultaneously with providing such notice of redemption, the Company shall publish a notice containing this
information in a newspaper of general circulation in The City of New York or publish the information on the Company’s
website or through such other public medium as the Company may use at that time.
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The number of additional ADSs by which the Conversion Rate will be increased in the event the Company elects to
redeem the Notes in respect of a Change in Tax Law will be determined by reference to the table in clause (e) above based
on the Redemption Reference Date and the Redemption Reference Price (each as defined below), but determined for
purposes of this Section 14.03(g) as if (x) the Holder had elected to convert its Notes in connection with a Make-Whole
Fundamental Change, (y) the applicable “Redemption Reference Date” were the “Effective Date” as specified in clause (c)
above and (z) the applicable “Redemption Reference Price” were the “ADS price” as specified in clause (c) above (and
subject, for the avoidance of doubt, to the two paragraphs immediately following such table). For this purpose, the date on
which the Company delivers notice of redemption is the “Redemption Reference Date” and the average of the Last
Reported Sale Prices of the ADSs over the five Trading Day period immediately preceding the date the Company delivers
such notice of redemption is the “Redemption Reference Price.”
Section 14.04 Adjustment of Conversion Rate. If the number of Ordinary Shares represented by the ADSs is
changed, after the date of this Indenture, for any reason other than one or more of the events described in this Section 14.04,
the Company shall make an appropriate adjustment to the Conversion Rate such that the number of Ordinary Shares
represented by the ADSs upon which conversion of the Notes is based remains the same.
Notwithstanding the adjustment provisions described in this Section 14.04, if the Company distributes to holders of
the Ordinary Shares any cash, rights, options, warrants, shares of Capital Stock or similar equity interest, evidences of
indebtedness or other assets or property of the Company (but excluding Expiring Rights) and a corresponding distribution is
not made to holders of the ADSs, but, instead, the ADSs shall represent, in addition to Ordinary Shares, such cash, rights,
options, warrants, shares of Capital Stock or similar equity interest, evidences of indebtedness or other assets or property of
the Company, then an adjustment to the Conversion Rate described in this Section 14.04 shall not be made until and unless a
corresponding distribution (if any) is made to holders of the ADSs, and such adjustment to the Conversion Rate shall be
based on the distribution made to the holders of the ADSs and not on the distribution made to the holders of the Ordinary
Shares. However, in the event that the Company issues or distributes to all holders of the Ordinary Shares any Expiring
Rights, notwithstanding the immediately preceding sentence, the Company shall adjust the Conversion Rate pursuant to
Section 14.04(b) (in the case of Expiring Rights entitling holders of the Ordinary Shares for a period of not more than 45
calendar days after the announcement date of such issuance to subscribe for or purchase Ordinary Shares or ADSs) or
Section 14.04(c) (in the case of all other Expiring Rights).
For the avoidance of doubt, if any event described in this Section 14.04 results in a change to the number of Ordinary
Shares represented by the ADSs, then such a change shall be deemed to satisfy the Company’s obligation to effect the
relevant adjustment to the Conversion Rate on account of such an event to the extent such change reflects what a
corresponding change to the Conversion Rate would have been on account of such event.
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The Conversion Rate shall be adjusted from time to time by the Company if any of the following events occurs,
except that the Company shall not make any adjustments to the Conversion Rate if Holders of the Notes participate (other
than in the case of (x) a share split or share combination or (y) a tender or exchange offer), at the same time and upon the
same terms as holders of the ADSs and solely as a result of holding the Notes, in any of the transactions described in this
Section 14.04, without having to convert their Notes, as if they held a number of ADSs equal to the Conversion Rate,
multiplied by the principal amount (expressed in thousands) of Notes held by such Holder. Neither the Trustee nor the
Conversion Agent shall have any responsibility to monitor the accuracy of any calculation of any adjustment to the
Conversion Rate and the same shall be conclusive and binding on the Holders, absent manifest error. Notice of such
adjustment to the Conversion Rate shall be given by the Company promptly to the Holders, the Trustee, the Paying Agent
and the Conversion Agent and shall be conclusive and binding on the Holders, absent manifest error.
(a)
If the Company exclusively issues Ordinary Shares as a dividend or distribution on the Ordinary Shares, or if
the Company effects a share split or share combination, the Conversion Rate shall be adjusted based on the following
formula:
CR1= CR0 ×
OS1
OS0
where,
CR0
=
CR1
OS0
OS1
=
=
=
the Conversion Rate in effect immediately prior to the close of business on the Record Date for the
ADSs for such dividend or distribution, or immediately prior to the open of business on the effective
date of such share split or share combination, as applicable;
the Conversion Rate in effect immediately after the close of business on such Record Date or
immediately after the open of business on such effective date, as applicable;
the number of Ordinary Shares outstanding immediately prior to the close of business on such Record
Date or immediately prior to the open of business on such effective date, as applicable; and
the number of Ordinary Shares outstanding immediately after giving effect to such dividend,
distribution, share split or share combination.
Any adjustment made under this Section 14.04(a) shall become effective immediately after the close of business on the
Record Date for the ADSs for such dividend or distribution, or immediately after the open of business on the effective date
for such share split or share combination, as applicable. If any dividend or distribution of the type described in this Section
14.04(a) is declared but not so paid or made, the Conversion Rate shall be immediately readjusted, effective as of the date
the Board of Directors determines not to pay such dividend or distribution, to the Conversion Rate that would then be in
effect if such dividend or distribution had not been declared.
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(b)
If the Company issues to all or substantially all holders of the Ordinary Shares (directly or in the form of
ADSs) any rights, options or warrants entitling them, for a period of not more than 45 calendar days after the announcement
date of such issuance, to subscribe for or purchase Ordinary Shares (directly or in the form of ADSs) at a price per Ordinary
Share that is less than the average of the Last Reported Sale Prices of the Ordinary Shares or the ADSs, as the case may be
(divided by, in the case of the ADSs, the number of Ordinary Shares then represented by one ADS), for the 10 consecutive
Trading Day period ending on, and including, the Trading Day immediately preceding the date of announcement of such
issuance, the Conversion Rate shall be increased based on the following formula:
CR1=CR0 ×
OS0 +X
OS0 +Y
where,
CR0
CR1
OS0
X
Y
=
=
=
=
=
the Conversion Rate in effect immediately prior to the close of business on the Record Date for the
ADSs for such issuance;
the Conversion Rate in effect immediately after the close of business on such Record Date;
the number of Ordinary Shares outstanding immediately prior to the close of business on such Record
Date;
the total number of Ordinary Shares (directly or in the form of ADSs) deliverable pursuant to such
rights, options or warrants; and
the number of Ordinary Shares equal to (i) the aggregate price payable to exercise such rights, options
or warrants, divided by (ii) the quotient of (a) the average of the Last Reported Sale Prices of the
ADSs over the 10 consecutive Trading Day period ending on, and including, the Trading Day
immediately preceding the date of announcement of the issuance of such rights, options or warrants
divided by (b) the number of Ordinary Shares then represented by one ADS.
Any increase made under this Section 14.04(b) shall be made successively whenever any such rights, options or warrants are
issued and shall become effective immediately after the close of business on the Record Date for the ADSs for such
issuance. To the extent that Ordinary Shares or ADSs are not delivered after the expiration of such rights, options or
warrants, the Conversion Rate shall be decreased to the Conversion Rate that would then be in effect had the increase with
respect to the issuance of such rights, options or warrants been made on the basis of delivery of only the number of Ordinary
Shares actually delivered (directly or in the form of ADSs). If such rights, options or warrants are not so issued, or if no
such rights, options, or warrants are exercised prior to their expiration, the Conversion Rate shall be decreased to the
Conversion Rate that would then be in effect if such the Record Date for the ADSs for such issuance had not occurred.
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For purposes of this Section 14.04(b), in determining whether any rights, options or warrants entitle the holders to
subscribe for or purchase Ordinary Shares (directly or in the form of ADSs) at a price per Ordinary Share that is less than
such average of the Last Reported Sale Prices of the Ordinary Shares or the ADSs, as the case may be (divided by, in the
case of the ADSs, the number of Ordinary Shares then represented by one ADS), for the 10 consecutive Trading Day period
ending on, and including, the Trading Day immediately preceding the date of announcement for such issuance, and in
determining the aggregate offering price of such Ordinary Shares or ADSs, there shall be taken into account any
consideration received by the Company for such rights, options or warrants and any amount payable on exercise or
conversion thereof, the value of such consideration, if other than cash, to be determined by the Board of Directors.
(c)
If the Company distributes shares of its Capital Stock, evidences of its indebtedness, other assets or property
of the Company or rights, options or warrants to acquire its Capital Stock or other securities, to all or substantially all
holders of the Ordinary Shares (directly or in the form of ADSs), excluding (i) dividends, distributions or issuances as to
which an adjustment was effected pursuant to Section 14.04(a) or Section 14.04(b), (ii) dividends or distributions paid
exclusively in cash as to which an adjustment was effected pursuant to Section 14.04(d), and (iii) Spin-Offs as to which the
provisions set forth below in this Section 14.04(c) shall apply (any of such shares of Capital Stock, evidences of
indebtedness, other assets or property or rights, options or warrants to acquire Capital Stock or other securities of the
Company, the “Distributed Property”), then the Conversion Rate shall be increased based on the following formula:
CR1 = CR0 ×
SP0
SP0−FMV
where,
CR0
CR1
SP0
=
=
=
the Conversion Rate in effect immediately prior to the close of business on the Record Date for the ADSs for
such distribution;
the Conversion Rate in effect immediately after the close of business on such Record Date;
the average of the Last Reported Sale Prices of the ADSs (divided by the number of Ordinary Shares then
represented by one ADS) over the 10 consecutive Trading Day period ending on, and including, the Trading
Day immediately preceding the Ex-Dividend Date for such distribution; and
FMV
=
the fair market value (as determined by the Board of Directors) of the Distributed Property with respect to
each outstanding Ordinary Share (directly or in the form of ADSs) on the Record Date for the ADSs for such
distribution.
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Any increase made under the foregoing portion of this Section 14.04(c) above shall become effective immediately after the
close of business on the Record Date for the ADSs for such distribution. If such distribution is not so paid or made, the
Conversion Rate shall be decreased to the Conversion Rate that would then be in effect had the adjustment been made on the
basis of only distribution, if any, actually paid or made, if such distribution had not been declared. Notwithstanding the
foregoing, if “FMV” (as defined above) is equal to or greater than “SP0” (as defined above), in lieu of the foregoing increase,
each Holder of a Note shall receive, in respect of each US$1,000 principal amount thereof held by such Holder on the
Record Date, at the same time and upon the same terms as holders of the ADSs receive the Distributed Property, the amount
and kind of Distributed Property such Holder would have received if such Holder owned a number of ADSs equal to the
Conversion Rate in effect on the Record Date for the ADSs for the distribution.
With respect to an adjustment pursuant to this Section 14.04(c) where there has been a payment of a dividend or
other distribution on the Ordinary Shares (directly or in the form of ADSs) of shares of Capital Stock of any class or series,
or similar equity interest, of or relating to a Subsidiary or other business unit of the Company, that are, or, when issued, will
be, listed or admitted for trading on a U.S. national securities exchange (a “Spin-Off”), the Conversion Rate shall be
increased based on the following formula:
CR1= CR0 ×
FMV0+MP0
MP0
where,
CR0
CR1
=
=
FMV0
=
the Conversion Rate in effect immediately prior to the close of business on the last Trading Day of the
Valuation Period;
the Conversion Rate in effect immediately after the close of business on the last Trading Day of the
Valuation Period;
the average of the Last Reported Sale Prices of the Capital Stock or similar equity interest distributed
to holders of the Ordinary Shares (directly or in the form of ADSs) applicable to one Ordinary Share
(determined by reference to the definition of Last Reported Sale Price as set forth in Section 1.01 as if
references therein to the ADSs were to such Capital Stock or similar equity interest) over the first 10
consecutive Trading Day period after, and including, the Ex-Dividend Date of the Spin-Off (the
“Valuation Period”); and
MP0
=
the average of the Last Reported Sale Prices of the ADSs (divided by the number of Ordinary Shares
then represented by one ADS) over the Valuation Period.
The adjustment to the Conversion Rate under the preceding paragraph shall occur immediately after the close of business on
the last Trading Day of the Valuation Period; provided that in respect of any conversion during the Valuation Period,
references in the portion of this Section 14.04(c) related to Spin-Offs to 10 Trading Days shall be deemed to be replaced
with such lesser number of Trading Days as have elapsed from, and including, the Ex-Dividend Date of such Spin-Off to,
and including, the Conversion Date in determining the Conversion Rate.
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For purposes of this Section 14.04(c) (and subject in all respect to Section 14.11), rights, options or warrants
distributed by the Company to all holders of the Ordinary Shares (directly or in the form of ADSs) entitling them to
subscribe for or purchase shares of the Company’s Capital Stock, including Ordinary Shares (either initially or under certain
circumstances), which rights, options or warrants, until the occurrence of a specified event or events (“Trigger Event”): (i)
are deemed to be transferred with such Ordinary Shares (directly or in the form of ADSs); (ii) are not exercisable; and (iii)
are also issued in respect of future issuances of the Ordinary Shares (directly or in the form of ADSs), shall be deemed not to
have been distributed for purposes of this Section 14.04(c) (and no adjustment to the Conversion Rate under this Section
14.04(c) will be required) until the occurrence of the earliest Trigger Event, whereupon such rights, options or warrants shall
be deemed to have been distributed and an appropriate adjustment (if any is required) to the Conversion Rate shall be made
under this Section 14.04(c). If any such right, option or warrant, including any such existing rights, options or warrants
distributed prior to the date of this Indenture, are subject to events, upon the occurrence of which such rights, options or
warrants become exercisable to purchase different securities, evidences of indebtedness or other assets, then the date of the
occurrence of any and each such event shall be deemed to be the date of distribution and Record Date with respect to new
rights, options or warrants with such rights (in which case the existing rights, options or warrants shall be deemed to
terminate and expire on such date without exercise by any of the holders thereof). In addition, in the event of any
distribution (or deemed distribution) of rights, options or warrants, or any Trigger Event or other event (of the type described
in the immediately preceding sentence) with respect thereto that was counted for purposes of calculating a distribution
amount for which an adjustment to the Conversion Rate under this Section 14.04(c) was made, (1) in the case of any such
rights, options or warrants that shall all have been redeemed or purchased without exercise by any holders thereof, upon
such final redemption or purchase (x) the Conversion Rate shall be readjusted as if such rights, options or warrants had not
been issued and (y) the Conversion Rate shall then again be readjusted to give effect to such distribution, deemed
distribution or Trigger Event, as the case may be, as though it were a cash distribution, equal to the per Ordinary Share
redemption or purchase price received by a holder or holders of Ordinary Shares (directly or in the form of ADSs) with
respect to such rights, options or warrants (assuming such holder had retained such rights, options or warrants), made to all
holders of Ordinary Shares (directly or in the form of ADSs) as of the date of such redemption or purchase, and (2) in the
case of such rights, options or warrants that shall have expired or been terminated without exercise by any holders thereof,
the Conversion Rate shall be readjusted as if such rights, options and warrants had not been issued.
For purposes of Section 14.04(a), Section 14.04(b) and this Section 14.04(c), if any dividend or distribution to which
this Section 14.04(c) is applicable also includes one or both of:
(A)
a dividend or distribution of Ordinary Shares (directly or in the form of ADSs) to which Section 14.04(a) is
applicable (the “Clause A Distribution”); or
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(B)
B Distribution”),
a dividend or distribution of rights, options or warrants to which Section 14.04(b) is applicable (the “Clause
then (1) such dividend or distribution, other than the Clause A Distribution and the Clause B Distribution, shall be deemed to
be a dividend or distribution to which this Section 14.04(c) is applicable (the “Clause C Distribution”) and any Conversion
Rate adjustment required by this Section 14.04(c) with respect to such Clause C Distribution shall then be made, and (2)
the Clause A Distribution and Clause B Distribution shall be deemed to immediately follow the Clause C Distribution and
any Conversion Rate adjustment required by Section 14.04(a) and Section 14.04(b) with respect thereto shall then be made,
except that, if determined by the Company (I) the “Record Date” of the Clause A Distribution and the Clause B Distribution
shall be deemed to be the Record Date of the Clause C Distribution and (II) any Ordinary Shares (directly or in the form of
ADSs) included in the Clause A Distribution or Clause B Distribution shall be deemed not to be “outstanding immediately
prior to the close of business on such Record Date or immediately after the open of business on such effective date, as
applicable” within the meaning of Section 14.04(a) or “outstanding immediately prior to the close of business on such
Record Date” within the meaning of Section 14.04(b).
(d)
If any cash dividend or distribution is made to all or substantially all holders of the Ordinary Shares (directly
or in the form of ADSs), the Conversion Rate shall be adjusted based on the following formula:
CR1= CR0 ×
SP0
SP0−C
where,
CR0
CR1
SP0
C
=
=
=
=
the Conversion Rate in effect immediately prior to the close of business on the Record Date for the
ADSs for such dividend or distribution;
the Conversion Rate in effect immediately after the close of business on such Record Date;
the Last Reported Sale Price of the ADSs (divided by the number of Ordinary Shares then
represented by one ADS) on the Trading Day immediately preceding the Ex-Dividend Date for such
dividend or distribution; and
the amount in cash per Ordinary Share the Company distributes to all or substantially all holders of
the Ordinary Shares (directly or in the form of ADSs) (for the avoidance of doubt, without giving
effect to any applicable fees and expenses payable to, or withheld by, the Depositary of the ADSs
with respect to such distribution).
Any increase pursuant to this Section 14.04(d) shall become effective immediately after the close of business on the Record
Date for the ADSs for such dividend or distribution. If such dividend or distribution is not so paid, the Conversion Rate
shall be decreased, effective as of the date the Board of Directors determines not to make or pay such dividend or
distribution, to be the Conversion Rate that would then be in effect if such dividend or distribution had not been
declared. Notwithstanding the foregoing, if “C” (as defined above) is equal to or greater than “SP0” (as defined above), in
lieu of the foregoing increase, each Holder of a Note shall receive, for each US$1,000 principal amount of Notes, at the
same time and upon the same terms as holders of the ADSs, the amount of cash that such Holder would have received if
such Holder owned a number of ADSs equal to the Conversion Rate on the Record Date for the ADSs for such cash
dividend or distribution.
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(e)
If the Company or any of its Subsidiaries or Variable Interest Entities makes a payment in respect of a tender
or exchange offer for the Ordinary Shares (directly or in the form of ADSs), to the extent that the cash and value of any
other consideration included in the payment per Ordinary Share exceeds the average of the Last Reported Sale Prices of the
ADSs (divided by the number of Ordinary Shares then represented by one ADS) over the 10 consecutive Trading Day period
commencing on, and including, the Trading Day next succeeding the date such tender or exchange offer expires, the
Conversion Rate shall be increased based on the following formula:
CR1= CR0 ×
AC+
(SP1×OS1)
OS0×SP1
where,
CR0
=
CR1
=
AC
=
OS0
=
OS1
=
SP1
=
the Conversion Rate in effect immediately prior to the close of business on the 10th Trading Day
immediately following, and including, the Trading Day next succeeding the date such tender or
exchange offer expires;
the Conversion Rate in effect immediately after the close of business on the 10th Trading Day
immediately following, and including, the Trading Day next succeeding the date such tender or
exchange offer expires;
the aggregate value of all cash and any other consideration (as determined by the Board of Directors)
paid or payable for Ordinary Shares or ADSs, as the case may be, purchased in such tender or
exchange offer;
the number of Ordinary Shares outstanding immediately prior to the date such tender or exchange
offer expires (prior to giving effect to the purchase of all Ordinary Shares or ADSs, as the case may
be, accepted for purchase or exchange in such tender or exchange offer);
the number of Ordinary Shares outstanding immediately after the date such tender or exchange offer
expires (after giving effect to the purchase of all Ordinary Shares or ADSs, as the case may be,
accepted for purchase or exchange in such tender or exchange offer); and
the average of the Last Reported Sale Prices of the ADSs (divided by the number of Ordinary Shares
then represented by one ADS) over the 10 consecutive Trading Day period commencing on, and
including, the Trading Day next succeeding the date such tender or exchange offer expires.
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The adjustment to the Conversion Rate under this Section 14.04(e) shall occur at the close of business on the 10th Trading
Day immediately following, and including, the Trading Day next succeeding the date such tender or exchange offer expires;
provided that in respect of any conversion within the 10 Trading Days immediately following, and including, the Trading
Day next succeeding the expiration date of any tender or exchange offer, references in this Section 14.04(e) with respect to
10 Trading Days shall be deemed replaced with such lesser number of Trading Days as have elapsed from, and including,
the Trading Day next succeeding the expiration date of such tender or exchange offer to, and including, the Conversion Date
in determining the Conversion Rate. If any conversion occurs on the expiration date of any tender or exchange offer, then,
solely for the purposes of such conversion, the Conversion Date will be deemed to occur on the Trading Day immediately
after the expiration date. For the avoidance of doubt, no adjustment to the Conversion Rate under this Section 14.04(e) shall
be made if such adjustment would result in a decrease in the Conversion Rate.
(f)
[RESERVED]
(g)
Except as stated herein, the Company shall not adjust the Conversion Rate for the issuance of Ordinary
Shares or ADSs or any securities convertible into or exchangeable for Ordinary Shares or ADSs or the right to purchase
Ordinary Shares or ADSs or such convertible or exchangeable securities.
(h)
In addition to those adjustments required by clauses (a), (b), (c), (d) and (e) of this Section 14.04, and to the
extent permitted by Applicable Law and subject to the applicable rules of The New York Stock Exchange and any other
securities exchange on which any of the Company’s securities are then listed, the Company from time to time may increase
the Conversion Rate by any amount for a period of at least 20 Business Days if the Board of Directors determines that such
increase would be in the Company’s best interest, and the Company may (but is not required to) increase the Conversion
Rate to avoid or diminish any income tax to holders of the Ordinary Shares or the ADSs or rights to purchase Ordinary
Shares or ADSs in connection with a dividend or distribution of Ordinary Shares or ADSs (or rights to acquire Ordinary
Shares or ADSs) or similar event.
(i)
Notwithstanding anything to the contrary in this Article 14, the Conversion Rate shall not be adjusted:
(i)
upon the issuance of any Ordinary Shares or ADSs pursuant to any present or future plan providing
for the reinvestment of dividends or interest payable on the Company’s securities and the investment of additional
optional amounts in Ordinary Shares or ADSs under any plan;
(ii)
upon the issuance of any Ordinary Shares or ADSs or options or rights to purchase those Ordinary
Shares or ADSs pursuant to any present or future employee, director or consultant benefit plan or program of or
assumed by the Company or any of the Company’s Subsidiaries or Variable Interest Entities;
(iii)
upon the issuance of any Ordinary Shares or ADSs pursuant to any option, warrant, right or
exercisable, exchangeable or convertible security not described in clause (ii) of this subsection and outstanding as of
the date the Notes were first issued;
(iv)
solely for a change in the par value of the Ordinary Shares; or
(v)
for accrued and unpaid interest, if any.
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(j)
All calculations and other determinations under this Article 14 shall be made by the Company and shall be
made to the nearest one-ten thousandth (1/10,000) of an ADS.
(k)
Whenever the Conversion Rate is adjusted as herein provided, the Company shall promptly file with the
Trustee (and the Conversion Agent if not the Trustee) an Officers’ Certificate setting forth the Conversion Rate after such
adjustment and setting forth a brief statement of the facts requiring such adjustment. Unless and until a Responsible Officer
of the Trustee and the Conversion Agent shall have received such Officers’ Certificate, neither the Trustee nor the
Conversion Agent shall be deemed to have knowledge of any adjustment of the Conversion Rate and may assume without
inquiry that the last Conversion Rate of which it has knowledge is still in effect. Promptly after delivery of such certificate,
the Company shall prepare a notice of such adjustment of the Conversion Rate setting forth the adjusted Conversion Rate
and the date on which each adjustment becomes effective and shall mail such notice of such adjustment of the Conversion
Rate to each Holder at its last address appearing on the Note Register of this Indenture. Failure to deliver such notice shall
not affect the legality or validity of any such adjustment.
(l)
For purposes of this Section 14.04, the number of Ordinary Shares at any time outstanding shall not include
Ordinary Shares held in the treasury of the Company (directly or in the form of ADSs) so long as the Company does not pay
any dividend or make any distribution on Ordinary Shares held in the treasury of the Company (directly or in the form of
ADSs), but shall include Ordinary Shares issuable in respect of scrip certificates issued in lieu of fractions of Ordinary
Shares.
(m)
For purposes of this Section 14.04, the “effective date” means the first date on which the ADSs trade on the
applicable exchange or in the applicable market, regular way, reflecting the relevant share split or share combination, as
applicable.
Section 14.05 Adjustments of Prices. Whenever any provision of this Indenture requires the Company to calculate
the Last Reported Sale Prices, the ADS Price for purposes of a Make-Whole Fundamental Change or the Redemption
Reference Price for purposes of a redemption of the Notes in connection with a Change in Tax Law over a span of multiple
days, the Board of Directors shall make appropriate adjustments to each to account for any adjustment to the Conversion
Rate that becomes effective pursuant to Section 14.04, or any event requiring an adjustment to the Conversion Rate pursuant
to Section 14.04 where the Record Date, effective date or expiration date, as the case may be, of the event occurs, at any
time during the period when such Last Reported Sale Prices or ADS Prices are to be calculated.
Section 14.06 Ordinary Shares to Be Fully Paid. The Company shall provide, free from preemptive rights, out of its
authorized but unissued Ordinary Shares or Ordinary Shares held in treasury, a sufficient number of Ordinary Shares that
corresponds to the number of ADSs due upon conversion of the Notes from time to time as such Notes are presented for
conversion (assuming that at the time of computation of such number of Ordinary Shares, all such Notes would be converted
by a single Holder).
Section 14.07 Effect of Recapitalizations, Reclassifications and Changes of the Ordinary Shares.
(a) In the case of:
(i)
any recapitalization, reclassification or change of the Ordinary Shares (other than changes resulting
from a subdivision or combination),
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(ii)
any consolidation, merger, combination or similar transaction involving the Company,
(iii)
any sale, lease or other transfer to a third party of the consolidated assets of the Company and the
Company’s Subsidiaries and Variable Interest Entities substantially as an entirety or
(iv)
any statutory share exchange,
in each case, as a result of which the Ordinary Shares would be converted into, or exchanged for, stock, other securities,
other property or assets (including cash or any combination thereof) (any such event, a “Merger Event”), then, prior to or at
the effective time of such Merger Event, the Company or the successor or purchasing Person, as the case may be, shall
execute with the Trustee a supplemental indenture permitted under Section 10.01(f) providing that, at and after the effective
time of such Merger Event, the right to convert each US$1,000 principal amount of Notes shall be changed into a right to
convert such principal amount of Notes into the kind and amount of shares of stock, other securities or other property or
assets (including cash or any combination thereof) that a holder of a number of ADSs equal to the Conversion Rate
immediately prior to such Merger Event would have owned or been entitled to receive (the “Reference Property,” with
each “unit of Reference Property” meaning the kind and amount of Reference Property that a holder of one ADS is entitled
to receive) upon such Merger Event; provided, however, that at and after the effective time of the Merger Event the number
of ADSs otherwise deliverable upon conversion of the Notes in accordance with Section 14.02 shall instead be deliverable in
the amount and type of Reference Property that a holder of that number of ADSs would have been entitled to receive in such
Merger Event.
