As filed with the Securities and Exchange Commission on June 22, 2018
Registration No. 333-
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form F-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
Cango Inc.
(Exact name of Registrant as specified in its charter)
Cayman Islands | 6199 | Not Applicable | ||
(State or Other Jurisdiction of Incorporation or Organization) |
(Primary Standard Industrial Classification Code Number) |
(I.R.S. Employer Identification Number) |
10A, Building 3, Youyou Century Plaza
428 South Yanggao Road
Pudong New Area, Shanghai 200127
Peoples Republic of China
+86-21-3183-0016
(Address and Telephone Number of Registrants Principal Executive Offices)
Cogency Global Inc.
10 East 40th Street, 10th Floor
New York, N.Y. 10016
+1 (800) 221-0102
(Name, address and telephone number of agent for service)
Copies to:
Chris K.H. Lin, Esq. Daniel Fertig, Esq. Simpson Thacher & Bartlett LLP 35th Floor, ICBC Tower 3 Garden Road Central, Hong Kong +852-2514-7600 |
Li He, Esq. Davis Polk & Wardwell LLP c/o 2201 China World Office 2 Chaoyang District, Beijing 100004 Peoples Republic of China +86 10-8567-5000 |
James C. Lin, Esq. Davis Polk & Wardwell LLP Hong Kong Club Building 3A Chater Road Hong Kong +852-2533-3300 |
Approximate date of commencement of proposed sale to the public:
As soon as practicable after the effective date of this registration statement.
If any of the securities being registered on this form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box. ☐
If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ☐
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ☐
If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ☐
Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933.
Emerging growth company ☒
If an emerging growth company that prepares its financial statements in accordance with U.S. GAAP, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 7(a)(2)(B) of the Securities Act. ☐
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.
CALCULATION OF REGISTRATION FEE
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Title of Each Class of Securities to be Registered (1) |
Proposed
Maximum Aggregate Offering Price (2)(3) |
Amount of
Registration Fee |
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Class A ordinary shares, par value US$0.0001 per share |
US$300,000,000 | US$37,350 | ||
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(1) | American depositary shares, or ADSs, issuable upon deposit of the Class A ordinary shares registered hereby will be registered under a separate registration statement on Form F-6 (Registration No. 333- ). Each ADS represents Class A ordinary shares. |
(2) | Includes (a) Class A ordinary shares represented by ADSs that may be purchased by the underwriters pursuant to their over-allotment option and (b) all Class A ordinary shares represented by ADSs initially offered and sold outside the United States that may be resold from time to time in the United States either as part of the distribution or within 40 days after the later of the effective date of this registration statement and the date the securities are first bona fide offered to the public. |
(3) | Estimated solely for the purpose of computing the amount of the registration fee pursuant to Rule 457(o) under the Securities Act of 1933, as amended. |
The Registrant hereby amends this registration statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment which specifically states that this registration statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933, as amended, or until the registration statement shall become effective on such date as the Securities and Exchange Commission, acting pursuant to such Section 8(a), may determine.
The information in this preliminary prospectus is not complete and may be changed. These securities may not be sold until the registration statement filed with the United States Securities and Exchange Commission is effective. This preliminary prospectus is not an offer to sell nor does it seek an offer to buy these securities in any jurisdiction where the offer or sale is not permitted.
Subject to Completion. Dated , 2018.
American Depositary Shares
Cango Inc.
Representing Class A Ordinary Shares
This is an initial public offering of shares of American depositary shares, or ADSs, representing Class A ordinary shares of Cango Inc.
We are offering ADSs to be sold in this offering. Each ADS represents Class A ordinary shares, US$0.0001 par value per share. We anticipate the initial public offering price per ADS will be between US$ and US$ .
Prior to this offering, there has been no public market for the ADSs or our shares. We will apply to list the ADSs on the NYSE, under the symbol CANG.
We are an emerging growth company under applicable United States federal securities laws and are eligible for reduced public company reporting requirements.
See Risk Factors on page 16 to read about factors you should consider before buying the ADSs.
Neither the United States Securities and Exchange Commission nor any other regulatory body has approved or disapproved of these securities or passed upon the accuracy or adequacy of this prospectus. Any representation to the contrary is a criminal offense.
Per ADS | Total | |||||||
Initial public offering price |
US$ | US$ | ||||||
Underwriting discounts and commissions (1) |
US$ | US$ | ||||||
Proceeds, before expenses, to us |
US$ | US$ |
(1) | For additional information on underwriting compensation, see Underwriting. |
To the extent that the underwriters sell more than ADSs in this offering, the underwriters have a 30-day option to purchase up to an aggregate of additional ADSs from us at the initial public offering price less the underwriting discounts and commissions.
The underwriters expect to deliver the ADSs against payment in New York, New York on , 2018.
Upon the completion of this offering, Class A ordinary shares and 79,325,720 Class B ordinary shares will be issued and outstanding. Holders of Class A ordinary shares and Class B ordinary shares will have the same rights except for voting and conversion rights. Each Class A ordinary share will be entitled to one vote, and each Class B ordinary share will be entitled to 20 votes and will be convertible into one Class A ordinary share. Mr. Xiaojun Zhang, our co-founder and chairman, and Mr. Jiayuan Lin, our co-founder, director and chief executive officer, will beneficially own all the Class B ordinary shares issued and outstanding. In addition, Mr. Lin will beneficially own 21,283,655 Class A ordinary shares. The co-founders entered into a voting agreement, which provides that they shall reach a consensus before exercising their voting rights with respect to our shares. The voting agreement will become effective upon the completion of this offering. The co-founders will collectively exercise % of the aggregate voting power of our issued and outstanding share capital immediately after this offering, assuming no exercise by the underwriters of options to purchase additional ADSs. For further information, see Principal ShareholdersVoting Agreement.
Morgan Stanley | BofA Merrill Lynch | Goldman Sachs (Asia) L.L.C. |
Prospectus dated , 2018
A LEADING, TECHNOLOGY-ENABLED AUTOMOTIVE TRANSACTION PLATFORM IN CHINA 22% 30+% Number of Transactions Number of Dealers 2.4x 2.2x 434,881 34,634 182,406 16,035 FY2016 FY2017 FY2016 FY2017 Total Revenue Net Income RMB MM RMB MM 2.4x 2.6x 349 1,052 434 133 FY 2016 FY 2017 FY 2016 FY 2017 Note: data as of December 31, 2017 unless otherwise indicated
TRANSFORM AUTOMOTIVE AND MOBILITY MARKETS WITH DATA AND TECHNOLOGY
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Special Note Regarding Forward-Looking Statements and Industry Data |
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Managements Discussion and Analysis of Financial Condition and Results of Operations |
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F-1 |
No dealer, salesperson or other person is authorized to give any information or to represent as to anything not contained in this prospectus or in any free writing prospectus we may authorize to be delivered or made available to you. You must not rely on any unauthorized information or representations. This prospectus is an offer to sell, and we are seeking offers to buy, only the ADSs offered hereby, and only under circumstances and in jurisdictions where it is lawful to do so. The information contained in this prospectus is current only as of its date, regardless of the time of delivery of this prospectus or any sale of the ADSs.
Neither we nor the underwriters have done anything that would permit this offering or the possession or distribution of this prospectus or any filed free writing prospectus in any jurisdiction where other action for that purpose is required, other than in the United States. Persons outside the United States who come into possession of this prospectus or any free writing prospectus filed with the United States Securities and Exchange Commission, or SEC, must inform themselves about, and observe any restrictions relating to, the offering of the ADSs and the distribution of this prospectus or any filed free writing prospectus outside of the United States.
Until , 2018 (the 25th day after the date of this prospectus), all dealers that buy, sell or trade ADSs, whether or not participating in this offering, may be required to deliver a prospectus. This is in addition to the obligation of dealers to deliver a prospectus when acting as underwriters and with respect to their unsold allotments or subscriptions.
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This summary highlights selected information contained in greater detail elsewhere in this prospectus. This summary may not contain all of the information that you should consider before investing in our ADSs. You should carefully read the entire prospectus, including Risk Factors and the financial statements, before making an investment decision. This prospectus contains information from an industry report commissioned by us and prepared by Oliver Wyman Consulting (Shanghai) Ltd, or Oliver Wyman, an independent research firm, to provide information regarding our industry and our market position in China. We refer to this report, which is dated as of April 30, 2018, as the Oliver Wyman Report.
Our Mission
Transform automotive and mobility markets with data and technology.
Overview
We are a leading automotive transaction service platform in China connecting dealers, financial institutions, car buyers and other industry participants. According to the Oliver Wyman Report, we cover the largest number of new car dealers in China, and the outstanding balance of financing transactions we facilitated was the largest among automotive transaction service platforms in China as of December 31, 2017. As of March 31, 2018, our platform connected 37,667 registered dealers, 11 third-party financial institutions and 29 other industry participants, including OEMs, online advertising platforms and insurance brokers and companies, and had served 734,336 car buyers cumulatively since inception. Our platform model puts us in a unique position to add value for our platform participants and business partners as the mobility market in China continues to grow and evolve.
We have extensive, technology-enabled service offerings along the automotive value chain, which enable us to attract more participants to our platform and enhance engagement of existing participants. Our services primarily consist of: (1) automotive financing facilitation, (2) automotive transaction facilitation and (3) after-market service facilitation. We generate substantially all of our revenue from service fees for providing automotive financing facilitation, and to a lesser degree from service fees and other income from providing automotive transaction facilitation and after-market services facilitation. The diagram below illustrates the various services that our platform provides to the platform participants.
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We provide automotive financing facilitation services primarily by connecting financial institutions and car buyers, leveraging our vast dealer network. For financial institutions, we offer integrated solutions that support the full life cycle of automotive financing transactions, including credit origination, credit assessment, credit servicing and delinquent asset management services. We have established in-depth collaboration with a number of third-party financial institutions, and we do not bear credit risk under our arrangement with two of such financial institutions, Jincheng Bank, which was our related party until September 2017, and Jiangnan Rural Commercial Bank. For car buyers, we offer automotive financing solutions and make car buyers purchases more affordable and accessible. Funding for such financing solutions is provided by either third-party financial institutions or Shanghai Autohome, a provider of financing leases which will become our wholly-owned consolidated subsidiary upon the completion of the Acquisition. We also provide car buyers with value-added services, such as assistance with administrative procedures associated with car purchasing and financing. We facilitated the financing of 97,219 new and used car purchases with a total amount of financing transactions of RMB5.8 billion (US$0.9 billion) in the three months ended March 31, 2018, representing a year-on-year growth of 7.2% from RMB5.4 billion in the same period in 2017. In the three months ended March 31, 2017 and 2018, the amount of financing transactions funded by Jincheng Bank was RMB5.1 billion and RMB1.9 billion (US$0.3 billion), representing 95.6% and 32.9% of the total amount of financing transactions we facilitated, respectively. In the three months ended March 31, 2017 and 2018, revenues attributable to our collaboration with Jincheng Bank, including fees received from car buyers in the relevant transactions, was RMB185.9 million and RMB96.0 million (US$15.3 million), which represented 95.3% and 38.6% of our total revenues, respectively.
We provide automotive transaction facilitation services primarily to dealers and car buyers. We operate a digital automobile trading platform, which enables our registered dealers to access additional car sourcing channels while enjoying our value-added services including logistics and warehousing support, and we collaborate with online automotive advertising platforms to help prospective car buyers find suitable cars in our dealer network while providing them with our financing solutions.
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We also provide after-market services facilitation services to car buyers, which currently mainly involve facilitating the sale of insurance policies. We continue to explore opportunities to facilitate other after-market services on our platform, including additional types of insurance, extended warranties, car customization, maintenance and repair, and personal wealth management products.
Our strong dealership network is a critical component of our service platform. This network places us at the center of automotive transaction value chain and enables us to closely connect with car buyers and financial institutions. Through the dealer network, we offer automotive financing facilitation services to car buyers across China, and we have built a sizeable and diversified portfolio of automotive financing transactions for financial institutions. As of March 31, 2018, we worked closely with 37,667 registered dealers on our platform, covering 353 cities and all province-level administrative regions in the PRC except for Tibet. In every quarter from the beginning of 2016 to the three months ended March 31, 2018, over 40% of our registered dealers were active, in that each sold at least one car funded by a financing transaction we facilitated. We enhance our registered dealers competitiveness by improving prospective car buyer conversion, increasing sales volume and attracting even more car buyers. In turn, we connect with and serve more participants on our platform because of the network effect.
We use technology to connect our platform participants, bring them a premium user experience, and improve our own operation efficiency. For example, we integrate our operating systems with those of our platform participants, such as dealers and financial institutions, to ensure smooth and real time data exchange. Our digitalized credit application process, embedded with advanced credit assessment technology, allows us to help financial institutions achieve an average credit approval time of less than two hours, improving the experience of car buyers in these transactions. Benefiting from our technology-driven sales management system, we have achieved high operational efficiency.
We have accumulated or accessed a massive amount of car buyer data through various sources including the car buyers themselves, third parties with car buyers consent, as well as telematics devices during the credit servicing period with car buyers consent. Our customized cloud-based infrastructure allows us to scale up data processing and storage capacity to meet significant growth. We have developed comprehensive insight and knowledge of our car buyers through data analytics, which will allow us to design and provide other forms of credit solutions and tailor-made financial products to fulfill their evolving demand for financial services in the future. The comprehensive data insight built upon our leading technology provides a competitive edge in potential value-added service offerings such as precision marketing, inventory management, client relationship management and credit portfolio management.
As we continue to grow our platform, broaden service spectrum and accumulate data insights, we are exploring opportunities to cooperate with our strategic investors, such as Tencent, Taikang Life Insurance and Didi Chuxing, to enhance our full-process technology-driven automotive transaction services. For example, we plan to form a comprehensive partnership with Didi Chuxing and provide a variety of solutions to its large and rapidly expanding fleet, such as automotive financing, vehicle sourcing and insurance facilitation.
We have experienced strong growth in our results of operations. Our revenues increased by 142.3% from RMB434.3 million in 2016 to RMB1,052.2 million (US$167.7 million) in 2017. Our revenues increased by 27.5% from RMB195.1 million in the three months ended March 31, 2017 to RMB248.8 million (US$39.7 million) in the same period in 2018. Our net income increased by 161.5% from RMB133.5 million in 2016 to RMB349.1 million (US$55.7 million) in 2017. Our net income increased by 13.1% from RMB74.3 million in the three months ended March 31, 2017 to RMB84.0 million (US$13.4 million) in the same period in 2018.
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Our Strengths
We believe the following strengths contribute to our success and reinforce our market-leading position.
| leadership in a fast-growing underserved market; |
| self-reinforcing platform empowered by technology and data; |
| end-to-end service model with financial institutions; |
| largest and powerful dealer network; and |
| visionary and experienced management team. |
Our Strategies
We seek to continue to transform automotive and mobility markets with data and technology. We plan to pursue the following strategies to achieve our goal:
| engage more platform participants; |
| roll out more services along the automotive transaction value chain; |
| provide consumers with more products throughout their lifetime; |
| continue investment in data and technology; and |
| deepen partnership with our strategic shareholders. |
Our Challenges
Our business and successful execution of our strategies are subject to certain challenges, risks and uncertainties including:
| our limited operating history in an emerging and fast growing market; |
| expected decreases in revenues and net income in the second quarter of 2018 compared to the second quarter of 2017; |
| our ability to expand, maintain and effectively manage relationships with our network of dealers; |
| our ability to attract prospective car buyers; |
| our reliance on a limited number of financial institutions to fund the financing transactions we facilitate; |
| our reliance on our credit assessment model and credit assessment team in evaluating credit applications; |
| our ability to maintain low overdue rates for financing transactions we facilitate; |
| effectiveness of our collection and repossession efforts; and |
| further changes and interpretation of the laws and regulations governing the automotive finance industry in the PRC. |
In addition, we face risks and uncertainties related to our corporate structure and regulatory environment in China, including:
| uncertainties associated with the interpretation and application of laws and regulations governing the automotive finance industry in the PRC; |
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| risks associated with our control over our consolidated variable interest entity, or VIE, in China, which is based on contractual arrangements rather than equity ownership; and |
| changes in the political and economic policies of the PRC government. |
We also face other risks and uncertainties that may materially affect our business, financial conditions, results of operations and prospects. In addition, Mr. Xiaojun Zhang, our co-founder and chairman, and Mr. Jiayuan Lin, our co-founder, director and chief executive officer, have entered into a voting agreement, which provides that they shall reach a consensus before exercising their voting rights with respect to our shares. The voting agreement will become effective upon the completion of this offering. The co-founders will collectively exercise approximately % of the aggregate voting power of our issued and outstanding share capital immediately after this offering, assuming no exercise by the underwriters of options to purchase additional ADSs. As a result of the ownership concentration, these shareholders have the ability to control or exert significant influence over important corporate matters and investors may be prevented from affecting important corporate matters involving our company that require approval of shareholders. For further information, see Principal ShareholdersVoting Agreement. You should consider the risks discussed in Risk Factors and elsewhere in this prospectus before investing in our ADSs.
Our History and Corporate Structure
We began operations in August 2010 through Shanghai Cango, which was founded under the laws of the PRC. To facilitate our initial public offering in the United States, we incorporated Cango Inc. in October 2017. Through a series of transactions, which we refer to as our Offshore Restructuring, Cango Inc. then became our ultimate holding company.
The following diagram illustrates our corporate structure after giving effect to our pending acquisition of the remaining 50% of equity interest in Shanghai Autohome, or the Acquisition. The first step of the Acquisition involves the purchase of 25% of equity interest in Shanghai Autohome from Autohome Financing Hong Kong Limited, or Autohome Hong Kong. In September 2017, we entered into an equity interest transfer agreement, or the Autohome Transfer Agreement, with Autohome Hong Kong, a PRC affiliate of Autohome Hong Kong and Express Group Development Limited, or Express Group, an acquisition vehicle affiliated with WP Fintech, one of our principal shareholders. As part of our planned Offshore Restructuring, it was contemplated that Express Group, which held the contractual right to purchase the 25% equity interest in Shanghai Autohome under the Autohome Transfer Agreement as its only material asset, would be transferred to one of our subsidiaries. Pursuant to the Autohome Transfer Agreement, the consideration for the equity interest was RMB103.0 million or the equivalent amount in U.S. dollars. In May 2018, we acquired Express Group from an affiliate of WP Fintech for a nominal price of one Hong Kong dollar. Subsequently, we paid Autohome Hong Kong half of the consideration for the equity interest through Express Group. We are required to register the change in Shanghai Autohomes equity ownership with the relevant government authorities, and we expect to complete such registration in July 2018. We will pay the remaining half of the consideration upon the completion of such registration.
The second step of the Acquisition involves the purchase of 25% of equity interest in Shanghai Autohome from Ningbo Meishan Bonded Harbor Zone Xinxiang Investment Management L.P., or Ningbo Xinxiang. In May 2018, we entered into an equity interest transfer agreement with Ningbo Xinxiang, which provides for a consideration in the amount of RMB103.0 million. We plan to pay half of the consideration after completing the first step of the Acquisition. We plan to pay the remainder after completing the requisite registration of the change in Shanghai Autohomes equity ownership with the relevant government authorities. We expect to consummate the Acquisition in the third quarter of 2018.
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The following diagram omits certain entities that are immaterial to our results of operations, business and financial condition. Except as otherwise specified, equity interests depicted in this diagram are held as to 100%. The relationships between each of Can Gu Long, Shanghai Cango and its shareholders as illustrated in this diagram are governed by contractual arrangements and do not constitute equity ownership.
(1) | Shanghai Wangjin Investment Management Co., Ltd. (controlled by Mr. Xiaojun Zhang), Mr. Jiayuan Lin, Warburg Pincus Financial Global Ltd., Tencent Mobility Limited, Shanghai Xiehuai Investment Management L.P. (of which Mr. Jiayuan Lin is the general partner), the Taikang Onshore Entities (including Taikang Life Insurance Co., Ltd. and Shandong State-controlled Taikang Phase I Industrial Development Fund Partnership Enterprise (Limited Partnership)) and Shanghai Huaiyuan Investment Management L.P. (of which Shouyan Xu is the general partner) respectively hold 15.6%, 15.8%, 21.1%, 12.5%, 8.4%, 6.3% and 5.2% of equity interests in Shanghai Cango. The remaining equity interests in Shanghai Cango are held by nine other shareholders. Each shareholder of Shanghai Cango is either an affiliate of or identical to a shareholder of Cango Inc. For information as to the principal shareholders of Cango Inc., see Principal Shareholders. |
(2) | Includes 29 subsidiaries that are majority owned by Shanghai Cango. These subsidiaries are located in various cities across China and are primarily involved in providing automotive financing facilitation services to financial institutions and car buyers. |
(3) | Primarily involved in the operation of our automobile trading platform 91HaoChe. |
(4) |
Primarily involved in providing financing leases to car buyers. Shanghai Cango, our consolidate VIE, currently owns 50% equity interest in Shanghai Autohome. We have entered into agreements in connection with the Acquisition, which we expect to consummate in the third quarter of 2018. Upon the completion of the Acquisition, our indirectly wholly owned subsidiary will own 25% equity interest in Shanghai |
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Autohome and Shanghai Cango will own 75% equity interest in Shanghai Autohome. As a result, Shanghai Autohome will become our wholly-owned consolidated subsidiary. |
Our Corporate Information
Our principal executive offices are located at 10A, Building 3, Youyou Century Plaza, 428 South Yanggao Road, Pudong New Area, Shanghai 200127, Peoples Republic of China. Our telephone number at this address is +86-21-3183-0016. Our registered office in the Cayman Islands is located at the offices of Sertus Incorporations (Cayman) Limited, Sertus Chambers, Governors Square, Suite #5-204, 23 Lime Tree Bay Avenue, P.O. Box 2547, Grand Cayman, KY1-1104, Cayman Islands. Our telephone number at this address is +1 (345) 745 5100. Investors should submit any inquiries to the address and telephone number of our principal executive offices set forth above.
Our main website is www.cangoonline.com , and the information contained on this website is not a part of this prospectus. Our agent for service of process in the United States is Cogency Global Inc., located at 10 East 40th Street, 10th Floor, New York, N.Y. 10016.
Implications of Being an Emerging Growth Company
As a company with less than US$1.07 billion in revenue for the last fiscal year, we qualify as an emerging growth company pursuant to the Jumpstart Our Business Startups Act of 2012, or the JOBS Act. An emerging growth company may take advantage of specified reduced reporting and other requirements that are otherwise applicable generally to public companies. These provisions include exemption from the auditor attestation requirement under Section 404 of the Sarbanes-Oxley Act of 2002, or Section 404, in the assessment of the emerging growth companys internal control over financial reporting. The JOBS Act also provides that an emerging growth company does not need to comply with any new or revised financial accounting standards until such date that a private company is otherwise required to comply with such new or revised accounting standards. We will take advantage of the extended transition period. As a result of this election, our financial statements may not be comparable to other public companies that comply with the public company effective dates for these new or revised accounting standards.
We will remain an emerging growth company until the earliest of (a) the last day of our fiscal year during which we have total annual gross revenues of at least US$1.07 billion; (b) the last day of our fiscal year following the fifth anniversary of the completion of this offering; (c) the date on which we have, during the previous three year period, issued more than US$1.0 billion in non-convertible debt; or (d) the date on which we are deemed to be a large accelerated filer under the Securities Exchange Act of 1934, as amended, or the Exchange Act, which would occur if the market value of our ADSs that are held by non-affiliates exceeds US$700 million as of the last business day of our most recently completed second fiscal quarter. Once we cease to be an emerging growth company, we will not be entitled to the exemptions provided in the JOBS Act discussed above.
Conventions That Apply to This Prospectus
Unless we indicate otherwise, references in this prospectus to:
| the Acquisition are to our pending acquisition of the remaining 50% of equity interest in Shanghai Autohome, which we expect to consummate in the third quarter of 2018; upon the completion of the Acquisition, Shanghai Autohome will become our wholly-owned consolidated subsidiary; |
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| active dealers are to dealers which have sold at least one car which is funded by a financing transaction we facilitate in the specified period; |
| ADSs are to our American depositary shares, each of which represents Class A ordinary shares, and ADRs are to the American depositary receipts that evidence our ADSs; |
| CAGR are to compound annual growth rate; |
| Can Gu Long Shanghai are to Can Gu Long (Shanghai) Information Technology Consultation Service Co., Ltd., a company established under the law of the PRC and our wholly-owned subsidiary; |
| car buyers are to individuals who have purchased a car; |
| China and the PRC are to the Peoples Republic of China, excluding, for the purposes of this prospectus only, Taiwan, the Hong Kong Special Administrative Region and the Macao Special Administrative Region; |
| dealers are to points of sale that are licensed to engage in retail automobile transactions; |
| Didi Chuxing are to Xiaoju Kuaizhi Inc., a company organized under the laws of the Cayman Islands, and its affiliates; |
| exposure at risk are to the amount of outstanding principal of specified financing transactions as of a specified date; |
| financial institutions are to (i) banks and (ii) financing lease companies licensed by the Ministry of Commerce of the PRC; |
| financing transactions are to loans and financing leases; financing transactions we facilitate include financing transactions funded by financial institutions and financing transactions funded by Shanghai Autohome; the amount of financing transactions refer to the principal amount of financing transactions we facilitated in a specified period; |
| lower-tier cities are to cities in China that are not tier-one and tier-two cities; |
| M1+ overdue ratio are to (i) exposure at risk relating to financing transactions for which any installment payment is 30 to 179 calendar days past due as of a specified date, divided by (ii) exposure at risk relating to all financing transactions which remain outstanding as of such date, excluding amounts of outstanding principal that are 180 calendar days or more past due; |
| M3+ overdue ratio are to (i) exposure at risk relating to financing transactions for which any installment payment is 90 to 179 calendar days past due as of a specified date, divided by (ii) exposure at risk relating to all financing transactions which remain outstanding as of such date, excluding amounts of outstanding principal that are 180 calendar days or more past due; |
| new car dealers are to dealers that sell new cars to car buyers, including dealers that sell both new cars and used cars; |
| OEMs are to automotive original equipment manufacturer; |
| registered dealers are to dealers who are registered with our platform; |
| RMB or Renminbi are to the legal currency of China; |
| SaaS are to software as a service; |
| Shanghai Autohome are to Shanghai Autohome Financing Lease Co., Ltd., a company organized under the law of the PRC and our equity investee prior to the Acquisition; |
| Shanghai Cango are to Shanghai Cango Investment and Management Consultation Service Co., Ltd., a company established under the law of the PRC and our consolidated VIE; |
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| shares are to our outstanding ordinary shares and/or convertible preferred shares; |
| tier-one and tier-two cities refer to (i) tier-one cities in China, namely Beijing, Shanghai, Guangzhou and Shenzhen and (ii) tier-two cities in China, namely (a) Tianjin and Chongqing, (b) the provincial capital cities except for Guangzhou, Yinchuan, Xining and Lhasa and (c) several prefecture-level cities, namely, Qingdao, Foshan, Dalian, Ningbo, Suzhou, Wuxi, Xiamen, Dongguan and Wenzhou; |
| US$, U.S. dollars, or dollars are to the legal currency of the United States; |
| we, us, our company and our are to Cango Inc., its consolidated VIE, their respective subsidiaries and/or Shanghai Autohome, as the context requires; and |
| WP Fintech are to Warburg Pincus Cango Fintech Investment Company Limited, a British Virgin Islands business company and one of our principal shareholders. |
Unless specifically indicated otherwise or unless the context otherwise requires, all references to our ordinary shares exclude (i) ordinary shares issuable upon the exercise of outstanding options with respect to our ordinary shares under our share incentive plan and (ii) assumes that the underwriters will not exercise their over-allotment option to purchase additional ADSs.
The translations from Renminbi to U.S. dollars and from U.S. dollars to Renminbi in this prospectus were made at a rate of RMB6.2726 to US$1.00, the exchange rate set forth in the H.10 statistical release of the Federal Reserve Board on March 30, 2018. We make no representation that the Renminbi or U.S. dollar amounts referred to in this prospectus could have been or could be converted into U.S. dollars or Renminbi, as the case may be, at any particular rate or at all. On June 15, 2018, the noon buying rate for Renminbi was RMB6.4379 to US$1.00.
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Price per ADS |
We currently estimate that the initial public offering price will be between US$ and US$ per ADS. |
ADSs Offered by Us |
ADSs |
ADSs Outstanding Immediately After This Offering |
ADSs (or ADSs if the underwriters exercise in full the over-allotment option). |
Ordinary Shares Outstanding Immediately After This Offering |
Class A ordinary shares and 79,325,720 Class B ordinary shares (or Class A ordinary shares and 79,325,720 Class B ordinary shares if the underwriters exercise in full the over-allotment option), excluding ordinary shares issuable upon the exercise of options outstanding under our share incentive plan as of the date of this prospectus. |
The ADSs |
Each ADS represents Class A ordinary shares. |
The depositary will be the holder of the Class A ordinary shares underlying the ADSs and you will have the rights of an ADS holder as provided in the deposit agreement among us, the depositary and holders and beneficial owners of ADSs from time to time. |
You may surrender your ADSs to the depositary to withdraw the Class A ordinary shares underlying your ADSs. The depositary will charge you a fee for such an exchange. |
We may amend or terminate the deposit agreement for any reason without your consent. Any amendment that imposes or increases fees or charges or which materially prejudices any substantial existing right you have as an ADS holder will not become effective as to outstanding ADSs until 30 days after notice of the amendment is given to ADS holders. If an amendment becomes effective, you will be bound by the deposit agreement as amended if you continue to hold your ADSs. |
To better understand the terms of the ADSs, you should carefully read the section in this prospectus entitled Description of American Depositary Shares. We also encourage you to read the deposit agreement, which is an exhibit to the registration statement that includes this prospectus. |
Ordinary Shares |
Our ordinary shares will be divided into Class A ordinary shares and Class B ordinary shares upon the completion of this offering. In respect of all matters subject to a shareholders vote, each Class A ordinary share is entitled to one vote, and each Class B ordinary share is entitled to 20 votes, voting together as one class. Each Class B ordinary share is convertible into one Class A ordinary share at any time by the holder thereof. Class A ordinary shares are not convertible into Class B ordinary shares under any circumstances. |
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Upon any transfer of Class B ordinary shares by a holder to any person or entity which is not an affiliate of such holder, such Class B ordinary shares shall be automatically and immediately converted into the equivalent number of Class A ordinary shares. See Description of Share Capital for more information. |
Over-Allotment Option |
We have granted to the underwriters an option, exercisable for 30 days from the date of this prospectus, to purchase up to an aggregate of additional ADSs at the initial public offering price, less underwriting discounts and commissions, solely for the purpose of covering over-allotments. |
Use of Proceeds |
We estimate that we will receive net proceeds of approximately US$ million from this offering, assuming an initial public offering price of US$ per ADS, the mid-point of the estimated range of the initial public offering price, after deducting estimated underwriter discounts, commissions and estimated offering expenses payable by us. We anticipate using the net proceeds of this offering as follows: |
| up to approximately US$ million for investment in research and development capabilities, and data and technology; |
| up to approximately US$ million for expansion our sales and marketing efforts; |
| up to approximately US$ million for capital injection into Shanghai Autohome to increase the amount of financing leases it is able to fund; |
| up to approximately US$ million for expansion of automotive transaction facilitation services, including technology upgrades and inventory purchases; and |
| the balance for general corporate purposes, including working capital needs and potential acquisitions (although we are not currently negotiating any such acquisitions). |
See Use of Proceeds for more information. |
Lock-up |
[We, our officers and directors and our existing shareholders] have agreed with the underwriters not to sell, transfer or dispose of any ADSs, ordinary shares or similar securities for a period of 180 days after the date of this prospectus, subject to certain exceptions. See Shares Eligible for Future Sale and Underwriting. |
Risk Factors |
See Risk Factors and other information included in this prospectus for a discussion of the risks relating to investing in our ADSs. You should carefully consider these risks before deciding to invest in our ADSs. |
Listing |
We have applied to list our ADSs on the NYSE. Our ordinary shares will not be listed on any exchange or quoted for trading on any over-the-counter trading system. |
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Proposed NYSE Trading Symbol |
CANG |
Payment and settlement |
The underwriters expect to deliver the ADSs against payment on , 2018, through the facilities of the Depositary Trust Company, or DTC |
Depositary |
Citibank, N.A. |
The total number of ordinary shares that will be outstanding immediately after this offering will be Class A ordinary shares and 79,325,720 Class B ordinary shares, which is based upon (i) the designation of all ordinary shares held by Eagle Central Holding Limited, which is wholly owned by Mr. Xiaojun Zhang, into 39,442,798 Class B ordinary shares on a one-for-one-basis upon the completion of this offering; (ii) the designation of all ordinary shares held by Medway Brilliant Holding Limited, which is wholly owned by Mr. Jiayuan Lin, into 39,882,922 Class B ordinary shares on a one-for-one-basis upon the completion of this offering; (iii) the designation of all of the remaining outstanding ordinary shares and the automatic conversion of all convertible preferred shares into 214,884,172 Class A ordinary shares on a one-for-one-basis upon the completion of this offering; and (iii) Class A ordinary shares issued in connection with this offering (assuming the underwriters do not exercise their option to purchase additional ADSs), but excludes:
| 5,569,105 ordinary shares issuable upon the exercise of outstanding share options under our share incentive plan to be adopted prior to the completion of this offering; and |
| 22,276,421 ordinary shares reserved for future issuance under our share incentive plan. |
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SUMMARY CONSOLIDATED FINANCIAL AND OPERATING DATA
The following summary consolidated statements of comprehensive income for the years ended December 31, 2016 and 2017 and summary consolidated balance sheet as of December 31, 2016 and 2017 have been derived from our audited consolidated financial statements included elsewhere in this prospectus. The following summary consolidated statements of comprehensive income for the three months ended March 31, 2017 and 2018 and summary consolidated balance sheet data as of March 31, 2018 have been derived from our unaudited interim condensed consolidated financial statements included elsewhere in this prospectus.
Our consolidated financial statements are prepared and presented in accordance with U.S. GAAP. The unaudited interim condensed consolidated financial statements have been prepared on the same basis as our audited consolidated financial statements. Our historical results are not necessarily indicative of results to be expected for any future period. The following summary consolidated financial data for the periods and as of the dates indicated are qualified by reference to, and should be read in conjunction with, our consolidated financial statements and related notes and the information under Managements Discussion and Analysis of Financial Condition and Results of Operations, both of which are included elsewhere in this prospectus.
Summary Consolidated Statements of Comprehensive Income Data
Year Ended December 31, | Three Months Ended March 31, | |||||||||||||||||||||||
2016 | 2017 |
2017
(unaudited) |
2018
(unaudited) |
|||||||||||||||||||||
RMB | RMB | US$ | RMB | RMB | US$ | |||||||||||||||||||
(in thousands, except for share and per share data) | ||||||||||||||||||||||||
Revenues |
434,280 | 1,052,204 | 167,746 | 195,096 | 248,819 | 39,668 | ||||||||||||||||||
Operating cost and expenses: |
||||||||||||||||||||||||
Cost of revenue |
170,044 | 386,054 | 61,546 | 74,337 | 80,856 | 12,890 | ||||||||||||||||||
Sales and marketing |
39,537 | 114,145 | 18,197 | 20,207 | 34,818 | 5,551 | ||||||||||||||||||
General and administrative |
34,550 | 101,277 | 16,146 | 12,017 | 26,744 | 4,264 | ||||||||||||||||||
Research and development |
5,000 | 19,419 | 3,096 | 2,266 |
|
6,452
|
|
1,029 | ||||||||||||||||
Net loss/(gain) on risk assurance liabilities |
744 | (38,867 | ) | (6,196 | ) | (13,356 | ) | 3,768 | 601 | |||||||||||||||
Provision for financing receivables |
| 156 | 25 | | 3,062 | 488 | ||||||||||||||||||
Total operating cost and expenses |
249,875 | 582,184 | 92,814 | 95,472 | 155,700 | 24,822 | ||||||||||||||||||
Income from operations |
184,405 | 470,020 | 74,932 | 99,624 | 93,119 | 14,845 | ||||||||||||||||||
Interest income |
4,099 | 16,164 | 2,577 | 2,769 | 8,077 | 1,288 | ||||||||||||||||||
Income/(loss) from equity method investments |
(9,988 | ) | 4,856 | 774 | 1,255 | (2,334 | ) | (372 | ) | |||||||||||||||
Interest expense |
(450 | ) | (12,994 | ) | (2,071 | ) | (1,678 | ) | (4,790 | ) | (764 | ) | ||||||||||||
Foreign exchange loss, net |
| (25,403 | ) | (4,050 | ) | | (2,623 | ) | (418 | ) |
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Year Ended December 31, | Three Months Ended March 31, | |||||||||||||||||||||||
2016 | 2017 |
2017
(unaudited) |
2018
(unaudited) |
|||||||||||||||||||||
RMB | RMB | US$ | RMB | RMB | US$ | |||||||||||||||||||
(in thousands, except for share and per share data) | ||||||||||||||||||||||||
Other income |
8,661 | 16,197 | 2,582 | 1,249 | 22,022 | 3,511 | ||||||||||||||||||
Other expenses |
(232 | ) | (379 | ) | (60 | ) | (10 | ) | (106 | ) | (17 | ) | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Net income before income taxes |
186,495 | 468,460 | 74,684 | 103,209 | 113,366 | 18,073 | ||||||||||||||||||
Income tax expenses |
(53,014 | ) | (119,403 | ) | (19,036 | ) | (28,948 | ) | (29,339 | ) | (4,677 | ) | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Net income |
133,481 | 349,057 | 55,648 | 74,261 | 84,026 | 13,396 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Less: Net income attributable to the non-controlling interests |
4,575 | 8,048 | 1,283 | 130 | 3,934 | 627 | ||||||||||||||||||
Net income attributable to Cango Inc.s shareholders |
128,906 | 341,010 | 54,365 | 74,131 | 80,092 | 12,769 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Earnings per share attributable to ordinary shareholders and Series A-2 preferred shareholders: |
||||||||||||||||||||||||
Basic and diluted |
0.51 | 1.35 | 0.22 | 0.29 | 0.32 | 0.05 | ||||||||||||||||||
Weighted average shares used to compute earnings per share attributable to ordinary shareholders and Series A-2 preferred shareholders: |
||||||||||||||||||||||||
Basic |
127,149,202 | 127,149,202 | 127,149,202 | 127,149,202 | 127,149,202 | 127,149,202 | ||||||||||||||||||
Diluted |
252,831,716 | 252,831,716 | 252,831,716 | 252,831,716 | 252,831,716 | 252,831,716 |
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Summary Consolidated Balance Sheet Data
As of December 31, | As of March 31, | |||||||||||||||||||
2016 | 2017 |
2018
(unaudited) |
||||||||||||||||||
RMB | RMB | US$ | RMB | US$ | ||||||||||||||||
(in thousands) | ||||||||||||||||||||
Cash and cash equivalents |
44,989 | 803,271 | 128,060 | 1,962,701 | 312,901 | |||||||||||||||
Restricted cash |
1,011 | 329,413 | 52,516 | 456,631 | 72,798 | |||||||||||||||
Short-term investments |
106,000 | 62,380 | 9,945 | 599,720 |
|
95,609
|
|
|||||||||||||
Accounts receivable, net |
469 | 85,595 | 13,646 | 116,904 | 18,637 | |||||||||||||||
Long-term investments |
185,800 | 191,003 | 30,450 | 191,107 | 30,467 | |||||||||||||||
Equity method investments |
70,803 | 165,660 | 26,410 | 163,326 | 26,038 | |||||||||||||||
Total assets |
714,857 | 1,996,868 | 318,348 | 3,754,794 | 598,603 | |||||||||||||||
Accrued expenses and other current liabilities |
85,854 | 328,523 | 52,374 | 235,780 | 37,589 | |||||||||||||||
Risk assurance liabilities |
149,788 | 129,935 | 20,715 | 155,353 | 24,767 | |||||||||||||||
Long-term debts |
189,573 | 175,000 | 27,899 | 175,000 | 27,899 | |||||||||||||||
Total liabilities |
503,769 | 736,860 | 117,473 | 651,827 | 103,917 | |||||||||||||||
Total mezzanine equity |
3,941,846 | 3,941,846 | 628,423 | 3,941,846 | 628,423 | |||||||||||||||
Total shareholders deficit |
(3,730,759 | ) | (2,681,838 | ) | (427,548 | ) | (838,879 | ) | (133,737 | ) |
Our Key Operating Metrics
We regularly review a number of metrics to evaluate our business, measure our performance, identify trends, formulate financial projections and make strategic decisions.
As of / in the Three Months Ended | ||||||||||||||||||||||||||||||||||||
March 31 | June 30 | September 30 | December 31 | March 31 | June 30 | September 30 | December 31 | March 31 | ||||||||||||||||||||||||||||
2016 | 2017 | 2018 | ||||||||||||||||||||||||||||||||||
Number of registered dealers |
4,554 | 9,338 | 12,827 | 16,035 | 20,079 | 24,870 | 30,509 | 34,634 | 37,667 | |||||||||||||||||||||||||||
Number of financing transactions facilitated |
10,793 | 30,704 | 53,573 | 87,336 | 90,791 | 87,854 | 120,915 | 135,321 | 97,219 |
As of / in the Three Months Ended | ||||||||||||||||||||||||||||||||||||
March 31 | June 30 | September 30 | December 31 | March 31 | June 30 | September 30 | December 31 | March 31 | ||||||||||||||||||||||||||||
2016 | 2017 | 2018 | ||||||||||||||||||||||||||||||||||
RMB | ||||||||||||||||||||||||||||||||||||
(in millions) | ||||||||||||||||||||||||||||||||||||
Outstanding principal of financing transactions facilitated |
2,157 | 3,481 | 5,967 | 10,163 | 14,249 | 17,889 | 23,102 | 28,665 | 30,948 | |||||||||||||||||||||||||||
Amount of financing transactions facilitated |
613 | 1,692 | 3,024 | 5,004 | 5,372 | 5,350 | 7,551 | 8,309 | 5,758 |
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Any risks and uncertainties we face could have a material adverse effect on our business, prospects, results of operations or financial condition. We believe that the most significant of these risks and uncertainties are described in this section, although we may be adversely affected by other risks or uncertainties that are not presently known to us, that we have failed to appreciate, or that we currently consider immaterial. You should consider carefully all of the information in this prospectus, including the risks and uncertainties described below and our consolidated financial statements and related notes, before making an investment in our ADSs. The market price of our ADSs could decline significantly as a result of any of these risks and uncertainties, and you may lose all or part of your investment.
Risks Relating to Our Industry and Business
We have a limited operating history in an emerging and fast growing market. Our historical financial and operating performance may not be indicative of our future prospects and results of operations.
The automotive and mobility markets, including the automotive finance market, in the PRC are relatively new and at an early stage of development. While it has undergone significant growth in the past few years, there is no assurance that it can continue to grow as rapidly. As part of our business, we offer automotive financing facilitation, automotive transaction facilitation and after-market services facilitation to various participants in the automotive transaction value chain, including dealers, financial institutions, car buyers and other industry participants. Helping more industry participants to recognize the value of our services is critical to increasing the number and amount of financing transactions and automotive transactions we facilitate and to the success of our business.
We launched our business in 2010 and have a limited operating history. We may not have sufficient experience to address the risks to which companies operating in new or rapidly evolving markets may be exposed. We have limited experience in most aspects of our business operation, such as credit origination, data-driven credit assessment, delinquent asset management and the development of long-term relationships with platform participants, such as dealers, financial institutions and car buyers. The laws and regulations governing the automotive finance industry in the PRC are still at a nascent stage and subject to further changes and interpretation. As the market, the regulatory environment or other conditions evolve, our existing solutions and services may not continue to deliver the expected business results. As our business develops or in response to competition, we may continue to introduce new services, make adjustments to our existing services, our credit assessment model, our business model or our operations in general. For example, we may seek to expand the base of car buyers that we serve, which could result in higher overdue ratios of financing transactions we facilitate. Our abilities to retain dealers, financial institutions and other platform participants and to attract new platform participants are also critical to our business. Any significant change to our business model or failure to achieve the intended business results may have a material and adverse impact on our financial condition and results of operations. Therefore, it may be difficult to effectively assess our future prospects.
You should consider our business and prospects in light of the risks and challenges we encounter or may encounter given the rapidly-evolving market in which we operate and our limited operating history. These risks and challenges include our ability to, among other things:
| offer automotive financing solutions to a growing number of car buyers; |
| maintain and enhance our relationships and business collaboration with dealers, financial institutions and other platform participants; |
| charge competitive service fees to platform participants while driving the growth and profitability of our business; |
| maintain low overdue ratios of financing transactions we facilitate; |
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| comply with complex and evolving laws and regulations; |
| improve our operational efficiency; |
| attract, retain and motivate talented employees, particularly sales and marketing, risk management as well as research and development personnel to support our business growth; |
| enhance our technology infrastructure to support the growth of our business and maintain the security of our system and the confidentiality of the information provided and collected across our system; |
| navigate economic conditions and fluctuations; |
| implement our business strategies, including the offering of new services; and |
| defend ourselves against legal and regulatory actions, such as actions involving intellectual property or data privacy claims. |
We expect our revenues in the second quarter of 2018 to be lower and net income in such quarter to be significantly lower compared to the second quarter of 2017.
We experienced rapid growth in our revenues and net income, but such growth rates slowed down in the first quarter of 2018. Our revenues increased by 142.3% from RMB434.3 million in 2016 to RMB1,052.2 million (US$167.7 million) in 2017, and our net income increased by 161.5% from RMB133.5 million in 2016 to RMB349.1 million in 2017. In comparison, our revenues increased by 27.5% from RMB195.1 million in the three months ended March 31, 2017 to RMB248.8 million (US$39.7 million) in the same period in 2018, and our net income increased by 13.1% from RMB74.3 million in the three months ended March 31, 2017 to RMB84.0 million (US$13.4 million) in the same period in 2018. The slower growth rate was primarily due to a change in our dealer coverage model as well as conditions in the automotive market. The first half of 2018 is a transitional period for our dealer coverage model, as our sales team has started to cover a significant number of dealers that were previously covered by dealer financial managers. To implement this change in our dealer coverage model, we hired a large number of employees, and our sales team expanded from 1,691 as of December 31, 2017 to 2,182 as of March 31, 2018. It typically takes a few months for a new sales representative to achieve a sufficient level of efficiency through on-the-job training. The challenges of integrating the new employees into our sales team had an adverse effect on our results of operations. The quick expansion of the sales team and the increase in the average compensation for sales staff also contributed to the increase in our sales and marketing expenses, which negatively affects our net income. Our results of operations were also affected by changes in government policies and the automotive market. In 2017, a lower consumption tax rate was applicable to cars with engines that are 1.6-liter or smaller, and such tax break terminated at the end of 2017, which had an adverse effect on sales of such cars in the first half of 2018. In light of that, certain OEMs launched short-term marketing campaigns, offering financing solutions with more significant subsidies in the first half of 2018, which competed with the financing solutions facilitated by us.
The change in dealer coverage model, the termination of the lower consumption tax rate and the provision of more significant subsidies by certain OEMs continue to affect our results of operations in the second quarter of 2018. We expect our revenues in the second quarter of 2018 to be lower and our net income in such quarter to be significantly lower compared to the second quarter of 2017, primarily due to (i) lower revenues as a result of a decrease in the amount of financing transactions facilitated and (ii) higher sales and marketing expenses as a result of sales team expansion. While we believe our new employees will gradually integrate into the sales team to drive the amount of financing transactions facilitated, there is no assurance that the integration will be successful. Even if the integration is successful, a general downturn of the automotive transaction industry due to regulatory or economic factors or increased competition may continue to have a material adverse effect on our business and results of operations beyond the second quarter of 2018.
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We may not be able to effectively manage our growth, control our expenses or implement our business strategies, in which case we may be unable to maintain high quality services or compete effectively.
We experienced a period of rapid growth and expansion, which placed significant strain on our management and resources. There can be no assurance that our level of revenue growth and profitability will be sustainable or achieved at all in the future. Primarily due to a change in our dealer coverage model and conditions in the automotive transaction market, we experienced lower year-on-year revenue and net income growth in the first quarter of 2018 compared to full year 2017. In addition, we expect our net income in the second quarter of 2018 to be significantly lower compared to the second quarter of 2017. We believe that our growth and expansion will depend on our ability to develop new sources of revenue, attract new car buyers, collaborate with additional financial institutions, retain and expand our dealer network, maintain and grow our relationships with OEMs and capture growth opportunities in new geographies, implement our marketing strategies and compete against our existing and future competitors. There can be no assurance that we will achieve any of the above. Upon the completion of the Acquisition, Shanghai Autohome will become our wholly-owned consolidated subsidiary. Shanghai Autohomes cost structure differs from ours, and the Acquisition may negatively affect our profit margin. For example, Shanghai Autohome recognizes the cost of borrowing in its cost of revenues while our existing operations do not. In addition, Shanghai Autohome records financing receivables in relation to financing leases on its balance sheet. As such, Shanghai Autohome bears credit risk as to such financing leases.
To manage our growth and expansion, and to maintain profitability, we anticipate that we will need to implement a variety of new and upgraded operational and financial systems, procedures and controls, including improving our technology infrastructure as well as accounting and other internal management systems. We will also need to further expand, train, manage and motivate our workforce and manage our relationships with platform participants. All of these endeavors involve risks and will require substantial management efforts and skills and significant additional expenditures. Our further expansion may divert our management, operational or technological resources from our existing business operations. In addition, our expansion may require us to penetrate into new cities in China, where we may have difficulty in satisfying local market demands and regulatory requirements. We cannot assure you that we will be able to successfully maintain our growth rate or implement our future business strategies effectively, and failure to do so may materially and adversely affect our business, financial condition, results of operations and future prospects.
We may not be able to successfully expand or maintain or effectively manage relationships with our network of dealers.
As of March 31, 2018, we had a network of 37,667 registered dealers across China. Our extensive dealer network is a foundation of our platform, and we closely collaborate with our registered dealers in providing services to financial institutions and car buyers. We plan to expand our dealer network, including by further perpetrating our existing markets and expanding our geographic coverage. As China is a large and diverse market, business practices and demands may vary significantly by region and our experience in the markets in which we currently operate may not be applicable in other parts of China. As a result, we may not be able to leverage our experience to expand our dealer network into other parts of China. Furthermore, our efforts to expand into new geographical markets and attract new dealers to our platform may impose considerable burden on our sales, marketing and general managerial resources. If we are unable to manage our expansion efforts effectively, if our expansion efforts take longer than planned or if our costs for these efforts exceed our expectations, our results of operations may be materially and adversely affected.
Our relationships with our registered dealers are not exclusive, and there can be no assurance that they will maintain their level of participation on our platform. Dealers may find the amount of commissions offered by us or financial institutions to be unattractive. We also offer various solutions and services to dealers, including operating an automobile trading platform to facilitate car trading amongst dealers, facilitating dealers purchase of cars from automotive wholesalers, and sourcing car buyers online to facilitate purchases from our registered dealers. However, our registered dealers may not utilize these solutions and services or such solutions and
18
services may not bring the expected benefits to dealers. Dealer participation on our platform may also be affected by various factors that are beyond our control, including the decrease in popularity of the car models offered by our registered dealers. A decrease in the number of car buyers referred by our registered dealers or a reduced level of dealers utilization of our other solutions and services could materially and adversely affect our business, financial condition and results of operations.
We manage our dealer network through three models, namely self-operated sales model, dealer financial manager model and sales agent model. Under the self-operated sales model, our in-house sales team is responsible for explaining the terms of automotive financing solutions to prospective car buyers and assisting them to complete credit applications. Under the other two models, which collectively accounted for 36.3% of the number of registered dealers in our dealer network as of March 31, 2018, we rely on dealer financial managers, who are employees of dealers, and third-party sales agents for direct interaction with prospective car buyers. Each of such dealers and third-party sales agents may collaborate with multiple providers of automotive financing solutions, and they may promote automotive financing solutions offered by our competitors more actively than ours. Furthermore, dealer financial managers and sales agents may misrepresent or omit key terms of our automotive financing solutions or otherwise fail to meet the expected quality and service standards, which would harm our reputation. Our recourse against dealers and sales agents may be limited in the event their misconduct or negligence has caused us harm, and we may encounter significant difficulties in enforcing our contractual rights.
Since dealers and sales agents do not bear credit risk, they may refer prospective car buyers without regard to such individuals creditworthiness. For example, they may refer us prospective car buyers who have been turned down by other financing solutions providers, and such prospective car buyers may be of poor credit quality. Certain dealers and sales agents may even assist fraudulent car buyers in preparing credit applications. If we fail to detect prospective car buyers with poor credit quality or fraudulent car buyers who are referred by dealers and sales agents, we may experience higher overdue ratios and/or suffer damage in our relationships with financial institutions. To manage such risk, we monitor our registered dealers and sales agents on an ongoing basis, identify parties associated with higher levels of delinquency and terminate those which we believe present significant credit risk to us. However, such risk management policy may not be effective and may also contribute to significant turnovers among our registered dealers and sales agents. During the three months ended March 31, 2018, we ceased collaboration with 1,721 registered dealers. Significant turnovers may require us to devote considerable resources in identifying and screening new dealers and/or sales agents, which could have an adverse impact on our operational efficiency.
We implemented a change in our dealer coverage model in the first quarter of 2018, and our sales team has started to cover a significant number of dealers that were previously covered by dealer financial managers. In contrast to dealer financial managers, we are able to directly control and communicate with our sales team, which is expected to execute our sales strategy more effectively and deliver higher quality services to car buyers. However, there can be no assurance that such approach will deliver the expected outcome, and our business, results of operations and financial condition could be materially and adversely affected.
Our success depends on our ability to attract prospective car buyers.
In the three months ended March 31, 2017 and 2018, the amount of financing transactions we facilitated was RMB5.4 billion and RMB5.8 billion (US$0.9 billion), respectively. The growth of our automotive financing facilitation business depends on our ability to attract prospective car buyers. In order to expand our base of car buyers, we must continue to invest significant resources in the development of new solutions and services and build our relationships with financial institutions, dealers and other platform participants. Our ability to successfully launch, operate and expand our solutions and services and to improve user experience to attract prospective car buyers depends on many factors, including our ability to anticipate and effectively respond to changing interests and preferences of car buyers, anticipate and respond to changes in the competitive landscape, and develop and offer solutions and services that address the needs of car buyers on our platform. If our efforts in
19
these regards are unsuccessful, our base of car buyers, and the amount of financing and other transactions we facilitate to them, may not increase at the rate we anticipate, and it may even decrease. As a result, our business, prospects, financial condition and results of operations may be materially and adversely affected.
In addition, in order to attract prospective car buyers, we must also devote significant resources to enhancing the experience of car buyers on our platform on an ongoing basis. We must enhance the functionality and ensure the reliability of our platform. We must also continually enhance our speed for processing credit applications without compromising our risk management function. If we fail to provide superior customer service or address complaints of car buyers on our platform in a timely manner, we may fail to attract prospective car buyers as to our solutions and services, the number of financing transactions we facilitate may decline.
In the meantime, we also seek to maintain our relationships with existing car buyers and cross-sell new solutions and services, such as insurance and wealth management products. However, there can be no assurance that we will be able to maintain or deepen such relationships.
We rely on a limited number of financial institutions to fund the financing transactions we facilitate and any adverse change in our relationships with such financial institutions may materially and adversely impact our business and results of operations.
We rely on a limited number of financial institutions to fund financing transactions to car buyers. As of March 31, 2018, we were in collaboration with 11 third-party financial institutions. In the three months ended March 31, 2018, the amount of financing transactions we facilitated was RMB5.8 billion (US$0.9 billion), 99.7% of which was funded by third-party financial institutions. The availability of funding from financial institutions depends on many factors, some of which are out of our control. Financial institutions may find our services, such as credit origination, credit assessment or delinquent asset management, to be ineffective, or our service fees to be too expensive. In addition, regardless of our risk management efforts, financing transactions we facilitate may nevertheless be considered riskier and may have a higher overdue ratio than financing transactions funded to car buyers with more established credit histories by traditional financial institutions. We have relied on, and we may continue to rely on, two financial institutions, Jincheng Bank and WeBank, to arrange funding for a substantial portion of financing transactions we facilitate. In the three months ended March 31, 2018, 32.9% and 65.5% of the amount of financing transactions we facilitate was respectively funded (i) by Jincheng Bank and Jiangnan Rural Commercial Bank under the direct partnership model and (ii) under the co-partnership model, in which we partner with WeBank to facilitate financing transactions with funding provided by WeBank and other financial institutions. In the three months ended March 31, 2017 and 2018, revenues attributable to our collaboration with Jincheng Bank, including fees received from car buyers in the relevant transactions, was RMB185.9 million and RMB96.0 million (US$15.3 million), which represented 95.3% and 38.6% of our total revenues, respectively. Revenues attributable to our collaboration with WeBank, which started in the third quarter of 2017, was RMB138.0 million (US$22.0 million) in the three months ended March 31, 2018, which represented 55.5% of our total revenues in that period. For further information as to our arrangements with these financial institutions, see BusinessOur Relationships with Our Platform ParticipantsFinancial Institutions.
There can be no assurance that we will be able to rely on such funding arrangements in the future. For example, although we collaborated with nine financial institutions under the co-partnership model as of March 31, 2018, any such financial institution may decide to reduce the amount that it will fund for financing transactions we facilitate in the future or discontinue such funding altogether. We continue to identify and expand the number of financial institutions to collaborate with, but there can be no assurance that the number of financial institutions we collaborate with will become increasingly diversified in the future. Given our current dependence on a relatively small number of financial institutions, if any such financial institution determines not to collaborate with us or limits the funding that is available for financing transactions we facilitate, or if any such financial institution encounters liquidity issue in general, our business, financial condition and results of
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operations may be materially and adversely affected. In addition, many of our new business initiatives depend on our relationships with financial institutions. For example, we plan to broaden the offering of financing solutions that are subsidized by OEMs. Financial institutions may not fund such financing solutions in sufficient amounts, or at all, and our business, results of operations and financial condition would be materially and adversely affected.
Certain financial institutions we collaborate with have limited operating history in automotive financing. Furthermore, our ability to collaborate with financial institutions may become subject to new regulatory limitations, as the laws and regulations governing the automotive finance industry and the commercial banking industry in the PRC continue to evolve. We may from time to time experience constraints as to the availability of funds from financial institutions, especially as our business continues to grow and the need for funding increases. Such constraints may affect user experience, including by limiting our ability to facilitate financing transactions. Such limitations may also restrain the growth of our business. Any prolonged constraint as to the availability of funds from financial institutions may also harm our reputation or result in negative perception of the services we offer, thereby decreasing the willingness of prospective car buyers to seek automotive financing solutions facilitated by us or the willingness of dealers and other platform participants to collaborate with us.
We may fail to maintain and expand our strategic partnership with Didi Chuxing.
We are in the process of establishing a strategic partnership with Didi Chuxing, a leading ride-sharing technology company. Through a series of equity investments in the first half of 2018, Didi Chuxing has become a strategic shareholder of our company and beneficially owns 43,484,992 preferred shares, representing 14.8% of our outstanding shares as of the date of this prospectus. For further information, see Principal Shareholders. In May 2018, we launched a pilot program in a city in China to provide a variety of solutions to Didi Chuxings fleet, such as automotive financing, vehicle sourcing and insurance facilitation. We plan to form a comprehensive partnership with Didi Chuxing under this model and provide our solutions in additional cities to capitalize on Didi Chuxings large and rapidly expanding fleet.
There can be no assurance that we will successfully execute the plan. Drivers and other participants of Didi Chuxings platform may not recognize the value of our services or decide to utilize the services provided by our competitors. Furthermore, Didi Chuxing may terminate, or reduce the scale of, our cooperation or otherwise limit our ability to offer services to participants of its platform. If we fail to maintain and expand our strategic partnership with Didi Chuxing, our business, results of operations and financial condition would be materially and adversely affected.
Pursuant to the shareholders agreement, we may not set up any joint venture, partnership or enter into any strategic cooperation arrangements with certain competitors of Didi Chuxing, for so long as Didi Chuxings shareholding percentage in our company is not lower than five percent. Such restrictions may adversely affect our business, results of operations and financial condition.
We may fail to maintain relationships with online automotive advertising platforms and to effectively manage such relationships.
We collaborate with leading online automotive advertising platforms to tap into the large user base of these platforms. Users who are interested in our automotive financing solutions are directed to our call center. Our call center staff further explains our solutions to the user and assists the user in finding a suitable car in our dealer network. We view online automotive advertising platforms as alternative channels to engage car buyers. Such platforms may enter into exclusive business collaboration with our competitors, or they may offer automotive financing solutions of their own and compete with our business. If we were unable to source car buyers through these online channels or effectively engage such car buyers, the value that our platform is able to bring to other participants such as dealers and financial institutions may be materially and adversely affected, and our business, financial condition and results of operations may become negatively impacted as a result.
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OEMs may not continue to participate on our platform.
Some of the financing transactions we facilitate are part of OEM-sponsored subsidy programs. We enable collaboration between OEMs and financial institutions to design low-interest financing solutions for car buyers. In addition, as part of our automotive transaction facilitation services, we plan to purchase cars from OEMs to facilitate the sale of such cars to our registered dealers. We believe our collaboration with OEMs makes our platform even more attractive to car buyers and dealers, thereby enhancing the network effect. However, there can be no assurance that we will be able to build and grow our relationships with OEMs. OEMs may perceive us as a competitor of their affiliated automotive finance companies or prefer to collaborate with other automotive transaction service platforms. As a result, OEMs may reduce the amount of subsidies for low-interest financing solutions offered on our platform or even terminate such subsidies. We plan to broaden the offering of subsidized financing solutions through collaboration with foreign and sino-foreign joint venture OEMs as well as national banks. As the financing solutions will be marketed to prospective car buyers with stronger credit profiles, we expect to seize new market opportunities while improving our credit performance through such strategy. However, there can be no assurance that we will be able to successfully implement the strategy, and our business, results of operations and financial condition could be materially and adversely affected. OEMs may also decide not to sell any cars on acceptable terms or at all or limit the number or types of cars that are sold to us. Our failure to build and grow our relationships with OEMs could materially and adversely affect our business, financial condition and results of operations.
We operate in a market where the credit infrastructure is still at an early stage of development. Information that we receive from third parties concerning a prospective car buyer may be outdated, incomplete or inaccurate, which may compromise the accuracy of our credit assessment.
Chinas credit infrastructure is still at an early stage of development. The Credit Reference Center established by the Peoples Bank of China, or the PBOC, in 2002 has been the only credit reporting system in China. This centrally managed nationwide credit database operated by the Credit Reference Center only records limited credit information, such as tax payments, civil lawsuits, foreclosures and bankruptcies. Moreover, this credit database is only accessible to banks and a limited number of market players authorized by the Credit Reference Center and does not support sophisticated credit scoring and assessment. In 2015, the PBOC announced that it would open the credit reporting market to private sectors with a view to spurring competition and innovation, but it may be a long-term process to establish a widely-applicable, reliable and sophisticated credit infrastructure in the market we operate.
For the purpose of credit assessment, we obtain credit information from prospective car buyers, and with their authorization, obtain credit data from external parties to assess applicants creditworthiness. We may not be able to source credit data from such external parties at a reasonable cost or at all. Such credit data may have limitations in measuring prospective car buyers creditworthiness. If there is an adverse change in the economic condition, credit data provided by external parties may no longer be a reliable reference to assess an applicants creditworthiness, which may compromise our risk management capabilities. As a result, our assessment of a car buyers credit profile may not reflect that particular car buyers actual creditworthiness because assessment may be based on outdated, incomplete or inaccurate information. There is also a risk that following our obtaining a car buyers information, the car buyer may have:
| become delinquent in the payment of an outstanding obligation; |
| defaulted on a pre-existing debt obligation; |
| taken on additional debt, including pledging the car as collateral for such debt; or |
| sustained other adverse financial events. |
Such outdated, incomplete or inaccurate information could compromise the accuracy of our credit assessment model and adversely affect the effectiveness of our control over our overdue ratios, in which case our results of operations will be harmed.
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We rely on our credit assessment model and credit assessment team in evaluating credit applications. Our current risk management system may not be able to exhaustively assess or mitigate all risks to which we are exposed.
Credit applications by our car buyers are evaluated based on credit assessment conducted by our credit assessment model, and our credit assessment team conduct a manual evaluation when necessary. Based on our credit assessment model, we automatically approved 23.3% of applications, and we automatically rejected approximately 7.3% of applications during the three months ended March 31, 2018. Our credit assessment team, which was comprised of more than 50 experienced reviewers as of March 31, 2018 and led by a supervisor with over 15 years of experience in automotive finance, manually evaluates the rest of the applications. If our credit assessment model or our credit assessment team fail to perform effectively, our business and results of operations may be materially and adversely affected.
Our credit assessment model builds on machine learning algorithms including logistic regression and gradient boost decision tree. While we rely on machine learning algorithms to refine our model and system, there can be no assurance that our application of such algorithms will continue to deliver the expected benefits. In addition, as we have a limited operating history, we may not have accumulated sufficient credit data to optimize our model and system. Even if we have sufficient credit data and our credit assessment model has been tailored for prospective car buyers on our platform for our current operation, such data and credit assessment model might not be effective as we continue to increase the amount of financing transactions we facilitate, expand the car buyer base and broaden our engagement efforts with car buyers generally through different channels in the future. If our system contains programming or other errors, if our model is ineffective or if the credit data we obtained is incorrect or outdated, our credit assessment abilities could be negatively affected, resulting in incorrect approvals or denials of credit applications.
We rely on our credit assessment team to evaluate a substantial portion of credit applications submitted by prospective car buyers. Our reviewers frequently exercise judgments based on their experience and knowledge, and such judgments are subject to errors. In addition, if we fail to retain experienced reviewers or effectively train new reviewers, we may be unable to either offer financing solutions to creditworthy car buyers or maintain low overdue ratios of financing transactions we facilitate. To improve our operational efficiency, we plan to enhance the level of automation in the credit assessment process. However, such change in the credit assessment process could lead to an increase in overdue ratios, which would materially and adversely impact our business and results of operations.
If we are unable to maintain low overdue ratios for financing transactions we facilitate, our business and results of operations may be materially and adversely affected. Historical overdue ratios for financing transactions we facilitated may not be indicative of future results.
We may not be able to maintain low overdue ratios for financing transactions we facilitate, and such overdue ratios may be significantly affected by economic downturns or general economic conditions beyond our control and beyond the control of individual car buyers. M3+ overdue ratio for all financing transactions which we facilitated and remained outstanding decreased from 2.31% as of March 31, 2016 to 0.28% as of March 31, 2017 and 0.46% as of March 31, 2018. However, we cannot assure you that we will be able to maintain low overdue ratios in the future or that the overdue ratio as of March 31, 2018 is indicative of our future credit performance. Overdue ratios for financing transactions we facilitated may deteriorate over time or as our business volume expands. The way how car buyers delinquencies affects our results of operations depends on the funding arrangement for the relevant financing transactions.
We are not obligated to bear credit risk for financing transactions funded by Jincheng Bank or Jiangnan Rural Commercial Bank under the direct partnership model. However, an increased level of credit losses suffered by such financial institutions with respect to financing transactions we facilitate would harm our business relationship with them. As of March 31, 2018, the total outstanding balance of financing transactions funded by
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Jincheng Bank and Jiangnan Rural Commercial Bank under this arrangement was RMB20.2 billion (US$3.2 billion), representing 65.2% of the total outstanding balance of financing transactions we facilitated.
Under our arrangements with certain financial institutions, we are obligated to purchase the relevant financing receivables upon certain specified events of default by car buyers. As of March 31, 2018, the total outstanding balance of financing transactions funded by financial institutions under such arrangements was RMB10.1 billion (US$1.6 billion), representing 32.6% of the total outstanding balance of financing transactions we facilitated. At the inception of each financing transaction facilitated under such arrangements, we recognize risk assurance liabilities at fair value. We recognize additional risk assurance liabilities when the car buyers default is probable. Accordingly, an increase in overdue ratios of financing transactions for which we are obligated to bear credit risk could have a material adverse impact on our results of operations. Our risk assurance liabilities were RMB155.4 million (US$24.8 million) as of March 31, 2018, and the amount of performed risk assurance liabilities was RMB24.6 million (US$3.9 million) in the three months ended March 31, 2018. Furthermore, our fair value estimation of risk assurance liabilities requires a significant degree of judgment and may not fully reflect the credit quality of the relevant financing transactions. We will incur net loss on risk assurance liabilities to the extent the credit quality of such financing transactions is worse than our estimate at inception.