If the Merger Event causes the Ordinary Shares to be converted into, or exchanged for, the right to receive more than
a single type of consideration (determined based in part upon any form of holder election), then (i) the Reference Property
into which the Notes will be convertible shall be deemed to be the weighted average of the types and amounts of
consideration actually received by the holders of the ADSs and (ii) the unit of Reference Property for purposes of the
immediately preceding paragraph shall refer to the consideration referred to in clause (i) attributable to one ADS. The
Company shall provide written notice to Holders, the Trustee and the Conversion Agent (if other than the Trustee) of such
weighted average as soon as practicable after such determination is made.
Such supplemental indenture described in the second immediately preceding paragraph shall provide for anti-dilution
and other adjustments that shall be as nearly equivalent as is practicable to the adjustments provided for in this Article
14. If, in the case of any Merger Event, the Reference Property includes shares of stock, securities or other property or
assets (including cash or any combination thereof) of a Person other than the Company or the successor or purchasing
Person, as the case may be, in such Merger Event, then such other Person shall also execute such supplemental indenture,
and such supplemental indenture shall contain such additional provisions to protect the interests of the Holders of the Notes,
including the right of Holders to require the Company to repurchase their Notes upon a Fundamental Change pursuant to
Section 15.02 and the right of Holders to require the Company to repurchase their Notes on the Repurchase Date pursuant to
Section 15.01, as the Board of Directors shall reasonably consider necessary by reason of the foregoing.
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(b)
[RESERVED]
(c)
The Company shall not become a party to any Merger Event unless its terms are consistent with this Section
14.07. None of the foregoing provisions shall affect the right of a holder of Notes to convert its Notes into ADSs as set forth
in Section 14.01 and Section 14.02 prior to the effective date of such Merger Event.
(d)
The above provisions of this Section shall similarly apply to successive Merger Events.
Section 14.08 Certain Covenants. (a) The Company covenants that all ADSs delivered upon conversion of Notes,
and all Ordinary Shares represented by such ADSs, will be fully paid and non-assessable by the Company and free from all
Taxes, liens and charges with respect to the issue thereof.
(b)
The Company covenants that, if any ADSs to be provided for the purpose of conversion of Notes hereunder,
or any Ordinary Shares represented by such ADSs, require registration with or approval of any governmental Authority
under any federal or state law before such ADSs may be validly issued upon conversion, the Company will, to the extent
then permitted by the rules and interpretations of the Commission, secure such registration or approval, as the case may be.
(c)
The Company further covenants that if at any time the ADSs shall be listed on any national securities
exchange or automated quotation system the Company will list and keep listed, so long as the ADSs shall be so listed on
such exchange or automated quotation system, any ADSs deliverable upon conversion of the Notes.
(d)
The Company further covenants to take all actions and obtain all approvals and registrations as are
necessary or appropriate with respect to the conversion of the Notes into ADSs and the issuance, and deposit into the ADS
facility, of the Ordinary Shares represented by such ADSs. The Company also undertakes to maintain at all times, for the
benefit of the Holders, a number of ADSs available for issuance under a registration statement on Form F-6 equal to at least
the maximum number of ADSs potentially required to satisfy conversions of the Notes from time to time as Notes are
presented for conversion (with such maximum number of ADSs determined for such purpose assuming the maximum
number of additional ADSs have been added to the applicable Conversion Rate pursuant to Section 14.02 hereof). In
addition, the Company further covenants to provide Holders with a reasonably detailed description of the mechanics for the
delivery of ADSs upon conversion of Notes as set forth in the Deposit Agreement upon request.
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Section 14.09 Responsibility of Trustee. The Trustee, the Paying Agent and any other Conversion Agent shall not at
any time be under any duty or responsibility to any Holder to determine the Conversion Rate (or any adjustment thereto) or
whether any facts exist that may require any adjustment (including any increase) of the Conversion Rate, or with respect to
the nature or extent or calculation of any such adjustment when made, or with respect to the method employed, or herein or
in any supplemental indenture provided to be employed, in making the same. The Trustee, the Paying Agent and any other
Conversion Agent shall not be accountable with respect to the validity or value (or the kind or amount) of any ADSs, or of
any securities, property or cash that may at any time be issued or delivered upon the conversion of any Note; and the
Trustee, the Paying Agent and any other Conversion Agent make no representations with respect thereto. Neither the
Trustee, the Paying Agent nor any Conversion Agent shall be responsible for any failure of the Company to issue, transfer or
deliver any ADSs or stock certificates or other securities or property or cash upon the surrender of any Note for the purpose
of conversion, the accuracy or inaccuracy of any mathematical calculation or formulae under this Indenture, whether by the
Company or any Person so authorized by the Company for such purpose under this Indenture or the failure by the Company
to comply with any of the duties, responsibilities or covenants of the Company contained in this Article. Without limiting
the generality of the foregoing, neither the Trustee, the Paying Agent nor any Conversion Agent shall be under any
responsibility to determine the correctness of any provisions contained in any supplemental indenture entered into pursuant
to Section 14.07 relating either to the kind or amount of ADSs or securities or property (including cash) receivable by
Holders upon the conversion of their Notes after any event referred to in such Section 14.07 or to any adjustment to be made
with respect thereto, but, subject to the provisions of Section 7.01, may accept (without any independent investigation) as
conclusive evidence of the correctness of any such provisions, and shall be protected in relying upon, the Officers’
Certificate (which the Company shall be obligated to file with the Trustee prior to the execution of any such supplemental
indenture) with respect thereto. The parties agree that all notices to the Trustee, the Paying Agent or the Conversion Agent
under this Article 14 shall be in writing.
Section 14.10 Notice to Holders Prior to Certain Actions. In case of any:
(a)
action by the Company or one of its Subsidiaries that would require an adjustment in the Conversion Rate
pursuant to Section 14.04 or Section 14.11;
(b)
(c)
Merger Event; or
voluntary or involuntary dissolution, liquidation or winding-up of the Company or any of its Subsidiaries;
then, in each case (unless notice of such event is otherwise required pursuant to another provision of this Indenture), the
Company shall cause to be filed with the Trustee and the Conversion Agent (if other than the Trustee) and to be mailed to
each Holder at its address appearing on the Note Register, as promptly as possible but in any event at least 20 days prior to
the applicable date hereinafter specified, a notice stating (i) the date on which a record is to be taken for the purpose of such
action by the Company or one of its Subsidiaries or, if a record is not to be taken, the date as of which the holders of
Ordinary Shares or ADSs, as the case may be, of record are to be determined for the purposes of such action by the
Company or one of its Subsidiaries, or (ii) the date on which such Merger Event, dissolution, liquidation or winding-up is
expected to become effective or occur, and the date as of which it is expected that holders of Ordinary Shares or ADSs, as
the case may be, of record shall be entitled to exchange their Ordinary Shares or ADSs, as the case may be, for securities or
other property deliverable upon such Merger Event, dissolution, liquidation or winding-up. Failure to give such notice, or
any defect therein, shall not affect the legality or validity of such action by the Company or one of its Subsidiaries, Merger
Event, dissolution, liquidation or winding-up.
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Section 14.11 Stockholder Rights Plans. To the extent that the Company has a rights plan in effect upon conversion
of the Notes, each ADS delivered upon such conversion shall be entitled to receive (either directly or in respect of the
Ordinary Shares underlying such ADSs) the appropriate number of rights, if any, and the certificates representing the ADSs
delivered upon such conversion shall bear such legends, if any, in each case as may be provided by the terms of any such
stockholder rights plan, as the same may be amended from time to time. However, if, prior to any conversion, the rights
have separated from the Ordinary Shares underlying the ADSs in accordance with the provisions of the applicable
stockholder rights plan, the Conversion Rate shall be adjusted at the time of separation as if the Company distributed to all
or substantially all holders of the Ordinary Shares Distributed Property as provided in Section 14.04(c), subject to
readjustment in the event of the expiration, termination or redemption of such rights.
Section 14.12 Termination of Depositary Receipt Program. If the Ordinary Shares cease to be represented by
American Depositary Shares issued under a depositary receipt program sponsored by the Company, all references in this
Indenture to the ADSs shall be deemed to have been replaced by a reference to the number of Ordinary Shares (and other
property, if any) represented by the ADSs on the last day on which the ADSs represented the Ordinary Shares and as if the
Ordinary Shares and the other property had been distributed to holders of the ADSs on that day. In addition, all references
to the Last Reported Sale Price of the ADSs will be deemed to refer to the Last Reported Sale Price of the Ordinary Shares,
and other appropriate adjustments, including adjustments to the Conversion Rate, will be made to reflect such change. In
making such adjustments, where currency translations between U.S. dollars and any other currency are required, the
exchange rate in effect on the date of determination will apply.
ARTICLE 15
REPURCHASE OF NOTES AT OPTION OF HOLDERS
Section 15.01 Repurchase at Option of Holders.
(a)
Each Holder shall have the right, at such Holder’s option, to require the Company to repurchase for cash on
September 30, 2022 (the “Repurchase Date”), all of such Holder’s Notes, or any portion thereof that is an integral multiple
of US$1,000 principal amount, at a repurchase price (the “Repurchase Price”) that is equal to 100% of the principal amount
of the Notes to be repurchased, plus accrued and unpaid interest to, but excluding, the Repurchase Date; provided that any
such accrued and unpaid interest shall be paid not to the Holders submitting the Notes for repurchase on the Repurchase
Date but instead to the Holders of such Notes at the close of business on the Regular Record Date immediately preceding the
Repurchase Date. Not later than 20 Business Days prior to the Repurchase Date, the Company shall mail a notice (the
“Company Notice”) by first class mail to the Trustee, to the Paying Agent, the Conversion Agent if other than the Trustee
and to each Holder at its address shown in the Note Register of the Note Registrar (and to beneficial owners as required by
Applicable Law and to the Conversion Agent if other than the Trustee). The Company Notice shall include a Form of
Repurchase Notice to be completed by a holder and shall state:
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(i)
the last date on which a Holder may exercise its repurchase right pursuant to this Section 15.01 (the
“Repurchase Expiration Time”);
(ii)
the Repurchase Price;
(iii)
the Repurchase Date;
(iv)
the name and address of the Conversion Agent and Paying Agent;
(v)
that the Notes with respect to which a Repurchase Notice has been delivered by a Holder may be
converted only if the Holder withdraws the Repurchase Notice in accordance with the terms of this Indenture;
(vi)
that the Holder shall have the right to withdraw any Notes surrendered prior to the Repurchase
Expiration Time; and
(vii)
the procedures a Holder must follow to exercise its repurchase rights under this Section 15.01 and a
brief description of those rights.
At the Company’s request, the Trustee shall give such notice in the Company’s name and at the Company’s
expense; provided, however, that, in all cases, the text of such Company Notice shall be prepared by the Company.
Simultaneously with providing the Company Notice, the Company shall publish a notice containing the information
included in the Company Notice in a newspaper of general circulation in The City of New York or publish such information
on the Company’s website or through such other public medium as the Company may use at that time.
No failure of the Company to give the foregoing notices and no defect therein shall limit the Holders’ repurchase
rights or affect the validity of the proceedings for the repurchase of the Notes pursuant to this Section 15.01.
Repurchases of Notes under this Section 15.01 shall be made, at the option of the Holder thereof, upon:
(A)
delivery to the Paying Agent (or other agent appointed for such purpose) by the Holder of a
duly completed notice (the “Repurchase Notice”) in the form set forth in Attachment 3 to the Form of Note
attached hereto as Exhibit A, if the Notes are Physical Notes, or in compliance with the Depositary’s
procedures for surrendering interests in global notes, if the Notes are Global Notes, in each case during the
period beginning at any time from the open of business on the date that is 20 Business Days prior to the
Repurchase Date until the close of business on the second Business Day immediately preceding
the Repurchase Date; and
(B)
delivery of the Notes, if the Notes are Physical Notes, to the Trustee at any time after delivery
of the Repurchase Notice (together with all necessary endorsements) at the specified office of the Paying
Agent or other Agent appointed for such purpose, or book-entry transfer of the Notes, if the Notes are Global
Notes, in compliance with the procedures of the Depositary, in each case such delivery being a condition to
receipt by the Holder of the Repurchase Price therefor.
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Each Repurchase Notice shall state:
(A)
repurchase;
in the case of Physical Notes, the certificate numbers of the Notes to be delivered for
(B)
the portion of the principal amount of the Notes to be repurchased, which must be US$1,000
or an integral multiple thereof; and
(C)
that the Notes are to be repurchased by the Company pursuant to the applicable provisions of
the Notes and this Indenture;
provided, however, that if the Notes are Global Notes, the Repurchase Notice must comply with appropriate Depositary
procedures.
Notwithstanding anything herein to the contrary, any Holder delivering to the Paying Agent or other Agent appointed
for such purpose the Repurchase Notice contemplated by this Section 15.01 shall have the right to withdraw, in whole or in
part, such Repurchase Notice at any time prior to the close of business on the second Business Day immediately preceding
the Repurchase Date by delivery of a duly completed written notice of withdrawal to the Paying Agent or other Agent
appointed for such purpose in accordance with Section 15.03.
The Paying Agent or other agent appointed for such purpose shall as soon as practicable notify the Company of the
receipt by it of any Repurchase Notice or written notice of withdrawal thereof.
No Repurchase Notice with respect to any Notes may be delivered and no Note may be surrendered for repurchase
pursuant to this Section 15.01 by a Holder thereof to the extent such Holder has also delivered a Fundamental Change
Repurchase Notice with respect to such Note in accordance with Section 15.02 and not validly withdrawn such Fundamental
Change Repurchase Notice in accordance with Section 15.03.
(b)
Notwithstanding the foregoing, no Notes may be repurchased by the Company at the option of the Holders
on the Repurchase Date if the principal amount of the Notes has been accelerated, and such acceleration has not been
rescinded, on or prior to such Repurchase Date (including as a result of the payment of the Repurchase Price with respect to
such Notes and any related interest described in this Indenture on the Redemption Date). The Trustee will promptly return
to the respective Holders thereof any Physical Notes held by it during the acceleration of the Notes (including as a result of
the payment of the Repurchase Price with respect to such Notes and any related interest described in this Indenture on the
Redemption Date), or any instructions for book-entry transfer of the Notes in compliance with the procedures of the
Depositary shall be deemed to have been cancelled, and, upon such return or cancellation, as the case may be, the
Repurchase Notice with respect thereto shall be deemed to have been withdrawn.
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Section 15.02 Repurchase at Option of Holders Upon a Fundamental Change. (a) If a Fundamental Change occurs
at any time, each Holder shall have the right, at such Holder’s option, to require the Company to repurchase for cash all of
such Holder’s Notes, or any portion thereof that is equal to US$1,000 or an integral multiple of US$1,000, on the Business
Day (the “Fundamental Change Repurchase Date”) notified in writing by the Company as set forth in Section 15.02(c)
that is not less than 20 Business Days or more than 35 Business Days following the date of the Fundamental Change
Company Notice at a repurchase price equal to 100% of the principal amount thereof, plus accrued and unpaid interest
thereon to, but excluding, the Fundamental Change Repurchase Date (the “Fundamental Change Repurchase Price”),
unless the Fundamental Change Repurchase Date falls after a Regular Record Date but on or prior to the Interest Payment
Date to which such Regular Record Date relates, in which case the Company shall instead pay the full amount of accrued
and unpaid interest to Holders of record as of such Regular Record Date, and the Fundamental Change Repurchase Price
shall be equal to 100% of the principal amount of Notes to be repurchased pursuant to this Article 15. The Trustee and the
Conversion Agent, Paying Agent or any other agent appointed for such purpose shall have no responsibility to determine the
Fundamental Change Repurchase Price.
(b)
Repurchases of Notes under this Section 15.02 shall be made, at the option of the Holder thereof, upon:
(i)
delivery to the Paying Agent (or other agent appointed for this purpose) by a Holder of a duly
completed notice (the “Fundamental Change Repurchase Notice”) in the form set forth in Attachment 2 to the
Form of Note attached hereto as Exhibit A, if the Notes are Physical Notes, or in compliance with the Depositary’s
procedures for surrendering interests in global notes, if the Notes are Global Notes, in each case on or before the
close of business on the second Business Day immediately preceding the Fundamental Change Repurchase Date; and
(ii)
delivery of the Notes, if the Notes are Physical Notes, to the Paying Agent or other Agent appointed
for such purpose at any time after delivery of the Fundamental Change Repurchase Notice (together with all
necessary endorsements for transfer) at the Corporate Trust Office as set forth in the Fundamental Change
Repurchase Notice, or book-entry transfer of the Notes, if the Notes are Global Notes, in compliance with the
procedures of the Depositary, in each case such delivery being a condition to receipt by the Holder of the
Fundamental Change Repurchase Price therefor.
The Fundamental Change Repurchase Notice in respect of any Notes to be repurchased shall state:
(i)
(ii)
in the case of Physical Notes, the certificate numbers of the Notes to be delivered for repurchase;
the portion of the principal amount of Notes to be repurchased, which must be US$1,000 or an
integral multiple thereof; and
(iii)
that the Notes are to be repurchased by the Company pursuant to the applicable provisions of the
Notes and this Indenture; provided, however, that if the Notes are Global Notes, the Fundamental Change
Repurchase Notice must comply with appropriate Depositary procedures.
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Notwithstanding anything herein to the contrary, any Holder delivering to the Paying Agent the Fundamental Change
Repurchase Notice contemplated by this Section 15.02 shall have the right to withdraw, in whole or in part, such
Fundamental Change Repurchase Notice at any time prior to the close of business on the second Business Day immediately
preceding the Fundamental Change Repurchase Date by delivery of a duly completed written notice of withdrawal to the
Paying Agent in accordance with Section 15.03.
The Paying Agent or other agent appointed for such purpose shall promptly notify the Company and the Trustee of
the receipt by it of any Fundamental Change Repurchase Notice or written notice of withdrawal thereof.
No Fundamental Change Repurchase Notice with respect to any Notes may be delivered and no Note may be
surrendered by a Holder for repurchase thereof if such Holder has also surrendered a Repurchase Notice in accordance with
Section 15.01 and not validly withdrawn such Repurchase Notice in accordance with Section 15.03.
(c)
On or before the 20th calendar day after the occurrence of the effective date of a Fundamental Change, the
Company shall provide to all Holders, the Trustee (and the Conversion Agent, Paying Agent and any other agent appointed
for this purpose, in each case, if other than the Trustee) a written notice (the “Fundamental Change Company Notice”) of
the occurrence of the effective date of the Fundamental Change and of the repurchase right at the option of the Holders
arising as a result thereof. In the case of Physical Notes, such notice shall be by first class mail or, in the case of Global
Notes, such notice shall be delivered in accordance with the applicable procedures of the Depositary. Simultaneously with
providing such notice, the Company shall publish a notice containing the information set forth in the Fundamental Change
Company Notice in a newspaper of general circulation in The City of New York or publish such information on the
Company’s website or through such other public medium as the Company may use at that time. Each Fundamental Change
Company Notice shall specify:
(i)
the events causing the Fundamental Change and whether such events also constitute a Make-Whole
Fundamental Change;
(ii)
the effective date of the Fundamental Change;
(iii)
the last date on which a Holder may exercise the repurchase right pursuant to this Article 15;
(iv)
the Fundamental Change Repurchase Price;
(v)
the Fundamental Change Repurchase Date;
(vi)
the name and address of the Trustee, the Paying Agent, the Conversion Agent or any other agent
appointed for repurchase, if applicable;
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(vii)
if applicable, the Conversion Rate and any adjustments to the Conversion Rate as a result of such
Fundamental Change if it is a Make-Whole Fundamental Change;
(viii)
if applicable, that the Notes with respect to which a Fundamental Change Repurchase Notice has
been delivered by a Holder may be converted only if the Holder withdraws the Fundamental Change Repurchase
Notice in accordance with the terms of this Indenture; and
(ix)
the procedures that Holders must follow to require the Company to repurchase their Notes.
No failure of the Company to give the foregoing notices and no defect therein shall limit the Holders’ repurchase
rights or affect the validity of the proceedings for the repurchase of the Notes pursuant to this Section 15.02.
(d)
Notwithstanding the foregoing, no Notes may be repurchased by the Company on any date at the option of
the Holders upon a Fundamental Change if the principal amount of the Notes has been accelerated, and such acceleration has
not been rescinded, on or prior to such date (including as a result of the payment of the Fundamental Change Repurchase
Price with respect to such Notes and any related interest described in this Indenture on the Fundamental Change Repurchase
Date). The Trustee will promptly return to the respective Holders thereof any Physical Notes held by it during the
acceleration of the Notes (including as a result of the payment of the Fundamental Change Repurchase Price with respect to
such Notes and any related interest described in this Indenture on the Fundamental Change Repurchase Date), or any
instructions for book-entry transfer of the Notes in compliance with the procedures of the Depositary shall be deemed to
have been cancelled, and, upon such return or cancellation, as the case may be, the Fundamental Change Repurchase Notice
with respect thereto shall be deemed to have been withdrawn.
Section 15.03 Withdrawal of Repurchase Notice or Fundamental Change Repurchase Notice. (a) A Repurchase
Notice or Fundamental Change Repurchase Notice may be withdrawn (in whole or in part) by means of a duly completed
written notice of withdrawal delivered to the Trustee and the Paying Agent (or other agent appointed for such purpose) in
accordance with this Section 15.03 at any time prior to the close of business on the second Business Day immediately
preceding the Repurchase Date or prior to the close of business on the second Business Day immediately preceding the
Fundamental Change Repurchase Date, as the case may be, specifying:
(i)
(ii)
the principal amount of the Notes with respect to which such notice of withdrawal is being submitted,
if Physical Notes have been issued, the certificate number of the Note in respect of which such notice
of withdrawal is being submitted, and
(iii)
the principal amount, if any, of such Note that remains subject to the original Repurchase Notice or
Fundamental Change Repurchase Notice, as the case may be, which portion must be in principal amounts of
US$1,000 or an integral multiple of US$1,000; provided, however, that if the Notes are Global Notes, the notice
must comply with appropriate procedures of the Depositary.
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Section 15.04 Deposit of Repurchase Price or Fundamental Change Repurchase Price. (a)The Company will deposit
with the Paying Agent (or any other agent appointed for this purpose by the Company, or if the Company is acting as its own
Paying Agent, set aside, segregate and hold in trust as provided in Section 4.04) on or prior to 11:00 a.m., New York City
time, one Business Day prior to the Repurchase Date or Fundamental Change Repurchase Date, as the case may be, an
amount of money sufficient to repurchase all of the Notes to be repurchased at the appropriate Repurchase Price or
Fundamental Change Repurchase Price; provided, however, that to the extent any such deposit is received by the Paying
Agent after 11:00 a.m., New York City time on any Repurchase Date or Fundamental Change Repurchase Date, such
deposit will be deemed deposited on the next Business Day. Subject to receipt of funds and/or Notes by the Paying Agent
(or other agent appointed for this purpose by the Company) and the Trustee, as applicable, payment for Notes surrendered
for repurchase (and not withdrawn in accordance with Section 15.03) will be made on the later of (i) the Repurchase Date or
Fundamental Change Repurchase Date, as the case may be, (provided the Holder has satisfied the conditions in Section
15.01 or Section 15.02, as the case may be) and (ii) the time of book-entry transfer or the delivery of such Note to the Paying
Agent (or other agent appointed by the Company) by the Holder thereof in the manner required by Section 15.01 or Section
15.02, as applicable, by a wire transfer of the immediately available funds in the amount payable to the Holders of such
Notes entitled thereto as they shall appear in the Note Register; provided, however, that payments to the Depositary shall be
made by wire transfer of immediately available funds to the account of the Depositary or its nominee. The Paying Agent (or
other agent appointed for this purpose by the Company) shall, promptly after such payment and upon written demand by the
Company, return to the Company any funds in excess of the Repurchase Price or Fundamental Change Repurchase Price, as
the case may be.
(b)
If by 11:00 a.m., New York City time, on the Repurchase Date or Fundamental Change Repurchase Date
(subject to extension in order to allow the Company to comply with Applicable Law), as the case may be, the Paying Agent
(or other agent appointed for this purpose by the Company) holds money sufficient to make payment on all the Notes or
portions thereof that are to be repurchased on such Repurchase Date or Fundamental Change Repurchase Date, or, if
extended in order to allow the Company to comply with Applicable Law, as the case may be, such later date, then, with
respect to the Notes that have been properly surrendered for repurchase and not validly withdrawn, on such Repurchase Date
or Fundamental Change Repurchase Date, as the case may be, (i) such Notes will cease to be outstanding, (ii) interest will
cease to accrue on such Notes on the Repurchase Date or Fundamental Change Repurchase Date, as the case may be,
(whether or not book-entry transfer of the Notes has been made or the Notes have been delivered to the Trustee) and (iii) all
other rights of the Holders of such Notes will terminate on the Repurchase Date or Fundamental Change Repurchase Date,
as the case may be, or, if extended in order to allow the Company to comply with Applicable Law, such later date (other
than (x) the right to receive the Repurchase Price or Fundamental Change Repurchase Price, as the case may be, and (y)
previously accrued and unpaid interest upon delivery or transfer of the Notes to the extent not included in the Repurchase
Price or Fundamental Change Repurchase Price, as the case may be).
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(c)
Upon surrender of a Note that is to be repurchased in part pursuant to Section 15.01 or Section 15.02, the
Company shall execute and, upon receipt of a Company Order, the Trustee, upon receipt of a Company Order, shall
authenticate and deliver to the Holder a new Note in an authorized denomination equal in principal amount to the
unrepurchased portion of the Note surrendered.
Section 15.05 Covenant to Comply with Applicable Laws Upon Repurchase of Notes. In connection with any
repurchase offer, the Company will, if required:
(a)
comply with the provisions of Rule 13e-4, Rule 14e-1 and any other tender offer rules under the Exchange
Act;
(b)
(c)
file a Schedule TO or other required schedule under the Exchange Act; and
otherwise comply with all federal and state securities laws in connection with any offer by the Company to
repurchase the Notes;
in each case, so as to permit the rights and obligations under this Article 15 to be exercised in the time and in the
manner specified in this Article 15.
ARTICLE 16
OPTIONAL REDEMPTION
Section 16.01 Optional Redemption for Changes in the Tax Law of the Relevant Taxing Jurisdiction. Other than as
described in this Article 16, the Notes may not be redeemed by the Company at its option prior to maturity. If the Company
has, or on the next Interest Payment Date would, become obligated to pay to the Holder of any Note Additional Amounts
that are more than a de minimis amount, as a result of:
(a)
any change or amendment which is not publicly announced before, and becomes effective after, September
12, 2019 (or, if the Relevant Taxing Jurisdiction was not a Relevant Taxing Jurisdiction on such date, the date on which such
Relevant Taxing Jurisdiction became a Relevant Taxing Jurisdiction under this Indenture) in the laws or any rules or
regulations of a Relevant Taxing Jurisdiction; or
(b)
any change which is not publicly announced before, and becomes effective on or after, September 12, 2019
(or, if the Relevant Taxing Jurisdiction was not a Relevant Taxing Jurisdiction on such date, the date on which such
Relevant Taxing Jurisdiction became a Relevant Taxing Jurisdiction under this Indenture) in any written interpretation,
administration or application of such laws, rules or regulations by any legislative body, court, governmental agency, taxing
authority or regulatory or administrative authority of such Relevant Taxing Jurisdiction (including the enactment of any
legislation and the announcement or publication of any judicial decision or regulatory or administrative interpretation or
determination);
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(each, a “Change in Tax Law”), the Company may, at its option, redeem all but not part of the Notes (except in respect of
certain Holders that elect otherwise as described below) at a redemption price equal to 100% of the principal amount thereof
(the “Redemption Price”), plus accrued and unpaid interest, if any, to, but not including, the date fixed by the Company for
redemption (the “Redemption Date”), including, for the avoidance of doubt, any Additional Amounts with respect to such
Redemption Price; provided that the Company may only redeem the Notes if: (i) the Company cannot avoid such obligations
by taking reasonable measures available to the Company (provided that changing the jurisdiction of incorporation of the
Company shall be deemed not to be a reasonable measure); and (ii) prior to or simultaneously with the notice of redemption,
the Company delivers to the Trustee an opinion of outside legal counsel of recognized standing in the Relevant Taxing
Jurisdiction specializing in taxation that the Company has or will become, on or before the Redemption Date, obligated to
pay such Additional Amounts as a result of a Change in Tax Law and an Officers’ Certificate stating that such obligation
cannot be avoided by taking reasonable measures available to the Company. The Trustee shall and is entitled to rely upon
such opinion and Officers’ Certificate (without further investigation and enquiry) and it shall be conclusive and binding on
the Holders.
Notwithstanding anything to the contrary in this Article 16, neither the Company nor any successor Person may
redeem any of the Notes in the case that Additional Amounts are payable in respect of PRC withholding tax and any other
tax collected at source at the Applicable PRC Rate or less solely as a result of the Company or its successor Person being
considered a PRC tax resident under the PRC Enterprise Income Tax Law.
If the Redemption Date occurs after a Regular Record Date and on or prior to the corresponding Interest Payment
Date, the Company shall pay or cause the Paying Agent to pay, on or at its election, before such Interest Payment Date, the
full amount of accrued and unpaid interest, if any, and any Additional Amounts with respect to such interest, due on such
Interest Payment Date to the record holder of the Notes on the Regular Record Date corresponding to such Interest Payment
Date, and the Redemption Price shall be equal to 100% of the principal amount of such Note to be redeemed, including, for
the avoidance of doubt, any Additional Amounts with respect to such Redemption Price. The Company shall notify the
Trustee in writing of its election and the date on which such interest and any Additional Amounts with respect to such
interest shall be paid at the time the Company provides notice of such redemption.
The Company shall give the Trustee and Holders of Notes not less than 30 days’ but no more than 60 days’ notice of
redemption prior to the Redemption Date. Simultaneously with providing such notice, the Company shall publish a notice
containing this information in a newspaper of general circulation in The City of New York or publish the information on the
Company’s website or through such other public medium as the Company may use at that time. The Redemption Date must
be a Business Day. The notice of redemption may not be revoked or subject to conditions, and outstanding Notes will
become due and payable at the redemption price on the redemption date specified in the related notice.
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Upon receiving such notice of redemption, each Holder shall have the right to elect to not have its Notes redeemed,
provided that (i) the Company shall not be obligated to pay any Additional Amounts on any payment with respect to such
Notes solely as a result of such Change in Tax Law that resulted in the obligation to pay such Additional Amounts (whether
upon conversion, required repurchase in connection with a Fundamental Change or on the Repurchase Date, at maturity or
otherwise, and whether in ADSs, Reference Property or otherwise) after the Redemption Date (or, if the Company fails to
pay the Redemption Price on the Redemption Date, such later date on which the Company pays the Redemption Price), and
(ii) all future payments with respect to such Notes shall be subject to the deduction or withholding of any taxes of such
Relevant Taxing Jurisdiction required by law to be deducted or withheld as a result of such Change in Tax Law; provided
further that, notwithstanding the foregoing, if a Holder electing not to have its Notes redeemed converts its Notes in
connection with the Company’s election to redeem the Notes in respect of such Change in Tax Law pursuant to Section
14.03(g), the Company shall be obligated to pay Additional Amounts, if any, with respect to such conversion.
A Holder electing to not have its Notes redeemed must deliver to the Trustee and the Paying Agent a written notice
of election so as to be received by the Trustee and Paying Agent no later than the close of business on the second Business
Day immediately preceding the Redemption Date; provided that, a Holder that complies with the requirements for
conversion in Section 14.02(b) shall be deemed to have delivered a notice of its election to not have its Notes so
redeemed. A Holder may withdraw any notice of election (other than such a deemed notice of election in connection with a
conversion) by delivering to the Paying Agent a written notice of withdrawal prior to the close of business on the second
Business Day immediately preceding the Redemption Date (or, if the Company fails to pay the Redemption Price on the
Redemption Date, such later date on which the Company pays the Redemption Price). If no election is made or deemed to
have been made, the Holder shall have its Notes redeemed without any further action.
No Notes may be redeemed by the Company or its successor if the principal amount of the Notes has been
accelerated, and such acceleration has not been rescinded, on or prior to the Redemption Date.
ARTICLE 17
MISCELLANEOUS PROVISIONS
Section 17.01 Provisions Binding on Company’s Successors. All the covenants, stipulations, promises and
agreements of the Company contained in this Indenture shall bind its successors and assigns whether so expressed or not.
Section 17.02 Official Acts by Successor Corporation. Any act or proceeding by any provision of this Indenture
authorized or required to be done or performed by any board, committee or Officer of the Company shall and may be done
and performed with like force and effect by the like board, committee or officer of any corporation or other entity that shall
at the time be the lawful sole successor of the Company.
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Section 17.03 Addresses for Notices, Etc. Any notice or demand that by any provision of this Indenture is required or
permitted to be given or served by the Trustee or by the Holders on the Company shall be deemed to have been sufficiently
given or made, for all purposes if given or served by being deposited postage prepaid by registered or certified mail in a post
office letter box addressed (until another address is filed by the Company with the Trustee) to BEST Inc., at 2nd Floor,
Block A, Huaxing Modern Industry Park, No. 18 Tangmiao Road, Hangzhou, Zhejiang, China. Any notice, direction,
request or demand hereunder to or on the Trustee shall be given or made by being deposited postage prepaid by registered
or certified mail in a post office letter box addressed to 20 Floor Citi Tower, One Bay East, 83 Hoi Bun Road, Kwun Tong,
Kowloon, Hong Kong, attention: Agency & Trust, facsimile: +852 2323 0279. Any notice, direction or request to any of the
Agents shall be given or served by being deposited postage prepaid by registered or certified mail in a post office letter box
addressed to 388 Greenwich Street, New York, New York 10013, United States of America, with a copy to: Citicorp
International Limited, 20 Floor Citi Tower, One Bay East, 83 Hoi Bun Road, Kwun Tong, Kowloon, Hong Kong, attention:
Agency & Trust, facsimile: +852 2323 0279.
th
th
All notices and other communications under this Indenture shall be in writing in English.
So long as and to the extent that the Notes are represented by Global Notes and such Global Notes are held by DTC,
notices to owners of beneficial interests in the Global Notes may be given by delivery of the relevant notice to DTC for
communication by it to entitled account holders.
The Company hereby acknowledges that it is fully aware of the risks associated with transmitting instructions via
electronic methods (including facsimile), and being aware of these risks, authorizes the Trustee to accept and act upon any
instruction sent to it or any Paying Agent, Transfer Agent, Conversion Agent or Note Registrar in the Company’s name or in
the name of one or more appropriate authorized signers of the Company via electronic methods (including facsimile). The
Trustee shall be entitled to rely on Section 7.06 of this Indenture when accepting or acting upon any instructions,
communications or documents transmitted by facsimile, and shall not be liable in the event any facsimile transmission is not
received, or is mutilated, illegible, interrupted, duplicated, incomplete, unauthorized or delayed for any reason, including
(but not limited to) electronic or telecommunications failure.
Furthermore, notwithstanding the above, if any Trustee receives information or instructions delivered by electronic
mail, other electronic method or other unsecured method of communication believed by it to be genuine and to have been
sent by the proper person or persons, the Trustee or any Paying Agent, Transfer Agent, Conversion Agent or Note Registrar
shall have (i) no duty or obligation to verify or confirm that the person who sent such instructions is in fact a person
authorized to give instructions or directions on behalf of the Company and (ii) absent its or their gross negligence or willful
misconduct, no liability for any losses, liabilities, costs or expenses incurred or sustained by any holder, the Company or any
other person as a result of such reliance on or compliance with such information or instructions.
The Trustee, by notice to the Company, may designate additional or different addresses for subsequent notices or
communications.
Any notice or communication mailed to a Holder shall be mailed to it by first class mail, postage prepaid, at its
address as it appears on the Note Register and shall be sufficiently given to it if so mailed within the time prescribed.
Failure to mail a notice or communication to a Holder or any defect in it shall not affect its sufficiency with respect
to other Holders. If a notice or communication is mailed in the manner provided above, it is duly given, whether or not the
addressee receives it.
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In case by reason of the suspension of regular mail service or by reason of any other cause it shall be impracticable to
give such notice to Holders by mail, then such notification as shall be made with the approval of the Trustee shall constitute
a sufficient notification for every purpose hereunder.
In addition to the foregoing, the Trustee agrees to accept and act upon notice, instructions or directions pursuant to
this Indenture sent by unsecured e-mail, facsimile transmission or other similar unsecured electronic methods. If any party
elects to give the Trustee e-mail or facsimile instructions (or instructions by a similar electronic method), the Trustee’s
understanding of such instructions shall be deemed controlling. The Trustee shall not be liable for any losses, costs or
expenses arising directly or indirectly from the Trustee’s reliance upon and compliance with such instructions
notwithstanding such instructions conflict or are inconsistent with a subsequent written instruction. The party providing
electronic instructions agrees to assume all risks arising out of the use of such electronic methods to submit instructions and
directions to the Trustee, including, without limitation, the risk of the Trustee acting on unauthorized instructions, and the
risk or interception and misuse by third parties.
Section 17.04 Governing Law; Jurisdiction. THIS INDENTURE AND EACH NOTE, AND ANY CLAIM,
CONTROVERSY OR DISPUTE ARISING UNDER OR RELATED TO THIS INDENTURE AND EACH NOTE, SHALL
BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK.
The Company irrevocably consents and agrees, for the benefit of the Holders from time to time of the Notes and the
Trustee, that any legal action, suit or proceeding against it with respect to obligations, liabilities or any other matter arising
out of or in connection with this Indenture or the Notes may be brought in the courts of the State of New York or the courts
of the United States located in the Borough of Manhattan, New York City, New York and, until amounts due and to become
due in respect of the Notes have been paid, hereby irrevocably consents and submits to the non-exclusive jurisdiction of each
such court in personam, generally and unconditionally with respect to any action, suit or proceeding for itself in respect of
its properties, assets and revenues.
The Company irrevocably and unconditionally waives, to the fullest extent permitted by law, any objection which it
may now or hereafter have to the laying of venue of any of the aforesaid actions, suits or proceedings arising out of or in
connection with this Indenture brought in the courts of the State of New York or the courts of the United States located in
the Borough of Manhattan, New York City, New York and hereby further irrevocably and unconditionally waives and
agrees not to plead or claim in any such court that any such action, suit or proceeding brought in any such court has been
brought in an inconvenient forum.
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Section 17.05 Service of Process. The Company irrevocably appoints Cogency Global Inc. located at 10 East 40th
Street, 10th Floor, New York, New York 10016 as its authorized agent in the Borough of Manhattan in the City of New
York upon which process may be served in any such suit or proceeding, and agrees that service of process upon such agent,
and written notice of said service to the Company by the person serving the same to 2nd Floor, Block A, Huaxing Modern
Industry Park, No. 18 Tangmiao Road, Hangzhou, Zhejiang, China, shall be deemed in every respect effective service of
process upon the Company in any such suit or proceeding. The Company further agrees to take any and all action as may be
necessary to maintain such designation and appointment of such agent in full force and effect for a period of six years from
the date of this Indenture. If for any reason such agent shall cease to be such agent for service of process, the Company shall
forthwith appoint a new agent of recognized standing for service of process in the State of New York and deliver to the
Trustee a copy of the new agent’s acceptance of that appointment within ten Business Days of such acceptance. Nothing
herein shall affect the right of the Trustee, any agent or any Holder to serve process in any other manner permitted by law or
to commence legal proceedings or otherwise proceed against the Company in any other court of competent jurisdiction. To
the extent that the Company has or hereafter may acquire any sovereign or other immunity from jurisdiction of any court or
from any legal process with respect to itself or its property, the Company irrevocably waives such immunity in respect of its
obligations hereunder or under any Note.
Section 17.06 Evidence of Compliance with Conditions Precedent; Certificates and Opinions of Counsel to
Trustee. Upon any application or demand by the Company to the Trustee to take any action under any of the provisions of
this Indenture, the Company shall, if requested by the Trustee, furnish to the Trustee an Officers’ Certificate and/or Opinion
of Counsel stating that such action is permitted by the terms of this Indenture; provided, however, that such Opinion of
Counsel shall not be required in connection with the Notes initially issued hereunder.
Each Officers’ Certificate provided for, by or on behalf of the Company in this Indenture and delivered to the Trustee
with respect to compliance with this Indenture (other than the Officers’ Certificates provided for in Section 4.09) shall
include (a) a statement that the person making such certificate is familiar with the requested action and this Indenture; (b) a
brief statement as to the nature and scope of the examination or investigation upon which the statement contained in such
certificate is based; (c) a statement that, in the judgment of such person, he or she has made such examination or
investigation as is necessary to enable him or her to express an informed judgment as to whether or not such action is
permitted by this Indenture; and (d) a statement as to whether or not, in the judgment of such person, such action is
permitted by this Indenture.
Notwithstanding anything to the contrary in this Section 17.06, if any provision in this Indenture specifically
provides that the Trustee shall or may receive an Opinion of Counsel in connection with any action to be taken by the
Trustee or the Company hereunder, the Trustee shall be entitled to, or entitled to request, such Opinion of Counsel.
Section 17.07 Legal Holidays. In any case where any Interest Payment Date, Redemption Date, Fundamental
Change Repurchase Date, Conversion Date, Repurchase Date or Maturity Date is not a Business Day, then any action to be
taken on such date need not be taken on such date, but may be taken on the next succeeding Business Day with the same
force and effect as if taken on such date, and no interest shall accrue in respect of the delay.
Section 17.08 No Security Interest Created. Nothing in this Indenture or in the Notes, expressed or implied, shall be
construed to constitute a security interest under the Uniform Commercial Code or similar legislation, as now or hereafter
enacted and in effect, in any jurisdiction.
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Section 17.09 Benefits of Indenture. Nothing in this Indenture or in the Notes, expressed or implied, shall give to any
Person, other than the Holders, the parties hereto, any Paying Agent, any Conversion Agent, any Transfer Agent, any Note
Registrar and their successors hereunder, any benefit or any legal or equitable right, remedy or claim under this Indenture.
Section 17.10 Table of Contents, Headings, Etc. The table of contents and the titles and headings of the articles and
sections of this Indenture have been inserted for convenience of reference only, are not to be considered a part hereof, and
shall in no way modify or restrict any of the terms or provisions hereof.
Section 17.11 Execution in Counterparts. This Indenture may be executed in any number of counterparts, each of
which shall be an original, but such counterparts shall together constitute but one and the same instrument. Signatures of the
parties hereto (including signatures on the Notes) transmitted by facsimile or PDF shall be deemed to be their original
signatures for all purposes.
Section 17.12 Severability. In the event any provision of this Indenture or in the Notes shall be invalid, illegal or
unenforceable, then (to the extent permitted by law) the validity, legality or enforceability of the remaining provisions shall
not in any way be affected or impaired.
Section 17.13 Waiver of Jury Trial. EACH OF THE COMPANY AND THE TRUSTEE HEREBY
IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY AND ALL
RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDING ARISING OUT OF OR RELATING TO THIS
INDENTURE, THE NOTES OR THE TRANSACTIONS CONTEMPLATED HEREBY.
Section 17.14 Force Majeure. In no event shall the Trustee or the Agents be responsible or liable for any failure or
delay in the performance of its obligations hereunder arising out of or caused by, directly or indirectly, forces beyond its
control, including, without limitation, strikes, work stoppages, accidents, acts of war or terrorism, civil or military
disturbances, nuclear or natural catastrophes or acts of God, and interruptions, loss or malfunctions of utilities,
communications or computer (software and hardware) services; it being understood that the Trustee or the Agents, as the
case may be, shall use reasonable efforts that are consistent with accepted practices in the banking industry to resume
performance as soon as practicable under the circumstances.
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Section 17.15 Calculations. Except as otherwise provided herein, the Company shall be responsible for making all
calculations called for under the Notes, and in no instance shall the Trustee or the Agents be responsible for making such
calculations. These calculations include, but are not limited to, determinations of the Last Reported Sale Prices of the ADSs,
accrued interest payable on the Notes, any Additional Interest or Additional Amounts, the number of Additional ADSs to be
added to the Conversion Rate upon a Make-Whole Fundamental Change, if any, the Conversion Rate of the Notes and any
adjustments thereto. The Company shall make all these calculations in good faith and, absent manifest error, the Company’s
calculations shall be final and binding on Holders, the Trustee, the Paying Agent and the Conversion Agent. The Company
shall provide a schedule of its calculations to each of the Trustee, the Paying Agent and the Conversion Agent, and each of
the Trustee, the Paying Agent and the Conversion Agent is entitled to rely conclusively and without liability upon the
accuracy of the Company’s calculations without independent verification (and the Trustee nor the Paying Agent nor the
Conversion Agent shall not have any responsibility for such calculations). The Trustee will forward the Company’s
calculations to any Holder of Notes upon the prior written request of that Holder at the sole cost and expense of the
Company.
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IN WITNESS WHEREOF, the parties hereto have caused this Indenture to be duly executed as of the date first above
written.
BEST INC.
By: /s/ Shao-Ning Johnny Chou
Name: Shao-Ning Johnny Chou
Title: Chairman and Chief Executive Officer
Signature Page to Indenture
CITICORP INTERNATIONAL
LIMITED, as Trustee
By: /s/ Terence Yeung
Name: Terence Yeung
Title: Vice President
Signature Page to Indenture
[FORM OF FACE OF NOTE]
[INCLUDE FOLLOWING LEGEND IF A GLOBAL NOTE]
EXHIBIT A
[THIS IS A GLOBAL NOTE WITHIN THE MEANING OF THE INDENTURE HEREINAFTER REFERRED TO
AND IS REGISTERED IN THE NAME OF THE DEPOSITARY OR A NOMINEE OF THE DEPOSITARY, WHICH
MAY BE TREATED BY THE COMPANY, THE TRUSTEE AND ANY AGENT THEREOF AS THE OWNER
AND HOLDER OF THIS NOTE FOR ALL PURPOSES
UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE
DEPOSITORY TRUST COMPANY, A NEW YORK CORPORATION (“DTC”), TO THE COMPANY OR ITS AGENT
FOR REGISTRATION OF TRANSFER, EXCHANGE, OR PAYMENT, AND ANY CERTIFICATE ISSUED
IS REGISTERED IN THE NAME OF CEDE & CO. OR IN SUCH OTHER NAME AS IS REQUESTED BY AN
AUTHORIZED REPRESENTATIVE OF DTC (AND ANY PAYMENT IS MADE TO CEDE & CO. OR TO SUCH
OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC), ANY TRANSFER,
PLEDGE, OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS
WRONGFUL INASMUCH AS THE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST HEREIN.]
[INCLUDE FOLLOWING LEGEND IF A NOTE IS A RULE 144A NOTE AND IS RESTRICTED SECURITY]
[THIS SECURITY, THE AMERICAN DEPOSITARY SHARES DELIVERABLE
UPON CONVERSION OF THIS SECURITY AND THE CLASS A ORDINARY
SHARES REPRESENTED THEREBY HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”), ARE “RESTRICTED
SECURITIES” WITHIN THE MEANING OF RULE 144 UNDER THE SECURITIES ACT OR
CONTRACTUALLY RESTRICTED SECURITIES, AND MAY NOT BE OFFERED, SOLD, PLEDGED OR
OTHERWISE TRANSFERRED EXCEPT IN ACCORDANCE WITH THE FOLLOWING SENTENCE. BY ITS
ACQUISITION HEREOF OR OF A BENEFICIAL INTEREST HEREIN, THE ACQUIRER:
(1)
REPRESENTS THAT IT AND ANY ACCOUNT FOR WHICH IT IS ACTING IS (a) A
“QUALIFIED INSTITUTIONAL BUYER” (WITHIN THE MEANING OF RULE 144A UNDER THE
SECURITIES ACT) OR (b) NOT A U.S. PERSON AND IS LOCATED OUTSIDE THE UNITED
STATES (WITHIN THE MEANING OF REGULATION S UNDER THE SECURITIES ACT) AND THAT
IT EXERCISES SOLE INVESTMENT DISCRETION WITH RESPECT TO EACH SUCH ACCOUNT
AND THAT IT AND ANY SUCH ACCOUNT IS NOT, AND HAS NOT BEEN FOR THE
IMMEDIATELY PRECEDING THREE MONTHS, AN AFFILIATE OF BEST INC. (THE “COMPANY”),
AND
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(2)
AGREES FOR THE BENEFIT OF THE COMPANY THAT IT WILL NOT OFFER, SELL,
PLEDGE OR OTHERWISE TRANSFER THIS SECURITY OR ANY BENEFICIAL INTEREST HEREIN
PRIOR TO THE DATE THAT IS THE LATER OF (X) ONE YEAR AFTER THE LAST ORIGINAL
ISSUE DATE HEREOF OR SUCH SHORTER PERIOD OF TIME AS PERMITTED BY RULE 144
UNDER THE SECURITIES ACT OR ANY SUCCESSOR PROVISION THERETO AND (Y) SUCH
LATER DATE, IF ANY, AS MAY BE REQUIRED BY APPLICABLE LAW, EXCEPT:
(A)
(B)
TO THE COMPANY OR ANY SUBSIDIARY THEREOF, OR
PURSUANT TO A REGISTRATION STATEMENT WHICH HAS BECOME
EFFECTIVE UNDER THE SECURITIES ACT, OR
(C)
TO A QUALIFIED INSTITUTIONAL BUYER IN COMPLIANCE WITH RULE
144A UNDER THE SECURITIES ACT, OR
(D)
TO A NON U.S. PERSON LOCATED OUTSIDE THE UNITED STATES IN
ACCORDANCE WITH REGULATION S UNDER THE SECURITIES ACT, OR
(E)
PURSUANT TO AN EXEMPTION FROM REGISTRATION PROVIDED BY
RULE 144 UNDER THE SECURITIES ACT (IF AVAILABLE).
PRIOR TO THE REGISTRATION OF ANY TRANSFER IN ACCORDANCE WITH (2)(E) ABOVE, THE
COMPANY, THE DEPOSITARY AND THE TRUSTEE RESERVE THE RIGHT TO REQUIRE THE DELIVERY
OF SUCH LEGAL OPINIONS, CERTIFICATIONS OR OTHER EVIDENCE AS MAY REASONABLY BE
REQUIRED IN ORDER TO DETERMINE THAT THE PROPOSED TRANSFER IS BEING MADE IN
COMPLIANCE WITH THE SECURITIES ACT AND APPLICABLE STATE SECURITIES LAWS. NO
REPRESENTATION IS MADE AS TO THE AVAILABILITY OF ANY EXEMPTION FROM THE
REGISTRATION REQUIREMENTS OF THE SECURITIES ACT.
NO AFFILIATE (AS DEFINED IN RULE 144 UNDER THE SECURITIES ACT) OF THE COMPANY OR
PERSON THAT HAS BEEN AN AFFILIATE (AS DEFINED IN RULE 144 UNDER THE SECURITIES ACT)
OF THE COMPANY DURING THE THREE IMMEDIATELY PRECEDING MONTHS MAY PURCHASE,
OTHERWISE ACQUIRE OR OWN THIS NOTE, THE AMERICAN DEPOSITARY SHARES DELIVERABLE
UPON CONVERSION HEREOF AND THE CLASS A ORDINARY SHARES REPRESENTED THEREBY, OR
A BENEFICIAL INTEREST HEREIN OR THEREIN.]
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[INCLUDE FOLLOWING LEGEND IF A NOTE IS A REGULATION S NOTE AND IS RESTRICTED SECURITY]
[THIS SECURITY, THE AMERICAN DEPOSITARY SHARES DELIVERABLE UPON CONVERSION OF
THIS SECURITY AND THE CLASS A ORDINARY SHARES REPRESENTED THEREBY HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”), ARE
“RESTRICTED SECURITIES” WITHIN THE MEANING OF RULE 144 UNDER THE SECURITIES ACT OR
CONTRACTUALLY RESTRICTED SECURITIES, AND MAY NOT BE OFFERED, SOLD, PLEDGED OR
OTHERWISE TRANSFERRED EXCEPT IN ACCORDANCE WITH THE FOLLOWING SENTENCE. BY ITS
ACQUISITION HEREOF OR OF A BENEFICIAL INTEREST HEREIN, THE ACQUIRER:
(1)
REPRESENTS THAT IT AND ANY ACCOUNT FOR WHICH IT IS ACTING IS (a) A
“QUALIFIED INSTITUTIONAL BUYER” (WITHIN THE MEANING OF RULE 144A UNDER THE
SECURITIES ACT) OR (b) NOT A U.S. PERSON AND IS LOCATED OUTSIDE THE UNITED
STATES (WITHIN THE MEANING OF REGULATION S UNDER THE SECURITIES ACT) AND THAT
IT EXERCISES SOLE INVESTMENT DISCRETION WITH RESPECT TO EACH SUCH ACCOUNT
AND THAT IT AND ANY SUCH ACCOUNT IS NOT, AND HAS NOT BEEN FOR THE
IMMEDIATELY PRECEDING THREE MONTHS, AN AFFILIATE OF BEST INC. (THE “COMPANY”)
(OTHER THAN AN ENTITY AFFILIATED WITH ALIBABA GROUP HOLDING LIMITED (THE
“ALIBABA PURCHASER”) THAT PURCHASED REGULATION S NOTES IN THE INITIAL
OFFERING THEREOF AND ITS RESPECTIVE AFFILIATES), AND
(2)
AGREES FOR THE BENEFIT OF THE COMPANY THAT IT WILL NOT OFFER, SELL,
PLEDGE OR OTHERWISE TRANSFER THIS SECURITY OR ANY BENEFICIAL INTEREST HEREIN
PRIOR TO THE DATE THAT IS THE LATER OF (X) ONE YEAR AFTER THE LAST ORIGINAL
ISSUE DATE HEREOF OR SUCH SHORTER PERIOD OF TIME AS PERMITTED BY RULE 144
UNDER THE SECURITIES ACT OR ANY SUCCESSOR PROVISION THERETO AND (Y) SUCH
LATER DATE, IF ANY, AS MAY BE REQUIRED BY APPLICABLE LAW, EXCEPT:
(A)
(B)
TO THE COMPANY OR ANY SUBSIDIARY THEREOF, OR
PURSUANT TO A REGISTRATION STATEMENT WHICH HAS BECOME
EFFECTIVE UNDER THE SECURITIES ACT, OR
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(C)
TO A QUALIFIED INSTITUTIONAL BUYER IN COMPLIANCE WITH RULE
144A UNDER THE SECURITIES ACT, OR
(D)
TO A NON U.S. PERSON LOCATED OUTSIDE THE UNITED STATES IN
ACCORDANCE WITH REGULATION S UNDER THE SECURITIES ACT, OR
(E)
PURSUANT TO AN EXEMPTION FROM REGISTRATION PROVIDED BY
RULE 144 UNDER THE SECURITIES ACT (IF AVAILABLE).