As a result of the Acquisition, we will record financing lease receivables in relation to financing leases funded by Shanghai Autohome on our consolidated balance sheet. As such, we will bear credit risk as to such financing leases, and any increase in overdue ratios could materially and adversely affect our business, results of operations and financial condition.
Collection and repossession efforts by our in-house team and third-party service providers may become less effective and may also subject us to regulatory risks and reputational risks.
We utilize our in-house team to collect repayment and third-party repossession agents to repossess car collaterals. The effectiveness of our collection and repossession efforts is critical to our business. We are not obligated to bear credit risk for financing transactions funded by Jincheng Bank or Jiangnan Rural Commercial Bank under the direct partnership model. However, failures in our collection and repossession efforts would harm our business relationship with such financial institutions. Under our arrangements with certain financial institutions, we are obligated to purchase the relevant financing receivables upon certain specified events of default by car buyers. As a result of the Acquisition, we will record financing receivables in relation to financing leases funded by Shanghai Autohome on our balance sheet. As such, we will bear credit risk as to such financing leases. Our failure to collect overdue repayments for the financing transactions we facilitate or repossess the related car collaterals will have a material adverse effect on our business operations and financial position. As the amount of financing transactions we facilitate increases in the future, we may devote additional resources into our collection and repossession efforts. However, we cannot assure you that our collection and repossession efforts will be successful and that we would be able to utilize such additional resources in a cost-efficient manner.
As an aid to our repossession efforts, we install a telematics device in every car purchased through our platform. However, there can be no assurance of the effectiveness of such measure. For example, we might be unable to locate cars parked in underground garages or remote areas due to poor telematics signal reception. Even if we were able to locate a car, the car buyer may resort to physical force to resist repossession or steal the repossessed car from our warehouse. From the beginning of 2016 to March 31, 2018, the success rate for our repossession agents to repossess cars with telematics devices was 69.7%. Furthermore, the telematics devices may be removed intentionally by car buyers or dealers or unintentionally during repairs, and we would need to rely on other information relating to the car buyer, including the address specified in the credit application, to locate such cars. From the beginning of 2016 to March 31, 2018, the success rate for our repossession agents to repossess cars without telematics devices was 25.9%.
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We endeavor to ensure our collection and repossession efforts comply with the relevant laws and regulations in the PRC and we have established strict policies and implemented measures to ensure that our collections personnel and third-party repossession agents do not engage in aggressive or predatory practices. We cannot assure you that such teams will not engage in any misconduct while performing their tasks. In particular, we have no direct control over the employees of third-party repossession agents. Any misconduct by our collection personnel and third-party repossession agents or the perception that our collection and repossession practices are considered to be aggressive, predatory or not compliant with the relevant laws and regulations in the PRC may result in harm to our reputation and business, which could further undermine our ability to collect repayments or repossess cars from car buyers in default, lead to a decrease in the willingness of prospective car buyers to apply for and utilize financing transactions we facilitate, or result in fines and penalties being imposed by the relevant regulatory authorities, any of which may have a material adverse effect on our results of operations.
The service fees for our automotive financing facilitation services may decline in the future, and any material decrease in such service fees could harm our business, financial condition and results of operations.
We generate substantially all of our revenue from automotive financing facilitation services. Any material decrease in our service fees from automotive financing facilitation services would have a substantial impact on our revenue and profit margin. The service fees we charge financial institutions could be affected by a variety of factors, including the competitive landscape of the automotive finance industry and regulatory requirements. Our service fees from financial institutions may also be affected by a change over time in the mix of the types of services we offer. Our competitors may also offer more attractive service fees, which may require us to reduce our service fees to compete effectively.
In addition, our financing facilitation service fees are sensitive to many macroeconomic factors beyond our control, such as inflation, recession, the state of the credit markets, changes in market interest rates, global economic disruptions, unemployment and fiscal and monetary policies. In the event that the amount of service fees we charge financial institution decrease significantly in the future and we are not able to adopt any cost control initiatives, our business, financial condition and results of operations will be harmed.
The laws and regulations governing the automotive and mobility industries in the PRC are subject to further changes and interpretation. If our business practices or the business practices of third parties that we collaborate with are deemed to violate any PRC laws or regulations, our business, financial condition, results of operations and prospects would be materially and adversely affected.
Our business may be subject to a variety of laws and regulations in the PRC governing the automotive and mobility industries, including the automotive finance industry. The application and interpretation as to certain of these laws and regulations are currently ambiguous, and may be interpreted and administered inconsistently between the different government authorities and local bureaus. The PRC government may also implement measures to control credit supply, which would affect the automotive finance industry.
As of March 31, 2018, we have not been subject to any material fines or other penalties under any PRC laws or regulations as to our business operations. However, if the PRC government tightens regulatory framework for the automotive and mobility industries in the future, and subject industry participants such as our company to new or specific requirements (including without limitation, capital requirements and licensing requirements), our business, financial condition and prospects would be materially and adversely affected. Compliance with existing and future rules, laws and regulations can be costly and if our practice is deemed to violate any existing or future rules, laws and regulations, we may face injunctions, including orders to cease non-compliant activities, and may be exposed to other penalties as determined by the relevant government authorities as well.
In September 2016, a local branch of administration for industry and commerce, or the AIC, in Changsha of Hunan province imposed an administrative penalty to our subsidiary in Hunan and held that the commissions paid by us to local dealers in connection with automotive financing facilitation constituted commercial bribes in
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violation of Anti-Unfair Competition Law of the Peoples Republic of China, which was promulgated by the National Peoples Congress in September 1993, and amended in November 2017 after the local AICs penalty decision, or the Anti-Unfair Competition Law, and the Interim Provisions on Banning Commercial Bribery which was promulgated by the State Administration for Industry and Commerce in November 1996, or the Anti-Bribery Provisions. We surrendered RMB58,499.23 (US$9,326.15) of alleged illegal income and paid a fine of RMB100,000.00 (US$15,942.35) pursuant to the local AICs decision. It is common practice in the PRC to pay dealers commissions for their services in connection with automotive financing facilitations and we have not received any similar penalty decisions from national or other local AICs where we have operations. Pursuant to the Anti-Unfair Competition Law, it is permitted to pay commissions to a middleman explicitly if the parties properly reflect such commissions in their financial records. To strengthen our compliance under the anti-bribery and fair competition laws, we have entered into written contracts with most local dealers to which we pay commissions in Hunan province and other regions in the PRC to document the terms of the dealers services and the amount of commissions payable by us for such services, which have been reflected in our financial and tax accounts. However, there are substantial uncertainties regarding the implementation and interpretation of PRC laws and regulations in this regard, which are at the local governmental agencies significant discretion; further, the Anti-Bribery Provisions and the Anti-Unfair Competition Law may be interpreted and administered inconsistently between different local AICs and such interpretations may change over time. See Risks Relating to Doing Business In ChinaThere are uncertainties regarding the interpretation and enforcement of PRC laws, rules and regulations. There can be no assurance that we will not be subject to similar penalty due to allegations of violating relevant commercial bribery or unfair competition laws in the future by the local AIC in Changsha or other regions where we have operations or that we will be able to defend ourselves against such allegations. If we become subject to additional penalties for commissions paid to dealers, we may have to change our business model or cease part of our business, which could materially and adversely affect our business, results of operations or financial condition.
The Office of the Leading Group for Specific Rectification against Online Finance Risks and the Office of the Leading Group for Specific Rectification against P2P Online Lending Risks jointly issued the Circular on Regulating and Rectifying Cash Loan Business on December 1, 2017, or Circular 141. Among other things, Circular 141 provides restrictions on banks collaboration with third parties in cash loan business. Pursuant to Circular 141, a bank may not outsource its core business functions, such as credit assessment and risk management, to third parties. Circular 141 also prohibits a bank participating in loan facilitation transactions from accepting credit enhancement services from a third party which has not obtained any license or approval to provide guarantees, including credit enhancement service in the form of a commitment to assume default risks. In addition, a bank may not permit its service provider in cash loan business to collect interest or fees from borrowers. As Circular 141 is relatively new, it remains uncertain how the regulatory authorities will interpret and enforce the requirements. The opening paragraph of Circular 141 states, in relevant parts, that while the growth of cash loan business has helped certain groups in society satisfy their needs for normal consumption credit to a certain extent, it has created several significant problems including, among other things, over-borrowing, repetitive credit approvals, improper collection practice, excessively high interest rates and intrusions on personal privacy, posing relatively large financial risk and societal risk. While this statement suggests that the regulatory authorities are primarily concerned about abuses in the cash loan industry, it is uncertain whether any requirements in Circular 141 may be applicable to the automotive finance industry. In connection with our automotive financing facilitation business, we provide credit assessment service to financial institutions to assist them in making ultimate credit decisions. Under our arrangements with certain financial institutions, we are obligated to purchase the relevant financing receivables upon certain specified events of default by car buyers. In addition, we charge car buyers fees for value-added services associated with purchasing a car with financing. If the relevant regulatory authorities determine that Circular 141 is applicable to the automotive finance industry, and our business is deemed to be in violation of Circular 141, we could be subject to penalties and/or be required to significantly change our business model.
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We may be deemed to operate financing guarantee business by the PRC regulatory authorities.
The State Council promulgated the Regulations on the Administration of Financing Guarantee Companies, or the Financing Guarantee Rules, on August 2, 2017 which became effective on October 1, 2017. Pursuant to the Financing Guarantee Rules, financing guarantee refers to the activities in which guarantors provide guarantee to the guaranteed parties as to loans, bonds or other types of debt financing, and financing guarantee companies refer to companies legally established and operating financing guarantee business. According to the Financing Guarantee Rules, the establishment of financing guarantee companies shall be subject to the approval by the competent government authority, and unless otherwise stipulated, no entity may operate financing guarantee business without such approval. If any entity violates these regulations and operates financing guarantee business without approval, the entity may be subject to penalties including ban or suspension of business, fines of RMB500,000 to RMB1,000,000, confiscation of illegal gains if any, and if the violation constitutes a criminal offense, criminal liability shall be imposed in accordance with the law.
We have entered into cooperation arrangement with WeBank under the co-partnership model. See BusinessOur Relationships with Our Platform ParticipantsFinancial InstitutionsCo-partnership Model. For financing transactions funded under the co-partnership model, we are obligated to purchase the relevant financing receivables upon certain specified events of default by car buyers. As of March 31, 2018, such financing transactions represented 30.8% of the total outstanding balance of financing transactions we facilitated. We are also obligated to bear credit risk with respect to an insignificant amount of financing leases funded under the direct partnership model. For the three months ended March 31, 2018, such financing leases represented 0.4% of the total amount of financing transactions we facilitated. On April 2, 2018, China Banking and Insurance Regulatory Commission, together with several other governmental authorities, jointly adopted (i) the Administrative Measures for the Financing Guarantee Business Permit, (ii) Measures for Measuring the Outstanding Amount of Financing Guarantee Liabilities, (iii) Administrative Measures for the Asset Percentages of Financing Guarantee Companies and (iv) Guidelines on Business Cooperation between Banking Financial Institutions and Financing Guarantee Companies, or the Four Supporting Measures of the Financing Guarantee Rules, which further stipulates that financing guarantee business under the Four Supporting Measures of the Financing Guarantee Rules, among other things, includes guarantee business related to loans, which refers to the activities whereby a guarantor provides guarantee for loans, online lending, financial leasing, commercial factoring, bill acceptance, letters of credit or other forms of debt financing.
Due to the lack of further interpretations and the fact that the Four Supporting Measures of the Financing Guarantee Rules were newly adopted, the exact scope and application of operating financing guarantee business under such regulations are still unclear. It is uncertain whether we would be deemed to operate financing guarantee business because of our current arrangements with certain financial institutions. Furthermore, pursuant to Circular 141, a bank participating in loan facilitation transactions may not accept credit enhancement service from a third party which has not obtained any license or approval to provide guarantees, including credit enhancement service in the form of a commitment to assume default risks. If the relevant regulatory authorities determine that such prohibition is applicable to the financing transactions we facilitate, we may be required to either cease bearing credit risk as part of our arrangements with the financial institutions as described above or obtain approval or license for financing guarantee business. If we were unable to satisfy either requirement, we may no longer be able to collaborate with the relevant financial institutions, or become subject to penalties, and our business, financial condition, results of operations and prospects could be materially and adversely affected.
Our business of facilitating financing transactions between financial institutions and car buyers may constitute provision of intermediary service, and our agreements with these financial institutions may be deemed as intermediation contracts under the PRC Contract Law.
Our business of facilitating financing transactions by connecting financial institutions and individual car buyers may constitute an intermediary service, and such services may be deemed as intermediation contracts
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under the PRC Contract Law. Under the PRC Contract Law, an intermediary may not claim for service fee and is liable for damages if it conceals any material fact intentionally or provides false information in connection with the conclusion of an intermediation contract, which results in harm to the clients interests. See RegulationRegulations Related to Intermediation. Therefore, if we fail to provide material information to financial institutions, or if we fail to identify false information received from car buyers or others and in turn provide such information to financial institutions, and in either case if we are also found to be at fault, due to failure or deemed failure to exercise proper care, such as to conduct adequate information verification or employee supervision, we could be held liable for damage caused to financial institutions as an intermediary pursuant to the PRC Contract Law. In addition, if we fail to complete our obligations under the agreements entered into with financial institutions, we could also be held liable for damages caused to financial institutions pursuant to the PRC Contract Law.
We may not be able to enforce our rights against car buyers.
We offer car buyers various value-added services associated with purchasing a car with financing. Such services mainly involve registrations of license plates and collaterals with the relevant government authorities. We charge certain car buyers fees for such services, but we do not enter into written contracts with such car buyers. In the event a legal dispute arises between a car buyer and us, we may not be able to enforce our rights against the relevant car buyer. Our failure to enforce our rights may materially and adversely affect our business, results of operation and financial condition.
The scale of Shanghai Autohomes business may be limited by its total net assets.
In September 2013, the Ministry of Commerce, or the MOFCOM, promulgated the Measures for Supervision and Administration of Financing Lease Enterprises, pursuant to which the risk assets of a financing lease enterprise may not exceed ten times of its total net assets. According to the Measures for the Administration of Foreign Funded Lease Industry, promulgated by the MOFCOM in 2005 and amended by the MOFCOM in 2015, the term risk assets refers to a companys total assets, net of cash, bank deposits, Chinese treasury bonds and lease assets held in custody. In April, 2018, the MOFCOM transferred the duties to make rules on the operation and supervision of financing lease companies to the newly formed China Banking and Insurance Regulatory Commission. Shanghai Autohome funds financing leases for car buyers on our platform, and its risk assets consist of financing lease receivables relating to the financing leases it funds.
We currently own 50% equity interest in Shanghai Autohome. Upon the completion of the Acquisition, Shanghai Autohome will become our wholly-owned consolidated subsidiary. We plan to expand the amount of financing leases provided by Shanghai Autohome, which would increase the amount of financing lease receivables of Shanghai Autohome. When the amount of financing lease receivables exceeds ten times of Shanghai Autohomes total net assets, we may be required to increase the total net assets of Shanghai Autohome by means of, among others, increasing the paid-up capital contribution. However, we cannot assure you that we will be able to make such capital contribution timely, or at all. Our inability to make such capital contribution on a timely basis could have an adverse impact on our business.
We face intense competition and we may not be able to compete effectively.
The automotive transaction industry in China is large yet competitive. We compete against automotive transaction platforms that connect various players across the automotive transaction value chain, to facilitate automotive and automotive-related transactions, including automotive financing. Our competitors may offer automotive financing solutions with lower cost and/or deliver better user experience to prospective car buyers. OEM-sponsored subsidy programs may also compete with our automotive financing solutions, reduce our market share and adversely affect our results of operations. We may also in the future face competition from new entrants that will increase the level of competition. We anticipate that more established companies, including technology companies that possess large, existing user bases, substantial financial resources and sophisticated
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technological capabilities may also enter the market in the future. Our competitors may operate different business models, have different cost structures or participate selectively in different industry segments. They may ultimately prove to be more successful or more adaptable to customer demand and new regulatory, technological and other developments. Some of our current and potential competitors may have significantly more financial, technical, marketing and other resources than we do and may be able to devote greater resources to the development, promotion, sales and support of their platform, product and solution and service offerings. Our competitors may also have longer operating history, greater brand recognition and brand loyalty and broader or closer relationships with dealers, financial institutions, OEMs or other automotive transaction industry participants than us. Additionally, a current or potential competitor may acquire, or form a strategic alliance with, one or more of our other competitors. Our competitors may be better at developing new products and solutions and services, offering more attractive fees, responding more quickly to new technologies and undertaking more extensive and effective marketing campaigns. More players may enter the automotive transaction or automotive finance industry and intensify the market competition. In response to competition and in order to grow or maintain the amount of financing transactions facilitated to car buyers, we may have to lower and/or adjust the various fees that we charge or pay to the different platform participants, which could materially and adversely affect our business, profit margins and results of operations. If we are unable to compete with such companies and meet the need for innovation in our industry, the demand for our services could stagnate or substantially decline, which could harm our business and results of operations.
If our new solutions and services do not achieve sufficient market acceptance or provide the expected benefits to platform participants, our financial condition, results of operations and competitive position will be materially and adversely affected. New solutions and services may also subject us to regulatory risks.
We have incurred and will continue to incur expenses and consume resources to develop and market new solutions and services for platform participants, including dealers, financial institutions and car buyers. For example, we recently started to offer automotive insurances on our platform, facilitate inventory and supply chain financing for dealers and provide SaaS solutions for dealers. We may also develop new solutions and services for other industry participants, such as OEMs and insurance brokers and companies. New solutions and services must achieve high levels of market acceptance in order for us to recoup our investment in developing, acquiring and bringing them to market.
Our existing or new solutions and services and changes to our platform could fail to attain sufficient market acceptance for many reasons, including but not limited to:
| our failure to predict market demand accurately and supply solutions and services that meet this demand in a timely fashion; |
| platform participants may not like, find useful or agree with any changes we make; |
| our failure to properly price new solutions and services; |
| negative publicity about our solutions and services or our platforms performance or effectiveness; |
| failure to seamlessly integrate our technology system with those of existing or new financial institutions we collaborate with; |
| failure to evaluate credit applications efficiently; |
| views taken by regulatory authorities that the new solutions and services or platform changes do not comply with PRC laws, rules or regulations applicable to us; and |
| the introduction or anticipated introduction of competing solutions and services by our competitors. |
If our new solutions and services do not achieve adequate acceptance in the market or provide the expected benefits to platform participants, our competitive position, financial condition and results of operations could be harmed. In addition, we may incur higher cost and expenses as a result of new solutions and services. New
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solutions and services may also subject us to additional regulatory or licensing requirements. Failure by us to comply with any such new regulatory or licensing requirements could materially and adversely affect our business and results of operations.
We may need additional capital to pursue business objectives and respond to business opportunities, challenges or unforeseen circumstances, and financing may not be available on terms acceptable to us, or at all.
Since inception, we have issued equity securities and borrowed from financial institutions to support the growth of our business. As we intend to continue to make investments to support the growth of our business, we may require additional capital to pursue our business objectives and respond to business opportunities, challenges or unforeseen circumstances, including developing new solutions and services, increasing the amount of financing transactions we facilitate, further enhance our risk management capabilities, increasing our sales and marketing expenditures to improve brand awareness and engage car buyers through expanded online channels, enhancing our operating infrastructure and acquiring complementary businesses and technologies. We plan to expand the amount of financing leases provided by Shanghai Autohome, and we may need to make additional capital contribution as a result. Furthermore, we may increase the number of cars that we purchase from automotive wholesalers or OEMs to enable our registered dealers to access additional car sourcing channels. Accordingly, we may need to engage in equity or debt financings to secure additional funds. However, additional funds may not be available when we need them, on terms that are acceptable to us, or at all. Repayment of the debts may divert a substantial portion of cash flow to repay principal and service interest on such debt, which would reduce the funds available for expenses, capital expenditures, acquisitions and other general corporate purposes; and we may suffer default and foreclosure on our assets if our operating cash flow is insufficient to service debt obligations, which could in turn result in acceleration of obligations to repay the indebtedness and limit our sources of financing.
Volatility in the credit markets may also have an adverse effect on our ability to obtain debt financing. If we raise additional funds through further issuances of equity or convertible debt securities, our existing shareholders could suffer significant dilution, and any new equity securities we issue could have rights, preferences and privileges superior to those of holders of our Class A ordinary shares. If we are unable to obtain adequate financing or financing on terms satisfactory to us when we require it, our ability to continue to pursue our business objectives and to respond to business opportunities, challenges or unforeseen circumstances could be significantly limited, and our business, financial condition, results of operations and prospects could be adversely affected.
Our failure to adequately recover value of car collaterals may materially and adversely affect our results of operations.
All financing transactions we facilitate are secured by car collaterals. Change in the residual value of car collaterals securing these financing transactions may affect their recoverability. How such change affects our results of operations depends on the funding arrangement for the relevant financing transaction. We are not obligated to bear credit risk for financing transactions funded by Jincheng Bank or Jiangnan Rural Commercial Bank under the direct partnership model. Nonetheless, we charge such financial institutions fees for disposals of repossessed cars, and such fees are based on a percentage of the proceeds from disposals. As such, a decrease in residual value of car collaterals results in a decrease in the fee we charge for disposals. Under our arrangements with certain financial institutions, we are obligated to purchase the relevant financing receivables upon certain specified events of default by car buyers. After purchasing such financing receivables, security interest in the collateral is also transferred to us. We incur losses as residual value of car collaterals declines below the amount we expected to recover. In addition, our equity investee Shanghai Autohome funds financing leases with its own capital, in which case security interest in the relevant collaterals belongs to Shanghai Autohome.
Residual value of car collaterals are often affected by factors beyond our control. After purchase by a car buyer, a car may suffer damage from traffic accidents. In addition, the introduction of new car models and
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overall trend of gradual decrease in used car prices with the age of cars may cause the residual value of cars to decrease. Restrictions on inter-city or inter-province transfer of used cars imposed by various local government authorities in China may also result in lower residual value of cars that likely will be transferred to such cities with local transfer restrictions. Although the central PRC government has recently issued several official opinions or circulars to prohibit such local restrictions and market segregation, aiming to stimulate inter-city or inter-province used car trading by deregulation, certain transfer restrictions are still officially allowed. Residual value may also be adversely affected due to inappropriate handling of the third parties we collaborate with, including repossession agents and warehouses. Our pricing models may not be able to capture all factors that may affect the residual value of car collaterals. Significant decrease in residual value of car collaterals may lower the recoverability of financing transactions and undermine the cost efficiency of our repossession efforts, which may materially and adversely affect our results of operations. Furthermore, there can be no assurance that we will be able to dispose car collaterals at residual values, or at all.
Our failure to facilitate the sale of cars that we purchased to dealers may have a material and adverse effect on our business, financial condition and results of operations.
In late 2017, we started to purchase cars from automotive wholesalers to facilitate the sale of such cars to our registered dealers. We primarily purchase car models that are reliable, affordable and based on our insights as to car buyers, feedback from registered dealers and market analysis as to perception and demand for such models, will appeal to car buyers in lower-tier cities. We price cars based on our massive amount of automotive transaction data associated with providing automotive financing solutions as well as data from facilitating other automotive transactions such as automobile trading between dealers to efficiently facilitate their sale. We have limited experience in the purchase of cars for sale to dealers, and there is no assurance that we will be able to do so effectively. Demand for the type of cars that we purchase can change significantly between the time the cars are purchased and the date of sale. Demand may be affected by new car launches, changes in the pricing of such cars, defects, changes in consumer preference and other factors, and dealers may not purchase them in the quantities that we expect. We may also need to adopt more aggressive pricing strategies for these cars than originally anticipated. We face inventory risk in connection with the car purchased, including the risk of inventory obsolescence, a decline in values, and significant inventory write-downs or write-offs. If we were to adopt more aggressive pricing strategies, our profit margin may be negatively affected as well. We may also face increasing costs associated with the storage of these cars. Any of the above may materially and adversely affect our financial condition and results of operations.
Any harm to our brand or reputation or any damage to the reputation of financial institutions we collaborate with or other third parties or the automotive finance industry or failure to enhance our brand recognition could have a material adverse effect on our results of operations and growth prospects.
Enhancing the recognition and reputation of our brand is critical to our business and competitiveness. Factors that are vital to this objective include but are not limited to our ability to:
| maintain the quality and reliability of our platform; |
| maintain and develop relationships with dealers and financial institutions; |
| maintain and develop relationships with OEMs; |
| provide prospective car buyers and existing car buyers with superior experiences; |
| enhance and improve our credit assessment of car buyers; |
| effectively manage and resolve any complaints of dealers, financial institutions or car buyers; and |
| effectively protect personal information and privacy of car buyers and any sensitive data received from financial institutions. |
Any malicious or inadvertent negative allegations made by the media or other parties about the foregoing or other aspects of our company, including but not limited to our management, business, compliance with law,
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financial condition or prospects, whether with merit or not, could severely hurt our reputation and harm our business and results of operations.
As the automotive finance market in China is under rapid development and the regulatory framework for this market is also evolving, negative publicity about this industry may arise from time to time. Negative publicity about Chinas automotive finance industry in general may also have a negative impact on our reputation, regardless of whether we have engaged in any inappropriate activities. Furthermore, any negative development in the automotive finance industry, such as bankruptcies or failures of platforms providing automotive financing solutions, and especially a large number of such bankruptcies or failures, or negative perception of the industry as a whole, such as any failure of platforms providing automotive financing solutions to detect or prevent money laundering or other illegal activities, even if factually incorrect or based on isolated incidents, could compromise our image, undermine the trust and credibility we have established and impose a negative impact on our ability to attract new dealers, financial institutions, car buyers and other platform participants. Negative developments in the automotive finance industry, such as widespread car buyer defaults, fraudulent behavior and/or the closure of platforms providing automotive financing solutions, may also lead to tightened regulatory scrutiny of the sector and limit the scope of permissible business activities that may be conducted by companies like us. If any of the foregoing takes place, our business and results of operations could be materially and adversely affected.
We collaborate with various automotive transaction industry participants in providing our solutions and services. Such participants include dealers, financial institutions, sales agents, repossession agents, insurance brokers and companies and other business partners. Negative publicity about such counterparties, including any failure by them to adequately protect the information of car buyers, to comply with applicable laws and regulations or to otherwise meet required quality and service standards could harm our reputation.
Fraudulent activities associated with car buyers could negatively impact our results of operations, brand and reputation and cause the use of our services to decrease.
We are subject to the risk of fraudulent activities associated with car buyers, who may provide us with information that is inaccurate or misleading. We do not and may not be able to verify all the information we receive from car buyers. To the extent we verify car buyers information, our resources, technologies and fraud detection tools may be insufficient to accurately detect and prevent fraud. Furthermore, parties that handle car buyer information, such as dealers and sales agents, may aid car buyers in committing frauds. A significant increase in fraudulent activities could negatively affect our results of operations, harm our brand and reputation, discourage financial institutions from collaborating with us, reduce the amount of financing transactions facilitated to car buyers and lead us to take additional steps to reduce fraud risk, which could increase our costs. An overall increase of fraudulent activities in the automotive finance market or the consumer finance industry or incidence of high profile fraudulent activity could even lead to regulatory intervention, and may divert our managements attention and cause us to incur additional expenses and costs. Moreover, inaccurate, misleading or incomplete car buyer information could also potentially subject us to liability as an intermediary under the PRC Contract Law. See RegulationRegulations Related to Intermediation. Although we have not been materially affected by fraudulent activities associated with car buyers in the past, we cannot rule out the possibility that such fraudulent activities may materially and adversely affect our business, financial condition and results of operations in the future.
Fluctuations in interest rates could negatively affect our reported results of operations.
We charge service fees to financial institutions for facilitating financing transactions. If prevailing market interest rates decline, the operating margins of financial institutions may decrease, which may force us to lower the service fees we are able to charge them. If we do not sufficiently lower our service fees and keep our fees competitive in such instances, financial institutions may decide not to utilize our services because of our less competitive service fees and may take advantage of lower service fees offered by other companies, and our
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ability to retain, attract and engage prospective financial institutions as well as our competitive position may be severely undermined. On the other hand, if prevailing market interest rates increase, car buyers would be less likely to finance car purchases with credit or we may need to reduce our service fees to mitigate the impact of increased interest rates, and our financial condition and profitability could also be materially and adversely affected.
Our quarterly results may fluctuate significantly partly due to seasonality and may not fully reflect the underlying performance of our business.
Our quarterly results of operations, including the levels of our revenues, operating cost and expenses, net (loss)/income and other key metrics, may vary significantly in the future due to a variety of factors, some of which are outside of our control, and period-to-period comparisons of our operating results may not be meaningful, especially given our limited operating history. Accordingly, the results for any one quarter are not necessarily an indication of future performance. Fluctuations in quarterly results may adversely affect the price of our ADSs. Factors that may cause fluctuations in our quarterly financial results include:
| our ability to attract new car buyers; |
| our ability to maintain existing relationships with business partners and establish new relationships with additional business partners, such as dealers, financial institutions and OEMs; |
| the amount of financing transactions we facilitate; |
| overdue ratios of financing transactions we facilitate; |
| the mix of solutions and services we offer; |
| the amount and timing of our operating cost and expenses and the maintenance and expansion of our business, operations and infrastructure; |
| financial institutions willingness and ability to fund financing transactions through our platform on reasonable terms; |
| our emphasis on experience of car buyers, instead of near-term growth; |
| the timing of expenses related to the development or acquisition of technologies or businesses; |
| proper and sufficient accounting policies with respect to our risk assurance liabilities and implementation; |
| network outages or security breaches; |
| general economic, industry and market conditions; and |
| changes in applicable laws and regulations. |
In addition, we have experienced, and expect to continue to experience, seasonal fluctuations in our revenues and results of operations. Our revenue trends are a reflection of car purchase patterns by car buyers. Car buyers in China tend to purchase a higher volume of cars in the second half of each year, in part due to the introduction of new models from automakers. Further, the holiday period following the Chinese New Year is in the first quarter, which may contribute to lower activity levels in that quarter of each year. As a result of these factors, our revenues may vary from quarter to quarter. Our actual results may differ significantly from our targets or estimated quarterly results. Therefore, you may not be able to predict our annual results of operations based on a quarter-to-quarter comparison of our results of operations. The quarterly fluctuations in our revenues and results of operations could result in volatility and cause the price of our shares to fall. As our revenues grow, these seasonal fluctuations may become more pronounced.
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We may not realize the benefits we expect from our investments in certain securities and investment products, and this may materially and adversely affect our business, financial condition, results of operations and prospects.
We make investments in certain standardized capital instruments issued by financial institutions, including asset-backed securities in which the underlying assets are financing receivables related to financing transactions we facilitate. As of December 31, 2017 and March 31, 2018, we had long-term investments in the amount of RMB191.0 million (US$30.4 million) and RMB191.1 million (US$30.5 million), respectively, which were related to asset-backed securities issued by Jincheng Bank. Such asset-backed securities are part of the subordinated tranches and therefore associated with a higher level of investment risk. We have also made short-term investments in wealth management products, which are primarily invested in various types of debt securities. As of December 31, 2017 and March 31, 2018, we had short-term investments of RMB62.4 million (US$9.9 million) and RMB599.7 million (US$95.6 million), respectively. We cannot assure you as to the return of such investments and we may need to recognize losses in connection with these investments, which may have a material adverse effect on our business, financial condition and results of operations.
Uncertainties relating to the growth of the Chinese automotive and mobility markets in general, and the automotive finance industry in particular, could adversely affect our business and results of operations.
We generate substantially all of our revenue from service fees for automotive financing facilitation services. As a result, the amount of revenue is affected by the development of the automotive and mobility industries, and in particular the automotive finance industry, in China. The long-term viability and prospects of various automotive financing models in China remain relatively untested. As such, demand for our solutions and services and our future results of operations will depend on numerous factors affecting the development of the automotive and automotive finance industries in China, which may be beyond our control. These factors include:
| the growth in car ownership and the rate of any such growth; |
| changes in car buyer demographics, tastes and preferences; |
| changing financing behavior of car buyers; |
| the selection, price and popularity of cars offered by dealers and OEMs; and |
| whether alternative channels or business models that better address the needs of car buyers emerge in China. |
A general decline in the use of and demand for cars, or any failure by us to adapt our platform and maintain and improve the experience of various platform participants as to our solutions and services in response to new trends and requirements, may adversely affect our results of operations and business prospects.
Government policies on car purchases and ownership may have a material effect on our business due to their influence on consumer behaviors. In 2017, a lower consumption tax rate was applicable to cars with engines that are 1.6-liter or smaller, and such tax break terminated at the end of 2017, which had an adverse effect on sales of such cars in the first half of 2018. The termination of the lower consumption tax rate partially contributed to a slower year-on-year growth rate of our revenues in the first quarter of 2018 as well as expected decreases in revenues and net income in the second quarter of 2018 compared to the second quarter in 2017.
In August 2014, several PRC governmental authorities jointly announced that from September 2014 to December 2017, purchases of new energy cars designated on certain catalogs will be exempted from the purchase taxes. In April 2015, several PRC governmental authorities also jointly announced that from 2016 to 2020, purchasers of new energy cars designated on certain catalogs will enjoy subsidies. In December 2016, relevant PRC governmental authorities further adjusted the subsidy policy for new energy cars. We cannot predict whether government subsidies will remain in the future or whether similar incentives will be introduced, and if they are, their impact on automotive retail transactions in China. It is possible that automotive retail transactions
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may decline significantly upon expiration of the existing government subsidies if consumers have become used to such incentives and delay purchase decisions in the absence of new incentives. If automotive retail transactions indeed decline, our revenues may decrease and our results of operations may be materially and adversely affected.
In May 2018, Ministry of Finance of China announced significant reductions in tariffs on imported cars and car parts, which will become effective on July 1, 2018. While such reductions are likely to enhance consumption in the automotive market, there may also be disruptions to existing market trends as a result of competition from imported products. If we fail to adapt to changes in the automotive market, our business, results of operations and financial condition would be materially and adversely affected.
Some local governmental authorities also issued regulations and relevant implementation rules in order to control urban traffic and the number of cars within particular urban areas. For example, local Beijing governmental authorities adopted regulations and relevant implementing rules in December 2010 to limit the total number of license plates issued to new car purchases in Beijing each year. Local Guangzhou governmental authorities also announced similar regulations, which came into effect in July 2013. There are similar policies that restrict the issuance of new license plates in Shanghai, Tianjin, Hangzhou, Guiyang and Shenzhen. In September 2013, the State Council released a plan for the prevention and remediation of air pollution, which requires large cities, such as Beijing, Shanghai and Guangzhou, to further restrict the number of motor vehicles. In October 2013, the Beijing government issued an additional regulation to limit the total number of vehicles in Beijing to no more than six million by the end of 2017. Such regulatory developments, as well as other uncertainties, may adversely affect the growth prospects of Chinas automotive and mobility industries, which in turn may have a material adverse impact on our business.
Any significant disruption in our IT systems, including events beyond our control, could prevent us from offering our solutions and services or reduce their attractiveness and result in a loss of car buyers, financial institutions and other platform participants.
In the event of a system outage, malfunction or data loss, our ability to provide services would be materially and adversely affected. The satisfactory performance, reliability and availability of our technology and our underlying network infrastructure are critical to our operations, user service, reputation and our ability to attract new and retain existing car buyers and financial institutions. Our IT systems infrastructure is currently deployed and our data is currently maintained through a customized cloud computing system. Our servers are housed at third-party data centers, and our operations depend on the service providers ability to protect our systems in their facilities as well as their own systems against damage or interruption from natural disasters, power or telecommunications failures, air quality issues, environmental conditions, computer viruses or attempts to harm our systems, criminal acts and similar events, many of which may be beyond our control. Many of our mobile applications are also provided through third-party app stores and any disruptions to the services of these app stores may negatively affect the delivery of our mobile applications to users. Moreover, if our arrangement with these service providers are terminated or if there is a lapse of service or damage to their facilities or if the services are no longer cost-effective to us, we could experience interruptions in our solutions and service as well as delays and additional expense in arranging new automotive financing solutions for car buyers and to serve our other platform participants. Our ability to exchange information with financial institutions and obtain credit data from third parties could also be interrupted.
Any interruptions or delays in our service, whether as a result of third-party error, our error, natural disasters or security breaches, whether accidental or willful, could harm our relationships with car buyers and financial institution and other platform participants and our reputation. We may not have sufficient capacity to recover all data and services lost in the event of an outage. These factors could prevent us from processing credit applications and other business operations, damage our brands and reputation, divert our employees attention, reduce our revenue, subject us to liability and cause car buyers and financial institutions and other platform participants to abandon our solutions and services, any of which could adversely affect our business, financial condition and results of operations.
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Technology is a critical aspect in the efficient operation of our business, and if any of our systems contain undetected errors, or if we fail to effectively implement technology initiatives or anticipate future technology needs or demands, our operations may be materially and adversely affected.
The efficient and reliable operation of our business depends on technology as well as our IT systems. Our systems, enterprise applications and software on which we depend for the operation of our business may contain programming errors or other defects that our internal testing did not detect. The occurrence of such undetected errors or defects in our systems and software could disrupt our operations, damage our reputation and detract from the experience of our users.
In addition, our future success depends on our ability to anticipate technology development trends and identify, develop and commercialize new technology initiatives in a timely and cost-effective manner in order to deliver services demanded by platform participants. However, we may fail to recruit, train and retain qualified research and development personnel, and there can be no assurance that we will be able to implement new technology initiatives effectively, or that we will be successful in anticipating new technology needs and demands of our customers and of the market at large. Moreover, it may take an extended period of time for our new technologies and services to gain market acceptance, if at all. If we fail to effectively implement technology initiatives or anticipate future technology needs or demands, our operations may materially and adversely affected.
Misconducts and errors by our employees and third parties we collaborate with could harm our business and reputation.
We are exposed to many types of operational risks, including the risk of misconduct and errors by our employees and third-party business partners that we collaborate with. Our business depends on our employees and third parties, such as dealers, financial institutions, sales agents and repossession agents, to interact with car buyers, process large numbers of transactions and support the collection process. We could be materially and adversely affected if transactions are improperly executed, if personal information was disclosed to unintended recipients or if an operational breakdown or failure in the processing of transactions occurred, whether as a result of human error, purposeful sabotage or fraudulent manipulation of our operations or systems. It is not always possible to identify and deter misconduct or errors by employees or third-party business partners, and the precautions we take to detect and prevent this activity may not be effective in controlling unknown or unmanaged risks or losses. If any of our employees or third-party business partners take, convert or misuse funds, documents or data or fail to follow our rules and procedures when interacting with car buyers, we could be liable for damages and subject to regulatory actions and penalties. We could also be perceived to have facilitated or participated in the illegal misappropriation of funds, documents or data, or the failure to follow our rules and procedures, and therefore be subject to civil or criminal liability. Any of these occurrences could result in our diminished ability to operate our business, potential liability to car buyers, inability to attract car buyers, reputational damage, regulatory intervention and financial harm, which could negatively impact our business, financial condition and results of operations.
If we are unable to safeguard the security of the confidential information of car buyers, dealers or third parties we collaborate with and adapt to the relevant regulatory framework as to protection of such information, our business and operations may be adversely affected.
We collect, store and process certain personal and other sensitive data from car buyers, dealers and other third parties, which makes us an attractive target and potentially vulnerable to cyber-attacks, computer viruses, physical or electronic break-ins or similar disruptions. While we have taken steps to protect the confidential information that we have access to, our security measures could be breached. Because techniques used to sabotage or obtain unauthorized access to systems change frequently and generally are not recognized until they are launched against a target, we may be unable to anticipate these techniques or to implement adequate preventative measures. Any accidental or willful security breaches or other unauthorized access to our system
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could cause confidential car buyer information to be stolen and used for criminal purposes. Security breaches or unauthorized access to confidential information could also expose us to liability related to the loss of the information, time-consuming and expensive litigation and negative publicity. If security measures are breached because of third-party action, employee error, malfeasance or otherwise, or if design flaws in our technology infrastructure are exposed and exploited, our relationships with car buyers, dealers and/or financial institutions could be severely damaged, we could incur significant liability and our business and operations could be adversely affected.
In addition, PRC government authorities have enacted a series of laws and regulations in regard of the protection of personal information, under which financial service providers are required to comply with the principles of legality, justification and necessity, to clearly indicate the purposes, methods and scope of any information collection and usage, and to obtain the consent of users, as well as to establish user information protection system with appropriate remedial measures. We obtain consents from car buyers on our platform to use their personal information within the scope of authorization and we have taken technical measures to ensure the security of such personal information and prevent the personal information from being divulged, damaged or lost. Furthermore, pursuant to confidentiality provisions in our cooperation agreements with financial institutions, we have the obligation to safeguard car buyers personal information and to only use such information within the authorized scope. We may face litigation brought by financial institutions or car buyers, if we fail to satisfy our confidentiality obligations in the relevant cooperation agreements, or if our use of car buyers data fall outside of the scope of their authorization, as the case may be. Furthermore, there is uncertainty as to the interpretation and application of such laws which may be interpreted and applied in a manner inconsistent with our current policies and practices or require changes to the features of our system. There can be no assurance that our existing car buyer information protection system and technical measures will be considered sufficient under applicable laws and regulations. If we are unable to address any information protection concerns, or to comply with the then applicable laws and regulations, we may incur additional costs and liability and our reputation, business and operations might be adversely affected. See RegulationsRegulations Related to Internet Information Security and Privacy Protection for more details.
If we fail to maintain proper and effective internal controls, our ability to produce accurate financial statements on a timely basis could be impaired.
Prior to this offering, we were a private company with limited accounting personnel and other resources with which to address our internal control and procedures. Our management has not completed an assessment of the effectiveness of our internal control over financial reporting and our independent registered public accounting firm has not conducted an audit of our internal control over financial reporting. In the course of auditing our consolidated financial statements for the year ended December 31, 2016, we and our independent registered public accounting firm identified one material weakness in our internal control over financial reporting as of December 31, 2016, in accordance with the standards established by the Public Company Accounting Oversight Board of the United States.
The material weakness identified relates to having an insufficient number of financial reporting personnel with an appropriate level of knowledge, experience and training in application of U.S. GAAP and SEC rules and regulations commensurate with our reporting requirements. We have implemented and are continuing to implement a number of measures to address the material weakness and the deficiencies that have been identified. For details, see Managements Discussion and Analysis of Financial Condition and Results of OperationsInternal Control Over Financial Reporting. However, we cannot assure you that we will be able to continue implementing these measures in the future, or that we will not identify additional material weaknesses or significant deficiencies in the future.
We will be subject to the reporting requirements of the Exchange Act, the Sarbanes-Oxley Act and the rules and regulations of the NYSE after the completion of this offering. The Sarbanes-Oxley Act requires, among other things, that we maintain effective disclosure controls and procedures and internal controls over financial
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reporting. Commencing with our fiscal year ending December 31, 2019, 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, as required by Section 404 of the Sarbanes-Oxley Act. In addition, once we cease to be an emerging growth company as the term is defined in the JOBS Act, our independent registered public accounting firm must attest to and report on the effectiveness of our internal control over financial reporting. Our management may conclude that our internal control over financial reporting is not effective. Moreover, even if our management concludes that our internal control over financial reporting is effective, our independent registered public accounting firm, after conducting its own independent testing, may issue a report that is qualified if it is not satisfied with our internal controls or the level at which our controls are documented, designed, operated or reviewed, or if it interprets the relevant requirements differently from us. 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. Prior to this offering, we were a private company with limited accounting personnel and other resources with which to address our internal controls and procedures, and we were never required to test our internal controls within a specified period, and, as a result, we may experience difficulty in meeting these reporting requirements in a timely manner. Our management has not completed an assessment of the effectiveness of our internal control over financial reporting and our independent registered public accounting firm has not conducted an audit of our internal control over financial reporting.
In addition, our internal control over financial reporting will 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 systems 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. If that were to happen, the market price of our ADSs could decline and we could be subject to sanctions or investigations by the NYSE, SEC or other regulatory authorities.
We may not be able to prevent others from unauthorized use of our intellectual property and we may be subject to intellectual property infringement claims, either of which could harm our business and competitive position.
We regard our trademarks, domain names, copyrights, know-how, proprietary technologies and similar intellectual property as critical to our success, and we rely on trademark and trade secret law and confidentiality, invention assignment and non-compete agreements with our employees and others to protect our proprietary rights. See BusinessIntellectual Property. However, there can be no assurance that any of our intellectual property rights would not be challenged, invalidated or circumvented, or such intellectual property will be sufficient to provide us with competitive advantages. In addition, other parties may misappropriate our intellectual property rights, which would cause us to suffer economic or reputational damage. Because of the rapid pace of technological change, there can be no assurance that all of our proprietary technologies and similar intellectual property will be patented in a timely or cost-effective manner, or at all. For example, we do not hold any patent relating to our credit assessment model. Furthermore, parts of our business rely on technologies developed or licensed by other parties, or co-developed with other parties, including open source software, and we may not be able to obtain or continue to obtain licenses and technologies from these other parties on reasonable terms, or at all.
It is often difficult to register, maintain and enforce intellectual property rights in China. Statutory laws and regulations are subject to judicial interpretation and enforcement and may not be applied consistently due to the lack of clear guidance on statutory interpretation. Confidentiality, invention assignment and non-compete agreements may be breached by counterparties, and there may not be adequate remedies available to us for any
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such breach. Accordingly, we may not be able to effectively protect our intellectual property rights or to enforce our contractual rights in China. Preventing any unauthorized use of our intellectual property is difficult and costly and the steps we take may be inadequate to prevent the misappropriation of our intellectual property. In the event that we resort to litigation to enforce our intellectual property rights, such litigation could result in substantial costs and a diversion of our managerial and financial resources. We can provide no assurance that we will prevail in such litigation. In addition, our trade secrets may be leaked or otherwise become available to, or be independently discovered by, our competitors. Any failure in protecting or enforcing our intellectual property rights could have a material adverse effect on our business, financial condition and results of operations.
Meanwhile, we cannot be certain that our operations or any aspects of our business do not or will not infringe upon or otherwise violate trademarks, copyrights, know-how, proprietary technologies or other intellectual property rights held by other parties. We may be from time to time in the future subject to legal proceedings and claims relating to the intellectual property rights of others. In addition, there may be other parties trademarks, copyrights, know-how, proprietary technologies or other intellectual property rights that are infringed by our services or other aspects of our business without our awareness. Holders of such intellectual property rights may seek to enforce such intellectual property rights against us in China, the U.S. or other jurisdictions. If any infringement claims are brought against us, we may be forced to divert managements time and other resources from our business and operations to defend against these claims, regardless of their merits.
We currently use open source software in certain aspects of our platform and business operations, and we expect to continue to use open source software in the future. We may face claims from others claiming ownership of, or seeking to enforce the terms of, an open source license, including by demanding release of the open source software, derivative works or our proprietary source code that was developed using such software. These claims could also result in litigation, require us to purchase a costly license or require us to devote additional research and development resources to change our technologies, any of which would have a negative effect on our business and operating results. In addition, if the license terms for the open source software we utilize change, we may be forced to reengineer or discontinue our solutions or incur additional costs. We cannot be certain that we have incorporated open source software in our solutions in a manner that is consistent with our policies.
Additionally, the application and interpretation of Chinas intellectual property right laws and the procedures and standards for granting trademarks, copyrights, know-how, proprietary technologies or other intellectual property rights in China are still evolving and are uncertain, and there can be no assurance that PRC courts or regulatory authorities would agree with our analysis. If we were found to have violated the intellectual property rights of others, we may be subject to liability for our infringement activities or may be prohibited from using such intellectual property, and we may incur licensing fees or be forced to develop alternatives of our own. As a result, our business and results of operations may be materially and adversely affected.
If we fail to keep up with the technological developments and implementation of advanced technologies, our business, results of operations and prospects may be materially and adversely affected.
We apply technology to serve our platform participants more efficiently and bring them better user experience. Our success will in part depends on our ability to keep up with the changes in technology and the continued successful implementation of advanced technology, including cloud computing, distributed architecture and big data analytics. If we fail to adapt our platform and services to changes in technological development in an effective and timely manner, our business operations may suffer. Changes in technologies may require substantial expenditures in research and development as well as in modification of our services. Technical hurdles in implementing technological advances may result in our services becoming less attractive to platform participants, which, in turn, may materially and adversely affect our business, results of operations and prospects.
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As our business develops, we may be required to obtain license for providing value-added telecommunications services.
The Telecommunications Regulations of the PRC, the Administrative Rules for Foreign Investment in Telecommunications Enterprises, the Guidance Catalogue of Industries for Foreign Investment (2017 Revision) and other relevant regulations on the operation of value-added telecommunication service business provide a license requirement for operating such business in the PRC. As we continually enrich the service offerings on our platform, we plan to engage in telecommunications-related businesses, including value-added online services for platform participants, in the future. However, we cannot assure you that we will be able to obtain the requisite license for providing value-added telecommunications services on a timely basis or at all. Our inability to obtain such license or any delay in obtaining such license could have a material and adverse impact on our business and results of operations.
We are subject to risks relating to our leased properties.
Currently all of our offices and vehicle storage warehouses are on leased premises. We may not be able to successfully extend or renew our leases upon expiration of the current terms on commercially reasonable terms or at all, and may therefore be forced to relocate the relevant offices and warehouses. Such relocation could disrupt our operations and result in significant relocation expenses, which could adversely affect our business, financial condition and results of operations. In addition, we may not be able to locate desirable alternative sites for our offices and warehouses, and failure in relocating our affected operations could adversely affect our business and operations.
Pursuant to the Land Administration Law of the PRC, land in urban districts is owned by the state. The owner of a property built on state-owned land must possess the proper land and property title certificate to demonstrate that it is the owner of the premises and that it has the right to enter into lease contracts with the tenants or to authorize a third party to sublease the premises. We have entered into 40 lease agreements with parties who have not produced evidence of proper legal title of the premises. If such parties are not the owners of the premises, and the actual owners successfully challenge the validity of the relevant leases, we would be forced to relocate. Although we may seek damages from the counterparties to the lease agreements, there can be no assurance that we would be able to collect such damages.
Our failure to fully comply with PRC labor-related laws may expose us to potential penalties.
The PRC government has promulgated laws and regulations to enhance labor protections, such as the Labor Contract Law, the Social Insurance Law and the Regulations on the Administration of Housing Funds. Such laws and regulations require companies operating in China 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 employees up to a maximum amount specified by the relevant local government from time to time. The requirement of employee benefit plans has not been implemented consistently by the local authorities in China given the different levels of economic development in different locations. We did not pay, or were not able to pay, certain social insurance 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. We may be required to make up the contributions for these plans as well as to pay late fees and fines, and our financial condition and results of operations may be adversely affected.
The use of employees of third-party labor dispatch agencies, who are known in China as dispatched workers, is mainly regulated by the Interim Provisions on Labor Dispatching, which was promulgated by the Ministry of Human Resources and Social Security in January 2014. It provides that an employer may use dispatched workers only for temporary, auxiliary or substitute positions, and shall strictly control the number of
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workers under labor dispatching arrangements. The number of dispatched workers used by an employer shall not exceed 10% of the total number of its employees. As of March 31, 2018, the number of dispatched workers in two of the subsidiaries of Shanghai Cango exceeded 10% of the total number of their employees. If the governmental authorities find us to be in violation of the relevant employment regulations, we may be subject to penalties and be required to reduce the number of dispatched workers. As a result, we may incur significant costs to find replacement for dispatched workers and experience disruptions in our operations. Furthermore, there can be no assurance that we will be able to find suitable employees to replace the dispatched workers. If we fail to comply within the time period specified by the labor authority, we may be subject to a penalty ranging from RMB5,000 to RMB10,000 per dispatched worker exceeding the 10% threshold.
Any failure by us or third parties we collaborate with to comply with applicable anti-money laundering and anti-terrorist financing laws and regulations could damage our reputation, expose us to significant penalties, and decrease our revenues and profitability.
We have implemented various policies and procedures in compliance with all applicable anti-money laundering and anti-terrorist financing laws and regulations, including internal controls and know-your-customer procedures, for preventing money laundering and terrorist financing. In addition, we rely on financial institutions to have their own appropriate anti-money laundering policies and procedures. Financial institutions we collaborate with are subject to anti-money laundering obligations under applicable anti-money laundering laws and regulations and are regulated in that respect by the PBOC. We have adopted commercially reasonable procedures for monitoring financial institutions we collaborate with.
We have not been subject to fines or other penalties, or suffered business or other reputational harm, as a result of actual or alleged money laundering or terrorist financing activities in the past. However, our policies and procedures may not be completely effective in preventing other parties from using us or any financial institutions we collaborate with as a conduit for money laundering (including illegal cash operations) or terrorist financing without our knowledge. If we were to be associated with money laundering (including illegal cash operations) or terrorist financing, our reputation could suffer and we could become subject to regulatory fines, sanctions, or legal enforcement, including being added to any blacklists that would prohibit certain parties from engaging in transactions with us, all of which could have a material adverse effect on our financial condition and results of operations. Even if we and financial institutions we collaborate with comply with applicable anti-money laundering laws and regulations, we and these financial institutions may not be able to fully eliminate money laundering and other illegal or improper activities in light of their complexity and the secrecy of these activities. Any negative perception of the industry, such as that which may arise from any failure of other automotive financing solution facilitation service providers to detect or prevent money laundering activities, even if factually incorrect or based on isolated incidents, could compromise our image, undermine the trust and credibility we have established, and negatively impact our financial condition and results of operation.
From time to time we may evaluate and potentially consummate strategic investments or acquisitions, which could require significant management attention, disrupt our business and adversely affect our financial results.
We may evaluate and consider strategic investments, combinations, acquisitions or alliances to further increase the value of our services, better serve car buyers, and enhance our competitive position. We currently own 50% equity interest in Shanghai Autohome. Upon the completion of the Acquisition, Shanghai Autohome will become our wholly-owned consolidated subsidiary.
These transactions could be material to our financial condition and results of operations if consummated. If we are able to identify an appropriate business opportunity, we may not be able to successfully consummate the transaction and, even if we do consummate such a transaction, we may be unable to obtain the benefits or avoid the difficulties and risks of such transaction, which may result in investment losses.
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Strategic investments or acquisitions will involve risks commonly encountered in business relationships, including:
| difficulties in assimilating and integrating the operations, personnel, systems, data, technologies, products and services of the acquired business; |
| inability of the acquired technologies, products or businesses to achieve expected levels of revenue, profitability, productivity or other benefits including the failure to successfully further develop the acquired technology; |
| difficulties in retaining, training, motivating and integrating key personnel; |
| diversion of managements time and resources from our normal daily operations and potential disruptions to our ongoing businesses; |
| strain on our liquidity and capital resources; |
| difficulties in executing intended business plans and achieving synergies from such strategic investments or acquisitions; |
| difficulties in maintaining uniform standards, controls, procedures and policies within the overall organization; |
| difficulties in retaining relationships with existing dealers, financial institutions, car buyers, employees and other partners of the acquired business; |
| risks of entering markets in which we have limited or no prior experience; |
| regulatory risks, including remaining in good standing with existing regulatory bodies or receiving any necessary pre-closing or post-closing approvals, as well as being subject to new regulators with oversight over an acquired business; |
| assumption of contractual obligations that contain terms that are not beneficial to us, require us to license or waive intellectual property rights or increase our risk for liability; |
| liability for activities of the acquired business before the acquisition, including intellectual property infringement claims, violations of laws, commercial disputes, tax liabilities and other known and unknown liabilities; and |
| unexpected costs and unknown risks and liabilities associated with strategic investments or acquisitions. |
Any future investments or acquisitions may not be successful, may not benefit our business strategy, may not generate sufficient revenues to offset the associated acquisition costs or may not otherwise result in the intended benefits.
Our business depends on the continued efforts of our senior management. If one or more members of our senior management were unable or unwilling to continue in their present positions, our business may be severely disrupted.
Our business operations depend on the continued services of our senior management, particularly the executive officers named in this prospectus. In particular, Mr. Xiaojun Zhang, our founder and chairman, and Mr. Jiayuan Lin, our founder and chief executive officer, are critical to the management of our business and operations and the development of our strategic direction. While we have provided various incentives to our management, there can be no assurance that we can continue to retain their services. If one or more members of our senior management were unable or unwilling to continue in their present positions, we may not be able to replace them easily or at all, our future growth may be constrained, our business may be severely disrupted and our financial condition and results of operations may be materially and adversely affected, and we may incur
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additional expenses to recruit, train and retain qualified personnel. Any new executive we recruit may fail to develop or implement effective business strategies. In addition, although we have entered into confidentiality and non-competition agreements with our management, there is no assurance that any member of our management team will not join our competitors or form a competing business. If any dispute arises between our current or former officers and us, we may have to incur substantial costs and expenses in order to enforce such agreements in China or we may be unable to enforce them at all.
Intense competition for employees and increases in labor costs in the PRC may adversely affect our business and results of operations.
We believe our success depends on the efforts and talent of our employees, including sales and marketing, operations, risk management, research and development and finance personnel. Our future success depends on our continued ability to attract, develop, motivate and retain qualified and skilled employees. Competition for highly skilled sales and marketing, operations, risk management, research and development and finance 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 us and may be able to offer more attractive terms of employment.
In addition, we invest significant time and expenses 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 dealers, financial institutions, car buyers and other industry participants could diminish, resulting in a material adverse effect to our business.
The economy in China has experienced increases in inflation and labor costs in recent years. As a result, average wages in the PRC are expected to continue to increase. In addition, we are required by PRC laws and regulations to pay various statutory employee benefits, including pension insurance, housing funds, medical insurance, work-related injury insurance, unemployment insurance and maternity insurance to designated government agencies for the benefit of our employees. We expect that our labor costs, including wages and employee benefits, will continue to increase. Unless we are able to control our labor costs or pass on these increased labor costs, our financial condition and results of operations may be adversely affected.
Our corporate actions will be substantially controlled by certain of our principal shareholders, who will have the ability to control or 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.
In May 2018, our co-founders Mr. Xiaojun Zhang and Mr. Jiayuan Lin entered into a voting agreement, which provides that they shall reach a consensus before exercising their voting rights with respect to our shares. If no consensus could be reached, the decision made by Mr. Zhang prevails, subject to certain exceptions. The voting agreement will become effective upon the completion of this offering. Upon the completion of this offering, the co-founders will beneficially own all of 79,325,720 Class B ordinary shares issued and outstanding. In addition, Mr. Lin will beneficially own 21,283,655 Class A ordinary shares. Our third amended and restated memorandum and articles of association provide that in respect of all matters subject to a shareholders vote, each Class A ordinary share will be entitled to one vote, while each Class B ordinary share will be entitled to 20 votes. The co-founders will collectively exercise % of the aggregate voting power of our issued and outstanding share capital immediately after this offering, assuming no exercise by the underwriters of options to purchase additional ADSs. As a result of the ownership concentration, these shareholders have the ability to control or exert significant influence over important corporate matters, investors may be prevented from affecting important corporate matters involving our company that require approval of shareholders, including:
| the composition of our board of directors and, through it, any determinations with respect to our operations, business direction and policies, including the appointment and removal of officers; |
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| any determinations with respect to mergers or other business combinations; |
| our disposition of substantially all of our assets; and |
| any change in control. |
These actions may be taken even if they are opposed by our other shareholders, including the holders of the ADSs. Furthermore, this concentration of ownership may also 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.
We will be a controlled company under the rules of NYSE upon the completion of this offering and, as a result, will rely on exemptions from certain corporate governance requirements that provide protection to shareholders of other companies.
We will be a controlled company as defined under the NYSE Listed Company Manual upon the completion of this offering. Our co-founders Mr. Xiaojun Zhang and Mr. Jiayuan Lin will collectively hold more than 50% of the aggregate voting power of our company. In May 2018, the co-founders entered into a voting agreement, which provides that they shall reach a consensus before exercising their voting rights with respect to our shares. If no consensus could be reached, the decision made by Mr. Zhang prevails, subject to certain exceptions. The voting agreement will become effective upon the completion of this offering. For so long as we remain a controlled company under that definition, we are permitted to elect to rely, and will rely, on certain exemptions from corporate governance rules, including an exemption from the rule that a majority of our board of directors must be independent directors. As a result, you will not have the same protection afforded to shareholders of companies that are subject to these corporate governance requirements.
We may incur substantial share-based compensation expenses.
On May 25, 2018, we adopted the Share Incentive Plan 2018, which permits the grant of options, restricted shares, restricted share units and other share-based awards to our employees, directors and consultants. The maximum aggregate number of ordinary shares that may be issued pursuant to the share incentive plan is 27,845,526 initially. Additional ordinary shares may be reserved for issuance of equity awards as determined by our board of directors. In May 2018, we granted 5,569,105 options to purchase our ordinary shares to certain of our officers and employees. We are required to account for options granted to our employees, directors and consultants. We are required to classify options 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, with the share-based compensation expense recognized over the period in which the recipient is required to provide service in exchange for the share option or other equity award. We believe the granting of share-based compensation is of significant importance to our ability to attract, retain and motivate our management team and talented employees, and we will continue to grant share-based compensation to employees in the future. As a result, our expenses associated with share-based compensation may increase significantly, which may have an adverse effect on our results of operations and financial condition.
We may not have sufficient insurance coverage.
Insurance companies in China currently do not offer as extensive an array of insurance products as insurance companies in more developed economies. Currently, we do not have enough business liability or disruption insurance to cover our operations. We have determined that the costs of insuring for these risks and the difficulties associated with acquiring such insurance on commercially reasonable terms make it impractical for us to have such insurance. Any uninsured business disruptions may result in our incurring substantial costs and the diversion of resources, which could have an adverse effect on our financial condition and results of operations.
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We are or may be subject to potential liability in connection with pending or threatened legal proceedings and other matters, which could adversely affect our business or financial results.
From time to time, we have become and may in the future become a party to various legal or administrative proceedings arising in the ordinary course of our business, including breach of contract claims, anti-competition claims and other matters. Such proceedings are inherently uncertain and their results cannot be predicted with certainty. Regardless of the outcome and merit of such proceedings, any such legal action could have an adverse impact on our business because of defense costs, negative publicity, diversion of managements attention and other factors. In addition, it is possible that an unfavorable resolution, including any judgment or settlement subjecting us to liability, of one or more legal or administrative proceedings, whether in the PRC or in another jurisdiction, could materially and adversely affect our business, financial position, results of operations or cash flows in a particular period or damage our reputation.
We may be subject to product liability claims if people or properties are harmed by cars purchased through our platform.
Cars purchased through our platforms may be defectively designed or manufactured. As a result, we may be exposed to product liability claims relating to personal injury or property damage. Third parties subject to such injury or damage may bring claims or legal proceedings against us because we facilitate the financing of the product. Although we would have legal recourse against the OEMs or dealers under PRC law, attempting to enforce our rights against the OEMs or dealers may be expensive, time-consuming and ultimately futile. In addition, we do not currently maintain any third-party liability insurance or product liability insurance in relation to cars purchased through our platforms. As a result, any material product liability claim or litigation could have a material and adverse effect on our business, financial condition and results of operations. Even unsuccessful claims could result in the expenditure of funds and managerial efforts in defending them and could have a negative impact on our reputation.
A severe or prolonged downturn in the Chinese or global economy could materially and adversely affect our business, financial condition and results of operations.
Any prolonged slowdown in the Chinese or global economy may have a negative impact on our business, financial condition and results of operations. In particular, general economic factors and conditions in China or worldwide, including the general interest rate environment and unemployment rates, may affect consumers demand for cars, car buyers willingness to seek credit and financial institutions ability and desire to fund financing transactions we facilitate. Economic conditions in China are sensitive to global economic conditions. The global financial markets have experienced significant disruptions since 2008 and the U.S., Europe and other economies have experienced periods of recession. The recovery from the lows of 2008 and 2009 has been uneven and there are new challenges, including the escalation of the European sovereign debt crisis from 2011 and the slowdown of Chinas economic growth since 2012, which may continue. There is considerable uncertainty over the long-term effects of the expansionary monetary and fiscal policies adopted by the central banks and financial authorities of some of the worlds leading economies, including the U.S. and China. There have also been concerns over unrest in North Korea, Ukraine, the Middle East and Africa, which have resulted in volatility in financial and other markets. There have also been concerns over the expected withdrawal of the United Kingdom from the European Union as well as the outcome of the United States presidential election in November 2016. There have also been concerns about the economic effect of the tensions in the relationship between China and surrounding Asian countries. If present Chinese and global economic uncertainties persist, we may have difficulty in obtaining financial institutions to fund financing transactions to car buyers. Adverse economic conditions could also reduce the number of quality car buyers seeking credit from us, as well as their ability to make payments. Should any of these situations occur, the amount of financing transactions facilitated to car buyers and our revenue will decline, and our business and financial condition will be negatively impacted. Additionally, continued turbulence in the international markets may adversely affect our ability to access the capital markets to meet liquidity needs.
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Our operations depend on the performance of the internet infrastructure and fixed telecommunications networks in China.
Almost all access to the Internet in China is maintained through state-owned telecommunication operators under the administrative control and regulatory supervision of the Ministry of Industry and Information Technology, or the MIIT. Our IT systems infrastructure is currently deployed and our data is currently maintained through a customized cloud computing system. Our servers are housed at third-party data centers. Such service provider may have limited access to alternative networks or services in the event of disruptions, failures or other problems with Chinas Internet infrastructure or the fixed telecommunications networks provided by telecommunication service providers. With the expansion of our business, we may be required to upgrade our technology and infrastructure to keep up with the increasing number and variety of transactions on our platform. There can be no assurance that our data centers and the underlying Internet infrastructure and the fixed telecommunications networks in China will be able to support the demands associated with the continued growth in Internet usage.
In addition, we have no control over the costs of the services provided by telecommunication service providers which in turn, may affect our costs of data center services. If the prices we pay for data center services rise significantly, our results of operations may be adversely affected.
We face risks related to natural disasters, health epidemics and other outbreaks, which could significantly disrupt our operations.
We are vulnerable to natural disasters and other calamities. Fire, floods, typhoons, earthquakes, power loss, telecommunications failures, break-ins, war, riots, terrorist attacks or similar events may give rise to server interruptions, breakdowns, system failures or Internet failures, which could cause the loss or corruption of data or malfunctions of software or hardware as well as adversely affect our ability to provide our services.
Our business could also be adversely affected by the effects of Ebola virus disease, H1N1 flu, H7N9 flu, avian flu, Severe Acute Respiratory Syndrome, or SARS, or other epidemics. Our business operations could be disrupted if any of our employees is suspected of having Ebola virus disease, H1N1 flu, H7N9 flu, avian flu, SARS or another contagious disease or condition, since it could require our employees to be quarantined and/or our offices to be disinfected. In addition, our results of operations could be adversely affected to the extent that any of these epidemics harms the Chinese economy in general.
Risks Relating to Our Corporate Structure
We rely on contractual arrangements with our consolidated VIE and its shareholders to operate our business, 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 consolidated VIE and its shareholders to operate our business. For a description of these contractual arrangements, see Our History and Corporate StructureContractual Arrangements among Can Gu Long, Shanghai Cango and Its Shareholders. All of our revenue is attributed to our consolidated VIE. These contractual arrangements may not be as effective as direct ownership in providing us with control over our consolidated VIE. If our consolidated VIE or its shareholders fail to perform their respective obligations under these contractual arrangements, our recourse to the assets held by our consolidated VIE is indirect and we may have to incur substantial costs and expend significant resources to enforce such arrangements in reliance on legal remedies under PRC law. 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 record holder of equity interest in our consolidated VIE, including such equity interest, may be put under court custody. As a consequence, we cannot be certain that the equity interest will be disposed pursuant to the contractual arrangement or ownership by the record holder of the equity interest.
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All of these contractual arrangements are governed by PRC law and provide for the resolution of disputes through arbitration 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 consolidated VIE, and our ability to conduct our business and our financial condition and results of operations may be materially and adversely affected. See Risks Relating to Doing Business in ChinaThere are uncertainties regarding the interpretation and enforcement of PRC laws, rules and regulations.
Any failure by our consolidated VIE or its shareholders to perform their obligations under our contractual arrangements with them would have a material adverse effect on our business.
We, through one of our subsidiaries and a wholly foreign-owned enterprise in the PRC, have entered into a series of contractual arrangements with our consolidated VIE and its shareholders. For a description of these contractual arrangements, see Our History and Corporate StructureContractual Arrangements among Can Gu Long, Shanghai Cango and Its Shareholders. If our consolidated VIE or its shareholders fail to perform their respective obligations under these contractual arrangements, we may incur substantial costs and expend additional resources to enforce such arrangements. We may also have to rely on legal remedies under PRC laws, including seeking specific performance or injunctive relief, and claiming damages, which we cannot assure you will be effective under PRC laws. For example, if the shareholders of our consolidated VIE were to refuse to transfer their equity interests in the consolidated VIE to us or our designee when we exercise the purchase option pursuant to these contractual arrangements, or if they were otherwise to act in bad faith toward us, then we may have to take legal actions to compel them to perform their contractual obligations.