PRIOR TO THE REGISTRATION OF ANY TRANSFER IN ACCORDANCE WITH (2)(E) ABOVE, THE
COMPANY, THE DEPOSITARY AND THE TRUSTEE RESERVE THE RIGHT TO REQUIRE THE DELIVERY
OF SUCH LEGAL OPINIONS, CERTIFICATIONS OR OTHER EVIDENCE AS MAY REASONABLY BE
REQUIRED IN ORDER TO DETERMINE THAT THE PROPOSED TRANSFER IS BEING MADE IN
COMPLIANCE WITH THE SECURITIES ACT AND APPLICABLE STATE SECURITIES LAWS. NO
REPRESENTATION IS MADE AS TO THE AVAILABILITY OF ANY EXEMPTION FROM THE
REGISTRATION REQUIREMENTS OF THE SECURITIES ACT.
NO AFFILIATE (AS DEFINED IN RULE 144 UNDER THE SECURITIES ACT) OF THE COMPANY OR
PERSON THAT HAS BEEN AN AFFILIATE (AS DEFINED IN RULE 144 UNDER THE SECURITIES ACT)
OF THE COMPANY DURING THE THREE IMMEDIATELY PRECEDING MONTHS (OTHER THE
ALIBABA PURCHASER THAT PURCHASED REGULATION S NOTES IN THE INITIAL OFFERING
THEREOF AND ITS RESPECTIVE AFFILIATES) MAY PURCHASE, OTHERWISE ACQUIRE OR OWN THIS
NOTE, THE AMERICAN DEPOSITARY SHARES DELIVERABLE UPON CONVERSION HEREOF AND THE
CLASS A ORDINARY SHARES REPRESENTED THEREBY, OR A BENEFICIAL INTEREST HEREIN OR
THEREIN.]
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BEST INC.
1.75% Convertibile Senior Note due 2024
[Initially] US$_________
1
No. [_______]
CUSIP No. [_______]
BEST Inc., a company duly organized and validly existing under the laws of the Cayman Islands (the “Company,”
which term includes any successor company or corporation or other entity under the Indenture referred to on the reverse
hereof), for value received hereby promises to pay to [CEDE & CO.] [_______] , or registered assigns, the principal sum
[as set forth in the “Schedule of Exchanges of Notes” attached hereto] [of US$[__________]] , which amount, taken
together with the principal amounts of all other outstanding Notes, shall not, unless permitted by the Indenture, exceed
US$200,000,000 in aggregate at any time, in accordance with the rules and procedures of the Depositary, on October 1,
2024, and interest thereon as set forth below.
2
4
3
5
This Note shall bear cash interest at the rate of 1.75% per year from, and including, September 17, 2019, or from,
and including, the most recent date to which interest had been paid or provided for to, but excluding, the next scheduled
Interest Payment Date until October 1, 2024. Interest is payable semi-annually in arrears on each April 1 and October 1,
commencing on April 1, 2020, to Holders of record at the close of business on the preceding March 15 and September 15
(whether or not such day is a Business Day), respectively. Additional Interest will be payable as set forth in Section 4.06(d),
Section 4.06(e) and Section 6.03 of the within-inmentioned Indenture, and any reference to interest on, or in respect of, any
Note therein shall be deemed to include Additional Interest if, in such context, Additional Interest is, was or would be
payable pursuant to any of such Section 4.06(d), Section 4.06(e) and Section 6.03, and any express mention of the payment
of Additional Interest in any provision therein shall not be construed as excluding Additional Interest in those provisions
thereof where such express mention is not made.
Any Defaulted Amounts shall accrue interest per annum at the rate per annum borne by the Notes plus one percent,
subject to the enforceability thereof under applicable law, from, and including, the relevant payment date to, but excluding,
the date on which such Defaulted Amounts shall have been paid by the Company, at its election, in accordance with Section
2.03(c) of the Indenture.
1
2
3
4
5
Include if a Global Note.
Include if a Global Note.
Include if a Physical Note.
Include if a Global Note.
Include if a Physical Note.
A-5
The Company shall pay or cause the Paying Agent to pay the principal of and interest on this Note, so long as such
Note is a Global Note, in immediately available funds to the Depositary or its nominee, as the case may be, as the registered
Holder of such Note. As provided in and subject to the provisions of the Indenture, the Company shall pay the principal of
any Notes (other than Notes that are Global Notes) at the office or agency designated by the Company for that purpose. The
Company has initially designated Citibank, N.A. as its Paying Agent, Transfer Agent, Conversion Agent and Note Registrar
in respect of the Notes and its agency in the Borough of Manhattan, The City of New York, as a place where Notes may be
presented for payment or for registration of transfer.
Reference is made to the further provisions of this Note set forth on the reverse hereof, including, without limitation,
provisions giving the Holder of this Note the right to convert this Note into ADSs on the terms and subject to the limitations
set forth in the Indenture. Such further provisions shall for all purposes have the same effect as though fully set forth at this
place.
This Note, and any claim, controversy or dispute arising under or related to this Note, shall be construed in
accordance with and governed by the laws of the State of New York (without regard to the conflicts of laws
provisions thereof).
In the case of any conflict between this Note and the Indenture, the provisions of the Indenture shall control and
govern.
This Note shall not be valid or become obligatory for any purpose until the certificate of authentication hereon shall
have been signed manually by the Trustee under the Indenture.
[Remainder of page intentionally left blank]
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IN WITNESS WHEREOF, the Company has caused this Note to be duly executed.
BEST INC.
By:
Name:
Title:
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Dated:
TRUSTEE’S CERTIFICATE OF AUTHENTICATION
CITICORP INTERNATIONAL LIMITED
as Trustee, certifies that this is one of the Notes described in the
within-named Indenture.
By:
Name:
Title:
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[FORM OF REVERSE OF NOTE]
BEST INC.
1.75% Convertible Senior Note due 2024
This Note is one of a duly authorized issue of Notes of the Company, designated as its 1.75% Convertible Senior
Notes due 2024 (the “Notes”), limited to the aggregate principal amount of US$200,000,000, subject to Section 2.10 of the
Indenture, all issued or to be issued under and pursuant to an Indenture dated as of September 17, 2019 (the “Indenture”),
between the Company and Citicorp International Limited, as trustee (the “Trustee”), to which Indenture and all indentures
supplemental thereto reference is hereby made for a description of the rights, limitations of rights, obligations, duties,
privileges, disclaimers from liability and immunities thereunder of the Trustee, the Company and the Holders of the
Notes. Additional Notes may be issued in an unlimited aggregate principal amount, subject to certain conditions specified in
the Indenture. The Rule 144A Notes and the Regulation S Notes initially have separate CUSIP numbers and will initially
not be fungible. The Company shall cause any Regulation S Notes that are held or beneficially owned by the Alibaba
Purchaser who purchased such Notes in the initial offering thereof or an “affiliate” thereof, to the extent the Company
believes that such Holder or beneficial owner is an “affiliate” of the Company or was an “affiliate” of the Company at any
time during the immediately preceding three months (“Alibaba Affiliate Notes”) to bear a different CUSIP number. The
term “affiliate” shall have the meaning defined in Rule 144.
In the case certain Events of Default, as defined in the Indenture, shall have occurred and be continuing, the principal
of, and interest on, all Notes may be declared, by either the Trustee or Holders of at least 25% in aggregate principal amount
of Notes then outstanding, and upon said declaration shall become, due and payable, in the manner, with the effect and
subject to the conditions and certain exceptions set forth in the Indenture. In the case certain Events of Default relating to a
bankruptcy (or similar proceeding) with respect to the Company or a Significant Subsidiary of the Company shall have
occurred, the principal of, and interest on, all Notes shall automatically become immediately due and payable, as set forth in
the Indenture.
Subject to the terms and conditions of the Indenture, the Company will make or cause the Paying Agent to make all
payments in respect of the principal amount on the Maturity Date, the Redemption Price, the Repurchase Price and the
Fundamental Change Repurchase Price, as the case may be, to the Holder who surrenders a Note to collect such payments in
respect of the Note. The Company will pay or cause the Paying Agent to pay cash amounts in money of the United States
that at the time of payment is legal tender for payment of public and private debts.
Subject to the terms and conditions of the Indenture, Additional Amounts will be paid in connection with any
payments made and deliveries caused to be made by the Company or any successor to the Company under or with respect to
the Indenture and the Notes, including, but not limited to, payments of principal (including, if applicable, the Redemption
Price, the Repurchase Price and the Fundamental Change Repurchase Price), premium, if any, payments of interest,
including any Additional Interest, and deliveries of ADSs or any other consideration due on conversion of a Note (together
with payments of cash for any Fractional ADS or other consideration) to ensure that the net amount received by the
beneficial owners of the Notes after any applicable withholding, deduction or reduction (and after deducting any Taxes on
the Additional Amounts) will equal the amounts that would have been received by such beneficial owner had no such
withholding, deduction or reduction been required.
A-9
The Indenture contains provisions permitting the Company and the Trustee in certain circumstances, without the
consent of the Holders of the Notes, and in certain other circumstances, with the consent of the Holders of not less than a
majority in aggregate principal amount of the Notes at the time outstanding, evidenced as in the Indenture provided, to
execute supplemental indentures modifying the terms of the Indenture and the Notes as described therein. It is also provided
in the Indenture that, subject to certain exceptions, the Holders of a majority in aggregate principal amount of the Notes at
the time outstanding may on behalf of the Holders of all of the Notes waive any past Default or Event of Default under the
Indenture and its consequences.
No reference herein to the Indenture and no provision of this Note or of the Indenture shall alter or impair the
obligation of the Company, which is absolute and unconditional, to pay or cause to be delivered, as the case may be, the
principal (including the Redemption Price, the Repurchase Price and the Fundamental Change Repurchase Price, if
applicable) of, accrued and unpaid interest on, and the consideration due upon conversion of, this Note at the place, at the
respective times, at the rate and in the lawful money herein prescribed.
The Notes are issuable in registered form without interest coupons in denominations of US$1,000 principal amount
and integral multiples thereof. In the manner and subject to the limitations provided in the Indenture, Notes may be
exchanged for a like aggregate principal amount of Notes of other authorized denominations, without payment of any
service charge but, if required by the Company or Trustee, with payment of a sum sufficient to cover any transfer or similar
Tax that may be imposed in connection therewith as a result of the name of the Holder of the new Notes issued upon such
exchange of Notes being different from the name of the Holder of the old Notes surrendered for such exchange.
The Company may not redeem the Notes prior to the Maturity Date, except in the event of certain Changes in Tax
Law as described in Section 16.01 of the Indenture. No sinking fund is provided for the Notes.
The Holder has the right, at such Holder’s option, to require the Company to repurchase for cash all of such Holder’s
Notes or any portion thereof (in principal amounts of US$1,000 or integral multiples thereof) on the Repurchase Date at a
price equal to the Repurchase Price.
Upon the occurrence of a Fundamental Change, the Holder has the right, at such Holder’s option, to require the
Company to repurchase for cash all of such Holder’s Notes or any portion thereof (in principal amounts of US$1,000 or
integral multiples thereof) on the Fundamental Change Repurchase Date at a price equal to the Fundamental Change
Repurchase Price.
Subject to the provisions of the Indenture, the Holder hereof has the right, at its option, prior to the close of business
on the second Scheduled Trading Day immediately preceding the Maturity Date, to convert any Notes or portion thereof that
is US$1,000 principal amount of Notes or an integral multiple thereof, into ADSs at the Conversion Rate specified in the
Indenture, as adjusted from time to time as provided in the Indenture.
A-10
Terms used in this Note and defined in the Indenture are used herein as therein defined.
A-11
The following abbreviations, when used in the inscription of the face of this Note, shall be construed as though they
were written out in full according to applicable laws or regulations:
ABBREVIATIONS
TEN COM = as tenants in common
UNIF GIFT MIN ACT = Uniform Gifts to Minors Act
CUST = Custodian
TEN ENT = as tenants by the entireties
JT TEN = joint tenants with right of survivorship and not as tenants in common
Additional abbreviations may also be used though not in the above list.
A-12
SCHEDULE OF EXCHANGES OF NOTES
BEST INC.
1.75% Convertible Senior Notes due 2024
SCHEDULE A
6
The initial principal amount of this Global Note is [__________] UNITED STATES DOLLARS
(US$[_______________]). The following increases or decreases in this Global Note have been made:
Date of exchange
Amount of decrease
in principal amount
of this Global Note
Amount of increase
in principal amount
of this Global Note
Principal amount of
this Global Note
following such
decrease or increase
Signature of
authorized signatory
of Trustee
6
Include if a Global Note.
A-13
[FORM OF NOTICE OF CONVERSION]
ATTACHMENT 1
To: BEST INC.
[Address]
[Phone number]
CITIBANK, N.A., as Conversion Agent
th
480 Washington Boulevard, 30 Floor
Jersey City, NJ 07310
Tel. 1-973-461-7174
Email: Citinygats@citi.com
Fax: 1-201-258-3567
CITIBANK, N.A., as ADS Depositary
th
480 Washington Boulevard, 30 Floor
Jersey City, NJ 07310
Tel. 1-973-461-7174
Email: Citinygats@citi.com
Fax: 1-201-258-3567
The undersigned registered holder of this Note hereby exercises the option to convert that Note, or the portion
thereof (that is US$1,000 principal amount or an integral multiple thereof) below designated, into ADSs in accordance with
the terms of the Indenture referred to in this Note, and directs that any ADSs deliverable upon such conversion, together
with any cash payable for any Fractional ADS, and any Notes representing any unconverted principal amount hereof, be
issued and delivered to the registered Holder hereof unless a different name has been indicated below. Terms defined in the
Deposit Agreement or the Indenture referred to in this Notice are used herein as so defined. If any ADSs or any portion of
this Note not converted are to be issued in the name of a Person other than the undersigned, the undersigned will pay all
documentary, stamp, issue, transfer or similar taxes, if any, in accordance with Section 14.02(d) and Section 14.02(e) of the
Indenture. Any amount required to be paid to the undersigned on account of interest accompanies this Notice.
In connection with the conversion of this Note, or the portion hereof below designated, the undersigned
acknowledges, represents to and agrees with the Company that the undersigned is not an “affiliate” (as defined in Rule 144
under the Securities Act) of the Company and has not been an “affiliate” (as defined in Rule 144 under the Securities Act)
during the three months immediately preceding the date hereof.
[OR
A-14
The undersigned is an entity affiliated with Alibaba Group Holding Limited that purchased this Regulation S Notes
upon the original issuance thereof.]
7
[The undersigned further certifies:
1.
The undersigned acknowledges (and if the undersigned is acting for the account of another person, that
person has confirmed that it acknowledges) that the Restricted Securities received upon conversion of this Note (or
securities represented thereby), if any, have not been and are not expected to be registered under the Securities Act.
“Restricted Security” means a “restricted security” within the meaning of Rule 144 under the Securities Act or a
contractually restricted security, as set forth in the legend on this Note above.
2.
The undersigned further certifies that either:
(a)
The undersigned is, and at the time ADSs are delivered in conversion of its Notes will be, the holder
of the ADSs and the Ordinary Shares represented thereby, and (i) the undersigned is not a U.S. person (as defined in
Regulation S under the Securities Act) and is located outside the United States (within the meaning of Regulation S)
and acquired, or have agreed to acquire and will have acquired, the Notes being converted and the ADSs and the
Ordinary Shares represented thereby being delivered in the conversion outside the United States and (ii) the
undersigned is not in the business of buying and selling securities or, if the undersigned is in such business, the
undersigned did not acquire the Notes being converted from the Company or any affiliate thereof in the initial
distribution of the Notes.
OR
(b)
The undersigned is a broker-dealer acting on behalf of its customer; its customer has confirmed to the
undersigned that it is, and at the time ADSs are delivered in conversion of the said Notes will be, the holder of the
ADSs and the Ordinary Shares represented thereby, and (i) it is not a U.S. person (as defined in Regulation S under
the Securities Act) and it is located outside the United States (within the meaning of Regulation S) and acquired, or
have agreed to acquire and will have acquired, the Notes being converted and the ADSs and the Ordinary Shares
represented thereby being delivered in the conversion outside the United States and (ii) it is not in the business of
buying and selling securities or, if it is in such business, it did not acquire the Notes being converted from the
Company or any affiliate thereof in the initial distribution of the Notes.
(c)
The undersigned is a qualified institutional buyer (as defined in Rule 144A under the Securities Act)
acting for its own account or for the account of one or more qualified institutional buyers and the undersigned is (or
such account or accounts are) the sole beneficial owner(s) of the ADSs to be received upon conversion of the Notes.
OR
7
Include if Regulation S Note.
A-15
3.
The undersigned acknowledges that the undersigned (and any such other account) may not continue to hold
or retain any interest in Conversion ADSs if the undersigned (or such other account) becomes an affiliate of the Company.
[(except an entity affiliated with Alibaba Group Holding Limited that purchased this Regulation S Note upon the original
issuance thereof)] .
8
4.
[The undersigned agrees (and if the undersigned is acting for the account of another person, that person has
confirmed that it agrees) that, prior to the Resale Restriction Termination Date, the undersigned (and such other account)
will not offer, sell, pledge or otherwise transfer the Restricted Security (or securities represented by such Restricted
Security) except in accordance with the restrictions set forth in that legend and any applicable securities laws of the United
States and any state thereof.] [The undersigned agrees (and if the undersigned is acting for the account of another person,
that person has confirmed that it agrees) that the Restricted Security (or securities represented by such Restricted Security)
that is owned or purchased by any affiliate of the Company may not be resold by such affiliate (or a holder that was an
affiliate of the Company at any time during three months preceding the resale) unless registered under the Securities Act or
resold pursuant to an exemption from the registration requirements of the Securities Act in a transaction that results in
Restricted Security (or securities represented by such Restricted Security, as the case may be) no longer being a “restricted
security” (as defined in Rule 144 under the Securities Act).]
10
9
The undersigned hereby instructs the ADS Depositary to register the ADSs in the name of:
1. Name of Beneficial Owner to receive ADSs (English):
2. Address of Beneficial Owner to receive ADSs (English):
3. Name of Registered Holder of the Deposited Shares:
4. Number of Deposited Shares:
5. Number of ADSs to be issued:
6. Beneficial Owner’s Tax ID Number:
7. Contact Name and Tel No/email address:
[The undersigned instructs the Depositary to deliver the ADRs representing the ADSs to the following account:
8
9
10
Include if the Note being converted is held by an entity affiliated with Alibaba Group Holding Limited.
Include for Regulation S Notes that are not Alibaba Affiliate Notes.
Include if the Note being converted is held by an entity affiliated with Alibaba Group Holding Limited.
A-16
ADS Receiving Broker ( * are mandatory fields):
a) DTC Broker Name*:
b) DTC Broker’s Participant Account with DTC *:
c) DTC Broker Contact Name:
d) DTC Broker Contact Tel No/email:
e) Beneficial Owner’s Account # with DTC Broker*:
OR
e) Local Broker Name (have account with DTC Broker)*:
Local Broker Sub-Account # with DTC Broker*:
Local Broker Contact Name:
Local Broker Contact Tel No/email:
ADS Delivering Party:
Name:
Citibank, N.A.
DTC Account: #2655]
11
For any ADS settlement inquiries, please contact Citibank, N.A. Broker Desk:
Tel: 1-877-CITIADR (1-877-248-4237)
Email: citiadr@citi.com
11
Include bracketed language in the Conversion Notice if the Note being converted is not a Restricted Security.
A-17
Signature(s)
Dated:
Signature Guarantee
Signature(s) must be guaranteed by an eligible Guarantor
Institution (banks, stock brokers, savings and loan associations
and credit unions) with membership in an approved signature
guarantee medallion program pursuant to Securities and
Exchange Commission Rule 17Ad-15 if ADSs are to be issued,
or Notes are to be delivered, other than to and in the name of the
registered holder.
Fill in for registration of ADSs if to be issued, and Notes if to be
delivered, other than to and in the name of the registered holder:
(Name)
(Street Address)
(City, State and Zip Code)
Please print name and address
Principal amount to be converted (if less than all):
US$ _________,000
NOTICE: The above signature(s) of the Holder(s) hereof
must correspond with the name as written upon the face
of the Note in every particular without alteration or
enlargement or any change whatever.
Social Security or Other Taxpayer Identification Number
A-18
[FORM OF FUNDAMENTAL CHANGE REPURCHASE NOTICE]
ATTACHMENT 2
To: BEST INC.
CITICORP INTERNATIONAL LIMITED, as Trustee
The undersigned registered owner of this Note hereby acknowledges receipt of a notice from BEST Inc. (the
“Company”) as to the occurrence of a Fundamental Change with respect to the Company and specifying the Fundamental
Change Repurchase Date and requests and instructs the Company to pay to the registered holder hereof in accordance with
Section 15.02 of the Indenture referred to in this Note (1) the entire principal amount of this Note, or the portion thereof (that
is US$1,000 principal amount or an integral multiple thereof) below designated, and (2) if such Fundamental Change
Repurchase Date does not fall during the period after a Regular Record Date and on or prior to the corresponding Interest
Payment Date, accrued and unpaid interest thereon to, but excluding, such Fundamental Change Repurchase Date.
In the case of Physical Notes, the certificate numbers of the Notes to be repurchased are as set forth below:
Certificate Number(s):
Dated:
Signature(s)
Social Security or Other Taxpayer Identification Number
Principal amount to be repaid (if less than all): US$
______,000
NOTICE: The above signature(s) of the Holder(s) hereof
must correspond with the name as written upon the face of
the Note in every particular without alteration or
enlargement or any change whatever.
A-19
[FORM OF REPURCHASE NOTICE]
ATTACHMENT 3
To: BEST INC.
CITICORP INTERNATIONAL LIMITED, as Trustee
The undersigned registered owner of this Note hereby acknowledges receipt of a notice from BEST Inc. (the
“Company”) regarding the right of Holders to elect to require the Company to repurchase the entire principal amount of this
Note, or the portion thereof (that is US$1,000 principal amount or an integral multiple thereof) below designated, in
accordance with the applicable provisions of the Indenture referred to in this Note, at the Repurchase Price to the registered
Holder hereof.
In the case of certificated Notes, the certificate numbers of the Notes to be purchased are as set forth below:
Certificate Number(s):
Dated:
Signature(s)
Social Security or Other Taxpayer Identification Number
Principal amount to be repaid (if less than all): US$
______,000
NOTICE: The above signature(s) of the Holder(s) hereof
must correspond with the name as written upon the face of
the Note in every particular without alteration or
enlargement or any change whatever.
A-20
FORM OF ASSIGNMENT AND TRANSFER
ATTACHMENT 4
For value received ______________________ hereby sell(s), assign(s) and transfer(s) unto _______________ (Please insert
social security or Taxpayer Identification Number of assignee) the within Note, and hereby irrevocably constitutes and
appoints _______________ attorney to transfer the said Note on the books of the Company, with full power of substitution
in the premises.
In connection with any transfer of the within Note occurring prior to the Resale Restriction Termination Date, as defined in
the Indenture governing such Note, the undersigned confirms that such Note is being transferred:
☐ To BEST Inc. or a subsidiary thereof; or
☐ Pursuant to a registration statement that has become or been declared effective under the Securities Act of 1933, as
amended; or
☐ Pursuant to and in compliance with Rule 144A under the Securities Act of 1933, as amended [(“Rule 144A”), and the
undersigned confirms that the undersigned reasonably believes that the transferee of such Note is a “qualified institutional
buyer” (within the meaning of Rule 144A) that is purchasing for its own account or for the account of another qualified
institutional buyer and the undersigned has provided such transferee notice that the transfer is being made in reliance on
Rule 144A] ; or
12
☐ Outside the United States in accordance with Regulation S under the Securities Act of 1933, as amended; or
☐ Pursuant to and in compliance with Rule 144 under the Securities Act of 1933, as amended (if available).
[Whether occurring prior to, on or after the Resale Restriction Termination Date, the undersigned represents and warrants
that the Note being transferred hereunder [is/is not] an Alibaba Affiliate Note. ]
13
12
13
Include if Regulation S Note.
Include if Regulation S Note.
A-21
Dated:
Signature(s)
Signature Guarantee
Signature(s) must be guaranteed by an eligible Guarantor
Institution (banks, stock brokers, savings and loan associations
and credit unions) with membership in an approved signature
guarantee medallion program pursuant to Securities and
Exchange Commission Rule 17Ad-15 if Notes are to be
delivered, other than to and in the name of the registered holder.
NOTICE: The signature on the assignment must correspond with the name as written upon the face of the Note in every
particular without alteration or enlargement or any change whatever.
A-22
EXHIBIT B
I, [Name], [Title], acting on behalf of BEST Inc. (the “Company”) hereby certify that:
[FORM OF AUTHORIZATION CERTIFICATE]
the persons listed below are (i) authorized Officers of the Company for purposes of the Indenture (the
(A)
“Indenture”) dated as of September 17, 2019 between the Company and Citicorp International Limited, as trustee, in
relation to the 1.75% Convertible Senior Notes due 2024 (the “Notes”), (ii) duly elected or appointed, qualified and acting
as the holder of the respective office or offices set forth opposite their names and (iii) the duly authorized persons who
executed or will execute the Indenture and the Notes issued pursuant to the Indenture by their manual or facsimile signatures
and were at the time of such execution, duly elected or appointed, qualified and acting as the holder of the offices set forth
opposite their names;
(B)
upon request of Citicorp International Limited in connection with the Notes issued pursuant to the Indenture;
each of the individuals listed below have the authority to receive call backs at the telephone numbers noted below
(C)
(D)
each signature appearing below is the person’s genuine signature; and
attached hereto as Schedule I is a true, correct and complete specimen of the certificates representing the Notes.
B-1
IN WITNESS WHEREOF, I have hereunto executed and delivered this certificate on behalf of the Company as of
the date indicated.
Dated:
[Name]
By:
Name:
Title:
B-2
Name
Title, Fax No., Email
Signature
Tel No.
SCHEDULE I
B-3
BEST Logistics Technologies (China) Co., Ltd.
This is an English translation of the original Chinese text
Exhibit 4.19
AND
Wei Chen
Lili He
LOAN AGREEMENT
April 8, 2020
1
This Loan Agreement (this “Agreement”) is entered into by and between the following two parties on April 8, 2020 in Zhejiang Province, the
People’s Republic of China (the “PRC”):
BEST Logistics Technologies (China) Co., Ltd., with its registered address at Room 2310, 23/F, 588 Jiangnan Avenue, Binjiang District, Hangzhou
(the “Lender”); and
Wei Chen, a PRC citizen, whose ID number is;
Lili He, a PRC citizen, whose ID number is;
(collectively the “Borrower”).
The Lender and the Borrower shall be referred to individually as a “Party” or collectively as the “Parties” hereunder.
WHEREAS,
(cid:120) Hangzhou BEST Information Technology Services Co., Ltd. (formerly known as Hangzhou Baisheng Investment Management Co., Ltd.)
(“Hangzhou BEST Technology”) is a domestic limited liability equity joint venture with a registered capital of RMB10,000,000. The
Borrower, in aggregate, holds 100% equity interest in Hangzhou BEST Technology, of which Wei Chen holds 50% equity interest in
Hangzhou BEST Technology (corresponding to an amount of RMB5,000,000 in the registered capital of Hangzhou BEST Technology)
and Lili He holds 50% equity interest in Hangzhou BEST Technology (corresponding to an amount of RMB5,000,000 in the registered
capital of Hangzhou BEST Technology);
(cid:120)
(cid:120)
(cid:120)
Pursuant to the Loan Agreement entered into by the Parties hereto as of Oct 23, 2019 (the “Loan Agreement I”), the Borrower obtained from
the Lender a loan equivalent to RMB100,000 for the subscription of Hangzhou BEST Technology’s equity;
The Borrower obtains from the Lender a loan equivalent to RMB9,900,000 for the subscription of Hangzhou BEST Technology’s equity and its
subsequent capital increase;
In order to clarify rights and obligations between the Borrower and the Lender, both Parties agree to enter into this Loan Agreement, which shall
supersede all agreements including the Loan Agreement I, contracts or understandings previously concluded by both Parties for the same
purpose.
NOW THEREFORE, the Parties agree as follows:
Section 1 Loan
1.1 The Parties acknowledge that the Lender has provided the Borrower with a loan of RMB10,000,000 (the “Loan”) and the Borrower agrees to
assume the liabilities and obligations to repay such Loan, of which Wei Chen shall repay RMB5,000,000 and Lili He shall repay RMB5,000,000.
2
1.2 The Parties acknowledge that the entire Loan has been used to subscribe for Hangzhou BEST Technology’s equity and to increase Hangzhou
BEST Technology’s capital. The Lender acknowledge such purpose.
1.3 The Parties acknowledge that no interest shall accrue in respect of the Loan.
1.4 The term of the Loan shall be the same as the term hereof.
Section 2 Undertakings of the Borrower
2.1 The Borrower hereby undertakes that:
2.1.1 Without the Lender’s prior written consent, it will not transfer its equity interest in Hangzhou BEST Technology, in whole or in
part, to any third party, nor will it create or cause to be created any encumbrance in any form on Hangzhou BEST Technology’s
equity interest.
2.1.2 Unless with the Lender’s prior written consent, it shall at all times effectively maintain its status as Hangzhou BEST Technology’s
shareholder.
2.1.3 It will, upon the Lender’s request, unconditionally transfer its equity interest in Hangzhou BEST Technology to the Lender or any
third party designated by the Lender.
2.1.4 It will comply with all laws, regulations, rules and orders from government authorities applicable to the Borrower or Hangzhou
BEST Technology’s business activities or its assets.
2.1.5 Without the Lender’s prior written consent, it will in no way affect Hangzhou BEST Technology’s ordinary operation as a going
concern.
2.1.6 It will comply with all other agreements, contracts or undertakings by and between the Borrower and the Lender.
Section 3 Repayment of Loan
3.1 The Parties agree and acknowledge that, if the Borrower is in no breach of Section 2 hereof, the Lender will not require the Borrower to repay
the Loan prior to the Borrower’s transfer of its equity interest in Hangzhou BEST Technology or discontinuation of Hangzhou BEST
Technology’s operation. Otherwise, the Lender shall have the right to request the Borrower to repay the Loan by giving a seven (7)-day prior
written notice.
3
3.2 To the extent permitted by the laws, if the Borrower transfers part of its equity interest in Hangzhou BEST Technology to the Lender or any
third party designated by the Lender in accordance with the Lender’s instructions, upon transfer of such equity interest and payment of the
proceeds from such transfer by the Borrower to the Lender, the Loan of the relevant amount shall be deemed repaid. For the purpose of this
Section, such relevant amount shall be calculated in accordance with the formula below:
Relevant Amount Deemed Repaid = Loan*(Transferred Equity of Hangzhou BEST Technology /Total Equity of Hangzhou BEST
Technology)
3.3 If the Borrower transfers all of its equity interest in Hangzhou BEST Technology to the Lender or any third party designated by the Lender,
upon transfer of such equity interest (and the payment of the proceeds from such transfer by the Borrower to the Lender), the Loan hereunder
shall be deemed as having been fully repaid.
3.4 The wording “upon transfer of the equity interest in Hangzhou BEST Technology” for the purpose of this Section shall mean that the transfer of
such equity interest has been approved by competent government authorities (if required) and the changes to such equity interest have been
registered with the administration for industry and commerce, with the Lender or any third party designated by the Lender becoming the lawful
holder of the equity of Hangzhou BEST Technology.
3.5 In the event of Hangzhou BEST Technology’s winding-up, liquidation, dissolution or bankruptcy for any reason not attributable to the
Borrower, the Loan hereunder shall be deemed as having been fully repaid upon the Borrower’s return of all proceeds from the liquidation to the
Lender.
All taxes and reasonable expenses in connection with this Agreement, except those expressly stipulated under the PRC laws to be borne by
the Lender or by the Borrower, shall be borne by the Lender.
Section 4 Taxes and Fees
5.1 This Agreement shall take effect once it is duly executed by the Parties.
Section 5 Effectiveness and Termination
5.2 This Agreement shall terminate upon the Borrower’s fully repayment of the Loan hereunder or the Lender’s waiver of its creditor’s rights.
Section 6 Applicable Laws and Dispute Resolution
6.1 The execution, performance, interpretation and dispute resolution of this Agreement shall be governed by the PRC laws.
6.2 All disputes arising out of or in connection with this Agreement or its performance shall first be resolved by the Parties through friendly
consultations. If the Parties fail to reach an agreement within thirty (30) days following the occurrence of such dispute, such dispute shall be
brought before the competent people’s court of Hangzhou for adjudication.
4
7.1 This Agreement may be supplemented or amended by a written agreement between the Parties hereto.
Section 7 Miscellaneous
7.2 If any part of a certain provision hereof is unenforceable as it is in violation of laws, government rules or otherwise, such part shall be deemed as
having been deleted, provided that such deletion shall not affect the validity of the remaining part of said provision or other provisions hereof.
The Parties hereto shall cease to perform such invalid part of such provision, and shall revise such part of the provision only to the extent valid,
enforceable and close to its original meaning.
7.3 Unless with the Lender’s prior written consent, the Borrower shall not transfer, in whole or in part, any rights or obligations hereunder, provided
that the Lender may transfer its rights and obligations hereunder to any of the Lender’s affiliates or any other third party without the Borrower’s
consent.
7.4 This Agreement is made in four (4) counterparts, with each person of the Borrower holding one and the Lender holding two (2). Each of the
counterparts shall be deemed as the original and be equally authentic upon execution.
[The remainder of the page is intentionally left blank.]
5
IN WITNESS HEREOF, the Parties have executed this Agreement in person or have caused the same to be executed by their duly authorized
representatives on the date first written above, and the Parties agree to comply therewith.
[Signature Page]
Lender:
BEST Logistics Technologies (China) Co., Ltd. (Seal)
Signature of Authorized Representative: /s/ Shao-Ning Johnny Chou
Borrower:
/s/ Wei Chen
Wei Chen
/s/ Lili He
Lili He
6
Exhibit 4.20
This is an English translation of the original Chinese text
Hangzhou Baisheng Investment Management Co., Ltd.
AND
BEST Logistics Technologies (China) Co., Ltd.
EXCLUSIVE SERVICES AGREEMENT
Oct 23, 2019
1
This SERVICES AGREEMENT (this “Agreement”) is entered into in Hangzhou, Zhejiang Province, the People’s Republic of China (the “PRC”)
on Oct 23, 2019.
EXCLUSIVE SERVICES AGREEMENT
BY AND BETWEEN:
(1) Hangzhou Baisheng Investment Management Co., Ltd. (“Party A”) Registered address: Room 525, Building No. 6, 1197 Bin’an Road,
Binjiang District, Hangzhou Legal representative: Wei Chen; and
(2) BEST Logistics Technologies (China) Co., Ltd. (“Party B”) Registered address: Room 2310, 23/F, 588 Jiangnan Avenue, Binjiang District,
Hangzhou Legal representative: Shao-Ning Johnny Chou
(for the purposes of this Agreement, each a “Party”, collectively the “Parties”)
W I T N E S S E T H
WHEREAS, Party A is a limited liability company registered and lawfully existing in Hangzhou, the PRC, mainly engaged in investment
management and investment advisory services;
WHEREAS, Party B is a wholly Hong Kong-invested enterprise registered and lawfully existing in Hangzhou, the PRC, mainly engaged in the
research and development of and provision of technical services relating to computer information technology, online logistics technology and
wireless communication devices, as well as in the operation of road transportation, domestic courier services, global ocean transportation assistance
and other related transportation services, and providing business consulting services, wholesale and retail, imports and exports, and warehousing
services.
WHEREAS, Party A needs Party B to provide it with consultations and services relating to Party A’s Business (as defined below) and Party B agrees
to provide such services to Party A.
NOW, THEREFORE, upon friendly discussions, the Parties agree as follows:
1. DEFINITIONS
1.1. Unless otherwise specified herein or otherwise required by the context, the following terms shall have the following meanings in this
Agreement:
“Party A’s Business” means all of the business activities operated and developed by Party A now and at any time during the term hereof,
including, without limitation, truckload logistics on internet trading platform operated by Party A and to provide efficient and value-added
truckload transportation solutions and other relevant services to transportation service providers and companies nationwide.
“Services” means the services to be provided by Party B on an exclusive basis to within its business scope to Party A in relation to Party A’s
Business, including, without limitation:
(i) licensing Party A to use relevant software with respect to which Party B possesses lawful rights and which is required for Party
A’s Business;
2
(ii) day-to-day management, maintenance and updating of hardware devices and databases;
(iii) development, maintenance and updating of relevant application software required for Party A’s Business;
(iv) providing technical trainings to relevant personnel of Party A;
(v) assisting in the collection and analysis of technical data relating to Party A’s operation;
(vi) providing business promotion services and marketing consultation services required for Party A’s Business, and
(vii) providing other relevant consultations and services from time to time upon Party A’s request.
“Annual Business Plan” means Party A’s Business development plan and budget report for the next calendar year to be prepared by Party
A with the assistance of Party B in accordance with this Agreement by November 30 of each year.
“Service Fees” means all of the fees payable by Party A to Party B under Section 3 hereof in respect of the services provided by Party B.
“Devices” means any and all devices owned or acquired from time to time by Party B and utilized for the purpose of the provision of the
Services.
“Business-Related Technology” means any and all software and technologies developed by Party A on the basis of the Services provided
by Party B hereunder in relation to Party A’s Business.
“Confidential Information” has the meaning ascribed to it in Section 6.1 hereof.
“Defaulting Party” has the meaning ascribed to it in Section 11.1 hereof.
“Default” has the meaning ascribed to it in Section 11.1 hereof.
“Party Rights” has the meaning ascribed to it in Section 13.5 hereof.
1.2. In this Agreement, any reference to any laws and regulations (the “Laws”) shall be deemed to also include:
(i) a reference to such Laws as modified, amended, supplemented and/or reenacted, whether effective before or after the date hereof;
and
(ii) a reference to any other decisions, circulars or rules made in accordance therewith or effective as a result thereof.
1.3. Unless otherwise required by the context, a reference to a provision, clause, section or paragraph hereunder shall be a reference to such
provision, clause, section or paragraph of this Agreement.
3
2. Services
2.1. During the term hereof, Party B shall diligently provide the Services to Party A in accordance with the requirements of Party A’s Business.
2.2. Party B shall be equipped with all Devices and personnel reasonably required for the provision of the Services and shall, in accordance with
Party A’s Annual Business Plan and Party A’s reasonable requests, procure and purchase new Devices and add additional personnel so as to meet the
need for Party B to provide quality Services to Party A in accordance with this Agreement.
2.3. For the purpose of the provision of the Services hereunder, Party B shall communicate and exchange with Party A the information pertaining
to Party A’s Business.
3. Service Fees
3.1. In connection with the Services provided by Party B hereunder, Party A shall pay the Services Fees to Party B pursuant to the following
terms:
3.1.1. Service Fees in an amount equal to 90% of the total revenue of the current year of Party A after deduction of Party B-approved
reasonable operating costs; and
3.1.2. Service Fees to be separately determined by Party B for specific technical services provided from time to time by Party B upon Party
A’s request.
3.2. Party A shall within three months of the end of each calendar year pay in one lump sum the Service Fees determined in accordance with
Section 3.1 into a bank account designated by Party B. If Party B changes its bank account, it shall notify Party A in writing seven (7)
business days in advance.
3.3. The Parties agree that as a matter of principle payment of aforesaid Service Fees should not cause difficulties to any Party’s operation of the
then current year; in furtherance of the forgoing, to the extent of the implementation of said principle, Party B may either agree for Party A to
postpone its payment of the Service Fees or adjust in writing the fee percentage and/or specific amounts of the Service Fees payable by Party
A to Party B under Section 3.1.
3.4. During the term hereof, Party B shall have the right to adjust at its sole discretion aforesaid Service Fees without Party A’s consent.
4. Party A’s Obligations
4.1. Party B’s Services hereunder shall be exclusive in nature. During the term hereof, without Party B’s prior written consent, Party A shall not
enter into any agreement with any third party other than Party B’s affiliates in connection with services identical or similar to the Services of
Party B or otherwise accept any such services from such third parties.
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4.2. Party A shall by November 30 of each year provide Party B with its finalized Annual Business Plan for the next year such that Party B may
arrange for the corresponding Services plan and procure required software, Devices, personnel and technical services resources. If Party A
needs Party B to procure additional Devices or personnel on an ad hoc basis, it shall hold consultations with Party B fifteen (15) days in
advance in order for the two parties to reach agreement thereon.
4.3. In order to facilitate Party B’s provision of the Services, Party A shall upon Party B’s request provide Party B with relevant information in a
timely manner.
4.4. Party A shall in accordance with Section 3 pay the full amount of the Service Fees to Party B in a timely manner.
4.5. Party A shall maintain its good reputation, actively expand its business and seek the maximization of its profits.
4.6. During the term hereof, Party A agrees to cooperate with Party B and its parent company (either direct or indirect) in the carrying out of
related party transaction audits and other audits and provide Party B, its parent company or its appointed auditors with information and
materials relating to Party A’s operations, businesses, customers, finances, employees and so on; and further agrees that Party B’s parent
company(ies) may disclose such information and materials to satisfy regulatory requirements of the listing venue of its (their) securities.
5. Intellectual Property
5.1. All intellectual property, whether originally owned by Party B or obtained by it during the term hereof, including the intellectual property
rights to and in the work products created during its provision of the Services, shall belong to Party B.
5.2. Considering that the conduct of Party A’s Business is dependent upon the Services provided by Party B hereunder, Party A agrees to the
following arrangement with respect to the Business-Related Technology developed by Party A on the basis of such Services:
(i) If the Business-Related Technology is further developed and obtained by Party A under Party B’s entrustment or is obtained by Party
A through joint development with Party B, then the title to such Business-Related Technology and relevant patent application rights
shall be owned by Party B;
(ii) If the Business-Related Technology is obtained by Party A through further independent development, then its title shall be owned by
Party A, provided however that: (A) Party A shall timely inform Party B of the details of such Business-Related Technology and
shall provide relevant information required by Party B; (B) if Party A intends to license or transfer such Business-Related
Technology, Party A shall, to the extent not contrary to mandatory requirements of PRC Laws, transfer the same to Party B or grant
an exclusive license to Party B on a preemptive basis, and Party B may use such Business-Related Technology within the specific
scope of Party A’s transfer or license (however, Party B may decide at its discretion whether to accept such transfer or license); if
and only if Party B has waived its right to preemptive purchase or exclusive license with respect to such Business-Related
Technology, Party A may then transfer the title of, or license such Business-Related Technology to a third party on terms and
conditions (including, without limitation, the transfer price or the royalty) no more favorable than those proposed to Party B, and
shall ensure that such third party shall fully comply with and perform the obligations to be performed by Party A hereunder; and (C)
except under the circumstances as described in (B), during the term hereof, Party B shall have the right to demand to purchase such
Business-Related Technology; to the extent not contrary to mandatory requirements of PRC Laws, Party A shall agree to such
purchase request of Party B and the purchase price shall be equal to the lowest purchase price then permissible by PRC Laws.
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5.3. In the event that Party B is granted an exclusive license under Section 5.2(ii) hereof to use the Business-Related Technology, such license
shall comply with the following requirements:
(i) The term of the license shall be no less than ten (10) years (from the effective date of the such license agreement);
(ii) The scope of the rights granted under the license shall be defined to the maximum extent possible;
(iii) During the term of the license and to the extent of the scope of license, no party (including Party A) other than Party B may use or
license another party to use such Business-Related Technology;
(iv) Upon expiry of the term of the license, Party B shall have the right to demand to renew the license agreement and Party A shall grant
its consent, in which event the terms of such license agreement shall remain unchanged, other than those changes approved by Party
B.
5.4. Notwithstanding Section 5.2(ii), a patent application in respect of any Business-Related Technology described therein shall be dealt with as
follows:
(i) If Party A intends to file a patent application with respect to any Business-Related Technology described in Section 5.2(ii), it shall
obtain prior written consent from Party B;
(ii) If and only if Party B has waived its right to purchase the patent application right for such Business-Related Technology, Party A may
then file such patent application on its own or transfer such right to a third party. In the event Party A transfers the abovementioned
patent application right to a third party, it shall ensure that such third party shall fully comply with and perform the obligations to be
performed by Party A hereunder; in addition, the terms on which Party A transfers such patent application right to a third party
(including, without limitation, the transfer price) shall not be more favorable than those proposed by Party A to Party B under
Section 5.4(iii) hereof;
(iii) During the term hereof, Party B may at any time request Party A to file patent applications with respect to such Business-Related
Technology and may decide in its discretion whether to purchase the right to such patent application. If so requested by Party B, Party
A shall, to the extent not contrary to the mandatory requirements of PRC Laws, transfer such right to file patent applications to Party
B at the lowest transfer price then permissible by PRC Laws; once Party B acquires the right to file patent applications with respect to
such Business-Related Technology, files patent applications and is granted patents, Party B shall become the lawful owner of such
patents.
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5.5. Party A warrants to Party B that it will indemnify Party B against any and all economic losses suffered by Party B as a result of Party A’s
infringement of any third-party intellectual property rights (including copyrights, trademarks, patents and know-hows).
6. Confidentiality Obligations
6.1. Notwithstanding the termination of this Agreement, each of Party A and Party B shall maintain in strict confidence business secrets,
proprietary information, customer information and any other information of a confidential nature of the other Party coming into its knowledge
during the conclusion and performance of this Agreement (collectively the “Confidential Information”). Except with prior written consent
from the Party disclosing such Confidential information or to the extent required to disclose to a third party by relevant laws or regulations or
requirements of the listing venue of an affiliate, no Party receiving the Confidential Information shall disclose any Confidential Information to
any third party; the Party receiving the Confidential Information shall not use, directly or indirectly, any Confidential Information other than
for the purpose of performing this Agreement.
6.2. The following information shall not constitute the Confidential Information:
(a) any information which, as shown by written evidence, has previously become known to the receiving Party by lawful means; or
(b) any information which enters public domain other than as a result of the receiving Party’s fault; or
(c) any information lawfully acquired by the receiving Party from another source subsequent to its receipt thereof hereunder.
6.3. The receiving Party may disclose the Confidential Information to its relevant employees or agents to the professionals engaged by such Party,
provided that such receiving Party shall ensure that such persons shall comply with relevant terms and conditions of this Agreement, and shall
assume any liability arising out of any breach by such persons thereof.
6.4. Notwithstanding any other provisions of this Agreement, the validity of this Section shall not be affected by the suspension or termination of
this Agreement.
7. Representations and Warranties by Party A
Party A hereby represents and warrants to Party B that:
7.1. It is a limited liability company duly registered and lawfully existing under PRC Laws with independent legal personality, has full and
independent legal status and capacity to execute, deliver and perform this Agreement and may sue or be sued as an independent party.
7.2. It has full internal corporate power and authority to execute and deliver this Agreement and all other documents to be executed by it in
connection with the transactions contemplated hereunder as well as full power and authority to consummate the transactions contemplated
hereunder. This Agreement will be lawfully and duly executed and delivered by it, and constitutes its legal and binding obligations,
enforceable against it in accordance with the terms hereof.
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7.3. It shall timely inform Party B of any circumstance which has or is likely to have a material adverse effect on Party A’s Business or operation
thereof and shall use its best efforts to prevent the occurrence of such circumstance and/or the expansion of losses.
7.4. Without Party B’s written consent, Party A will not dispose of its material assets or change its current shareholding structure in whatsoever
manner.
8. Representations and Warranties by Party B
Party B hereby represents and warrants to Party A that:
8.1. It is a limited liability company duly registered and lawfully existing under PRC Laws with independent legal personality, has full and
independent legal status and capacity to execute, deliver and perform this Agreement and may sue or be sued as an independent party.
8.2. It has full internal corporate power and authority to execute and deliver this Agreement and all other documents to be executed by it in
connection with the transactions contemplated hereunder as well as full power and authority to consummate the transactions contemplated
hereunder. This Agreement will be lawfully and duly executed and delivered by it, and constitutes its legal and binding obligations,
enforceable against it in accordance with the terms hereof.
9. Term of Agreement
9.1. This Agreement shall become effective once it is duly executed by the Parties hereto. Unless otherwise expressly stipulated herein, the term of
this Agreement shall be twenty (20) years.
9.2. Unless Party B notifies Party A at least three (3) months prior to the expiry hereof that this Agreement will not be renewed, this Agreement
will automatically renew for a term of twenty (20) years upon such expiry.
9.3. Party A shall not terminate this Agreement early during the term of this Agreement. Notwithstanding the foregoing, Party B may terminate
this Agreement at any time by notifying Party A in writing thirty (30) days in advance.
9.4. If necessary, the Parties shall each within three months prior to the expiry of their respective terms of business operations complete review,
approval and registration formalities for the extension of such business terms so that the continuing validity of this Agreement shall be
maintained.
9.5. Upon termination hereof, the Parties shall continue to comply with their respective obligations under Section 6 hereof.
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10. Notice
10.1. Any notice, request, demand and other correspondences required hereby or made hereunder shall be served on the relevant Party in writing.
10.2. The abovementioned notice or other correspondences shall be deemed given upon transmission, if sent by fax; or upon delivery if delivered in
person; or five (5) days after posting if sent by mail.
11. Liability for Default
11.1. The Parties agree and acknowledge that if any Party (the “Defaulting Party”) substantially breaches any provision hereof, or substantially fails
to perform or delays in performing any obligations hereunder, such breach, failure or delay shall constitute a default hereunder (the “Default”)
and that in such event, the non-defaulting Party shall have the right to demand the Defaulting Party to cure such Default or take remedial
measures within a reasonable time limit. If the Defaulting Party fails to cure such Default or take remedial measures within such reasonable
time limit or within ten (10) days after the non-defaulting Party notifies the Defaulting Party in writing and requests it to cure such Default,
the non-defaulting Party shall have the right to do the following: (i) if Party A is the Defaulting Party, Party B shall have the right to elect to
terminate this Agreement and demand Party A to indemnify for damages, or demand enforced performance by Party A of its obligations
hereunder; (ii) if Party B is the Defaulting Party, Party A shall have the right to demand Party B to indemnify for damages, provided that,
unless otherwise stipulated under the Laws, in no event may Party A terminate or rescind this Agreement.
11.2. Notwithstanding any other provisions hereof, this Section 11 shall survive the termination of this Agreement.
12. Force Majeure
If there occurs an earthquake, typhoon, flood, fire, war, computer virus, tool software design loophole, hacking attack of the Internet, change
of policy or law or any other force majeure event which is unforeseeable or whose consequences are unpreventable or unavoidable, and a
Party is directly affected thereby in its performance of this Agreement or is prevented thereby from performing this Agreement on the agreed
terms, such affected or prevented Party shall immediately notify the other Party by fax of the same and shall within thirty (30) days provide an
evidencing document to be issued by the notary body of the place of the force majeure event, setting forth the details of such force majeure
and the reasons for such failure or delay to perform this Agreement. The Parties shall, in light of the extent of the impact of such force majeure
event on the performance of this Agreement, agree on whether to waive the performance of part of this Agreement or grant postponed
performance thereof. No Party shall be held liable to indemnify the other Party against its economic losses resulting from a force majeure
event.
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13. Miscellaneous
13.1. This Agreement is made in Chinese in duplicate, with each Party hereto holding one (1) original.
13.2. The execution, effectiveness, performance, modification, interpretation and termination of this Agreement shall all be governed by the Laws
of the People’s Republic of China.
13.3. Any dispute arising under or in connection with this Agreement shall be resolved by the Parties through consultations. If the Parties fail to
reach an agreement within thirty (30) days following its occurrence, be brought before the competent people’s court of Hangzhou for
adjudication.
13.4. No right, power or remedy granted to any Party by any provision of this Agreement shall preclude any other right, power or remedy such
Party is entitled to in accordance with Laws or any other provisions hereof and no exercise by a Party of any of its rights, powers and
remedies shall preclude its exercise of other rights, powers and remedies it is entitled to.
13.5. No failure or delay by a Party in exercising any right, power or remedy it is entitled to under this Agreement or Laws (the “Party Rights”)
shall operate as a waiver of such rights, nor shall any single or partial waiver by a Party of the Party Rights preclude any further exercise of
such Party Rights or any exercise of any other Party Rights.
13.6. The section headings herein are inserted for convenience of reference only and shall in no event be used for or affect the interpretation of the
provisions hereof.
13.7. Each provision contained herein may be segregated from and independent of any other provisions hereof, and if at any time any one or more
provisions hereof become invalid, illegal or unenforceable, the validity, legality and enforceability of the remaining provisions hereof shall
not be affected thereby.
13.8. Upon its execution, this Agreement shall promptly supersede any other legal documents previously executed by the Parties with respect to the
same subject matter, including, without limitation, the Amended and Restated Exclusive Technical Services Agreement dated October 12,
2011 by and between Party A and Party B.
13.9. Any amendments or supplements to this Agreement must be made in writing and shall take effect only when duly executed by the Parties
hereto.
13.10. Without Party B’s prior written consent, Party A shall not transfer any of its rights and/or obligations hereunder to any third party. Party B
shall have the right to transfer its rights and obligations hereunder to any third party and designate any third party to provide any or all
services hereunder or perform any of Party B’s obligations hereunder.
13.11. This Agreement shall be binding upon the lawful assignees or successors of the Parties.
13.12. The Parties undertake to file and pay, in accordance with Laws, their respective taxes involved in the transactions hereunder.
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IN WITNESS WHEREOF, the Parties have duly executed this Amended and Restated Exclusive Services Agreement at the place and as of the date
first above written.
[Signature Page]
Party A:
Hangzhou Baisheng Investment Management Co., Ltd.
(Seal)
Signature: /s/ Wei Chen
Name: Wei Chen
Title:
Legal Representative
Party B:
BEST Logistics Technologies (China) Co., Ltd.