All the agreements under our contractual arrangements are governed by PRC laws and provide for the resolution of disputes through arbitration in China. 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 system in the PRC is not as developed as in some 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. Meanwhile, there are very few precedents and little formal guidance as to how contractual arrangements in the context of a VIE should be interpreted or enforced under PRC laws. There remain significant uncertainties regarding the ultimate outcome of such arbitration should legal action become necessary. In addition, under PRC laws, rulings by arbitrators are final and parties cannot appeal arbitration results in court unless such rulings are revoked or determined unenforceable by a competent court. If the losing parties fail to carry out the arbitration awards within a prescribed time limit, the prevailing parties may only enforce the arbitration awards in PRC courts through arbitration award recognition proceedings, which would require additional expenses and delay. In the event that we are unable to enforce these contractual arrangements, or if we suffer significant delay or other obstacles in the process of enforcing these contractual arrangements, we may not be able to exert effective control over our consolidated VIE and relevant rights and licenses held by it which we require in order to operate our business, and our ability to conduct our business may be negatively affected. See Risks Related to Doing Business in ChinaThere are uncertainties regarding the interpretation and enforcement of PRC laws, rules and regulations.
The arbitration provisions under these contractual arrangements have no effect on the rights of our shareholders to pursue claims against us under United States federal securities laws.
The shareholders of our consolidated VIE may have potential conflicts of interest with us, which may materially and adversely affect our business and financial condition.
The interests of the shareholders of our consolidated VIE in their capacities as such shareholders may differ from the interests of our company as a whole, as what is in the best interests of our consolidated VIE, including
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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 those conflicts of interest will be resolved in our favor. In addition, these shareholders may breach or cause our consolidated VIE and its subsidiaries to breach or refuse to renew the existing contractual arrangements with us.
Currently, we do not have arrangements to address potential conflicts of interest the shareholders of our consolidated VIE may encounter, on one hand, and as a beneficial owner of our company, on the other hand. We, however, could, at all times, exercise our option under the exclusive option agreement to cause them to transfer all of their equity ownership in our consolidated VIE to a PRC entity or individual designated by us as permitted by the 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 our consolidated VIE as provided under the power of attorney, directly appoint new directors of our consolidated VIE. We rely on the shareholders of our consolidated VIE to comply with PRC laws and regulations, which protect contracts and provide that directors and executive officers owe a duty of loyalty to our company and require them to avoid conflicts of interest and not to take advantage of their positions for personal gains, and the laws of the Cayman Islands, which provide that directors have a duty of care and a duty of loyalty to act honestly in good faith with a view to our best interests. However, the legal frameworks of China and the Cayman Islands do not provide guidance on resolving conflicts in the event of a conflict with another corporate governance regime. If we cannot resolve any conflicts of interest or disputes between us and the shareholders of our consolidated VIE, 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.
If the PRC government deems that the contractual arrangements in relation to our consolidated VIE do not comply with PRC regulatory restrictions on foreign investment in 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.
As we continually enrich the service offerings on our platform, we plan to engage in telecommunications-related businesses, including value-added online services for platform participants, in the future. The PRC government regulates telecommunications-related businesses through strict business licensing requirements and other government regulations. These laws and regulations also include limitations on foreign ownership of PRC companies that engage in telecommunications-related businesses. Specifically, foreign investors are generally not allowed to own more than a 50% equity interest in any PRC company engaging in value-added telecommunications businesses. The primary foreign investor must also have experience and a good track record in providing value-added telecommunications services, or VATS, overseas.
Because we are an exempted company incorporated in the Cayman Islands, we are classified as a foreign enterprise under PRC laws and regulations, and our wholly foreign-owned enterprise in the PRC is a foreign-invested enterprise, or a FIE. Accordingly, our subsidiary is not eligible to operate VATS business in China. As we plan to operate VATS business in the future, we conduct our business in China through our consolidated VIE and its affiliates. Our PRC subsidiary has entered into a series of contractual arrangements with our consolidated VIE and its shareholders, which enable us to (i) exercise effective control over the consolidated VIE, (ii) receive substantially all of the economic benefits of the consolidated VIE, and (iii) have an exclusive option to purchase all or part of the equity interests and assets in the consolidated VIE 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 consolidated VIE and hence consolidate its financial results as our consolidated VIE under U.S. GAAP. For a description of these contractual arrangements, see Our History and Corporate StructureContractual Arrangements among Can Gu Long, Shanghai Cango and Its Shareholders.
We believe that our corporate structure and contractual arrangements comply with the current applicable PRC laws and regulations. Our PRC legal counsel, Fangda Partners, based on its understanding of the relevant
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laws and regulations, is of the opinion that each of the contracts among our wholly-owned PRC subsidiary, our consolidated VIE and its shareholders is valid, binding and enforceable in accordance with its terms. However, as there are substantial uncertainties regarding the interpretation and application of PRC laws and regulations, including the Regulations on Mergers and Acquisitions of Domestic Enterprises by Foreign Investors, or the M&A Rules, and the Telecommunications Regulations and the relevant regulatory measures concerning the telecommunications industry. There can be no assurance that the PRC government authorities, such as the MOFCOM or the MIIT, or other authorities that regulate online services providers and other participants in the telecommunications industry, would agree that our corporate structure or any of the above contractual arrangements comply with PRC licensing, registration or other regulatory requirements, with existing policies or with requirements or policies that may be adopted in the future. PRC laws and regulations governing the validity of these contractual arrangements are uncertain and the relevant government authorities have broad discretion in interpreting these laws and regulations.
If our corporate structure and contractual arrangements are deemed by the MIIT or the MOFCOM or other regulators having competent authority to be illegal, either in whole or in part, we may lose control of our consolidated VIE and have to modify such structure to comply with regulatory requirements. However, there can be no assurance that we can achieve this without material disruption to our business. Further, if our corporate structure and contractual arrangements are found to be in violation of any existing or future PRC laws or regulations, the relevant regulatory authorities would have broad discretion in dealing with such violations, including:
| revoking our business and operating licenses; |
| levying fines on us; |
| confiscating any of our income that they deem to be obtained through illegal operations; |
| shutting down our services; |
| discontinuing or restricting our operations in China; |
| imposing conditions or requirements with which we may not be able to comply; |
| requiring us to change our corporate structure and contractual arrangements; |
| restricting or prohibiting our use of the proceeds from overseas offering to finance our consolidated VIEs business and operations; and |
| taking other regulatory or enforcement actions that could be harmful to our business. |
Furthermore, new PRC laws, rules and regulations may be introduced to impose additional requirements that may be applicable to our corporate structure and contractual arrangements. See Substantial uncertainties exist with respect to the enactment timetable, interpretation and implementation of the draft PRC Foreign Investment Law, and its enactment may materially and adversely affect our business and financial condition. Occurrence of any of these events could materially and adversely affect our business, financial condition and results of operations. In addition, if the imposition of any of these penalties or requirement to restructure our corporate structure causes us to lose the rights to direct the activities of our consolidated VIE or our right to receive their economic benefits, we would no longer be able to consolidate the financial results of such VIE in our consolidated financial statements. However, we do not believe that such actions would result in the liquidation or dissolution of our company, our wholly-owned subsidiary in China or our consolidated VIE or its subsidiaries. See Our History and Corporate StructureContractual Arrangements among Can Gu Long, Shanghai Cango and Its Shareholders.
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Contractual arrangements in relation to our consolidated VIE may be subject to scrutiny by the PRC tax authorities and they may determine that our consolidated VIE owes additional taxes, which could negatively affect our financial condition and the value of your investment.
Under applicable PRC laws and regulations, arrangements and transactions among related parties may be subject to audit or challenge by the PRC tax authorities. The PRC enterprise income tax law requires every enterprise in China to submit its annual enterprise income tax return together with a report on transactions with its related parties to the relevant tax authorities. The tax authorities may impose reasonable adjustments on taxation if they have identified any related party transactions that are inconsistent with arms length principles. We may face material and adverse tax consequences if the PRC tax authorities determine that the contractual arrangements among our wholly-owned PRC subsidiary, our consolidated VIE and its shareholders were not entered into on an arms length basis in such a way as to result in an impermissible reduction in taxes under applicable PRC laws, regulations and rules, and adjust their income in the form of a transfer pricing adjustment. A transfer pricing adjustment could, among other things, result in a reduction of expense deductions recorded by our wholly-owned PRC subsidiary or consolidated VIE for PRC tax purposes, which could in turn increase their tax liabilities without reducing their tax expenses. In addition, if our wholly-owned PRC subsidiary requests the shareholders of our consolidated VIE to transfer their equity interests in our consolidated VIE at nominal or no value pursuant to these contractual arrangements, such transfer could be viewed as a gift and subject the relevant subsidiary to PRC income tax. Furthermore, the PRC tax authorities may impose late payment fees and other penalties on our PRC subsidiary and consolidated VIE for adjusted but unpaid taxes according to applicable regulations. Our financial position could be materially and adversely affected if the tax liabilities of our PRC subsidiary and consolidated VIE increase, or if they are required to pay late payment fees and other penalties.
We may lose the ability to use and enjoy assets held by our consolidated VIE that are material to the operation of our business if the entity goes bankrupt or becomes subject to a dissolution or liquidation proceeding.
Our consolidated VIE holds substantially all of our assets. Under the contractual arrangements, our consolidated VIE may not and its shareholders may not cause it to, in any manner, sell, transfer, mortgage or dispose of its assets or its legal or beneficial interests in the business without our prior consent. However, in the event that the shareholders of our consolidated VIE breach these contractual arrangements and voluntarily liquidate our consolidated VIE, or our consolidated VIE declares bankruptcy and all or part of its assets become subject to liens or rights of third-party creditors, or are otherwise disposed of without our consent, we may be unable to continue some or all of our business activities, which could materially and adversely affect our business, financial condition and results of operations. If our consolidated VIE undergoes a voluntary or involuntary liquidation proceeding, independent third-party creditors may claim rights to some or all of these assets, thereby hindering our ability to operate our business, which could materially and adversely affect our business, financial condition and results of operations.
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, including agreements and contracts 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, formerly known as the State Administration for Industry and Commerce, or the SAIC. We generally execute legal documents by affixing chops or seals, rather than having the designated legal representatives sign the documents.
We have three major types of chopscorporate chops, contract chops and finance chops. We use corporate chops generally for documents to be submitted to government agencies, such as applications for changing business scope, directors or company name, and for legal letters. We use contract chops for executing leases and
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commercial contracts. We use finance chops generally for making and collecting payments, including issuing invoices. Use of corporate chops and contract chops must be approved by our legal department and administrative department, and use of finance chops must be approved by our finance department. The chops of our subsidiary and consolidated VIE 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 subsidiary and consolidated VIE have the apparent authority to enter into contracts on behalf of such entities without chops, unless such contracts set forth otherwise.
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. Our designated legal representatives generally do not have access to the chops. Although we have approval procedures in place and monitor our key employees, including the designated legal representatives of our subsidiary and consolidated VIE, 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 subsidiary and consolidated VIE 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 representatives 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.
Substantial uncertainties exist with respect to the enactment timetable, interpretation and implementation of the draft PRC Foreign Investment Law, and its enactment may materially and adversely affect our business and financial condition.
The MOFCOM published a discussion draft of the proposed Foreign Investment Law in January 2015 aiming to, upon its enactment, replace the major existing laws and regulations governing foreign investment in China. While the MOFCOM solicited comments on this draft, substantial uncertainties exist with respect to the enactment timetable, interpretation and implementation of the proposed legislation and the extent of revision to the currently proposed draft. The draft Foreign Investment Law, if enacted as proposed, may materially impact the entire legal framework regulating foreign investments in China.
Among other things, the draft Foreign Investment Law purports to introduce the principle of actual control in determining whether a company is considered a foreign invested enterprise, or a FIE. The draft Foreign Investment Law specifically provides that entities established in China but controlled by foreign investors will be treated as FIEs, whereas an entity organized in a foreign jurisdiction, but cleared by the MOFCOM as controlled by PRC entities and/or citizens, would nonetheless be treated as a PRC domestic entity for investment in the restriction category that could appear on any such negative list. In this connection, control is broadly defined in the draft law to cover any of the following summarized categories: (i) holding 50% or more of the voting rights or similar rights and interests of the subject entity; (ii) holding less than 50% of the voting rights or similar rights and interests of the subject entity but having the power to directly or indirectly appoint or otherwise secure at least 50% of the seats on the board or other equivalent decision making bodies, or having the voting power to materially influence the board, the shareholders meeting or other equivalent decision making bodies; or (iii) having the power to exert decisive influence, via contractual or trust arrangements, over the subject entitys operations, financial, staffing and technology matters.
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Once an entity is determined to be a FIE, and its investment amount exceeds certain thresholds or its business operation falls within a negative list purported to be separately issued by the State Council in the future, market entry clearance by the MOFCOM or its local counterparts would be required.
The variable interest entity structure, or VIE structure, has been adopted by many PRC-based companies, including us, to conduct business in the industries that are currently subject to foreign investment restrictions in China. Under the draft Foreign Investment Law, VIEs that are controlled via contractual arrangements would also be deemed as FIEs, if they are ultimately controlled by foreign investors. For any companies with a VIE structure in an industry category that is in the restriction category that could appear on any such negative list, the existing VIE structure may be deemed legitimate only if the ultimate controlling person(s) is/are of PRC nationality (either PRC state owned enterprises or agencies, or PRC citizens). Conversely, if the actual controlling person(s) is/are of foreign nationalities, then the VIEs will be treated as FIEs, in which case, the existing VIE structures will likely to be scrutinized and subject to foreign investment restrictions and approval from the MOFCOM and other supervising authorities such as MIIT. Any operation in the industry category on the negative list without market entry clearance may be considered as illegal.
However, there are significant uncertainties as to how the control status of our consolidated VIE would be determined under the enacted version of the Foreign Investment Law. In addition, it is uncertain whether any of the businesses that we currently operate or plan to operate in the future through our consolidated VIE would be on the to-be-issued negative list and therefore be subject to any foreign investment restrictions or prohibitions. If our consolidated VIE were deemed as a FIE under the enacted version of the Foreign Investment Law, and any of the businesses that we operate were in the restricted category on the to-be-issued negative list, such determination would materially and adversely affect the value of our ADSs. We also face uncertainties as to whether the enacted version of the Foreign Investment Law and the final negative list would mandate further actions, such as MOFCOM market entry clearance, to be completed by companies with existing VIE structure and whether such clearance can be timely obtained, or at all. If we were not considered as ultimately controlled by PRC domestic investors under the enacted version of the Foreign Investment Law, further actions required to be taken by us under the enacted Foreign Investment Law may materially and adversely affect our business and financial condition.
In addition, our corporate governance practice may be materially impacted and our compliance costs could increase if we were not considered as ultimately controlled by PRC domestic investors under the Foreign Investment Law, if enacted as currently proposed. For instance, the draft Foreign Investment Law as proposed purports to impose stringent ad hoc and periodic information reporting requirements on foreign investors and the applicable FIEs. Aside from investment implementation report and investment amendment report that would be required for each investment and alteration of investment specifics, an annual report would be mandatory, and large foreign investors meeting certain criteria would be required to report on a quarterly basis. Any company found to be non-compliant with these information reporting obligations could potentially be subject to fines and/or administrative or criminal liabilities, and the persons directly responsible could be subject to criminal liabilities.
Risks Relating to Doing Business in 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 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.
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, control of foreign exchange and allocation
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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 Chinas 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 three decades, 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 subsidiary and consolidated VIE 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 three 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.
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The approval of the China Securities Regulatory Commission, or the CSRC, may be required in connection with this offering under a PRC regulation. The regulation also establishes 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 SAIC, the CSRC, and the State Administration of Foreign Exchange, or 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 that is controlled by PRC domestic companies or individuals and that has been formed for the purpose of an overseas listing of securities through acquisitions of PRC domestic companies or assets to obtain the approval of the CSRC prior to the listing and trading of such special purpose vehicles 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 legal counsel, Fangda Partners, that the CSRC approval is not required in the context of this offering because (i) our wholly-owned PRC subsidiary was incorporated as a foreign-invested enterprise by means of foreign direct investments rather than by merger with or acquisition of any PRC domestic companies as defined under the M&A Rules, and (ii) there is no statutory provision that clearly classifies the contractual arrangement among our wholly-owned PRC subsidiary and our consolidated VIE and its shareholders as transactions regulated by 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 legal counsel. If the CSRC or other PRC regulatory body subsequently determines that we need to obtain the CSRCs approval for this 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 this 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 this 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, as well as our ability to complete this offering. The CSRC or other PRC regulatory agencies may also take actions requiring us, or making it advisable for us, to halt this offering before settlement and delivery of the ADSs offered by this prospectus. Consequently, if you engage in market trading or other activities in anticipation of and prior to settlement and delivery, you do so at the risk that such settlement and delivery may not occur. In addition, if the CSRC or other regulatory agencies later promulgate new rules or explanations requiring us to obtain their approvals for this offering, we may be unable to obtain waivers of such approval requirements. Any uncertainties and/or negative publicity regarding such approval requirements could have a material adverse effect on the trading price of our ADSs.
These 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. For example, the M&A rules require that the MOFCOM be notified in advance of any change-of-control transaction in which a foreign investor takes control of a PRC domestic enterprise if (i) any important industry is concerned, (ii) such transaction involves factors that have or may have impact on the national economic security, or (iii) such transaction will lead to a change in control of a domestic enterprise which holds a famous trademark or PRC time-honored brand. The approval from the MOFCOM shall be obtained in circumstances where overseas companies established or controlled by PRC enterprises or residents acquire affiliated domestic companies. Mergers, acquisitions or contractual arrangements that allow one market player to take control of or to exert decisive impact on another market player must also be notified in advance to the MOFCOM when the threshold
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under the Provisions on Thresholds for Prior Notification of Concentrations of Undertakings, or the Prior Notification Rules, issued by the State Council in August 2008 is triggered. In addition, the security review rules issued by the MOFCOM that became effective in September 2011 specify that mergers and acquisitions by foreign investors that raise national defense and security concerns and mergers and acquisitions through which foreign investors may acquire de facto control over domestic enterprises that raise national security concerns are subject to strict review by the MOFCOM, and the rules prohibit any activities attempting to bypass a security review, including by structuring the transaction through a proxy or contractual control arrangement. 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 RegulationsRegulations Related to M&A and Overseas Listings.
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.
PRC residents are subject to restrictions and filing requirements when investing in offshore companies. The 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 the SAFE on October 21, 2005. SAFE Circular 37 requires PRC residents to register with local branches of the 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. Pursuant to SAFE Circular 37, control refers to the act through which a PRC resident obtains the right to carry out business operation of, to gain proceeds from or to make decisions on a special purpose vehicle by means of, among others, shareholding entrustment arrangement. 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 event. 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 the 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.
Mr. Xiaojun Zhang, Mr. Jiayuan Lin and several other beneficial owners of our ordinary shares have completed the SAFE registration pursuant to SAFE Circular 37 in 2018. We have notified substantial beneficial owners of ordinary shares who we know are PRC residents of their filing obligation and other compliance obligations relating to offshore investment. 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 and subsequent implementation 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 and subsequent implementation rules, or the failure of future beneficial owners of our company who
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are PRC residents to comply with the registration procedures set forth in SAFE Circular 37 and subsequent implementation rules, 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. These risks may have a material adverse effect on our business, financial condition and results of operations.
Any failure to comply with PRC regulations regarding our employee share incentive plan 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 and who will be granted options may follow SAFE Circular 37 to apply for the foreign exchange registration before our company becomes an overseas listed company. After our company becomes an overseas listed company upon completion of this offering, we and our directors, executive officers and other employees who are PRC residents and who have been granted options will be subject to the Notice on Issues Concerning the Foreign Exchange Administration for Domestic Individuals Participating in Stock Incentive Plan of Overseas Publicly Listed Company, 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 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 will make efforts to comply with these requirements upon completion of our initial public offering. 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 plan or receive dividends or sales proceeds related thereto, or our ability to contribute additional capital into our wholly-foreign owned enterprise 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.
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 PRC operating subsidiaries to make payments to us could have a material adverse effect on our ability to conduct 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 the consolidated VIE, 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 we may incur outside of China and pay our expenses. When our principal operating subsidiaries or the consolidated VIE 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. Certain of our subsidiaries did not have any retained earnings available for
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distribution in the form of dividends as of March 31, 2018. In addition, registered capital and capital reserve accounts are also restricted from withdrawal in the PRC, up to the amount of net assets held in each operating subsidiary.
Limitations on the ability of our consolidated VIE to make remittance to the wholly-foreign owned enterprise 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 or otherwise fund and conduct our business.
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 Circular 82, on April 22, 2009. 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 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 Circular 82 may reflect the State Administration of Taxations 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 paid 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 Enterprise Income Tax Law and its implementation regulations issued by the State Council, a 10% PRC withholding tax is applicable to dividends paid 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. 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%, 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 paid 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 (which in the case of dividends may be withheld at source) at a rate of 20%. Any PRC tax liability may be reduced by an applicable tax treaty. However, 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 paid 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
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and thus are subject to PRC tax, the value of your investment in our ADSs or Class A ordinary shares may decline significantly.
We and our shareholders face uncertainties with respect to indirect transfers of equity interests in PRC resident enterprises or other assets attributed to a Chinese establishment of a non-Chinese company, or immovable properties 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. Pursuant to this Bulletin 7, an indirect transfer of assets, including non-publicly traded equity interests in a PRC resident enterprise, by non-PRC resident enterprises may be re-characterized 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 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 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 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, 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. 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 State Administration of Taxation promulgated the Announcement of the State Administration of Taxation on Issues Concerning the Withholding of Non-resident Enterprise Income Tax at Source (SAT Circular 37), which became effective on December 1, 2017. SAT Circular 37, among other things, simplified procedures of withholding and payment of income tax levied on non-resident enterprises.
We face uncertainties as to the reporting and other implications of certain past and future transactions where PRC taxable assets are involved, such as offshore restructuring, sale of the shares in our offshore subsidiaries or investments. Our company may be subject to filing obligations or taxed if our company is transferor in such transactions, and may be subject to withholding obligations if our company is transferee in such transactions under Bulletin 7 and SAT Circular 37. For transfer of shares in our company by investors that are non-PRC resident enterprises, our PRC subsidiaries may be requested to assist in the filing under Bulletin 7 and SAT Circular 37. As a result, we may be required to expend valuable resources to comply with Bulletin 7 and SAT Circular 37 or to request the relevant transferors from whom we purchase taxable assets to comply with these circulars, or to establish that our company should not be taxed under these circulars, which may have a material adverse effect on our financial condition and results of operations.
We are subject to restrictions on currency exchange.
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
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capital account, which includes foreign direct investment and loans, including loans we may secure from our onshore subsidiary or consolidated VIE. Currently, our PRC subsidiary may purchase foreign currency for settlement of current account transactions, including payment of dividends to us, 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, the SAFE and other relevant PRC governmental authorities. Since a significant amount of our future revenue and cash flow 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 onshore subsidiary and consolidated VIE.
PRC regulation of loans to, and direct investment in, PRC entities by offshore holding companies and governmental control of currency conversion may restrict or prevent us from using the proceeds of this offering to make loans to our PRC subsidiary and our consolidated VIE, or to make additional capital contributions to our PRC subsidiary.
In utilizing the proceeds of this offering, we, as an offshore holding company, are permitted under PRC laws and regulations to provide funding to our PRC subsidiary, which is treated as a foreign-invested enterprise under PRC laws, through loans or capital contributions. However, loans by us to our PRC subsidiary to finance its activities cannot exceed statutory limits and must be registered with the local counterpart of SAFE and capital contributions to our PRC subsidiaries are subject to the requirement of making necessary filings in the Foreign Investment Comprehensive Management Information System, and registration with other governmental authorities in China.
SAFE promulgated the Notice of the State Administration of Foreign Exchange on Reforming the Administration of Foreign Exchange Settlement of Capital of Foreign-invested Enterprises, or Circular 19, effective on June 1, 2015, in replacement of 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, the Notice from the State Administration of Foreign Exchange on Relevant Issues Concerning Strengthening the Administration of Foreign Exchange Businesses, or Circular 59, and the Circular on Further Clarification and Regulation of the Issues Concerning the Administration of Certain Capital Account Foreign Exchange Businesses, or Circular 45. According to Circular 19, the flow and use of the RMB capital converted from foreign currency-denominated registered capital of a foreign-invested company is regulated such that RMB capital may not be used for the issuance of RMB entrusted loans, the repayment of inter-enterprise loans or the repayment of banks loans that have been transferred to a third party. Although Circular 19 allows RMB capital converted from foreign currency-denominated registered capital of a foreign-invested enterprise to be used for equity investments within the PRC, it also reiterates the principle that RMB converted from the foreign currency-denominated capital of a foreign-invested company may not be directly or indirectly used for purposes beyond its business scope. Thus, it is unclear whether SAFE will permit such capital to be used for equity investments in the PRC in actual practice. 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 Circular 16, effective on June 9, 2016, which reiterates some of the rules set forth in 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 Circular 16 could result in administrative penalties. Circular 19 and Circular 16 may significantly limit our ability to transfer any foreign currency we hold, including the net proceeds from this offering, to our PRC subsidiary, which may adversely affect our liquidity and our ability to fund and expand our business in the PRC.
Due to the restrictions imposed on loans in foreign currencies extended to any PRC domestic companies, we are not likely to make such loans to our consolidated VIE and its subsidiaries, each a PRC domestic company.
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Meanwhile, we are not likely to finance the activities of our consolidated VIE and its subsidiaries by means of capital contributions given the restrictions on foreign investment in the businesses that are currently conducted by our consolidated VIE and its subsidiaries.
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 to our PRC subsidiary or any consolidated VIE or future capital contributions by us to our PRC subsidiary. As a result, uncertainties exist as to our ability to provide prompt financial support to our PRC subsidiary or consolidated VIE and its subsidiaries when needed. If we fail to complete such registrations or obtain such approvals, our ability to use foreign currency, including the proceeds we received from this 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.
Fluctuations in exchange rates could result in foreign currency exchange losses and could materially reduce the value of your investment.
The value of the Renminbi against the U.S. dollar and other currencies may fluctuate and is affected by, among other things, changes in political and economic conditions and the foreign exchange policy adopted by the PRC government. On July 21, 2005, the PRC government changed its policy of pegging the value of the Renminbi to the U.S. dollar. Following the removal of the U.S. dollar peg, the Renminbi appreciated more than 20% against the U.S. dollar over the following three years. Between July 2008 and June 2010, this appreciation halted and the exchange rate between the Renminbi and the U.S. dollar remained within a narrow band. Since June 2010, the Renminbi has fluctuated against the U.S. dollar, at times significantly and unpredictably. On November 30, 2015, the Executive Board of the International Monetary Fund (IMF) completed the regular five-year review of the basket of currencies that make up the Special Drawing Right, or the SDR, and decided that with effect from October 1, 2016, Renminbi is determined to be a freely usable currency and will be included in the SDR basket as a fifth currency, along with the U.S. dollar, the Euro, the Japanese yen and the British pound. In the fourth quarter of 2016, the Renminbi has depreciated significantly in the backdrop of a surging U.S. dollar and persistent capital outflows of China. With the development of the foreign exchange market and progress towards interest rate liberalization and Renminbi internationalization, the PRC government may in the future announce further changes to the exchange rate system, and we cannot assure you that the Renminbi will not appreciate or depreciate significantly in value against the U.S. dollar in the future. It is difficult to predict how market forces or PRC or U.S. government policy may impact the exchange rate between the Renminbi and the U.S. dollar in the future.
All of our revenue and substantially all of our costs are denominated in Renminbi. We are a holding company and we rely on dividends paid by our operating subsidiaries in China for our cash needs. Any significant revaluation of Renminbi may materially and adversely affect our results of operations and financial position reported in Renminbi when translated into U.S. dollars, and the value of, and any dividends payable on, the ADSs in U.S. dollars. To the extent that we need to convert U.S. dollars we receive from this offering 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 the purpose of making payments for dividends on our Class A ordinary shares or ADSs or for other business purposes, appreciation of the U.S. dollar against the Renminbi would have a negative effect on the U.S. dollar amount.
The audit report included in this prospectus is prepared by an auditor who is not 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 our prospectus filed with the SEC, as auditors of companies that are traded publicly in the U.S. and a firm registered with the
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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 Peoples Republic of China, a jurisdiction where the PCAOB is currently unable to conduct inspections without the approval of the Chinese authorities, our auditors are not currently 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 auditors audits and its quality control procedures. As a result, investors may be deprived of the benefits of PCAOB inspections.
The inability of the PCAOB to conduct inspections of auditors in China makes it more difficult to evaluate the effectiveness of our auditors audit procedures or quality control procedures as compared to auditors outside of China that are subject to PCAOB inspections. Investors may lose confidence in our reported financial information and procedures and the quality of our consolidated financial statements.
If additional remedial measures are imposed on the big four PRC-based accounting firms, including our independent registered public accounting firm, in administrative proceedings brought by the SEC alleging 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.
Starting in 2011, the Chinese affiliates of the big four accounting firms, including our independent registered public accounting firm, were affected by a conflict between U.S. and Chinese law. Specifically, for certain U.S. listed companies operating and audited in mainland China, the SEC and the PCAOB sought to obtain from the Chinese accounting firms access to their audit work papers and related documents. The firms were, however, advised and directed that under Chinese law they could not respond directly to the U.S. regulators on those requests, and that requests by foreign regulators for access to such papers in China had to be channeled through the CSRC.
In late 2012, this impasse led the SEC to commence administrative proceedings under Rule 102(e) of its Rules of Practice and also under the Sarbanes-Oxley Act of 2002 against the Chinese accounting firms, including our independent registered public accounting firm. In January 2014, the administrative law judge reached an initial decision to impose penalties on the firms including a temporary suspension of their right to practice before the SEC. The accounting firms filed a petition for review of the initial decision. On February 6, 2015, before a review by the commissioners of the SEC had taken place, the firms reached a settlement with the SEC. Under the settlement, the SEC accepts that future requests by the SEC for the production of documents will normally be made to the CSRC. The firms will receive matching Section 106 requests, and are required to abide by a detailed set of procedures with respect to such requests, which in substance require them to facilitate production via the CSRC. If they fail to meet specified criteria, the SEC retains authority to impose a variety of additional remedial measures on the firms depending on the nature of the failure. Remedies for any future noncompliance could include, as appropriate, an automatic six-month bar on a single firms performance of certain audit work, commencement of a new proceeding against a firm, or in extreme cases the resumption of the current proceeding against all four firms.
In the event that the SEC restarts the administrative proceedings, depending upon the final outcome, listed companies in the U.S. with major PRC operations may find it difficult or impossible to retain auditors in respect of their operations in the PRC, which could result in financial statements being determined to not be in compliance with the requirements of the Exchange Act, including possible delisting. Moreover, any negative news about any such future proceedings against these audit firms may cause investor uncertainty regarding China-based, U.S.-listed companies and the market price of our ADSs may be adversely affected.
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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 consolidated financial statements, our consolidated 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 this offering, delisting of our ADSs from the NYSE or deregistration from the SEC, or both, which would substantially reduce or effectively terminate the trading of our ADSs in the U.S.
Risks Relating to This Offering
There has been no public market for our shares or ADSs prior to this offering, and you may not be able to resell our ADSs at or above the price you paid, or at all.
Prior to this offering, there has been no public market for our shares or ADSs. We will apply to list our ADSs representing Class A ordinary shares on the NYSE. Our Class A ordinary shares will not be listed on any exchange or quoted for trading on any over-the-counter trading system. If an active trading market for our ADSs does not develop after this offering, the market price and liquidity of our ADSs will be materially and adversely affected.
Negotiations with the underwriters will determine the initial public offering price for our ADSs which may bear no relationship to their market price after the initial public offering. There can be no assurance that an active trading market for our ADSs will develop or that the market price of our ADSs will not decline below the initial public offering price.
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, like 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 these companies have experienced significant volatility since their initial public offerings, including, in some cases, substantial price declines in the trading prices of their securities. The trading performances of other Chinese companies securities after their offerings, including technology companies and transaction service platforms, 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. Furthermore, 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, including the following:
| regulatory developments affecting us or our industry; |
| announcements of studies and reports relating to the quality of our credit offerings or those of our competitors; |
| changes in the economic performance or market valuations of other transaction service platforms; |
| actual or anticipated fluctuations in our quarterly results of operations and changes or revisions of our expected results; |
| changes in financial estimates by securities research analysts; |
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| conditions in the markets for car buyers and for financing facilitation services; |
| announcements by us or our competitors of new product and service offerings, acquisitions, strategic relationships, joint ventures, capital raisings or capital commitments; |
| additions to or departures of our senior management; |
| fluctuations of exchange rates between the Renminbi and the U.S. dollar; |
| release or expiry of lock-up or other transfer 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.
As our initial public offering price is substantially higher than our net tangible book value per share, you will experience immediate and substantial dilution.
If you purchase ADSs in this offering, you will pay more for your ADSs than the amount paid by our existing shareholders for their ordinary shares on a per ADS basis. As a result, you will experience immediate and substantial dilution of approximately US$ per ADS (assuming no exercise of outstanding options to acquire ordinary shares and no exercise of the underwriters option to purchase additional ADSs), representing the difference between our pro forma net tangible book value per ADS of US$ , as of March 31, 2018, after giving effect to this offering. In addition, you will experience further dilution to the extent that our Class A ordinary shares are issued upon the vesting of restrictive shares or exercise of share options under our share incentive plan to be adopted prior to the completion of this offering. Class A ordinary shares issuable under our share incentive plan may be issued at a purchase price on a per ADS basis that is less than the public offering price per ADS in this offering. See Dilution for a more complete description of how the value of your investment in our ADSs will be diluted upon completion of this offering.
Because we do not expect to pay cash dividends in the foreseeable future after this offering, you may not receive any return on your investment unless you sell your Class A ordinary shares or ADSs for a price greater than that which you paid for them.
We currently intend to retain most, if not all, of our available funds and any future earnings after this offering 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 Dividend Policy. 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. 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 after this offering 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.
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Substantial future sales or perceived potential sales of our ADSs in the public market could cause the price of our ADSs to decline.
Sales of our ADSs in the public market after this offering, or the perception that these sales could occur, could cause the market price of our ADSs to decline significantly. Upon completion of this offering, we will have Class A ordinary shares and 79,325,720 Class B ordinary shares outstanding, including Class A ordinary shares represented by ADSs newly issued in connection with this offering, assuming the underwriters do not exercise their option to purchase additional ADSs. All ADSs representing our Class A ordinary shares sold in this offering will be 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 ordinary shares outstanding after this offering will be available for sale, upon the expiration of the lock-up periods described elsewhere in this prospectus beginning from the date of this prospectus (if applicable to such holder), subject to volume and other restrictions as applicable under Rule 144 and Rule 701 under the Securities Act. Any or all of these ordinary shares may be released prior to the expiration of the applicable lock-up period at the discretion of the designated representatives. To the extent shares are released before the expiration of the applicable lock-up period and sold into the market, the market price of our ADSs could decline significantly. See Shares Eligible for Future SaleLock-up Agreements.
Certain major holders of our ordinary shares after completion of this offering will have the right to cause us to register under the Securities Act the sale of their shares, subject to the applicable lock-up periods in connection with this offering. 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.
You, as holders of ADSs, may have fewer rights than holders of our Class A ordinary shares and must act through the depositary to exercise those rights.
Holders of ADSs do not have the same rights of our shareholders and may only exercise the voting rights with respect to the underlying Class A ordinary shares in accordance with the provisions of the deposit agreement. Under our amended and restated articles of association, the minimum notice period required to convene a general meeting will be 10 days. When a general meeting is convened, you may not receive sufficient notice of a shareholders meeting to permit you to withdraw your Class A ordinary shares to allow you to cast your vote with respect to any specific matter. In addition, the depositary and its agents may not be able to send voting instructions to you or carry out your voting instructions in a timely manner. We will make all reasonable efforts to cause the depositary to extend voting rights 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 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 vote and you may lack recourse if 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.
Your rights to pursue claims against the depositary as a holder of ADSs are limited by the terms of the deposit agreement and the deposit agreement may be amended or terminated without your consent.
Under the deposit agreement, any action or proceeding against or involving the depositary, arising out of or based upon the deposit agreement or the transactions contemplated thereby or by virtue of owning the ADSs may only be instituted in a state or federal court in New York, New York, and you, as a holder of our ADSs, will have irrevocably waived any objection which you may have to the laying of venue of any such proceeding, and irrevocably submitted to the exclusive jurisdiction of such courts in any such action or proceeding. Also, we may amend or terminate the deposit agreement without your consent. If you continue to hold your ADSs after an amendment to the deposit agreement, you agree to be bound by the deposit agreement as amended. See Description of American Depositary Shares for more information.
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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 distribution and sale of 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 distribution and sale of 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 in the future and may experience dilution in your holdings.
You may not receive cash dividends or other distributions if the depositary determines it is illegal or 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 Class A ordinary shares or other deposited securities, and we do not have any present plan to pay any cash dividends in the foreseeable future. See Dividend Policy. To the extent that there is a distribution, the depositary of our ADSs has agreed to pay to you 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. 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 illegal 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.
We will incur increased costs and become subject to additional regulations and requirements as a result of becoming a public company, which could lower our profits or make it more difficult to run our business.
Upon completion of this offering, we will become a public company and expect to incur significant legal, accounting and other expenses that we did not incur as a private company. The Sarbanes-Oxley Act of 2002, as well as rules subsequently implemented by the SEC and NYSE, impose various requirements on the corporate governance practices of public companies.
We expect these rules and regulations to increase our legal and financial compliance costs and to make some corporate activities more time-consuming and costly. In addition, once we are no longer an emerging growth company, we expect 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 will need to increase the number of independent directors and adopt policies regarding internal controls and disclosure controls and procedures. We also expect that operating as a public company will 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 will incur additional costs associated with our public company reporting requirements. It may also be more difficult for us to find qualified persons to serve on our board of directors or as executive officers. We are currently evaluating and monitoring developments with respect to these rules and regulations, and we cannot predict or estimate with any degree of certainty the amount of additional costs we may incur or the timing of such costs.
In 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 companys securities. If we were involved in a class
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action suit, it could divert a significant amount of our managements 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.
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.
Our third amended and restated memorandum and 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 ordinary shares represented by our ADSs, at a premium.
We have adopted the third amended and restated articles of association to be effective immediately prior to the completion of this offering that contain provisions to 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 Class A 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 Class A ordinary shares and ADSs may be materially and adversely affected. In addition, our third amended and restated memorandum and articles of association contain other provisions that could limit the ability of third parties to acquire control of our company or cause us to engage in a transaction resulting in a change of control, including a provision that entitles each Class B ordinary share to 20 votes in respect of all matters subject to a shareholders vote.
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 United States. In addition, substantially all of our directors and executive officers and the experts named in this prospectus reside outside the United States, and most of their assets are located outside the United States As a result, it may be difficult or impossible for you to bring an action against us or against them in the United States in the event that you believe that your rights have been infringed under the United States 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. For more information regarding the relevant laws of the Cayman Islands and China, see Enforcement of Civil Liabilities.
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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, Cap. 22 (Law 3 of 1961, as consolidated and revised) of the Cayman Islands and the common law of the Cayman Islands. The rights of shareholders to take action against the directors, actions by 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 have 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 United States.
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 will have discretion under the third amended and restated memorandum and articles of association expected to be effective immediately prior to completion of this offering, 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. For a discussion of significant differences between the provisions of the Companies Law, Cap 22 (Law 3 of 1961, as consolidated and revised) of the Cayman Islands and the laws applicable to companies incorporated in the United States and their shareholders, see Description of Share CapitalDifferences in Corporate Law.
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 NYSE. Press releases relating to financial results and material events will also be furnished to the SEC on Form 6-K. However, the information we are required to file with or furnish to the SEC 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.
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We are an emerging growth company and may take advantage of certain reduced reporting requirements.
We are an emerging growth company, as defined in the JOBS Act, and we may take advantage of certain exemptions from various requirements applicable to other public companies that are not emerging growth companies including, most significantly, not being required to comply with the auditor attestation requirements of Section 404 of Sarbanes-Oxley Act of 2002 for so long as we are an emerging growth company. As a result, if we elect not to comply with such auditor attestation requirements, our investors may not have access to certain information they may deem important.
The JOBS Act also provides that an emerging growth company does not need to comply with any new or revised financial accounting standards until such date that a private company is otherwise required to comply with such new or revised accounting standards. We will take advantage of the extended transition period. As a result of this election, our financial statements may not be comparable to other public companies that comply with the public company effective dates for these new or revised accounting standards.
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 (which we have determined based on the expected price of our ADSs in this offering), we do not believe we were a passive foreign investment company (a PFIC) for our most recent taxable year, and we do not expect to become a PFIC in the current taxable year or in the foreseeable future, although there can be no assurance in this regard.
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 (determined based on a quarterly average) of our assets is attributable to assets that produce or are held for the production of passive income. |
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.
In addition, there is uncertainty as to the treatment of our corporate structure and ownership of our consolidated VIE for United States federal income tax purposes. For United States federal income tax purposes, we consider ourselves to own the equity of our consolidated VIE. If it is determined, contrary to our view, that we do not own the equity of our consolidated VIE for United States federal income tax purposes (for instance, because the relevant PRC 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 United States federal income tax consequences to you if you are a United States Holder, as defined under TaxationCertain United States Federal Income Tax Considerations. For example, if we are or become a PFIC, you may become subject to increased tax liabilities under United States federal income tax laws and regulations, and will become subject to burdensome reporting requirements. See TaxationCertain United States Federal Income Tax ConsiderationsPassive Foreign Investment Company. There can be no assurance that we will not be a PFIC for the current or any future taxable year.
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As a company incorporated in the Cayman Islands, we are permitted to adopt certain home country practices in relation to corporate governance matters that differ significantly from the NYSE corporate governance listing standards; these practices may afford less protection to shareholders than they would enjoy if we complied fully with the NYSE corporate governance listing standards.
We are a company incorporated in the Cayman Islands, and we will apply to list our ADSs on the NYSE. The NYSE market rules permit a foreign private issuer like us to follow the corporate governance practices of its home country. Certain corporate governance practices in the Cayman Islands, which is our home country, may differ significantly from the NYSE 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 nominating and corporate governance committee consisting entirely of independent directors; or (iii) have regularly scheduled executive sessions with only independent directors each year.
We intend to rely on the three exemptions described above. As a result, you may not be provided with the benefits of certain corporate governance requirements of the NYSE.
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SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS AND INDUSTRY DATA
This prospectus 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. The forward-looking statements are contained principally in the sections entitled Prospectus Summary, Risk Factors, Use of Proceeds, Managements Discussion and Analysis of Financial Condition and Results of Operations, Industry and Business. 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 prospectus relate to, among others:
| our goal and strategies; |
| our expansion plans; |
| our future business development, financial condition and results of operations; |
| our expectations regarding demand for, and market acceptance of, our solutions and services; |
| our expectations regarding keeping and strengthening our relationships with dealers, financial institutions, car buyers and other platform participants; and |
| general economic and business conditions. |
This prospectus also contains market data relating to the automotive finance industry in China, including market position, market size, and growth rates of the markets in which we participate, that are based on industry publications and reports. This prospectus contains statistical data and estimates published by Oliver Wyman Consulting (Shanghai) Ltd, or Oliver Wyman, including a report which we commissioned Oliver Wyman to prepare and for which we paid a fee. This information involves a number of assumptions, estimates and limitations. These industry publications, surveys and forecasts generally indicate that their information has been obtained from sources believed to be reliable, although they do not guarantee the accuracy or completeness of such information. Nothing in such data should be construed as advice. We have not independently verified the accuracy or completeness of the data contained in these industry publications and reports. The automotive finance 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 prospectus. You should not place undue reliance on these forward-looking statements.
The forward-looking statements made in this prospectus relate only to events or information as of the date on which the statements are made in this prospectus. Except as required by law, we undertake no obligation to update 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 prospectus and the documents that we have referred to in this prospectus and have filed as exhibits to the registration statement, of which this prospectus is a part, completely and with the understanding that our actual future results may be materially different from what we expect.
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We estimate that we will receive net proceeds from this offering of approximately US$ , or approximately US$ if the underwriters exercise their over-allotment option in full, after deducting underwriting discounts and commissions and the estimated offering expenses payable by us and based upon an assumed initial offering price of US$ per ADS (the mid-point of the estimated public offering price range shown on the front cover of this prospectus). A US$1.00 increase (decrease) in the assumed initial public offering price of US$ per ADS would increase (decrease) the net proceeds to us from this offering by US$ , after deducting the estimated underwriting discounts and commissions and estimated aggregate offering expenses payable by us and assuming no change to the number of ADSs offered by us as set forth on the cover page of this prospectus.
We plan to use the net proceeds of this offering as follows:
| up to approximately US$ million for investment in research and development capabilities, and data and technology; |
| up to approximately US$ million for expansion our sales and marketing efforts; |
| up to approximately US$ million for capital injection into Shanghai Autohome to increase the amount of financing leases it is able to fund; |
| up to approximately US$ million for expansion of automotive transaction facilitation services, including technology upgrades and inventory purchases; and |
| the balance for general corporate purposes, including working capital needs and potential acquisitions (although we are not currently negotiating any such acquisitions). |
The foregoing represents our intentions as of the date of this prospectus with respect of the use and allocation of the net proceeds of this offering based upon our present plans and business conditions, but our management will have significant flexibility and discretion in applying the net proceeds of the offering. The occurrence of unforeseen events or changed business conditions may result in application of the proceeds of this offering in a manner other than as described in this prospectus.
To the extent that the net proceeds we receive from this offering are not immediately applied for the above purposes, we intend to invest our net proceeds in short-term, interest bearing, debt instruments or bank deposits.
In utilizing the proceeds of this offering, we, as an offshore holding company, are permitted under PRC laws and regulations to provide funding to our PRC subsidiary only through loans or capital contributions and to our consolidated VIE only through loans. Subject to satisfaction of applicable government registration and approval requirements, we may extend inter-company loans to our PRC subsidiary or make additional capital contributions to our PRC subsidiary to fund its capital expenditures or working capital. We cannot assure you that we will be able to obtain these government registrations or approvals on a timely basis, if at all. For further information, see Risk FactorsRisks Relating to Doing Business in ChinaPRC regulation of loans to, and direct investment in, PRC entities by offshore holding companies and governmental control of currency conversion may restrict or prevent us from using the proceeds of this offering to make loans to our PRC subsidiary and our consolidated VIE, or to make additional capital contributions to our PRC subsidiary.
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Since its inception, Cango Inc. has not declared or paid any dividends on its shares. We do not have any present plan to pay any dividends on our Class A 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 other future determination to pay dividends will be made at the discretion of our board of directors and may 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, we will pay our ADS holders to the same extent as holders of our Class A ordinary shares, subject to the terms of the deposit agreement, including the fees and expenses payable thereunder. See Description of American Depositary Shares. Cash dividends on our Class A ordinary shares, if any, will be paid in U.S. dollars.
We are an exempted company incorporated in the Cayman Islands. In order for us to distribute any dividends to our shareholders and ADS holders, we may rely on dividends distributed by our PRC subsidiaries. Certain payments from our PRC subsidiaries to us may be subject to PRC withholding income tax. In addition, regulations in the PRC currently permit payment of dividends of a PRC company only out of accumulated distributable after-tax profits as determined in accordance with its articles of association and the accounting standards and regulations in China. Each of our PRC subsidiaries is required to set aside at least 10% of its after-tax profit based on PRC accounting standards every year to a statutory common reserve fund until the aggregate amount of such reserve fund reaches 50% of the registered capital of such subsidiary. Such statutory reserves are not distributable as loans, advances or cash dividends.
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The following table sets forth our capitalization as of March 31, 2018 presented on:
| an actual basis; |
| a pro forma basis to reflect (i) the issuance of 41,378,176 Series C preferred shares for an aggregate consideration of US$245.6 million; (ii) the designation of all ordinary shares held by Eagle Central Holding Limited, which is wholly owned by Mr. Xiaojun Zhang, into 39,442,798 Class B ordinary shares on a one-for-one-basis upon the completion of this offering; (iii) the designation of all ordinary shares held by Medway Brilliant Holding Limited, which is wholly owned by Mr. Jiayuan Lin, into 39,882,922 Class B ordinary shares on a one-for-one-basis upon the completion of this offering; and (iv) the designation of all of the remaining outstanding ordinary shares and the automatic conversion of all our outstanding convertible preferred shares into 214,884,172 Class A ordinary shares on a one-for-one-basis upon the completion of this offering; and |
| a pro forma as adjusted basis to give effect to (i) the issuance of 41,378,176 Series C preferred shares for an aggregate consideration of US$245.6 million; (ii) the designation of all ordinary shares directly held by Eagle Central Holding Limited, which is wholly owned by Mr. Xiaojun Zhang, into 39,442,798 Class B ordinary shares on a one-for-one-basis upon the completion of this offering; (iii) the designation of all ordinary shares directly held by Medway Brilliant Holding Limited, which is wholly owned by Mr. Jiayuan Lin, into 39,882,922 Class B ordinary shares on a one-for-one-basis upon the completion of this offering; (iv) the designation of all of the remaining outstanding ordinary shares and the automatic conversion of all our outstanding convertible preferred shares into 214,884,172 Class A ordinary shares on a one-for-one-basis upon the completion of this offering; and (v) the issuance and sale of the Class A ordinary shares in the form of ADSs offered hereby at an assumed initial public offering price of US$ per ADS, the mid-point of the estimated public offering price range shown on the front cover of this prospectus, after deducting underwriting discounts, commissions and estimated offering expenses payable by us and assuming no exercise of the underwriters option to purchase additional ADSs. |
The pro forma and pro forma as adjusted information below is illustrative only and our capitalization following the closing of this offering is subject to adjustment based on the initial public offering price of our ADSs and other terms of this offering determined at pricing. You should read this table in conjunction with Managements Discussion and Analysis of Financial Condition and Results of Operations and our consolidated financial statements and related notes included elsewhere in this prospectus.
As of March 31, 2018 | ||||||||||||||||||||
Actual | Pro Forma |
Pro Forma
as Adjusted |
||||||||||||||||||
RMB | US$ | RMB | US$ | RMB | US$ | |||||||||||||||
(in thousands) | ||||||||||||||||||||
Total mezzanine equity |
3,941,846 | 628,423 | | | ||||||||||||||||
Shareholders equity: |
||||||||||||||||||||
Ordinary shares |
83 | 13 | 185 | 29 | ||||||||||||||||
Series A-2 preferred shares |
1 | 0.2 | | | ||||||||||||||||
Additional paid-in capital |
4,100 | 654 | 4,210,213 | 671,207 | ||||||||||||||||
Accumulated other comprehensive loss |
(321 | ) | (51 | ) | (321 | ) | (51 | ) | ||||||||||||
Accumulated (deficit)/Retained earnings |
(851,322 | ) | (135,721 | ) | 475,437 | 75,796 | ||||||||||||||
Total Cango Inc.s (deficit)/equity |
(847,458 | ) | (135,105 | ) | 4,685,514 | 746,981 | ||||||||||||||
Non-controlling interests |
8,580 | 1,368 | 8,580 | 1,368 | ||||||||||||||||
Total shareholders (deficit)/equity |
(838,879 | ) | (133,737 | ) | 4,694,094 | 748,349 | ||||||||||||||
Total capitalization |
3,102,967 | 494,686 | 4,694,094 | 748,349 |
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If you invest in our ADSs, your interest will be diluted to the extent of the difference between the initial public offering price per ADS and our net tangible book value per ADS after this offering. Dilution results from the fact that the initial public offering price per Class A ordinary share is substantially in excess of the book value per ordinary share attributable to the existing shareholders for our presently outstanding ordinary shares and holders of our convertible preferred shares which will automatically convert into our Class A ordinary shares upon the completion of this offering.
Our net tangible book value as of March 31, 2018 was approximately RMB3,101.3 million (US$494.4 million), or US$ per ordinary share as of that date, and US$ per ADS. Net tangible book value represents the amount of our total consolidated assets, less the amount of our intangible assets and total consolidated liabilities. Dilution is determined by subtracting net tangible book value per ordinary share from our consolidated total assets, after giving effect to (i) the automatic conversion of all of our outstanding convertible preferred shares into Class A ordinary shares immediately upon the completion of this offering and (ii) the issuance and sale by us of shares in the form of ADSs in this offering at an assumed initial public offering price of US$ per ADS (the midpoint of the estimated initial public offering price range shown on the front cover page of this prospectus) after deduction of the underwriting discounts and commissions and estimated offering expenses payable by us.
Without taking into account any other changes in net tangible book value after March 31, 2018, other than to give effect to (i) the automatic conversion of all of our outstanding convertible preferred shares into Class A ordinary shares immediately upon the completion of this offering and (ii) the issuance and sale by us of Class A ordinary shares in the form of ADSs in this offering at an assumed initial public offering price of US$ per ADS (the midpoint of the estimated initial public offering price range shown on the front cover page of this prospectus) after deduction of the underwriting discounts and commissions and estimated offering expenses payable by us, our pro forma as adjusted net tangible book value as of March 31, 2018 would have been US$ million, or US$ per outstanding ordinary share and US$ per ADS. This represents an immediate increase in net tangible book value of US$ per ordinary share and US$ per ADS to the existing shareholders and an immediate dilution in net tangible book value of US$ per ordinary share and US$ per ADS to investors purchasing ADSs in this offering.
The following table illustrates such dilution:
Per
Ordinary Share |
Per ADS | |||||||
Actual net tangible book value per share as of March 31, 2018 |
US$ | US$ | ||||||
Pro forma net tangible book value per share after giving effect to the automatic conversion of all of our outstanding convertible preferred shares into Class A ordinary shares |
||||||||
Pro forma as adjusted net tangible book value per share after giving effect to (i) the automatic conversion of all of our outstanding convertible preferred shares into Class A ordinary shares and (ii) this offering |
||||||||
Assumed initial public offering price |
||||||||
Dilution in net tangible book value per share to new investors in the offering |
The amount of dilution in net tangible book value to new investors in this offering set forth above is calculated by deducting (i) the pro forma net tangible book value after giving effect to the automatic conversion of our outstanding convertible preferred shares from (ii) the pro forma net tangible book value after giving effect to the automatic conversion of our convertible preferred shares and this offering.
The following table summarizes, on a pro forma basis as of March 31, 2018, the differences between existing shareholders, including holders of our convertible preferred shares, and the new investors with respect to
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the number of Class A ordinary shares (in the form of ADSs or shares) purchased from us, the total consideration paid and the average price per Class A ordinary share and per ADS paid before deducting the underwriting discounts and commissions and estimated offering expenses. The total number of ordinary shares does not include Class A ordinary shares underlying the ADSs issuable upon the exercise of the option to purchase additional ADSs granted to the underwriters.
A US$1.00 increase (decrease) in the assumed public offering price of US$ per ADS (the midpoint of the estimated initial public offering price range shown on the front cover page of this prospectus) would increase (decrease) our pro forma net tangible book value after giving effect to the offering by US$ million, the pro forma net tangible book value per ordinary share and per ADS after giving effect to this offering by US$ per ordinary share and US$ per ADS and the dilution in pro forma net tangible book value per ordinary share and per ADS to new investors in this offering by US$ per ordinary share and US$ per ADS, assuming no change to the number of ADS offered by us as set forth on the front cover page of this prospectus, and after deducting underwriting discounts and commissions and other offering expenses.
The pro forma information discussed above is illustrative only. Our net tangible book value following the completion of this offering is subject to adjustment based on the actual initial public offering price of our ADSs and other terms of this offering determined at pricing.
The discussion and tables above take into consideration the automatic conversions of all of our outstanding convertible preferred shares immediately upon the completion of this offering, and they do not take into consideration of any outstanding share options. As of the date of this prospectus, there are also (i) 5,569,105 ordinary shares issuable upon exercise of outstanding share options and (ii) 22,276,421 ordinary shares available for future issuance upon the exercise of future grants under our share incentive plan. If any of these options are exercised, there will be further dilution to new investors.
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Substantially all of our operations are conducted in the PRC and substantially all of our total revenue is denominated in Renminbi. This prospectus contains translations of Renminbi amounts into U.S. dollars at specific rates solely for the convenience of the reader. Unless otherwise noted, all translations from Renminbi to U.S. dollars and from U.S. dollars to Renminbi in this prospectus were made at a rate of RMB6.2726 to US$1.00, the exchange rate set forth in the H.10 statistical release of the Federal Reserve Board on March 30, 2018. We make no representation that the Renminbi or U.S. dollar amounts referred to in this prospectus could have been or could be converted into U.S. dollars or Renminbi, as the case may be, at any particular rate or at all. The PRC government imposes control over its foreign currency reserves in part through direct regulation of the conversion of Renminbi into foreign exchange and through restrictions on foreign trade. On June 15, 2018, the noon buying rate for Renminbi was RMB6.4379 to US$1.00.
The following table sets forth information concerning exchange rates between the Renminbi and the U.S. dollar for the periods presented. These rates are provided solely for your convenience and are not necessarily the exchange rates that we used in this prospectus or will use in the preparation of our periodic reports or any other information to be provided to you. For all dates and periods, the exchange rate refers to the exchange rate as set forth in the H.10 statistical release of the Federal Reserve Board.
Noon Buying Rate | ||||||||||||||||
Period |
Period End | Average (1) | Low | High | ||||||||||||
(RMB per US$1.00) | ||||||||||||||||
2012 |
6.2301 | 6.2990 | 6.3879 | 6.2221 | ||||||||||||
2013 |
6.0537 | 6.1412 | 6.2438 | 6.0537 | ||||||||||||
2014 |
6.2046 | 6.1704 | 6.2591 | 6.0402 | ||||||||||||
2015 |
6.4778 | 6.2869 | 6.4896 | 6.1870 | ||||||||||||
2016 |
6.9430 | 6.6549 | 6.9580 | 6.4480 | ||||||||||||
2017 |
6.5063 | 6.7349 | 6.8900 | 6.5063 | ||||||||||||
December |
6.5063 | 6.5931 | 6.6210 | 6.5063 | ||||||||||||
2018 |
||||||||||||||||
January |
6.2841 | 6.4232 | 6.5263 | 6.2841 | ||||||||||||
February |
6.3280 | 6.3183 | 6.3471 | 6.2649 | ||||||||||||
March |
6.2726 | 6.3174 | 6.3565 | 6.2685 | ||||||||||||
April |
6.3325 | 6.2967 | 6.3340 | 6.2655 | ||||||||||||
May |
6.4096 | 6.3701 | 6.4175 | 6.3325 | ||||||||||||
June (through June 15) |
6.4379 | 6.4031 | 6.4379 | 6.3850 |
Source: Federal Reserve Statistical Release
(1) | Annual averages are calculated using the average of the rates on the last business day of each month during the relevant year. Monthly averages are calculated using the average of the daily rates during the relevant month. |
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ENFORCEMENT OF CIVIL LIABILITIES
We are incorporated under the laws of the Cayman Islands as an exempted company with limited liability. We are incorporated in the Cayman Islands because of certain benefits associated with being a Cayman Islands company, such as political and economic stability, an effective judicial system, a favorable tax system, the absence of foreign exchange control or currency restrictions and the availability of professional and support services. However, the Cayman Islands has a less developed body of securities laws as compared to the United States and provides protections for investors to a lesser extent. In addition, Cayman Islands companies may not have standing to sue before the federal courts of the United States.
Substantially all of our operations are conducted in the PRC, and substantially all of our assets are located in the PRC. In addition, most of our directors and officers are residents of jurisdictions other than the United States and all or a substantial portion of their assets are located outside the United States. As a result, it may be difficult for investors to effect service of process within the United States upon us or these persons, or to enforce against us or them judgments obtained in United States courts, including judgments predicated upon the civil liability provisions of the securities laws of the United States or any state in the United States. It may also be difficult for you to enforce in United States courts judgments obtained in United States courts based on the civil liability provisions of the United States federal securities laws against us and our officers and directors.
We have appointed Cogency Global Inc. as our agent to receive service of process with respect to any action brought against us in the United States District Court for the Southern District of New York under the federal securities laws of the United States or of any state in the United States or any action brought against us in the Supreme Court of the State of New York in the County of New York under the securities laws of the State of New York.
Conyers Dill & Pearman, our counsel as to Cayman Islands law, and Fangda Partners, our counsel as to PRC law, have advised us that there is uncertainty as to whether the courts of the Cayman Islands or the PRC would, respectively, (1) recognize or enforce judgments of United States courts obtained against us or our directors or officers predicated upon the civil liability provisions of the securities laws of the United States or any state in the United States and (2) entertain original actions brought in the Cayman Islands or the PRC against us or our directors or officers predicated upon the securities laws of the United States or any state in the United States.
Conyers Dill & Pearman has informed us that the uncertainty with regard to Cayman Islands law relates to whether a judgment obtained from the United States courts under the civil liability provisions of the securities laws will be determined by the courts of the Cayman Islands as penal or punitive in nature. If such a determination is made, the courts of the Cayman Islands will not recognize or enforce the judgment against a Cayman Islands company. Because the courts of the Cayman Islands have yet to rule on whether such judgments are penal or punitive in nature, it is uncertain whether they would be enforceable in the Cayman Islands. Conyers Dill & Pearman has further advised us that a final and conclusive judgment in the federal or state courts of the United States under which a sum of money is payable, other than a sum payable in respect of taxes, fines, penalties or similar charges, may be subject to enforcement proceedings as a debt in the courts of the Cayman Islands under the common law doctrine of obligation.
In addition, Conyers Dill & Pearman has advised us that there is no statutory recognition in the Cayman Islands of judgments obtained in the United States, although the Cayman Islands will generally recognize as a valid judgment, a final and conclusive judgment in personam obtained in the federal or state courts in the United States under which a sum of money is payable (other than a sum of money payable in respect of multiple damages, taxes or other charges of a like nature or in respect of a fine or other penalty) and would give a judgment based thereon provided that (i) such courts had proper jurisdiction over the parties subject to such judgment; (ii) such courts did not contravene the rules of natural justice of the Cayman Islands; (iii) such judgment was not obtained by fraud; (iv) the enforcement of the judgment would not be contrary to the public
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policy of the Cayman Islands; (v) no new admissible evidence relevant to the action is submitted prior to the rendering of the judgment by the courts of the Cayman Islands; and (vi) there is due compliance with the correct procedures under the laws of the Cayman Islands.
Fangda Partners has advised us that the recognition and enforcement of foreign judgments are provided for under the PRC Civil Procedure Law. PRC courts may recognize and enforce foreign judgments in accordance with the requirements of the PRC Civil Procedure Law based either on treaties between China and the country where the judgment is made or on principles of reciprocity between jurisdictions. Fangda Partners has advised us further that under PRC law, a foreign judgment, which does not otherwise violate basic legal principles, state sovereignty, safety or social public interest, may be recognized and enforced by a PRC court, based either on treaties between China and the country where the judgment is made or on principles of reciprocity between jurisdictions. As there existed no treaty and few other form of reciprocity between China and the United States governing the recognition and enforcement of judgments as of the date of this prospectus, including those predicated upon the liability provisions of the United States federal securities laws, there is uncertainty whether and on what basis a PRC court would enforce judgments rendered by United States courts.
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OUR HISTORY AND CORPORATE STRUCTURE
We began operations in August 2010 through Shanghai Cango, which was founded under the laws of the PRC by a group of pioneers who built the first automotive finance business in China, SAIC-GMAC Automotive Finance Co., Ltd. We initially focused on providing automotive financing solutions to car buyers by connecting them to dealers and financial institutions through our platform. As of March 31, 2018, our platform had served 734,336 car buyers cumulatively since inception, and our dealer network was comprised of 37,667 registered dealers. We have also established partnerships with several financial institutions over time, including Jincheng Bank, WeBank, Bank of Shanghai and Jiangnan Rural Commercial Bank. Led by an experienced and visionary management team, we have extended our services beyond the facilitation of automotive financing transactions and identified new ways to strengthen our platform and serve our customers. We started to provide automotive transaction facilitation in 2015 and after-market services facilitation in 2017.
In October 2017, we incorporated Cango Inc. under the laws of the Cayman Islands, which has become our ultimate holding company, and subsequently, we established a wholly-owned subsidiary in Hong Kong, Cango Group Limited, to be our intermediate holding company. In January 2018, we established Can Gu Long as our wholly foreign owned subsidiary in China. Can Gu Long has entered into a series of contractual arrangements with Shanghai Cango and its shareholders, which allows us to exercise effective control over Shanghai Cango and receive substantially all the economic benefits of Shanghai Cango. We refer to the series of transactions described above as our Offshore Restructuring.
We have completed three rounds of equity financing prior to the completion of this offering. The first round of equity financing was completed in July 2017, and investors included Warburg Pincus Financial Global Ltd. and Primavera. The second round of equity financing was completed in March 2018, and investors included, among others, Tencent, Taikang Life Insurance and Didi Chuxing. We completed the third round of equity financing with Didi Chuxing and another investor in June 2018.
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Our Corporate Structure
The following diagram illustrates our corporate structure after giving effect to the Acquisition. The first step of the Acquisition involves the purchase of 25% of equity interest in Shanghai Autohome from Autohome Hong Kong. In September 2017, we entered into the Autohome Transfer Agreement with Autohome Hong Kong, a PRC affiliate of Autohome Hong Kong and Express Group, an acquisition vehicle affiliated with WP Fintech, one of our principal shareholders. As part of our planned Offshore Restructuring, it was contemplated that Express Group, which held the contractual right to purchase the 25% equity interest in Shanghai Autohome under the Autohome Transfer Agreement as its only material asset, would be transferred to one of our subsidiaries. Pursuant to the Autohome Transfer Agreement, the consideration for the equity interest was RMB103.0 million or the equivalent amount in U.S. dollars. In May 2018, we acquired Express Group from an affiliate of WP Fintech for a nominal price of one Hong Kong dollar. Subsequently, we paid Autohome Hong Kong half of the consideration for the equity interest through Express Group. We are required to register the change in Shanghai Autohomes equity ownership with the relevant government authorities, and we expect to complete such registration in July 2018. We will pay the remaining half of the consideration upon the completion of such registration.
The second step of the Acquisition involves the purchase of 25% of equity interest in Shanghai Autohome from Ningbo Meishan Bonded Harbor Zone Xinxiang Investment Management L.P., or Ningbo Xinxiang. In May 2018, we entered into an equity interest transfer agreement with Ningbo Xinxiang, which provides for a consideration in the amount of RMB103.0 million. We plan to pay half of the consideration after completing the first step of the Acquisition. We plan to pay the remainder after completing the requisite registration of the change in Shanghai Autohomes equity ownership with the relevant government authorities. We expect to consummate the Acquisition in the third quarter of 2018.
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The following diagram omits certain entities that are immaterial to our results of operations, business and financial condition. Except as otherwise specified, equity interests depicted in this diagram are held as to 100%. The relationships between each of Can Gu Long, Shanghai Cango and its shareholders as illustrated in this diagram are governed by contractual arrangements and do not constitute equity ownership.