(Seal)
Signature: /s/ Shao-Ning Johnny Chou
Name:
Shao-Ning Johnny Chou
Title:
Legal Representative
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Exhibit 4.21
This is an English translation of the original Chinese text
Wei Chen
Lili He
BEST Logistics Technologies (China) Co., Ltd.
AND
Hangzhou Baisheng Investment Management Co., Ltd.
EQUITY PLEDGE AGREEMENT
FOR
HANGZHOU BAISHENG INVESTMENT
MANAGEMENT CO., LTD.
Oct 23, 2019
1
This Equity Pledge Agreement (this “Agreement”) is entered into as of Oct 23, 2019 in Hangzhou, Zhejiang Province, the People’s Republic
of China by and among the following Parties:
EQUITY PLEDGE AGREEMENT
1. Wei Chen
Address: 105 Wenhua Road, Changguo Sub-district, Dinghai District, Zhoushan, Zhejiang
ID No.:
2. Lili He
Address: 1 Weiye Road, Binjiang District, Hangzhou
ID No.:
(Wei Chen and Lili He shall hereinafter be referred to individually as a “Pledgor”, or collectively as the “Pledgors”);
3. BEST Logistics Technologies (China) Co., Ltd. (the “Pledgee”) Registered address: Room 2310, 23/F, 588 Jiangnan Avenue, Binjiang
District, Hangzhou Legal representative: Shao-Ning Johnny Chou
4. Hangzhou Baisheng Investment Management Co., Ltd. (the “Company”) Registered address: Room 525, Building No. 6, 1197 Bin’an Road,
Binjiang District, Hangzhou
Legal representative: Wei Chen
(In this Agreement, each of aforesaid parties shall be referred to individually as a “Party” or collectively as the “Parties”.)
WHEREAS:
1. Pledgors are the registered shareholders of the Company and own all the equity of the Company in accordance with law (the “Company
Equity”). Their respective capital contributions to and ownership percentages in the Registered Capital of the Company as of the date hereof are
set forth in Schedule 1.
2. Pursuant to the Exclusive Call Option Agreement entered into by the Parties hereto and Best Logistics Technologies Limited (a company
established and existing pursuant to the laws of Cayman Islands, the “Cayman Company”) as of Oct 23, 2019 (the “Option Agreement”), the
Pledgors shall, to the extent permitted by the PRC Laws, transfer at the Pledgee’s request all or part of their equity interest in the Company to the
Pledgee and/or any other entities or individuals designated by the Pledgee.
3. Pursuant to the Shareholders’ Voting Rights Proxy Agreement entered into by the Parties hereto and the Cayman Company as of Oct 23, 2019
(the “Voting Rights Proxy Agreement”), the Pledgors have irrevocably granted a general proxy to the then designee of the Pledgee as approved
by the Cayman Company to exercise on behalf of the Pledgors all of their shareholder voting rights at the Company.
4. Pursuant to the Exclusive Services Agreement entered into by the Company and the Pledgee as of Oct 23, 2019 (the “Services Agreement”),
the Company shall on an exclusive basis engage the Pledgee to provide it with relevant technical services and agrees to pay corresponding
service fees to the Pledgee for such technical services.
5. Pursuant to the Loan Agreement entered into by the Pledgee, Wei Chen and Lili He on October 23, 2019 (the “Loan Agreement”), Wei Chen
and Lili He acknowledge that the loan from the Pledgee shall be applied towards the purchase of equity interests in the Company and the capital
increase of the Company.
6. As collateral for the Pledgor’s performance of the Contractual Obligations (as defined below) and their satisfaction of the Secured Indebtedness
(as defined below), the Pledgors have agreed to pledge with the Pledgee all of the Company Equity held by them and grant a first ranking pledge
to the Pledgee, and the Company has agreed to such equity pledge arrangement.
2
NOW, THEREFORE, upon mutual consultations, the Parties agree as follows:
Section 1 Definitions
1.1 Unless otherwise required by the context, the terms below shall have the following meanings under this Agreement:
“Contractual Obligations” means all contractual obligations of the Pledgors or the Company under the Transaction Documents.
“Secured Indebtedness” means all direct, indirect and derivative losses and loss of anticipatable benefits suffered by the Pledgee as a result of any
Event of Default (as defined below) on the part of the Pledgors and/or the Company, the basis of the amount of which losses shall include without
limitation reasonable business plans and profit forecasts of the Pledgee, service fees payable by the Pledgors under the Services Agreement, and all
expenses incurred by the Pledgee in connection with the enforcement for the Pledgors’ and/or the Company’s performance of their Contractual
Obligations; The amount of such losses shall, to the extent permitted by the PRC Laws, be determined by the Pledgee at its sole discretion, which
determination shall be binding on the Pledgors.
“Transaction Documents” mean the Option Agreement, the Voting Rights Proxy Agreement, the Services Agreement and the Loan Agreements.
“Event of Default” means the breach by any Pledgor or the Company of any of its Contractual Obligations under the Transaction Documents; any
representations and warranties or other information provided by the Pledgors and the Company to the Pledgee under the Transaction Documents
being or being found untrue or misleading in any material aspect; or any provision of the Transaction Documents becoming invalid or unenforceable
due to changes in the PRC laws and regulations, promulgation of new PRC laws and regulations or any other reasons, with no alternative
arrangement being reached by the Parties.
“Pledged Equity Interests” means all of the Company Equity lawfully owned by the Pledgors as of effectiveness of this Agreement to be pledged to
the Pledgee in accordance the terms hereof (details on the respective Pledged Equity Interests of each Pledgor are set forth under Schedule 1) as
security for the performance of the Contractual Obligations by the Pledgors and the Company, as well as the capital increases and dividends
referenced in Sections 2.6 and 2.7 hereof.
“PRC Laws” means the laws, administrative regulations, administrative rules, local regulations, judicial interpretations and any other binding
normative documents then in effect of the People’s Republic of China.
1.2
In this Agreement, reference to any PRC Laws shall be deemed to also include (1) a reference to such PRC Laws as modified, amended,
supplemented or reenacted, effective either before or after the date hereof; and (2) a reference to any other decisions, circulars or rules made in
accordance therewith or effective as a result thereof.
1.3 Unless otherwise provided in the context hereunder, reference to all articles, sections, paragraphs and clauses means the corresponding
articles, sections, paragraphs and clauses of this Agreement.
2.1 As security for the satisfaction of the Secured Indebtedness, the Pledgors hereby agree to pledge to the Pledgee in accordance with this
Agreement the Pledged Equity Interests, being equity interests, which are lawfully owned by them and which they have the right to dispose of. The
Company hereby agrees to the pledging by the Pledgors of said Pledged Equity Interests to the Pledgee pursuant to this Agreement.
Section 2 Pledge of Equity Interests
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2.2 The Pledgors covenant to assume the responsibility of recording the equity interests pledge arrangement under this Agreement (the “Equity
Interests Pledge”) in the shareholder register of the Company on the date hereof. The Pledgors further covenant to use their best efforts and take all
necessary measures to complete as soon as possible the pledge registration with the relevant administration of industry and commerce in connection
with the Equity Interests Pledge hereunder.
2.3 During the term of this Agreement, the Pledgee shall not be held liable for any decrease in the value of the Pledged Equity Interests, and the
Pledgors shall have no right to seek recourse in whatever form or make any demand against the Pledgee for such decrease, unless such decrease
arises as a result of the Pledgee’s willful misconduct or of the Pledgee’s gross negligence which has a direct causal link with the result.
2.4 Subject to Section 2.3, if there is any likelihood of a manifest decrease in the value of the Pledged Equity Interests sufficient to prejudice the
rights of the Pledgee, the Pledgee may at any time dispose of the Pledged Equity Interest on behalf of the Pledgors through an auction or sale and
will, depending on the agreement with the Pledgors, either apply such auction or sale proceeds towards early repayment of the Secured Indebtedness
or deposit such proceeds with the notary office at the Pledgee’s location( with all expenses arising from such deposit to be assumed by the Pledgors).
In addition, at the request of the Pledgee, the Pledgors shall also provide other assets as security for the Secured Indebtedness.
2.5 Upon the occurrence of any Event of Default, the Pledgee shall have the right to dispose of the Pledged Equity Interests by means of the
methods specified under Section 4 hereof.
2.6 The Pledgors may effect a capital increase of the Company solely upon prior consent of the Pledgee. Any increase in its capital contribution to
the registered capital of the Company as a result of a capital increase of the Company shall also constitute part of the Pledged Equity Interests and
relevant equity pledge registration procedures shall be handled as soon as possible.
2.7 The Pledgors may receive any dividend or bonus in respect of the Pledged Equity Interests solely upon prior written consent of the Pledgee.
Any dividend or bonus received by the Pledgors in respect of the Pledged Equity Interests shall be deposited into an account designated by the
Pledgee, shall be subject to the supervision of the Pledgee and shall first be applied towards repayment of the Secured Indebtedness.
2.8 Upon the occurrence of any Event of Default, the Pledgee shall have the right to dispose of any Pledged Equity Interest of any Pledgor
pursuant to the provisions of this Agreement.
Section 3 Release of Pledge
3.1 Upon full and complete performance of all Contractual Obligations and repayment of all Secured Indebtedness by the Pledgors and the
Company, the Pledgee shall, at the request of the Pledgors, release the Equity Interests Pledge hereunder as soon as reasonably practical, and shall
cooperate with the Pledgors to deregister the Equity Interests Pledge in the shareholder register of the Company and deregister the pledge with the
relevant administration of industry and commerce; reasonable expenses incurred in connection with such release of the Equity Interests Pledge shall
be assumed by the Pledgee.
Section 4 Disposal of the Pledged Equity Interests
4.1 The Parties hereby agree that upon the occurrence of any Event of Default the Pledgee shall have the right to exercise, upon written notice to
the Pledgors, all default remedy rights and powers available to it under the PRC Laws, the Transaction Documents and this Agreement, including
without limitation:
4.1.1 To the extent permitted by the PRC Laws, at the Pledgee’s request, the Pledgors shall transfer, without prejudice to the Option
Agreement, all or part of the Pledged Equity Interests held by the Pledgors in the Company to the Pledgee and/or any other entities or individuals
designated by it at the price specified under the Option Agreement;
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4.1.2 Without prejudice to the Transaction Documents, the Pledged Equity Interests shall be disposed of through an auction or discount
sale, and the disposal proceeds shall be applied on a priority basis in favour of the Pledgee;
4.1.3 Subject to compliance with the PRC Laws, the Pledged Equity Interests shall be disposed of by means of such other method as may be
agreed upon by the Pledgors and the Pledgee.
The Pledgee shall not be held liable for any losses arising from its reasonable exercise of its such rights or powers.
4.2 The Pledgee shall have the right to appoint in writing an attorney or any other agent who shall exercise on its behalf any and all of its aforesaid
rights and powers; and the Pledgors or the Company shall raise no objection thereto.
4.3 The Pledgee shall have the right to truthfully deduct any reasonable expenses incurred by it in connection with the exercise of any or all
aforesaid rights and powers from the proceeds received as a result of its exercise of the rights and powers.
4.4 The proceeds received by the Pledgee as a result of its exercise of its rights and powers shall be applied in the following order:
1.
to pay all expenses incurred in connection with the disposal of the Pledged Equity Interests and the Pledgee’s exercise of its rights
and powers (including the fees of the attorney and agent(s) of the Pledgee);
2.
to pay all taxes payable due to the disposal of the Pledged Equity Interests; and
3.
to repay the Secured Indebtedness to the Pledgee.
Any balance after the above deductions shall be returned by the Pledgee to the Pledgors or any other person entitled to it in accordance with relevant
laws and regulations, or shall be deposited with the notary office at the Pledgee’s location( with all expenses incurred as a result of such deposit to be
assumed by the Pledgee).
4.5 The Pledgee may at its option exercise any of its default remedy rights and powers either concurrently or successively; the Pledgee shall not be
required to pursue other default remedies before it exercises the right to auction or sell the Pledged Equity Interest.
Section 5 Costs and Expenses
5.1 All actual costs in connection with the creation of the Equity Interests Pledge under this Agreement, including without limitation stamp duties,
any other taxes and all legal fees, shall be borne by each Party respectively.
Section 6 Continuing Guaranty; No Waiver
6.1 The Equity Interests Pledge created under this Agreement shall constitute a continuing security and shall remain valid until the Contractual
Obligations are fully performed or the Secured Indebtedness is fully satisfied. No waiver or grace period granted by the Pledgee with respect to a
breach and no delay of Pledgee in exercising any of its rights under the Transaction Documents or this Agreement shall affect any right of the
Pledgee to require, under this Agreement, the PRC Laws or the Transaction Documents, strict performance on the part of the Pledgors of the
Transaction Documents or this Agreement at any time thereafter, or any right available to the Pledgee as a result of the Pledgors’ subsequent breach
of the Transaction Documents and/or this Agreement.
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The Pledgors each represent and warrant to the Pledgee that:
Section 7 Representations and Warranties of Pledgors
The Pledgors are PRC citizens with full capacity or limited liability companies duly registered and validly existing under the PRC Laws with
7.1
independent legal personality, and have legal rights and powers to enter into this Agreement and bear legal obligations thereunder.
7.2 All reports, documents and information provided by the Pledgors to the Pledgee prior to the effective date hereof regarding the Pledgors and all
matters prescribed under this Agreement are in all material aspects true, accurate and complete as of the effective date hereof.
7.3 All reports, documents and information provided by the Pledgors to the Pledgee subsequent to the effective date hereof regarding the Pledgors
and all matters prescribed under this Agreement are in all material aspects true, accurate and complete when they are provided.
7.4 As of the effective date hereof, the Pledgors are the sole and legal owner of the Pledged Equity Interests, and there are no currently existing
dispute on the ownership of the Pledged Equity Interests. The Pledgors have the right to dispose of any and all of such Pledged Equity Interests.
7.5 Other than the security interests created hereunder and the rights created under the Transaction Documents, the Pledged Equity Interest has no
other security interests or third party interests or any other restrictions.
The Pledged Equity Interests may be lawfully pledged and transferred, and the Pledgors have full rights and powers to pledge the Pledged
7.6
Equity Interests to the Pledgee in accordance herewith.
7.7
This Agreement, once duly executed by the Pledgors, will constitutes their legal, valid and binding obligations .
7.8 All consents, permissions, waivers, authorizations from any third party or any approvals, licenses, waivers from or registrations or filings with
any government authority (if required in accordance with laws) necessary for the execution and performance of this Agreement and the Equity
Interests Pledge hereunder have been obtained or completed (except the pledge registration with the administration of industry and commerce, which
will be handled as soon as reasonably possible following the execution of this Agreement) and will remain fully valid during the term of this
Agreement.
The Pledgors’ execution and performance of this Agreement does not violate or contravene any applicable laws, any agreements to which
7.9
they are a party or which are binding upon their assets, any court judgments, any rulings of arbitration agencies, or any decisions of any
administrative authorities.
7.10 The pledge hereunder shall constitute the first ranking security interest upon the Pledged Equity Interests.
7.11 All taxes and costs payable for the acquisition of the Pledged Equity Interests have been fully paid by the Pledgors.
7.12 There are no suits, legal proceedings or claims pending or, to the Pledgors’ knowledge, threatened against the Pledgors or their assets or the
Pledged Equity Interests, either before any court or arbitration tribunal, or before any government departments or administrative authorities, which
may have a material or adverse effect on the Pledgors’ economic conditions or their ability to perform the obligations under this Agreement or the
guaranty obligations.
7.13 The Pledgors hereby warrant to the Pledgee that above representations and warranties will remain true, accurate and complete and will be fully
complied with at any time and under any circumstances until all Contractual Obligations are fully performed or the Secured Indebtedness are fully
repaid.
6
The Company represents and warrants to the Pledgee as follows:
Section 8 Representations and Warranties of the Company
8.1 The Company is a limited liability company duly registered and validly existing under the PRC Laws, with independent corporate legal
personality; it has full and independent legal status and legal capacity to execute, deliver and perform this Agreement, and may sue and be sued as an
independent party .
8.2 All reports, documents and information provided by the Company to the Pledgee prior to the effective date hereof regarding the Pledged Equity
Interests and all matters prescribed under this Agreement are in all material aspects true, accurate and complete as of the effective date hereof.
8.3 All reports, documents and information provided subsequent to the effective date hereof by the Company to the Pledgee regarding the Pledged
Equity Interests and all matters prescribed under this Agreement are in all material aspects true, accurate and complete when they are provided.
8.4 This Agreement, once duly executed by the Company, will constitute its legal, valid and binding obligations.
8.5 It has full internal corporate power and authority to execute and deliver this Agreement and all other documents to be entered into by it in
connection with the transactions contemplated hereunder, and has full power and authority to consummate the transaction contemplated hereunder.
8.6 There are no suits, legal proceedings or claims pending or, to the Company’s knowledge, threatened against the Pledged Equity Interests, the
Company or its assets, either before any court or arbitration tribunal, or before any government departments or administrative authorities, which may
have a material or adverse effect on the Company’s economic conditions or the Pledgors’ ability to perform the obligations under this Agreement or
their guaranty obligations.
8.7 The Company agrees to be held severally and jointly liable to the Pledgee for the representations and warranties made by the Pledgors under
Sections 7.4, 7.5, 7.6, 7.8 and 7.10 of this Agreement.
8.8 The Company warrants to the Pledgee that above representations and warranties will remain true, accurate and complete and will be fully
complied with at any time and under any circumstances until all Contractual Obligations are fully performed or the Secured Indebtedness are fully
repaid.
The Pledgors each covenant to the Pledgee as follows:
Section 9 Covenants of the Pledgors
9.1 Unless otherwise specified under the Option Agreement, without the Pledgee’s prior written consent, the Pledgors will not create or permit to
be created any new pledge or any other security interests upon the Pledged Security Interests, and any pledge or security interests upon all or part of
the Pledged Security Interests created without the Pledgee’s prior written consent shall be null and void.
9.2 Without prior written notice to and prior written consent from the Pledgee, the Pledgors may not sell, transfer or dispose of the Pledged Equity
Interests and any purported sale, transfer or disposal by the Pledgors of the Pledged Equity Interests shall be null and void. The proceeds from the
sale, transfer or disposal by the Pledgors of the Pledged Equity Interests shall first be applied towards repaying the Secured Indebtedness to the
Pledgee or shall be deposited with a third party agreed upon with the Pledgee.
9.3 If there occurs any lawsuit, arbitration or claim that may have an adverse effect on the interests of the Pledgors or the Pledgee under the
Transaction Documents and this Agreement or on the Pledged Equity Interests, the Pledgors warrant that they shall notify the Pledgee in writing as
expeditiously as possible and in a timely manner and shall, at the reasonable request of the Pledgee, take all measures necessary to ensure the
pledgee rights and interests of the Pledgee to and in the Pledged Equity Interests.
9.4 The Pledgors covenant to complete all registration procedures necessary to extend the business term of the Company within three months prior
to the expiry of the Company’s business term such that this Agreement will remain effective.
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9.5 The Pledgors may not do or permit to be done any acts or actions likely to have an adverse effect on the interests of the Pledgee under the
Transaction Documents and this Agreement or on the Pledged Equity Interests. The Pledgors will waive their rights of first purchase in the event the
Pledgee realizes the pledge.
9.6 The Pledgors warrant that they will take at the Pledgee’s reasonable request all measures and execute all documents (including without
limitation any supplementary agreements hereto) necessary to ensure the pledgee rights and interests of the Pledgee on the Pledged Equity Interests
and the exercise and realization of such rights.
9.7 If any transfer of the Pledged Equity Interests arises out of the exercise of the pledge hereunder, the Pledgors warrant that they will take all
measures to effect such transfer.
9.8 The Pledgors shall ensure that the convening procedures, voting methods and contents of the shareholders’ meetings and the board meetings of
the Company convened for the purpose of the execution of this Agreement, the creation of the pledge and the exercise of the pledgee rights will not
breach any laws, administrative regulations, the articles of association of the Company or the Transaction Documents.
Section 10 Covenants of the Company
10.1 If any consents, permissions, waivers, authorizations from any third party or any approvals, licenses, waivers from or registrations or filings
with any government authority (if required in accordance with laws) are necessary for the execution and performance of this Agreement and the
Equity Interests Pledge hereunder, the Company will use its best efforts to assist in obtaining the same and maintaining their full validity during the
term of this Agreement.
10.2 Without the Pledgee’s prior written consent, the Company will not assist or permit the Pledgors to create any new pledge or any other security
interests upon the Pledged Security Interests.
10.3 Without the Pledgee’s prior written consent, the Company will not assist or permit the Pledgors to transfer the Pledged Equity Interests.
10.4 If there occurs any lawsuit, arbitration or claim that may have an adverse effect on Company, the Pledged Equity Interests, or the Pledgee’s
interests under the Transaction Documents and this Agreement, the Company warrants that it shall notify the Pledgee in writing as expeditiously as
possible and in a timely manner and shall, at the reasonable request of the Pledgee, take all measures necessary to ensure the pledgee rights and
interests of the Pledgee to and in the Pledged Equity Interests
10.5 The Company covenants to complete all registration procedures necessary to extend its business term within three months prior to the expiry
of such term, so that this Agreement will remain effective.
10.6 The Company may not do or permit to be done any acts or actions likely to have an adverse effect on the interests of the Pledgee under the
Transaction Documents and this Agreement or on the Pledged Equity Interests.
10.7 The Pledgors will within the first month of each calendar quarter provide the Pledgee with the quarterly financial statements of the Company
of the preceding quarter, including without limitation the balance sheet, the income statement and the cash flow statement.
10.8 The Company warrants that it will take at the Pledgee’s reasonable request all measures and execute all documents (including without
limitation any supplementary agreements hereto) necessary to ensure the pledgee rights and interests of the Pledgee on the Pledged Equity Interests
and the exercise and realization of such rights
10.9 If any transfer of the Pledged Equity Interests arises out of the exercise of the pledge hereunder, the Company warrant to take all measures to
effect such transfer.
8
Section 11 Change of Circumstances
11.1 To the extent not inconsistent with the Transaction Documents and the other provisions of this Agreement, if, at any time, due to an
enactment of or changes to any PRC Laws, regulations or rules, or changes to any interpretation or application of such laws, regulations or rules, or
changes to applicable registration procedures, maintaining the effectiveness of this Agreement and/or disposing of the Pledged Equity Interests by
means of the methods specified under this Agreement becomes, in the opinion of the Pledgee, illegal or conflicts with such laws, regulations or rules,
then the Pledgors and the Company shall on the written instruction of the Pledgee immediately take any action and/or execute any agreement or
other document in accordance with the reasonable requirements of the Pledgee so as to:
(1) maintain the effectiveness of this Agreement;
(2) dispose of the Pledged Equity Interests by means of the methods specified under this Agreement; and/or
(3) maintain or realize the security created or intended to be created under this Agreement.
Section 12 Effectiveness and Term of this Agreement
12.1 This Agreement shall take effect on the date when it is duly executed by the Parties. The Pledgors shall, acting in good faith, exert every
effort to register such Equity Interests Pledge with the competent administration of industry and commerce within the shortest period of time. In
furtherance of the foregoing, the Pledgors shall apply to the competent administration of industry and commerce for the registration within three (3)
business days of the execution of this Agreement, provided that, if , due to a reason not attributable to the Pledgors, such application fails to be
accepted and processed in a timely manner, they shall not be deemed in breach. After this Agreement takes effect, the Pledgors shall, as required by
the Pledgee, provide the Pledgee with the pledge registration certification issued by the administration of industry and commerce in a form
satisfactory to the Pledgee.
12.2 The term of this Agreement shall last until all Contractual Obligations have been fully performed or the Secured Indebtedness has been fully
satisfied.
Section 13 Notice
13.1 Any notice, request, demand and other correspondences required by or made in accordance with this Agreement shall be served on the
relevant Party(ies) in writing.
13.2 The above notices or other correspondences shall be deemed given upon transmission, if sent by facsimile, or upon delivery, if delivered in
person, or on the fifth (5) day after posting, if sent by mail.
Section 14 Miscellaneous
14.1 The Pledgors and the Company agree that the Pledgee may transfer its rights and/or obligations under this Agreement to any third party
immediately upon notice to the Pledgors and the Company; nevertheless, without the Pledgee’s prior written consent, none of the Pledgors or the
Company may transfer their rights, obligations or liabilities hereunder to any third party. The successors or permitted assignees (if any) of the
Pledgors and the Company shall continue to perform the respective obligations of the Pledgors and the Company under this Agreement.
14.2 The amount of the Secured Indebtedness determined by the Pledgee at its sole discretion in connection with its exercise of its pledgee rights to
the Pledged Equity Interests in accordance with the provisions hereunder shall be the conclusive evidence as to the Secured Indebtedness under this
Agreement.
14.3 This Agreement is made in Chinese in four originals, with each Party hereto holding one copy.
14.4 The execution, validity, performance, amendment, interpretation and termination of this Agreement shall all be governed by the PRC Laws.
9
14.5 Any dispute arising from or in connection with Agreement shall be resolved by the Parties through consultations. If the Parties fail to reach an
agreement within thirty (30) days after its occurrence, such dispute shall be brought before the competent people’s court of Hangzhou for
adjudication.
14.6 No rights, powers and remedies granted to any Party by any provision herein shall preclude any other rights, powers and remedies such Party
is entitled to in accordance with laws and other provisions of this Agreement; and no exercise by a Party of its rights, powers and remedies shall
preclude its exercise of any other rights, powers and remedies it is entitled to.
14.7 No failure or delay by a Party to exercise any of its rights, powers and remedies under this Agreement or the laws (the “Party Rights”) shall
operate as a waiver of such Party Rights, nor shall any single or partial exercise of any Party Rights preclude any further exercise of such Party
Rights or any exercise of any other Party Rights.
14.8 The headings of the sections herein are for reference only and shall in no event be used in or affect the interpretation of the provisions hereof.
14.9 Each provision contained herein shall be severable and independent from other provisions. If at any time any one or more provisions herein
become invalid, illegal or unenforceable, the validity, legality or enforceability of all other provisions herein shall not be affected thereby.
14.10 Any amendments or supplements to this Agreement shall be made in writing. Except where the Pledgee transfers its rights hereunder in
accordance with Section 14.1 hereof, the amendments or supplements to this Agreement shall become effective only upon their being duly executed
by the Parties hereto
14.11 This Agreement shall be binding upon the lawful successors of each Party.
14.12 Concurrently with the execution of this Agreement, each of the Pledgors shall sign a power of attorney (the “Power of Attorney”)
authorizing any person designated by the Pledgee to execute on behalf of such Pledgor in accordance with this Agreement any and all legal
instruments necessary for the exercise by the Pledgee of its rights hereunder. Such Powers of Attorney shall be kept by the Pledgee and may
whenever necessary be delivered by the Pledgee to relevant government authorities.
14.13 Upon execution , this Agreement shall supersede any other legal documents previously executed by the Parties with respect to the same
subject matter hereof. The Parties agree that if, in accordance with the then-current requirements of the registration authority, an equity pledge
agreement in form and substance of a different kind must be entered into for the purpose of registering the pledge hereunder with the registration
authority, such agreement shall not be deemed as any substitute of or amendment to this Agreement. In the event of any conflict or contradiction
between said agreement and this Agreement, this Agreement shall govern and control.