(1) | Shanghai Wangjin Investment Management Co., Ltd. (controlled by Mr. Xiaojun Zhang), Mr. Jiayuan Lin, Warburg Pincus Financial Global Ltd., Tencent Mobility Limited, Shanghai Xiehuai Investment Management L.P. (of which Mr. Jiayuan Lin is the general partner), the Taikang Onshore Entities (including Taikang Life Insurance Co., Ltd. and Shandong State-controlled Taikang Phase I Industrial Development Fund Partnership Enterprise (Limited Partnership)) and Shanghai Huaiyuan Investment Management L.P. (of which Shouyan Xu is the general partner) respectively hold 15.6%, 15.8%, 21.1%, 12.5%, 8.4%, 6.3% and 5.2% of equity interests in Shanghai Cango. The remaining equity interests in Shanghai Cango are held by nine other shareholders. Each shareholder of Shanghai Cango is either an affiliate of or identical to a shareholder of Cango Inc. For information as to the principal shareholders of Cango Inc., see Principal Shareholders. |
(2) | Includes 29 subsidiaries that are majority owned by Shanghai Cango. These subsidiaries are located in various cities across China and are primarily involved in providing automotive financing facilitation services to financial institutions and car buyers. |
(3) | Primarily involved in the operation of our automobile trading platform 91HaoChe. |
(4) | Primarily involved in providing financing leases to car buyers. Shanghai Cango, our consolidate VIE, currently owns 50% equity interest in Shanghai Autohome. We have entered into agreements in connection with the Acquisition, which we expect to consummate in the third quarter of 2018. Upon the completion of the Acquisition, our indirectly wholly owned subsidiary will own 25% equity interest in Shanghai Autohome and Shanghai Cango will own 75% equity interest in Shanghai Autohome. As a result, Shanghai Autohome will become our wholly-owned consolidated subsidiary. |
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Contractual Arrangements among Can Gu Long, Shanghai Cango and Its Shareholders
PRC laws and regulations currently restrict foreign ownership and investment in VATS in China. As we plan to engage in VATS businesses, including value-added online services for platform participants, in the future, we currently conduct our operations mainly through Shanghai Cango, or the consolidated VIE, and its subsidiaries. We effectively control the consolidated VIE through a series of contractual arrangements with the consolidated VIE, its shareholders and Can Gu Long, as described in more detail below, which collectively enables us to:
| exercise effective control over our consolidated VIE and its subsidiaries; |
| receive substantially all the economic benefits of our consolidated VIE; and |
| have an exclusive option to purchase all or part of the equity interests in the equity interest in or all or part of the assets of Shanghai Cango when and to the extent permitted by PRC law. |
As a result of these contractual arrangements, we are the primary beneficiary of Shanghai Cango and its subsidiaries. We have consolidated their financial results in our consolidated financial statements in accordance with U.S. GAAP.
In the opinion of Fangda Partners, our PRC legal counsel:
| the ownership structures of Can Gu Long and our consolidated VIE in China, both currently and immediately after giving effect to this offering, do not and will not violate any applicable PRC law, regulation, or rule currently in effect; and |
| the contractual arrangements among Can Gu Long, Shanghai Cango and its shareholders governed by PRC laws are valid, binding and enforceable in accordance with their terms and applicable PRC laws, rules, and regulations currently in effect, and will not violate any applicable PRC law, regulation, or rule currently in effect, except that the pledges in respect of Shanghai Cangos equity interests would not be deemed validly created until they are registered with the local administration of industry and commerce. |
However, we have been further advised by our PRC legal counsel, Fangda Partners, that there are substantial uncertainties regarding the interpretation and application of current and future PRC laws, rules and regulations. In particular, in January 2015, the Ministry of Commerce, or the MOFCOM, published a discussion draft of the proposed Foreign Investment Law for public review and comments. Among other things, the draft Foreign Investment Law expands the definition of foreign investment and introduces the principle of actual control in determining whether a company is considered a foreign-invested enterprise, or a FIE. Under the draft Foreign Investment Law, VIEs would also be deemed as FIEs, if they are ultimately controlled by foreign investors, and be subject to restrictions on foreign investments. However, the draft law has not arrived at a position on what actions will be taken with respect to the existing companies with the variable interest entity structure, whether or not these companies are controlled by Chinese parties. It is uncertain when the draft may be signed into law, if at all, and whether any final version would have substantial changes from the draft. 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 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 Risk FactorsRisks Relating to Our Corporate Structure.
All the agreements under our contractual arrangements are governed by PRC laws and provide for the resolution of disputes through arbitration in China. For additional information, see Risk FactorsRisks Relating to Our Corporate StructureAny failure by our consolidated VIE or its shareholders to perform their obligations under our contractual arrangements with them would have a material adverse effect on our business.
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Such arbitration provisions have no effect on the rights of our shareholders to pursue claims against us under United States federal securities laws.
The following is a summary of the currently effective contractual arrangements by and among our wholly-owned subsidiary, Can Gu Long, our consolidated VIE, Shanghai Cango, and its subsidiaries, and the shareholders of Shanghai Cango.
Agreements that Provide Us with Effective Control over Our Consolidated VIE and Its Subsidiaries
Equity Interest Pledge Agreements . Pursuant to the equity interest pledge agreements, each shareholder of Shanghai Cango, other than Taikang Life Insurance Co. Ltd., has pledged all of such shareholders equity interest in Shanghai Cango as a security interest, as applicable, to respectively guarantee Shanghai Cango and its shareholders performance of their obligations under the relevant contractual arrangement, which include the exclusive business cooperation agreement, exclusive option agreement and power of attorney. If Shanghai Cango or any of its shareholders breaches their contractual obligations under these agreements, Can Gu Long, as pledgee, will be entitled to certain rights regarding the pledged equity interests. In the event of such breaches, Can Gu Longs rights include being paid in priority with the equity interest of Shanghai Cango based on the monetary valuation that such equity interest is converted into or from the proceeds from auction or sale of the equity interest. Each of the shareholders of Shanghai Cango agrees that, during the term of the equity interest pledge agreements, such shareholder shall not transfer the equity interest, place or permit the existence of any security interest or other encumbrance on the equity interest or any portion thereof, without the prior written consent of Can Gu Long, except for the performance of the relevant contractual agreement. Can Gu Long is entitled to collect dividends distributed on the equity interest of Shanghai Cango, and Shanghai Cangos shareholders may receive dividends distributed on the equity interest only with prior written consent of Can Gu Long. The equity interest pledge agreements remain effective until all obligations under the relevant contractual agreements have been fully performed and all secured indebtedness have been fully paid. We have registered pledges of equity interest of shareholders other than the Taikang Onshore Entities in Shanghai Cango with the relevant offices of the administration for industry and commerce in accordance with the PRC Property Rights Law, and are in the process of registering pledge of Shandong State-controlled Taikang Phase I Industrial Development Fund Partnership Enterprise (Limited Partnership)s equity interest in Shanghai Cango.
Power of Attorney . Pursuant to the power of attorney, each shareholder of Shanghai Cango has irrevocably authorized Can Gu Long to exercise the following rights relating to all equity interests held by such shareholder in Shanghai Cango during the term of the power of attorney: to act on behalf of such shareholder as its exclusive agent and attorney with respect to all matters concerning its shareholding in Shanghai Cango, including without limitation to: (1) attending shareholders meetings of Shanghai Cango; (2) exercising all the shareholders rights and shareholders voting rights such shareholder is entitled to under the laws of China and Shanghai Cangos Articles of Association, including but not limited to the sale or transfer or pledge or disposition of its shareholding in part or in whole; and (3) designate and appoint on behalf of such shareholder the legal representative, the directors, supervisors, the chief executive officer and other senior management members of Shanghai Cango. During the period that such shareholders remains a shareholder of Shanghai Cango, the power of attorney shall be irrevocable and continuously effective and valid from the date of execution of the power of attorney.
Agreement that Allow Us to Receive Economic Benefits from our Consolidated VIE and Its Subsidiaries
Exclusive Business Cooperation Agreement . Under the exclusive business cooperation agreement, Shanghai Cango appoints Can Gu Long as its exclusive services provider to provide Shanghai Cango with comprehensive technical support, consulting services and other services during the term of the exclusive business cooperation agreement. In consideration of the services provided by Can Gu Long, Shanghai Cango shall pay Can Gu Long fees equal to 100% of the consolidated basis net income of Shanghai Cango, which equals the balance of the gross income less the costs of Shanghai Cango acceptable to Can Gu Long and Shanghai Cango. Can Gu Long
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shall have exclusive and proprietary ownership, rights and interests in any and all intellectual properties arising out of or created during the performance of the exclusive business cooperation agreement. In addition, Shanghai Cango grants to Can Gu Long an irrevocable and exclusive option to purchase from Shanghai Cango, Shanghai Autohome and any other subsidiary controlled by Shanghai Cango, at Can Gu Longs sole discretion, any or all of the assets and business of Shanghai Cango, to the extent permitted under PRC law, at the lowest purchase price permitted by PRC law. Unless terminated in accordance with the provisions of the exclusive business cooperation agreement or terminated in writing by Can Gu Long, the exclusive cooperation agreement shall remain effective.
Agreements that Provides Us with the Option to Purchase the Equity Interest in Shanghai Cango
Exclusive Option Agreement . Pursuant to the exclusive option agreement, each of Shanghai Cangos shareholders have irrevocably granted Can Gu Long an irrevocable and exclusive right to purchase, or designate one or more persons agreed by the board of directors of Can Gu Long to purchase the equity interests in Shanghai Cango then held by its shareholders once or at multiple times at any time in part or in whole at Can Gu Longs sole and absolute discretion to the extent permitted by PRC law. The minimum price regulated by PRC law shall be the purchase price. Shanghai Cango and its shareholders have agreed that, without Can Gu Longs prior written consent, Shanghai Cango shall not in any manner supplement, change or amend the articles of association of Shanghai Cango, increase or decrease its registered capital, change its structure of registered capital in other manners, sell, transfer, mortgage or dispose of in any other manner any legal or beneficial interest in the equity interests in Shanghai Cango held by such shareholders, or allow the encumbrance thereon, except for the interest placed in accordance with the equity interest pledge agreement and the power of attorney. Shanghai Cangos shareholders shall promptly donate any profit, interest, dividend or proceeds of liquidation to Can Gu Long or any other person designated by Can Gu Long to the extent permitted under applicable PRC laws. This agreement will remain effective until all equity interests of Shanghai Cango held by its shareholders have been transferred or assigned to Can Gu Long or its designated person(s).
Financial Support Undertaking Letter
We executed a financial support undertaking letter addressed to Shanghai Cango, pursuant to which we irrevocably undertake to provide unlimited financial support to Shanghai Cango to the extent permissible under the applicable laws and regulations of the Cayman Islands and the PRC, regardless of whether Shanghai Cango has incurred an operational loss. The form of financial support includes but is not limited to cash, entrusted loans and borrowings. We will not request repayment of any outstanding loans or borrowings from Shanghai Cango if it or its shareholders do not have sufficient funds or are unable to repay such loans or borrowings. Each letter is effective from the date of the other agreements entered into among Can Gu Long, Shanghai Cango and its shareholders until the date on which all of the equity interests of Shanghai Cango have been acquired by Can Gu Long or its designated representative(s).
We expect to provide the financial support if and when required with a portion of the proceeds from this offering and proceeds from the issuance of equity or debt securities in the future.
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SELECTED CONSOLIDATED FINANCIAL AND OPERATING DATA
The following selected consolidated statements of comprehensive income for the years ended December 31, 2016 and 2017 and selected consolidated balance sheet as of December 31, 2016 and 2017 have been derived from our audited consolidated financial statements included elsewhere in this prospectus. The following selected consolidated statements of comprehensive income for the three months ended March 31, 2017 and 2018 and selected consolidated balance sheet data as of March 31, 2018 have been derived from our unaudited interim condensed consolidated financial statements included elsewhere in this prospectus.
Our consolidated financial statements are prepared and presented in accordance with U.S. GAAP. The unaudited interim condensed consolidated financial statements have been prepared on the same basis as our audited consolidated financial statements. Our historical results are not necessarily indicative of results to be expected for any future period. The following selected consolidated financial data for the periods and as of the dates indicated are qualified by reference to, and should be read in conjunction with, our consolidated financial statements and related notes and the information under Managements Discussion and Analysis of Financial Condition and Results of Operations, both of which are included elsewhere in this prospectus.
Selected Consolidated Statements of Comprehensive Income Data
Year Ended December 31, | Three Months Ended March 31, | |||||||||||||||||||||||
2016 | 2017 |
2017
(unaudited) |
2018
(unaudited) |
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RMB | RMB | US$ | RMB | RMB | US$ | |||||||||||||||||||
(in thousands, except for share and per share data) | ||||||||||||||||||||||||
Revenues |
434,280 | 1,052,204 | 167,746 | 195,096 | 248,819 | 39,668 | ||||||||||||||||||
Operating cost and expenses: |
||||||||||||||||||||||||
Cost of revenue |
170,044 | 386,054 | 61,546 | 74,337 | 80,856 | 12,890 | ||||||||||||||||||
Sales and marketing |
39,537 | 114,145 | 18,197 | 20,207 | 34,818 | 5,551 | ||||||||||||||||||
General and administrative |
34,550 | 101,277 | 16,146 | 12,017 | 26,744 | 4,264 | ||||||||||||||||||
Research and development |
5,000 | 19,419 | 3,096 | 2,266 | 6,452 | 1,029 | ||||||||||||||||||
Net loss/(gain) on risk assurance liabilities |
744 | (38,867 | ) | (6,196 | ) | (13,356 | ) | 3,768 | 601 | |||||||||||||||
Provision for financing receivables |
| 156 | 25 | | 3,062 | 488 | ||||||||||||||||||
Total operating cost and expenses |
249,875 | 582,184 | 92,814 | 95,472 | 155,700 | 24,822 | ||||||||||||||||||
Income from operations |
184,405 | 470,020 | 74,932 | 99,624 | 93,119 | 14,845 | ||||||||||||||||||
Interest income |
4,099 | 16,164 | 2,577 | 2,769 | 8,077 | 1,288 | ||||||||||||||||||
Income/(loss) from equity method investments |
(9,988 | ) | 4,856 | 774 | 1,255 | (2,334 | ) | (372 | ) | |||||||||||||||
Interest expense |
(450 | ) | (12,994 | ) | (2,071 | ) | (1,678 | ) | (4,790 | ) | (764 | ) | ||||||||||||
Foreign exchange loss, net |
| (25,403 | ) | (4,050 | ) | | (2,623 | ) | (418 | ) | ||||||||||||||
Other income |
8,661 | 16,197 | 2,582 | 1,249 | 22,022 | 3,511 | ||||||||||||||||||
Other expenses |
(232 | ) | (379 | ) | (60 | ) | (10 | ) | (106 | ) | (17 | ) | ||||||||||||
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Net income before income taxes |
186,495 | 468,460 | 74,684 | 103,209 | 113,366 | 18,073 | ||||||||||||||||||
Income tax expenses |
(53,014 | ) | (119,403 | ) | (19,036 | ) | (28,948 | ) | (29,339 | ) | (4,677 | ) | ||||||||||||
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Net income |
133,481 | 349,057 | 55,648 | 74,261 | 84,026 | 13,396 | ||||||||||||||||||
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Year Ended December 31, | Three Months Ended March 31, | |||||||||||||||||||||||
2016 | 2017 |
2017
(unaudited) |
2018
(unaudited) |
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RMB | RMB | US$ | RMB | RMB | US$ | |||||||||||||||||||
(in thousands, except for share and per share data) | ||||||||||||||||||||||||
Less: Net income attributable to the non-controlling interests |
4,575 | 8,048 | 1,283 | 130 | 3,934 | 627 | ||||||||||||||||||
Net income attributable to Cango Inc.s shareholders |
128,906 | 341,010 | 54,365 | 74,131 | 80,092 | 12,769 | ||||||||||||||||||
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Earnings per share attributable to ordinary shareholders and Series A-2 preferred shareholders: |
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Basic and diluted |
0.51 | 1.35 | 0.22 | 0.29 | 0.32 | 0.05 | ||||||||||||||||||
Weighted average shares used to compute earnings per share attributable to ordinary shareholders and Series A-2 preferred shareholders: |
||||||||||||||||||||||||
Basic |
127,149,202 | 127,149,202 | 127,149,202 | 127,149,202 | 127,149,202 | 127,149,202 | ||||||||||||||||||
Diluted |
252,831,716 | 252,831,716 | 252,831,716 | 252,831,716 | 252,831,716 | 252,831,716 |
Selected Consolidated Balance Sheet Data
As of December 31, | As of March 31, | |||||||||||||||||||
2016 | 2017 |
2018
(unaudited) |
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RMB | RMB | US$ | RMB | US$ | ||||||||||||||||
(in thousands) | ||||||||||||||||||||
Cash and cash equivalents |
44,989 | 803,271 | 128,060 | 1,962,701 | 312,901 | |||||||||||||||
Restricted cash |
1,011 | 329,413 | 52,516 | 456,631 | 72,798 | |||||||||||||||
Short-term investments |
106,000 | 62,380 | 9,945 | 599,720 | 95,609 | |||||||||||||||
Accounts receivable, net |
469 | 85,595 | 13,646 | 116,904 | 18,637 | |||||||||||||||
Long-term investments |
185,800 | 191,003 | 30,450 | 191,107 | 30,467 | |||||||||||||||
Equity method investments |
70,803 | 165,660 | 26,410 | 163,326 | 26,038 | |||||||||||||||
Total assets |
714,857 | 1,996,868 | 318,348 | 3,754,794 | 598,603 | |||||||||||||||
Accrued expenses and other current liabilities |
85,854 | 328,523 | 52,374 | 235,780 | 37,589 | |||||||||||||||
Risk assurance liabilities |
149,788 | 129,935 | 20,715 | 155,353 | 24,767 | |||||||||||||||
Long-term borrowings |
189,573 | 175,000 | 27,899 | 175,000 | 27,899 | |||||||||||||||
Total liabilities |
503,769 | 736,860 | 117,473 | 651,827 | 103,917 | |||||||||||||||
Total mezzanine equity |
3,941,846 | 3,941,846 | 628,423 | 3,941,846 | 628,423 | |||||||||||||||
Total shareholders deficit |
(3,730,759 | ) | (2,681,838 | ) | (427,548 | ) | (838,879 | ) | (133,737 | ) |
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Our Key Operating Metrics
We regularly review a number of metrics to evaluate our business, measure our performance, identify trends, formulate financial projections and make strategic decisions.
As of / in the Three Months Ended | ||||||||||||||||||||||||||||||||||||
March 31 | June 30 | September 30 | December 31 | March 31 | June 30 | September 30 | December 31 | March 31 | ||||||||||||||||||||||||||||
2016 | 2017 | 2018 | ||||||||||||||||||||||||||||||||||
Number of registered dealers |
4,554 | 9,338 | 12,827 | 16,035 | 20,079 | 24,870 | 30,509 | 34,634 | 37,667 | |||||||||||||||||||||||||||
Number of financing transactions facilitated |
10,793 | 30,704 | 53,573 | 87,336 | 90,791 | 87,854 | 120,915 | 135,321 | 97,219 |
As of / in the Three Months Ended | ||||||||||||||||||||||||||||||||||||
March 31 | June 30 | September 30 | December 31 | March 31 | June 30 | September 30 | December 31 | March 31 | ||||||||||||||||||||||||||||
2016 | 2017 | 2018 | ||||||||||||||||||||||||||||||||||
RMB | ||||||||||||||||||||||||||||||||||||
(in millions) | ||||||||||||||||||||||||||||||||||||
Outstanding principal of financing transactions facilitated |
2,157 | 3,481 | 5,967 | 10,163 | 14,249 | 17,889 | 23,102 | 28,665 | 30,948 | |||||||||||||||||||||||||||
Amount of financing transactions facilitated |
613 | 1,692 | 3,024 | 5,004 | 5,372 | 5,350 | 7,551 | 8,309 | 5,758 |
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MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis of our financial condition and results of operations should be read in conjunction with the consolidated financial statements and related notes that appear in this prospectus. In addition to historical consolidated financial information, the following discussion contains forward-looking statements that reflect our plans, estimates and beliefs. Our actual results could differ materially from those discussed in the forward-looking statements. Factors that could cause or contribute to these differences include those discussed below and in this prospectus, particularly in the section titled Risk Factors.
Overview
We are a leading automotive transaction service platform in China connecting dealers, financial institutions, car buyers and other industry participants. According to the Oliver Wyman Report, we cover the largest number of new car dealers in China, and the outstanding balance of financing transactions we facilitated was the largest among automotive transaction service platforms in China as of December 31, 2017. As of March 31, 2018, our platform connected 37,667 registered dealers, 11 third-party financial institutions and 29 other industry participants, including OEMs, online advertising platforms and insurance brokers and companies, and had served 734,336 car buyers cumulatively since inception. Our platform model puts us in a unique position to add value for our platform participants and business partners as the mobility market in China continues to grow and evolve.
Our services primarily consist of: (1) automotive financing facilitation, (2) automotive transaction facilitation and (3) after-market services facilitation. We generate substantially all of our revenue from service fees for providing automotive financing facilitation, and to a lesser degree from service fees and other income from providing automotive transaction facilitation and after-market services facilitation.
We provide automotive financing facilitation services primarily by connecting financial institutions and car buyers, leveraging our vast dealer network. For car buyers, we offer automotive financing solutions and make car buyers purchases more affordable and accessible. Funding for such financing solutions is provided by either third-party financial institutions or Shanghai Autohome, a provider of financing leases which will become our wholly-owned consolidated subsidiary upon the completion of the Acquisition. We have established in-depth collaboration with a number of financial institutions, and we do not bear credit risk under our arrangement with one of such financial institutions. We facilitated the financing of 97,219 new and used car purchases with a total amount of financing transactions of RMB5.8 billion (US$0.9 billion) in the three months ended March 31, 2018, representing a year-on-year growth of 7.2% from RMB5.4 billion in the same period in 2017.
Our revenues increased by 142.3% from RMB434.3 million in 2016 to RMB1,052.2 million (US$167.7 million) in 2017. Our revenues increased by 27.5% from RMB195.1 million in the three months ended March 31, 2017 to RMB248.8 million (US$39.7 million) in the same period in 2018. Our net income increased by 161.5% from RMB133.5 million in 2016 to RMB349.1 million (US$55.7 million) in 2017. Our net income increased by 13.1% from RMB74.3 million in the three months ended March 31, 2017 to RMB84.0 million (US$13.4 million) in the same period in 2018.
Key Factors Affecting Our Results of Operations
Our Solution and Service Offerings and Pricing
We facilitate automotive transactions for various participants in the automotive transaction value chain. Our revenue growth depends on our ability to improve existing solutions and services provided, continue identifying evolving business needs, refine our collaboration model with financial institutions and provide value-added services to platform participants. Our revenue growth also depends on our abilities to effectively price our solutions and services and monetize new business opportunities. We historically derived substantially all of our revenues from automotive financing facilitation services. As such, our financial performance depends in part on
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our ability to collaborate with financial institutions to offer automotive financing solutions that are attractive to prospective car buyers. The pricing of automotive financing solutions provided to car buyers are based on our recommendations to financial institutions, the internal strategies of financial institutions and market interest rates. Our ability to price our solutions and services competitively enables us to attract car buyers, dealers and other industry participants and further grow our platform. Furthermore, our product designs affect the type of car buyers that our automotive financing solutions attract, which in turn affects our credit performance.
We are in the process of expanding and monetizing automotive transaction facilitation and after-market services facilitation. We have started to take a proprietary inventory position of cars and sell such cars to dealers. We also facilitate the sale of insurance policies from insurance brokers and companies. Such business initiatives, and our ability to execute them, may affect the growth of our business and profitability. Since our new solution and service offerings may have different pricing strategies and cost structures, expansion of our business and changes to our revenue mix may affect our financial position and profitability.
As a result of the Acquisition, we will also start to consolidate the results of operations of Shanghai Autohome and recognize financing lease income as part of our revenue. We may increase such financing lease offerings in the future.
Car Buyer Engagement and Dealer Network
Our revenue growth has been largely driven by the expansion of our car buyer base and the corresponding increase in the amount of automotive financing solutions facilitated through our platform. We engage car buyers primarily through our network of registered dealers. Our ability to expand our car buyer base depends on the size and quality of our network of registered dealers as well as our ability to expand such network nationwide in China. We plan to further expand our dealer network and strengthen our partnerships with existing dealers. A dealer may receive commissions from us or the relevant financial institution, depending on the arrangement among us, the dealer and the relevant financial institution. Commissions paid by us are recorded as our cost of revenue. Our costs related to car buyer engagement also consist of personnel costs of our direct sales team, which was comprised of over 2,100 professionals as of March 31, 2018 and is responsible for either directly managing our registered dealers or providing training and supervision to dealer financial managers employed by our registered dealers or sales agents. Our ability to deploy our direct sales team to manage our registered dealer network in a cost-efficient manner will affect our financial performance.
We also collaborate with leading online automotive advertising platforms to tap into the large user base of these platforms. Our success in such collaborations will affect our ability to broaden our prospective car buyer base through online channels in a cost-efficient manner.
Market Conditions and Government Policies in China
The demand for our services is dependent upon overall market conditions in China. Chinas automotive industry, especially the automotive transaction industry and automotive finance industry, may be affected by, among other factors, the general economic conditions in China, the growth of disposable income as well as the availability and cost of credit available to finance car purchases. Car buyers have been increasingly willing to finance car purchases with debt. With the steady expansion of Chinas automotive industry, dealers, financial institutions, OEMs and other industry participants have been utilizing technology-enabled automotive transaction service platforms to solve their pain points and capture market opportunities. The growth of our business will depend in part of the continuation of these trends.
Governmental policies affecting the automotive finance industry in China are developing and evolving, creating both challenges and opportunities that could affect our financial performance. For example, a lower consumption tax rate was applicable to cars with engines that are 1.6-liter or smaller in 2017, and such tax break terminated at the end of 2017, which had an adverse effect on sales of such cars in the first half of 2018. The
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termination of the lower consumption tax rate partially contributed to a slower year-on-year growth rate of our revenues in the first quarter of 2018 as well as expected decreases in revenues and net income in the second quarter of 2018 compared to the second quarter in 2017.
New regulations may restrict our ability to collaborate with financial institutions and/or directly charge fees from car buyers. We will continue to make efforts to ensure that we are compliant with the existing laws, regulations and governmental policies relating to our industry and to comply with new laws and regulations or changes under existing laws and regulations that may arise in the future. While new laws and regulations or changes to existing laws and regulations could make our business operations more difficult or expensive, or result in changes to our solutions and services offerings and hence our ability to price our solutions, these events could also provide new product and market opportunities.
Ability to Retain Existing Financial Institutions and Engage New Financial Institutions
The growth of our business is dependent on our ability to retain existing financial institutions we collaborate with and engage new financial institutions. We need to continue to provide high quality solutions and services to financial institutions, which will affect whether they will continue to fund automotive financing solutions facilitated through our platform. In addition, our collaborations with financial institutions may be affected by factors beyond our control, such as whether automotive financing solutions are perceived as an attractive asset class, operational disruption of our financial institutions, general economic conditions and the regulatory environment. Our ability to diversify our financial institution base will enhance the overall stability and sufficiency of funding to facilitate automotive financing transactions.
Ability to Perform Credit Assessment and Delinquent Asset Management Effectively
We historically derived substantially all of our revenues from automotive financing facilitation services, which primarily include credit origination, credit assessment, credit servicing and delinquent asset management for financial institutions. Although financial institutions have their own risk management procedures and make the ultimate decisions as to credit approvals, the default of an automotive transaction facilitated through our platform may still cause us reputational damage or direct economic loss, depending on the funding model for the relevant automotive financing solutions. The quality of our risk management efforts thus affects our results of operations.
Our arrangements with financial institutions differ as to the allocation of credit risk exposure. Changes to the mix of funding models for a particular period will have an impact on our financial position and results of operations for such period. We are not obligated to bear credit risk for financing transactions funded by Jincheng Bank or Jiangnan Rural Commercial Bank under the direct partnership model. Nonetheless, any increase in overdue ratio experienced by such financial institutions with respect to financing transactions facilitated through our platform may affect its willingness to participate on our platform. Under our arrangements with certain financial institutions, including the financial institutions with which we cooperate under the co-partnership model, we are obligated to purchase the relevant financing receivables from financial institutions upon certain specified events of default by car buyers. The proportion of financing transactions under such arrangement may increase in the future. As a result of the Acquisition, we will record financing lease receivables in relation to financing leases funded by Shanghai Autohome on our consolidated balance sheet. As such, we will bear credit risk as to such financing leases. We plan to expand the amount of financing leases provided by Shanghai Autohome, which will increase our exposure to credit risk.
After a delinquency occurs, we aim to collect repayments and/or repossess the car collateral from the car buyer. We rely on our delinquent asset management team to collect repayments and third-party repossession agents to repossess the car collateral at different stages of delinquent asset management process. Our ability to collect repayments and repossess car collaterals in a cost-effective way may affect our relationships with financial institutions and/or results of operations.
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Operating Leverage of Our Platform
We operate a platform that connects the industry participants throughout the entire automotive transaction value chain, and our business model is highly scalable. Personnel costs have been and we expect will continue to be a large component of our operating cost and expenses. To maintain and improve the operating leverage of our platform we must manage to grow our business by increasing productivity and continuing automating our operations with technology.
Ability to Compete Effectively
Our business and results of operations depend on our ability to compete effectively. Overall, our competitive position may be affected by, among other things, our service quality and our ability to price our solutions and services competitively. We will continue to invest in technologies to improve our service quality and user experience. We aim to enhance our speed for processing credit applications by refining our credit assessment model and improving the level of automation in credit assessment. As new competitors or new solutions and services emerges that compete with ours, we will need to continue to introduce new or enhance existing solutions and services to continue to attract dealers, financial institutions, car buyers and other industry participants. Whether and how quickly we can do so will have a significant impact on the growth of our business.
Credit Performance
As of March 31, 2018, the total outstanding balance of financing transactions for which we are not obligated to bear credit risk was RMB20.2 billion (US$3.2 billion), representing 65.2% of the total outstanding balance of financing transactions we facilitated. The remainder was funded by either (i) financial institutions from which we are obligated to purchase the relevant financing receivables upon certain specified events of default by car buyers or (ii) our equity investee Shanghai Autohome, which will become our wholly-owned consolidated subsidiary upon the completion of the Acquisition.
We monitor credit performance based on M1+ overdue ratio and M3+ overdue ratio. We define M1+ overdue ratio as (i) exposure at risk relating to financing transactions for which any installment payment is 30 to 179 calendar days past due as of a specified date, divided by (ii) exposure at risk relating to all financing transactions which remain outstanding as of such date, excluding amounts of outstanding principal that are 180 calendar days or more past due. We define M3+ overdue ratio as (i) exposure at risk relating to financing transactions for which any installment payment is 90 to 179 calendar days past due as of a specified date, divided by (ii) exposure at risk relating to all financing transactions which remain outstanding as of such date, excluding amounts of outstanding principal that are 180 calendar days or more past due. Amounts which are 180 calendar days or more past due are deducted from exposure at risk, as such amounts are typically charged off by third-party financial institutions. However, the relevant financial institutions may follow charge-off policies that differ from such practice.
The table below sets forth M1+ overdue ratio and M3+ overdue ratio for all financing transactions which we facilitated and remained outstanding as of the specified dates.
As of | ||||||||||||||||||||||||||||||||||||
March 31, | June 30, | September 30, | December 31, | March 31, | June 30, | September 30, | December 31, | March 31, | ||||||||||||||||||||||||||||
2016 | 2017 | 2018 | ||||||||||||||||||||||||||||||||||
(%) | ||||||||||||||||||||||||||||||||||||
M1+ overdue ratio |
4.46 | 2.28 | 1.35 | 0.79 | 0.69 | 0.61 | 0.61 | 0.86 | 1.09 | |||||||||||||||||||||||||||
M3+ overdue ratio |
2.31 | 1.13 | 0.58 | 0.39 | 0.28 | 0.27 | 0.24 | 0.34 | 0.46 |
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M1+ overdue ratio decreased from 4.46% as of March 31, 2016 to 1.09% as of March 31, 2018, and M3+ overdue ratio decreased from 2.31% as of March 31, 2016 to 0.46% as of March 31, 2018, which reflects improvement in our product designs, credit assessment capabilities and delinquent asset management capabilities.
Risk Assurance Liabilities
Under our arrangements with certain financial institutions, including financial institutions with which we cooperate under the co-partnership model, we are obligated to purchase the relevant financing receivables upon certain specified events of default by car buyers. After purchasing such financing receivables, security interest in the collateral is also transferred to us. We refer to our arrangement to purchase financing receivables from financial institutions as our risk assurance obligation. As of March 31, 2017 and 2018, the total outstanding balance of financing transactions funded by financial institutions under such agreement was RMB1.2 billion and RMB10.1 billion (US$1.6 billion), respectively, representing 8.7% and 32.6% of the total outstanding balance of financing transactions facilitated through our platform. The increase in financing transactions for which we have risk assurance obligation as a percentage of the total amount of financing transactions facilitated was due to the launch of co-partnership model in collaboration with WeBank in the third quarter of 2017. The proportion of financing transactions under such arrangement may further increase in the future.
We incur risk assurance liabilities in connection with our risk assurance obligation. The table below sets forth the movement of risk assurance liabilities in the periods presented.
As of / in the Year Ended December 31, |
As of / in the Three Months
Ended March 31, 2018 (unaudited) |
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2016 | 2017 | |||||||||||||||||||
RMB | RMB | US$ | RMB | US$ | ||||||||||||||||
(in thousands) | ||||||||||||||||||||
Balance at the beginning of the period |
170,765 | 149,788 | 23,880 | 129,935 | 20,715 | |||||||||||||||
Fair value of risk assurance liabilities upon the inception of new loans |
31,960 | 93,633 | 14,927 | 46,297 | 7,381 | |||||||||||||||
Performed risk assurance liabilities |
(53,680 | ) | (74,619 | ) | (11,896 | ) | (24,648 | ) | (3,929 | ) | ||||||||||
Net loss/(gain) on risk assurance liabilities |
744 | (38,867 | ) | (6,196 | ) | 3,768 | 601 | |||||||||||||
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Balance at the closing of the period |
149,788 | 129,935 | 20,715 | 155,353 | 24,767 | |||||||||||||||
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Risk assurance liabilities consist of a non-contingent aspect and a contingent aspect. At the inception of each financing transaction for which we have risk assurance obligation, we recognize the non-contingent aspect at fair value, considering the premium required by a third-party market participant to issue the same risk assurance in a standalone transaction. The contingent aspect relates to the contingent loss arising from our risk assurance obligation. The service fees payable to us, net of risk assurance liabilities allocated from the consideration in connection with such financing transaction, are initially recognized as revenues.
When we perform our risk assurance obligation upon a car buyers default, we record a corresponding deduction to risk assurance liabilities. Prior to the launch of co-partnership model, we primarily satisfied our risk assurance obligation to the relevant financial institutions by making installment payments on delinquent financing transactions. We also performed our risk assurance obligation through purchasing financing receivables, which were recorded at fair value. After the launch of co-partnership model in the third quarter of 2017, we have recorded additional financing receivables as we purchase such financing receivables upon certain specified events of car buyers defaults. Upon repossession of a car, we derecognize the financing receivable and record the repossessed car at its estimated fair value, less cost to sell, as other non-current assets on the consolidated balance sheet.
The non-contingent aspect of risk assurance liabilities are reduced over the term of the arrangement, which we recognize as gain on risk assurance liabilities, as we are released from our risk assurance obligation on a
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loan-by-loan basis based on car buyers repayments. The contingent aspect is recognized as loss on risk assurance liabilities when car buyers default is probable and the amount of loss is estimable. We consider the underlying risk profile, including delinquency status, overdue period and historical loss experience when assessing the probability of contingent loss. Car buyers are grouped based on common risk characteristics, such as product type. We measure contingent loss based on the future payout estimated using the historical default rates of a portfolio of similar loans less the fair value of the recoverable collateral.
Components of Results of Operations
Revenues
Our revenues consist of credit origination and servicing revenue, delinquent asset management revenue and others. We primarily generate credit origination and servicing revenue by providing credit origination, credit assessment and credit servicing services to financial institutions. The amount of the relevant service fees is typically based on a percentage of the principal as specified in the cooperation agreement with the relevant financial institution. We also generate credit origination and servicing revenue by charging car buyers in certain circumstances for purchase facilitation services, such as registration of license plates and collaterals with the relevant government authorities. We generate delinquent asset management revenue by providing delinquent asset management services to financial institutions. Our other revenue relates to our automotive transaction facilitation services and after-market services facilitation.
The following table sets forth components of our revenues, both in absolute amount and as a percentage of our revenues, for the periods presented.
Year Ended December 31, | Three Months Ended March 31, | |||||||||||||||||||||||||||||||||||||||
2016 | 2017 |
2017
(unaudited) |
2018
(unaudited) |
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RMB | % | RMB | US$ | % | RMB | % | RMB | US$ | % | |||||||||||||||||||||||||||||||
(in thousands, expect for percentages) | ||||||||||||||||||||||||||||||||||||||||
Revenues |
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Credit origination and servicing |
431,542 | 99.4 | 1,022,308 | 162,980 | 97.2 | 191,213 | 98.0 | 243,076 | 38,752 | 97.7 | ||||||||||||||||||||||||||||||
Delinquent asset management |
1,843 | 0.4 | 26,250 | 4,185 | 2.5 | 3,396 | 1.7 | 2,262 | 361 | 0.9 | ||||||||||||||||||||||||||||||
Others (1) |
896 | 0.2 | 3,646 | 581 | 0.3 | 488 | 0.3 | 3,481 | 555 | 1.4 | ||||||||||||||||||||||||||||||
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Total |
434,280 | 100.0 | 1,052,204 | 167,746 | 100.0 | 195,096 | 100.0 | 248,819 | 39,668 | 100.0 | ||||||||||||||||||||||||||||||
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(1) | Our other revenue relates to our automotive transaction facilitation services and after-market services facilitation, which is currently comprised of facilitating the sale of insurance policies from insurance brokers or companies. |
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Operating Cost and Expenses
Our operating cost and expenses consist of cost of revenue, sales and marketing expenses, general and administrative expenses, research and development expenses, net loss/(gain) on risk assurance liabilities and provision for financing receivables. The following table sets forth our operating expenses, both in absolute amount and as a percentage of our revenues, for the periods presented:
Year Ended December 31, | Three Months Ended March 31, | |||||||||||||||||||||||||||||||||||||||
2016 | 2017 |
2017
(unaudited) |
2018
(unaudited) |
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RMB | % | RMB | US$ | % | RMB | % | RMB | US$ | % | |||||||||||||||||||||||||||||||
(in thousands, except for percentages) | ||||||||||||||||||||||||||||||||||||||||
Operating cost and expenses: |
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Cost of revenue |
170,044 | 39.2 | 386,054 | 61,546 | 36.7 | 74,337 | 38.1 | 80,856 | 12,890 | 32.5 | ||||||||||||||||||||||||||||||
Sales and marketing |
39,537 | 9.1 | 114,145 | 18,197 | 10.8 | 20,207 | 10.4 | 34,818 | 5,551 | 14.0 | ||||||||||||||||||||||||||||||
General and administrative |
34,550 | 8.0 | 101,277 | 16,146 | 9.6 | 12,017 | 6.2 | 26,744 | 4,264 | 10.7 | ||||||||||||||||||||||||||||||
Research and development |
5,000 | 1.2 | 19,419 | 3,096 | 1.8 | 2,266 | 1.2 | 6,452 | 1,029 | 2.6 | ||||||||||||||||||||||||||||||
Net loss/(gain) on risk assurance liabilities |
744 | 0.2 | (38,867 | ) | (6,196 | ) | (3.7 | ) | (13,356 | ) | (6.8 | ) | 3,768 | 601 | 1.5 | |||||||||||||||||||||||||
Provision for financing receivables |
| | 156 | 25 | 0.0 | | | 3,062 | 488 | 1.2 | ||||||||||||||||||||||||||||||
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Total |
249,875 | 57.5 | 582,184 | 92,814 | 55.3 | 95,472 | 48.9 | 155,700 | 24,822 | 62.6 | ||||||||||||||||||||||||||||||
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Cost of Revenue
Our cost of revenue consists of (i) commission paid to car dealerships, (ii) cost for staff responsible for risk management and delinquent asset management, (iii) incentive fee to sales staff, (iv) cost for telematics devices and (v) others. The following table sets forth components of our cost of revenue, both in absolute amount and as a percentage of our revenues, for the periods presented.
Year Ended December 31, | Three Months Ended March 31, | |||||||||||||||||||||||||||||||||||||||
2016 | 2017 |
2017
(unaudited) |
2018
(unaudited) |
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RMB | % | RMB | US$ | % | RMB | % | RMB | US$ | % | |||||||||||||||||||||||||||||||
(in thousands, expect for percentages) | ||||||||||||||||||||||||||||||||||||||||
Cost of revenue |
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Commission to car dealerships |
60,139 | 13.8 | 178,155 | 28,402 | 16.9 | 34,928 | 17.9 | 39,182 | 6,247 | 15.7 | ||||||||||||||||||||||||||||||
Staff cost |
27,197 | 6.3 | 51,609 | 8,228 | 4.9 | 10,168 | 5.2 | 13,402 | 2,137 | 5.4 | ||||||||||||||||||||||||||||||
Staff incentive |
25,222 | 5.8 | 64,821 | 10,334 | 6.2 | 10,023 | 5.1 | 11,361 | 1,811 | 4.6 | ||||||||||||||||||||||||||||||
Telematics devices |
23,400 | 5.4 | 43,320 | 6,906 | 4.1 | 10,895 | 5.6 | 10,873 | 1,733 | 4.4 | ||||||||||||||||||||||||||||||
Others |
34,086 | 7.8 | 48,149 | 7,676 | 4.6 | 8,323 | 4.3 | 6,038 | 963 | 2.4 | ||||||||||||||||||||||||||||||
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Total |
170,044 | 39.2 | 386,054 | 61,546 | 36.7 | 74,337 | 38.1 | 80,856 | 12,890 | 32.5 | ||||||||||||||||||||||||||||||
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Commission paid to car dealerships increased from RMB34.9 million in the three months ended March 31, 2017 to RMB39.2 million (US$6.2 million) in the same period in 2018 in connection with the increase in amount of financing transactions we facilitated. Commission paid to car dealerships as a percentage of our revenues decreased from 17.9% to 15.7% during the same period. The decrease was primarily due to lower average amount of commission paid to dealers in each financing transaction. Commission paid to car dealerships increased from RMB60.1 million in 2016 to RMB178.2 million (US$28.4 million) in 2017 in connection with the increase in amount of financing transactions we facilitated. Commission paid to car dealerships as a percentage of our revenues increased from 13.8% to 16.9% during the same period. The increase was primarily due to higher average amount of commission paid to dealers in each financing transaction.
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Staff cost consists of compensation for employees responsible for risk management and delinquent asset management. Staff cost increased from RMB10.2 million in the three months ended March 31, 2017 to RMB13.4 million (US$2.1 million) in the same period in 2018 due to an expansion of our employees responsible for risk management and delinquent asset management and an increase in the average amount of compensation for such employees. Staff cost as a percentage of our revenues slightly increased from 5.2% to 5.4% during the same period. Staff cost increased from RMB27.2 million in 2016 to RMB51.6 million (US$8.2 million) in 2017 due to an expansion of our employees responsible for risk management and delinquent asset management and an increase in the average amount of compensation for such employees. Staff cost as a percentage of our revenues decreased from 6.3% to 4.9% during the same period, primarily due to enhanced operational efficiency of employees responsible for risk management and delinquent asset management.
Staff incentive consists of incentive fee to our sales staff. Staff incentive increased from RMB10.0 million in the three months ended March 31, 2017 to RMB11.4 million (US$1.8 million) in the same period in 2018 due to the increase in amount of financing transactions we facilitated. Staff incentive as a percentage of our revenue decreased from 5.1% to 4.6% in the same period due to decreased average incentive. Staff incentive increased from RMB25.2 million in 2016 to RMB64.8 million (US$10.3 million) in 2017 due to the increase in amount of financing transactions we facilitated. Staff incentive as a percentage of our revenue increased from 5.8% to 6.2% in the same period due to increased sales staff headcount and average incentive.
Cost for telematics devices was RMB10.9 million in the three months ended March 31, 2017 and RMB10.9 million (US$1.7 million) in the same period in 2018. Cost for telematics devices as a percentage of our revenues decreased from 5.6% to 4.4% during the same period, primarily due to a decrease in unit cost for telematics devices. Cost for telematics devices increased from RMB23.4 million in 2016 to RMB43.3 million (US$6.9 million) in 2017 due to the increase in amount of financing transactions we facilitated. Cost for telematics devices as a percentage of our revenues decreased from 5.4% to 4.1% during the same period, primarily due to a decrease in unit cost for telematics devices.
Other costs are primarily comprised of cost for collection, outsourcing fees for third-party repossession agents as well as other ordinary course expenses. Other costs decreased from RMB8.3 million in the three months ended March 31, 2017 to RMB6.0 million (US$1.0 million) in the same period in 2018. The decrease was primarily due to decreased outsourcing fees for third-party repossession agents, which was in turn due to fewer requests by Jincheng Bank to repossess cars. Other costs as a percentage of our revenues decreased from 4.3% to 2.4% during the same period, primarily due to economies of scale. Other costs increased from RMB34.1 million in 2016 to RMB48.1 million (US$7.7 million) in 2017, primarily due to the increase in the amount of financing transactions we facilitated. Other costs as a percentage of our revenues decreased from 7.8% to 4.6% during the same period, primarily due to economies of scale.
Sales and Marketing
Sales and marketing expenses consist primarily of compensation related to our sales staff but exclude incentives paid to them.
General and Administrative
General and administrative expenses consist primarily of compensation related to accounting and finance, legal, human resources and other administrative personnel, professional service fee as well as rent for office spaces related to various administrative activities.
Research and Development
Research and development expenses consist primarily of compensation related to research and development personnel, depreciation and amortization of equipment and costs of data center services.
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Net Loss/(Gain) on Risk Assurance Liabilities
Risk assurance liabilities consist of a non-contingent aspect and a contingent aspect. At the inception of each financing transaction for which we have risk assurance obligation, we recognize the non-contingent aspect at fair value. The non-contingent aspect of risk assurance liabilities are reduced over the term of the arrangement, which we recognize as gain on risk assurance liabilities, as we are released from our risk assurance obligation on a loan-by-loan basis based on car buyers repayments. The contingent aspect is recognized as loss on risk assurance liabilities when car buyers default is probable and is measured as the future payout estimated using the historical default rates of a portfolio of similar loans.
Provision for Financing Receivables
Under our arrangements with certain financial institutions, we are obligated to purchase the relevant financing receivables upon certain specified events of default by car buyers. The allowance for financing receivables is calculated based on historical loss experience using a roll rate-based model. We recognize any increase in allowance for financing receivables as provision for financing receivables for the relevant period.
Taxation
Cayman Islands
We are an exempted company incorporated in the Cayman Islands. Under the current laws of the Cayman Islands, we are not subject to tax based upon profits, income, gains or appreciations and there is no taxation in the nature of inheritance tax or estate duty. In addition, upon payment of dividends by us to our shareholders, no Cayman Islands withholding tax will be imposed.
Hong Kong
Our subsidiary incorporated in Hong Kong is subject to Hong Kong profit tax at a rate of 16.5%. No Hong Kong profit tax has been levied as we did not have assessable profit that was earned in or derived from the Hong Kong subsidiary during the periods presented. Hong Kong does not impose a withholding tax on dividends.
China
Generally, our subsidiary and consolidated variable interest entity in China are subject to enterprise income tax on their taxable income in China at a rate of 25%. The enterprise income tax is calculated based on the entitys global income as determined under PRC tax laws and accounting standards.
We are subject to VAT at a rate of 6% on the services we provide to customers, less any deductible VAT we have already paid or borne. We are also subject to surcharges on VAT payments in accordance with PRC law.
Dividends paid by our wholly foreign-owned subsidiary in China to our intermediary holding company in Hong Kong will be subject to a withholding tax rate of 10%, unless the relevant Hong Kong entity satisfies all the requirements under the Arrangement between the PRC and the Hong Kong Special Administrative Region on the Avoidance of Double Taxation and Prevention of Fiscal Evasion with respect to Taxes on Income and Capital and receives approval from the relevant tax authority, in which case the dividends paid to the Hong Kong subsidiary would be subject to withholding tax at the standard rate of 5%.
If our holding company in the Cayman Islands or any of our subsidiaries outside of China were deemed to be a resident enterprise under the PRC Enterprise Income Tax Law, it would be subject to enterprise income tax on its worldwide income at a rate of 25%.
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Results of Operations
The following tables set forth a summary of our consolidated results of operations for the periods presented, in absolute amount and as a percentage of our revenues. This information should be read together with our consolidated financial statements and related notes included elsewhere in this prospectus. The operating results in any period are not necessarily indicative of the results that may be expected for any future period.
Year Ended December 31, | Three Months Ended March 31, | |||||||||||||||||||||||||||||||||||||||
2016 | 2017 |
2017
(unaudited) |
2018
(unaudited) |
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RMB | % | RMB | US$ | % | RMB | % | RMB | US$ | % | |||||||||||||||||||||||||||||||
(in thousands) | ||||||||||||||||||||||||||||||||||||||||
Revenues |
434,280 | 100.0 | 1,052,204 | 167,746 | 100.0 | 195,096 | 100.0 | 248,819 | 39,668 | 100.0 | ||||||||||||||||||||||||||||||
Operating cost and expenses: |
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Cost of revenue |
170,044 | 39.2 | 386,054 | 61,546 | 36.7 | 74,337 | 38.1 | 80,856 | 12,890 | 32.5 | ||||||||||||||||||||||||||||||
Sales and marketing |
39,537 | 9.1 | 114,145 | 18,197 | 10.8 | 20,207 | 10.4 | 34,818 | 5,551 | 14.0 | ||||||||||||||||||||||||||||||
General and administrative |
34,550 | 8.0 | 101,277 | 16,146 | 9.6 | 12,017 | 6.2 | 26,744 | 4,264 | 10.7 | ||||||||||||||||||||||||||||||
Research and development |
5,000 | 1.2 | 19,419 | 3,096 | 1.8 | 2,266 | 1.2 | 6,452 | 1,029 | 2.6 | ||||||||||||||||||||||||||||||
Net loss/(gain) on risk assurance liabilities |
744 | 0.2 | (38,867 | ) | (6,196 | ) | (3.7 | ) | (13,356 | ) | (6.8 | ) | 3,768 | 601 | 1.5 | |||||||||||||||||||||||||
Provision for financing receivables |
| | 156 | 25 | 0.0 | | | 3,062 | 488 | 1.2 | ||||||||||||||||||||||||||||||
Total operating cost and expenses |
249,875 | 57.5 | 582,184 | 92,814 | 55.2 | 95,472 | 48.9 | 155,700 | 24,822 | 62.6 | ||||||||||||||||||||||||||||||
Income from operations |
184,405 | 42.5 | 470,020 | 74,932 | 44.7 | 99,624 | 51.1 | 93,119 | 14,845 | 37.4 | ||||||||||||||||||||||||||||||
Interest income |
4,099 | 0.9 | 16,164 | 2,577 | 1.5 | 2,769 | 1.4 | 8,077 | 1,288 | 3.2 | ||||||||||||||||||||||||||||||
Income/(loss) from equity method investments |
(9,988 | ) | (2.3 | ) | 4,856 | 774 | 0.5 | 1,255 | 0.6 | (2,334 | ) | (372 | ) | (0.9 | ) | |||||||||||||||||||||||||
Interest expense |
(450 | ) | (0.1 | ) | (12,994 | ) | (2,071 | ) | (1.2 | ) | (1,678 | ) | (0.9 | ) | (4,790 | ) | (764 | ) | (1.9 | ) | ||||||||||||||||||||
Foreign exchange loss, net |
| | (25,403 | ) | (4,050 | ) | (2.4 | ) | | | (2,623 | ) | (418 | ) | (1.1 | ) | ||||||||||||||||||||||||
Other income |
8,661 | 2.0 | 16,197 | 2,582 | 1.5 | 1,249 | 0.6 | 22,022 | 3,511 | 8.9 | ||||||||||||||||||||||||||||||
Other expenses |
(232 | ) | (0.1 | ) | (379 | ) | (60 | ) | (0.0 | ) | (10 | ) | (0.0 | ) | (106 | ) | (17 | ) | (0.0 | ) | ||||||||||||||||||||
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Net income before income taxes |
186,495 | 42.9 |
|
468,460 |
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|
74,684 |
|
44.5 | 103,209 | 52.9 | 113,366 | 18,073 | 45.6 | ||||||||||||||||||||||||||
Income tax expenses |
(53,014 | ) | 12.2 | (119,403 | ) | (19,036 | ) | (11.3 | ) | (28,948 | ) | (14.8 | ) | (29,339 | ) | (4,677 | ) | (11.8 | ) | |||||||||||||||||||||
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Net income |
133,481 | 30.7 | 349,057 | 55,648 | 33.2 | 74,261 | 38.1 | 84,026 | 13,396 | 33.8 | ||||||||||||||||||||||||||||||
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Less: Net income attributable to the
non-controlling
|
4,575 | (1.1 | ) |
|
8,048 |
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|
1,283 |
|
0.8 | 130 | 0.1 | 3,934 | 627 | 1.6 | |||||||||||||||||||||||||
Net income attributable to Cango Inc.s shareholders |
128,906 | 29.7 | 341,010 | 54,365 | 32.4 | 74,131 | 38.0 | 80,092 | 12,769 | 32.2 | ||||||||||||||||||||||||||||||
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Three Months Ended March 31, 2018 Compared to Three Months Ended March 31, 2017
Revenues. Our revenues increased from RMB195.1 million in the three months ended March 31, 2017 to RMB248.8 million (US$39.7 million) in the same period in 2018, which was primarily attributable to increase in credit origination and servicing revenue from RMB191.2 million in the three months ended March 31, 2017 to RMB243.1 million (US$38.8 million) in the same period in 2018. The increase in credit origination and servicing revenue was primarily due to (i) more favorable rates on fees for services provided to financial institutions and (ii) an increase in the amount of financing transactions we facilitated from RMB5,327.0 million in the three months ended March 31, 2017 to RMB5,758.0 million (US$918.0 million) in the same period in 2018. The improvement in fee rates and the increase in the amount of financing transactions we facilitated were driven by our collaboration with more financial institutions, such as our collaboration with WeBank under the co-partnership model, which started in the third quarter of 2017. The increase in the amount of financing transactions we facilitated was also due
97
to a substantial expansion of our dealer network, which enabled us to engage more car buyers. The number of registered dealers increased from 20,079 as of March 31, 2017 to 37,667 as of March 31, 2018.
The growth rates of our revenues and net income slowed down in the first quarter of 2018. Our revenues increased by 142.3% from RMB434.3 million in 2016 to RMB1,052.2 million (US$167.7 million) in 2017, and our net income increased by 161.4% from RMB133.5 million in 2016 to RMB349.1 million in 2017. In comparison, our revenues increased by 27.5% from RMB195.1 million in the three months ended March 31, 2017 to RMB248.8 million (US$39.7 million) in the same period in 2018, and our net income increased by 13.0% from RMB74.3 million in the three months ended March 31, 2017 to RMB84.0 million (US$13.4 million) in the same period in 2018. The slower growth rate was primarily due to a change in our dealer coverage model as well as conditions in the automotive market. The first half of 2018 is a transitional period for our dealer coverage model, as our sales team has started to cover a significant number of dealers that were previously covered by dealer financial managers, who are dealers employees. In contrast to dealer financial managers, we are able to directly control and communicate with our sales team, which is expected to execute our sales strategy more effectively and deliver higher quality services to car buyers. To implement this change in our dealer coverage model, we hired a large number of employees, and our sales team expanded from 1,691 as of December 31, 2017 to 2,182 as of March 31, 2018. It typically takes a few months for a new sales representative to achieve a sufficient level of efficiency through on-the-job training. The challenges of integrating the new employees into our sales team had an adverse effect on our results of operations. The expansion of the sales team and the increase in the average compensation for sales staff also contributed to the increase in our sales and marketing expenses, which negatively affects our net income. Our results of operations were also affected by changes in government policies and the automotive market. In 2017, a lower consumption tax rate was applicable to cars with engines that are 1.6-liter or smaller, and such tax break terminated at the end of 2017, which had an adverse effect on sales of such cars in the first half of 2018. In light of that, certain OEMs launched short-term marketing campaigns, offering financing solutions with more significant subsidies in the first half of 2018, which competed with the financing solutions facilitated by us.
The change in dealer coverage model, the termination of the lower consumption tax rate and the provision of more significant subsidies by certain OEMs continue to affect our results of operations in the second quarter of 2018. We expect our revenues in the second quarter of 2018 to be lower and our net income in such quarter to be significantly lower compared to the second quarter of 2017, primarily due to (i) lower revenues as a result of a decrease in the amount of financing transactions facilitated and (ii) higher sales and marketing expenses as a result of sales team expansion.
Operating cost and expenses . Our total operating cost and expenses increased from RMB95.5 million in the three months ended March 31, 2017 to RMB155.7 million (US$24.8 million) in the same period in 2018, primarily attributable to the increase in sales and marketing expenses and general and administrative expenses.
| Cost of revenue. Our cost of revenue increased slightly from RMB74.3 million in the three months ended March 31, 2017 to RMB80.9 million (US$12.9 million) in the same period in 2018 in connection with the increase in amount of financing transactions we facilitated. Our cost of revenue as a percentage of our revenues decreased from 38.1% to 32.5% during the same period, primarily due to (i) a decrease in average amount of commission paid to dealers in each financing transaction, which decreased commission paid to car dealerships as a percentage of our revenues from 17.9% in the three months ended March 31, 2017 to 15.7% in the same period in 2018 and (ii) a decrease in unit cost for telematics devices, which decreased cost for telematics devices as a percentage of our revenues from 5.6% in the three months ended March 31, 2017 to 4.4% in the same period in 2018. |
|
Sales and marketing . Our sales and marketing expenses increased from RMB20.2 million in the three months ended March 31, 2017 to RMB34.8 million (US$5.6 million) in the same period in 2018. The increase was primarily due to an increase in compensation for our sales staff, which in turn was driven by both an expansion of our sales team from 819 as of March 31, 2017 to 2,182 as of March 31, 2018 as a result of our effort to expand our dealer network and an increase in the average amount of compensation for sales staff. Our sales and marketing expenses as a percentage of our revenues |
98
increased from 10.4% to 14.0% during the same period, primarily as a result of increased sales staff headcount and compensation. |
| General and administrative. Our general and administrative expenses increased from RMB12.0 million in the three months ended March 31, 2017 to RMB26.7 million (US$4.3 million) in the same period in 2018. The increase was primarily due to an increase in (i) fees paid to professional service providers in connection with the issuance of Series B preferred shares and this offering and (ii) compensation for our administrative staff, which in turn was due to both an expansion in the number of our administrative staff from 111 as of March 31, 2017 to 179 as of March 31, 2018 and an increase in the average amount of compensation for administrative staff. Our general and administrative expenses as a percentage of our revenues increased from 6.2% to 10.7% during the same period, primarily due to increased fees paid to professional service providers and increased administrative staff headcount and compensation. |
| Research and development. Our research and development expenses increased from RMB2.3 million in the three months ended March 31, 2017 to RMB6.5 million (US$1.0 million) in the same period in 2018. The increase was primarily due to an increase in compensation for our research and development staff, which in turn was primarily driven by an expansion of our research and development staff from 56 as of March 31, 2017 to 109 as of March 31, 2018 and an increase in the average amount of compensation for research and development staff. Our research and development expenses as a percentage of our revenues increased from 1.2% to 2.6% during the same period, primarily as a result of increased research and development staff headcount and compensation. |
| Net loss/(gain) on risk assurance liabilities. We recognized net gain on risk assurance liabilities of RMB13.4 million in the three months ended March 31, 2017 due to improvement in credit quality of financing transactions for which we have risk assurance obligation. We recognized net loss on risk assurance liabilities of RMB3.8 million (US$0.6 million) in the same period in 2018 due to slightly higher than expected delinquency rates with respect to financing transactions for which we have risk assurance obligation. |
| Provision for Financing Receivables . We recognized provision for financing receivables of RMB3.1 million (US$0.5 million) in the three months ended March 31, 2018. Prior to the launch of co-partnership model in the third quarter of 2017, we primarily satisfied our risk assurance obligation to the relevant financial institutions by making installment payments on delinquent financing transactions. We did not have any financing receivables on our balance sheet as of March 31, 2017, and we did not recognize provision for financing receivables in the three months ended March 31, 2017. |
Interest income . We recognized interest income of RMB2.8 million in the three months ended March 31, 2017 from cash and cash equivalents on our balance sheet. We recognized interest income of RMB8.1 million (US$1.3 million) in the same period in 2018 from increased cash and equivalents on our balance sheet as a result of increased additional paid-in capital from shareholders.
Income/(loss) from equity method investments . We recognized a gain from equity method investments of RMB1.3 million in the three months ended March 31, 2017 primarily due to the share of profit from our equity method investment in Shanghai Autohome. We recognized a loss from equity method investments of RMB2.3 million (US$0.4 million) in the same period in 2018 primarily due to the share of loss from our equity method investment in Shanghai Autohome.
Interest expense . We recognized interest expense of RMB1.7 million in the three months ended March 31, 2017. We recognized interest expense of RMB4.8 million (US$0.8 million) in the same period in 2018. The increase in interest expense was due to the consolidation of trusts that invest in asset-backed securities.
Foreign exchange gain/(loss), net . We did not recognize any foreign exchange gain or loss in the three months ended March 31, 2017. We recognized foreign exchange loss, net of RMB2.6 million (US$0.4 million) in the same period in 2018, primarily due to depreciation of U.S. dollars against RMB, which affected our cash holdings from the additional paid-in capital denominated in U.S. dollars.
99
Other income . Our other income increased from RMB1.2 million in the three months ended March 31, 2017 to RMB22.0 million (US$3.5 million) in the same period in 2018, primarily due to an increase in the amount of government grants.
Income tax expenses. Our income tax expenses increased from RMB28.9 million in the three months ended March 31, 2017 to RMB29.3 million (US$4.7 million) in the same period in 2018, primarily due to the increase in our taxable income.
Net income . As a result of the foregoing, our net income increased from RMB74.3 million in the three months ended March 31, 2017 to RMB84.0 million (US$13.4 million) in the same period in 2018.
Year Ended December 31, 2017 Compared to Year Ended December 31, 2016
Revenues. Our revenues increased from RMB434.3 million in 2016 to RMB1,052.2 million (US$167.7 million) in 2017, which was primarily attributable to increase in credit origination and servicing revenue from RMB431.5 million in 2016 to RMB1,022.3 million (US$163.0 million) in 2017. The increase in credit origination and servicing revenue was primarily due to the substantial increase in amount of financing transactions we facilitated from RMB10.3 billion in 2016 to RMB26.6 billion (US$4.2 billion) in 2017. The increase in the amount of financing transactions we facilitated was primarily due to a substantial expansion of our dealer network, which enabled us to engage more car buyers. The number of registered dealers increased from 16,035 as of December 31, 2016 to 34,634 as of December 31, 2017. The increase in the amount of financing transactions we facilitated was also driven by our collaboration with more financial institutions, such as our collaboration with WeBank under the co-partnership model, which started in the third quarter of 2017.
Operating cost and expenses . Our total operating cost and expenses increased from RMB249.9 million in 2016 to RMB582.2 million (US$92.8 million) in 2017, primarily attributable to the increase in cost of revenue and sales and marketing expenses, partially offset by a net gain on risk assurance liabilities.
| Cost of revenue. Our cost of revenue increased from RMB170.0 million in 2016 to RMB386.1 million (US$61.6 million) in 2017 in connection with the increase in amount of financing transactions we facilitated. Our cost of revenue as a percentage of our revenues decreased from 39.2% to 36.7% during the same period, primarily due to (i) enhanced operational efficiency of employees responsible for risk management and delinquent asset management, which decreased staff cost as a percentage of our revenues from 6.3% in 2016 to 4.9% in 2017, (ii) a decrease in unit cost for telematics devices, which decreased cost for telematics devices as a percentage of our revenues from 5.4% in 2016 to 4.1% in 2017 and (iii) economies of scale, which decreased other costs as a percentage of our revenues from 7.8% in 2016 to 4.6% in 2017, which was partially offset by (i) higher average amount of commission paid to dealers in each financing transaction, which increased commission paid to car dealerships as a percentage of our revenues from 13.8% in 2016 to 16.9% in 2017 and (ii) increased sales staff headcount and average incentive paid, which increased staff incentive as a percentage of our revenues from 5.8% in 2016 to 6.2% in 2017. |
| Sales and marketing . Our sales and marketing expenses increased from RMB39.5 million in 2016 to RMB114.1 million (US$18.2 million) in 2017. The increase was primarily due to an increase in compensation for our sales staff, which in turn was driven by both an expansion of our sales team from 607 as of December 31, 2016 to 1,691 as of December 31, 2017 as a result of our effort to expand our dealer network and an increase in the average amount of compensation for sales staff. Our sales and marketing expenses as a percentage of our revenues increased from 9.1% to 10.8% during the same period, primarily as a result of increased sales staff headcount and compensation. |
|
General and administrative. Our general and administrative expenses increased from RMB34.6 million in 2016 to RMB101.3 million (US$16.1 million) in 2017. The increase was primarily due to an increase in (i) fees paid to professional service providers in connection with the issuance of Series B preferred shares and this offering and (ii) compensation for our administrative staff, which in turn was due to both an expansion in the number of our administrative staff from 99 as of December 31, 2016 to 149 as of December 31, 2017 and an increase in the average amount of compensation for administrative staff. Our general and administrative expenses as a percentage of our revenues increased |
100
from 8.0% to 9.6% during the same period, primarily due to increased fees paid to professional service providers and increased administrative staff headcount and compensation. |
| Research and development. Our research and development expenses increased from RMB5.0 million in 2016 to RMB19.4 million (US$3.1 million) in 2017. The increase was primarily due to an increase in compensation for our research and development staff, which in turn was primarily driven by an expansion of our research and development staff from 24 as of December 31, 2016 to 98 as of December 31, 2017 and an increase in the average amount of compensation for research and development staff. Our research and development expenses as a percentage of our revenues increased slightly from 1.2% to 1.8% during the same period. |
| Net loss/(gain) on risk assurance liabilities. We recognized net loss on risk assurance liabilities of RMB0.7 million in 2016 due to higher than expected delinquency rates with respect to financing transactions for which we have risk assurance obligation. We recognized net gain on risk assurance liabilities of RMB38.9 million (US$6.2 million) in 2017 due to improvement in credit quality of financing transactions for which we have risk assurance obligation. |
| Provision for Financing Receivables . We recognized provision for financing receivables of RMB156.1 thousand (US$24.9 thousand) in 2017. Prior to the launch of co-partnership model in 2017, we primarily satisfied our risk assurance obligation to the relevant financial institutions by making installment payments on delinquent financing transactions. We did not have any financing receivables on our balance sheet as of December 31, 2016, and we did not recognize provision for financing receivables in 2016. |
Interest income . We recognized interest income of RMB4.1 million in 2016 from cash and cash equivalents on our balance sheet. We recognized interest income of RMB16.2 million (US$2.6 million) in 2017 from increased cash and equivalents on our balance sheet as a result of increased additional paid-in capital from shareholders.
Income/(loss) from equity method investments . We recognized a loss from equity method investments of RMB10.0 million in 2016 primarily due to the share of loss from our equity method investment in Shanghai Autohome. We recognized a gain from equity method investments of RMB4.9 million (US$0.8 million) in 2017 primarily due to the share of profit from our equity method investment in Shanghai Autohome.
Interest expense . We recognized interest expense of RMB0.5 million in 2016. We recognized interest expense of RMB13.0 million (US$2.1 million) in 2017.
Foreign exchange gain/(loss), net . We did not recognize any foreign exchange gain or loss in 2016. We recognized foreign exchange loss, net of RMB25.4 million (US$4.1 million) in 2017, primarily due to depreciation of U.S. dollars against RMB, which affected our cash holdings from the additional paid-in capital denominated in U.S. dollars.
Other income. Our other income increased from RMB8.7 million in 2016 to RMB16.2 million (US$2.6 million) in 2017, primarily due to an increase in the amount of government grants from RMB8.2 million in 2016 to RMB15.4 million (US$2.5 million) in 2017.
Income tax expenses. Our income tax expenses increased from RMB53.0 million in 2016 to RMB119.4 million (US$19.0 million) in 2017, primarily due to the increase in our taxable income.
Net income . As a result of the foregoing, our net income increased significantly from RMB133.5 million in 2016 to RMB349.1 million (US$55.7 million) in 2017.
101
Selected Quarterly Results of Operations
The following table sets forth our historical unaudited consolidated selected quarterly results of operations for the periods indicated.
For the Three Months Ended | ||||||||||||||||||||||||
December 31,
2016 |
March 31,
2017 |
June 30,
2017 |
September 30,
2017 |
December 31,
2017 |
March 31,
2018 |
|||||||||||||||||||
in RMB thousands | ||||||||||||||||||||||||
Revenues |
228,960 | 195,096 | 267,337 | 278,443 | 311,327 | 248,819 | ||||||||||||||||||
Operating cost and expenses: |
||||||||||||||||||||||||
Cost of revenue |
71,193 | 74,337 | 88,256 | 75,238 | 148,223 | 80,856 | ||||||||||||||||||
Sales and marketing |
16,258 | 20,207 | 13,566 | 23,286 | 57,087 | 34,818 | ||||||||||||||||||
General and administrative |
11,803 | 12,017 | 14,910 | 16,522 | 57,827 | 26,744 | ||||||||||||||||||
Research and development |
2,804 | 2,266 | 3,127 | 3,789 | 10,236 | 6,452 | ||||||||||||||||||
Net loss/(gain) on risk assurance liabilities |
234 | (13,356 | ) | (8,560 | ) | (15,725 | ) | (1,226 | ) | 3,768 | ||||||||||||||
Provision for financing receivables |
| | | | 156 | 3,062 | ||||||||||||||||||
Total operation cost and expenses |
102,291 | 95,472 | 111,299 | 103,109 | 272,303 | 155,700 | ||||||||||||||||||
Income from operations |
126,669 | 99,624 | 156,038 | 175,333 | 39,024 | 93,119 | ||||||||||||||||||
Interest income |
1,232 | 2,769 | 3,446 | 3,562 | 6,387 | 8,077 | ||||||||||||||||||
Income/(loss) from equity method investments |
(2,166 | ) | 1,255 | (983 | ) | 3,883 | 700 | (2,334 | ) | |||||||||||||||
Interest expense |
(247 | ) | (1,678 | ) | (3,216 | ) | (5,120 | ) | (2,980 | ) | (4,790 | ) | ||||||||||||
Foreign exchange loss, net |
| | (8,690 | ) | (15,655 | ) | (1,058 | ) | (2,623 | ) | ||||||||||||||
Other income |
375 | 1,249 | 1,304 | 13,428 | 215 | 22,022 | ||||||||||||||||||
Other expenses |
(63 | ) | (10 | ) | (98 | ) | (174 | ) | (96 | ) | (106 | ) | ||||||||||||
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Net income before income taxes |
125,799 | 103,209 | 147,803 | 175,257 | 42,192 | 113,366 | ||||||||||||||||||
Income tax expenses |
(32,878 | ) | (28,948 | ) | (38,333 | ) | (39,750 | ) | (12,372 | ) | (29,339 | ) | ||||||||||||
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Net income |
92,922 | 74,261 | 109,470 | 135,507 | 29,820 | 84,026 | ||||||||||||||||||
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102
The following table sets forth our historical unaudited consolidated selected quarterly results of operations for the periods indicated, as a percentage of total revenues.
For the Three Months Ended | ||||||||||||||||||||||||
December 31,
2016 |
March 31,
2017 |
June 30,
2017 |
September 30,
2017 |
December 31,
2017 |
March 31,
2018 |
|||||||||||||||||||
(%) | ||||||||||||||||||||||||
Revenues |
100.0 | 100.0 | 100.0 | 100.0 | 100.0 | 100.0 | ||||||||||||||||||
Operating cost and expenses: |
||||||||||||||||||||||||
Cost of revenue |
31.1 | 38.1 | 33.0 | 27.0 | 47.6 | 32.5 | ||||||||||||||||||
Sales and marketing |
7.1 | 10.4 | 5.1 | 8.4 | 18.3 | 14.0 | ||||||||||||||||||
General and administrative |
5.2 | 6.2 | 5.6 | 5.9 | 18.6 | 10.7 | ||||||||||||||||||
Research and development |
1.2 | 1.2 | 1.2 | 1.4 | 3.3 | 2.6 | ||||||||||||||||||
Net loss/(gain) on risk assurance liabilities |
0.1 | (6.8 | ) | (3.2 | ) | (5.6 | ) | (0.4 | ) | 1.5 | ||||||||||||||
Provision for financing receivables |
| | | | 0.1 | 1.2 | ||||||||||||||||||
Total operation cost and expenses |
44.7 | 49.1 | 41.6 | 37.0 | 87.5 | 62.6 | ||||||||||||||||||
Income from operations |
55.3 | 51.1 | 58.4 | 63.0 | 12.5 | 37.4 | ||||||||||||||||||
Interest income |
0.5 | 1.4 | 1.3 | 1.3 | 2.1 | 3.2 | ||||||||||||||||||
Income/(loss) from equity method investments |
(0.9 | ) | 0.6 | (0.4 | ) | 1.4 | 0.2 | (0.9 | ) | |||||||||||||||
Interest expense |
(0.1 | ) | (0.9 | ) | (1.2 | ) | (1.8 | ) | (1.0 | ) | (1.9 | ) | ||||||||||||
Foreign exchange loss, net |
| | (3.3 | ) | (5.6 | ) | (0.3 | ) | (1.1 | ) | ||||||||||||||
Other income |
0.2 | 0.6 | 0.5 | 4.8 | 0.1 | 8.9 | ||||||||||||||||||
Other expenses |
(0.0 | ) | (0.0 | ) | (0.0 | ) | (0.1 | ) | (0.0 | ) | (0.0 | ) | ||||||||||||
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Net income before income taxes |
54.9 | 52.9 | 55.3 | 62.9 | 13.6 | 45.6 | ||||||||||||||||||
Income tax expenses |
14.4 | 14.8 | 14.3 | 14.3 | 4.0 | 11.8 | ||||||||||||||||||
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Net income |
40.6 | 38.1 | 40.9 | 48.7 | 9.6 | 33.8 | ||||||||||||||||||
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The following table sets forth the number of financing transactions and the amount of financing transactions facilitated for the periods indicated.
For the Three Months Ended | ||||||||||||||||||||||||
December 31,
2016 |
March 31,
2017 |
June 30,
2017 |
September 30,
2017 |
December 31,
2017 |
March 31,
2018 |
|||||||||||||||||||
Number of financing transactions facilitated |
87,336 | 90,791 | 87,854 | 120,915 | 135,321 | 97,219 | ||||||||||||||||||
Amount of financing transactions facilitated (in RMB millions) |
5,004 | 5,372 | 5,350 | 7,551 | 8,309 | 5,758 |
We have experienced, and expect to continue to experience, seasonal fluctuations in our revenues and results of operations. Our revenue trends are a reflection of car purchase patterns by car buyers. Car buyers in China tend to purchase a higher volume of cars in the second half of each year, in part due to the introduction of new models from automakers. Further, the holiday period following the Chinese New Year is in the first quarter, which usually contributes to lower activity levels in that quarter of each year.
Net profit margin for the three months ended December 31, 2017 was 9.6%, which was significantly lower than the other quarters in 2017. The lower net profit margin in the fourth quarter was primarily due to (i) higher amounts of commission paid to car dealerships and incentive fee to our sales staff and (ii) recognition of year-end bonus of RMB62.4 million (US$9.9 million). We pay commission and incentive fee on a step-up basis. As dealers and sales staff meet certain specified performance targets over the course of a year, they receive higher
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amounts of commission or incentive fee per transaction, as applicable. As a result, the average amounts of commission and incentive fee per transaction tend to be higher in the fourth quarter of each year.
The lower net profit margin in the fourth quarter of 2017 was also due to the timing of revenue recognition related to the co-partnership model, which we launched in collaboration with WeBank in the third quarter of 2017. A portion of the consideration from the revenue arrangement is refundable to the financial institutions if certain conditions are not satisfied, and such portion of revenue is deferred until the contingency is resolved. We facilitated a significant amount of financing transactions under the co-partnership model in the three months ended December 31, 2017, which resulted in an increase of unearned income of RMB33.7 million (US$5.4 million) during the period.
Liquidity and Capital Resources
Our primary sources of liquidity have been issuance of equity securities, borrowings from trusts and banks and cash provided by operating activities, which have historically been sufficient to meet our working capital and substantially all of our capital expenditure requirements.
In 2016 and 2017, net cash provided by operating activities was RMB83.0 million and RMB589.3 million (US$93.9 million), respectively. In the three months ended March 31, 2018, net cash used in operating activities was RMB42.2 million (US$6.7 million).
As of March 31, 2018, we had cash and cash equivalents of approximately RMB1,962.7 million (US$312.9 million), as compared to cash and cash equivalents of approximately RMB803.3 million (US$128.1 million) as of December 31, 2017.
As of March 31, 2018, we had restricted cash of RMB456.6 million (US$72.8 million). Restricted cash represents cash deposited with the respective financial institutions, and to a lesser extent, cash held as collateral for short-term borrowings. For arrangements involving risk assurance liabilities, financial institutions make corresponding deductions from our deposit account when borrowers are delinquent in their installment repayments and/or when loans are required to be repurchased by us after a specified delinquency period. Such restricted cash is not available to fund our general liquidity needs.
In December 2016, Shanghai Cango, our consolidated VIE, entered into a credit agreement with Tibet Trust Co., Ltd., which allows us to borrow up to RMB189.6 million (US$30.2 million), subject to the actual amount of funds raised by the trust. The agreement provides for a fixed interest rate of 4.75% per annum and a term of three years. As of March 31, 2018, the outstanding amount under such credit agreement was RMB50.0 million (US$7.7 million). We utilized the proceeds from the borrowing to satisfy our working capital needs.
In March 2017, Shanghai Cango entered into another credit agreement with Tibet Trust Co., Ltd., which allows us to borrow up to RMB89.8 million (US$14.3 million), subject to the actual amount of funds raised by the trust. The agreement provides for a fixed interest rate of 5.06% per annum and a term of three years. As of March 31, 2018, there was no amount outstanding under such credit agreement.
In May 2017, Shanghai Cango entered into a credit agreement with Lujiazui International Trust Co., Ltd., which allows us to borrow up to RMB70.0 million (US$11.2 million). The agreement provides for a fixed interest rate of 5.50% per annum and a term of one year. As of March 31, 2018, there was no amount outstanding under such credit agreement.
In September 2017, Shanghai Cango entered into a credit agreement with Bank of Shanghai Co., Ltd., which allows us to borrow up to RMB115.6 million (US$18.4 million). The agreement provides for a fixed interest rate of 4.35% per annum and a term of one year. As of March 31, 2018, there was no amount outstanding under such credit agreement.
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Our credit agreements do not contain any material debt covenants.
We believe that our anticipated cash flows from operating activities will be sufficient to meet our anticipated working capital requirements and capital expenditures in the ordinary course of business for the next 12 months. We may, however, need additional cash resources in the future if we experience changes in business conditions or other developments, or if we find and wish to pursue opportunities for investment, acquisition, capital expenditure or similar actions. If we determine that our cash requirements exceed the amount of cash and cash equivalents we have on hand at the time, we may seek to issue equity or debt securities or obtain credit facilities. The issuance and sale of additional equity would result in further dilution to our shareholders. The incurrence of indebtedness would result in increased fixed obligations and could result in operating covenants that would restrict our operations. Our obligation to bear credit risk for certain financing transactions we facilitate may also strain our operating cash flow. We cannot assure you that financing will be available in amounts or on terms acceptable to us, if at all. See Risk FactorsRisks Relating to Our Industry and Business We may need additional capital to pursue business objectives and respond to business opportunities, challenges or unforeseen circumstances, and financing may not be available on terms acceptable to us, or at all.
Our ability to manage our working capital, including receivables and other assets and accrued expenses and other liabilities, may materially affect our financial condition and results of operations.
Although we consolidate the results of our consolidated VIE and its subsidiaries, we only have access to cash balances or future earnings of our consolidated VIE and its subsidiaries through our contractual arrangements with our consolidated VIE. See Our History and Corporate Structure. For restrictions and limitations on liquidity and capital resources as a result of our corporate structure, see Holding Company Structure.
The following table sets forth a summary of our cash flows for the periods presented:
2016 |
Year Ended
December 31, |
Three Months Ended March 31, | ||||||||||||||||||||||
2017 |
2017
(unaudited) |
2018 (unaudited) | ||||||||||||||||||||||
RMB | RMB | US$ | RMB | RMB | US$ | |||||||||||||||||||
(in thousands) | ||||||||||||||||||||||||
Summary Consolidated Cash Flow Data: |
||||||||||||||||||||||||
Net cash provided by operating activities |
83,027 | 589,303 | 93,949 | 70,916 | (42,245 | ) | (6,735 | ) | ||||||||||||||||
Net cash used in investing activities |
(272,039 | ) | (162,906 | ) | (25,971 | ) | (127,007 | ) | (427,854 | ) | (68,210 | ) | ||||||||||||
Net cash provided by financing activities |
187,147 | 685,689 | 109,315 | 89,292 | 1,759,371 | 280,485 | ||||||||||||||||||
Cash, cash equivalents and restricted cash at beginning of the year/(period) |
47,866 | 46,000 | 7,334 | 46,000 | 1,132,684 | 180,576 | ||||||||||||||||||
Cash, cash equivalents and restricted cash at end of the year/(period) |
46,000 | 1,132,684 | 180,576 | 79,202 | 2,419,332 | 385,698 |
Operating Activities
Net cash used in operating activities was RMB42.2 million (US$6.7 million) in the three months ended March 31, 2018, primarily due to net income of RMB84.0 million (US$13.4 million), adjusted for (i) loss on risk assurance liabilities of RMB3.8 million (US$0.6 million), (ii) provision for financing receivables of RMB3.1 million (US$0.5 million), (iii) gain from equity method investment of RMB2.3 million (US$0.4 million), (iv) foreign exchange loss, net of RMB2.6 million (US$0.4 million), (v) deferred income tax income of RMB16.3 million (US$2.6 million) and (vi) changes in working capital. Adjustment for changes in working capital primarily consisted of (i) an increase in accounts receivable of RMB31.3 million (US$5.0 million) due to an increase in the amount of service fees payable by financial institutions, (ii) an increase in financing receivables of RMB6.4 million (US$1.0 million) due to performance of risk assurance
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obligations and (iii) a decrease in other current and non-current liabilities of RMB115.6 million (US$18.4 million), which was primarily due to (a) a decrease of RMB70.1 million (US$11.2 million) in payroll payable due to payment of year-end bonus, (b) a decrease of income tax payable of RMB21.9 million (US$3.5 million) due to payment of such amount and (c) a decrease of RMB25.6 million (US$4.1 million) in other tax payables due to payment of such amount, which was partially offset by an increase of RMB2.0 million (US$0.3 million) in certain other current and non-current liabilities. Such changes in working capital were partially offset by (i) a decrease of receivables from related parties of RMB2.2 million (US$0.3 million) relating to service fees from Jincheng Bank as Jincheng Bank ceased to be a related party since September 2017, (ii) an increase in payables to related parties of RMB4.6 million (US$0.7 million) primarily due to increase in fees payable to Shanghai Autohome and (iii) an increase in risk assurance liabilities of RMB21.6 million (US$3.5 million) due to an increase in the amount of financing transactions facilitated for which we have risk assurance obligation.
Net cash provided by operating activities was RMB589.3 million (US$93.9 million) in 2017, primarily due to net income of RMB349.1 million (US$55.7 million), adjusted for (i) gain on risk assurance liabilities of RMB38.9 million (US$6.2 million), (ii) gain from equity method investment of RMB4.9 million (US$0.8 million), (iii) foreign exchange loss, net of RMB25.4 million (US$4.0 million), (iv) deferred income tax expense of RMB12.8 million (US$2.0 million) and (v) changes in working capital. Adjustment for changes in working capital primarily consisted of (i) an increase in accounts receivable of RMB85.1 million (US$13.6 million) relating to service fees from financial institutions due to substantial increase in amount of financing transactions funded and (ii) an increase in other current and non-current assets of RMB64.5 million (US$10.3 million), which was partially offset by (i) a decrease in receivables from related parties of RMB132.2 million (US$21.1 million) relating to services fees from Jincheng Bank as Jincheng Bank ceased to be a related party since September 2017, (ii) an increase in other current and non-current liabilities of RMB266.5 million (US$42.5 million) and (iii) an increase in risk assurance liabilities of RMB19.0 million (US$3.0 million) due to an increase in the amount of financing transactions facilitated for which we have risk assurance obligation.
Net cash provided by operating activities was RMB83.0 million in 2016, primarily due to net income of RMB133.5 million, adjusted for (i) share-based compensation expense of RMB4.1 million, (ii) share of loss from equity method investment of RMB10.0 million and (iii) changes in working capital. Adjustment for changes in working capital primarily consisted of (i) an increase in receivables from related parties of RMB142.0 million relating to increased services fees from Jincheng Bank and (ii) an increase in other current and non-current assets of RMB23.1 million primarily relating to an increase in prepaid expenses from certain customers and an increase in loans to shareholders, which was partially offset by an increase in other current and non-current liabilities of RMB113.6 million due to the increase of deposit by dealers with the expansion of our dealership network.
Investing Activities
Net cash used in investing activities was RMB427.9 million (US$68.2 million) in the three months ended March 31, 2018, which was primarily attributable to (i) purchase of short-term investments of RMB864.8 million (US$137.9 million) in wealth management products which are primarily invested in various types of debt securities and (ii) purchases of property and equipment and intangible assets of RMB4.5 million (US$0.7 million), which was partially offset by proceeds from redemption of short-term investments of RMB327.5 million (US$52.2 million) and proceeds from shareholder loans RMB114.0 million (US$18.2 million) relating to repayment of such loans.
Net cash used in investing activities was RMB162.9 million (US$26.0 million) in 2017, which was primarily attributable to (i) purchase of short-term investments of RMB1,419.7 million (US$226.3 million) in wealth management products which are primarily invested in various types of debt securities, (ii) purchase of long-term investments of RMB338.6 million (US$54.0 million) relating to asset-backed securities issued by Jincheng Bank and (iii) purchase of equity method investment of RMB141.5 million (US$22.6 million) relating to equity interest in Shanghai Autohome, which was partially offset by proceeds from redemption of short-term investments of RMB1,463.3 million (US$233.3 million) due to maturity of such investments and (ii) proceeds from sale of long-term investments of RMB332.8 million (US$53.1 million).
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Net cash used in investing activities was RMB272.0 million in 2016, which was primarily attributable to (i) purchase of short-term investments of RMB295.5 million in wealth management products which are primarily invested in various types of debt securities and (ii) purchase of long-term investments of RMB185.8 million relating to asset-backed securities issued by Jincheng Bank, which was partially offset by proceeds from redemption of short-term investments of RMB205.1 million due to maturity of such investments.
Financing Activities
Net cash provided by financing activities was RMB1,759.4 million (US$280.5 million) in the three months ended March 31, 2018, which was primarily attributable to contribution from shareholders of RMB1,785.8 million (US$284.7 million), which was partially offset by distribution to shareholders of RMB26.4 million (US$4.2 million).
Net cash provided by financing activities was RMB685.7 million (US$109.3 million) in 2017, which was primarily attributable to (i) contribution from shareholders of RMB698.7 million (US$111.4 million) and (ii) proceeds from borrowings of RMB400.3 million (US$63.8 million), which was partially offset by repayment of borrowings of RMB414.9 million (US$66.1 million).
Net cash provided by financing activities was RMB187.1 million in 2016, which was primarily attributable to proceeds from borrowings of RMB189.4 million.
Capital Expenditures
We made capital expenditures of RMB2.6 million, RMB9.6 million (US$1.5 million) and RMB4.5 million (US$0.7 million) in 2016, 2017 and the three months ended March 31, 2018, respectively. In these periods, our capital expenditures were mainly used for purchases of property and equipment and intangible assets. We will continue to make capital expenditures to meet the expected growth of our business.
Commitments
The following table set forth our indebtedness and contractual obligations as of March 31, 2018:
Payment due by period | ||||||||||||||||||||||||
Total |
Less than
1 Year |
1 3 Years | 3 5 Years |
More than
5 Years |
||||||||||||||||||||
RMB | US$ | RMB | ||||||||||||||||||||||
(in thousands) | ||||||||||||||||||||||||
Long-term borrowings |
175,000 | 27,899 | | 175,000 | | | ||||||||||||||||||
Operating lease commitments |
37,686 | 6,008 | 16,657 | 20,086 | 942 | | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
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Total |
212,686 | 33,907 | 16,657 | 195,086 | 942 | | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
Off-Balance Sheet Arrangements
We have entered into several arrangements with financial institutions that provide funding directly to car buyers for financing transactions we facilitate. Under our arrangements with certain financial institutions, we are obligated to purchase the relevant financing receivables upon certain specified events of default by car buyers. As of March 31, 2018, risk assurance liabilities related to such arrangement were RMB155.4 million (US$24.8 million). As of March 31, 2018, the maximum potential undiscounted future payment we would be required to make was RMB10,051.7 million (US$1,602.5 million).
We provided guarantees as to Shanghai Autohomes borrowings of RMB488.9 million, RMB420.0 million (US$67.0 million) and RMB547.0 million (US$87.2 million) as of December 31, 2016, 2017 and March 31, 2018, respectively.
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Holding Company Structure
Cango Inc. is a holding company with no material operations of its own. We conduct our operations primarily through our subsidiary, consolidated VIE and its subsidiaries in China. As a result, Cango Inc.s ability to pay dividends depends upon dividends paid by our PRC subsidiary. If our existing PRC subsidiary or any newly formed ones 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 wholly foreign-owned subsidiary in China is permitted to pay dividends to us only out of its retained earnings, if any, as determined in accordance with PRC accounting standards and regulations. Under PRC law, each of our subsidiary, our consolidated VIE and its subsidiaries in China is required to set aside at least 10% of its after-tax profits each year, if any, to fund certain statutory reserve funds until such reserve funds reach 50% of its registered capital. In addition, our wholly foreign-owned subsidiary in China may allocate a portion of its after-tax profits based on PRC accounting standards to enterprise expansion funds and staff bonus and welfare funds at its discretion, and our consolidated VIE and its subsidiaries may allocate a portion of its after-tax profits based on PRC accounting standards to a discretionary surplus fund at their discretion. The statutory reserve funds and the discretionary funds are not distributable as cash dividends. Remittance of dividends by a wholly foreign-owned company out of China is subject to examination by the banks designated by SAFE. Our PRC subsidiary has not paid dividends and will not be able to pay dividends until they generate accumulated profits and meet the requirements for statutory reserve funds.
Inflation
Since 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 for December 2015, December 2016 and September 2017 were increases of 1.6%, 1.9% and 1.6%, 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.
Quantitative and Qualitative Disclosures about Market Risk
Foreign Exchange Risk
All of our revenues and substantially all of our expenses are denominated in Renminbi. The functional currency of our company and Cango Group Limited is the U.S. dollar. The functional currency of our subsidiary in the PRC, the VIE and the VIEs subsidiaries is the Renminbi. We use Renminbi as our reporting currency. Monetary assets and liabilities denominated in currencies other than the functional currency are translated into the functional currency at the rates of exchange ruling at the balance sheet date. Transactions in currencies other than the functional currency during the year are converted into functional currency at the applicable rates of exchange prevailing when the transactions occurred. Transaction gains and losses are recognized in the statements of operations. Due to foreign currency translation adjustments, we do not have a foreign exchange loss, net, in 2016 but have a foreign exchange loss, net, of RMB25.4 million (US$4.0 million) in 2017.
Historically we have used, and in the future we may use, certain derivative financial instruments to hedge our exposure to foreign exchange risk. Specifically, we have entered into various foreign currency forward contracts that allow us to sell U.S. dollars at a pre-determined exchange rate on the maturity date. The total notional amount of such foreign currency forward contracts outstanding was RMB248.0 million (US$39.5 million) as of March 31, 2018. We did not have any such foreign currency forward contracts outstanding as of December 31, 2017. During the three months ended March 31, 2018, the unrealized gains (losses) recognized in our comprehensive income related to such foreign currency forward contracts were not material. There were no unrealized gains (losses) recognized related to such contracts during the three months ended March 31, 2017. These foreign currency forward contracts may expose us to credit risk to the extent that the counterparty may be unable to meet the terms of the arrangement. We mitigate this credit risk by transacting with major financial institutions with high credit ratings. As of March 31, 2018, we had pledged RMB7.9 million (US$1.3 million) as cash collateral in respect of our foreign currency forward contracts. For a more detailed discussion of the
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accounting of these contracts, please see Note 2 to our unaudited interim condensed consolidated financial statements for the three months ended March 31, 2017 and 2018 included elsewhere in this prospectus.
The conversion of Renminbi into foreign currencies, including U.S. dollars, is based on rates set by the PBOC. The PRC 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 Renminbi has fluctuated against the U.S. dollar, at times significantly and unpredictably. On November 30, 2015, the Executive Board of the International Monetary Fund (IMF) completed the regular five-year review of the basket of currencies that make up the Special Drawing Right, or the SDR, and decided that with effect from October 1, 2016, Renminbi is determined to be a freely usable currency and will be included in the SDR basket as a fifth currency, along with the U.S. dollar, the Euro, the Japanese yen and the British pound. In the fourth quarter of 2016, the Renminbi has depreciated significantly in the backdrop of a surging U.S. dollar and persistent capital outflows of China. With the development of the foreign exchange market and progress towards interest rate liberalization and Renminbi internationalization, the PRC government may in the future announce further changes to the exchange rate system, and we cannot assure you that the Renminbi will not appreciate or depreciate significantly in value against the U.S. dollar in the future. It is difficult to predict how market forces or PRC or U.S. government policy may impact the exchange rate between the Renminbi and the U.S. dollar in the future.
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.
We estimate that we will receive net proceeds of approximately US$ million from this offering if the underwriters do not exercise their option to purchase additional ADSs, after deducting underwriting discounts and commissions and the estimated offering expenses payable by us, based on the initial offering price of US$ per ADS, the mid-point of the estimated range of the initial public offering price. Assuming that we convert the full amount of the net proceeds from this offering into Renminbi, a 10% appreciation of the U.S. dollar against the Renminbi, from the exchange rate of RMB for US$1.00 as of , 2018 to a rate of RMB to US$1.00, will result in an increase of RMB million in our net proceeds from this offering. Conversely, a 10% depreciation of the U.S. dollar against the Renminbi, from the exchange rate of RMB for US$1.00 as of , 2018 to a rate of RMB to US$1.00, will result in a decrease of RMB million in our net proceeds from this offering.
Interest Rate Risk
We have not been exposed to material risks due to changes in market interest rates, and we have not used any derivative financial instruments to manage our interest risk exposure. However, we cannot provide assurance that we will not be exposed to material risks due to changes in market interest rate in the future.
After the completion of this offering, we may invest the net proceeds we receive from the offering in interest-earning instruments. Investments in both fixed rate and floating rate interest earning instruments carry a degree of interest rate risk. Fixed rate securities may have their fair market value adversely impacted due to a rise in interest rates, while floating rate securities may produce less income than expected if interest rates fall.
Critical Accounting Policies, Judgments and Estimates
An accounting policy is considered critical if it requires an accounting estimate to be made based on assumptions about matters that are highly uncertain at the time such estimate is made, and if different accounting
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estimates that reasonably could have been used, or changes in the accounting estimates that are reasonably likely to occur periodically, could materially impact the consolidated financial statements.
We prepare our consolidated financial statements in conformity with U.S. GAAP, which requires us to make judgments, estimates and assumptions. We continually evaluate these estimates and assumptions based on the most recently available information, our own historical experiences and various other assumptions that we believe to be reasonable under the circumstances. Since the use of estimates is an integral component of the financial reporting process, actual results could differ from our expectations as a result of changes in our estimates. Some of our accounting policies require a higher degree of judgment than others in their application and require us to make significant accounting estimates.
The following descriptions of critical accounting policies, judgments and estimates should be read in conjunction with our consolidated financial statements and other disclosures included in this prospectus. When reviewing our consolidated financial statements, you should consider (i) our selection of critical accounting policies, (ii) the judgments and other uncertainties affecting the application of such policies and (iii) the sensitivity of reported results to changes in conditions and assumptions.
Revenue Recognition
In accordance with ASC 605, Revenue recognition (ASC 605), we recognize revenue when the following four revenue recognition criteria are met:
(i) | persuasive evidence of an arrangement exists; |
(ii) | services have been provided; |
(iii) | the fee is fixed and determinable, and |
(iv) | collectability is reasonably assured. |
For each successful loan facilitation, we recognize a loan facilitation fee and a recurring service fee for post-origination administrative services, or PAS, throughout the term of the loan. PAS primarily consists of tracking automobiles through the installed telematics devices and sending short-message-service (SMS) payment reminders to borrowers throughout the term of each loan. Borrowers make repayments directly to the financial institutions, and the financial institutions will then remit the loan facilitation fee and PAS fee to us on a periodic basis. The two deliverables provided by us are loan facilitation and PAS. We consider the loan facilitation services and the PAS as a multiple element revenue arrangement, and the financial institutions as the sole customer in each arrangement.
In addition, we provide risk assurance obligation to certain financial institutions, such as financial institutions with which we cooperate under the co-partnership model, which requires us to make either installment repayments and/or purchase the loans upon certain specified events of default by car buyers on an individual loan basis. We first allocate the consideration to the risk assurance liability equaling to the fair value of the risk assurance liability. The remaining consideration is allocated to the loan facilitation services and PAS.
We do not have vendor specific objective evidence, or VSOE, of selling price for the loan facilitation services and PAS because we do not provide loan facilitation services or PAS on a standalone basis. There is also no third-party evidence of the prices charged by third-party service providers when such services are sold separately. As a result, we use our best estimate of selling prices of loan facilitation services and PAS as the basis of revenue allocation.
The amount allocated to loan facilitation is recognized as revenue upon each successful loan facilitation, while the amount allocated to PAS is deferred and amortized over the period of the loan on a straight line method as the PAS services are performed. In instances where the fee is not collected entirely upfront but over time, the
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amount allocated to the delivered loan facilitation services is limited to the amount that is not contingent on the delivery of the undelivered PAS in accordance with ASC 605-25. As the remaining consideration from the revenue arrangement is contingent on the borrowers timely installment repayments to the financial institutions, the remaining loan facilitation service income is recorded when the contingency is resolved.
The loan facilitation services and post-origination administrative services are recorded as revenue in the consolidated statements of comprehensive income. We also generate revenue from contingent fees, such as fees for car recovery and disposal services.
Risk Assurance Liabilities
We provide risk assurance to various financial institution customers. We are required to either make delinquent installment repayments or purchase the loans after a specified period on an individual loan basis. The risk assurance liabilities are exempted from being accounted for as derivatives in accordance with ASC 815-10-15-58.
The risk assurance liabilities consist of two components. Our obligation to stand ready to make delinquent payments or to purchase the loan over the term of the arrangement (the non-contingent aspect) is accounted for in accordance with ASC 460 Guarantees (ASC 460). The contingent obligation relating to the contingent loss arising from the arrangement is accounted for in accordance with ASC 450 Contingencies (ASC 450). At inception, we recognize the non-contingent aspect of the risk assurance liabilities at fair value, which considers the premium required by a third party market participant to issue the same risk assurance in a standalone transaction.
Subsequent to the initial recognition, the non-contingent aspect of the risk assurance liabilities are reduced over the term of the arrangement as we are released from our stand ready obligation on a loan-by-loan basis based on the borrowers repayment of the loan principal. The contingent loss arising from the obligation to make future payments is recognized when borrower default is probable and the amount of loss is estimable. We consider the underlying risk profile, including delinquency status, overdue period and historical loss experience when assessing the probability of contingent loss. Car buyers are grouped based on common risk characteristics, such as product type. We measure contingent loss based on the future payout of the arrangement estimated using the historical default rates of a portfolio of similar loans less the fair value of the recoverable collateral.
Income Taxes
We account for income taxes using the liability approach and recognize deferred tax assets and liabilities for the expected future consequences of events that have been recognized in the consolidated financial statements or in our tax returns. Deferred tax assets and liabilities are recognized on the basis of the temporary differences that exist between the tax basis of assets and liabilities and their reported amounts in the consolidated financial statements using enacted tax rates in effect for the year end period in which the differences are expected to reverse. Changes in deferred tax assets and liabilities are recorded in earnings. Deferred tax assets are reduced by a valuation allowance through a charge to income tax expense when, in the opinion of management, it is more-likely-than-not that a portion of or all of the deferred tax assets will not be realized. Potential for recovery of deferred tax assets is evaluated by estimating the future taxable profits expected and considering prudent and feasible tax planning strategies. The components of the deferred tax assets and liabilities are classified as non-current.
We account for uncertainty in income taxes recognized in the consolidated financial statements by applying a two-step process to determine the amount of the benefit to be recognized. First, the tax position must be evaluated to determine the likelihood that it will be sustained upon external examination by the taxing authorities. If the tax position is deemed more-likely-than-not to be sustained (defined as a likelihood of more than fifty percent of being sustained upon an audit, based on the technical merits of the tax position), the tax
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position is then assessed to determine the amount of benefits to recognize in the consolidated financial statements. The amount of the benefits that may be recognized is the largest amount that has a greater than 50% likelihood of being realized upon ultimate settlement. Interest and penalties on income taxes will be classified as a component of the provisions for income taxes. We did not recognize any income tax due to uncertain tax position or incur any interest and penalties related to potential underpaid income tax expenses for the year ended December 31, 2016 and 2017, respectively.
Share-Based Compensation
Share-based payment transactions with employees are measured based on the grant date fair value of the equity instrument. We recognize the compensation costs net of estimated forfeitures using the straight-line method, over the applicable vesting period for each separately vesting portion of the award. The estimate of forfeitures will be adjusted over the requisite service period to the extent that actual forfeitures differ, or are expected to differ, from such estimates. Changes in estimated forfeitures will be recognized through a cumulative catch-up adjustment in the period of change and will also impact the amount of share-based compensation expense to be recognized in future periods.
We granted 4,000,000 fully vested equity interests of certain subsidiaries of Shanghai Cango for a nominal consideration to certain sales and marketing employees in recognition of their services in 2016. We determined the fair value of the equity interests based on the grant date fair value of the relevant subsidiaries. We estimated the fair value of the relevant subsidiaries using an income approach based on a discounted future cash flow model. We used certain assumptions, including the projected operating and financial performance of the subsidiaries, development stage of the subsidiaries, market performance of industry peers, and weighted average cost of capital in estimating the fair value of the equity interests.
In accordance with ASC Topic 718 Share based payments, we recorded share-based compensation expense on the grant date of the equity interests to the employees equal to the estimated fair value of such equity interests at the measurement date, which was determined to be RMB4,100,000 for the year ended December 31, 2016. The share-based compensation expense was recorded in sales and marketing expenses on the consolidated statements of comprehensive income.
The fair value of the relevant subsidiaries was estimated using an income approach based on discounted future cash flow of such subsidiaries. The assumptions included:
| The operating and financial performance of the subsidiaries. |
| Current business conditions and projections. |
| Stage of development of the subsidiaries. |
| The market performance of industry peers. |
| Weighted average cost of capital (WACC): |
WACCs were determined upon an overall consideration of risk-free rate, comparative industry risk, equity risk premium, company size and non-systematic risk factors. WACCs of the subsidiaries ranged from 23% to 25% in 2016.
| Discount for lack of marketability (DLOM): |
DLOM was quantified by refer to the empirical statistical data ranged from 25% to 35%. With consideration that the size of the subsidiaries is relatively small due to the early development of stage, the DLOM of 35% was adopted for the valuation analysis.
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Internal Control Over Financial Reporting
Prior to this offering, we have been a private company with limited accounting personnel and other resources with which to address our internal control and procedures over financial reporting. In the course of auditing our consolidated financial statements for the years ended December 31, 2016 and 2017, we and our independent registered public accounting firm identified one material weakness in our internal control over financial reporting as of December 31, 2016 and 2017. As defined in the standards established by the U.S. Public Company Accounting Oversight Board, a material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of our companys annual or interim consolidated financial statements will not be prevented or detected on a timely basis.
The material weakness identified relates to having an insufficient number of financial reporting personnel with an appropriate level of knowledge, experience and training in application of U.S. GAAP and SEC rules and regulations commensurate with our reporting requirements. Neither we nor our independent registered public accounting firm undertook a comprehensive assessment of our internal control under the Sarbanes-Oxley Act for purposes of identifying and reporting any weakness in our internal control over financial reporting. We and they are required to do so only after we become a public company. Had we performed a formal assessment of our internal control over financial reporting or had our independent registered public accounting firm performed an audit of our internal control over financial reporting, additional control deficiencies may have been identified.
To remedy our identified material weakness subsequent to December 31, 2017, we have started adopting measures to improve our internal control over financial reporting, including, among others: (i) hiring additional financial professionals with U.S. GAAP reporting experience to provide the necessary level of leadership to our finance and accounting function and increasing the number of qualified financial reporting personnel, (ii) improving the capabilities of existing financial reporting personnel through training and education in the accounting and reporting requirements under U.S. GAAP, SEC rules and regulations and the Sarbanes-Oxley Act, and (iii) engaging an independent third-party consultant to assist in establishing processes and oversight measures to comply with the requirements under the Sarbanes-Oxley Act.
However, we cannot assure you that we will remediate our material weakness in a timely manner. See Risk FactorsRisks Relating to Our Industry and BusinessIf 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 company with less than US$1,070,000,000 in revenue for our last fiscal year, we qualify as an emerging growth company pursuant to the JOBS Act. An emerging growth company may take advantage of specified reduced reporting and other requirements that are otherwise applicable generally to public companies. These provisions include exemption from the auditor attestation requirement under Section 404 of the Sarbanes-Oxley Act of 2002, in the assessment of the emerging growth companys internal control over financial reporting. The JOBS Act also provides that an emerging growth company does not need to comply with any new or revised financial accounting standards until such date that a private company is otherwise required to comply with such new or revised accounting standards. We will take advantage of the extended transition period. As a result of this election, our financial statements may not be comparable to other public companies that comply with the public company effective dates for these new or revised accounting standards.
Recent Accounting Pronouncements
In May 2014, the Financial Accounting Standard Board (FASB) issued ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606). The guidance substantially converges final standards on revenue recognition between the FASB and the International Accounting Standards Board providing a framework on addressing revenue recognition issues and, upon its effective date, replaces almost all exiting revenue recognition guidance, including industry-specific guidance, in current U.S. GAAP.
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The core principle of the guidance is that an entity should recognize revenues to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. To achieve this core principle, an entity should apply the following steps:
Step 1: Identify the contract(s) with a customer.
Step 2: Identify the performance obligations in the contract.
Step 3: Determine the transaction price.
Step 4: Allocate the transaction price to the performance obligations in the contract.
Step 5: Recognize revenue when (or as) the entity satisfies a performance obligation.
In August 2015, the FASB issued its final standard formally amending the effective date of the new revenue recognition guidance. The amendments in this ASU are effective for private companies annual reporting periods beginning after December 15, 2018, including interim periods within that reporting period. As an emerging growth company, or EGC, we have elected to take advantage of the extended transition period provided in the Securities Act Section 7(a)(2)(B) for complying with new or revised accounting standards applicable to private companies. We are in the process of evaluating the impact of adoption of this guidance on its consolidated financial statements.
In January 2016, the FASB issued ASU No. 2016-01, Financial InstrumentsOverall (Subtopic 825-10) . The amendments require all equity investments to be measured at fair value with changes in the fair value recognized through net income (other than those accounted for under equity method of accounting or those that result in consolidation of the investee). The amendments also require an entity to present separately in other comprehensive income the portion of the total change in the fair value of a liability resulting from a change in the instruments-specific credit risk when the entity has elected to measure the liability at fair value in accordance with the fair value option for financial instruments. In addition, the amendments eliminate the requirement to disclose the fair value of financial instruments measured at amortized cost for entities that are not public business entities and the requirement for to disclose the method(s) and significant assumptions used to estimate the fair value that is required to be disclosed for financial instruments measured at amortized cost on the balance sheet for public business entities. This updated guidance is effective for private companies for the annual period beginning after December 15, 2018, including interim periods within the year. As an EGC, we have elected to take advantage of the extended transition period provided in Securities Act Section 7(a)(2)(B) of the Securities Act for complying with new or revised accounting standards applicable to private companies. We are in the process of evaluating the impact of the adoption of this guidance on its consolidated financial statements.
In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842) . This ASU modifies existing guidance for off-balance sheet treatment of a lessees operating leases by requiring lessees to recognize lease assets and lease liabilities, whilst, lessor accounting is largely unchanged. This ASU is effective for private companies for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. As an EGC, we have elected to take advantage of the extended transition period provided in Securities Act Section 7(a)(2)(B) for complying with new or revised accounting standards applicable to private companies. We are in the process of evaluating the impact of adoption of this guidance on its consolidated financial statements.
In March 2016, the FASB issued ASU No. 2016-06, Derivatives and Hedging (Topic 815) , which clarifies the requirements for assessing whether contingent call (put) options that can accelerate the payment of principal on debt instruments are clearly and closely related to their debt hosts. An entity performing the assessment under the amendments in this ASU is required to assess the embedded call (put) options solely in accordance with the four step decision sequence. For private entities, the amendments in this ASU are effective for financial statements issued for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. An entity should apply the amendments in this ASU on a modified retrospective basis to existing debt
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instruments as of the beginning of the fiscal year for which the amendments are effective. As an EGC, we have elected to take advantage of the extended transition period provided in Securities Act Section 7(a)(2)(B) for complying with new or revised accounting standards applicable to private companies. We are in the process of evaluating the impact of adoption of this guidance on its consolidated financial statements.
In March 2016, the FASB issued ASU No. 2016-09, CompensationStock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting. This ASU makes targeted amendments to the accounting for employee share-based payments. This guidance is to be applied using various transition methods such as full retrospective, modified retrospective, and prospective based on the criteria for the specific amendments as outlined in the guidance. For private entities, the guidance is effective for annual periods, and interim periods within those annual periods, beginning after December 15, 2017. As an EGC, we have elected to take advantage of the extended transition period provided in Securities Act Section 7(a)(2)(B) for complying with new or revised accounting standards applicable to private companies. We are in the process of evaluating the impact of adoption of this guidance on its consolidated financial statements.
In June 2016, the FASB issued ASU No. 2016-13, Financial InstrumentsCredit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. This ASU is intended to improve financial reporting by requiring timelier recording of credit losses on loans and other financial instruments held by financial institutions and other organizations. This ASU requires the measurement of all expected credit losses for financial assets held at the reporting date based on historical experience, current conditions, and reasonable and supportable forecasts. This ASU requires enhanced disclosures to help investors and other financial statement users better understand significant estimates and judgments used in estimating credit losses, as well as the credit quality and underwriting standards of our portfolio. These disclosures include qualitative and quantitative requirements that provide additional information about the amounts recorded in the financial statements. For private entities, this ASU is effective for annual periods beginning after December 15, 2020, and interim reporting periods beginning within annual reporting periods beginning after December 15, 2021. As an EGC, we have elected to take advantage of the extended transition period provided in Securities Act Section 7(a)(2)(B) for complying with new or revised accounting standards applicable to private companies. We are in the process of evaluating the impact of adoption of this guidance on its consolidated financial statements.
In August 2016, the FASB issued ASU No. 2016-15, Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments . This ASU is intended to improve financial reporting by requiring timelier recording of credit losses on loans and other financial instruments held by financial institutions and other organizations. This ASU requires the measurement of all expected credit losses for financial assets held at the reporting date based on historical experience, current conditions, and reasonable and supportable forecasts. This ASU requires enhanced disclosures to help investors and other financial statement users better understand significant estimates and judgments used in estimating credit losses, as well as the credit quality and underwriting standards of our portfolio. These disclosures include qualitative and quantitative requirements that provide additional information about the amounts recorded in the financial statements. All entities may adopt the amendments in this Update earlier as of the fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. We are in the process of evaluating the impact of adoption of this guidance on its consolidated financial statements.
In November 2016, the FASB issued ASU No. 2016-18, Statement of Cash Flows (Topic 230): Restricted Cash . This ASU requires that a statement of cash flows explain the change during the period in the total of cash, cash equivalents, and amounts generally described as restricted cash or restricted cash equivalents. Therefore, amounts generally described as restricted cash and restricted cash equivalents should be included with cash and cash equivalents when reconciling the beginning-of-period and end-of-period total amounts shown on the statement of cash flows. This ASU do not provide a definition of restricted cash or restricted cash equivalents. This ASU is effective for public business entities for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. We have early adopted this standard.
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In January 2017, the FASB issued ASU No. 2017-01, Business Combinations (Topic 805): Clarifying Definition of a Business . This ASU clarifies the framework for determining whether an integrated set of assets and activities meets the definition of a business. The revised framework establishes a screen for determining whether an integrated set of assets and activities is a business and narrows the definition of a business, which is expected to result in fewer transactions being accounted for as business combinations. Acquisitions of integrated sets of assets and activities that do not meet the definition of a business are accounted for as asset acquisitions. This update is effective for fiscal years, and for interim periods within those fiscal years, beginning after December 15, 2018. As an EGC, we have elected to take advantage of the extended transition period provided in Securities Act Section 7(a)(2)(B) for complying with new or revised accounting standards applicable to private companies. We do not believe this standard will have a material impact on the consolidated statements of comprehensive income or balance sheets.
In January 2017, the FASB issued ASU No. 2017-04, Simplifying the Test for Goodwill Impairment , which simplifies the accounting for goodwill impairment by eliminating step two from the goodwill impairment test. If the carrying amount of a reporting unit exceeds its fair value, an impairment loss shall be recognized in an amount equal to that excess, as opposed to determining an implied fair value in step two to measure the impairment loss. 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. We do not believe this standard will have a material impact on the results of operations or financial condition.
In February 2017, the FASB issued ASU No. 2017-05, Other incomeGains and Losses from the Derecognition of Nonfinancial assets , which clarifies that a financial asset is within the scope of Subtopic 610-20 if it meets the definition of an in substance nonfinancial asset. The amendments in this update also clarify that nonfinancial assets within the scope of Subtopic 610-20 may include nonfinancial assets transferred within a legal entity to a counterparty. This update is effective for fiscal years beginning after December 15, 2018, including interim reporting periods within that reporting period. As an EGC, we have elected to take advantage of the extended transition period provided in Securities Act Section 7(a)(2)(B) for complying with new or revised accounting standards applicable to private companies. We are in the process of evaluating the impact of adoption of this guidance on its consolidated financial statements.
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Background
Chinas economy has entered into an era of new norm whereby the economy is reorienting itself towards consumer spending. According to the Oliver Wyman Report, the real consumption accounts for only 39% of Chinas GDP in 2017, compared to over 54% in major developed countries, indicating considerable consumption growth potential. Growth in consumer spending has been uneven within the country, with rural areas growing at faster rates than urban areas. Disposable income per capita for Chinas urban population has grown at a CAGR of 8% from 2012 to 2017, compared to a CAGR of 11% in rural areas, according to the Oliver Wyman Report. Tier-two cities and lower-tier cities are expected to experience a higher rate of consumption growth compared to tier-one cities. The chart below illustrates the fast pace at which tier-two cities and lower-tier cities are projected to catch up with tier-one cities in terms of disposal income per capita.
Disposable income per capita by tier of cities (in US$ thousands) |
|
Source: The Oliver Wyman Report |
Overview of Chinas Automotive Market
The growth of Chinas automotive market is mainly driven by the rising income level of Chinese residents. According to the Oliver Wyman Report, passenger car sales in China reached 37.1 million in 2017, 24.7 million, or 67%, of which were new passenger cars. The new passenger car market has been growing at a faster rate than the overall automotive market. While Chinas automotive market has experienced a golden decade of expansion, China still lags in average passenger car per capita. By 2017, the average number of passenger car per capita of China was only 0.12, while the average number in major developed counties was over 0.4, according to the Oliver Wyman Report. Growth in new passenger car sales was also fueled by the sale of domestic brand cars, which increased from 29% for all new passenger car transactions in 2014 to 39% in 2017, according to the Oliver Wyman Report.
The new passenger car market is expected to grow at CAGR of 5.0% from 2017 to 2021 according to the Oliver Wyman Report, and the unlocked demand in lower-tier cities is the main driving force behind such growth. In terms of the number of cars sold, the new car market in lower-tier cities is expected to grow at a CAGR of 7.0% from 2017 to 2021, compared to -2.6% in tier-one cities and 3.5% in tier-two cities, according to the Oliver Wyman Report. The contraction of the new passenger car market in tier-one cities is primarily due to market saturation and/or restrictions on license plate registration imposed by local governments.
As a result, the lower-tier cities are expected to account for an increasing share in the number of new passenger cars sold. In addition, the used passenger car market in China is expected to experience faster growth compared to the new passenger car market. The number of used passenger car sales was 12.4 million in 2017 and is projected to reach about 27.5 million in 2022 at a CAGR of 17.3% according to the Oliver Wyman Report.
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The chart below illustrates the historical and expected growth in new passenger car transactions and used passenger car transactions for the years presented.
Number of transaction for passenger car per year |
|
Source: The Oliver Wyman Report |
In terms of the entire automotive value chain, vehicle parts, vehicle manufacture, new car sales, used car sales, after-market services and automotive finance are the major components. For each component of the automotive chain, the size for passenger cars related market in 2016 or 2017 is shown in the chart below.
Current passenger car market revenue by value chain component |
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1. Total revenue of passenger car manufacturing, which does not exclude cost for raw material/vehicle parts 2. Total revenue of auto finance refers to interest and fee income and does not exclude funding cost Source: The Oliver Wyman Report |
Automotive transaction service platform is defined as platform that connects OEMs, dealers, automotive finance providers and after-market participants. Its services can be classified into three main categories: automotive financing facilitation, automotive transaction facilitation and after-market services facilitation.
Customers Served by Automotive Transaction Service Platforms
Customers served by automotive transaction service platforms may include OEMs, dealers, automotive finance providers and after-market services participants.
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OEMs
The domestic passenger car market has been growing rapidly and outpaced the overall market growth in the past years, with the total number of new passenger car transactions growing at a CAGR of 19% from 2014 to 2017 and exceeding 9 million in 2017. In line with the market expansion, domestic OEMs have grown significantly, and they are looking to expand their distribution networks throughout China. Despite the rapid growth that domestic OEMs experienced in the past few years, there are several pain points, which have hindered their expansion to some extent, such as insufficient dealer network to cover the broad market and lack of automotive finance capabilities. A significant portion of domestic passenger cars are sold in lower-tier cities. However, it is very difficult for the domestic OEMs to cover these cities with their own limited dealer network. Furthermore, only a few domestic OEMs have established their automotive finance companies. As many domestic OEMs lack the required financing capabilities, such as risk management and access to funding, they are not yet able to fully capture the automotive finance opportunities and thus need collaboration from third parties.
Dealers
Dealers play an important role in the automotive transaction process given their reach to car buyers as well as their ability to source cars from OEMs and distributors. According to the Oliver Wyman report, there are around 114,000 dealers in China, including 4S dealers and non-4S dealers, as of December 31, 2017.
4S dealers . 4S dealers are the most common service terminals of automotive distribution, including vehicle sales (sale), spare parts (spare part), after-sales service (service) and information feedback (survey). Tier-one and tier-two cities have a higher density of 4S dealers compared to lower-tier cities. Nonetheless, the 4S model has begun to penetrate the lower-tier cities. Lower-tier cities far exceed tier-one and tier-two cities in terms of the absolute number of 4S dealers and account for more than 80% of the total number of 4S dealers.
Non-4S dealers : Non-4S dealers are secondary dealers, such as 2S dealers, who provide only sale and service, but not functions such as spare part or survey. While services provided by 2S dealers are limited in scope, such dealer can be established without requiring a large floor space. As a result, the 2S model tends to be popular among dealers in the lower-tier cities. 2S dealers can also sell multiple brands (including new car and used car) and enjoy a significant level of flexibility.
The below table sets forth the breakdown of the approximate number of 4S and non-4S dealers in tier-one and tier-two cities and lower-tier cities as of December 31, 2017.
Type of Dealers |
Tier-one and
Tier-two Cities |
Lower-tier
Cities |
Total | |||||||||
4S Dealers |
6,000 | 23,000 | 29,000 | |||||||||
5% | 20% | 25% | ||||||||||
Non-4S Dealers |
16,000 | 69,000 | 85,000 | |||||||||
14% | 61% | 75% | ||||||||||
Total |
22,000 | 92,000 | 114,000 | |||||||||
19% | 81% | 100% |
Source: The Oliver Wyman Report
Automotive Finance Providers
Major players in the retail automotive finance market include banks, automotive finance companies and leasing companies. Banks provide automotive loans or enable car buyers to purchase cars with their credit cards. Banks generally access car buyers through their branch networks and operate with low cost of capital, but they typically implement rigid standards and onerous procedures for credit assessment. Most of the automotive finance companies are affiliated with OEMs to provide automotive loans, and each of them typically finances only a limited number of car models. Financing lease companies offer car buyers financing leases, usually with a high degree of flexibility in terms of sizes of down payment and other financing terms.
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After-market Services Participants
Various players participate in the automotive after-market services market, and such players are comprised of service providers for car maintenance and repair, car decoration and accessories, automotive insurance, car rental and other automotive services.
Services Provided by Automotive Transaction Service Platforms
Services provided by automotive transaction service platforms include automotive financing facilitation, automotive transaction facilitation and after-market services facilitation.
Automotive Financing Facilitation
Automotive financing facilitation is one of the main products provided by automotive transaction service platform. The retail automotive finance market reached RMB1.1 trillion in outstanding loan balances at the end of 2016, which is expected to increase to RMB2.2 trillion by the end of 2021 at a CAGR of 15.7%, according to the Oliver Wyman Report.
Automotive financing solutions not only make car purchases more accessible to prospective car buyers but also help dealers increase their sales. According to a recent survey conducted by Oliver Wyman, more than 97% of dealers indicated that they had significantly improved business performance by partnering with other platforms to provide automotive financing solutions. In particular, 63% of dealers surveyed believe that they had achieved more than 30% increase in automotive sales, as measured by the number of cars sold, by cooperating with Cango Inc.s automotive finance platform. In addition, 58% of dealers surveyed believe that they had achieved more than 30% increase in automotive sales, as measured by revenue.
Effectiveness of auto finance in improving non-4S store performance |
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Source: 2017 Cango selected dealers survey, covering 104 core dealers in 18 provinces, the Oliver Wyman Report |
Key Characteristics
(1) | Increasing Acceptance of Automotive Finance Services Driven by Young Consumers |
Measured by outstanding balance, Chinas retail automotive finance market reached RMB1.1 trillion in 2016 and is forecasted to reach RMB2.2 trillion in 2021, growing at a CAGR of 15.7%. Acceptance of automotive finance services is improving primarily due to a younger generation of consumers who are more open to credit financing. Rising education level and financial literacy among these consumers contribute to this change in attitude.
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(2) | Increasing but Still Low Automotive Finance Penetration in New and Used Car Transactions |
Automotive finance penetration rate, measured by the number of cars sold involving financing services in a period divided by the total number of cars sold in such period, is increasing in line with the expansion of the overall automotive market in China. Nonetheless, the market is significantly underpenetrated. According to the Oliver Wyman Report and as illustrated in the chart below on the right, the automotive finance penetration of new and used car in China was 43% and 19%, respectively, in 2017, compared to penetration rates of over 60% and 35% respectively, in major developed markets, which indicate significant growth potential. According to the Oliver Wyman Report and as illustrated in the chart below on the left, the automotive finance penetration rate of new passenger cars has climbed from 26% in 2013 to 43% in 2017. According to the Oliver Wyman Report, such automotive finance penetration rate in China is expected to continue to climb to reach about 52% in 2020.
Forecasted growth of Chinas auto finance penetration for new passenger cars | Auto finance penetration, China vs. developed countries | |
Source: The Oliver Wyman Report |
1. Data of 2015 2. Data of 2014 Source: The Oliver Wyman Report |
(3) | Imbalanced Supply of Financing Sources |
In the vast majority of lower-tier cities, although the demand for cars remains strong and the demand for automotive finance services is also increasing, the availability of automotive financing solutions is significantly limited, as these markets are underserved by automotive finance providers such as banks and automotive finance companies.
(4) | Relatively High Asset Quality |
For financial institutions, the quality of automotive loans in general represents attractive assets offering favorable risk adjusted returns with historically better non-performing loan ratio as compared to other type of loans. The creation of regulatory framework as to automotive loans also aided in its desirability.
Automotive Transaction Facilitation
Automotive transaction facilitation services are primarily comprised of (i) automotive transactions between businesses, or B2B transactions, and/or (ii) automotive transactions between businesses and car buyers, or B2C transactions. In B2B transactions, cars may be sold by OEMs, automotive wholesalers or dealers, and such cars may be purchased by automotive wholesalers or dealers. An automotive transaction service platform may also purchase cars itself and sell them to platform participants. Besides automotive sourcing, automotive transaction service platforms may provide other services to dealers, such as supply chain management, customer relationship management, inventory management based on SaaS technology and digital or mobile automobile trading.
In B2C transactions, an automotive transaction service platform may engage prospective car buyers online and connect them with dealers on its platform. With the rapid development of e-commerce in China, concepts of
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automotive e-commerce and online-to-offline transactions have become more prevalent in car sales and services. OEMs and dealers are increasingly cooperating with online e-commerce platforms to expand car sales channels. Such platforms link OEMs, dealers and car buyers and deliver convenient user experience.
After-market Services Facilitation
Automotive after-market services are generally comprised of all services that are required after a new car is sold, including car maintenance and repair, car decoration and accessories, automotive insurance, car rental and other automotive services. Chinas automotive after-market is forecasted to reach RMB1.1 trillion in 2017, 13.4% higher than 2016. By 2021, the market is projected to exceed RMB1.5 trillion. The key drivers are favorable polices and regulations, increasing number of car sales and the aging of cars purchased and increasing openness to and growth of online automotive after-market services.
Measured by the total amount of premium, Chinas automotive insurance market is expected to grow steadily at a CAGR of 11.2% from RMB766 billion in 2017 to RMB1,171 billion in 2021. All cars in China are required by relevant regulations to be covered under compulsory traffic accident insurance, making it the only automotive insurance product with 100% market penetration. Other insurance policies provide coverage for third-party damages caused by traffic accidents. Among the non-compulsory insurance policies, car owners often purchase commercial third-party liability insurance as a complement to the limited coverage of compulsory traffic accident insurance. Vehicle loss insurance and vehicle personnel insurance are two major insurances that insure against property and personnel risks. Specific insurance targeting windshield protection, spontaneous combustion and body scratches are also available in the market.
Technology-Enabled Automotive Transaction Service Platform
A technology-enabled automotive transaction service platform connects dealers, financial institutions, dealers, car buyers, OEMs and other market participants and utilizes advanced technologies throughout the transaction and service process. Such platforms are emerging as a new force to address a series of pain points throughout the automotive finance value chain by leveraging a variety of new technologies, such as mobile internet, artificial intelligence / machine learning, innovative GPS / sensor and internet of things. For example, traditional automotive transaction service platforms typically lack the necessary industry expertise, technology, human resources and/or geographic reach for conducting business on a nationwide scale, especially when it comes to lower-tier cities. Technology-enabled automotive transaction service platforms are able to deliver comprehensive service to lower-tier cities, which have been underserved by traditional market participants.
Automotive finance is a key element of automotive transaction service platform. While offering automotive financing solutions to car buyers, technology-enabled automotive transaction service platforms also provide loan facilitation and post-loan services to financial institutions that fund the automotive financing solutions. Technologies enable such platforms to improve their existing service offerings. For example, by leveraging machine learning algorithms, these platforms are able to draw insights from multi-dimensional information and assess credit risks more accurately. In addition, the use of telematics devices significantly enhances the effectiveness of repossession efforts, as cars can be located more easily. Technologies also enable such platforms to identify new business opportunities. By collaborating with online automotive advertising platforms, some technology-enabled automotive transaction service platforms are able to engage prospective car buyers online and refer these prospective car buyers to offline dealers, thereby acquiring additional customers for themselves as well as participants on their platforms.
Competitive Landscape
The tables below set forth (i) the three largest technology-enabled automotive transaction service platforms in China as measured by the outstanding balance of financing transactions facilitated as of December 31, 2017 and (ii) the three largest technology-enabled automotive transaction service platforms in China as measured by
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the number of new car dealers covered as of December 31, 2017. We are the largest player in each category according to the Oliver Wyman Report.
Ranking |
Company |
Outstanding balance of
|
Ranking |
Company |
Number of new car
|
|||||
1 | Cango | approximately RMB29 billions | 1 | Cango | approximately 26,000 | |||||
2 | Company A |
RMB20 to 25 billions |
2 | Company A | approximately 17,000 | |||||
3 | Company B | approximately RMB18 billions | 3 | Company B | approximately 9,000 |
Source: The Oliver Wyman Report
(1) Number of dealers includes both 4S dealers and non-4S dealers, but excludes used car only dealers.
Key Success Factors of Automotive Transaction Service Platforms
Industry know-how: With extensive industry knowledge and experience, particularly thorough understanding of customer needs and business environment, experienced management and skilled staff enable automotive transaction service platforms to make more effective decisions, deliver more value-added services and further solidify business relationships and partnerships.
Deep involvement in automotive transaction value chain: automotive transaction service platforms seek to cover the entire automotive transaction value chain and offer a full suite of services to industry participants. Access to funding and risk management capabilities are two important aspects of automotive finance business. Platforms need to ensure that they secure stable and low-cost funding from funding partners to support financing transactions on their platforms and leverage technological innovation to improve the risk management process, such as by utilizing GPS systems.
Data and technology-enabled operation: strong technology capabilities are essential to automotive transaction service platform. The progress of data and technology is mainly embedded in mobile-based process, big data adoption and IT system integration. Three main benefits of technology are (i) increased operational efficiency, (ii) ability to track credit status and car location on a real time basis and (ii) accumulation of behavior and risk data along the entire transaction process. Leveraging their market understanding and advanced technology, automotive transaction service platform offer automotive transaction facilitation to help OEMs and dealers improve operation and deal-matching efficiency.
Combination of offline and online capabilities: automotive transaction service platforms have started to adopt a combination of online and offline approaches. Online initiatives include online marketing and leads generation, online transaction and online automotive finance facilitation. Offline capabilities include dealer network and offline sales and service team. By leveraging online initiatives and offline capabilities, automotive transaction service platforms are able to offer a smooth and convenient transaction process.
Extensive dealership network: as dealers are the most common channels for automotive transaction service platforms to engage car buyers and gather automotive transaction data, it is essential for automotive transaction service platforms to partner with a large number of quality dealers.
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Our Mission
Transform automotive and mobility markets with data and technology.
Overview
We are a leading automotive transaction service platform in China connecting dealers, financial institutions, car buyers and other industry participants. According to the Oliver Wyman Report, we cover the largest number of new car dealers in China, and the outstanding balance of financing transactions we facilitated was the largest among automotive transaction service platforms in China as of December 31, 2017. As of March 31, 2018, our platform connected 37,667 registered dealers, 11 third-party financial institutions and 29 other industry participants, including OEMs, online advertising platforms and insurance brokers and companies, and had served 734,336 car buyers cumulatively since inception. Our platform model puts us in a unique position to add value for our platform participants and business partners as the mobility market in China continues to grow and evolve.
We have extensive, technology-enabled service offerings along the automotive value chain, which enable us to attract more participants to our platform and enhance engagement of existing participants. Our services primarily consist of: (1) automotive financing facilitation, (2) automotive transaction facilitation and (3) after-market services facilitation. We generate substantially all of our revenue from service fees for providing automotive financing facilitation, and to a lesser degree from service fees and other income from providing automotive transaction facilitation and after-market services facilitation. The diagram below illustrates the various kinds of services that our platform provides to the platform participants.
We provide automotive financing facilitation services primarily by connecting financial institutions and car buyers, leveraging our vast dealer network. For financial institutions, we offer integrated solutions that support the full life cycle of automotive financing transactions, including credit origination, credit assessment, credit
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servicing and delinquent asset management services. We have established in-depth collaboration with a number of third-party financial institutions, and we do not bear credit risk under our arrangement with two of such financial institutions, Jincheng Bank, which was our related party until September 2017, and Jiangnan Rural Commercial Bank. For car buyers, we offer automotive financing solutions and make car buyers purchases more affordable and accessible. Funding for such financing solutions is provided by either third-party financial institutions or Shanghai Autohome, a provider of financing leases which will become our wholly-owned consolidated subsidiary upon the completion of the Acquisition. We also provide car buyers with value-added services, such as assistance with administrative procedures associated with car purchasing and financing. We facilitated the financing of 97,219 new and used car purchases with a total amount of financing transactions of RMB5.8 billion (US$0.9 billion) in the three months ended March 31, 2018, representing a year-on-year growth of 7.2% from RMB5.4 billion in the same period in 2017. In the three months ended March 31, 2017 and 2018, the amount of financing transactions funded by Jincheng Bank was RMB5.1 billion and RMB1.9 billion (US$0.3 billion), representing 95.6% and 32.9% of the total amount of financing transactions we facilitated, respectively. In the three months ended March 31, 2017 and 2018, revenues attributable to our collaboration with Jincheng Bank, including fees received from car buyers in the relevant transactions, was RMB185.9 million and RMB96.0 million (US$15.3 million), which represented 95.3% and 38.6% of our total revenues, respectively.
We provide automotive transaction facilitation services primarily to dealers and car buyers. We operate a digital automobile trading platform, which enables our registered dealers to access additional car sourcing channels while enjoying our value-added services including logistics and warehousing support, and we collaborate with online automotive advertising platforms to help prospective car buyers find suitable cars in our dealer network while providing them with our financing solutions.
We also provide after-market services facilitation services to car buyers, which currently mainly involve facilitating the sale of insurance policies. We continue to explore opportunities to facilitate other after-market services on our platform, including additional types of insurance, extended warranties, car customization, maintenance and repair, and personal wealth management products.
Our strong dealership network is a critical component of our service platform. This network places us at the center of automotive transaction value chain and enables us to closely connect with car buyers and financial institutions. Through the dealer network, we offer automotive financing facilitation services to car buyers across China, and we have built a sizeable and diversified portfolio of automotive financing transactions for financial institutions. As of March 31, 2018, we worked closely with 37,667 registered dealers on our platform, covering 353 cities and all province-level administrative regions in the PRC except for Tibet. In every quarter from the beginning of 2016 to the three months ended March 31, 2018, over 40% of our registered dealers were active, in that each sold at least one car funded by a financing transaction we facilitated. We enhance our registered dealers competitiveness by improving prospective car buyer conversion, increasing sales volume and attracting even more car buyers. In turn, we connect with and serve more participants on our platform because of the network effect.
We use technology to connect our platform participants, bring them a premium user experience, and improve our own operation efficiency. For example, we integrate our operating systems with those of our platform participants, such as dealers and financial institutions, to ensure smooth and real time data exchange. Our digitalized credit application process, embedded with advanced credit assessment technology, allows us to help financial institutions achieve an average credit approval time of less than two hours, improving the experience of car buyers in these transactions. Benefiting from our technology-driven sales management system, we have achieved high operational efficiency.
We have accumulated or accessed a massive amount of car buyer data through various sources including the car buyers themselves, third parties with car buyers consent, as well as telematics devices during the credit servicing period with car buyers consent. Our customized cloud-based infrastructure allows us to scale up data processing and storage capacity to meet significant growth. We have developed comprehensive insight and
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knowledge of our car buyers through data analytics, which will allow us to design and provide other forms of credit solutions and tailor-made financial products to fulfill their evolving demand for financial services in the future. The comprehensive data insight built upon our leading technology provides a competitive edge in potential value-added service offerings such as precision marketing, inventory management, client relationship management and credit portfolio management.
As we continue to grow our platform, broaden service spectrum and accumulate data insights, we are exploring opportunities to cooperate with our strategic investors, such as Tencent, Taikang Life Insurance and Didi Chuxing, to enhance our full-process technology-driven automotive transaction services. For example, we plan to form a comprehensive partnership with Didi Chuxing and provide a variety of solutions to its large and rapidly expanding fleet, such as automotive financing, vehicle sourcing and insurance facilitation.
We have experienced strong growth in our results of operations. Our revenues increased by 142.3% from RMB434.3 million in 2016 to RMB1,052.2 million (US$167.7 million) in Our revenues increased by 27.5% from RMB195.1 million in the three months ended March 31, 2017 to RMB248.8 million (US$39.7 million) in the same period in 2018. Our net income increased by 161.5% from RMB133.5 million in 2016 to RMB349.1 million (US$55.7 million) in Our net income increased by 13.1% from RMB74.3 million in the three months ended March 31, 2017 to RMB84.0 million (US$13.4 million) in the same period in 2018.
Our Value Propositions
We believe we bring unique value to our platform participants. Our value propositions solidify the importance of our platform to the automotive transaction value chain.
| Financial institutions. We offer financial institutions access to potential car buyers and car dealers across China, powerful risk management tools to assess car buyers and dealers credit profiles, and an efficient way to build up and operate a sizeable and quality automotive financing business with limited upfront investment. |
| Car buyers. We provide car buyers automotive financing solutions with more attractive terms, a faster application process and better user experience, making purchasing cars easier and much more accessible for a larger population. |
| Dealers. We help dealers improve their business performance by facilitating car purchases from automotive wholesalers and other dealers, attracting more car buyers both offline and online and facilitating automotive financing to increase sales volume. In addition, we have started to provide dealer SaaS management system and facilitate supply chain financing to create even more value for dealers. |
| Other Platform Participants. We attract a wide variety of participants such as OEMs to our platform. We plan to help expand their access to the other parties on the industry value chain and collaborate with them to develop more value-added services. |
Our Strengths
We believe the following strengths contribute to our success and reinforce our market-leading position.