[The remainder of this page is intentionally left blank]
10
IN WITNESS WHEREOF, the Parties have executed this Agreement on the date and at the place first above written.
[Signature Page]
Wei Chen
Signature:
/s/ Wei Chen
Lili He
Signature:
/s/ Lili He
BEST Logistics Technologies (China) Co., Ltd.
(Seal)
Authorized Signatory:
/s/ Shao-Ning Johnny Chou
Hangzhou Baisheng Investment Management Co., Ltd.
(Seal)
11
Schedule I
Company basic information
Company Name:
Hangzhou Baisheng Investment Management Co., Ltd.
Registered Address:
Room 525, Building No. 6, 1197 Bin’an Road, Binjiang District, Hangzhou
Registered Capital:
RMB100,000
Legal Representative:
Wei Chen
Shareholding Structure:
Wei Chen
Lili He
Total
RMB50,000
RMB50,000
RMB100,000
50 %
50 %
100 %
Cash
Cash
12
This is an English translation of the original Chinese text
Exhibit 4.22
Wei Chen
Lili He
Best Inc.
BEST Logistics Technologies (China) Co., Ltd.
AND
Hangzhou Baisheng Investment Management Co., Ltd.
SHAREHOLDERS’ VOTING RIGHTS PROXY AGREEMENT
FOR
HANGZHOU BAISHENG INVESTMENT MANAGEMENT CO., LTD.
Oct 23, 2019
1
SHAREHOLDERS’ VOTING RIGHTS PROXY AGREEMENT
This Shareholders’ Voting Rights Proxy Agreement (this “Agreement”) is entered into as of Oct 23, 2019 in Hangzhou, Zhejiang Province, the
People’s Republic of China (the “PRC”) by and among the following Parties:
1. Wei Chen
Address: 105 Wenhua Road, Changguo Sub-district, Dinghai District, Zhoushan, Zhejiang
ID No.:
2. Lili He
Address: 1 Weiye Road, Binjiang District, Hangzhou
ID No.:
(Wei Chen and Lili He shall hereinafter be referred to individually as a “Shareholder”, or collectively as the “Shareholders”);
3. BEST Inc. (the “Cayman Company”)
Registered address: the offices of Maples Corporate Services Limited, PO Box 309, Ugland House, Grand Cayman, KY1-1104, Cayman Islands
4. BEST Logistics Technologies (China) Co., Ltd. (the “WFOE”)
Registered address: Room 2310, 23/F, 588 Jiangnan Avenue, Binjiang District, Hangzhou
Legal representative: Shao-Ning Johnny Chou
5. Hangzhou Baisheng Investment Management Co., Ltd. (the “Company”)
Registered address: Room 525, Building No. 6, 1197 Bin’an Road, Binjiang District, Hangzhou
Legal representative: Wei Chen
(In this Agreement, each aforesaid party is referred to individually as a “Party” or collectively as the “Parties”.)
Whereas:
1. The Shareholders are the existing shareholders of the Company, holding 100% equity interest in the Company;
2. The Shareholders each intend to entrust an individual(s) designated by the WFOE and approved by the Cayman Company to exercise on their
behalf their voting rights at the Company, and the WFOE has agreed to designate such individual(s) to accept such entrustment.
NOW, THEREFORE, upon friendly consultations, the Parties hereby agree as follows:
Section 1 Voting Rights Proxy
1.1 Each Shareholder hereby irrevocably undertakes to execute a power of attorney in the form and substance of Schedule I hereto upon entry into
this Agreement, and each Shareholder shall empower an individual(s) then designated by the WFOE and approved by the Cayman Company
(the “Proxy”), to exercise on behalf of such Shareholder in a manner consented to by the Cayman Company the following rights such
Shareholder shall be entitled to in its capacity as a shareholder of the Company in accordance with then effective articles of association of the
Company (collectively the “Proxy Rights”):
(1) to propose the convening of, and attend, as Proxy of the Shareholder, the shareholders’ meetings of the Company in accordance with the
articles of association of the Company;
(2) to exercise voting rights on behalf of each Shareholder in respect of all matters to be deliberated and resolved upon by the shareholders’
meetings, including but not limited to the following: (a) to designate and elect the Company’s directors and other senior management to be
appointed and removed by the shareholders, (b) to propose and resolve upon the dissolution or liquidation of the Company in accordance
with the procedures specified by the Company’s articles of association, (c) to dispose of or transfer the Company’s assets, or transfer on
behalf of each Shareholder all or part of its equity interest in the Company;
2
(3) to exercise other shareholder voting rights under the articles of association of the Company (including any such other shareholder voting
rights as may be prescribed by amendments thereto).
The foregoing grant of powers and entrustment is conditional upon the Proxy being a PRC citizen and the WFOE and the Cayman Company
consenting to such grant of powers and entrustment. With the Cayman Company’s consent, the WFOE shall have the right to replace the
aforesaid Proxy at any time. If and only if the WFOE has given the Shareholders a written notice requesting to remove and replace the Proxy,
the Shareholders shall immediately appoint such other PRC citizen as designated by the WFOE and approved by the Cayman Company to
exercise the aforesaid Proxy Rights; and once made, such new grant of powers and entrustment shall immediately supersede the original
authorization and entrustment. Except in accordance with the foregoing, the authorization and entrustment granted to the Proxy shall not be
revoked by the Shareholders.
1.2 The Proxy shall act with care and diligence and lawfully fulfil the entrusted obligations with the scope of the authorization hereunder; the
Shareholders shall each accept, and bear legal liabilities for, any legal consequences arising from the Proxy’s exercise of aforesaid Proxy Rights.
1.3 The Shareholders hereby confirm that the Proxy shall not be required to solicit the opinions of the Shareholders before it exercises the aforesaid
Proxy Rights, provided that the Proxy shall keep the Shareholders timely informed if any resolution has been adopted or any proposal to
convene an extraordinary shareholders’ meeting has been made.
Section 2 Information Right
2.1 For the purpose of exercising its Proxy Rights hereunder, the Proxy shall have the right to obtain knowledge of all information pertaining to the
Company’s operations, businesses, customers, finances, employees, etc. and to inspect relevant materials of the Company; the Company shall
provide full cooperation in this regard.
Section 3 Exercise of Proxy Rights
3.1 The Shareholders shall provide full assistance to the Proxy in connection with its exercise of its Proxy Rights, including, where necessary (e.g.,
when it is necessary to meet government approval, registration and record-related filing requirements ), timely execution of the shareholders’
meeting resolutions or other relevant legal documents adopted by the Proxy.
3.2 If at any time during the term hereof, it becomes impossible to achieve the grant or exercise of the Proxy Rights hereunder for any reason (other
than due to a breach by the Shareholders or the Company), the Parties shall immediately seek an alternative solution closest to the unachievable
provisions and shall, as necessary, enter into a supplementary agreement to amend or modify the provisions hereof such that the purpose of this
Agreement may continue to be achieved.
3.3 If, upon the exercise by the Proxy of the Proxy Rights, the Company is dissolved, or any Shareholder transfers all or part of its equity interest in
the Company, and if any Shareholder has received from such liquidation or equity transfer aggregate proceeds in excess of its capital
contribution to the Company or has received from the Company any profits, bonuses, dividends or other distributions of whatever form, then to
the extent not contrary to PRC laws, such Shareholder agrees to waive the excessive amount (relative to its capital contribution) and any such
profits, bonuses, dividends or distributions (net of tax and fees) , and the WFOE and/or the Cayman Company shall be entitled to receive the
same. Such Shareholders shall direct the relevant transferee or the Company to wire such proceeds to the bank account then designated by the
WFOE or the Cayman Company.
3
Section 4 Disclaimer and Indemnity
4.1 The Parties acknowledge that the WFOE and the Cayman Company shall in no event be held liable to the other Parties or any third party or to
provide any indemnity, economic or otherwise, for the exercise by the individual(s) designated or approved by them of the Proxy Rights
hereunder.
4.2 The Shareholders and the Company agree to indemnify and hold the WFOE and the Cayman Company harmless against any and all losses
suffered or likely to be suffered by them as a result of the exercise of the Proxy Rights by the Proxy designated or approved by the WFOE or the
Cayman Company, including, without limitation, any losses arising out of any suit, recourse, arbitration or claims brought by any third party
against them or of any administrative investigation or sanction of any government authorities, except where such losses have arisen out of the
willful misconduct or gross negligence of the Proxy.
5.1 The Shareholders and the Company hereby respectively represent and warrant as follows:
Section 5 Representations and Warranties
5.1.1 They are either a PRC citizen with full capacity or a limited liability company duly registered and validly existing under the PRC laws
with independent corporate legal personality; they have full and independent legal status and legal capacity and have been duly authorized
to execute, deliver and perform this Agreement, and may sue and be sued as an independent party.
5.1.2 They have full power and authority to execute and deliver this Agreement and all the other documents to be entered into by them in
connection with the transaction contemplated hereunder, as well as to consummate the transaction hereunder. This Agreement has been
duly and lawfully executed and delivered by them and shall constitute their legal and binding obligations, enforceable against them in
accordance with the provisions hereof.
5.1.3 The Shareholders are the lawfully registered shareholders of Company as of the effective date hereof, except the rights created by this
Agreement, the Equity Pledge Agreement executed by and among the Shareholders, the Company and the WFOE as of the date hereof,
and the Exclusive Option Agreement executed by and among the Shareholders, the Company, the WFOE and the Cayman Company as of
the date hereof, the Proxy Rights are free and clear of any third party rights. Pursuant to this Agreement, the Proxy may exercise the Proxy
Rights completely and fully in accordance with the then effective articles of association of the Company.
5.2 The Cayman Company and the WFOE hereby respectively represent and warrant as follows:
5.2.1 They are either a company duly registered and validly existing under the laws of the Cayman Islands or a limited liability company duly
registered and validly existing under the PRC laws, with an independent corporate legal personality; they have full and independent legal
status and legal capacity to execute, deliver and perform this Agreement and may sue or be sued as an independent party.
5.2.2 They have full internal power and authority to execute and deliver this Agreement and all the other documents in connection with the
transaction contemplated hereunder, which are to be entered into by them, and have full power and authority to consummate the
transaction hereunder.
6.1 This Agreement shall become effective on the date when it is duly executed by the Parties hereto, and shall remain valid so long as the
Shareholders are the Company’s shareholders, until and unless it is terminated early by the WFOE or the Cayman Company in accordance with
Section 9.1 hereof.
Section 6 Term of Agreement
4
Section 7 Notice
7.1 Any notice, request, demand and other correspondences required hereby or made hereunder shall be served in writing on the relevant Party.
7.2 The above notices or other correspondences shall be deemed given (i) upon transmission, if sent by facsimile, or (ii) upon delivery to the
recipient if delivered in person, or (iii) on the fifth (5) day after posting, if sent by mail.
Section 8 Confidentiality
8.1 Notwithstanding the termination of this Agreement, the Parties shall maintain in strict confidence the business secrets, proprietary information,
customer information and any other information of a confidential nature of the other Parties coming into its knowledge during the conclusion
and performance of this Agreement (collectively, “Confidential Information”). Except with prior written consent from the Party disclosing the
Confidential Information or to the extent required to disclose to a third party by relevant laws or regulations or by the requirements of the listing
venue of an affiliate, no Party receiving the Confidential Information shall disclose any Confidential Information to any third party; the Party
receiving the Confidential Information shall not use, directly or indirectly, any Confidential Information other than for the purpose of
performing this Agreement.
8.2 The following information shall not constitute Confidential Information:
(a) any information which, as shown by written evidence, has previously been known to the receiving Party by lawful means;
(b) any information which enters the public domain other than as a result of the receiving Party’s fault; or
(c) any information lawfully acquired by the receiving Party from another source subsequent to its receipt thereof hereunder.
8.3 A recipient Party may disclose the Confidential Information to its relevant employees, or agents to the professionals engaged by it, provided that
such recipeint Party shall ensure that such persons shall comply with relevant terms and conditions of this Agreement and that it shall assume
any liability arising out of any breach by such persons thereof.
8.4 Notwithstanding any other provisions herein, the validity of this Section shall not be affected by the suspension or termination of this
Agreement.
Section 9 Liability for Default
9.1 The Parties agree and acknowledge that if any Party (the “Defaulting Party”) materially breaches any provision hereof, or materially fails to
perform or delays in performing any obligation hereunder, such breach, failure or delay shall constitute a default hereunder (the “Default”) and
any of the non-defaulting Parties (the “Non-Defaulting Party”) shall have the right to demand the Defaulting Party to cure such Default or take
remedial measures within a reasonable period of time. If the Defaulting Party fails to cure such Default or take remedial measures within such
reasonable period of time or within ten (10) days upon receipt of the written notice from the Non-Defaulting Party requesting it to cure such
Default, then:
9.1.1 If any Shareholder or the Company is the Defaulting Party, the WFOE or the Cayman Company shall be entitled to terminate this
Agreement and demand the Defaulting Party to indemnify for damage;
9.1.2 If the WFOE or the Cayman Company is the Defaulting Party, the Non-Defaulting Party shall be entitled to demand the Defaulting Party
to indemnify for damage, provided that unless otherwise stipulated by laws, the Non-Defaulting Party shall in no event be entitled to
terminate or rescind this Agreement.
5
9.2 Notwithstanding any other provisions hereof, this Section shall survive the suspension or termination of this Agreement.
10.1 This Agreement is made in Chinese in five (5) originals with each Party retaining one (1) copy hereof.
Section 10 Miscellaneous
10.2 The execution, effectiveness, performance, amendment, interpretation and termination of this Agreement shall be governed by the PRC laws.
10.3 Any disputes arising under or in connection with this Agreement shall be resolved by the Parties through consultations. If the Parties fail to
reach an agreement within thirty (30) days after its occurrence, such dispute shall be brought before the competent people’s court of Hangzhou
for adjudication.
10.4 No rights, powers and remedies granted to any Party by any provision herein shall not preclude any other rights, powers and remedies such
Party is entitled to in accordance with laws and other provisions of this Agreement, and no exercise by a Party of its rights, powers and
remedies shall preclude its exercise of any other rights, powers and remedies it is entitled to.
10.5 No failure or delay by a Party to exercise any of its rights, powers and remedies under this Agreement or the laws (the “Party Rights”) shall
operate as a waiver of such Party Rights, nor shall any single or partial exercise of any Party Rights preclude any further exercise of such Party
Rights or any exercise of any other Party Rights.
10.6 The headings of the sections herein are for reference only, and in no circumstances shall such headings be used in or affect the interpretation of
the provisions hereof.
10.7 Each provision contained herein shall be severable and independent from other provisions. If at any time any one or more provisions herein
become invalid, illegal or unenforceable, the validity, legality or enforceability of all other provisions herein shall not be affected thereby.
10.8 Upon execution, this Agreement shall supersede any other legal documents previously executed by relevant parties with respect to the same
subject matter hereof, including, without limitation, the Amended and Restated Shareholders’ Voting Rights Proxy Agreement dated February
15, 2015 by and among the Shareholders, the WFOE and the Company , which shall terminate on the execution date of this Agreement.
10.9 Any amendments or supplements to this Agreement shall be in writing and shall become effective after duly executed by the Parties hereto.
10.10 No Party shall assign any of its rights and/or obligations hereunder to any third parties without prior written consent from other Parties.
10.11 This Agreement shall be binding on the lawful assignees or successors of the Parties.
[The remainder of this page is intentionally left blank]
6
IN WITNESS HEREOF, the Parties have duly executed this Agreement on the date and at the place first above written.
[Signature Page]
Wei Chen
Signature: /s/ Wei Chen
Lili He
Signature: /s/ Lili He
Best Inc.
(Seal)
BEST Logistics Technologies (China) Co., Ltd
(Seal)
Authorized Signatory:
/s/ Shao-Ning Johnny Chou
Hangzhou Baisheng Investment Management Co., Ltd.
(Seal)
7
Schedule I
Power of Attorney
This Power of Attorney (the “Power of Attorney”), executed by [name of company shareholder] (domicile: [(cid:120)], ID No./Registration No. [(cid:120)]) on
[date], is issued to and in favor of [(cid:120)] (domicile: [(cid:120)], ID No. [(cid:120)]) (the “Proxy”).
I/We, [name of individual/company], hereby grant to the Proxy a general proxy authorizing the Proxy to exercise, as my/our proxy and on my/our
behalf, the following rights I/we are entitled to exercise in my/our capacity as a shareholder of Hangzhou Baisheng Investment Management Co.,
Ltd. (the “Company”):
(1) to propose the convening of, and attend, the shareholders’ meetings as my/our proxy in accordance with the articles of association of the
Company;
(2) to exercise voting rights as my/our Proxy in respect of all matters to be deliberated and resolved upon by the shareholders’ meetings,
including but not limited to the following: (a) to designate and elect the Company’s directors and other senior management to be
appointed and removed by the shareholders, (b) to propose and resolve upon the dissolution or liquidation of the Company in accordance
with the procedures specified by the Company’s articles of association, (c) to dispose of or transfer the Company’s assets, or transfer on
behalf of each Shareholder all or part of its equity interest in the Company;
(3) to exercise other shareholder voting rights under the articles of association of the Company (including any such other shareholder voting
rights as may be prescribed by amendments thereto).
I/We hereby irrevocably confirm that unless BEST Logistics Technologies (China) Co., Ltd. (the “WFOE”), has served on me/us a written
instruction to replace the Proxy upon consent of BEST Inc. (a company established and existing pursuant to the laws of Cayman Islands) (the
“Cayman Company”), this Power of Attorney shall remain valid until the expiry or early termination of the Shareholders’ Voting Rights Proxy
Agreement dated __________, 2019 by and among the Cayman Company, the WFOE, the Company and the shareholders of the Company.
Name:
By(signature/seal):
Date:
8
This is an English translation of the original Chinese text
Exhibit 4.23
Wei Chen
Lili He
Best Inc.
BEST Logistics Technologies (China) Co., Ltd.
AND
Hangzhou Baisheng Investment Management Co., Ltd.
EXCLUSIVE CALL OPTION AGREEMENT
FOR
HANGZHOU BAISHENG INVESTMENT
MANAGEMENT CO., LTD.
Oct 23, 2019
1
This Exclusive Call Option Agreement (the “Agreement”) is entered into as of Oct 23, 2019 in Hangzhou, Zhejiang Province, the People’s
Republic of China (the “PRC”) by and among the following Parties:
EXCLUSIVE CALL OPTION AGREEMENT
1. Wei Chen
Address: 105 Wenhua Road, Changguo Sub-district, Dinghai District, Zhoushan, Zhejiang
ID No.:
2. Lili He
Address: 1 Weiye Road, Binjiang District, Hangzhou
ID No.:
(Wei Chen and Lili He shall hereinafter be referred to individually as an “Existing Shareholder”, or collectively as the “Existing
Shareholders”);
3. BEST Inc. (the “Cayman Company”)
Registered address: the offices of Maples Corporate Services Limited, PO Box 309, Ugland
House, Grand Cayman, KY1-1104, Cayman Islands
4. BEST Logistics Technologies (China) Co., Ltd. (the “WFOE”)
Registered address: Room 2310, 23/F, 588 Jiangnan Avenue, Binjiang District, Hangzhou
Legal representative: Shao-Ning Johnny Chou
(The Cayman Company and the WFOE shall hereinafter be referred to individually as an “Option Holder”, or collectively as the “Option
Holders”.)
5. Hangzhou Baisheng Investment Management Co., Ltd. (the “Company”)
Registered address: Room 525, Building No. 6, 1197 Bin’an Road, Binjiang District, Hangzhou
Legal representative: Wei Chen
(In this Agreement, each of aforesaid parties shall be referred to individually as a “Party” or collectively as the “Parties”.)
Whereas,
(1) The Existing Shareholders are the registered shareholders of the Company and own all the equity of the Company in accordance with law; their
respective capital contributions to and ownership interests in the Registered Capital of the Company as of the date hereof are set forth in
Schedule I hereto;
(2) Subject to compliance with PRC Laws, the Existing Shareholders intend to transfer to the Option Holders all the equity interests respectively
held by them in the Company, and the Option Holders intend to accept such transfer;
(3) Subject to compliance with PRC Laws, the Company intends to transfer to the Option Holders all of its assets, and the Option Holders intend to
accept such transfer;
(4) In order to consummate the aforesaid equity or assets transfer, the Existing Shareholders and the Company have agreed to grant the Option
Holders an irrevocable and exclusive option for equity transfer and an irrevocable and exclusive option for asset purchase, respectively.
2
NOW, THEREFORE, upon mutual consultations, the Parties hereby agree as follows:
Section 1 Definition
1.1 Unless otherwise required in the context, the following terms in this Agreement shall have the following meanings:
“PRC Laws”
means the then effective laws, administrative regulations, administrative rules, local regulations, judicial interpretations
and other binding normative documents of the PRC.
“Equity Call Option”
means the option to purchase, or designate other entities or individuals to purchase, the equity interests in the Company,
as granted by the Existing Shareholders to the Option Holders pursuant to the terms and conditions of this Agreement.
“Assets Call Option”
means the option to purchase, or designate other entities or individuals to purchase, any assets of the Company, as
granted by the Company to the Option Holders pursuant to the terms and conditions of this Agreement.
“Option Subject Equity
Interest”
means, in respect of each Existing Shareholder, all the equity interest owned by such Existing Shareholder in the
Registered Capital of the Company (as defined below), and in respect of all the Existing Shareholders, the 100% equity
interest in the Registered Capital of the Company.
“Registered Capital of
the Company”
means the registered capital of Company as of the date hereof in the amount of RMB100,000, and includes any increase
of such registered capital as a result of any capital increase during the term of this Agreement.
“Transferrable Equity
Interest”
means the equity interest which the Option Holders, upon the exercise of their Equity Call Option in accordance with
Section 3 hereof, are entitled to request any Existing Shareholder to transfer to them or their designated entities or
individuals, and the amount of which may equal all or part of the Option Subject Equity Interest and shall be
determined by the Option Holders at their sole discretion in accordance with the then effective PRC Laws and their
commercial considerations.
“Transferrable Asset”
means the assets of the Company which the Option Holders, upon the exercise of their Assets Call Option in
accordance with Section 3 hereof, are entitled to request the Company to transfer to them or their designated entities or
individuals, and the amount of which may equal all or part of the assets of the Company and shall be determined by the
Option Holders at their sole discretion in accordance with the then effective PRC Laws and their commercial
considerations.
“Exercise”
means the exercise by the Option Holders of their Equity Call Option and/or Assets Call Option.
“Transfer Price”
means the aggregate consideration payable to the Existing Shareholders or the Company by the Option Holders or their
designated entities or individuals for the Transferrable Equity Interest or the Transferrable Asset in connection with
each Exercise.
“Operating Licenses”
means any approvals, permits, filings, registrations and the like required to be possessed by the Company for its lawful
and effective operation of all of its businesses, including, without limitation, the Business License, the Tax Registration
Certificate, the Value-Added Telecommunication Service Operation Permit, the Road Transportation Operation Permit
and the Courier Service Operation Permit possessed by the Company or its branches and other relevant licenses and
permits prescribed by the then effective PRC Laws.
“Company Assets”
means all the tangible and intangible assets which the Company owns or is entitled to dispose of within the term of this
Agreement, including, without limitation, any fixed assets, moveable assets, goodwill, franchisees’ network,
information of customers and suppliers, and trademarks, copyrights, patents, know-how, domain names, software use
rights and other intellectual property.
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“Material Agreement”
means any agreement to which the Company is a party and which has material impact on the businesses or the assets of
the Company, including, without limitation, the Exclusive Services Agreement entered into by and between the
Company and the WFOE as of even date herewith and other material agreements relating to the business of the
Company.
“Exercise Notice”
has the meaning as provided in Section 3.7.
“Confidential
Information”
has the meaning as provided in Section 9.1.
“Defaulting Party”
has the meaning as provided in Section 12.1.
“Default”
has the meaning as provided in Section 12.1.
“Party Rights”
has the meaning as provided in Section 13.6.
1.2 A reference to any PRC Laws herein shall (1) include the amendments, changes, supplements and reenactments thereof, irrespective of whether
they take effect before or after the execution of this Agreement; and (2) include a reference to other decisions, notices or regulations enacted in
accordance therewith or which become effective as a result thereof.
1.3 Unless otherwise specified herein, all references to a section, clause, item or paragraph shall refer to the relevant section, clause, item or
paragraph of this Agreement.
Section 2 Grant of Equity Call Option and Assets Call Option
2.1 The Existing Shareholders hereby severally and jointly agree to irrevocably and unconditionally grant an exclusive Equity Call Option to the
Option Holders, pursuant to which the Option Holders shall be entitled, to the extent permitted by the PRC Laws and subject to the terms and
conditions of this Agreement, to request the Existing Shareholders to transfer the Option Subject Equity Interests to the Option Holders or their
designated entities or individuals. The Option Holders agree to accept such Equity Call Option.
2.2 The Company hereby agrees to the grant of the Equity Call Option to the Option Holders by the Existing Shareholders under the aforesaid
Section 2.1 and other provisions of this Agreement.
2.3 The Company hereby agrees to irrevocably and unconditionally grant an exclusive Assets Call Option to the Option Holders, pursuant to which
the Option Holders shall be entitled to, to the extent permitted under the PRC Laws and subject to the terms and conditions of this Agreement,
request the Company to transfer any or all of the Company Assets to the Option Holders or their designated entities or individuals. The Option
Holders agree to accept such Assets Call Option.
2.4 The Existing Shareholders hereby severally and jointly agree to the grant of the Assets Call Option to the Option Holders by the Company under
the aforesaid Section 2.3 and other provisions of this Agreement.
Section 3 Method of Exercise of Options
3.1 Subject to the terms and conditions of this Agreement and to the extent permitted under the PRC Laws, the Option Holders shall have the sole
discretion in deciding the timing, method and number of its Exercises.
3.2 Subject to the terms and conditions of this Agreement and to the extent not inconsistent with the then effective PRC Laws, the Option Holders
are entitled to request the Existing Shareholders to transfer all or part of the equity interests in the Company to the Option Holders themselves or
their designated entities or individuals at any time.
4
3.3 Subject to the terms and conditions of this Agreement and to the extent not inconsistent with the then effective PRC Laws, the Option Holders
are entitled to request the Company to transfer all or part of its assets to the Option Holders themselves or their designated entities or individuals
at any time.
3.4 In respect of the Equity Call Option, for each Exercise, the Option Holders shall have the discretion to determine the amount of the
Transferrable Equity Interests to be transferred by the Existing Shareholders to the Option Holders and/or their designated entities or individuals,
and the Existing Shareholders shall each transfer such Transferrable Equity Interests to the Option Holders and/or their designated entities or
individuals according to the amounts requested by the Option Holders. The Option Holders and/or their designated entities or individuals shall
pay the Transfer Price to the Existing Shareholders for the transfer of the Transferrable Equity Interests in connection with each Exercise.
3.5 In respect of the Assets Call Option, for each Exercise, the Option Holders shall have the discretion to determine the specific Transferrable Asset
to be transferred by the Company to the Option Holders and/or their designated entities or individuals, and the Company shall transfer such
Transferrable Asset to the Option Holders and/or their designated entities or individuals at the Option Holders’ request. The Option Holders
and/or their designated entities or individuals shall pay the Transfer Price to the Company for the transfer of the Transferrable Asset in
connection with each Exercise.