Leadership in a Fast-growing Underserved Market
As a leading automotive transaction facilitation platform, we cover the largest number of new car dealers in China, according to the Oliver Wyman Report. As of March 31, 2018, 27,054 of our dealers were new car dealers. The outstanding balance of financing transactions we facilitated was the largest among automotive transaction service platforms in China as of December 31, 2017, according to the Oliver Wyman Report. We facilitated the financing of 97,219 new and used car purchases with a total amount of financing transactions of RMB5.8 billion (US$0.9 billion) in the three months ended March 31, 2018.
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We operate in a fast growing yet underserved market. Chinas automotive finance market grew at a CAGR of 32% in terms of outstanding balance from 2013 to 2016 according to the Oliver Wyman Report. However, the penetration rate of automotive finance in China was as low as 43% and 19% in 2017 for new and used cars, respectively, significantly lower than more developed markets. According to the Oliver Wyman Report, the number of transactions for new cars is projected to grow at a CAGR of -3%, 2.5% and 8.9% in tier-one cities, tier-two cities and lower-tier cities from 2017 to 2021, respectively, indicating the significant growth potential in lower-tier cities. However, such cities are severely underserved due to lack of credit infrastructure and insufficient network coverage. We therefore strategically focus on lower-tier cities. As we have capitalized on these market opportunities, the quarterly amount of financing transactions facilitated increased over ninefold from RMB612.8 million in the three months ended March 31, 2016 to RMB5.8 billion in the three months ended March 31, 2018.
We believe our market leadership and scale enable us to provide diversified products and services to platform participants with more attractive terms, which in turn improves our operational efficiency through economies of scale. We believe these competitive advantages strengthen our leadership position and help us adapt to developments in the fast evolving automotive and mobility markets.
Self-reinforcing Platform Empowered by Technology and Data
Our platform connects dealers, financial institutions, car buyers and other industry participants throughout the entire automotive transaction value chain. We use technologies to improve overall transaction efficiency and unlock value for platform participants. As we engage more industry participants through our platform, we are able to facilitate more transactions among them, collect more data, offer more products and services and create more value for them, creating a self-reinforcing virtuous cycle. The number of registered dealers on our platform and cumulative car buyers that we had served since inception of our platform increased by 134.9% and 263.1% from December 31, 2016 to March 31, 2018. The number of financing transactions we facilitated to car buyers increased by 7.1% from the three months ended March 31, 2017 to the three months ended March 31, 2018. Business cooperation with leaders in other industries including Tencent, Taikang Life Insurance and Didi Chuxing, which have become our strategic investors, will allow us to not only extend the spectrum of our services but also further monetize the scale and data insights of our platform.
We apply technology to serve our platform participants more efficiently and bring them better user experience. For financial institutions, we built customized application programming interfaces to ensure smooth and real time data exchange, assist credit approval with an assessment model based on deep learning algorithms, extensive industry experience and data accumulated over time, and enhance post-loan management via telematics tracking and car buyers behavior analysis. For dealers, we operate an internal sales management system that allows us to generate marketing leads and monitor their performance and service process in real times. We also operate a digital trading platform where dealers can source cars from our large vehicle database. Both systems allow us to proactively engage with our registered dealers and increase their productivity. For car buyers, our mobile-enabled process, including identity verification with facial recognition technology, has made credit applications more accessible and convenient. Car buyers can receive approval of credit applications from financial institutions that we cooperate with in less than two hours from the time of submission of application on average, and we can fund car purchases within half a day, 7 days a week.
We actively collect data from platform participants to develop insights and enhance our products and services. As of March 31, 2018, we had a database with over 13 terabytes of automotive financing application data covering 1,070,154 applicants with at least 200 variables for each of them and 29 terabytes of telematics data. Our system is supported by advanced technologies in cloud computing, distributed architecture and big data analytics. Our capability to accumulate, store and process a massive amount of data along the automotive transaction value chain not only allows us to operate our existing business efficiently and effectively, but also provides us additional cross-selling opportunities as we gain more insights into each participant on our platform. For example, we can offer car buyers other lifestyle scenario based credit solutions, as well as other tailor-made
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financial products ranging from insurance to wealth management products. We can also provide more value-added services to dealers including precision marketing, inventory management, client relationship management and credit portfolio management.
End-to-end Service Model with Financial Institutions
Combining the data and technology driven risk management with our extensive and powerful dealer network, we provide end-to-end technology-enabled services to financial institutions including credit origination, credit assessment, credit servicing and delinquent asset management. We enable financial institutions to participate in the automotive finance market, particularly in the lower-tier cities where they lack the network to address market demand. We believe we serve a large portion of the automotive financing portfolios of our major financial institution customers, making our relationship with them highly sticky.
We have a fully integrated system linking us and the financial institutions we cooperate with. We serve a number of commercial banks with high internal control requirements, which we take into account when building our system. We integrate our system with certain financial institutions core systems, which enables us to transmit applicant data and our credit analysis to financial institutions, as well as for financial institutions to transmit credit decisions and monthly repayment data to us, in each case on a real time basis, which demonstrates the high level of trust and recognition of our platform on the part of financial institutions as well as the strength of our relationships.
We are not obligated to bear credit risk for financing transactions funded by Jincheng Bank or Jiangnan Rural Commercial Bank under the direct partnership model. As of March 31, 2018, the total outstanding balance of financing transactions facilitated by Jincheng Bank and Jiangnan Rural Commercial Bank under this agreement was 97.3% of the total outstanding balance of financing transactions facilitated under the direct partnership model. Effective management of credit performance of the financing transactions facilitated through our platform is a central focus of our operation. M3+ overdue ratio for all financing transactions which we facilitated and remained outstanding was 0.28% and 0.46% as of March 31, 2017 and 2018, respectively.
Largest and Powerful Dealer Network
We believe an established dealer network is a critical gateway of the automotive transaction value chain where industry participants meet and transactions take place. We have established the largest dealer network across China with 37,667 registered dealers as of March 31, 2018. As of March 31, 2018, 27,054 of our dealers were new car dealers. Our extensive dealer network covered 353 cities and all province-level administrative regions except for Tibet. Our dealer network has been growing rapidly with an average of 1,922 new dealers registered per month in the past 12 months. We have an effective system to manage our vast dealership network, including a strong in-house sales team with 24 regional sales managers and 2,100 sales representatives nationwide as of March 31, 2018. Our in-house sales team is responsible for expanding our dealer network by following a rigorous screening process, and it proactively manages our registered dealers by making frequent onsite visits, providing constant live support and exploring new business opportunities.
As a majority of the dealers in our network are small scale non-4S dealers with limited resources and economies of scale, we have more opportunities to provide them additional technology-enabled services including car sourcing management, inventory management, customer relationship management and supply chain financing facilitation to address their pain points and create value for such car dealers.
Visionary and Experienced Management Team
Our company is led by an experienced and visionary management team who founded the first automotive finance company in China, SAIC-GMAC Automotive Finance. Having discovered a vast market that is underserved and inefficient, our management team established a transformative platform business model, leveraging their industry expertise and innovative application of technology.
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Our Chairman, Mr. Xiaojun Zhang, is a pioneer in China automotive finance sector. He was the founder and chief executive officer of SAIC-GMAC Automotive Finance, with seven years of experience working for The Peoples Bank of China as financial supervisor. Our chief executive officer, Mr. Jiayuan Lin, was the founder of the automotive finance business segment of SAIC Finance, served as the sales general manager of SAIC-GMAC Automotive Finance, and was also the founder of SAIC AVIS automotive leasing company. Their unique experience and background have imbued them with a profound understanding of Chinas automobile industry and regulatory environment, which will continue to allow us to stay at the frontier of the industry through constant innovation.
Our Strategies
We seek to continue to transform automotive and mobility markets with data and technology. We plan to pursue the following strategies to achieve our goal:
Engage More Platform Participants
We seek to diversify the financial institutions we cooperate with, including both national banks and regional banks. We also aim to increase the other participants of our platform, such as dealers in tier-one and tier-two cities as well as lower-tier cities, OEMs, including foreign brands, sino-foreign joint venture brands, domestic brands and electric vehicle OEMs, insurance companies as well as individual and enterprise car buyers across China. We will continue to focus on our enabler role under the platform model, with a goal to ultimately reduce credit risk exposure with respect to financing transactions we facilitate for third-party financial institutions as we demonstrate a longer track record.
Roll out More Services along the Automotive Transaction Value Chain
As we have more participants and more automotive transactions facilitated on our platform and develop more insights as to the automotive transaction value chain, we will continue to roll out more technology-enabled services. We plan to further enhance our SaaS solutions to better address dealer pain points including car sourcing management, inventory management and customer relationship management. In May 2018, we started to connect dealers with financial institutions for inventory and supply chain financing to promote the stickiness of our platform. We also intend to connect certain OEMs, for example electric vehicle OEMs, with car buyers directly, supported by dealers in place for car delivery and after-market services.
Provide Consumers with More Products throughout Their Lifetime
We plan to collaborate with additional online channels to embrace evolving consumer behavior. We intend to discern opportunities to tap into more consumption scenarios arising from automotive and mobility markets based on our insights into consumers purchasing, financing and usage information. Such opportunities may include but are not limited to consumer-oriented car trading marketplace, car customization and related financing, automotive insurance, non-automotive insurance and personal wealth management products.
Continue Investment in Data and Technology
We will continue to invest in technologies in areas such as user interface, mobile communication, telematics analytics and IT infrastructure to improve overall operational efficiency and experience for our platform participants. We will also focus on big data technologies to analyze additional data sources, refine our current credit assessment model and improve the level of automation in credit assessment. We intend to deepen our data insights on car buyers, dealers and other industry participants and translate them into new products and business opportunities.
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Deepen Partnerships with Our Strategic Shareholders
We believe our strategic shareholders each bring unique and complementary value to our platform. We are implementing cooperation with each of our strategic shareholders, and will continue to deepen such partnerships as the automotive and mobility markets continuously evolve. We plan to partner with Taikang Life Insurance, a leading insurance company in China, to provide customized insurance products to car buyers on our platform, leveraging our data analytical capabilities and large dealer network. We will also closely work with Tencent, a leading Internet technology service provider, to further develop technology-enabled services for our platform participants and improve our operational efficiency.
We have launched a pilot program in a city in China with Didi Chuxing, a leading ride-sharing technology company, to provide a variety of solutions to its fleet, such as automotive financing, vehicle sourcing and insurance facilitation. We plan to form a comprehensive partnership with Didi Chuxing and provide our solutions in additional cities to capitalize on Didi Chuxings large and rapidly expanding fleet.
Our Solutions and Services
We provide integrated solutions and services through our technology-enabled platform along the entire automotive transaction value chain, from wholesale transaction of cars, to purchase of cars by individuals and to after-market services. We primarily act as a facilitator in each of these processes, enabling other platform participants to optimize their operations or secure better terms in transactions. The unique value proposition we bring to platform participants allows us to both solidify existing relationships and attract new participants to our platform. As we serve and interact with different types of platform participants, we gain further insights into them and capture new business opportunities. The illustration below sets forth the solutions and services we provide.
Automotive Financing Facilitation | Automotive Transaction Facilitation | After-market Services Facilitation | ||
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Automotive Financing Facilitation
Automotive financing facilitation services primarily involve facilitating financing transactions from financial institutions to car buyers. For financial institutions, we offer integrated solutions that support the full life cycle of automotive financing transactions, including credit origination, credit assessment, credit servicing and delinquent asset management services. For car buyers, we facilitate financing transactions that make their car purchases more affordable, and we also assist them in handling administrative procedures in relation to car purchasing and financing. We leverage our large nationwide dealer network in providing the services to financial institutions and car buyers. In addition, our focus on technology-driven process also allows us to serve our customers in a highly efficient manner, achieving average credit decision time of less than two hours for financing transactions we facilitated in the three months ended March 31, 2018.
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Services Provided to Financial Institutions
| Credit origination : We arrange marketing campaigns of financial institutions automotive financing solutions at the sites of our registered dealers. We utilize our sales team, dealer financial managers and sales agents to promote automotive financing solutions and explain the key terms to prospective car buyers. We provide credit application forms to, and collect completed applications from, prospective car buyers. Our technology enables electronic submission of 100% of these credit applications through either mobile applications or webpages by our sales team, dealer financial managers or sales agents. By integrating our IT system with those of financial institutions, we are able to provide them updates as to the number and the amount of financing transactions that we help them underwrite on a real time basis. |
| Credit assessment : We conduct a thorough credit assessment of each applicant using our credit assessment model and have our credit assessment team conduct a manual evaluation when necessary. To assist financial institutions in making ultimate credit decisions, we refer qualified credit applications to such financial institutions, which perform independent credit assessment. We have in-depth collaboration with financial institutions and incorporate the credit policies and standards of these financial institutions into our credit assessment system. Our IT system is also highly integrated with financial institutions with which we directly collaborate. As such, we provide significant value to facilitate the ultimate credit decision making process of financial institutions by enhancing its efficiency. For example, it only took less than two hours on average from submission of credit application to provision of credit decision in the three months ended March 31, 2018. In some instances, credit decisions were provided in less than half an hour. |
| Credit servicing : Once the credit application is approved, we coordinate with the car buyer and the financial institution to execute the necessary financing documents, in most cases electronically. Upon execution of the financing documents, the financial institution will remit the funds to the relevant dealer to close the transaction. Car buyers are required to designate specific bank accounts to make repayments. We also assist financial institutions in setting up electronic repayment instructions for car buyers to wire the repayments to financial institutions periodically as well as sending periodical reminders to car buyers ahead of each repayment due date. By integrating our IT system with those of financial institutions, we are also able to monitor repayments continuously and share with financial institutions information as to car buyer delinquencies and vehicle locations on a real time basis. |
| Delinquent asset management : We help financial institutions collect repayments and repossess collaterals for financing transactions that have become delinquent, with the aim to cost-effectively recover value. Our delinquent asset management process consists of six distinct stages, namely automated reminders, live phone calls, in-person visits, repossession, disposal and legal actions. We initiate the process as soon as delinquency starts, but we obtain the relevant financial institutions consent before we repossess a car. Every car purchased through our platform comes with a telematics device, which helps us locate the collateral. We have established a nationwide network of third-party repossession agents and external counsel to supplement our own resources. Our in-house team is also closely involved in each stage of the delinquent asset management process to ensure compliance with the relevant laws and regulations. |
We charge financial institutions service fees for credit origination, credit assessment and credit servicing. These service fees are typically based on a percentage of the principal amount of the relevant financing transaction. We charge financial institutions additional fees for our delinquent asset management services.
Services Provided to Car Buyers
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Automotive Financing Solutions: We assist car buyers in obtaining the appropriate financing package for purchasing a car, including introduction of automotive financing solutions of third-party financial institutions that we partner with. These automotive financing solutions are structured as either loans or financing leases. We also facilitate financing leases to car buyers through Shanghai Autohome, an |
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entity in which we currently own 50% equity interest. We receive service fees from Shanghai Autohome for facilitating such transactions. For more information, see Related Party Transactions. Upon the completion of the Acquisition, Shanghai Autohome will become our wholly-owned consolidated subsidiary. In the three months ended March 31, 2018, 84.6% of the amount of financing transactions we facilitated were used for purchasing of new cars, while the rest were used for used car purchases. The table below sets forth a breakdown of the total amount of financing transactions facilitated by funding sources, both in absolute amount and as a percentage of the total amount facilitated, in the periods presented: |
Year Ended December 31, | Three Months Ended March 31, | |||||||||||||||||||||||||||||||||||||||
2016 | 2017 | 2017 | 2018 | |||||||||||||||||||||||||||||||||||||
RMB | % | RMB | US$ | % | RMB | % | RMB | US$ | % | |||||||||||||||||||||||||||||||
(in thousands, except for percentages) | ||||||||||||||||||||||||||||||||||||||||
Financing transactions funded by third-party financial institutions |
9,146,574 | 88.5 | 26,332,458 | 4,198,013 | 99.1 | 5,237,511 | 97.5 | 5,737,304 | 914,661 | 99.6 | ||||||||||||||||||||||||||||||
Financing transactions funded by Shanghai Autohome |
1,186,046 | 11.5 | 248,960 | 39,690 | 0.9 | 134,524 | 2.5 | 20,719 | 3,303 | 0.4 | ||||||||||||||||||||||||||||||
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Total |
10,332,620 | 100.0 | 26,581,419 | 4,237,704 | 100.0 | 5,372,035 | 100.0 | 5,758,023 | 917,964 | 100.0 | ||||||||||||||||||||||||||||||
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The amount of financing transactions funded by Shanghai Autohome decreased from RMB1,186.0 million for 2016 to RMB249.0 million in 2017. The amount of financing transactions funded by Shanghai Autohome decreased from RMB134.5 million for the three months ended March 31, 2017 to RMB20.7 million in the same period in 2018. The decreases were primarily due to our strategic decision to facilitate more financing transactions funded by third-party financial institutions.
The table below sets forth the number of credit applications we processed and the number of financing transactions we facilitated in the periods presented.
Three months ended | ||||||||||||||||||||||||||||||||||||
March 31, | June 30, | September 30, | December 31, | March 31, | June 30, | September 30, | December 31, | March 31, | ||||||||||||||||||||||||||||
2016 | 2017 | 2018 | ||||||||||||||||||||||||||||||||||
Number of credit applications |
18,806 | 47,957 | 80,965 | 132,472 | 126,667 | 125,959 | 171,835 | 190,747 | 137,166 | |||||||||||||||||||||||||||
Number of financing transactions facilitated |
10,793 | 30,704 | 53,573 | 87,336 | 90,791 | 87,854 | 120,915 | 135,321 | 97,219 |
| Purchase Facilitation: Leveraging our knowledge of automotive transactions, we offer car buyers various value-added services associated with purchasing cars with financing. Such services mainly involve registrations of license plates and collaterals with the relevant government authorities. Car buyers tend to be unfamiliar with the rules and procedures for making such registrations, and we believe our services significantly improve car buyers experience in purchasing cars with financing. |
We may charge car buyers a fee for providing value-added services in certain instances. In addition, Shanghai Autohome recognizes financing lease income relating to financing lease payments from car buyers.
Services Provided to Dealers
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Supply Chain Financing: To further strengthen our relationships with dealers, we launched supply chain financing facilitation in May 2018. We assist dealers in obtaining supply chain financing solutions funded by third-party financial institutions that we partner with. The terms of financing solutions offered through our platform are typically within 15 days. We charge dealers service fees |
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based on the number of cars purchased under such financing arrangement. We are obligated to purchase the relevant financing receivables from financial institutions upon certain specified events of default by dealers. |
Automotive Transaction Facilitation
We facilitate automotive transactions between automotive wholesalers, dealers and car buyers. We possess a large number of automotive transaction data, as we facilitate the distribution of automotive financing products. Utilizing these data, we are able to provide additional services, including car sourcing and logistics and warehousing support for dealers, which we refer to as B2B transactions, and facilitation of car purchases for car buyers, which we refer to as B2C transactions. By using our automotive transaction facilitation services, dealers are also able to enjoy economies of scale in vehicle sourcing and logistics management. Similarly, our automotive transaction facilitation business is also powered by our technology platform, aiming to maximize efficiencies.
| B2B transactions : We operate 91HaoChe, a digital automobile trading platform, which enables our registered dealers to access additional car sourcing channels and receive value-added services including logistics and warehousing support. 91HaoChe facilitates car sourcing for dealers by either (i) taking a proprietary inventory position of cars and reselling such cars to dealers or (ii) operating a marketplace that allows registered dealers to share car information and trade new and used cars. In the former case, we primarily purchase car models which we believe are reliable, affordable and will appeal to car buyers in lower-tier cities based on automotive transaction data we collected to minimize our inventory risk. As of March 31, 2018, we had facilitated automotive transactions with a total revenue of RMB8.2 million through our subsidiary, Shanghai Cango Automobile Sales Services Co., Ltd., since the launch of 91HaoChe service in June 2017. Our service allows registered dealers to not only receive better pricing, but also manage logistics and warehousing of vehicle purchases more cost effectively, as we cooperate with third-party logistics companies to serve registered dealers. We currently do not charge a commission for facilitating automobile trading between registered dealers. We provide logistics and warehousing services to facilitate automobile trading and receive a fee from dealers for such services. We also generate income by reselling cars from our inventory. As of March 31, 2018, 2,807 dealers were registered on 91HaoChe. |
To further strengthen our relationships with dealers, we launched dealer SaaS solutions in May 2018. As a comprehensive tool kit to address dealers pain points, our SaaS solutions allow dealers to conveniently source cars, apply for supply chain financing, manage inventory and engage potential car buyers. Our SaaS solutions are free of charge for dealers, and we generate income primarily by facilitating B2B transactions as part of dealers car sourcing as well as supply chain financing.
| B2C transactions : As of March 31, 2018, we were in collaboration with nine online automotive advertising platforms to facilitate car purchases for car buyers. We assist prospective car buyers to find suitable cars in our vast dealer network according to each car buyers unique preference. The service also enables our registered dealers to tap into the large user base of the online automotive advertising platforms. In the three months ended March 31, 2017 and 2018, we facilitated 3,161 and 898 B2C transactions to car buyers, respectively. We do not charge car buyers or dealers fees for facilitating B2C transactions. Nonetheless, we generate income by facilitating financing for such B2C transactions. In addition, we also maintain regular contact with prospective car buyers who have indicated interest in purchasing a car but have not been able to locate a suitable one in our dealer network. We aim to convert some of them into our customers in the future. Our frequent contacts with these prospective car buyers and deep insights into their needs may also bring us additional cross-selling opportunities in the future. |
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After-market Services Facilitation
Our platform also facilitates after-market services to car buyers, which is currently comprised of facilitating the sale of insurance policies from insurance brokers or companies. Our scale and our ability to provide an effective channel for insurance brokers and companies to acquire customers has enabled us to negotiate more favorable premium for car buyers. The products currently offered through our platform are personal accident insurances and automotive insurances. We earn service fees from insurance brokers for facilitating the sale of such insurance products. We believe we are able to understand the needs of car buyers and deliver competitively priced products that resonate with car buyers. In addition, we offer anti-theft assurance services to car buyers by leveraging the telematics devices installed on their cars. We receive service fees from car buyers and indemnify them for their losses if their cars are not recovered for a period of time after being stolen, subject to certain conditions specified in the service agreements with car buyers. We will continue to explore and identify opportunities to facilitate other after-market services, including additional types of insurances, extended warranties, car customization, maintenance and repair, and personal wealth management products.
Our Relationships with Our Platform Participants
As the leading automotive transaction service platform in China, we connect dealers, financial institutions, car buyers and other participants such as insurance brokers and companies, online automotive advertising platforms and OEMs. As of March 31, 2018, our platform connected 37,667 registered dealers, 11 third-party financial institutions and 29 other industry participants, including OEMs, online advertising platforms and insurance brokers and companies, and had served 734,336 car buyers cumulatively since inception. The scale of our platform has a network effect that further strengthens our ability to serve each party on our platform. We believe that by leveraging our technological capabilities and strong relationships with our customers and business partners, we will be able to transform the automotive and mobility markets in China.
Dealers
Our extensive dealer network is the foundation of our platform, and we closely collaborate with our registered dealers when we provide services to financial institutions and car buyers. At the same time, we help dealers increase their sales and source additional car buyers for them. We also facilitate B2B transactions for our registered dealers by providing additional car sourcing channels and value-added services including logistics and warehousing support. We launched dealer SaaS solutions in May 2018, which allow dealers to conveniently source cars, access supply chain financing, manage inventory and engage potential car buyers. Such full-process services significantly strengthen our relationships with dealers, which in turn enhance the value of our platform to financial institutions and car buyers.
As of March 31, 2018, our dealer network was comprised of 37,667 registered dealers. As of the same date, our extensive dealer network covered 353 cities in all province-level administrative regions in China except for Tibet. As of March 31, 2018, 27,054 of our dealers were new car dealers.
We manage our dealer network through a dedicated in-house sales team of 2,100 employees as of March 31, 2018. Our sales team is supervised by 22 regional offices, which are in turn supervised by our headquarters. Responsibilities of our sales team include sourcing and preliminary review of new dealers, management of relationships with registered dealers and on-the-ground customer support. Responsibilities of regional offices include management of regional dealer networks, management of our sales team and organizing regional marketing campaigns. Responsibilities of our headquarters include, among other things, review and approval of new dealers, periodic review of existing dealers and management of dealer database. We have implemented an incentive scheme for members of our sales team based on their performance, and we monitor performance data on a real-time basis through our electronic sales management system.
Our sales team also utilizes a sales management system to engage new dealers and monitor existing dealers. The system maintains a comprehensive list of dealers across China, and we continually update this list based on
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information obtained from online automotive advertising platforms, OEMs as well as government sources. Based on the list, we analyze the penetration rate of our dealer network in each region, screen dealers which are suitable for our dealer network and proactively engage these dealers.
To ensure the quality of our dealer network as well as prevent potential fraud risk, we have implemented a rigorous procedure to screen dealers based on the dealers licensing status, operation history, scale, location and various other factors. We maintain an internal blacklist of fraudulent dealers, and we also use a third-party database to identify whether a dealer has been involved in significant lawsuits. Our screening procedure involves an on-site visit, during which our sales team interviews the dealership manager, examines the dealers business licenses and makes inquiries about its business. Our sales team records its findings electronically in our sales management system and submits the findings electronically to a group of around ten supervisors based in our headquarters, who make the final decision as to whether the dealer can join our network.
Through our sales management system, we constantly monitor and evaluate the performance of all of our registered dealers, including factors such as their productivity and credit quality of financing transactions originated through them. To maintain operational efficiency, we terminate relationships with registered dealers that fail to meet our performance expectations. In the three months ended March 31, 2017 and 2018, we terminated collaboration with 509 and 1,721 dealers. As a result of pro-active management of our dealer network, the percentage of active dealers in our dealer network has remained relatively stable despite the fast growth of total number of registered dealers. The following table sets forth the total number of our registered dealers as of the dates indicated, the numbers of dealers added and terminated in the periods indicated and the number of active dealers during the periods indicated as a percentage of the total number of our registered dealers as of the end of such periods.
As of / in the three months period ended | ||||||||||||||||||||||||||||||||||||
March 31, | June 30, | September 30, | December 31, | March 31, | June 30, | September 30, | December 31, | March 31, | ||||||||||||||||||||||||||||
2016 | 2017 | 2018 | ||||||||||||||||||||||||||||||||||
Registered dealers at beginning of period |
3,006 | 4,554 | 9,338 | 12,827 | 16,035 | 20,079 | 24,870 | 30,509 | 34,634 | |||||||||||||||||||||||||||
Addition |
1,553 | 5,440 | 3,806 | 3,549 | 4,553 | 5,911 | 6,954 | 5,445 | 4,754 | |||||||||||||||||||||||||||
Termination |
5 | 656 | 317 | 341 | 509 | 1,120 | 1,315 | 1,320 | 1,721 | |||||||||||||||||||||||||||
Registered dealers at end of period |
4,554 | 9,338 | 12,827 | 16,035 | 20,079 | 24,870 | 30,509 | 34,634 | 37,667 | |||||||||||||||||||||||||||
Active dealers (%) |
49.3 | 49.6 | 50.9 | 52.1 | 51.0 | 49.9 | 52.1 | 49.3 | 41.7 |
The following table sets forth a breakdown of the number of registered dealers in our dealer network by location, both in absolute terms and as a percentage of the total number of registered dealers, as of the dates indicated.
As of December 31, | As of March 31, | |||||||||||||||||||||||
2016 | 2017 | 2018 | ||||||||||||||||||||||
Number | % | Number | % | Number | % | |||||||||||||||||||
Tier-one and tier-two cities |
4,066 | 25.4 | 9,875 | 28.5 | 10,773 | 28.6 | ||||||||||||||||||
Lower-tier cities |
11,969 | 74.6 | 24,759 | 71.5 | 26,894 | 71.4 | ||||||||||||||||||
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Total |
16,035 | 100.0 | 34,634 | 100.0 | 37,667 | 100.0 | ||||||||||||||||||
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We collaborate with two types of dealers, namely 4S dealers and non-4S dealers. Each 4S dealer sells products exclusively from one OEM and adopts store designs specified by such OEM. 4S dealers cover a comprehensive set of functions, including auto sales, spare parts, after-sale services and customer surveys. In contrast, non-4S dealers only cover auto sales and after-sales services, but not spare parts or customer surveys. A non-4S dealer does not have an exclusivity arrangement with any individual OEM and tends to sell cars from multiple OEMs. A non-4S dealer may sell new cars, used cars or both. Non-4S dealers tend to have smaller scale
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of operations and lack connections with OEMs and financial institutions. As such, non-4S dealers tend to lack stable sources to purchase cars for themselves or find financing solutions for car buyers, and we are well positioned to create significant value for such dealers.
The following table sets forth a breakdown of the number of registered dealers by type, both in absolute terms and as a percentage of the total number of registered dealers, as of the dates indicated.
As of December 31, | As of March 31, | |||||||||||||||||||||||
2016 | 2017 | 2018 | ||||||||||||||||||||||
Number | % | Number | % | Number | % | |||||||||||||||||||
4S dealers |
5,325 | 33.2 | 7,314 | 21.1 | 7,620 | 20.2 | ||||||||||||||||||
Non-4S dealers |
10,710 | 66.8 | 27,320 | 78.9 | 30,047 | 79.8 | ||||||||||||||||||
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Total |
16,035 | 100.0 | 34,634 | 100.0 | 37,667 | 100.0 | ||||||||||||||||||
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Our sales team actively manages our dealer network through frequent on-site visits and timely updates of product offerings on our platform. We manage our dealer network through three models, namely the self-operated sales model, dealer financial manager model and sales agent model.
| Self-operated sales model. Under this model, a dealers sales representative makes the initial introduction of our automotive financing solutions to a prospective car buyer. If a prospective car buyer expresses interest in such solutions, the dealer contacts a member of our in-house sales team, who will come to the dealers store and explain the terms of our automotive financing solutions to the prospective car buyer and offers assistance in completing the credit application. Our sales team then uploads the credit application to our online system for our credit assessment team to evaluate. |
| Dealer financial manager model. Many dealers, especially 4S dealers, employ dealer financial managers, who have received training from us with respect to the automotive financing solutions on our platform. Dealer financial managers are capable of explaining the terms of our automotive financing solutions to prospective car buyers and addressing their questions. As such, our sales team is generally not directly involved in credit origination under this model. The dealer financial managers are responsible for assisting prospective car buyers in completing the credit applications and submitting them to our credit assessment team. |
| Sales agent model. As we expand into certain cities, we may collaborate with local sales agents that already have established local dealer networks. We provide trainings to sales agents employees with respect to the automotive financing solutions on our platform. Sales agents are responsible for explaining the terms of the automotive financing solutions to prospective car buyers and collecting credit applications from them. Our sales staff screens these sales agents to evaluate their qualifications, and we only work with sales agents who we believe will interact with prospective car buyers professionally. Sales agents receive service fees from financial institutions and, in some instances, from us as well. We do not collaborate directly with dealers under this model. |
The following table sets forth a breakdown of the number of registered dealers by dealer coverage model, both in absolute terms and as a percentage of the total number of registered dealers, as of the dates indicated.
As of December 31, | As of March 31, | |||||||||||||||||||||||
2016 | 2017 | 2018 | ||||||||||||||||||||||
Number | % | Number | % | Number | % | |||||||||||||||||||
Self-operated sales model |
7,297 | 45.5 | 20,298 | 58.6 | 23,998 | 63.7 | ||||||||||||||||||
Dealer financial manager model |
2,943 | 18.4 | 4,286 | 12.4 | 4,260 | 11.3 | ||||||||||||||||||
Sales agent model |
5,795 | 36.1 | 10,050 | 29.0 | 9,409 | 25.0 | ||||||||||||||||||
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Total |
16,035 | 100.0 | 34,634 | 100.0 | 37,667 | 100.0 | ||||||||||||||||||
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The following table sets forth the breakdown of the total amount of financing transactions we facilitated by dealer coverage model, both in absolute amount and as a percentage of the total amount of financing transactions we facilitated, for the periods presented.
Year Ended December 31, | Three Months Ended March 31, | |||||||||||||||||||||||||||||||
2016 | 2017 | 2018 | ||||||||||||||||||||||||||||||
RMB | % | RMB | US$ | % | RMB | US$ | % | |||||||||||||||||||||||||
(in thousands, except for percentages) | ||||||||||||||||||||||||||||||||
Self-operated sales model |
4,475,272 | 43.3 | 13,629,056 | 2,172,792 | 51.3 | 4,355,723 | 694,405 | 75.6 | ||||||||||||||||||||||||
Dealer financial manager model |
2,733,017 | 26.5 | 6,281,775 | 1,001,463 | 23.6 | 622,295 | 99,208 | 10.8 | ||||||||||||||||||||||||
Sales agent model |
3,124,331 | 30.2 | 6,670,588 | 1,063,449 | 25.1 | 780,006 | 124,351 | 13.5 | ||||||||||||||||||||||||
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Total |
10,332,620 | 100.0 | 26,581,419 | 4,237,704 | 100.0 | 5,758,024 | 917,964 | 100.0 | ||||||||||||||||||||||||
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We implemented a change in our dealer coverage model in the first quarter of 2018, and our sales team has started to cover a significant number of dealers that were previously covered by dealer financial managers, who are dealers employees. In contrast to dealer financial managers, we are able to directly control and communicate with our sales team, which is expected to execute our sales strategy more effectively and deliver higher quality services to car buyers.
To efficiently manage our sales efforts, we have developed a mobile application for our in-house sales team, dealer financial managers and sales agents. The mobile application enables personnel involved in our sales efforts to submit credit applications on behalf of prospective car buyers and monitor the status of such credit applications. We also utilize the mobile application to assign tasks to such personnel and collect their performance data on a real-time basis.
Given the importance of dealers to the origination process, dealers typically receive commissions for financing transactions facilitated, which are based on a percentage of the principal amount of the relevant financing transaction. A dealer may receive commissions from us or the relevant financial institution, depending on the arrangement among us, the dealer and the relevant financial institution.
Financial Institutions
Financial institutions are important business partners to our platform. We act as the gateway for financial institutions into the rapidly growing automotive finance industry in China. Traditional financial institutions typically lack the necessary technology, human resources and/or geographic reach to provide automotive financing on a nationwide scale, especially within lower-tier cities. Our services enable financial institutions to broaden their reach to car buyers and dealers through our extensive dealer network across China. Our collaboration with financial institutions has enabled us to scale up our business and facilitate a large number of financing transactions without straining our own capital resources.
Third-party financial institutions fund a major portion of financing transactions that we facilitate to car buyers, and we also facilitate financing leases funded by Shanghai Autohome. We collaborate with third-party financial institutions in facilitating financing transactions under two models, which we refer to as the direct partnership model and co-partnership model, respectively. We receive service fees from financial institutions for facilitating automotive financing transactions to car buyers. As of March 31, 2018, we were in collaboration with 11 third-party financial institutions.
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The table below sets forth a breakdown of the total amount of financing transactions funded by third-party financial institutions and Shanghai Autohome, both in absolute amount and as a percentage of the total amount facilitated, in the periods presented:
Year Ended December 31, | Three Months Ended March 31, | |||||||||||||||||||||||||||||||
2016 | 2017 | 2018 | ||||||||||||||||||||||||||||||
RMB | % | RMB | US$ | % | RMB | US$ | % | |||||||||||||||||||||||||
(in thousands, except for percentages) | ||||||||||||||||||||||||||||||||
Financing transactions funded by third-party financial institutions: |
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Direct partnership model |
9,146,574 | 88.5 | 19,564,936 | 3,119,111 | 73.6 | 1,968,587 | 313,839 | 34.2 | ||||||||||||||||||||||||
Co-partnership model |
| | 6,767,522 | 1,078,902 | 25.5 | 3,768,718 | 600,822 | 65.4 | ||||||||||||||||||||||||
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Total financing transactions funded by third-party financial institutions |
9,146,574 | 88.5 | 26,332,458 | 4,198,013 | 99.1 | 5,737,304 | 914,661 | 99.6 | ||||||||||||||||||||||||
Financing transactions funded by Shanghai Autohome |
1,186,046 | 11.5 | 248,960 | 39,690 | 0.9 | 20,719 | 3,303 | 0.4 | ||||||||||||||||||||||||
Total |
10,332,620 | 100.0 | 26,581,419 | 4,237,704 | 100.0 | 5,758,023 | 917,964 | 100.0 | ||||||||||||||||||||||||
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The table below sets forth a breakdown of the total outstanding principal of financing transactions funded by third-party financial institutions and Shanghai Autohome, both in absolute amount and as a percentage of the total outstanding amount facilitated, as of the date presented:
As of December 31, | As of March 31, | |||||||||||||||||||||||||||||||
2016 | 2017 | 2018 | ||||||||||||||||||||||||||||||
RMB | % | RMB | US$ | % | RMB | US$ | % | |||||||||||||||||||||||||
(in thousands, except for percentages) | ||||||||||||||||||||||||||||||||
Outstanding principal of financing transactions funded by third-party financial institutions: |
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Direct partnership model |
9,111,188 | 89.7 | 21,453,997 | 3,420,272 | 74.9 | 20,747,481 | 3,307,636 | 67.0 | ||||||||||||||||||||||||
Co-partnership model |
| | 6,425,235 | 1,024,334 | 22.4 | 9,521,196 | 1,517,903 | 30.8 | ||||||||||||||||||||||||
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Total outstanding principal of financing transactions funded by third-party financial institutions |
9,111,188 | 89.7 | 27,879,232 | 4,444,605 | 97.3 | 30,268,677 | 4,825,539 | 97.8 | ||||||||||||||||||||||||
Outstanding principal of financing transactions funded by Shanghai Autohome |
1,051,778 | 10.3 | 786,214 | 125,341 | 2.7 | 679,116 | 108,267 | 2.2 | ||||||||||||||||||||||||
Total |
10,162,966 | 100.0 | 28,665,446 | 4,569,946 | 100.0 | 30,947,792 | 4,933,806 | 100.0 | ||||||||||||||||||||||||
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Direct Partnership Model
Under the direct partnership model, we cooperate with the financial institution that would typically view automotive financing as an important part of its growth strategy and is therefore willing to commit a significant amount of capital to fund automotive financing transactions, which we would in turn facilitate. Recognizing the strategic value of its commitment, we connect our IT system directly with the financial institution, which allows us to structure the credit underwriting process at a highly customized level according to the needs of the financial institution. We currently maintain such arrangements with three financial institutions, including Jincheng Bank and Jiangnan Rural Commercial Bank.
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For financing transactions funded by Jincheng Bank and Jiangnan Rural Commercial Bank under the direct partnership model, which account for a major portion of the financing transactions facilitated under this model, we are not obligated to bear credit risk. The total outstanding balance of financing transactions for which we have risk assurance obligation was only 3.3% and 2.7% of the total outstanding balance under the direct partnership model as of December 31, 2017 and March 31, 2018, respectively. The chart below illustrates arrangements under the direct partnership model.
(1) | A dealer may also receive commissions from us under certain circumstances. |
Pursuant to our service agreement with Jincheng Bank relating to credit origination, credit assessment and credit servicing, we receive service fees based on a percentage of the principal amount of the relevant financing transaction. The agreements initial term is due to expire in December 2018 and may be renewed based on mutual consent. The agreement may be terminated by either party in the event of counterpartys breach of contract. We have also entered into a cooperation agreement with Jincheng Bank relating to delinquent asset management. We receive service fees as provided in the agreement. The agreements initial term is due to expire in December 2018 and may be renewed based on mutual consent. The agreement may be terminated by either party without cause by 90 days written notice or for cause, such as breach of contract.
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Co-partnership Model
We started to collaborate with WeBank in 2017 to facilitate financing transactions with funding provided by WeBank and other financial institutions. Such arrangements allow us to expand the number of financial institutions we collaborate with in a highly efficient manner. As of March 31, 2018 we were in collaboration with nine financial institutions, including WeBank and Jincheng Bank, under the co-partnership model. The chart below illustrates arrangements under the co-partnership model.
Pursuant to our agreement with WeBank, we are obligated to purchase the relevant financing receivables from financial institutions upon certain specified events of default by car buyers. After purchasing such financing receivables, security interest in the collateral is also transferred to us. WeBank pays us service fees primarily based on a percentage of the principal amount of the relevant financing transaction. The agreements initial term is due to expire in April 2020 and is automatically renewable for one year. The agreement may be terminated by either party for cause, such as breach of contract.
Financing Leases
Shanghai Autohome funds financing leases through borrowings from trusts administered by trust companies, its own capital as well as collaboration with Bank of Shanghai. The financing leases are recorded on Shanghai Autohomes balance sheet as financing lease receivables. In the three months ended March 31, 2017 and 2018, the amount of financing leases funded by Shanghai Autohome was RMB134.5 million and RMB20.7 million (US$3.3 million), respectively. As of December 31, 2017 and March 31, 2018, the outstanding principal of financing leases funded by Shanghai Autohome was RMB786.2 million (US$125.3 million) and RMB679.1 million (US$108.3 million), respectively. We plan to expand the amount of financing leases funded by Shanghai Autohome, including through our strategic partnership with Didi Chuxing.
Car Buyers
We seek to deliver automotive financing solutions to creditworthy car buyers who are underserved by traditional financial institutions. Leveraging the resources on our platform, we offer automotive financing solutions to car buyers that make their dream of purchasing a car a reality. In addition to automotive financing solutions, our platform also offers financing related value-added services and facilitates after-market services such as insurance products.
As of March 31, 2018, our platform had served 734,336 car buyers cumulatively since inception. In 2017 and the three months ended March 31, 2018, approximately 69% and 73% of car buyers we engaged were from
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lower-tier cities, respectively. Lower-tier cities in China have demonstrated strong growth potential for automotive transactions. According to the Oliver Wyman Report, the number of new car sales in these cities is projected to grow at a CAGR of 8.9% from 2017 to 2021, significantly outpacing the growth rates in tier-one and tier-two cities as a whole. However, car buyers in lower-tier cities tend to be underserved by traditional financial institutions due to lack of credit records and banking infrastructure coverage, which offers opportunities for technology-enabled service platforms to address the demand from car buyers and expand in these cities.
We acquire car buyers primarily through our registered dealers. In addition, we collaborate with online automobile advertising platform in gathering leads. In the three months ended March 31, 2017 and 2018, we facilitated a total of 90,791 and 97,219 of financing transactions, respectively, of which 99.1% and 99.7% came from applicants we engaged through our registered dealers, respectively, with the remainder coming from applicants we engaged online through platforms we collaborate with.
In each of 2017 and the three months ended March 31, 2018, approximately 69% of car buyers who utilized our automotive financing solutions were married, and approximately 80% and 74% of car buyers who utilized our automotive financing solutions were aged between 20 and 40. In 2017 and the three months ended March 31, 2018, approximately 86% and 84% of car buyers who utilized our automotive financing solutions were male, respectively.
We remain in contact with many car buyers even after their automotive loans or financing leases are repaid. We place phone calls or provide notifications to car buyers regarding additional automotive financing solutions through our mobile application Car Owner eGeneration, if we believe they may become interested in purchasing a new car, or to offer them other after-market services, particularly insurance products.
Other Platform Partners
| Insurance Brokers and Companies: In December 2017, we started to facilitate the sale of insurance products for insurance brokers or companies. We are able to provide access to a large number of car buyers for insurance brokers and companies, making us a natural and highly efficient partner for them to promote their insurance products. As of March 31, 2018, we were in collaboration with three insurance brokers and companies, including our strategic investor, Taikang Life Insurance. The insurance products currently offered through our platform are related to personal accident insurance and automotive insurances. We plan to collaborate with additional insurance brokers and companies to facilitate the offering of more insurance policies. |
| Online Automotive Advertising Platforms: We collaborate with leading online automotive advertising platforms to tap into the large user base of these platforms. Users who are interested in our automotive financing solutions are directed to our call center, which is staffed with 30 dedicated sales representatives. Our call center staff further explains our solutions to the user and assists the user in finding a suitable car in our dealer network. In the three months ended March 31, 2017 and 2018, we facilitated 3,161 and 898 financing transactions to car buyers we engaged online. All of such financing transactions were funded by Shanghai Autohome. We view online automotive advertising platforms as alternative channels to engage car buyers, and we plan to continually explore new opportunities to collaborate with these and other platforms. |
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OEMs : Some of the financing transactions we facilitate are part of OEM-sponsored subsidy programs. We enable collaboration between OEMs and financial institutions to design low-interest financing solutions for car buyers. As of March 31, 2018, 17 OEMs participated in our platform by subsidizing low-interest financing transactions that we facilitate. Our platform creates significant value for OEMs, as we help them extend their sales channels through our vast dealer network, and our automotive financing solutions make their cars more affordable to prospective car buyers. We plan to broaden the offering of subsidized financing solutions through collaboration with foreign and sino-foreign joint venture OEMs as well as national banks. As the financing solutions will be marketed to prospective car |
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buyers with stronger credit profiles, we expect to seize new market opportunities while improving our credit performance through such strategy. |
Our Partnership with Didi Chuxing
We are in the process of establishing a strategic partnership with Didi Chuxing, a leading ride-sharing technology company. We expect such strategic partnership to provide us with valuable channels to serve drivers and other participants of Didi Chuxings platform in China. Through a series of equity investments in the first half of 2018, Didi Chuxing has become a strategic shareholder of our company and beneficially owns 43,484,992 preferred shares, representing 14.8% of our outstanding shares as of the date of this prospectus. For further information, see Principal Shareholders.
We have launched a pilot program in a city in China to provide a variety of solutions to Didi Chuxings fleet. Drivers in the fleet finance their car purchases through financing leases facilitated by us. We also facilitate car sales to such drivers through our dealer network. In addition, we facilitate the sale of insurance products to the drivers. We plan to form a comprehensive partnership with Didi Chuxing under this model and provide our solutions in additional cities to capitalize on Didi Chuxings large and rapidly expanding fleet.
Credit Underwriting and Risk Management
We view credit underwriting and risk management as core components of our business operations. We undertake these functions as part of facilitating automotive financing.
Credit Underwriting Process
The following chart illustrates our typical process of loan facilitation for a financial institution.
(1) | After receiving the credit application from a car buyer, we utilize our credit assessment system to perform the initial evaluation. To assist financial institutions in making ultimate credit decisions, we refer qualified credit applications to such financial institutions, which perform independent credit assessment. |
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(2) | After the credit application is approved, the car buyer enters into a loan agreement with the financial institution. The car buyer is required to make the down payment to the dealer. On behalf of the car buyer, the financial institution pays the purchase price of the car, net of the down payment, to the dealer. |
(3) | The car buyer is required to pledge the car as collateral in favor of the financial institution. The pledge is registered with local government authorities. |
(4) | The financial institution pays us service fees. A dealer may receive commissions from us or the relevant financial institution, depending on the arrangement among us, the dealer and the relevant financial institution. |
(5) | In the form of automatic payments, the car buyer repays principal and interest in installments to the financial institution. The financial institutions security interest in the collateral is released upon the full repayment of the loan. |
We also facilitate financing leases, which are all structured using sale-and-leaseback method. We apply the same credit assessment process in facilitating financing leases as in facilitating loans. Shanghai Autohome takes the role of a lessor in a financing lease transaction. Once a car buyers lease application is approved, the car buyer utilizes financing provided by the lessor to purchase a car from the dealer. The car buyer is then contractually required to transfer the ownership of the car to the lessor which the lessor then leases back to the relevant car buyer in return for monthly lease payments. The following chart illustrates the typical process of a financing lease funded by Shanghai Autohome.
(1) | Prospective car buyers submit lease applications to us, and we process these applications by utilizing our credit assessment system. |
(2) | After we approve a lease application, the car buyer enters into a lease agreement with us, and we are identified as the lessor. The car buyer is required to make the down payment to the dealer. We fund the remainder of the purchase price to the dealer. The car is then delivered to the car buyer, who temporarily obtains title to the car. |
(3) | The car buyer is contractually required to transfer the title to us. In order to simplify the transaction process, we do not require the car buyer to register the transfer with the government authorities. |
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(4) | In addition, we require the car buyer to pledge the car as collateral for the car buyers payment obligations under the lease. |
(5) | The car buyer is required to designate a bank account for repayments and authorize automatic lease payments from such account. The payments are made in monthly installments. We have the right to repossess the collateral in the event of default. |
(6) | Upon the expiration of the lease term, we transfer the title back to the car buyer, and our security interest in the collateral is also released. |
Credit Assessment Model
Credit assessment forms the foundation of our risk management efforts. We take a prudent approach to credit assessment, relying on our credit assessment model and have our credit assessment team conduct a manual evaluation when necessary. We continuously refine our credit assessment model, and we have experienced low overdue ratios for the financing transactions facilitated through our platform. M3+ overdue ratio for all financing transactions which we facilitated and remained outstanding was 0.28% and 0.46% as of March 31, 2017 and March 31, 2018, respectively.
Our credit assessment model builds on machine learning algorithms, including logistic regression and gradient boost decision tree, and is continuously optimized using transaction data we have gained over time. The model analyzes a large amount of multi-dimensional applicant information, including credit data, personal data and behavioral data. The applicant is required to provide certain information as part of the credit application, such as his or her residential address, education level and marital status. The applicant also submits copies of his or her PRC identity card and drivers license. In addition, we obtain applicants consent for collecting information from third-party sources. Information from these sources offers us valuable insights into an applicants credit history, including the number of recent delinquencies as well as the number of recent credit applications. For more details on technologies utilized in credit assessment, see Our Technology System.
With our credit assessment model, we automatically approved approximately 23.3% of applications, and we automatically rejected approximately 7.3% of applications during the three months ended March 31, 2018. Our credit assessment team, which was comprised of more than 50 experienced reviewers as of March 31, 2018 and led by a supervisor with over 15 years of experience in automotive finance, manually evaluates the rest of the applications. Leveraging their industry experience and insights into borrower behavior, our credit assessment team provides the second line of defense against credit and fraud risk. The additional factors considered in the manual review process include, among others, (i) whether the purchase price for a car is reasonable in light of the prospective car buyers background, (ii) the prospective car buyers ability to repay and (iii) whether the information provided by the prospective car buyer is consistent with the information collected from third-party sources. Our credit assessment team then makes an assessment based on these additional factors. Without compromise to our risk management, we plan to enhance the level of automation in the credit assessment process, which would enable us to both deliver superior user experience and scale up our business more rapidly.
For financing transactions funded by financial institutions, we conduct credit assessment to assist financial institutions in making ultimate credit decisions. We refer qualified credit applications to such financial institutions, which perform independent credit assessment.
Besides credit assessment, we take additional measures to manage credit risk. For example, every car purchased through our platform comes with a telematics device. The telematics devices are valuable aids to our repossession efforts.
Financing Terms
Financing transactions we facilitate are structured as either loans or financing leases. Both types of arrangements require car buyers to provide down payments, pledge cars as collateral and make repayments in
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installments. The terms of the financing transactions are stated in the agreements the car buyers sign with third-party financial institutions or Shanghai Autohome:
| Down payments . A car buyer is typically required to provide a down payment to the relevant dealer based on a percentage of the purchase price of the car. This percentage varies among different funding arrangements and typically ranged from 20% to 30% of the purchase price in 2016, 2017 and the three months ended March 31, 2018. |
| Principal . The principal represents the purchase price of the car net of the down payment, which typically ranged from RMB43,000 to RMB68,720 in 2016, RMB45,000 (US$7,174) to RMB74,625 (US$11,897) in 2017 and RMB43,672 (US$6,962) to RMB72,240 (US$11,517) in the three months ended March 31, 2018. |
| Interest rate . Annual interest rate varies among different funding arrangements. Annual interest on most of the financing transactions facilitated in 2016 was 12.99%. Annual interest ranged from 10.99% to 11.99% in 2017. Annual interest on most of the financing transactions facilitated in the three months ended March 31, 2018 was 11.99%. Besides interest, financial institutions do not charge car buyers additional fees. |
| Installments . Each car buyer may repay in monthly installments over a period ranging from one to five years. The combined total represents the principal and interest charged to the car buyer. The car buyer is required to designate a bank account for repayments and authorize automatic payments from this account. |
| Prepayment . Each car buyer who wishes to pay off the outstanding principal before maturity is charged a prepayment fee. The fee is based on a percentage of the outstanding principal amount at the time of prepayment. |
| Late payment penalty fee . A penalty fee for late payment is laid out in the agreement and imposed based on the outstanding principal amount and number of days that a payment is overdue. |
In the event of delinquency, the financing terms are not allowed to be restructured.
Delinquent Asset Management
Our delinquent asset management process, which consists of six distinct stages, is designed to recover value in a cost-effective way.
(1) | Automated reminders . During the first five days after a delinquency occurs, we send automated text messages and make automated phone calls as reminders. |
(2) | Live phone calls . If the delinquency continues for more than five days, members of our delinquent asset management team make phone calls to urge the borrower to make the overdue payments, understand the reasons for the delinquency and inform the borrower of the legal consequences of the delinquency. |
(3) | In-person visits . If the delinquency continues for more than 15 days, we may conduct in-person visits when we determine such measures are warranted. Around 40 members of our delinquent asset management team are responsible for this task. We view the visits as opportunities to collect repayments as well as to investigate the status of the collateral. If we identify any significant risk with respect to the collateral, we will commence our repossession efforts immediately. For example, a visit may reveal that the car buyer has already given the car to another person. |
(4) |
Repossession . If the delinquency continues for more than 45 days or if we identify a significant risk to our ability to recover the collateral, we then seek to repossess the car by collaborating with third-party repossession agents. For the financing transactions funded by financial institutions, we obtain their authorizations before commencing our repossession efforts. We enter into cooperation agreements with the repossession agents, which are obligated to perform their duties in compliance with the applicable |
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laws and regulations. We have developed a mobile application that provides real-time updates of the full repossession process, which significantly improve repossession efficiency. In the beginning of 2016 to March 31, 2018, the success rate for our repossession agents to repossess cars with telematics device was 69.7%. If the telematics device were removed, the repossession agent could rely on other information related to the car buyer, including the address specified in the credit application, to locate the car. In the beginning of 2016 to March 31, 2018, the success rate for our repossession agents to repossess cars without telematics devices was 25.9%. |
(5) | Disposal . After a car is repossessed, we store it in a warehouse to prevent its value from further deteriorating. To cover our nationwide operations, we leased 27 warehouses across China as of March 31, 2018, seven of which were tended to by our own employees. We conduct on-site visits to ensure these warehouses are suitable for automotive storage and are properly guarded to prevent theft. While the car is stored in the warehouse, we contact the car buyer again and try to convince the car buyer to buy back the car by paying off the outstanding amount along with an added repossession fee. If the car buyer is unable to make the payment, we will then sell the car. |
(6) | Legal actions . If we are unable to repossess collateral from a delinquent borrower, we may commence a lawsuit against the borrower. In addition, if a large overdue balance remains after a repossessed car is sold, we may also commence a lawsuit against the relevant borrower. We have access to a nationwide network of external counsel who can represent us on such lawsuits at a reasonable cost. We view the court judgment as another way to motivate the car buyer to make repayments as well as affirmations of creditors legal rights under the relevant credit documents. |
Our Technology System
Our technology system, which supports all key operations of our platform, is designed to optimize for scalability and flexibility. The system handles the massive volume of data required to evaluate a large number of credit applications quickly and monitors repayment activities by borrowers. In the meantime, it is flexible enough to capitalize on changing user preferences, market trends and technological advances. Our technology infrastructure is based on cloud computing distributed platform, which is scalable with strong data processing power. We have collected approximately 30 terabytes of data through telematics devices, and we typically receive over 30,000 data points every second. Built on modular architecture, our system can easily expand to enable new business functions, connect new platform participants, as well as collect information from and interact with these new participants. Supported by our technology system, we received 100% of our credit applications electronically in the three months ended March 31, 2018. Wechat platform, our proprietary mobile applications and in-store terminals contributed 13.5%, 46.5% and 40.0% of our total credit applications in the three months ended March 31, 2018, respectively. Our technology system also allowed us to achieve high operational efficiency.
Technology is embedded into each of our business lines operational processes, including:
| Integration with financial institutions . Our IT system is highly integrated with those of financial institutions with which we directly collaborate. It typically takes us two months to establish an integrated connection with a financial institutions core banking system. The system integration enables us to transmit applicant data and our credit analysis to financial institutions, as well as for financial institutions to transmit credit decisions and monthly credit repayment data to us, in each case on a real time basis. Powered by this system, it only took less than two hours on average from submission of credit application to provision of credit decision in the three months ended March 31, 2018. In some instances, credit decisions were provided in less than half an hour. With the help of repayment data provided by financial institutions, we are also able to commence collection efforts in a timely manner. |
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| Mobile applications. We have developed various mobile applications for our platform participants, as set forth in the table below: |
Mobile Application |
User Type |
Main Functions |
||
Cango Car Loan |
Prospective car buyers | Prospective car buyers can select cars available on our dealer network as well as submit credit applications to purchase these cars with financing leases offered by Shanghai Autohome. | ||
Car Owner eGeneration |
Car buyers | We provide information relating to insurance products and financing solutions we facilitate. We also provide customer support, traffic infraction inquiries, vehicle valuation and other services through this mobile application. | ||
Cango Financial Services |
Our sales team, dealer financial managers and sales agents |
Users of the mobile application are able to receive real time updates for automotive financing solutions on our platform. They can also verify prospective car buyers identities using facial recognition function, submit credit applications, receive credit decisions and arrange for electronic signing of financing transaction documents through this mobile application.
Our in-house sales team uses the mobile application to engage new dealers and monitor existing dealers sales efforts.
We also utilize the mobile application to assign tasks to personnel involved in our sales efforts and monitor the status of our sales efforts based on 42 parameters. |
||
91HaoChe |
Dealers | Dealers access our SaaS solutions, such as car sourcing and supply chain financing, through this mobile application. |
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Mobile Application |
User Type |
Main Functions |
||
JingangRepossession |
Repossession agents | The mobile application allows us to effectively manage repossession agents. We place our orders through the mobile application. The application also allows the repossession agents to view information about the cars and car buyers, locate cars installed with telematics devices and report progress on repossession efforts. In addition, the application allows the repossession agents to record videos of the repossession processes, which helps them ensure compliance with the relevant laws and regulations. | ||
JingangWarehousing |
Warehouse staff | The mobile application allows us to effectively manage warehouse staff. We send notices before delivering repossessed cars to the warehouses. The warehouse staff provide us with confirmations when they receive the cars. We also notify the warehouse staff when we need to deliver the cars to the relevant purchasers or car buyers. | ||
Cango GPS |
Mechanics | Mechanics who are responsible for installing telematics devices on cars use this mobile application to provide us with confirmations after they install the devices. |
| Credit assessment and data security. Our credit assessment model is based on various algorithms such as the gradient boosting decision tree and processes a large amount of data we collect from car buyers, both directly from their applications and indirectly from third-party sources with their consent. Our credit decision engine was customized by our own research and development team based on our car buyer base. We are in the process of developing a control platform to monitor credit risk on a real-time basis. To prevent identity theft, we utilize facial recognition technology, through which we compare an applicants image in real time with the photo stored at the National Citizen Identity Information Center of the Ministry of Public Security. We store our data and transmit it to financial institutions in an encrypted form. We have also created controls to limit employee access to such information and monitor access. |
|
Dealer SaaS Solutions . In May 2018, we launched dealer SaaS solutions as a comprehensive tool kit to address dealers pain points. Our SaaS solutions allow dealers to conveniently (i) source cars and apply |
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for supply chain financing through our 91HaoChe mobile app, (ii) manage inventory on their enterprise resource planning systems and (iii) engage potential car buyers through embedded mini-programs on the WeChat social network platform. |
| Telematics . Every car purchased through our platform comes with a telematics device. Our technology system is integrated with these telematics devices, which enable us to not only locate the collaterals but also collect a massive volume of car location data. We believe this data enable us to enhance our services offered and empower us to explore new business opportunities, such as offering usage-based insurance. We have collected approximately 30 terabytes of data through telematics devices, and we typically receive over 30,000 data points every second. |
Additionally, we have focused on developing infrastructure technologies in three major areas to support the overall business functions, including cloud computing, distributed architecture and big data analysis .
Cloud computing: Our technology system is deployed and our data is maintained through a customized cloud computing system. We have established a hyper-converged infrastructure that is supported by 211 high-performance servers. We utilize the hyper-converged infrastructure for all service interfaces and core applications in our technology system. Cloud computing enables us to maintain flexibility in allocating our IT resources with improved manageability and lower labor cost. Thus we can more rapidly adjust resources to meet the significant growth of our business.
Distributed architecture: We establish micro-service interfaces using a distributed architecture, which is supported by virtualization technology. Our distributed architecture enables us to expand our technology system rapidly and achieve high concurrence capabilities. Currently, we have over 48,000 data points per second parallel processing capability. Built with flexibility to connect with both internal and external systems, our micro-service interfaces allow us to effectively integrate our IT system with those of financial institutions. We plan to gradually apply distributed architecture to our entire technology system in order to support the development of new services and business relationships.
Big data analytics: We collect a massive volume of data from car buyers through the credit application process as well as telematics devices. We also collect data from third party sources with car buyers consents. As of March 31, 2018, we have a database over 13 terabytes of automotive financing application data covering 1,070,154 applicants with at least 200 variables for each of them and approximately 30 terabytes of telematics data. We continuously enhance our level of automation through big data analysis and machine learning. Leveraging our massive database, we aim to expand the application of big data analysis in the key aspects of our operations, such as sales, credit assessment and delinquent asset management, while staying within the scope of car buyers consents.
Our research and development department comprised 109 employees as of March 31, 2018, including core team members with extensive experience with leading Internet and technology companies in China. These specialists focus on different areas including mobile application development, IT product development, new business incubation and others.
Competition
The automotive transaction industry in China is large yet competitive. We compete against automotive transaction platforms that connect various players across the automotive transaction value chain in automotive and automotive-related transaction facilitation. Within automotive financing as a subset of this, we compete against players such as Yixin Group and Uxin Group. We may also in the future face competition from new entrants that will increase the level of competition. We anticipate that more established companies, including technology companies that possess large, existing user bases, substantial financial resources, sophisticated technological capabilities and established distribution channels may also enter the market in the future. As a
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leading automotive transaction service platform in China, we believe that our self-reinforcing platform, end-to-end service model, large and powerful dealer network and visionary and experienced management team make our platform more attractive and efficient to each type of participants we collaborate with, providing us with a competitive advantage over existing and potential competitors.
Employees
As of December 31, 2016 and 2017 and March 31, 2018, we had a total of 1,084, 2,372 and 2,940 employees, respectively. The following table sets forth the breakdown of our employees as of March 31, 2018 by function:
Function |
Number of
Employees |
% of Total | ||||||
Sales and marketing |
2,182 | 74.2 | ||||||
Operations |
257 | 8.7 | ||||||
Risk management |
213 | 7.2 | ||||||
General administration |
179 | 6.1 | ||||||
Research and development |
109 | 3.7 | ||||||
|
|
|
|
|||||
Total |
2,940 | 100.0 | ||||||
|
|
|
|
As of March 31, 2018, 540 of our employees were based in Shanghai. The rest of our employees were based in 22 other cities across China.
We believe we offer our employees competitive compensation packages and a dynamic work environment that encourages initiative and is based on merit. As a result, we have generally been able to attract and retain qualified personnel and maintain a stable core management team. We plan to hire additional experienced and talented employees in areas such as big data analytics, marketing and operations, risk management and sales as we expand our business.
As required by PRC regulations, we participate in various government statutory employee benefit plans, including social insurance, namely pension insurance, medical insurance, unemployment insurance, work-related injury insurance and maternity insurance, and housing funds. 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 regulations from time to time. In addition, we purchased employers liability insurance and additional commercial health insurance to increase insurance coverage of our employees. We enter into standard labor, confidentiality and non-compete agreements with our employees. The non-compete restricted period typically expires two years after the termination of employment, and we agree to compensate the employee with a certain percentage of his or her pre-departure salary during the restricted period.
We believe that we maintain a good working relationship with our employees, and we have not experienced any major labor disputes.
Facilities
Our corporate headquarters is located in Shanghai, China, where we lease approximately 5,383.5 square meters of office space. We also maintain leased properties of approximately 7,116.6 square meters of office space in 22 other cities as our regional offices. In addition, we leased approximately 19,020.0 square meters of 27 warehouses across 22 cities in China. We believe that we will be able to obtain adequate facilities, principally by lease, to accommodate our future expansion plans.
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Seasonality
We experience seasonality in our business, reflecting car buyers purchase patterns. A greater number of cars tend to be purchased in the second half of each year, in part due to the introduction of new models from automotive manufacturers. This increase in car sales generates greater demand for our services. On the other hand, the Chinese New Year holiday contributes to lower activity levels in the first quarter of each year. As a result, we typically record higher revenues during the second half of each year compared to the first half.
Intellectual Property
We regard our trademarks, domain names, copyrights, know-how, proprietary technologies and similar intellectual property as critical to our success, and we rely on trademark and trade secret law and confidentiality, invention assignment and non-compete agreements with our employees and others to protect our proprietary rights. We have registered five trademarks in the PRC, including CANGO Management . We are the registered holder of sixteen domain names in the PRC, including cangoonline.com and autohomefinance.com. We have seventeen registered software copyrights relating to our mobile applications.
Insurance
We provide social insurance including pension insurance, unemployment insurance, work-related injury insurance and medical insurance for our employees. We also purchased employers liability insurance and additional commercial health insurance to increase insurance coverage of our employees. We do not maintain business interruption insurance or general third-party liability insurance, nor do we maintain product liability insurance or key-man insurance. We consider our insurance coverage to be sufficient for our business operations in China.
Legal Proceedings
We are currently not a party to any material legal or administrative proceedings. We may from time to time be subject to various legal or administrative claims and proceedings arising from the ordinary course of business. Litigation or any other legal or administrative proceeding, regardless of the outcome, is likely to result in substantial cost and diversion of our resources, including our managements time and attention.
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This section sets forth a summary of the most significant rules and regulations that affect our business activities in China or the rights of our shareholders to receive dividends and other distributions from us.
Regulation Related to Financing Lease
The Administrative Measures of Supervision on Financing Lease Enterprises, or the Administrative Measures, was formulated by the MOFCOM and became effective on October 1, 2013. According to the Administrative Measures, the MOFCOM and the provincial-level commerce authorities are in charge of the supervision and administration of financing lease enterprises. A financing lease company shall report, according to the requirements of the MOFCOM, the relevant data in a timely and truthful manner through the National Financing Lease Company Management Information System. Specifically, a financing lease enterprise shall, submit, within 15 business days after the end of each quarter, the statistics on and summary of its operation in the preceding quarter, and statistics on and summary of its operations in the preceding year as well as its financial and accounting report (including appended notes thereto) audited by an auditing firm for the preceding year prior to April 30 of each year. In the event of a change of name, a relocation to another region, an increase or decrease of registered capital, a change of organizational form, an adjustment of ownership structure or other changes, a financing lease company shall report to the competent provincial-level commerce authority in advance. A foreign-invested financing lease company that undergoes such changes shall go through approval and other procedures according to the relevant provisions. A financing lease company shall, within five business days after registering such changes, log into the National Financing Lease Company Management Information System to modify the above information.
Financing lease enterprises should use real entities, which have clear ownership and capable of generating revenue, as lessor to carry out the financing lease business. Financing lease enterprises shall not engage in deposits, loans, entrusted loans or other financial services or inter-bank borrowing unless permission has been granted from the relevant departments. Financing lease enterprises must not carry out illegal fund-raising activities under the name of a financing lease company. According to the Administrative Measures, financing lease enterprises shall strengthen their internal risk controls, and establish effective systems for classifying at risk assets, and adopt a credit appraisal system for the lessee, a post recovery and disposal system and a risk alert mechanism. A financing lease company shall also establish an affiliated transaction management system, and exclude persons related to the affiliated transactions from the voting or decision-making process for affiliated transactions where the lessee is an affiliate. In the event of any purchase of equipment from an affiliated production company, the settlement price for such equipment shall not be lower than the price offered by such company to any third party of such equipment or equipment of the same batch.
The Administrative Measures also contain regulatory provisions specifically focusing on sale-leaseback transactions. The subject matter of a sale-leaseback transaction shall be properties that possess economic functions and produce continuous economic benefits. A financing lease company shall not accept any property to which a lessee has no title, or on which any mortgage has been created, or which has been sealed up or seized by any judicial organ, or whose ownership has any other defects as the subject matter of a sale-leaseback transaction. A financing lease company shall give adequate consideration to and objectively evaluate assets leased back, set purchasing prices for subject matter thereof with reference to reasonable pricing basis in compliance with accounting principles, and shall not purchase any subject matter at a price in excess of the value thereof.
Pursuant to the Circular of the General Office of the Ministry of Commerce on Strengthening and Improving the Approval and Administration over Foreign-invested Financing Lease Companies promulgated on July 11, 2013, or the Circular, foreign-invested financing lease companies that failed to conduct substantive financing lease business operations in the previous fiscal year or failed to pass the annual inspection and had violations of laws and regulations, shall be ordered by the local authority to make rectifications and report the
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information on such rectification to the MOFCOM. Foreign-invested financing lease companies shall not engage in deposits, loans, entrusted loans or inter-bank borrowing and equity investment unless permission has been granted from relevant departments. The Circular specifies that foreign-invested financing lease companies are not allowed to provide direct or indirect financing to local governmental financing companies which undertake public welfare project in any form in order to prevent fiscal and financial risks.
The Guiding Opinions on Accelerating the Development of Financing Lease Industry, or the Guiding Opinion, was promulgated by the General Office of the State Council of the PRC on August 31, 2015; the Guiding Opinions main task is to accelerate the development of the financing lease industry in four aspects: system and mechanism reform, development in major fields, innovative development and industry supervision. According to the Guiding Opinion, there is no minimum registered capital requirement for subsidiaries of a financing lease company, a financing lease company is allowed to engage in a side business which is related to its main business, and private capital and independent third-party service providers are encouraged to incorporate financing lease companies.
In April, 2018, the MOFCOM transferred the duties to make rules on the operation and supervision of financing lease companies to the newly formed China Banking and Insurance Regulatory Commission.
The Contract Law of the PRC, or the PRC Contract Law, promulgated by the National Peoples Congress effective from October 1, 1999 regulates the civil contractual relationship among natural persons, legal persons and other organizations. Chapter 14 of the PRC Contract Law sets forth mandatory rules about financing lease contracts including that financing lease contracts shall be in written form and shall include terms such as the name, quantity, specifications, technical performance and inspection method of the leased property, the lease term, the composition, payment term, payment method and currency of the rent and the ownership of the leased property upon expiration of the lease.
Under financing lease contracts, the lessor shall conclude a purchase contract based on the lessees selections in respect of the seller and the leased property, and the seller shall deliver the leased property to the lessee as agreed. The lessee has the rights of a buyer when taking delivery of the leased property.
Without the consent of the lessee, the lessor may not modify relevant details related to the lessee of the purchase contract that has been concluded based on the lessees selections in respect of the seller and the leased property. The lessor is not liable for injury to the body or damage to the property of a third party caused by the leased property while in the possession of the lessee. However, the ownership of the leased property vests in the lessor. If they have not stipulated in which party ownership shall vest upon expiration, if such stipulation is not clear, or if ownership cannot be determined in accordance with the PRC Contract Law, the ownership of the leased property shall vest in the lessor.
Pursuant to the PRC Contract Law, unless otherwise agreed upon by the parties, the rental shall be determined according to the major part or whole of the costs for the purchasing the leased property and reasonable profits of the lessor.
Shanghai Autohome, our proprietary financing lease subsidiary, utilizing our own capital to fund financing leases to car buyers, has obtained the approval to operate financing lease business as issued by the MOFCOM.
Regulations Related to Intermediation
An intermediation contract under the PRC Contract Law is a contract whereby an intermediary presents to its client an opportunity for entering into a contract or provides the client with other intermediary services in connection with the conclusion of a contract, and the client pays the intermediary service fees. Our business practice of connecting financial institutions with individual car buyers may constitute an intermediary service, and our service agreements with financial institutions may be deemed as intermediation contracts. Pursuant to the
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PRC Contract Law, an intermediary must provide true information relating to the proposed contract. If an intermediary conceals any material fact intentionally or provides false information in connection with the conclusion of the proposed contract, which results in harm to the clients interests, the intermediary may not claim for service fees and is liable for the damages caused.
Regulations Related to Internet Information Security and Privacy Protection
PRC government authorities have enacted laws and regulations with respect to Internet information security and protection of personal information from any abuse or unauthorized disclosure. Internet information in China is regulated and restricted from a national security standpoint. The Standing Committee of the National Peoples Congress, Chinas national legislative body, enacted the Decisions on Maintaining Internet Security in December 2000, which may subject violators to criminal punishment in China for any effort to: (i) gain improper entry into a computer or system of strategic importance; (ii) disseminate politically disruptive information; (iii) leak state secrets; (iv) spread false commercial information; or (v) infringe intellectual property rights. The Ministry of Public Security has promulgated measures that prohibit use of the Internet in ways which, among other things, result in a leakage of state secrets or a spread of socially destabilizing content. If an information service provider violates these measures, the Ministry of Public Security and the local security bureaus may revoke its operating license and shut down its websites.
Pursuant to the Decision on Strengthening the Protection of Online Information issued by the Standing Committee of the National Peoples Congress in December 2012, any collection and use of user personal information must be subject to the consent of the user, abide by the principles of legality, rationality and necessity and be within the specified purposes, methods and scopes. Any entity collecting personal information must also keep such information strictly confidential, and is further prohibited from divulging, tampering or destroying any such information, or selling or providing such information to other parties, and is required to take technical and other measures to prevent the collected personal information from any unauthorized disclosure, damage or loss. Any violation of these laws and regulations may subject the entity collecting personal information to warnings, fines, confiscation of illegal gains, revocation of licenses, cancellation of filings, closedown of websites or even criminal liabilities.
Pursuant to the Notice of the Supreme Peoples Court, the Supreme Peoples Procuratorate and the Ministry of Public Security on Legally Punishing Criminal Activities Infringing upon the Personal Information of Citizens, issued in 2013, and the Interpretation of the Supreme Peoples Court and the Supreme Peoples Procuratorate on Several Issues regarding Legal Application in Criminal Cases Infringing upon the Personal Information of Citizens, which was issued on May 8, 2017 and took effect on June 1, 2017, the following activities may constitute the crime of infringing upon a citizens personal information: (i) providing a citizens personal information to specified persons or releasing a citizens personal information online or through other methods in violation of relevant national provisions; (ii) providing legitimately collected information relating to a citizen to others without such citizens consent (unless the information is processed, not traceable to a specific person and not recoverable); (iii) collecting a citizens personal information in violation of applicable rules and regulations when performing a duty or providing services; or (iv) collecting a citizens personal information by purchasing, accepting or exchanging such information in violation of applicable rules and regulations.
Pursuant to the Ninth Amendment to the Criminal Law issued by the Standing Committee of the National Peoples Congress in August 2015, which became effective in November 2015, any person or entity that fails to fulfill the obligations related to Internet information security administration as required by applicable laws and refuses to rectify upon orders is subject to criminal penalty for the result of (i) any dissemination of illegal information in large scale; (ii) any severe effect due to the leakage of the clients information; (iii) any serious loss of criminal evidence; or (iv) other severe situation, and any individual or entity that (i) sells or provides personal information to others in a way violating the applicable law, or (ii) steals or illegally obtain any personal information is subject to criminal penalty in severe situation.
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In providing our service, we collect certain personal information from borrowers to provide credit origination, credit assessment and credit servicing to financial institutions for the purpose of facilitating transactions to borrowers. We have also collected car buyers data through telematics devices. We have obtained consent from borrowers to collect and use their personal information, and have also established information security systems to protect the user information and to abide by other network security requirements under such laws and regulations. However, there is uncertainty as to how the network security requirements for maintaining network security and protecting borrowers personal information will be interpreted and implemented. We cannot assure you that our existing policies and procedures will be deemed to be in full compliance with any laws and regulations that are applicable, or may become applicable to us in the future. We may be subject to penalties if we were found to be in violation of such laws and regulations.
Regulations Related to VATS License
Among all of the applicable laws and regulations, the Telecommunications Regulations of the Peoples Republic of China, or the Telecom Regulations, promulgated by the PRC State Council in September 25, 2000 and amended on July 29, 2014 and February 6, 2016 respectively, is the primary governing law, and sets out the general framework for the provision of telecommunications services by domestic PRC companies. Under the Telecom Regulations, telecommunications service providers are required to procure operating licenses prior to their commencement of operations. The Telecom Regulations distinguish basic telecommunications services from VATS. VATS are defined as telecommunications and information services provided through public networks. The Telecom Catalogue was issued as an attachment to the Telecom Regulations to categorize telecommunications services as either basic or value-added. In February 2003 and December 2015, the Telecom Catalogue was updated respectively, categorizing online data and transaction processing, information services, among others, as VATS.
The Administrative Measures on Telecommunications Business Operating Licenses, promulgated by the MIIT in 2009 and most recently amended in July 2017, which set forth more specific provisions regarding the types of licenses required to operate VATS, the qualifications and procedures for obtaining such licenses and the administration and supervision of such licenses. Under these regulations, a commercial operator of VATS must first obtain a VATS License, from the MIIT or its provincial level counterparts, otherwise such operator might be subject to sanctions including corrective orders and warnings from the competent administration authority, fines and confiscation of illegal gains and, in the case of significant infringements, the websites may be ordered to close.
Regulation Related to Foreign Investment Restrictions
Investment activities in the PRC by foreign investors are principally governed by the Guidance Catalog of Industries for Foreign Investment (2017 Revision), or the Catalog, which was promulgated and is amended from time to time by the Ministry of Commerce and the National Development and Reform Commission. The Catalog divides industries into three categories: encouraged, restricted and prohibited. Industries not listed in the Catalog are generally deemed as constituting a fourth permitted category and open to foreign investment unless specifically restricted by other PRC regulations. Industries such as VATS (other than online retail and mobile commerce) are restricted to foreign investment.
According to the Administrative Regulations on Foreign-Invested Telecommunications Enterprises issued by the State Council on December 11, 2001 and amended on September 10, 2008 and February 6, 2016 respectively, foreign-invested value-added telecommunications enterprises must be in the form of a Sino-foreign equity joint venture. The regulations restrict the ultimate capital contribution percentage held by foreign investor(s) in a foreign-invested value-added telecommunications enterprise to 50% or less and require the primary foreign investor in a foreign invested value-added telecommunications enterprise to have a good track record and operational experience in the VATS industry.
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In July 2006, the predecessor, the Ministry of Industry and Information Technology of the PRC, or the MIIT, issued the Circular of the Ministry of Information Industry on Strengthening the Administration of Foreign Investment in Value-added Telecommunications Business, or the MIIT Circular, according to which, a foreign investor in the telecommunications service industry of China must establish a foreign invested enterprise and apply for a telecommunications businesses operation license. The MIIT Circular further requires that: (i) PRC domestic telecommunications business enterprises must not, through any form, lease, transfer or sell a telecommunications businesses operation license to a foreign investor, or provide resources, offices and working places, facilities or other assistance to support the illegal telecommunications services operations of a foreign investor; (ii) value-added telecommunications enterprises or their shareholders must directly own the domain names and trademarks used by such enterprises in their daily operations; (iii) each value-added telecommunications enterprise must have the necessary facilities for its approved business operations and maintain such facilities in the regions covered by its license; and (iv) all VATS providers are required to maintain network and Internet security in accordance with the standards set forth in relevant PRC regulations. If a license holder fails to comply with the requirements in the MIIT Circular and cure such non-compliance, the MIIT or its local counterparts have the discretion to take measures against such license holder, including revoking its license for value-added telecommunications business, or the VATS License.
In light of the above restrictions and requirements, we plan to conduct our value-added telecommunications businesses through our consolidated VIE.
Anti-money Laundering Regulations
The PRC Anti-money Laundering Law, which became effective in January 2007, sets forth the principal anti-money laundering requirements applicable to financial institutions as well as non-financial institutions with anti-money laundering obligations, including the adoption of precautionary and supervisory measures, establishment of various systems for client identification, retention of clients identification information and transactions records, and reports on large transactions and suspicious transactions. According to the PRC Anti-money Laundering Law, financial institutions subject to the PRC Anti-money Laundering Law include banks, credit unions, trust investment companies, stock brokerage companies, futures brokerage companies, insurance companies and other financial institutions as listed and published by the State Council, while the list of the non-financial institutions with anti-money laundering obligations will be published by the State Council. The PBOC and other governmental authorities issued a series of administrative rules and regulations to specify the anti-money laundering obligations of financial institutions and certain non-financial institutions, such as payment institutions. However, the State Council has not promulgated the list of the non-financial institutions with anti-money laundering obligations.
The Internet Finance Guidelines jointly released by ten PRC regulatory agencies in July 2015, purport, among other things, to require Internet finance service providers to comply with certain anti-money laundering requirements, including the establishment of a customer identification program, the monitoring and reporting of suspicious transactions, the preservation of customer information and transaction records, and the provision of assistance to the public security department and judicial authority in investigations and proceedings in relation to anti-money laundering matters. The PBOC will formulate implementing rules to further specify the anti-money laundering obligations of Internet finance service providers.
We plan to adopt various policies and procedures, such as internal controls and know-your-customer procedures, for anti-money laundering purposes. However, as the implementing rules of the Internet Finance Guidelines have not been published, there is uncertainty as to how the anti-money laundering requirements in the Guidelines will be interpreted and implemented, and whether automotive financial service platforms like us must abide by the rules and procedures set forth in the PRC Anti-money Laundering Law that are applicable to non-financial institutions with anti-money laundering obligations. We cannot assure you that our existing anti-money laundering policies and procedures will be deemed to be in full compliance with any anti-money laundering laws and regulations.
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Regulations Related to Intellectual Property Rights
The Standing Committee of the National Peoples Congress, or the SCNPC, the State Council and the National Copyright Administration, or the NCAC, have promulgated various rules and regulations relating to the protection of software in China, including without limitation the PRC Copyright Law, adopted in 1997 and revised in 2001, 2010 respectively, with its implementation rules adopted in 1991 and revised in 2002, 2011 and 2013 respectively, and the Regulations for the Protection of Computer Software as promulgated on January 30, 2013. Under these rules and regulations, software owners, licensees and transferees may register their rights in software with the NCAC or its local branches and obtain software copyright registration certificates. Although such registration is not mandatory under PRC law, software owners, licensees and transferees are encouraged to go through the registration process to enjoy the better protections afforded to registered software rights.
The PRC Trademark Law, adopted in 1982 and revised in 1993, 2001 and 2013 respectively, with its implementation rules adopted in 2002 and revised in 2014, protects registered trademarks. The State Intellectual Property Office, formerly known as the Trademark Office of the State Administration for Industry and Commerce, handles trademark registrations and grants a protection term of ten years to registered trademarks.
The MIIT promulgated its Administrative Measures on Internet Domain Names in 2017. According to these measures, the MIIT is in charge of the overall administration of domain names in China. The registration of domain names in PRC is on a first-apply-first-registration basis. A domain name applicant will become the domain name holder upon the completion of the application procedure.
Regulations Related to Employment
On June 29, 2007, the SCNPC, adopted the Labor Contract Law, which became effective as of January 1, 2008 and was revised on December 28, 2012 and became effective on July 1, 2013. The Labor Contract Law requires employers to enter into written contracts with their employees, restricts the use of temporary workers and aims to give employees long-term job security. Pursuant to the Labor Contract Law, employment contracts lawfully concluded prior to the implementation of the Labor Contract Law and continuing as of the date of its implementation will continue to be performed. Where an employment relationship was established prior to the implementation of the Labor Contract Law but no written employment contract was concluded, a contract must be concluded within one month after the Labor Contract Laws implementation.
According to the Social Insurance Law promulgated by SCNPC and effective from July 1, 2011, the Regulation of Insurance for Work-Related Injury, the Provisional Measures on Insurance for Maternity of Employees, Regulation of Unemployment Insurance, the Decision of the State Council on Setting Up Basic Medical Insurance System for Staff Members and Workers in Cities and Towns, the Interim Regulation on the Collection and Payment of Social Insurance Premiums and the Interim Provisions on Registration of Social Insurance, an employer is required to contribute the social insurance for its employees in the PRC, including the pension insurance, medical insurance, unemployment insurance, maternity insurance and work-related injury insurance. Under the Regulations on the Administration of Housing Funds, promulgated by the State Council on April 3, 1999 and as amended on March 24, 2002, an employer is required to make contributions to a housing fund for its employees.
The use of employees of third-party labor dispatch agencies, who are known in China as dispatched workers, is mainly regulated by the Interim Provisions on Labor Dispatching, which was promulgated by the Ministry of Human Resources and Social Security in January 2014. It provides that an employer may use dispatched workers only for temporary, auxiliary or substitute positions, and shall strictly control the number of workers under labor dispatching arrangements. The number of dispatched workers used by an employer shall not exceed 10% of the total number of its employees.
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Regulations Related to Foreign Exchange
Regulation on Foreign Currency Exchange
The principal regulations governing foreign currency exchange in China are the Foreign Exchange Administration Regulations, most recently amended in August 2008. Under the PRC foreign exchange regulations, payments of current account items, such as profit distributions, interest payments and trade and service-related foreign exchange transactions, can be made in foreign currencies without prior approval from SAFE by complying with certain procedural requirements. By contrast, approval from or registration with appropriate government authorities is required where RMB is to be converted into foreign currency and remitted out of China to pay capital account items, such as direct investments, repayment of foreign currency-denominated loans, repatriation of investments and investments in securities outside of China.
In November 2012, SAFE promulgated the Circular of Further Improving and Adjusting Foreign Exchange Administration Policies on Foreign Direct Investment, which substantially amends and simplifies the current foreign exchange procedure. Pursuant to this circular, the opening of various special purpose foreign exchange accounts, such as pre-establishment expenses accounts, foreign exchange capital accounts and guarantee accounts, the reinvestment of RMB proceeds derived by foreign investors in the PRC, and remittance of foreign exchange profits and dividends by a foreign-invested enterprise to its foreign shareholders no longer require the approval or verification of SAFE, and multiple capital accounts for the same entity may be opened in different provinces, which was not possible previously. In addition, SAFE promulgated another circular in May 2013, which specifies that the administration by SAFE or its local branches over direct investment by foreign investors in the PRC must be conducted by way of registration and banks must process foreign exchange business relating to the direct investment in the PRC based on the registration information provided by SAFE and its branches. On February 28, 2015, SAFE promulgated the Notice on Further Simplifying and Improving the Administration of the Foreign Exchange Concerning Direct Investment, or SAFE Notice 13. After SAFE Notice 13 became effective on June 1, 2015, instead of applying for approvals regarding foreign exchange registrations of foreign direct investment and overseas direct investment from SAFE, entities and individuals may apply for such foreign exchange registrations from qualified banks. The qualified banks, under the supervision of SAFE, may directly review the applications and conduct the registration.
On March 30, 2015, SAFE promulgated the Circular of the SAFE on Reforming the Management Approach regarding the Settlement of Foreign Capital of Foreign-invested Enterprise, or Circular 19, which expands a pilot reform of the administration of the settlement of the foreign exchange capitals of foreign-invested enterprises nationwide. Circular 19 came into force and replaced both the Circular of the State Administration of Foreign Exchange on Issues Relating to the Improvement of Business Operations with Respect to the Administration of Foreign Exchange Capital Payment and Settlement of Foreign-invested Enterprises, or Circular 142 and the Circular of the State Administration of Foreign Exchange on Issues concerning the Pilot Reform of the Administrative Approach Regarding the Settlement of the Foreign Exchange Capitals of Foreign-invested Enterprises in Certain Areas, or Circular 36 on June 1, 2015. Circular 19 allows all foreign-invested enterprises established in the PRC to use their foreign exchange capitals to make equity investment and removes certain other restrictions had been provided in Circular 142. However, Circular 19 continues to prohibit foreign-invested enterprises from, among other things, using RMB fund converted from its foreign exchange capitals for expenditure beyond its business scope and providing entrusted loans or repaying loans between non-financial enterprises. 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 Circular 16, effective in June 2016, which reiterates some of the rules set forth in Circular 19, but Compared to Circular 19, Circular 16 provides that discretionary foreign exchange settlement applies to foreign exchange capital, foreign debt offering proceeds and remitted foreign listing proceeds, and the corresponding RMB capital converted from foreign exchange are not restricted from extending loans to related parties or repaying the inter-company loans (including advances by third parties). However, there exist substantial uncertainties with respect to the interpretation and implementation in practice with respect to the Circular 16. Circular 19 or Circular 16 may
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delay or limit us from using the proceeds of offshore offerings to make additional capital contributions or loans to our PRC subsidiaries and any violations of these circulars could result in severe monetary or other penalties.
In January 2017, SAFE promulgated the Circular on Further Improving Reform of Foreign Exchange Administration and Optimizing Genuineness and Compliance Verification, or 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 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.
Regulations on Foreign Exchange Registration of Overseas Investment by PRC Residents
SAFE issued SAFE Circular on Relevant Issues Relating to Domestic Residents Investment and Financing and Roundtrip Investment through Special Purpose Vehicles, or SAFE Circular 37, that became effective in July 2014, replacing the Circular of the State Administration of Foreign Exchange on Issues Concerning the Regulation of Foreign Exchange in Equity Finance and Return Investments by Domestic Residents through Offshore Special Purpose Vehicles, or SAFE Circular 75. SAFE Circular 37 regulates foreign exchange matters in relation to the use of special purpose vehicles, or SPVs, by PRC residents or entities to seek offshore investment and financing or conduct round trip investment in China. Under SAFE Circular 37, a SPV refers to an offshore entity established or controlled, directly or indirectly, by PRC residents or entities for the purpose of seeking offshore financing or making offshore investment, using legitimate onshore or offshore assets or interests, while round trip investment refers to direct investment in China by PRC residents or entities through SPVs, namely, establishing foreign-invested enterprises to obtain the ownership, control rights and management rights. SAFE Circular 37 provides that, before making contribution into an SPV, PRC residents or entities are required to complete foreign exchange registration with SAFE or its local branch. SAFE promulgated the Notice on Further Simplifying and Improving the Administration of the Foreign Exchange Concerning Direct Investment in February 2015, which took effect on June 1, 2015. This notice has amended SAFE Circular 37 requiring PRC residents or entities to register with qualified banks rather than SAFE or its local branch in connection with their establishment or control of an offshore entity established for the purpose of overseas investment or financing.
PRC residents or entities who had contributed legitimate onshore or offshore interests or assets to SPVs but had not obtained registration as required before the implementation of the SAFE Circular 37 must register their ownership interests or control in the SPVs with qualified banks. An amendment to the registration is required if there is a material change with respect to the SPV registered, such as any change of basic information (including change of the PRC residents, name and operation term), increases or decreases in investment amount, transfers or exchanges of shares, and mergers or divisions. Failure to comply with the registration procedures set forth in SAFE Circular 37 and the subsequent notice, or making misrepresentation on or failure to disclose controllers of the foreign-invested enterprise that is established through round-trip investment, may result in restrictions being imposed on the foreign exchange activities of the relevant foreign-invested enterprise, including payment of dividends and other distributions, such as proceeds from any reduction in capital, share transfer or liquidation, to its offshore parent or affiliate, and the capital inflow from the offshore parent, and may also subject relevant PRC residents or entities to penalties under PRC foreign exchange administration regulations.
Regulations Related to Stock Incentive Plans
SAFE promulgated the Circular of the State Administration of Foreign Exchange on Issues concerning the Administration of Foreign Exchange Used for Domestic Individuals Participation in Equity Incentive Plans of Companies Listed Overseas, or the Stock Option Rules in February 2012, replacing the previous rules issued by
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SAFE in March 2007. Under the Stock Option Rules and other relevant rules and regulations, PRC residents who participate in stock incentive plan in an overseas publicly-listed company are required to register with SAFE or its local branches and complete certain other procedures. Participants of a stock incentive plan who are PRC residents must retain a qualified PRC agent, which could be a PRC subsidiary of the overseas publicly listed company or another qualified institution selected by the PRC subsidiary, to conduct the SAFE registration and other procedures with respect to the stock incentive plan on behalf of the participants. In addition, the PRC agent is required to amend the SAFE registration with respect to the stock incentive plan if there is any material change to the stock incentive plan, the PRC agent or other material changes. The PRC agent must, on behalf of the PRC residents who have the right to exercise the employee share options, apply to SAFE or its local branches for an annual quota for the payment of foreign currencies in connection with the PRC residents exercise of the employee share options. The foreign exchange proceeds received by the PRC residents from the sale of shares under the stock incentive plans granted and dividends distributed by the overseas listed companies must be remitted into the bank accounts in the PRC opened by the PRC agents before distribution to such PRC residents.
Regulations Related to Dividend Distribution
The principal regulations governing distribution of dividends of foreign holding companies include the Foreign Investment Enterprise Law, issued in 1986 and amended in 2000 and 2016, and the Implementation Rules under the Foreign Investment Enterprise Law, issued in 1990 and amended in 2001 and 2014 respectively. Under these regulations, foreign investment enterprises in the PRC may pay dividends only out of their accumulated profits, if any, determined in accordance with PRC accounting standards and regulations. In addition, foreign investment enterprises in the PRC are required to allocate at least 10% of their respective accumulated profits each year, if any, to fund certain reserve funds unless these reserves have reached 50% of the registered capital of the enterprises. These reserves are not distributable as cash dividends. 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 Related to Taxation
Enterprise Income Tax
In March 2007, the National Peoples Congress enacted the Enterprise Income Tax Law, and in December 2007, the State Council promulgated the Implementing Rules of the Enterprise Income Tax Law, or the Implementing Rules, both of which became effective on January 1, 2008. The Enterprise Income Tax Law (i) reduces the top rate of enterprise income tax from 33% to a uniform 25% rate applicable to both foreign-invested enterprises and domestic enterprises and eliminates many of the preferential tax policies afforded to foreign investors, (ii) permits companies to continue to enjoy their existing tax incentives, subject to certain transitional phase-out rules and (iii) introduces new tax incentives, subject to various qualification criteria.
The Enterprise Income Tax Law also provides that enterprises organized under the laws of jurisdictions outside China with their de facto management bodies located within China may be considered PRC resident enterprises and therefore be subject to PRC enterprise income tax at the rate of 25% on their worldwide income. The Implementing Rules further define the term de facto management body as the management body that exercises substantial and overall management and control over the production and operations, personnel, accounts and properties of an enterprise. If an enterprise organized under the laws of jurisdiction outside China is considered a PRC resident enterprise for PRC enterprise income tax purposes, a number of unfavorable PRC tax consequences could follow. First, it would be subject to the PRC enterprise income tax at the rate of 25% on its worldwide income. Second, a 10% withholding tax would be imposed on dividends it pays to its non-PRC enterprise shareholders and a 10% tax would apply with respect to gains derived by its non-PRC enterprise shareholders from transfer of its shares.
According to the Enterprise Income Tax Law, dividends generated after January 1, 2008 and payable by a foreign-invested enterprise in China to its foreign enterprise investors are subject to a 10% withholding tax,
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unless any such foreign investors jurisdiction of incorporation has a tax treaty with China that provides for a preferential withholding arrangement. Pursuant to the Notice of the State Administration of Taxation on Negotiated Reduction of Dividends and Interest Rates, which was issued on January 29, 2008 and supplemented and revised on February 29, 2008, and the Arrangement between Mainland China and the Hong Kong Special Administrative Region for the Avoidance of Double Taxation and Prevention of Fiscal Evasion with Respect to Taxes on Income, which became effective on December 8, 2006 and applies to income derived in any year of assessment commencing on or after April 1, 2007 in Hong Kong and in any year commencing on or after January 1, 2007 in the PRC, such withholding tax rate may be lowered to 5% if a Hong Kong enterprise is deemed the beneficial owner of any dividend paid by a PRC subsidiary by PRC tax authorities and holds at least 25% of the equity interest in that particular PRC subsidiary at all times within the 12-month period immediately before distribution of the dividends. Furthermore, the State Administration of Taxation promulgated the Notice on the Interpretation and Recognition of Beneficial Owners in Tax Treaties in October 2009, which stipulates that non-resident enterprises that cannot provide valid supporting documents as beneficial owners may not be approved to enjoy tax treaty benefits. Specifically, it expressly excludes an agent or a conduit company from being considered as a beneficial owner and a beneficial owner analysis is required to be conducted on a case-by-case basis following the substance-over-the-form principle.
Value-Added Tax and Business Tax
Pursuant to applicable PRC tax regulations, any entity or individual conducting business in the service industry is generally required to pay a business tax at the rate of 5% on the revenues generated from providing such services. However, if the services provided are related to technology development and transfer, such business tax may be exempted subject to approval by the relevant tax authorities. Whereas, pursuant to the Provisional Regulations on Value-Added Tax of the PRC and its implementation regulations, unless otherwise specified by relevant laws and regulations, any entity or individual engaged in the sales of goods, provision of processing, repairs and replacement services and importation of goods into China is generally required to pay a value-added tax, or VAT, for revenues generated from sales of products, while qualified input VAT paid on taxable purchase can be offset against such output VAT.
In November 2011, the Ministry of Finance and the State Administration of Taxation promulgated the Pilot Plan for Imposition of Value-Added Tax to Replace Business Tax. In March 2016, the Ministry of Finance and the State Administration of Taxation further promulgated the Notice on Fully Promoting the Pilot Plan for Replacing Business Tax by Value-Added Tax, which became effective on May 1, 2016. Pursuant to the pilot plan and relevant notices, VAT is generally imposed in lieu of business tax in the modern service industries, including the VATS, on a nationwide basis. VAT of a rate of 6% applies to revenue derived from the provision of some modern services. Unlike business tax, a taxpayer is allowed to offset the qualified input VAT paid on taxable purchases against the output VAT chargeable on the modern services provided.
Regulations Related to M&A and Overseas Listings
On August 8, 2006, six PRC regulatory agencies, including the Ministry of Commerce, the State-owned Assets Supervision and Administration Commission, the SAT, the SAIC, the China Securities Regulatory Commission, or CSRC, and the SAFE, jointly issued the Regulations on Mergers and Acquisitions of Domestic Enterprises by Foreign Investors, or the M&A Rules, which became effective on September 8, 2006 and was amended on June 22, 2009. The M&A Rules, among other things, require that (i) PRC entities or individuals obtain MOFCOM approval before they establish or control a SPV overseas, provided that they intend to use the SPV to acquire their equity interests in a PRC company at the consideration of newly issued share of the SPV, or Share Swap, and list their equity interests in the PRC company overseas by listing the SPV in an overseas market; (ii) the SPV obtains MOFCOMs approval before it acquires the equity interests held by the PRC entities or PRC individual in the PRC company by Share Swap; and (iii) the SPV obtains CSRC approval before it lists overseas.
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The Anti-Monopoly Law promulgated by the Standing Committee of the National Peoples Congress on August 30, 2007 and effective on August 1, 2008 requires that transactions which are deemed concentrations and involve parties with specified turnover thresholds must be cleared by the anti-monopoly enforcement agency before they can be completed. In addition, on February 3, 2011, the General Office of the State Council promulgated a Notice on Establishing the Security Review System for Mergers and Acquisitions of Domestic Enterprises by Foreign Lenders, or Circular 6, which officially established a security review system for mergers and acquisitions of domestic enterprises by foreign investors. Further, on August 25, 2011, MOFCOM promulgated the Regulations on Implementation of Security Review System for the Merger and Acquisition of Domestic Enterprises by Foreign Lenders, or the MOFCOM Security Review Regulations, which became effective on September 1, 2011, to implement Circular 6. Under Circular 6, a security review is required for mergers and acquisitions by foreign investors having national defense and security concerns and mergers and acquisitions by which foreign investors may acquire the de facto control of domestic enterprises with national security concerns. Under the MOFCOM Security Review Regulations, MOFCOM will focus on the substance and actual impact of the transaction when deciding whether a specific merger or acquisition is subject to security review. If MOFCOM decides that a specific merger or acquisition is subject to security review, it will submit it to the Inter-Ministerial Panel, an authority established under the Circular 6 led by the National Development and Reform Commission, or NDRC, and MOFCOM under the leadership of the State Council, to carry out the security review. The regulations prohibit foreign investors from bypassing the security review by structuring transactions through trusts, indirect investments, leases, loans, control through contractual arrangements or offshore transactions.
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Directors and Executive Officers
The following table sets forth certain information relating to our directors and executive officers upon closing of this offering.
Name |
Age |
Position/Title |
||
Xiaojun Zhang |
47 | Co-founder and chairman | ||
Jiayuan Lin |
49 | Co-founder, director and chief executive officer | ||
Langlang Zhou |
36 | Director | ||
Zuyu Tan |
45 | Director | ||
Yongyi Zhang |
45 | Chief financial officer and director | ||
Weibiao Zhan |
46 | Director | ||
Xiaoyu Liu |
36 | Director | ||
Zhipeng Song |
34 | Director | ||
Yun Ye |
40 | Head of legal division and director | ||
Chi Ming Lee* |
65 | Independent director appointee | ||
Dongsheng Zhou* |
51 | Independent director appointee |
* | Has accepted appointment as our independent director, effective upon the SECs declaration of effectiveness of our registration statement on Form F-1, of which this prospectus is a part. |
Xiaojun Zhang is our co-founder and has served as our chairman since 2014. Mr. Zhang has also served as a chairman and general manager of Shanghai Autohome since 2016. Prior to co-founding our company, Mr. Zhang served as a director and general manager of Shanghai Automobile Group Finance Company from 2004 to 2013. From 1999 to 2004, Mr. Zhang served as a deputy general manager of SAIC-GMAC Automotive Finance Co., Ltd. From 1992 and 1998, Mr. Zhang served as a financial supervisor of Peoples Bank of China, Shanghai Branch. Mr. Zhang received a bachelors degree in finance from Shanghai University of Finance and Economics in 1992, a masters degree in business administration from Peking University in 2003 and completed China Senior Executive Program at Harvard Business School in 2018, thereby attaining alumni status.
Jiayuan Lin is our co-founder and has served as our director and chief executive officer since 2010. Prior to co-founding our company, Mr. Lin served as an assistant general manager of Shanghai Automobile Group Finance Company from 2007 to 2010. From 2003 to 2007, Mr. Lin served as a director of the sales department of SAIC-GMAC Automotive Finance Co., Ltd. From 1997 to 2003, Mr. Lin worked in SAIC General Motors Corporation Limited as a manager of tax and insurance in the finance department and a manager of finance support in the marketing department. From 1991 to 1997, Mr. Lin worked in the Pudong branch of Bank of China as a staff member in the finance department, deputy manager of the audit division and deputy manager of the credit division. Mr. Lin received a bachelors degree in economics, with specialization in investment management, from Shanghai University of Finance and Economics in 1991.
Langlang Zhou has served as our director since 2017. Mr. Zhou is a managing director of Warburg Pincus LLC and has been with the firm since 2005. Mr. Zhou is currently a director of China Huarong Asset Management Co., Ltd., Hwabao WP Fund Management Co., Ltd. and Wacai Holdings Limited. Mr. Zhou served as an analyst of the investment banking division of Credit Suisse First Boston from 2003 to 2004 and an associate of the investment banking division of Citibank from 2004 to 2005. Mr. Zhou obtained a bachelors degree in business and a bachelors degree in electrical engineering from the University of Western Ontario in 2002.
Zuyu Tan has served as our director since 2018. Mr. Tan has served as chief executive officer of Beijing Taikang Investment Co., Ltd. since 2016. From 2014 to 2016, Mr. Tan served on the executive committee and as the head of equity investment department I of Taikang Asset Management Co., Ltd. From 2009 to 2013, Mr. Tan served as a managing director of Ping An Trust Co., Ltd. From 2006 to 2008, Mr. Tan served as the investment
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director of Actis Capital, LLP. From 2001 to 2005, Mr. Tan served as an investment officer of International Finance Corporation, World Bank Group. In 1998, Mr. Tan served as an investment manager of China Everbright International Trust and Investment Corp. From 1995 to 1998, Mr. Tan served as an auditor of KPMG China. Mr. Tan received a bachelors degree in accounting from Beijing Institute of Machinery Industry in 1995 and a masters degree in international finance from the London School of Economics and Political Science in 2000.
Yongyi Zhang has served as our chief financial officer since 2018 and director since 2018. Prior to joining our company, Mr. Zhang served as an executive director of Zhongde Securities Co., Ltd. from 2010 to 2018. From 2001 to 2010, Mr. Zhang served as a senior manager of China Galaxy Securities Co., Ltd. From 1997 to 2001, Mr. Zhang served as a deputy manager of Shanghai Stock Exchange. From 1995 to 1997, Mr. Zhang served as an auditor of Arthur Anderson (Shanghai Office). Mr. Zhang received a bachelors degree in international accounting from Shanghai University of Finance and Economics in 1995.
Weibiao Zhan has served as our director since 2018. Mr. Zhan has served as a deputy general manager in the investment and acquisition department of Tencent Holdings Limited since 2003 and is currently a director of Beijing Navinfo Co., Ltd. From 2000 to 2003, Mr. Zhan served as a corporate client services manager in Southern China region of Microsoft (China) Co., Ltd. From 1998 to 2000, Mr. Zhan served as a project manager of the development center in Kingdee Software (China) Co., Ltd. From 1997 to 1998, Mr. Zhan served as an assistant to department head at China Science and Technology Development Institute. Mr. Zhan received a bachelors degree in engineering and economics from the South China University of Technology in 1997 and an Executive MBA from Hong Kong University of Science and Technology in 2011.
Xiaoyu Liu has served as our director since 2018. Mr. Liu joined Didi Chuxing in 2015 and currently serves as the General Manager in the Fintech Department. Mr. Liu has over ten years of working experience in the finance and investment industry including with The Carlyle Group, Kaichen Group, UniCredit and KPMG. Mr. Liu received a bachelors degree in biotechnology from Tsinghua University in 2005 and an MBA from University of Pennsylvania in 2012.
Zhipeng Song has served as a director of our company since 2018. Mr. Song has also served as a vice president of Shanghai Autohome since 2016. From 2014 to 2015, Mr. Song served as an assistant general manager of our company. From 2012 to 2014, he served a regional manager of Anji Leasing Co., Ltd. From 2010 to 2012, he served as an account manager of SAIC-GMAC Automotive Finance Co., Ltd. Mr. Song received a bachelors degree in finance from Shanghai University in 2007 and a masters degree in finance and management from Loughborough University in 2008 and a masters degree in finance from University of St. Andrews in 2009.
Yun Ye has served as our director since 2018. Ms. Ye joined our company in 2010 and is currently the head of legal division. From 2004 to 2010, she served as a supervisor of sales and operations at SAIC-GMAC Automotive Finance Co., Ltd. From 1999 to 2004, she served as a credit officer at Shanghai Automobile Group Finance Company. Ms. Ye received a bachelor of laws degree from Shanghai Jiao Tong University in 2003.
Chi Ming Lee will serve as our independent director upon the SECs declaration of effectiveness of our registration statement on Form F-1, of which this prospectus is a part. Mr. Lee also has served as an independent non-executive director of China Minsheng Drawin Technology Group since 2014, and of Huatai Securities Co., Ltd. since 2015. Mr. Lee has been the chief partner of Boningdun Capital Management Limited since October 2014. From 1989 to 2014, Mr. Lee served as the senior manager/supervisor of Licensing department, director of Corporate Planning, and director of Finance and Administration of the Securities and Futures Commission of Hong Kong. From 1976 to 1989, Mr. Lee served as the assistant director and then the director of tax assessment at Inland Revenue Department of the Government of Hong Kong. Mr. Lee obtained his higher diploma in accountancy from the Hong Kong Polytechnic (now known as the Hong Kong Polytechnic University) in 1976, a bachelors degree in law from the University of London in 1988, and a masters degree in business administration from the University of Hong Kong in 1993. Mr. Lee is a member of the Association of Chartered Certified Accountants and the Hong Kong Institute of Certified Public Accountants.
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Dongsheng Zhou will serve as our independent director upon the SECs declaration of effectiveness of our registration statement on Form F-1, of which this prospectus is a part. Dr. Zhou is a professor of marketing and chair of the marketing department at China Europe International Business School, where he has worked since 2002. Since 2006, Dr. Zhou has served as the academic co-chair of SEPC, a joint executive training program with Harvard Business School and the School of Economics and Management at Tsinghua University. From 2007 to 2012, Dr. Zhou served as the associate dean in charge of the alumni relationships of China Europe International Business School. From 1997 to 2002, Dr. Zhou served as an assistant professor in the department of marketing and on the business faculty at the City University of Hong Kong. Dr. Zhou received a bachelors degree in science from the University of Science and Technology of China in 1990 and a doctor of philosophy degree from the faculty of commerce and business administration at the University of British Columbia in 1997.
Board of Directors
Our board of directors will consist of 11 directors upon the SECs declaration of effectiveness of our registration statement on Form F-1, of which this prospectus is a part. A director is not required to hold any shares in our company to qualify to serve as a director. A director may vote with respect to any contract or any proposed contract or arrangement in which he is interested, and if he does so his vote shall be counted and he may be counted in the quorum at any meeting of our directors at which any such contract or proposed contract or arrangement is considered, provided (a) such director has declared the nature of his interest at the meeting of the board at which the question of entering into the contract or arrangement is first considered if he knows his interest then exists, or in any other case at the first meeting of the board after he knows he is or has become so interested, either specifically or by way of a general notice and (b) if such contract or arrangement is a transaction with a related party, such transaction has been approved by the audit committee. The directors may exercise all the powers of the company to borrow money, to mortgage or charge its undertaking, property and uncalled capital, and to issue debentures or other securities whenever money is borrowed or as security for any debt, liability or obligation of the company or of any third party. None of our non-executive directors has a service contract with us that provides for benefits upon termination of service.
Duties of Directors
Under Cayman Islands law, our directors have a fiduciary duty to act honestly in good faith with a view to our best interests. Our directors also have a duty to exercise the care, diligence and skill that a reasonably prudent person would exercise in comparable circumstances. In fulfilling their duty of care to us, our directors must ensure compliance with our memorandum and articles of association. A shareholder has the right to seek damages if a duty owed by our directors is breached.
The functions and powers of our board of directors include, among others:
| conducting and managing the business of our company; |
| representing our company in contracts and deals; |
| appointing attorneys for our company; |
| select senior management such as managing directors and executive directors; |
| providing employee benefits and pension; |
| managing our companys finance and bank accounts; |
| exercising the borrowing powers of our company and mortgaging the property of our company; and |
| exercising any other powers conferred by the shareholders meetings or under our memorandum and articles of association. |
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Terms of Directors and Executive Officers
Our directors may be elected by a resolution of our board of directors, or by an ordinary resolution of our shareholders, pursuant to our third amended and restated memorandum and articles of association, which will become effective immediately prior to the completion of this offering. Each of our directors will hold office until his or her successor takes office or until his or her earlier death, resignation or removal or the expiration of his or her term as provided in the written agreement with our company, if any. A director will cease to be a director if, among other things, the director (i) dies, or becomes bankrupt or makes any arrangement or composition with his creditors; (ii) is found to be or becomes of unsound mind, (iii) resigns his office by notice in writing to the company, or (iv) without special leave of absence from our board, is absent from three consecutive board meetings and our directors resolve that his office be vacated. Our officers are elected by and serve at the discretion of the board of directors.
Pursuant to our shareholders agreement and our second amended and restated memorandum and articles of associations, we have granted Eagle Central Holding Limited and Medway Brilliant Holding Limited the right to jointly elect, remove and replace four directors on our board of directors, and we have granted each of Warburg Pincus Cango Fintech Investment Company Limited, the Taikang Offshore Entities, Tencent Mobility Limited and Didi Chuxing the right to elect, remove and replace one director on our board of directors. The board presentation rights are expected to be terminated upon completion of this offering. We also expect to adopt our post-offering memorandum and articles of associations immediately prior to the completion of this offering.
Board Committees
Our board of directors has established an audit committee, a compensation committee and a nominating and corporate governance committee. We will adopt a charter for each of the committees. Each committees members and functions are described below.
Audit Committee
Our audit committee will initially consist of Chi Ming Lee, Dongsheng Zhou and Yongyi Zhang. Chi Ming Lee will be the chairperson of our audit committee. Chi Ming Lee satisfies the criteria of an audit committee financial expert as set forth under the applicable rules of the SEC. Each of Chi Ming Lee and Dongsheng Zhou satisfies the requirements for an independent director within the meaning of Section 303A of the NYSE Listed Company Manual and will meet the criteria for independence set forth in Rule 10A-3 of the United States Securities Exchange Act of 1934, as amended, or the Exchange Act. Our audit committee will consist solely of independent directors within one year of this offering.
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 the independent auditor; |
| pre-approving auditing and non-auditing services permitted to be performed by the independent auditor; |
| annually reviewing the independent auditors report describing the auditing firms internal quality control procedures, any material issues raised by the most recent internal quality control review, or peer review, of the independent auditors and all relationships between the independent auditor and our company; |
| setting clear hiring policies for employees and former employees of the independent auditors; |
| reviewing with the independent auditor any audit problems or difficulties and managements response; |
| reviewing and, if material, approving all related party transactions on an ongoing basis; |
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| reviewing and discussing the annual audited financial statements with management and the independent auditor; |
| reviewing and discussing with management and the independent auditors major issues regarding accounting principles and financial statement presentations; |
| reviewing reports prepared by management or the independent auditors relating to significant financial reporting issues and judgments; |
| discussing earnings press releases with management, as well as financial information and earnings guidance provided to analysts and rating agencies; |
| reviewing with management and the independent auditors the effect of regulatory and accounting initiatives, as well as off-balance sheet structures, on our financial statements; |
| discussing policies with respect to risk assessment and risk management with management, internal auditors and the independent auditor; |
| timely reviewing reports from the independent auditor regarding all critical accounting policies and practices to be used by our company, all alternative treatments of financial information within U.S. GAAP that have been discussed with management and all other material written communications between the independent auditor and management; |
| 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; |
| annually reviewing and reassessing the adequacy of our audit committee charter; |
| such other matters that are specifically delegated to our audit committee by our board of directors from time to time; |
| 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 will initially consist of Xiaojun Zhang, Jiayuan Lin and Dongsheng Zhou. Xiaojun Zhang will be the chairperson of our compensation committee. Dongsheng Zhou satisfies the requirements for an independent director within the meaning of Section 303A of the NYSE Listed Company Manual.
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 senior officers and determining the compensation of our senior officers; |
| reviewing and approving our senior officers employment agreements with us; |
| setting performance targets for our senior officers with respect to our incentivecompensation plan and equity-based compensation plans; |
| administering our equity-based compensation plans in accordance with the terms thereof; and such other matters that are specifically delegated to the remuneration committee by our board of directors from time to time. |
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Nominating and Corporate Governance Committee
Our nominating and corporate governance committee will initially consist of Jiayuan Lin, Xiaojun Zhang and Dongsheng Zhou. Jiayuan Lin will be the chairperson of our nominating and corporate governance committee. Dongsheng Zhou satisfies the requirements for an independent director within the meaning of Section 303A of the NYSE Listed Company Manual. The nominating and corporate governance committee will assist the board of directors in selecting individuals qualified to become our directors and in determining the composition of the board and its committees. The nominating and corporate governance committee will be responsible for, among other things:
| selecting and recommending to the board nominees for election by the shareholders or appointment by the board; |
| reviewing annually 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 the law and practice of corporate governance as well as our compliance with applicable laws and regulations, and making recommendations to the board on all matters of corporate governance and on any remedial action to be taken. |
Compensation of Directors and Executive Officers
In 2016, we and our subsidiaries and consolidated VIE paid aggregate cash compensation of approximately RMB3.9 million (US$0.6 million) to our directors and executive officers as a group. We did not pay any other cash compensation or benefits in kind to our directors and executive officers. We have not set aside or accrued any amount to provide pension, retirement or other similar benefits to our directors and executive officers. Our PRC subsidiaries and consolidated VIE are required by law to make contributions equal to certain percentages of each employees salary for his or her pension insurance, medical insurance, unemployment insurance and other statutory benefits and housing funds. Our board of directors may determine compensation to be paid to the directors and the executive officers. The compensation committee will assist the directors in reviewing and approving the compensation structure for the directors and the executive officers.
For information regarding share awards granted to our directors and executive officers, see Share Incentive Plan.
Employment Agreements and Indemnification Agreements
We have entered into employment agreements with each of our executive officers. Under these agreements, each of our executive officers is employed for a specified time period. We may terminate employment for cause, at any time, without advance notice, for certain acts of the executive officer, such as conviction or plea of guilty to a felony or any crime involving moral turpitude, willful misconduct or gross negligence to our detriment, or serious breach of duty of loyalty to us. We may also terminate an executive officers employment without cause upon three-month advance written notice. In such case of termination by us, we will provide severance payments to the executive officer as expressly required by applicable law of the jurisdiction where the executive officer is based. The executive officer may resign at any time with a three-month advance written notice.
Each executive officer has agreed to hold, both during and within two years after the termination or expiry of his or her employment agreement, in strict confidence and not to use, except as required in the performance of his or her duties in connection with the employment or pursuant to applicable law, any of our confidential information or trade secrets, any confidential information or trade secrets of our business partners, or the
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confidential or proprietary information of any third party received by us and for which we have confidential obligations. The executive officers have also agreed to disclose in confidence to us all inventions, designs and trade secrets which they conceive, develop or reduce to practice during the executive officers employment with us and to assign all right, title and interest in them to us, and assist us in obtaining and enforcing patents, copyrights and other legal rights for these inventions, designs and trade secrets.
In addition, each executive officer has agreed to be bound by non-competition and non-solicitation restrictions during the term of his or her employment and typically for one year following the last date of employment. Specifically, each executive officer has agreed not to (i) approach financial institutions, dealers or other persons or entities introduced to the executive officer in his or her capacity as a representative of us for the purpose of doing business with such persons or entities that will harm our business relationships with these persons or entities; (ii) assume employment with or provide services to any of our competitors, or engage, whether as principal, partner, licensor or otherwise, any of our competitors, without our express consent; or (iii) seek directly or indirectly, to solicit the services of any of our employees who is employed by us on or after the date of the executive officers termination, or in the year preceding such termination, without our express consent.
We intend to enter into indemnification agreements with each of our directors and executive officers. Under these agreements, we may agree to indemnify our directors and executive officers against certain liabilities and expenses incurred by such persons in connection with claims made by reason of their being a director or officer of our company.
Share Incentive Plan
On May 25, 2018, we adopted the Share Incentive Plan 2018, or the share incentive plan, which allows us to grant options, restricted shares, restricted share units and other share-based awards to our employees, directors and consultants. The maximum number of ordinary shares that may be subject to equity awards pursuant to the share incentive plan is 27,845,526 initially. Additional ordinary shares may be reserved for issuance of equity awards as determined by our board of directors.
Administration
The share incentive plan is jointly administered by Mr. Xiaojun Zhang, our co-founder and chairman, and Mr. Jiayuan Lin, our co-founder, director and chief executive officer. The administrators will determine the provisions and terms and conditions of each equity award.
Change in Control
In the event of a change in control, the administrators may provide for termination of all equity awards outstanding at a specific time in the future, purchase of equity awards from holders, replacement of equity awards, payment of awards in cash or combination of the foregoing.
Term
Unless terminated earlier, the share incentive plan will continue in effect for a term of ten years from the date of its adoption.
Award Agreements
Generally, equity awards granted under the share incentive plan are evidenced by an award agreement providing for the number of ordinary shares subject to the award, and the terms and conditions of the award, which must be consistent with the share incentive plan.
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Vesting Schedule
The vesting schedule of each equity award granted under the share incentive plan will be set forth in the award agreement for such equity award.
Amendment and Termination
The board of directors may at any time amend or terminate the share incentive plan, subject to certain exceptions.
Granted Options
In May 2018, we granted 5,569,105 options to purchase our ordinary shares to certain of our officers and employees. As of the date of this prospectus, all of such options are unvested and subject to the applicable vesting schedules. The exercise price for such options is US$1.7951 per share.
The table below summarizes, as of the date of this prospectus, the options we have granted to our directors and executive officers.
Name |
Position |
Ordinary Shares
Underlying Option Awards |
Option Exercise
Price (US$) |
Grant Date |
Option
|
|||||||||
Xiaojun Zhang |
Chairman | * | 1.7951 | May 25, 2018 | May 24, 2028 | |||||||||
Jiayuan Lin |
Chief executive officer and director | * | 1.7951 | May 25, 2018 | May 24, 2028 | |||||||||
Yongyi Zhang |
Chief financial officer and director | * | 1.7951 | May 25, 2018 | May 24, 2028 | |||||||||
Zhipeng Song |
Director | * | 1.7951 | May 25, 2018 | May 24, 2028 | |||||||||
Yun Ye |
Head of legal division and director | * | 1.7951 | May 25, 2018 | May 24, 2028 |
* | Less than 1% of our outstanding shares, assuming conversion of our preferred shares into ordinary shares. |
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The following table sets forth information as of the date of this prospectus with respect to the beneficial ownership of our ordinary shares by:
| each of our directors and executive officers; 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, or the power to receive the economic benefit of ownership of, 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.
We have entered into a share purchase agreement on June 4, 2018, providing for the issuance of an aggregate of 41,378,176 convertible preferred shares to certain of our shareholders. For further information, see Description of Share CapitalHistory of Securities Issuance. The following table gives effect to such share issuances.
The total number of ordinary shares outstanding as of the date of this prospectus is 294,209,892, assuming conversion of all convertible preferred shares into ordinary shares.
The total number of ordinary shares outstanding after completion of this offering will be , comprising Class A ordinary shares and 79,325,720 Class B ordinary shares, which is based upon (i) the designation of all ordinary shares directly held by Eagle Central Holding Limited, which is wholly owned by Mr. Xiaojun Zhang, into 39,442,798 Class B ordinary shares on a one-for-one-basis upon the completion of this offering; (ii) the designation of all ordinary shares directly held by Medway Brilliant Holding Limited, which is wholly owned by Mr. Jiayuan Lin, into 39,882,922 Class B ordinary shares on a one-for-one-basis upon the completion of this offering; (iii) the designation of all of the remaining outstanding ordinary shares and the automatic conversion of all convertible preferred shares into 214,884,172 Class A ordinary shares on a one-for-one-basis upon the completion of this offering; and (iv) Class A ordinary shares issued in connection with this offering (assuming the underwriters do not exercise their option to purchase additional ADSs), but excludes (i) 5,569,105 ordinary shares issuable upon the exercise of outstanding share options and (ii) 22,276,421 ordinary shares reserved for future issuance under our share incentive plan. The underwriters may choose to exercise the over-allotment option in full, in part or not at all.
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Ordinary Shares
Beneficially Owned Prior to This Offering |
Ordinary Shares Beneficially
Owned After This Offering |
|||||||||||||||||||||||
Number | Percent |
Class A
ordinary shares |
Class B
ordinary shares |
Percentage
of total ordinary shares on an as-converted basis |
Percentage
of aggregate voting power ** |
|||||||||||||||||||
Directors and Executive Officers: * |
||||||||||||||||||||||||
Xiaojun Zhang (1) |
39,442,798 | 13.4 | ||||||||||||||||||||||
Jiayuan Lin (2) |
61,166,577 | 20.8 | ||||||||||||||||||||||
Langlang Zhou |
| | ||||||||||||||||||||||
Zuyu Tan |
| | ||||||||||||||||||||||
Yongyi Zhang |
| | ||||||||||||||||||||||
Weibiao Zhan |
| | ||||||||||||||||||||||
Xiaoyu Liu |
| | ||||||||||||||||||||||
Zhipeng Song |
| | ||||||||||||||||||||||
Yun Ye |
| | ||||||||||||||||||||||
Chi Ming Lee*** |
| | ||||||||||||||||||||||
Dongsheng Zhou*** |
| | ||||||||||||||||||||||
|
|
|
|
|||||||||||||||||||||
Directors and Executive Officers as a Group |
100,609,375 | 34.2 | ||||||||||||||||||||||
Principal Shareholders |
||||||||||||||||||||||||
Medway Brilliant Holding Limited (3) |
61,166,577 | 20.8 | ||||||||||||||||||||||
WP Fintech (4) |
53,431,125 | 18.2 | ||||||||||||||||||||||
Didi Chuxing (5) |
43,484,992 | 14.8 | ||||||||||||||||||||||
Eagle Central Holding Limited (6) |
39,442,798 | 13.4 | ||||||||||||||||||||||
Tencent Mobility Limited (7) |
31,603,197 | 10.7 | ||||||||||||||||||||||
Taikang Offshore Entities (8) |
15,802,058 | 5.4 | ||||||||||||||||||||||
Huaiyuan L.P. (9) |
13,075,290 | 4.4 |
* | The business address for our directors and executive officers is 10A, Building 3, Youyou Century Plaza, 428 South Yanggao Road, Pudong New Area, Shanghai 200127, Peoples 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 and Class B ordinary shares as a single class. In respect of all matters subject to a shareholders vote, each Class A ordinary share is entitled to one vote, and each Class B ordinary share is entitled to 20 votes, voting together as one class. Each Class B ordinary share is convertible into one Class A ordinary share at any time by the holder thereof. Class A ordinary shares are not convertible into Class B ordinary shares under any circumstances. |
*** | Each of Chi Ming Lee and Dongsheng Zhou has accepted their appointment to be an independent director of our company, effective upon the SECs declaration of effectiveness of our registration statement on Form F-1, of which this prospectus is a part. |
(1) | Represents 39,442,798 ordinary shares that are held by Eagle Central Holding Limited, or Eagle Central. All such ordinary shares will be designated into Class B ordinary shares on a one-for-one-basis upon the completion of this offering. Eagle Central is a limited liability company established in the British Virgin Islands that is controlled by Mr. Xiaojun Zhang. Eagle Central is further described in footnote 6 below. In addition, Eagle Central is a limited partner with 50.0% of partnership interest in Huaiyuan L.P. Huaiyuan L.P. is further described in footnote 9 below. |
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(2) | Represents (i) 39,882,922 ordinary shares that are held by Medway Brilliant Holding Limited, or Medway Brilliant, and (ii) 21,283,655 ordinary shares that are held by Xiehuai L.P. All of the 39,882,922 ordinary shares held by Medway Brilliant will be designated into Class B ordinary shares on a one-for-one-basis upon the completion of this offering. All of the 21,283,655 ordinary shares held by Xiehuai L.P. will be designated into Class A ordinary shares on a one-for-one-basis upon the completion of this offering. Medway Brilliant is a limited liability company established in the British Virgin Islands that is wholly owned by Mr. Jiayuan Lin. Xiehuai L.P. is a limited partnership established in the British Virgin Islands, of which Medway Brilliant is the general partner. Medway Brilliant and Xiehuai L.P. are further described in footnote 3 below. In addition, Medway Brilliant is a limited partner with 50.0% of partnership interest in Huaiyuan L.P. Huaiyuan L.P. is further described in footnote 9 below. |
(3) | Represents (i) 39,882,922 ordinary shares that are held by Medway Brilliant and (ii) 21,283,655 ordinary shares that are held by Xiehuai L.P. All of the 39,882,922 ordinary shares held by Medway Brilliant will be designated into Class B ordinary shares on a one-for-one-basis upon the completion of this offering. All of the 21,283,655 ordinary shares held by Xiehuai L.P. will be designated into Class A ordinary shares on a one-for-one-basis upon the completion of this offering. Medway Brilliant is a limited liability company established in the British Virgin Islands that is wholly owned by Mr. Jiayuan Lin. The registered address of Medway Brilliant is the offices of Sertus Incorporations (BVI) Limited, Sertus Chambers, P.O. Box 905, Quastisky Building, Road Town, Tortola, British Virgin Islands. |
Xiehuai L.P. is a limited partnership established in the British Virgin Islands, of which Medway Brilliant is the general partner. The limited partners of Xiehuai L.P. include, among others, (i) Eagle Central, (ii) ZYY Holdings Limited, a limited liability company established in the British Virgin Islands that is wholly owned by Mr. Yongyi Zhang, (iii) SZP Holdings Limited, a limited liability company established in the British Virgin Islands that is wholly owned by Mr. Zhipeng Song and (iv) YEYUN Holdings Limited, a limited liability company established in the British Virgin Islands that is wholly owned by Ms. Yun Ye. Eagle Central is further described in footnote 6 below. The registered address of Xiehuai L.P. is the offices of Sertus Incorporations (BVI) Limited, Sertus Chambers, P.O. Box 905, Quastisky Building, Road Town, Tortola, British Virgin Islands.
(4) |
Represents 53,431,125 Class A ordinary shares issuable upon conversion of 53,431,125 Series A-1 preferred shares held by Warburg Pincus Cango Fintech Investment Company Limited, a British Virgin Islands business company (WP Fintech). The direct parents of WP Fintech are (i) Warburg Pincus Private Equity XII, L.P., a Delaware limited partnership (WP XII), (ii) Warburg Pincus Private Equity XII-B, L.P., a Delaware limited partnership (WP XII-B), (iii) Warburg Pincus Private Equity XII-D, L.P., a Delaware limited partnership (WP XII-D), (iv) Warburg Pincus Private Equity XII-E, L.P., a Delaware limited partnership (WP XII-E), (v) WP XII Partners, L.P., a Delaware limited partnership (WP XII Partners), (vi) Warburg Pincus XII Partners, L.P., a Delaware limited partnership (Warburg Pincus XII Partners and, together with WP XII, WP XII-B, WP XII-D, WP XII-E and WP XII Partners, the WP XII Funds), (vii) Warburg Pincus China (Cayman), L.P., a Cayman Islands limited partnership (WPC Cayman), and (viii) Warburg Pincus China Partners (Cayman), L.P., a Cayman Islands limited partnership (Warburg Pincus China Cayman Partners and, together with WPC Cayman, the WPC Cayman Funds). Warburg Pincus XII, L.P., a Delaware limited partnership (WP XII GP), is the general partner of the WP XII Funds. WP Global LLC, a Delaware limited liability company (WP Global), is the general partner of WP XII GP. Warburg Pincus Partners II, L.P., a Delaware limited partnership (WPP II), is the managing member of WP Global. Warburg Pincus Partners GP LLC, a Delaware limited liability company (WPP GP), is the general partner of WPP II. Warburg Pincus & Co., a New York general partnership (WP), is the managing member of WPP GP. Warburg Pincus (Cayman) China GP, L.P., a Cayman Islands limited partnership (WPC Cayman GP), is the general partner of the WPC Cayman Funds. Warburg Pincus (Cayman) China GP LLC, a Delaware limited liability company (WPC Cayman GP LLC), is the general partner of WPC Cayman GP. Warburg Pincus Partners II (Cayman), L.P., a Cayman Islands exempted limited partnership (WPP II Cayman), is the managing member of WPC Cayman GP LLC. Warburg Pincus (Bermuda) Private Equity GP Ltd., a Bermuda exempted company (WP Bermuda), is the general partner of WPP II Cayman. Charles R. Kaye and Joseph P. Landy are each (i) Managing General Partners of WP, (ii) Directors and Co-Chairmen of WP Bermuda, and (iii) the Managing Members and Co-Chief Executive Officers of Warburg Pincus LLC, a New York limited liability company |
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(WP LLC), and may be deemed to control the Warburg Pincus entities. Messrs. Kaye and Landy disclaim beneficial ownership of all shares held by the Warburg Pincus entities. The address of the Warburg Pincus entities is 450 Lexington Avenue, New York, New York 10017, U.S.A. |
(5) | Represents (i) 4,740,480 Class A ordinary shares upon conversion of 4,740,480 Series B preferred shares held by Links Advance Holdings Limited and (ii) 38,744,512 Class A ordinary shares upon conversion of 38,744,512 Series C preferred shares held by DiDi Sunshine Investments L.P. Links Advance Holdings Limited is controlled by Didi Chuxing. DiDi Sunshine Investments L.P. is an exempted limited partnership organized in the Cayman Islands. Its general partner is a wholly-owned subsidiary of Didi Chuxing. The general partner exercises the voting rights with respect to the shares held by the limited partnership. The general partner disclaims beneficial ownership of our shares except to the extent of its pecuniary interest in the limited partnership. |
(6) | Eagle Central is a limited liability company established in the British Virgin Islands that is controlled by Mr. Xiaojun Zhang. The registered address of Eagle Central is the offices of Sertus Incorporations (BVI) Limited, Sertus Chambers, P.O. Box 905, Quastisky Building, Road Town, Tortola VG1110, British Virgin Islands. |
(7) | Represents 31,603,197 Class A ordinary shares upon conversion of 31,603,197 Series B preferred shares held by Tencent Mobility Limited, a limited liability company established in Hong Kong. Tencent Mobility Limited is wholly owned by Tencent Holdings Limited, a public company listed on the Hong Kong Stock Exchange. The registered address of Tencent Mobility Limited is 29/F, Three Pacific Place, No.1 Queens Road East, Wanchai, Hong Kong. |
(8) | Represents (i) 7,901,029 Class A ordinary shares upon conversion of 7,901,029 Series B preferred shares held by Magic Spark Inc., a limited liability company established in the Cayman Islands, and (ii) 7,901,029 Class A ordinary shares upon conversion of 7,901,029 Series B preferred shares held by TK Autolink Inc., a limited liability company established in the Cayman Islands. Magic Spark Inc. is wholly owned by Taikang Life Insurance Co., Ltd., which in turn is wholly owned by Taikang Insurance Group Inc. TK Autolink Inc. is indirectly controlled by Shandong State-controlled Taikang Phase I Industrial Development Fund Partnership Enterprise (Limited Partnership) (Shandong Fund). Beijing Taikang Investment Co., Ltd. is one of the two general partners of Shandong Fund. Beijing Taikang Investment Co., Ltd. is indirectly controlled by Taikang Insurance Group Inc. Each of Taikang Life Insurance Co., Ltd. and Taikang Insurance Group Inc. is an insurance company established in the PRC. The registered address of Magic Spark Inc. is Harneys Fiduciary (Cayman) Limited, 4th Floor, Harbour Place, 103 South Church Street, P.O. Box 10240, Grand Cayman, KY1-1002, Cayman Islands. The registered address of TK Autolink Inc. is 4th Floor, Harbour Place, 103 South Church Street, P.O. Box 10240, Grand Cayman, KY1 1002, Cayman Islands. |
(9) | Represents 13,075,290 ordinary shares that are held by Huaiyuan L.P., a limited partnership established in the British Virgin Islands, of which SHOUYAN Holding Limited is the general partner. All such ordinary shares will be designated into Class A ordinary shares on a one-for-one-basis upon the completion of this offering. SHOUYAN Holding Limited is a limited liability company established in the British Virgin Islands that is wholly owned by Xu Shouyan. The limited partners of Huaiyuan L.P. are Medway Brilliant and Eagle Central. Medway Brilliant and Eagle Central are further described in footnotes 3 and 5 above, respectively. The registered address of Huaiyuan L.P. is the offices of Sertus Incorporations (BVI) Limited, Sertus Chambers, P.O. Box 905, Quastisky Building, Road Town, Tortola VG1110, British Virgin Islands. |
As of the date of this prospectus, none of our outstanding ordinary shares or convertible preferred shares is held by record holders in the United States. We are not aware of any of our shareholders being affiliated with a registered broker-dealer or being in the business of underwriting securities.
We are not aware of any arrangement that may, at a subsequent date, result in a change of control of our company.
Voting Agreement
In May 2018, our co-founders Mr. Xiaojun Zhang and Mr. Jiayuan Lin entered into a voting agreement, which provides that they shall reach a consensus before exercising their voting rights with respect to our shares.
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If no consensus could be reached, the decision made by Mr. Zhang prevails, subject to certain exceptions. The voting agreement will become effective upon the completion of this offering. The voting agreement will be terminated upon the earliest of certain specified events, such as disposal of all of either partys equity interests in our company, the tenth anniversary of the date of the agreement or the entry into a termination agreement by the two parties.
Upon the completion of this offering, the co-founders will beneficially own all of 79,325,720 Class B ordinary shares issued and outstanding. In addition, Mr. Lin will beneficially own 21,283,655 Class A ordinary shares held by Xiehuai L.P. Our third amended and restated memorandum and articles of association provide that in respect of all matters subject to a shareholders vote, each Class A ordinary share will be entitled to one vote, while each Class B ordinary share will be entitled to 20 votes. The co-founders will collectively exercise % of the aggregate voting power of our issued and outstanding share capital immediately after this offering, assuming no exercise by the underwriters of options to purchase additional ADSs.
Historical Changes in Our Shareholding
See Description of Share CapitalHistory of Securities Issuances for historical changes in our shareholding.
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Transactions with Jincheng Bank
We provide automotive financing facilitation services to Jincheng Bank. For additional information as to our collaboration with Jincheng Bank, see BusinessOur Relationships with Our Platform ParticipantsFinancial Institutions. Mr. Xiaojun Zhang, our co-founder and chairman, served as a director of Jincheng Bank from July 2014 to September 2017. As a result, Jincheng Bank was a related party during such period.