3.6 For each Exercise, the Option Holders may either accept themselves the transfer of the Transferrable Equity Interests or Transferrable Asset or
may have a third party designated by them in their discretion accept the transfer of all or part of such Transferrable Equity Interests or
Transferrable Asset.
3.7 Upon each of its Exercise decision, the Option Holders shall issue to the Existing Shareholders or the Company, as the case may be, an Equity
Call Option exercise notice or Assets Call Option exercise notice (the “Exercise Notice”, the forms of which are attached hereto as Schedule II
and Schedule III). The Existing Shareholders or the Company shall, upon receipt of the Exercise Notice, immediately transfer the Transferrable
Equity Interests or the Transferrable Asset to the Option Holders and/or their designated entities or individuals according to the Exercise Notice
in such manner as provided under Section 3.4 or Section 3.5 of this Agreement.
3.8 For the avoidance of doubt, the Cayman Company shall have the right to decide at its sole discretion whether the Equity Call Option and the
Assets Call Option hereunder shall be exercised by the Cayman Company and/or the WFOE.
Section 4 Transfer Price
4.1 In respect of the Equity Call Option, for each Exercise, the aggregate Transfer Price payable by the Option Holders or their designated entities
or individuals to the Existing Shareholders shall be a minimum price as permitted by the then effective PRC Laws.
4.2 In respect of the Assets Call Option, for each Exercise, the Transfer Price payable by the Option Holders or their designated entities or
individuals to the Company shall be a minimum price as permitted by the then effective PRC Laws.
5.1 The Existing Shareholders hereby each represent and warrant as follows:
Section 5 Representations and Warranties
5.1.1 The Existing Shareholders are either a PRC citizen with full capacity or a limited liability company duly registered and lawfully existing
under PRC Laws with independent legal personality; enjoy full and independent legal standing and capacity to execute, deliver
and perform this Agreement; and may sue or be sued as an independent party.
5
5.1.2 The Company is a limited liability company duly registered and validly existing under the PRC Laws with independent legal personality.
The Company enjoys full and independent legal standing and capacity to execute, deliver and perform this Agreement and may sue or be
sued as an independent party.
5.1.3 The Existing Shareholders have full power and authority to execute, deliver and perform this Agreement and all other documents to be
entered into by them in connection with the transaction contemplated herein as well as full power and authority to consummate the
transaction contemplated herein.
5.1.4 This Agreement has been lawfully and properly executed and delivered by the Existing Shareholders and shall constitute their lawful and
binding obligations, enforceable against them in accordance with the terms herein.
5.1.5 The Existing Shareholders are the registered legal owners of the Option Subject Equity Interests as of the effective date hereof, and the
Option Subject Equity Interests are free and clear of any liens, pledges, claims, other encumbrances and third party interests, except for
the pledge rights created by the Equity Pledge Agreement entered into by the Company, the WFOE and the Existing Shareholders as of
even date herewith, and the proxy rights created by the Shareholders’ Voting Rights Proxy Agreement entered into by the Company, the
Cayman Company, the WFOE and the Existing Shareholders as of even date herewith. Pursuant to this Agreement, upon the Exercise,
the Option Holders and/or their designated entities or individuals may obtain good title to the Transferrable Equity Interests free and
clear of any liens, pledges, claims, other encumbrances or third party rights.
5.1.6 To the knowledge of the Existing Shareholders, the Company Assets are free and clear of any liens, mortgages, claims, other
encumbrances or third party rights. Pursuant to this Agreement, , upon the Exercise, the Option Holders and/or their designated entities
or individuals may obtain good title to the Company Assets free and clear of any liens, mortgages, claims, other encumbrances or third
party rights.
5.2 The Company hereby represents and warrants as follows:
5.2.1 The Company is a limited liability company duly registered and validly existing under the PRC Laws with independent legal personality.
The Company enjoys full and independent legal standing and capacity to execute, deliver and perform this Agreement and may sue or be
sued as an independent party.
5.2.2 The Company has full internal corporate power and authority to execute, deliver and perform this Agreement and all other documents to
be entered into by it in connection with the transaction contemplated herein as well as full power and authority to consummate the
transaction contemplated herein.
5.2.3 This Agreement has been lawfully and properly executed and delivered by the Company and shall constitute its legal and binding
obligations, enforceable against it in accordance with the terms herein. The execution and performance by the Company of this
Agreement will neither violate any PRC Laws, regulations, court rulings or arbitration awards, or decisions, approvals or permits of any
administrative authorities, or any other agreements to which it is a party and which are binding on its equity interest in the Company or
other assets held by it, nor result in any government authority approval or permit applicable to it being suspended, revoked, forfeited or
failed to be renewed upon expiry.
5.2.4 The Company Assets are free and clear of any liens, mortgages, claims, other encumbrances or third party rights. Pursuant to this
Agreement, upon the Exercise, the Option Holders and/or any of their designated entities or individuals may obtain good title to the
Company Assets free from any liens, mortgages, claims, any other encumbrances and third party rights.
6
5.3 The Cayman Company hereby represents and warrants as follows:
5.3.1 The Cayman Company is a company duly incorporated and validly existing under the laws of Cayman Islands with independent legal
personality; enjoys full and independent legal standing and capacity to execute, deliver and perform this Agreement; and may sue or be
sued as an independent party.
5.3.2 The Cayman Company has full internal corporate power and authority to execute, deliver and perform this Agreement and all other
documents to be entered into by it in connection with the transaction contemplated herein as well as full power and authority to
consummate the transaction contemplated herein.
5.3.3 This Agreement has been lawfully and properly executed and delivered by the Cayman Company and shall constitute its legal and
binding obligations, enforceable against it in accordance with the terms herein.
5.4 The WFOE hereby represents and warrants as follows:
5.4.1 The WFOE is a wholly Hongkong-owned company duly incorporated and validly existing under the PRC Laws with independent legal
personality; enjoys full and independent legal standing and capacity to execute, deliver and perform this Agreement; and may sue or be
sued as an independent party.
5.4.2 The WFOE has full internal corporate power and authority to execute, deliver and perform this Agreement and all other documents to be
entered into by it in connection with the transaction contemplated herein as well as full power and authority to consummate the
transaction contemplated herein.
5.4.3 This Agreement has been lawfully and properly executed and delivered by the WFOE and shall constitute its legal and binding
obligations, enforceable against it in accordance with the terms herein.
Section 6 Undertakings by the Existing Shareholders
The Existing Shareholders hereby each undertakes as follows:
6.1 During the term of this Agreement, without the Option Holders’ prior written consent:
6.1.1 No Existing Shareholder shall transfer or otherwise dispose of any Option Subject Equity Interests or create any encumbrances or other
third party interests upon any Option Subject Equity Interests;
6.1.2 The Existing Shareholders shall not increase or reduce the Registered Capital of the Company or effect a division of the Company or its
merger with any other entity;
6.1.3 The Existing Shareholders shall not dispose of, or cause the management of the Company to dispose of, any Company Assets (other than
those occurring during the ordinary course of business);
6.1.4 The Existing Shareholders shall not terminate, or cause the management of the Company to terminate, any Material Agreement executed
by the Company, nor shall the Existing Shareholder enter into any other agreements which are in conflict with an existing Material
Agreement;
6.1.5. The Existing Shareholders shall not cause or approve the conclusion by the Company of any Material Agreement in the absence of
reasonable business grounds;
6.1.6 The Existing Shareholders shall not conclude by themselves, or cause the Company to conclude a transaction likely to materially affect
the assets, liabilities, business operation, shareholding structure or other legal rights of the Company (other than those arising during the
ordinary or routine course of business or those that have been disclosed to the Option Holders and obtained written consent from the
Option Holders);
6.1.7 The Existing Shareholders shall not appoint or remove any director, member of the board of supervisors or any other management
personnel of the Company to be appointed or removed by the Existing Shareholders;
7
6.1.8 The Existing Shareholders shall not cause or approve the declaration or actual distribution by the Company of any distributable profits,
bonuses, dividends or distributions;
6.1.9 The Existing Shareholders shall ensure that the Company shall remain validly existing and shall not be terminated, dissolved or
liquidated;
6.1.10 The Existing Shareholders shall not cause or approve the modification of the articles of association of the Company; and
6.1.11 The Existing Shareholders shall ensure that the Company will not provide or borrow any loans, or provide guarantee or other forms of
security, or assume any material obligations outside of the ordinary course of business.
6.2 During the term of this Agreement, the Existing Shareholders shall use their best efforts to develop the business of the Company, shall ensure
the compliance of the business operations of the Company with relevant laws and regulations, and will not commit any actions or omissions
likely to prejudice the assets or the goodwill of the Company or affect the validity of its Operating Licenses.
6.3 During the term of this Agreement, the Existing Shareholders shall timely notify the Option Holders of any circumstance likely to have a
material adverse effect upon the existence, business operation, financial condition, assets or goodwill of the Company, and shall timely take all
such measures as have been approved by the Option Holders to eliminate such adverse circumstance or take effective remedial measures against
such circumstance.
6.4 Upon the giving of the Exercise Notice by the Option Holders:
6.4.1 The Existing Shareholders shall immediately convene the shareholders’ meeting to adopt a resolution and take any other necessary
actions approving the transfer by any Existing Shareholder or the Company of all of the Transferrable Equity Interests or Transferrable
Asset at the Transfer Price to the Option Holders and/or their designated entities or individuals, and shall waive any rights of first
purchase;
6.4.2 The Existing Shareholders shall immediately enter into an equity transfer agreement with the Option Holders and/or their designated
entities or individuals to transfer all of the Transferrable Equity Interests at the Transfer Price to the Option Holders and/or their
designated entities or individuals, and shall, at the request of the Option Holders and as required by relevant laws and regulations,
provide necessary support to the Option Holders (including furnishing and execution of all relevant legal documents, completion of all
government approval and registration procedures and assumption of all relevant obligations) in order for the Option Holders and/or their
designated entities or individuals to receive all the Transferrable Equity Interests, free and clear of any legal defects, any encumbrances,
third party restrictions or any other equity interest restrictions.
6.5 If the aggregate Transfer Price received by any Existing Shareholder in connection with the transfer of its Transferrable Equity Interest exceeds
its contribution to the Registered Capital of the Company, or any form of profit, bonus, dividend or other distributions is received by such
Existing Shareholder from the Company, then subject to compliance with PRC Laws, such Existing Shareholder agrees to waive the excessive
portion of such proceeds (relative to its contribution to the capital) and any such profits, bonuses, dividends or distributions (after deduction of
tax and fees) ; and the Option Holders shall be entitled to receive such excessive portion and such distributions. The Existing Shareholders shall
instruct relevant transferees or the Company to wire the same to a bank account then designated by the Option Holders.
Section 7 Undertakings by the Company
7.1 The Company undertakes as follows:
7.1.1 In the event the execution and performance of this Agreement and the grant of the Equity Call Option or the Assets Call Option
hereunder requires any third party consents, permissions, waivers or authorizations or any approvals, permits, exemptions, registrations
or filings from or with governmental authorities (if required by the laws), the Company shall use its best efforts to assist in satisfying
such conditions.
8
7.1.2 Without the Option Holders’ prior written consent, the Company shall not assist or permit the Existing Shareholders to transfer or
otherwise dispose of any Option Subject Equity Interests or create any encumbrances or other third party interests upon any Option
Subject Equity Interests.
7.1.3 Without the Option Holders’ prior written consent, the Company shall not transfer or otherwise dispose of any Company Assets (except
for those occurring during the ordinary course of business) or create any encumbrances or other third party interests upon any Company
Assets.
7.1.4 The Company shall not do or permit to be done any acts or actions likely to have an adverse effect upon the interests of the Option
Holders under this Agreement, including, without limitation, any acts or actions as restricted under Section 6.1 hereof.
7.2 Upon the giving of the Exercise Notice by the Option Holders,
7.2.1 It shall immediately cause the Existing Shareholders to convene the shareholders’ meeting to adopt a resolution and take any other
necessary actions approving the transfer by the Company of all of the Transferrable Asset at the Transfer Price to the Option Holders
and/or their designated entities or individuals;
7.2.2 It shall immediately enter into an assets transfer agreement with the Option Holders and/or their designated entities or individuals to
transfer all of the Transferrable Asset at the Transfer Price to the Option Holders and/or their designated entities or individuals, and shall
at the request of the Option Holders and as required by relevant laws and regulations, cause the Existing Shareholders to provide
necessary support to the Option Holders (including furnishing and execution of all relevant legal documents, completion of all
government approval and registration procedures and assumption of all relevant obligations) in order for the Option Holders and/or their
designated entities or individuals to receive all the Transferrable Asset, free and clear of any legal defects, any encumbrances, third party
restrictions, or any other restrictions pertaining to the Company Assets.
Section 8 Undertakings by the Option Holders
The Cayman Company confirms that it has historically provided unconditional financial support to the Company through the WFOE, and that the
WFOE waives its right to claim repayment from the Company for all financial support provided by it to the Company since its own inception.
Meanwhile, in order to ensure that the cash flow requirements of the Company’s day-to-day operations are met and/or that any losses accrued during
such day-to-day operations are covered, the Option Holders undertake to provide, but only to the extent permissible under the PRC laws, financial
support to the Company, irrespective of whether the Company has actually incurred any such operational losses. The Option Holders’ financial
support to the Company or its Existing Shareholders may take the form of bank entrusted loans or borrowings. Contracts for any such entrusted loans
or borrowings shall be executed separately. The Option Holders will not request repayment if the Company or its Existing Shareholders are unable to
repay the financial support of the Option Holders.
Section 9 Confidentiality
9.1 Notwithstanding the termination of this Agreement, each Party shall keep strictly confidential all of the business secrets, proprietary
information, customer information and any other information of a confidential nature pertaining to the other Parties acquired by it during the
entry into and performance of this Agreement (hereinafter collectively referred to as the “Confidential Information”). Except with prior
written consent of the disclosing Party of the Confidential Information or except to the extent required be to disclosed to a third party by
relevant laws and regulations or the requirements of the listing venue of an affiliate, no receiving Party of the Confidential Information shall
disclose any Confidential Information to any other third party; the receiving Party of the Confidential Information shall not directly or indirectly
use any Confidential Information other than for the purpose of performing this Agreement.
9
9.2 The following information shall not constitute the Confidential Information:
(a) Any information which, as shown by written evidence, has previously been known to the receiving Party by lawful means;
(b) Any information which enters the public domain other than as a result of the receiving Party’s fault; or
(c) Any information lawfully acquired by the receiving Party from another source subsequent to its receipt thereof hereunder.
9.3 The receiving Party may disclose the Confidential Information to its relevant employees or agents to the professionals engaged by it, provided
that such receiving Party shall ensure that the aforesaid persons shall comply with the terms and conditions of this Agreement and the receiving
Party shall be liable for any liabilities arising from breach of the terms and conditions hereof by the aforesaid persons.
9.4 Notwithstanding any other provisions herein, the validity of this Section shall not be affected by the suspension or termination of this
Agreement.
Section 10 Term of this Agreement
This Agreement shall become effective as from the date it is duly executed by the Parties, and shall remain valid until the first to occur of the
following : (a) all of the Option Subject Equity Interests and the Company Assets have been lawfully transferred to the Option Holders and/or their
designated entities or individuals in accordance with the provisions hereof; or (b) the Option Holders unilaterally terminate this Agreement at any
time by a thirty (30) days prior written notice to the Company. Unless otherwise stipulated by law, the Existing Shareholders or the Company shall in
no event have the right to terminate or rescind this Agreement unilaterally.
Section 11 Notice
11.1 Any notice, request, demand and other correspondences as required by or made in accordance with this Agreement shall be served on the
relevant Party(ies) in writing.
11.2 The above notice or other correspondences shall be deemed given upon transmission, if sent by facsimile, or upon delivery, if delivered in
person, or on the fifth (5) day after posting, if sent by mail.
Section 12 Liabilities for Default
12.1 The Parties agree and confirm that if, in a material manner, any Party (the “Defaulting Party”) breaches any of the provisions herein, or fails to
perform or delays in the performance of any obligation under this Agreement, such breach, failure or delay shall constitute a default under this
Agreement (the “Default”), and the non-defaulting Party is entitled to require the Defaulting Party to rectify such Default or take remedial
measures within a reasonable period of time. If the Defaulting Party fails to rectify such Default or take any remedial measures within a
reasonable period of time or within ten (10) days upon receipt of the written notice of the non-defaulting Party, the non-defaulting Party shall be
entitled to decide at its sole discretion as follows:
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12.1.1 If the Defaulting Party is the Existing Shareholder or the Company, the Option Holders shall be entitled to terminate this Agreement and
claim damages from the Defaulting Party, or demand specific performance by the Existing Shareholders or the Company of their
obligations hereunder;
12.1.2 If the Defaulting Party is an Option Holder, the non-defaulting Party shall be entitled to claim damages from the Defaulting Party;
provided, however, unless otherwise provided by law, the non-defaulting Party shall in no event have any right to terminate or rescind
this Agreement.
12.2 Notwithstanding any other provisions herein, the validity of this Section shall not be affected by the termination of this Agreement.
Section 13 Miscellaneous
13.1 This Agreement is written in Chinese in five (5) originals with each Party retaining one (1) copy thereof.
13.2 The execution, effectiveness, performance, amendment, interpretation and termination of this Agreement shall be governed by the PRC Laws.
13.3 If, at any time during the term hereof, the purpose of this Agreement cannot be accomplished for any reason other than a Default by the Existing
Shareholders or the Company, then the Parties shall immediately act in accordance with the Option Holders’ written instructions and reasonable
requirements to take any action and/or enter, where necessary, into a supplementary agreement amending or adjusting the provisions hereof so
as to maintain the validity of this Agreement and continue to accomplish the purpose hereof in the manner stipulated hereunder or in an
alternative manner.
13.4 Any dispute arising under or in connection with this Agreement shall be resolved by the Parties through consultations. If the Parties fail to reach
an agreement within thirty (30) days after its occurrence, such dispute shall be brought before the competent people’s court of Hangzhou for
adjudication.
13.5 No rights, powers and remedies granted to any Party by any provision herein shall preclude any other rights, powers and remedies such Party is
entitled to in accordance with laws and other provisions of this Agreement; and no exercise by a Party of its rights, powers and remedies shall
preclude its exercise of any other rights, powers and remedies it is entitled to.
13.6 No failure or delay by a Party to exercise any of its rights, powers and remedies under this Agreement or the laws (the “Party Rights”) shall
operate as a waiver of such Party Rights, nor shall any single or partial exercise of any Party Rights preclude any further exercise of such Party
Rights or any exercise of any other Party Rights.
13.7 The headings herein are for reference only and shall in no event be used in or affect the interpretation of the provisions hereof.
13.8 Each provision contained herein shall be severable and independent from any other provisions. If at any time any one or more provisions herein
become invalid, illegal or unenforceable, the validity, legality or enforceability of all other provisions herein shall not be affected thereby.
13.9 Upon execution, this Agreement shall supersede any other legal documents previously executed by the Parties with respect to the same subject
matter hereof, including, without limitation, the Amended and Restated Exclusive Call Option Agreement dated February 15, 2015 by and
among the Existing Shareholders, the WFOE and the Company.
13.10 Any amendments or supplements to this Agreement shall be made in writing. Except where the Option Holders transfer their rights hereunder
in accordance with Section 13.11 hereof, the amendments or supplements to this Agreement shall become effective only upon their being duly
executed by the Parties hereto.
11
13.11 Without the Option Holders’ prior written consent, the Existing Shareholders or the Company shall not transfer any of their rights and/or
obligations hereunder to any third party. The Option Holders may transfer any of their rights and/or obligations hereunder to a third party after
the Existing Shareholders and the Company are duly notified.
13.12 This Agreement shall be binding on the lawful transferees or successors of each Party.
[The remainder of this page is intentionally left blank]
12
IN WITNESS WHEREOF, the Parties have duly executed this Agreement on the date and at the place first above written.
[Signature Page]
Wei Chen
Signature: /s/ Wei Chen
Lili He
Signature: /s/ Lili He
Best Inc.
(Seal)
BEST Logistics Technologies (China) Co., Ltd.
(Seal)
Hangzhou Baisheng Investment Management Co., Ltd.
(Seal)
13
Company Name:
Hangzhou Baisheng Investment Management Co., Ltd.
Registered Address:
Room 525, Building No. 6, 1197 Bin’an Road, Binjiang District, Hangzhou
Schedule I
Registered Capital:
RMB100,000
Legal Representative:
Wei Chen
Shareholding Structure:
Shareholder’s Name
Wei Chen
Lili He
Total
Contribution to the
Registered Capital
Percentage of
Contribution
Means of
Contribution
RMB50,000
RMB50,000
RMB100,000
50
50
100
% Cash
% Cash
%
14
Schedule II
Form of the Exercise Notice
To: [name of the Existing Shareholder]
Reference is made to that certain Exclusive Call Option Agreement dated _________, 2019 (the “Option Agreement”) entered into by and among
this company, you, Hangzhou Baisheng Investment Management Co., Ltd. (the “Company”) , the other shareholder(s) of the Company and other
party(ies) thereto, pursuant to which you shall, to the extent permitted by the PRC Laws and regulations, transfer upon our request the equity interest
held by you in the Company to us or any third party designated by us.
Therefore, we hereby issue the following notice to you:
We hereby request to exercise the Equity Call Option under the Option Agreement such that the [ ]% equity interest held by you in the Company
(the “Requested Transferable Equity”) shall be transferred to us/ our designee [name of company/individual]. You are kindly requested to transfer
immediately upon receipt of this notice all the Requested Transferable Equity to us/[name of the designated company/individual] in accordance with
the terms of the Option Agreement.
[BEST Inc.
/BEST Logistics Technologies (China) Co., Ltd.]
(Seal)
Authorized Representative:
Date:
15
Schedule III
Form of the Exercise Notice
To: Hangzhou Baisheng Investment Management Co., Ltd.
Reference is made to that certain Exclusive Call Option Agreement dated __________, 2019 (the “Option Agreement”) entered into by and among
this company, your company, Wei Chen, Lili He, and other party(ies) thereto, pursuant to which your company shall, to the extent permitted by the
PRC Laws and regulations, transfer upon our request your assets to us or any third party designated by us.
Therefore, we hereby issue the following notice to your company:
We hereby request to exercise the Assets Call Option under the Option Agreement such that all of the assets owned by your company as listed in the
schedule attached hereto (the “Requested Transferrable Asset”) shall be transferred to us/ our designee [name of company/individual]. Your
company is kindly requested to transfer immediately upon receipt of this notice all the Requested Transferrable Asset to us/[name of the designated
company/individual] in accordance with the terms of the Option Agreement.
[BEST Inc.
/BEST Logistics Technologies (China) Co., Ltd.]
(Seal)
Authorized Representative:
Date:
16
List of Significant Subsidiaries and Consolidated Variable Interest Entity of
BEST Inc. (as of December 31, 2019)
Subsidiaries
Eight Hundred Logistics Technologies Corporation
BEST Logistics Technologies Limited
Zhejiang BEST Technology Co., Ltd.*
浙江百世技术有限公司
BEST Logistics Technologies (China) Co., Ltd.*
百世物流科技（中国）有限公司
BEST Store Network (Hangzhou) Co., Ltd.*
百世店加科技（杭州）有限公司
BEST Logistics Technologies (Ningbo Free Trade Zone) Co., Ltd.*
百世物流科技（宁波保税区）有限公司
BEST Capital Inc.
BEST Capital Holding Limited
BEST Capital Management Limited
Xinyuan Financial Leasing (Zhejiang) Co., Ltd.*
信远融资租赁（浙江）有限公司
Consolidated Variable Interest Entity
Hangzhou BEST Network Technologies Co., Ltd.*
杭州百世网络技术有限公司
Exhibit 8.1
Jurisdiction of
Incorporation
British Virgin
Islands
Hong Kong
PRC
PRC
PRC
PRC
Cayman
Islands
British Virgin
Islands
Hong Kong
PRC
Jurisdiction of
Incorporation
PRC
*The English name of this subsidiary or consolidated Variable Interest Entity, as applicable, has been translated from its Chinese
name.
Certification by the Principal Executive Officer
Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
I, Shao-Ning Johnny Chou, certify that:
1. I have reviewed this annual report on Form 20-F of BEST Inc. (the “Company”);
Exhibit 12.1
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact
necessary to make 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;
3. 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 periods presented in this
report;
4. 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: April 17, 2020
By:
Name:
Title:
/s/ Shao-Ning Johnny Chou
Shao-Ning Johnny Chou
Chief Executive Officer
Certification by the Principal Financial Officer
Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
I, Gloria Fan, certify that:
1. I have reviewed this annual report on Form 20-F of BEST Inc. (the “Company”);
Exhibit 12.2
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact
necessary to make 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;
3. 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 periods presented in this
report;
4. 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: April 17, 2020
By:
Name:
Title:
/s/ Gloria Fan
Gloria Fan
Chief Financial Officer
Certification by the Principal Executive Officer
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
Exhibit 13.1
In connection with the annual report of BEST Inc. (the “Company”) on Form 20-F for the year ended December 31, 2019 as filed with the
Securities and Exchange Commission on the date hereof (the “Report”), I, Shao-Ning Johnny Chou, 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) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the
Company.
Date: April 17, 2020
By:
Name:
Title:
/s/ Shao-Ning Johnny Chou
Shao-Ning Johnny Chou
Chief Executive Officer
Certification by the Principal Financial Officer
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
Exhibit 13.2
In connection with the annual report of BEST Inc. (the “Company”) on Form 20-F for the year ended December 31, 2019 as filed with the
Securities and Exchange Commission on the date hereof (the “Report”), I, Gloria Fan, 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) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the
Company.
Date: April 17, 2020
By:
Name:
Title:
/s/ Gloria Fan
Gloria Fan
Chief Financial Officer
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We consent to the incorporation by reference in the Registration Statement (Form S-8 No. 333-222126) pertaining to the 2008 Equity and
Performance Incentive Plan and 2017 Equity Incentive Plan of BEST Inc. of our reports dated April 17, 2020, with respect to the consolidated
financial statements of BEST Inc., and the effectiveness of internal control over financial reporting of BEST Inc., included in this Annual Report
(Form 20-F) for the year ended December 31, 2019.
Exhibit 15.1
/s/ Ernst & Young Hua Ming LLP
Shanghai, the People’s Republic of China
April 17, 2020
Exhibit 15.2
April 17, 2020
BEST Inc.
2nd Floor, Block A, Huaxing Modern Industry Park
No. 18 Tangmiao Road, Xihu District, Hangzhou, Zhejiang
Province 310013
People’s Republic of China
Attention: The Board of Directors
Dear Sirs or Madam,
Re: BEST Inc. (the “Company”)
We, King & Wood Mallesons, consent to the reference to our firm under the captions of “Item 3.D — Risk Factors — Risks Related to Doing
Business in the People’s Republic of China” and “Item 4.B — Business Overview —Regulatory Matters” in BEST Inc.’s annual report on Form 20-F
for the year ended December 31, 2019, which will be filed with the Securities and Exchange Commission in the month of April 2020.
In giving such consent, we do not thereby admit that we come within the category of persons whose consent is required under Section 7 of the
Securities Act of 1933, or under the Securities Exchange Act of 1934, in each case, as amended, or the regulations promulgated thereunder.
Yours faithfully,
/s/ King & Wood Mallesons
King & Wood Mallesons