The average term of financing transactions funded by Jincheng Bank on our platform was approximately 33 months in 2016 and 2017. We recognized RMB287.3 million of revenues relating to service fees for automotive financing facilitation services provided to Jincheng Bank in 2016. We recognized RMB526.4 million (US$83.9 million) of revenues relating to such service fees in the nine months ended September 30, 2017, after which Jincheng Bank was no longer a related party.
Amounts due from Jincheng Bank were RMB129.6 million as of December 31, 2016, relating to service fees for automotive financing facilitation services. Jincheng Bank was no longer a related party as of December 31, 2017, and account receivables due from Jincheng Bank were not included in amounts due from related parties as of December 31, 2017.
We held long-term investments of RMB185.8 million and RMB191.0 million (US$30.4 million) related to asset-backed securities issued by Jincheng Bank as of December 31, 2016 and 2017, respectively.
Transactions with Shanghai Autohome
We provide automotive financing facilitation services to Shanghai Autohome. We currently own 50% equity interest in Shanghai Autohome. Upon the completion of the Acquisition, Shanghai Autohome will become our wholly-owned consolidated subsidiary.
We recognized RMB32.1 million, RMB20.9 million (US$3.3 million) and RMB3.5 million (US$0.6 million) of revenues relating to service fees for automotive financing facilitation services provided to Shanghai Autohome in 2016, 2017 and March 31, 2018, respectively.
Amounts due from Shanghai Autohome were RMB9.0 million, RMB1.3 million (US$0.2 million) and RMB1.1 million (US$0.2 million) as of December 31, 2016, 2017 and March 31, 2018, respectively, relating to service fees for automotive financing facilitation services.
Amounts due to Shanghai Autohome were RMB0.5 million, RMB10.0 thousand (US$1.6 thousand) and RMB4.7 million (US$0.7 million) as of December 31, 2016, 2017 and March 31, 2018, respectively, relating to deposits paid by Shanghai Autohome.
We provided guarantees as to Shanghai Autohomes borrowings of RMB488.9 million, RMB420.0 million (US$67.0 million) and RMB547.0 million (US$87.2 million) as of December 31, 2016, 2017 and March 31, 2018, respectively.
Transactions with Other Equity Method Investees
We own 46% of equity interest in Hebei Jiahui Consultation Service Co., Ltd., or Hebei Jiahui, and we own 49% of equity interest in Liaoning Junan Automobile Consultation Service Co., Ltd., or Liaoning Junan. Hebei Jiahui and Liaoning Junan have ceased business operations, and we expect that such companies assets will be liquidated.
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Amounts due to Hebei Jiahui were RMB0.7 million, RMB1.2 million (US$0.2 million) and RMB1.2 million (US$0.2 million) as of December 31, 2016, 2017 and March 31, 2018, respectively, relating to interest-free loans to us.
Amounts due to Liaoning Junan were RMB3.3 million, RMB4.3 million (US$0.7 million) and RMB4.3 million (US$0.7 million) as of December 31, 2016, 2017 and March 31, 2018, respectively, relating to interest-free loans to us.
Contractual Arrangements with Our Consolidated VIE and Its Shareholders
PRC laws and regulations currently restrict foreign ownership and investment in VATS in China. As we plan to engage in VATS businesses, including value-added online services for platform participants, in the future, we currently conduct our operations mainly through our consolidated VIE and its subsidiaries. We effectively control the consolidated VIE through a series of contractual arrangements with the consolidated VIE, its shareholders and Can Gu Long. As a result, we operate our relevant business through contractual arrangements among Can Gu Long, our wholly-owned PRC subsidiary, Shanghai Cango, our consolidated VIE, and its shareholders. For a description of these contractual arrangements, see Our History and Corporate StructureContractual Arrangements among Can Gu Long, Shanghai Cango and Its Shareholders.
Transactions with Shareholders of Our Consolidated VIE
Mr. Jiayuan Lin, our co-founder, chief executive officer and director, and Shanghai Wangjin Investment Management Co., Ltd., or Shanghai Wangjin, which is owned by Mr. Xiaojun Zhang, our co-founder and chairman, are both shareholders of our consolidated VIE.
Mr. Jiayuan Lin and Shanghai Wangjin have borrowed from us to purchase equity interest from other shareholders of our consolidated VIE who wished to sell such equity interest. Such borrowings bore floating rates of interest, and such borrowings were fully repaid in May 2018.
Amounts due from Jiayuan Lin were RMB37.7 million, RMB79.5 million (US$12.7 million) and RMB6.3 million (US$1.0 million) as of December 31, 2016 and 2017 and March 31, 2018, respectively. We recognized interest income of RMB2.4 million and RMB3.2 million (US$0.5 million) and RMB0.8 million (US$0.1 million) relating to interest due from Mr. Jiayuan Lin in 2016, 2017 and the three months ended March 31, 2018, respectively.
Amounts due from Shanghai Wangjin were RMB31.8 million and RMB42.8 million (US$6.8 million) as of December 31, 2016 and 2017, respectively. We recognized interest income of RMB0.9 million, RMB1.9 million (US$0.3 million) and RMB0.4 million (US$0.1 million) relating to interest due from Shanghai Wangjin in 2016, 2017 and the three months ended March 31, 2018, respectively.
Strategic Cooperation with Didi Chuxing
We are in the process of establishing a strategic partnership with Didi Chuxing, a leading ride-sharing technology company. Through a series of equity investments in the first half of 2018, Didi Chuxing has become a strategic shareholder of our company and beneficially owns 43,484,992 preferred shares, representing 14.8% of our outstanding shares as of the date of this prospectus. For further information, see Principal Shareholders.
In the second quarter of 2018, we launched a pilot program in a city in China to provide a variety of solutions to Didi Chuxings fleet. Drivers in the fleet finance their car purchases through financing leases facilitated by us. We pay service fees to Didi Chuxing based on a percentage of the amount of financing leases facilitated to the relevant drivers. In addition, we facilitate the sale of insurance products
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to the drivers. We also facilitate car sales to such drivers through our dealer network. We plan to form a comprehensive partnership with Didi Chuxing under this model and provide our solutions in additional cities to capitalize on Didi Chuxings large and rapidly expanding fleet.
Transaction with an Affiliate of WP Fintech
In connection with the Acquisition, we acquired Express Group Development Limited, an acquisition vehicle affiliated with WP Fintech, which held a contractual right to purchase 25% equity interest in Shanghai Autohome as its only material asset for a nominal price of one Hong Kong dollar in May 2018. For further information with respect to the Acquisition, see Our History and Corporate StructureOur Corporate Structure.
Private Placements
See Description of Share CapitalHistory of Securities Issuances.
Shareholders Agreement
For a description of the registration rights of certain shareholders, see Description of Share CapitalRegistration Rights.
Pursuant to the shareholders agreement, we may not set up any joint venture, partnership or enter into any strategic cooperation arrangements with certain competitors of Didi Chuxing, for so long as Didi Chuxings shareholding percentage in our company is not lower than five percent.
Employment Agreements and Indemnification Agreements
See ManagementEmployment Agreements and Indemnification Agreements.
Share Incentive Plan
See ManagementShare Incentive Plan.
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We are a Cayman Islands exempted company with limited liability and our affairs are governed by our memorandum and articles of association, the Companies Law, Cap. 22 (Law 3 of 1961, as consolidated and revised), as amended, of the Cayman Islands, which is referred to as the Companies Law below, and the common law of the Cayman Islands.
As of the date of this prospectus, our authorized share capital was US$50,000 divided into (i) 330,760,095 ordinary shares of par value US$0.0001 each, (ii) 53,431,125 Series A-1 convertible preferred shares of par value US$0.0001 each, (iii) 2,179,215 Series A-2 convertible preferred shares of par value US$0.0001 each, (iv) 10,308,663 Series A-3 convertible preferred shares of par value US$0.0001 each, (v) 61,942,726 Series B convertible preferred shares of par value US$0.0001 each and (vi) 41,378,176 Series C convertible preferred shares of par value US$0.0001 each.
As of the date of this prospectus, there were 124,969,987 ordinary shares and 169,239,905 convertible preferred shares issued and outstanding.
Upon the closing of this offering, we will have Class A ordinary shares and 79,325,720 Class B ordinary shares issued and outstanding, excluding (i) Class A ordinary shares issuable upon the exercise of outstanding options under our share incentive plan and (ii) Class A ordinary shares reserved for future issuance under our share incentive plan. All of our Class A ordinary shares issued and outstanding prior to the completion of the offering are and will be fully paid, and all of our Class A ordinary shares to be issued in the offering will be issued as fully paid. Our authorized share capital post-offering will be US$50,000 divided into 500,000,000 shares of par value of US$0.0001 each, comprising (i) 420,674,280 Class A ordinary shares of par value US$0.0001 each and (ii) 79,325,720 Class B ordinary shares of par value US$0.0001 each.
Our third amended and restated memorandum and articles of association will become effective immediately prior to completion of this offering. The following are summaries of material provisions of our third amended and restated memorandum and articles of association and the Companies Law insofar as they relate to the material terms of our Class A and Class B ordinary shares.
Ordinary Shares
General
Holders of Class A ordinary shares and Class B ordinary shares have the same rights except for voting and conversion rights. All of our outstanding ordinary shares are fully paid and non-assessable. Certificates representing the ordinary shares are issued in registered form. Our shareholders who are non-residents of the Cayman Islands may freely hold and transfer their ordinary shares.
Dividends
The holders of our ordinary shares are entitled to such dividends as may be declared by our board of directors. Our third amended and restated articles of association provide that dividends may be declared and paid out of our profits, realized or unrealized, or from any reserve set aside from profits which our board of directors determine is no longer needed. Dividends may also be declared and paid out of share premium account or any other fund or account which can be authorized for this purpose in accordance with the Companies Law. Holders of Class A ordinary shares and Class B ordinary shares will be entitled to the same amount of dividends, if declared.
Voting Rights
In respect of all matters subject to a shareholders vote, each Class A ordinary share is entitled to one vote, and each Class B ordinary share is entitled to twenty votes, voting together as one class. Voting at any meeting of
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shareholders is by show of hands unless a poll is demanded. A poll may be demanded by the chairman of such meeting or any one or more shareholders who together hold not less than 10% of the nominal value of the total issued voting shares of our company present in person or by proxy. An ordinary resolution to be passed at a meeting by the shareholders requires the affirmative vote of a simple majority of the votes attaching to the ordinary shares cast at a meeting, while a special resolution requires the affirmative vote of not less than two-thirds of the votes cast attaching to the outstanding ordinary shares at a meeting. A special resolution will be required for important matters such as a change of name or making changes to our third amended and restated memorandum and articles of association.
Conversion
Each Class B ordinary share is convertible into one Class A ordinary share at any time at the option of the holder thereof. Class A ordinary shares are not convertible into Class B ordinary shares under any circumstances. Upon any transfer of Class B ordinary shares by a holder to any person or entity which is not an affiliate of such holder, such Class B ordinary shares shall be automatically and immediately converted into the equivalent number of Class A ordinary shares.
Transfer of Ordinary Shares
Subject to the restrictions contained in our third amended and restated articles of association, any of our shareholders may transfer all or any of his or her ordinary shares by an instrument of transfer in the usual or common form or any other form approved by our board of directors.
Our board of directors may, in its absolute discretion, decline to register any transfer of any ordinary share which is not fully paid up, or which is issued under any share incentive scheme for employees upon which a restriction on transfer imposed thereby still subsists, or on which we have a lien. Our board of directors may also decline to register any transfer of any ordinary share unless:
| the instrument of transfer is lodged with us, accompanied by the certificate for the ordinary shares to which it relates and such other evidence as our board of directors may reasonably require to show the right of the transferor to make the transfer; |
| the instrument of transfer is in respect of only one class of ordinary shares; |
| the instrument of transfer is properly stamped, if required; |
| in the case of a transfer to joint holders, the number of joint holders to whom the ordinary share is to be transferred does not exceed four; and |
| a fee of such maximum sum as the NYSE may determine to be payable or such lesser sum as our directors may from time to time require is paid to us in respect thereof. |
If our directors refuse to register a transfer, they shall, within three months after the date on which the instrument of transfer was lodged, send to each of the transferor and the transferee notice of such refusal.
The registration of transfers may, after compliance with any notice required of the NYSE, be suspended and the register of members closed at such times and for such periods as our board of directors may from time to time determine, provided, however, that the registration of transfers shall not be suspended nor the register of members closed for more than 30 days in any year as our board may determine.
Liquidation
On a return of capital on winding up or otherwise (other than on conversion, redemption or purchase of ordinary shares), assets available for distribution among the holders of ordinary shares shall be distributed among
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the holders of the ordinary shares on a pro rata basis. If our assets available for distribution are insufficient to repay all of the paid-up capital, the assets will be distributed so that the losses are borne by our shareholders proportionately.
Calls on Ordinary Shares and Forfeiture of Ordinary Shares
Our board of directors may from time to time make calls upon shareholders for any amounts unpaid on their ordinary shares in a notice served to such shareholders at least 14 clear days prior to the specified time of payment. The ordinary shares that have been called upon and remain unpaid are subject to forfeiture.
Repurchase and Redemption of Ordinary Shares
The Companies Law and our third amended and restated articles of association permit us to purchase our own shares. In accordance with our third amended and restated articles of association and provided the necessary shareholders or board approval have been obtained, we may issue shares on terms that are subject to redemption, at our option or at the option of the holders of these shares, on such terms and in such manner, including out of capital, as may be determined by our board of directors.
Variations of Rights of Shares
All or any of the special rights attached to any class of shares may, subject to the provisions of the Companies Law, be varied with the sanction of a special resolution passed at a general meeting of the holders of the shares of that class. The rights conferred upon the holders of the shares of any class issued shall not, unless otherwise expressly provided by the terms of issue of the shares of that class, be deemed to be varied by the creation or issue of further shares ranking pari passu with such existing class of shares.
General Meetings of Shareholders
Shareholders meetings may be convened by a majority of our board of directors or our chairman. Advance notice of not less than ten clear days is required for the convening of our annual general shareholders meeting and any other general meeting of our shareholders. A quorum required for and throughout a meeting of shareholders consists of at least one shareholder entitled to vote and present in person or by proxy or (in the case of a shareholder being a corporation) by its duly authorised representative representing not less than one-third of all voting power of our share capital in issue.
Inspection of Books and Records
Holders of our ordinary shares will have no general right under Cayman Islands law to inspect or obtain copies of our list of shareholders or our corporate records. However we will in our articles provide our shareholders with the right to inspect our list of shareholders and to receive annual audited financial statements. See Where You Can Find More Information.
Changes in Capital
We may from time to time by ordinary resolution:
| increase the share capital by such sum, to be divided into shares of such classes and amount, as the resolution shall prescribe; |
| 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 |
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| 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 canceled. |
However, no alteration contemplated above, or otherwise, may be made to the par value of the Class A ordinary shares or Class B ordinary shares unless an identical alteration is made to the par value of the Class B ordinary shares and Class A ordinary shares, as the case may be.
We may by special resolution, subject to any confirmation or consent required by the Companies Law, reduce our share capital or any capital redemption reserve in any manner permitted by law.
Exempted Company
We are an exempted company with limited liability incorporated under the Companies Law. The Companies Law in the Cayman Islands 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:
| an exempted company does not have to file an annual return of its shareholders with the Registrar of Companies; |
| an exempted companys 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 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 the shares of the company. Upon the closing of this offering, we will be subject to reporting and other informational requirements of the Exchange Act, as applicable to foreign private issuers. We currently intend to comply with the NYSE rules in lieu of following home country practice after the closing of this offering. The NYSE rules require that every company listed on the NYSE hold an annual general meeting of shareholders. In addition, our third amended and restated articles of association allow our directors to call special meetings of shareholders pursuant to the procedures set forth in our articles.
Differences in Corporate Law
The Companies Law is modeled after that of England and Wales but does not follow recent statutory enactments in England. In addition, the Companies Law differs from laws applicable to United States corporations and their shareholders. Set forth below is a summary of the significant differences between the provisions of the Companies Law applicable to us and the laws applicable to companies incorporated in the State of Delaware.
Mergers and Similar Arrangements
A merger of two or more constituent companies under Cayman Islands law requires a plan of merger or consolidation to be approved by the directors of each constituent company and authorization by a special resolution of the members of each constituent company.
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A merger between a Cayman parent company and its Cayman subsidiary or subsidiaries does not require authorization by a resolution of shareholders. For this purpose a subsidiary is a company of which at least ninety percent (90%) of the issued shares entitled to vote are owned by the parent company.
The consent of each holder of a fixed or floating security interest over a constituent company is required unless this requirement is waived by a court in the Cayman Islands.
Save in certain circumstances, a dissentient shareholder of a Cayman constituent company is entitled to payment of the fair value of his shares upon dissenting to a merger or consolidation. The exercise of appraisal rights will preclude the exercise of any other rights save for the right to seek relief on the grounds that the merger or consolidation is void or unlawful.
In addition, there are statutory provisions that facilitate the reconstruction and amalgamation of companies, provided that the arrangement is approved by a majority in number of each class of shareholders and creditors with whom the arrangement is to be made, and who must, in addition, represent seventy-five per cent in value of each such class of shareholders or creditors, as the case may be, that are present and voting either in person or by proxy at a meeting, or meetings, convened for that purpose. The convening of the meetings and subsequently the arrangement must be sanctioned by the Grand Court of the Cayman Islands. While a dissenting shareholder has the right to express to the court the view that the transaction ought not to be approved, the court can be expected to approve the arrangement if it determines that:
| the 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 Companies Law. |
When a takeover offer is made and accepted by holders of 90% of the shares within four months, the offeror may, within a two-month 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, the dissenting shareholder would have no rights comparable to appraisal rights, which would otherwise ordinarily be available to dissenting shareholders of Delaware corporations, providing rights to receive payment in cash for the judicially determined value of the shares.
Shareholders Suits
In principle, we will normally be the proper plaintiff and as a general rule a derivative action may not be brought by a minority shareholder. However, based on English authorities, which would in all likelihood be of persuasive authority in the Cayman Islands, there are exceptions to the foregoing principle, including when:
| a company acts or proposes to act illegally or ultra vires; |
| the act complained of, although not ultra vires, could only be effected duly if authorized by more than a simple majority vote that has not been obtained; and |
| those who control the company are perpetrating a fraud on the minority. |
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All the agreements under our contractual arrangements as to our consolidated VIE provide for the resolution of disputes through arbitration in China. In addition, the depositary may, in its sole discretion, require that any dispute or difference arising from the relationship created by the deposit agreement be referred to and finally settled by an arbitration conducted under the terms described in the deposit agreement. These arbitration provisions have no effect on the rights of our shareholders to pursue claims against us in the United States under United States federal securities laws.
Indemnification of Directors and Executive Officers and Limitation of Liability
Cayman Islands law does not limit the extent to which a companys 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 third amended and restated memorandum and articles of association permit indemnification of officers and directors for losses, damages, costs, charges, actions and expenses incurred in their capacities as such unless such losses or damages arise from dishonesty or fraud which may attach to such directors or officers. This standard of conduct is generally the same as permitted under the Delaware General Corporation Law for a Delaware corporation. In addition, we intend to enter into indemnification agreements with our directors and senior executive officers that will provide such persons with additional indemnification beyond that provided in our third amended and restated memorandum and articles of association.
Insofar as indemnification for liabilities arising under the Securities Act may be permitted to our directors, officers or persons controlling us under the foregoing provisions, we have been informed that, in the opinion of the SEC, such indemnification is against public policy as expressed in the Securities Act and is therefore unenforceable.
Anti-Takeover Provisions in the Memorandum and Articles of Association
Some provisions of our third amended and restated memorandum and articles of association may discourage, delay or prevent a change in control of our company or management that shareholders may consider favorable, including provisions that authorize 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 third amended and restated memorandum and articles of association, as amended and restated from time to time, for 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 interest of the corporation and its shareholders take precedence over any interest possessed by a director, officer or controlling shareholder and not shared by the shareholders generally. In general, actions of a director are presumed to have been made on an informed basis, in good faith and in the honest belief that the action taken was in the best interests of the corporation. However, this presumption may be rebutted by evidence of a breach of one of the fiduciary duties. Should such evidence be presented concerning a
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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 Islands law, a director of a Cayman Islands company is in the position of a fiduciary with respect to the company and therefore it is considered that he owes the following duties to the companya 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) and 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. A director of a Cayman Islands company owes to the company a duty to act with skill and care. It was previously considered that a director need not exhibit in the performance of his or her duties a greater degree of skill than may reasonably be expected from a person of his or her knowledge and experience. However, English and Commonwealth courts have moved towards an objective standard with regard to the required skill and care and these authorities are likely to be followed in the Cayman Islands.
Shareholder Action by Written Consent
Under the Delaware General Corporation Law, a corporation may eliminate the right of shareholders to act by written consent by amendment to its certificate of incorporation. Our third amended and restated articles of association provide that shareholders may not approve corporate matters by way of unanimous written resolution signed by or on behalf of each shareholder who would have been entitled to vote on such matter at a general meeting without a meeting being held.
Shareholder Proposals
Under the Delaware General Corporation Law, a shareholder has the right to put any proposal before the annual meeting of shareholders, provided it complies with the notice provisions in the governing documents. A special meeting may be called by the board of directors or any other person authorized to do so in the governing documents, but shareholders may be precluded from calling special meetings.
Neither Cayman Islands law nor our third amended and restated articles of association allow our shareholders to requisition a shareholders meeting. As an exempted Cayman Islands company, we are not obliged by law to call shareholders annual general meetings.
Cumulative Voting
Under the Delaware General Corporation Law, cumulative voting for elections of directors is not permitted unless the corporations 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 shareholders voting power with respect to electing such director. As permitted under Cayman Islands law, our third amended and restated articles of association do not provide for cumulative voting. As a result, our shareholders are not afforded any less protections or rights on this issue than shareholders of a Delaware corporation.
Removal of Directors
Under the Delaware General Corporation Law, a director of a corporation with a classified board may be removed only for cause with the approval of a majority of the outstanding shares entitled to vote, unless the certificate of incorporation provides otherwise. Under our third amended and restated articles of association, directors may be removed by an ordinary resolution of shareholders.
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Transactions with Interested Shareholders
The Delaware General Corporation Law contains a business combination statute applicable to Delaware corporations whereby, unless the corporation has specifically elected not to be governed by such statute by amendment to its certificate of incorporation, it is prohibited from engaging in certain business combinations with an interested shareholder for three years following the date that such person becomes an interested shareholder. An interested shareholder generally is a person or a group who or which owns or owned 15% or more of the targets 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 targets board of directors.
Cayman Islands law has no comparable statute. As a result, we cannot avail ourselves of the types of protections afforded by the Delaware business combination statute. However, although Cayman Islands law does not regulate transactions between a company and its significant shareholders, it does provide that such transactions must be entered into bona fide in the best interests of the company 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 corporations outstanding shares. Delaware law allows a Delaware corporation to include in its certificate of incorporation a supermajority voting requirement in connection with dissolutions initiated by the board. Under Cayman Islands law, a company may be wound up by either an order of the courts of the Cayman Islands or by a special resolution of its members or, if the company is unable to pay its debts as they fall due, by an ordinary resolution of its members. The court has authority to order winding up in a number of specified circumstances including where it is, in the opinion of the court, just and equitable to do so.
Under the Companies Law and our third amended and restated articles of association, our company may be dissolved, liquidated or wound up by a majority of not less than two thirds of votes cast by members attending and voting at a meeting.
Variation of Rights of Shares
Under the Delaware General Corporation Law, a corporation may vary the rights of a class of shares with the approval of a majority of the outstanding shares of such class, unless the certificate of incorporation provides otherwise. Under Cayman Islands law and our third amended and restated articles of association, if our share capital is divided into more than one class of shares, we may vary the rights attached to any class only with the sanction of a special resolution passed at a general meeting of the holders of the shares of that class.
Amendment of Governing Documents
Under the Delaware General Corporation Law, a corporations governing documents may be amended with the approval of a majority of the outstanding shares entitled to vote, unless the certificate of incorporation provides otherwise. As permitted by Cayman Islands law, our third amended and restated memorandum and articles of association may only be amended by a special resolution of shareholders.
Rights of Non-Resident or Foreign Shareholders
There are no limitations imposed by our third amended and restated memorandum and articles of association on the rights of non-resident or foreign shareholders to hold or exercise voting rights on our shares. In
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addition, there are no provisions in our third amended and restated memorandum and articles of association governing the ownership threshold above which shareholder ownership must be disclosed.
Directors Power to Issue Shares
Subject to applicable law, our board of directors is empowered to issue or allot shares or grant options and warrants with or without preferred, deferred, qualified or other special rights or restrictions.
History of Securities Issuances
The following is a summary of our securities issuances since January 2015. None of transactions set forth below involved any underwriters underwriting discounts or commissions, or any public offering. We believe that each of the following transactions was exempt from registration under the Securities Act in reliance on Regulation S or Rule 701 under the Securities Act or pursuant to Section 4(2) of the Securities Act regarding transactions not involving a public offering.
Subscription of Registered Capital of Shanghai Cango
In May 2017, Warburg Pincus Financial Global Ltd. subscribed for RMB37.3 million of Shanghai Cangos registered capital for consideration of RMB500.0 million. In July 2017, an investor subscribed for RMB9.5 million of Shanghai Cangos registered capital for consideration of RMB200.0 million.
In December 2017, the Taikang Onshore Entities (including Taikang Life Insurance Co., Ltd. and Shandong State-controlled Taikang Phase I Industrial Development Fund Partnership Enterprise (Limited Partnership)) subscribed for RMB14.6 million of Shanghai Cangos registered capital for consideration of RMB500.0 million.
In January 2018, five investors, including Tencent Mobility Limited, subscribed for RMB38.0 million of Shanghai Cangos registered capital for consideration of RMB1.3 billion.
Securities Issuances by Us
In the fourth quarter of 2017, we issued 120,126,900 of our ordinary shares to five investors, including Medway Brilliant Holding Limited, Eagle Central Holding Limited, Xiehuai L.P. and Huaiyuan L.P., for consideration of US$12,013. In March 2018, we issued 4,843,087 of our ordinary shares to four investors, including Eagle Central Holding Limited, Xiehuai L.P. and Huaiyuan L.P., for consideration of US$484.
In March 2018, we issued 53,431,125 of our Series A-1 preferred shares to Warburg Pincus Cango Fintech Investment Company Limited for consideration of US$5,343, 2,179,215 of our Series A-2 preferred shares to an investor for consideration of US$218 and 10,308,663 of our Series A-3 preferred shares to an investor for consideration of US$1,031.
In March 2018, we issued 61,942,726 of our Series B preferred shares to nine investors, including Tencent Mobility Limited, for consideration of US$6,194.
In June 2018, we issued 38,744,512 of our Series C preferred shares to DiDi Sunshine Investments L.P. and 2,633,664 of our Series C preferred shares to another investor. The aggregate consideration for the issuance of Series C preferred shares is US$245.6 million, or US$5.9363 per share.
Non-Compete
Pursuant to the shareholders agreement entered into in June 2018, for so long as Mr. Xiaojun Zhang, Mr. Jiayuan Lin, or any of the three British Virgin Islands limited partnerships, Huaiyuan L.P., Minghuai L.P.,
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and Xiehuai L.P., hold an equity interest in our company and until the later of (i) two years after Mr. Zhang, Mr. Lin and the three British Virgin Islands limited partnerships cease to be a shareholder, director or employee, as applicable, of us or certain of our subsidiaries and (ii) the consummation of a qualified initial public offering, each of Mr. Zhang, Mr. Lin and their respective wholly-owned holding companies shall not, and shall cause, among others, certain of their family members, our senior management, certain of our directors, and the key employees of our subsidiaries not to, directly or indirectly, (a) own, manage, engage in, operate, control, work for, consult with, render services for, do business with, provide financial assistance to maintain any interest in, or participate in the ownership, management, operation or control of, any business that is related to or otherwise competes with the business operations of us and our subsidiaries, (b) solicit any customer or potential customer of us or our subsidiaries for the purpose of offering to such customer goods or services similar to or competing with those offered by us and our subsidiaries, or canvass or solicit any past or potential supplier, agent, licensor, customer of us or our subsidiaries for the purpose of inducing any such person to terminate or to avoid from maintaining or entering into a business relationship with us or our subsidiaries, (c) solicit or entice away any director, officer, consultant or employee of us or our subsidiaries, or endeavor to do so, (d) execute any agreement, make any covenant or take any other arrangement that restrains or prejudices the conduct of then current business by us or our subsidiaries, or is likely to do so.
Registration Rights
Pursuant to our shareholders agreement, we have granted certain registration rights to holders of our registrable securities. Set forth below is a description of the registration rights under this agreement.
Demand Registration Rights
At any time or from time to time after the date that is six (6) months after the closing of this offering, holders of twenty percent (20%) or more of the voting power of the registrable securities then outstanding have the right to demand that we effect a registration under the Securities Act covering the registration of all or part of their registrable securities, so long as the anticipated aggregate offering price net of underwriting discounts and commissions of the securities to be sold under the registration statement exceeds US$10,000,000. We, however, are not obligated to effect a demand registration if we have already effected two demand registrations, unless less than all of the registrable securities sought to be included in the demand registration were sold.
Form F-3/S-3 Demand Registration Rights
When eligible for use of form F-3/S-3, holders of ten percent (10%) or more of the voting power of the registrable securities then outstanding have the right to demand that we file a registration statement on Form F-3/S-3 (or any comparable form for registration in a jurisdiction other than the U.S.). Registration pursuant to Form F-3/S-3 registration rights is deemed to be a demand registration, and there is no limit on the number of times the holders may exercise their Form F-3/S-3 registration rights. We, however, are not obligated to effect a registration on Form F-3/S-3 if, among other things, we have already effected two such registrations within any twelve-month period preceding the date of the registration request, unless less than all of the registrable securities sought to be included in the Form F-3/S-3 registration were sold due to marketing factors requiring limitation of the number of registrable securities to be underwritten upon the advice of the managing underwriter, or for any reason other than solely due to the action or inaction of their holder.
Piggyback Registration Rights
If we propose to file a registration statement in connection with a public offering of securities of our company other than relating to an employee share option plan, corporate reorganization or transaction under Rule 145 of the Securities Act, or on any form that does not include substantially the same information as would be required to be included in a registration statement covering the sale of the registrable securities and does not permit secondary sales, then we must offer each holder of the registrable securities the opportunity to include
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their shares in the registration statement. Registration pursuant to piggyback registration rights is not deemed to be a demand registration, and there is no limit on the number of times the holders may exercise their piggyback registration rights.
Expenses of Registration
We will pay all expenses, including the underwriting discounts and selling commissions applicable to the sale of the registrable securities, as well as all registration, filing and qualification fees, printers and accounting fees, fees and disbursements of counsel for our company and fees and disbursement of one counsel for all selling holders, incurred in connection with any piggyback registration or demand registration, whether or not on Form F-3/S-3. We will not, however, be required to pay for any expenses of any registration proceeding begun pursuant to demand registration rights, whether or not on Form F-3/S-3, if the registration request is subsequently withdrawn by the holders of no less than a majority of the voting power of the registrable securities requested to be registered, subject to certain exceptions.
Termination of Registration Rights
The registration rights discussed above shall terminate on the earlier of (i) the date that is three (3) years from the date of closing of a qualified initial public offering, and (ii) with respect to any holder, the date on which such holder may sell all of its registrable securities under Rule 144 of the Securities Act in any ninety (90)-day period.
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DESCRIPTION OF AMERICAN DEPOSITARY SHARES
Citibank, N.A. has agreed to act as the depositary bank for the American Depositary Shares. Citibanks depositary offices are located at 388 Greenwich Street, New York, New York 10013. American Depositary Shares are frequently referred to as ADSs and represent ownership interests in securities that are on deposit with the depositary bank. ADSs may be represented by certificates that are commonly known as American Depositary Receipts or ADRs. 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 will appoint Citibank as depositary bank pursuant to a deposit agreement. A copy of the deposit agreement will be 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 SECs Public Reference Room at 100 F Street, N.E., Washington, D.C. 20549 and from the SECs website (www.sec.gov).
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, Class A ordinary shares that are 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 will 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 will under the terms of the deposit agreement be vested in the beneficial owners of the ADSs. The depositary bank, the custodian and their respective nominees will be 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 will be 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 will 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
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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 will not treat you as one of our shareholders and you will not have direct shareholder rights. The depositary bank will hold on your behalf the shareholder rights attached to the Class A ordinary shares underlying your ADSs. As an owner of ADSs you will be 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 will, as an ADS owner, need to arrange for the cancelation 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 banks 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 will be 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
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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 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 shares 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 shares 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:
| We do not timely request that the rights be distributed to you or we request that the rights not be distributed to you; or |
| We fail to deliver satisfactory documents to the depositary bank; or |
| It is not reasonably practicable to distribute the rights. |
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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:
| We do not request that the property be distributed to you or if we request that the property not be distributed to you; or |
| We do not deliver satisfactory documents to the depositary bank; or |
| 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.
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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, cancelation, 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 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
Upon completion of this offering, the Class A ordinary shares being offered pursuant to this prospectus will be deposited by us with the custodian. Upon receipt of confirmation of such deposit, the depositary bank will issue ADSs to the underwriters named in this prospectus.
After the closing of this offering, 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. |
| All preemptive (and similar) rights, if any, with respect to such Class A ordinary shares have been validly waived or exercised. |
| You are duly authorized to deposit the Class A ordinary shares. |
| 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. |
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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:
| 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 Cancelation of ADSs
As a holder, you will be entitled to present your ADSs to the depositary bank for cancelation and then receive the corresponding number of underlying Class A ordinary shares at the custodians 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 law 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 cancelation 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 cancelation 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:
| 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. |
| Obligations to pay fees, taxes and similar charges. |
| 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.
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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 in Description of Share Capital.
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.
Voting at our shareholders meetings is by show of hands unless a poll is demanded. 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 holders ADSs in accordance with such voting instructions.
Securities for which no voting instructions have been received will not be voted (except as otherwise contemplated in the deposit agreement). 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:
Service |
Fees |
|
Issuance of ADSs (e.g., an issuance of ADS upon a deposit of 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) |
Up to U.S. 5¢ per ADS issued | |
Cancelation of ADSs (e.g., a cancelation 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 canceled | |
Distribution of cash dividends or other cash distributions (e.g., upon a sale of rights and other entitlements) |
Up to U.S. 5¢ per ADS held | |
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 additional ADSs (e.g., upon a spin-off) |
Up to U.S. 5¢ per ADS held | |
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:
| taxes (including applicable interest and penalties) and other governmental charges; |
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| 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 for (i) the issuance of ADSs, and (ii) the cancelation of ADSs are charged to the person for whom the ADSs are issued (in the case of ADS issuances) and to the person for whom ADSs are canceled (in the case of ADS cancelations). In the case of ADSs issued by the depositary bank into DTC, the ADS issuance and cancelation 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 canceled, 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 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.
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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 cancelation 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, cancelation, 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 banks obligations to you. Please note the following:
| We and the depositary bank are obligated only to take the actions specifically stated in the deposit agreement without negligence or 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. |
| We and the depositary bank will not be obligated to perform any act that is inconsistent with the terms of the deposit agreement. |
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| 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 memorandum and 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. |
| 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 memorandum and articles of association or in any provisions of or governing the securities on deposit. |
| 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. |
| 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. |
| 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. |
| We and the depositary bank also disclaim liability for any consequential or punitive damages for any breach of the terms of the deposit agreement. |
| No disclaimer of any Securities Act liability is intended by any provision of the deposit agreement. |
| 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. |
| 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 cancelation. 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.
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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:
| 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. |
| Distribute the foreign currency to holders for whom the distribution is lawful and practical. |
| Hold the foreign currency (without liability for interest) for the applicable holders. |
Governing Law/Waiver of Jury Trial
The deposit agreement and the ADRs will be 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) is governed by the laws of the Cayman Islands.
AS A PARTY TO THE DEPOSIT AGREEMENT, YOU IRREVOCABLY WAIVE YOUR RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDING ARISING OUT OF THE DEPOSIT AGREEMENT OR THE ADRs AGAINST US AND/OR THE DEPOSITARY BANK.
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SHARES ELIGIBLE FOR FUTURE SALE
Upon closing of this offering, we will have ADSs outstanding representing approximately % of our ordinary shares (or ADS outstanding representing approximately % of our ordinary shares if the underwriters exercise in full the over-allotment option). In addition, options to purchase an aggregate of approximately 5,569,105 ordinary shares will be outstanding as of the closing of this offering.
All of the ADSs sold in this offering and the Class A ordinary shares they represent will be freely transferable by persons other than our affiliates without restriction or further registration under the Securities Act. Rule 144 of the Securities Act defines an affiliate of a company as a person that, directly or indirectly, through one or more intermediaries, controls or is controlled by, or is under common control with, our company. All outstanding ordinary shares prior to this offering are restricted securities as that term is defined in Rule 144 because they were issued in a transaction or series of transactions not involving a public offering. Restricted securities, in the form of ADSs or otherwise, may be sold only if they are the subject of an effective registration statement under the Securities Act or if they are sold pursuant to an exemption from the registration requirement of the Securities Act such as those provided for in Rules 144 or 701 promulgated under the Securities Act, which rules are summarized below. Restricted ordinary shares may also be sold outside of the United States to non-U.S. persons in accordance with Rule 904 of Regulation S under the Act. This prospectus may not be used in connection with any resale of our ADSs acquired in this offering by our affiliates.
Pursuant to Rule 144, ordinary shares will be eligible for sale at various times after the date of this prospectus, subject to the lock-up agreements.
Sales of substantial amounts of our ADSs in the public market could adversely affect prevailing market prices of our ADSs. Prior to this offering, there has been no public market for our Class A ordinary shares or ADSs, and while our application has been made to list our ADSs on the NYSE, we cannot assure you that a regular trading market will develop in the ADSs. We do not expect that a trading market will develop for our ordinary shares not represented by ADSs.
Lock-up Agreements
[We, our directors, executive officers and our existing shareholders] have agreed, subject to some exceptions, not to sell, transfer or dispose of, directly or indirectly, any of our ordinary shares, in the form of ADSs or otherwise, or any securities convertible into or exchangeable or exercisable for our ordinary shares, in the form of ADSs or otherwise, for a period of 180 days after the date this prospectus becomes effective. After the expiration of the 180-day period, the ordinary shares or ADSs held by our directors, executive officers or existing shareholders may be sold subject to the restrictions under Rule 144 under the Securities Act or by means of registered public offerings.
Rule 144
In general, under Rule 144 as currently in effect, a person who has beneficially owned our restricted securities for at least six months is entitled to sell the restricted securities without registration under the Securities Act, subject to certain restrictions. Persons who are our affiliates (including persons beneficially owning 10% or more of our outstanding shares) may sell within any three-month period a number of restricted securities that does not exceed the greater of the following:
| 1% of the number of our ordinary shares then outstanding, in the form of ADSs or otherwise, which will equal approximately ordinary shares immediately after this offering; and |
| the average weekly trading volume of our ADSs on the NYSE during the four calendar weeks preceding the date on which notice of the sale is filed with the SEC. |
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Such sales are also subject to manner-of-sale provisions, notice requirements and the availability of current public information about us. The manner-of-sale provisions require the securities to be sold either in brokers transactions as such term is defined under the Securities Act, through transactions directly with a market maker as such term is defined under the Exchange Act or through a riskless principal transaction as described in Rule 144. In addition, the manner-of-sale provisions require the person selling the securities not to solicit or arrange for the solicitation of orders to buy the securities in anticipation of or in connection with such transaction or make any payment in connection with the offer or sale of the securities to any person other than the broker or dealer who executes the order to sell the securities. If the amount of securities to be sold in reliance upon Rule 144 during any period of three months exceeds 5,000 shares or other units or has an aggregate sale price in excess of US$50,000, three copies of a notice on Form 144 should be filed with the SEC. If such securities are admitted to trading on any national securities exchange, one copy of such notice also must be transmitted to the principal exchange on which such securities are admitted. The Form 144 should be signed by the person for whose account the securities are to be sold and should be transmitted for filing concurrently with either the placing with a broker of an order to execute a sale of securities or the execution directly with a market maker of such a sale.
Persons who are not our affiliates and have beneficially owned our restricted securities for more than six months but not more than one year may sell the restricted securities without registration under the Securities Act subject to the availability of current public information about us. Persons who are not our affiliates and have beneficially owned our restricted securities for more than one year may freely sell the restricted securities without registration under the Securities Act.
Rule 701
Beginning 90 days after the date of this prospectus, persons other than affiliates who purchased ordinary shares under a written compensatory plan or contract may be entitled to sell such shares in the United States in reliance on Rule 701 under the Securities Act, or Rule 701. Rule 701 permits affiliates to sell their Rule 701 shares under Rule 144 without complying with the holding period requirements of Rule 144. Rule 701 further provides that non-affiliates may sell these shares in reliance on Rule 144 subject only to its manner-of-sale requirements. However, the Rule 701 shares would remain subject to lock-up arrangements and would only become eligible for sale when the lock-up period expires.
Registration Rights
Upon closing of this offering, the holders of 169,239,905 of our Class A ordinary shares or their transferees (or the holders of our ordinary shares or their transferees if the underwriters exercise in full the over-allotment option) will be entitled to request that we register their ordinary shares under the Securities Act, following the expiration of the lock-up agreements described above. See Description of Share CapitalRegistration Rights.
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The following is a general summary of certain Cayman Islands, Peoples Republic of China and United States federal income tax consequences relevant to an investment in our ADSs and Class A ordinary shares. To the extent that the discussion below relates to matters of Cayman Islands tax law, it is the opinion of Conyers Dill & Pearman, our Cayman Islands counsel. To the extent that the discussion below relates to matters of PRC tax law, it is the opinion of Fangda Partners, our PRC counsel. To the extent that the discussion below relates to matters of United States federal income tax law, it is the opinion of Simpson Thacher & Bartlett LLP, our United States counsel. The discussion is not intended to be, nor should it be construed as, legal or tax advice to any particular prospective purchaser. The discussion is based on laws and relevant interpretations thereof in effect as of the date of this prospectus, all of which are subject to change or different interpretations, possibly with retroactive effect. The discussion does not address U.S. state or local tax laws, or tax laws of jurisdictions other than the Cayman Islands, the Peoples Republic of China and the United States. You should consult your own tax advisors with respect to the consequences of acquisition, ownership and disposition of our ADSs and Class A ordinary shares.
Cayman Islands Taxation
The Cayman Islands currently levies no taxes on individuals or corporations based upon profits, income, gains or appreciations and there is no taxation in the nature of inheritance tax or estate duty or withholding tax applicable to us or to any holder of our ADSs and Class A ordinary shares. 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. No stamp duty is payable in the Cayman Islands on transfers of shares of Cayman Islands companies except those which hold interests in land in the Cayman Islands. The Cayman Islands is a party to a double tax treaty entered with the United Kingdom in 2010 but is otherwise not party to any double tax treaties. There are no exchange control regulations or currency restrictions in the Cayman Islands.
Peoples Republic of China Taxation
In March 2007, the National Peoples Congress of China enacted the Enterprise Income Tax Law, which became effective on January 1, 2008. 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 PRC resident enterprises and therefore subject to PRC enterprise income tax at the rate of 25% on their 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. While we do not consider our company or any of our overseas subsidiaries to be a PRC resident enterprise, there is a risk that the PRC tax authorities may deem our company or any of our overseas subsidiaries as a PRC resident enterprise since a substantial majority of the members of our management team as well as the management team of some of our overseas subsidiaries are located in China, in which case we or the overseas subsidiaries, as the case may be, would be subject to the PRC enterprise income tax at the rate of 25% on worldwide income. If the PRC tax authorities determine that our Cayman Islands holding company is a resident enterprise for PRC enterprise income tax purposes, a 10% withholding tax would be imposed on dividends we pay to our non-PRC enterprise shareholders and a 10% tax would be imposed with respect to gains derived by our non-PRC enterprise shareholders from transferring our shares or ADSs. Furthermore, dividends paid 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 rate of 20% (which in the case of dividends may be withheld at source). Any PRC tax liability may be reduced by an applicable tax treaty. However, it is unclear whether, if we are considered a PRC resident enterprise, holders of our shares or ADSs would be able to claim the benefit of income tax treaties or agreements entered into between China and other countries or areas.
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Certain United States Federal Income Tax Considerations
The following discussion describes certain United States federal income tax consequences of the purchase, ownership and disposition of our ADSs and Class A ordinary shares as of the date hereof. This discussion deals only with ADSs and Class A ordinary shares that are held as capital assets by a United States Holder (as defined below).
As used herein, the term United States Holder means a beneficial owner of our ADSs or Class A ordinary shares that is, for United States federal income tax purposes, any of the following:
| an individual citizen or resident of the United States; |
| a corporation (or other entity treated as a corporation for United States federal income tax purposes) created or organized in or under the laws of the United States, any state thereof or the District of Columbia; |
| an estate the income of which is subject to United States federal income taxation regardless of its source; or |
| a trust if it (1) is subject to the primary supervision of a court within the United States and one or more United States persons have the authority to control all substantial decisions of the trust or (2) has a valid election in effect under applicable United States Treasury regulations to be treated as a United States person. |
This discussion is based upon provisions of the Internal Revenue Code of 1986, as amended (the Code), and regulations, rulings and judicial decisions thereunder as of the date hereof. Those authorities may be changed, perhaps retroactively, so as to result in United States federal income tax consequences different from those summarized below. In addition, this discussion 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 discussion does not represent a detailed description of the United States federal income tax consequences applicable to you if you are subject to special treatment under the United States federal income tax laws, including if you are:
| a dealer in securities or currencies; |
| a financial institution; |
| a regulated investment company; |
| a real estate investment trust; |
| an insurance company; |
| a tax-exempt organization; |
| a person holding our ADSs or Class A 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 owns or is deemed to own 10% or more of our stock by vote or value; |
| a partnership or other pass-through entity for United States federal income tax purposes; or |
| a person whose functional currency is not the United States dollar. |
If a partnership (or other entity treated as a partnership for United States federal income tax purposes) holds our ADSs or Class A 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 Class A ordinary shares, you should consult your tax advisors.
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This discussion does not contain a detailed description of all the United States 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-United States tax laws. If you are considering the purchase of our ADSs or Class A ordinary shares, you should consult your own tax advisors concerning the particular United States federal income tax consequences to you of the purchase, ownership and disposition of our ADSs or Class A ordinary shares, as well as the consequences to you arising under other United States federal tax laws and the laws of any other taxing jurisdiction.
ADSs
If you hold ADSs, for United States federal income tax purposes, you generally will be treated as the owner of the underlying Class A ordinary shares that are represented by such ADSs. Accordingly, deposits or withdrawals of Class A ordinary shares for ADSs will not be subject to United States federal income tax.
Taxation of Dividends
Subject to the discussion under Passive Foreign Investment Company below, the gross amount of distributions on the ADSs or Class A ordinary shares (including any amounts withheld to reflect PRC withholding taxes, as discussed above under Peoples Republic of China Taxation) will be taxable as dividends to the extent paid out of our current or accumulated earnings and profits, as determined under United States federal income tax principles. To the extent that the amount of any distribution exceeds our current and accumulated earnings and profits for a taxable year, the distribution will first be treated as a tax-free return of capital, causing a reduction in the tax basis of the ADSs or Class A ordinary shares, and to the extent the amount of the distribution exceeds your tax basis, the excess will be taxed as capital gain recognized on a sale or exchange. We do not, however, expect to determine earnings and profits in accordance with United States federal income tax principles. Therefore, you should expect that a distribution will generally be treated as a dividend.
Any dividends that you receive (including any 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 Class A 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 United States investors, 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 shares (or ADSs backed by such shares) that are readily tradable on an established securities market in the United States. United States Treasury Department guidance indicates that our ADSs (which we will apply to list on the NYSE) will be readily tradable on an established securities market in the United States once they are so listed. Thus, we believe that dividends we pay on our ADSs will meet the conditions required for these reduced tax rates. Since we do not expect that our Class A ordinary shares will be listed on an established securities market in the United States, we do not believe that dividends that we pay on our common shares that are not represented by ADSs currently meet the conditions required for these reduced tax rates. There can be no assurance, however, that our ADSs will be considered readily tradable on an established securities market in later years. A qualified foreign corporation also includes a foreign corporation that is eligible for the benefits of certain income tax treaties with the United States. In the event that we are deemed to be a PRC resident enterprise under the Enterprise Income Tax Law, we may be eligible for the benefits of the income tax treaty between the United States and PRC, or the Treaty, and if we are eligible for such benefits, dividends we pay on our Class A ordinary shares, regardless of whether such shares are represented by ADSs, would be eligible for reduced rates of taxation. See TaxationPeoples Republic of China Taxation. Non-corporate 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
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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 United States Holders will not be eligible for reduced rates of taxation on any dividends received from us if we are a passive foreign investment company in the taxable year in which such dividends are paid or in the preceding taxable year (see Passive Foreign Investment Company below).
Subject to certain conditions and limitations (including a minimum holding period requirement), any PRC withholding taxes on dividends may be treated as foreign taxes eligible for credit against your United States federal income tax liability. For purposes of calculating the foreign tax credit, dividends paid on the ADSs or Class A ordinary shares will be treated as income from sources outside the United States and will generally constitute passive category income.The rules governing the foreign tax credit are complex. You are urged to consult your tax advisors regarding the availability of the foreign tax credit under your particular circumstances.
Distributions of ADSs, Class A ordinary shares or rights to subscribe for ADSs or Class A ordinary shares that are received as part of a pro rata distribution to all of our shareholders generally will not be subject to United States federal income tax.
Passive Foreign Investment Company
Based on the past and projected composition of our income and assets, and the valuation of our assets, including goodwill (which we have determined based on the expected price of our ADSs in this offering), we do not believe we were a passive foreign investment company (a PFIC) for our most recent taxable year, and we do not expect to become a PFIC in the current taxable year or in the foreseeable future, although there can be no assurance in this regard.
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 (determined based on a quarterly average) of our assets is attributable to assets that produce or are held for the production of passive income. |
For this purpose, passive income generally includes dividends, interest, income equivalent to 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). Cash is treated as an asset that produces or is held for the production of passive income. If we own at least 25% (by value) of the stock of another corporation, for purposes of determining whether we are a PFIC, we will be treated as owning our proportionate share of the other corporations assets and receiving our proportionate share of the other corporations income. However, there is uncertainty as to the treatment of our corporate structure and ownership of our consolidated VIE for United States federal income tax purposes. For United States federal income tax purposes, we consider ourselves to own the equity of our consolidated VIE. If it is determined, contrary to our view, that we do not own the equity of our consolidated VIE for United States federal income tax purposes (for instance, because the relevant PRC authorities do not respect these arrangements), we may be treated as a PFIC.
The determination of whether we are a PFIC is made annually. Accordingly, 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 Class A ordinary 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 Class A 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
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respect to any excess distribution received and any gain realized from a sale or other disposition, including a pledge, of ADSs or Class A ordinary shares. Distributions received in a taxable year will be treated as excess distributions to the extent that they 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 Class A ordinary shares. Under these special tax rules:
| the excess distribution or gain will be allocated ratably over your holding period for the ADSs or Class A 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. |
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 Class A 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 Class A ordinary shares (even if we do not qualify as a PFIC in such 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 Class A 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 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 Class A ordinary shares provided such ADSs or Class A ordinary shares are treated as marketable stock. The ADSs or Class A ordinary shares generally will be treated as marketable stock if the ADSs or Class A 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 once the ADSs are listed on the NYSE 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 is intended that only the ADSs and not the Class A ordinary shares will be listed on the NYSE. Consequently, if you are a holder of Class A ordinary shares that are not represented by ADSs, you generally will not be eligible to make a mark-to-market election.
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 tax basis in the ADSs. You will be entitled to deduct as an ordinary loss in each such year the excess of your adjusted tax 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. Your adjusted tax 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. In addition, upon the sale or other disposition of your ADSs in a year that we are a PFIC, any gain will be treated as ordinary income and any loss will be treated as ordinary loss, but only to the extent of the net amount of previously included income as a result of the mark-to-market election.
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 Internal Revenue Service consents to the revocation of the election. 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.
Alternatively, U.S. taxpayers can sometimes avoid the special tax rules described above by electing to treat a PFIC as a qualified electing fund under Section 1295 of the Code. However, this option would only be available to you if we comply with the requirements necessary to permit you to make this election (and no assurances can be given in this regard).
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If we are a PFIC for any taxable year during which you hold our ADSs or Class A ordinary shares and any of our non-United States 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 the PFIC rules. You will not be able to make the mark-to-market election described above in respect of any lower-tier PFIC. 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 Internal Revenue Service Form 8621 if you hold our ADSs or Class A ordinary shares in any year in which we are a PFIC. You are urged to consult your tax advisors concerning the United States federal income tax consequences of holding ADSs or Class A ordinary shares if we are a PFIC in any taxable year.
Taxation of Capital Gains
For United States federal income tax purposes, you will recognize taxable gain or loss on any sale or exchange of the ADSs or Class A ordinary shares in an amount equal to the difference between the amount realized for the ADSs or Class A ordinary shares and your tax basis in the ADSs or Class A 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 Class A ordinary shares for more than one year. Long-term capital gains of non-corporate United States 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 United States source gain or loss. However, if we are treated as a PRC resident enterprise for PRC tax purposes and PRC tax were 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 under the Treaty. If you are not eligible for the benefits of the Treaty or if you fail to make the election to treat any gain as PRC source, then you generally would not be able to use the foreign tax credit arising from any PRC tax imposed on the disposition of ADSs or Class A ordinary shares unless such credit can be applied (subject to applicable limitations) against tax due on other income derived from foreign sources.
Information Reporting and Backup Withholding
In general, information reporting will apply to dividends in respect of our ADSs or Class A ordinary shares and the proceeds from the sale, exchange or other disposition of our ADSs or Class A ordinary shares that are paid to you within the United States (and in certain cases, outside the United States), unless you are an exempt recipient. 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.
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 United States federal income tax liability provided the required information is timely furnished to the Internal Revenue Service.
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We and the underwriters named below have entered into an underwriting agreement with respect to the ADSs being offered. Subject to certain conditions, each underwriter has severally agreed to purchase the number of ADSs indicated in the following table. Morgan Stanley & Co. International plc, Merrill Lynch, Pierce, Fenner & Smith Incorporated and Goldman Sachs (Asia) L.L.C., are acting as joint book- running managers of this offering and as the representatives of the underwriters. The address of Morgan Stanley & Co. International plc is 25 Cabot Square, Canary Wharf, London E14 4QA, United Kingdom. The address of Merrill Lynch, Pierce, Fenner & Smith Incorporated is One Bryant Park, New York, NY 10036, United States of America. The address of Goldman Sachs (Asia) L.L.C. is 68th Floor, Cheung Kong Center, 2 Queens Road Central, Hong Kong.
Underwriters |
Number of ADSs | |||
Morgan Stanley & Co. International plc |
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Merrill Lynch, Pierce, Fenner & Smith Incorporated |
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Goldman Sachs (Asia) L.L.C. |
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|
|
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Total |
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|
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The underwriters are offering the ADSs subject to their acceptance of the ADSs from us and subject to prior sale. The underwriting agreement provides that the obligations of the several underwriters to pay for and accept delivery of the ADSs offered by this prospectus are subject to the approval of certain legal matters by their counsel and to certain other conditions. The underwriters are obligated, severally and not jointly, to take and pay for all of the ADSs offered by this prospectus if any such ADSs are taken, other than the ADSs covered by the underwriters option to purchase additional ADSs described below.
The underwriters initially propose to offer part of the ADSs directly to the public at the public offering price listed on the cover of this prospectus and part of the ADSs to certain dealers at a price that represents a concession not in excess of US$ per ADS under the public offering price. After the initial offering of the ADSs, the offering price and other selling terms may from time to time be varied by the underwriters.
Certain of the underwriters are not broker-dealers registered with the SEC. Therefore, to the extent they intend to make any offers or sales of ADSs in the United States, they will do so only through one or more registered broker-dealers in compliance with applicable securities law and regulations, and FINRA rules. Morgan Stanley & Co. International plc will offer ADSs in the United States through its registered broker-dealer affiliate in the United States, Morgan Stanley & Co. LLC. Goldman Sachs (Asia) L.L.C. will offer ADSs in the United States through its registered broker-dealer affiliate in the United States, Goldman Sachs & Co. LLC.
Option to Purchase Additional ADSs
We have granted to the underwriters an option, exercisable for 30 days from the date of this prospectus, to purchase up to an aggregate of additional ADSs from us at the offering price listed on the cover of this prospectus, less underwriting discounts and commissions. To the extent the option is exercised, each underwriter will become severally obligated, subject to certain conditions, to purchase additional ADSs approximately proportionate to each underwriters initial amount reflected in the table above.
Commissions and Expenses
Total underwriting discounts and commissions to be paid to the underwriters represent % of the total amount of the offering. The following table shows the per ADS and total underwriting discounts and
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commissions to be paid to the underwriters by us. Such amounts are shown assuming both no exercise and full exercise of the underwriters option to purchase additional ADSs.
Total | ||||||||||||
Per ADS | No Exercise | Full Exercise | ||||||||||
Discounts and commissions paid by us |
US$ | US$ | US$ |
We have agreed to pay all fees and expenses that we occur in connection with the offering. [We have agreed to reimburse the underwriters for certain expenses up to US$ relating to clearance of this offering with the Financial Industry Regulatory Authority, Inc.]
Lock-Up Agreements
[We have agreed that, without the prior written consent of the representatives of the underwriters, we will not, during the period ending 180 days after the date of this prospectus, (i) issue, offer, pledge, sell, contract to sell, sell any option or contract to purchase, purchase any option or contract to sell, grant any option, right or warrant to purchase, lend or otherwise transfer or dispose of directly or indirectly, any ordinary shares or ADSs or any securities convertible into or exercisable or exchangeable for such ordinary shares or ADSs or enter into a transaction which would have the same effect; (ii) enter into any swap, hedge or other arrangement that transfers to another, in whole or in part, any of the economic consequences of ownership of the ordinary shares or ADSs; (iii) establish or increase a put equivalent position or liquidate or decrease a call equivalent position in the ordinary shares or ADSs within the meaning of Section 16 of the Exchange Act; (iv) file any registration statement with the SEC relating to the offering of any ordinary shares, ADSs or any securities convertible into or exercisable or exchangeable for ordinary shares or ADSs; or (v) publicly disclose the intention to make any offer, sale, pledge, disposition or filing, in each case regardless of whether any such transaction described above is to be settled by delivery of ordinary shares, ADSs, or such other securities, in cash or otherwise.
The restrictions described in the preceding paragraph do not apply to (A) the sale of the ADSs and the ordinary shares represented by such ADSs in this offering; (B) the issuance of ordinary shares or ADSs or the grant of restricted shares, restricted ADSs or options to purchase ordinary shares under our share incentive plan; and (C) the issuance by us of ordinary shares upon the exercise of an option or a warrant or the conversion of a security outstanding on the date of this prospectus of which the underwriters have been advised in writing or which is otherwise described in this prospectus.
[Each of our directors, executive officers and our existing shareholders] has agreed that, without the prior written consent of the representatives of the underwriters, it will not, during the period ending 180 days after the date of this prospectus, offer, sell, contract to sell, pledge, grant any option to purchase, make any short sale or otherwise dispose of, or file, or participate in the filing of, a registration statement with the SEC in respect of, any ordinary shares or ADSs, or any options or warrants to purchase any ordinary shares or ADSs, or any securities convertible into, exchangeable for or that represent the right to receive ordinary shares or ADSs, whether now owned or hereinafter acquired, owned directly by our directors, executive officers and our existing shareholders (including holding as a custodian) or with respect to which they have beneficial ownership within the rules and regulations of the SEC. The foregoing restriction is expressly agreed to preclude each of our directors, executive officers, and existing shareholders from engaging in any hedging or other transaction which is designed to or which reasonably could be expected to lead to or result in a sale or disposition of his or her securities even if such securities would be disposed of by someone other than themselves. Such prohibited hedging or other transactions would include without limitation any short sale or any purchase, swap or sale or grant of any right (including without limitation any put or call option) with respect to any of their securities or with respect to any security that includes or relates to, or derives any significant part of its value from such ordinary shares or ADSs. The restrictions above are subject to certain customary exceptions.
In addition, through a letter agreement, we will instruct Citibank, N.A., as depositary, not to accept any deposit of any ordinary shares or deliver any ADSs until after 180 days following the date of this prospectus
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unless we consent to such deposit or issuance. We will not provide such consent without the prior written consent of the representatives of the underwriters. The foregoing does not affect the right of ADS holders to cancel their ADSs and withdraw the underlying ordinary shares.
The representatives of the underwriters, in their sole discretion, on behalf of the underwriters may release the ADSs and other securities subject to the lock-up agreements described above in whole or in part at any time with or without notice.]
New York Stock Exchange Listing
The ADSs have been approved for listing on the New York Stock Exchange under the symbol .
Stabilization, Short Positions and Penalty Bids
In connection with the offering, the underwriters may purchase and sell ADSs in the open market.
These transactions may include short sales, stabilizing transactions and purchases to cover positions created by short sales. Short sales involve the sale by the underwriters of a greater number of ADSs than they are required to purchase in the offering. Covered short sales are sales made in an amount not greater than the underwriters option to purchase additional ADSs in the offering. The underwriter may close out any covered short position by either exercising their option to purchase additional ADSs or purchasing ADSs in the open market. In determining the source of ADSs to close out the covered short position, the underwriters will consider, among other things, the price of ADSs available for purchase in the open market as compared to the price at which they may purchase additional ADSs pursuant to the option granted to them. Naked short sales are any sales in excess of such option.
The underwriters must close out any naked short position by purchasing ADSs in the open market. A naked short position is more likely to be created if the underwriters are concerned that there may be downward pressure on the price of the ADSs in the open market after pricing that could adversely affect investors who purchase in the offering. Stabilizing transactions consist of various bids for, or purchases of, ADSs made by the underwriters in the open market prior to the completion of the offering.
The underwriters may also impose a penalty bid. This occurs when a particular underwriter repays to the underwriters a portion of the underwriting discounts received by it because the representatives have repurchased ADSs sold by, or for the account of, such underwriter in stabilizing or short covering transactions.
Purchases to cover a short position and stabilizing transactions, as well as other purchases by the underwriters for their own accounts, may have the effect of preventing or retarding a decline in the market price of the ADSs, and together with the imposition of the penalty bid, may stabilize, maintain or otherwise affect the market price of the ADSs. As a result, the price of the ADSs may be higher than the price that otherwise might exist in the open market. The underwriters are not required to engage in these activities, and if these activities are commenced, they are required to be conducted in accordance with applicable laws and regulations, and any of these activities may be discontinued at any time. These transactions may be effected on the New York Stock Exchange, the over-the-counter market or otherwise.
Electronic Distribution
A prospectus in electronic format will be made available on the websites maintained by one or more of the underwriters or one or more securities dealers. One or more of the underwriters may distribute prospectuses electronically. The underwriters may agree to allocate a number of ADSs for sale to their online brokerage account holders. ADSs to be sold pursuant to an internet distribution will be allocated on the same basis as other allocations. In addition, ADSs may be sold by the underwriters to securities dealers who resell ADSs to online brokerage account holders.
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Indemnification
We have agreed to indemnify the underwriters against certain liabilities, including liabilities under the Securities Act.
Relationships
The underwriters and their respective affiliates are full service financial institutions engaged in various activities, which may include securities trading, commercial and investment banking, financial advisory, investment management, principal investment, hedging, financing, investment research, market making, brokerage and other financial and non-financial activities and services. Certain of the underwriters and their respective affiliates may have, from time to time, performed, and may in the future perform, various financial advisory, commercial and investment banking services and other services for us and to persons and entities with relationships with us, for which they received or will receive customary fees and commissions.
In addition, in the ordinary course of their various business activities, the underwriters and their respective affiliates may make or hold a broad array of investments and actively trade debt and equity securities (or related derivative securities) and financial instruments (including bank loans) for their own account and for the accounts of their customers and may at any time hold long and short positions in such securities and instruments. Such investment and securities activities may involve securities and instruments of us and/or persons and entities with relationships with us. The underwriters and their respective affiliates may also make or communicate independent investment recommendations, market color or trading ideas and/or publish or express independent research views in respect of such assets, securities or instruments and may at any time hold, or recommend to clients that they should acquire, long and/or short positions in such assets, securities and instruments.
Pricing of the Offering
Prior to this offering, there has been no public market for our ordinary shares or the ADSs. The initial public offering price was determined by negotiations between us and the representatives of the underwriters. Among the factors to be considered in determining the initial public offering price of the ADSs, in addition to prevailing market conditions, will be our historical performance, estimates of our business potential and earnings prospects, an assessment of our management and the consideration of the above factors in relation to market valuation of companies in related businesses. An active trading market for the ADSs may not develop. It is also possible that after the offering the ADSs will not trade in the public market at or above the initial public offering price.
Selling Restrictions
No action has been taken in any jurisdiction (except in the United States) that would permit a public offering of the ADSs, or the possession, circulation or distribution of this prospectus or any other material relating to us or the ADSs in any jurisdiction where action for that purpose is required.
Accordingly, the ADSs may not be offered or sold, directly or indirectly, and neither this prospectus nor any other material or advertisements in connection with the ADSs may be distributed or published, in or from any country or jurisdiction except in compliance with any applicable laws, rules and regulations of any such country or jurisdiction.
Australia
No placement document, prospectus, product disclosure statement or other disclosure document has been lodged with the Australian Securities and Investments Commission, or ASIC, in relation to the offering. This prospectus does not constitute a prospectus, product disclosure statement or other disclosure document under the Corporations Act 2001, or the Corporations Act, and does not purport to include the information required for a prospectus, product disclosure statement or other disclosure document under the Corporations Act.
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Any offer in Australia of the ADSs may only be made to persons, or the Exempt Investors, who are sophisticated investors (within the meaning of section 708(8) of the Corporations Act), professional investor (within the meaning of section 708(11) of the Corporations Act) or otherwise pursuant to one or more exemptions contained in section 708 of the Corporations Act so that it is lawful to offer the ADSs without disclosure to investors under Chapter 6D of the Corporations Act.
The ADSs applied for by Exempt Investors in Australia must not be offered for sale in Australia in the period of 12 months after the date of allotment under the offering, except in circumstances where disclosure to investors under Chapter 6D of the Corporations Act would not be required pursuant to an exemption under section 708 of the Corporations Act or otherwise or where the offer is pursuant to a disclosure document which complies with Chapter 6D of the Corporations Act. Any person acquiring ADSs must observe such Australian on-sale restrictions.
This prospectus contains general information only and does not take account of the investment objectives, financial situation or particular needs of any particular person. It does not contain any securities recommendations or financial product advice. Before making an investment decision, investors need to consider whether the information in this prospectus is appropriate to their needs, objectives and circumstances, and, if necessary, seek expert advice on those matters.
Canada
The securities may be sold only to purchasers purchasing, or deemed to be purchasing, as principal that are accredited investors, as defined in National Instrument 45-106 Prospectus Exemptions or subsection 73.3(1) of the Securities Act (Ontario), and are permitted clients, as defined in National Instrument 31-103 Registration Requirements, Exemptions and Ongoing Registrant Obligations. Any resale of the securities must be made in accordance with an exemption from, or in a transaction not subject to, the prospectus requirements of applicable securities laws.
Securities legislation in certain provinces or territories of Canada may provide a purchaser with remedies for rescission or damages if this prospectus (including any amendment thereto) contains a misrepresentation, provided that the remedies for rescission or damages are exercised by the purchaser within the time limit prescribed by the securities legislation of the purchasers province or territory. The purchaser should refer to any applicable provisions of the securities legislation of the purchasers province or territory for particulars of these rights or consult with a legal advisor.
Pursuant to section 3A.3 of National Instrument 33-105 Underwriting Conflicts, or NI 33-105, the underwriters are not required to comply with the disclosure requirements of NI 33-105 regarding underwriter conflicts of interest in connection with this offering.
Cayman Islands
This prospectus is not intended to constitute a public offer of the ADSs or ordinary shares, whether by way of sale or subscription, in the Cayman Islands. No offer or invitation may be made to the public in the Cayman Islands to subscribe for or purchase the ordinary shares or any ADS. Each underwriter has represented and agreed that it has not offered or sold, and will not offer or sell, directly or indirectly, any ADSs or ordinary shares in the Cayman Islands.
Dubai International Finance Center
This document relates to an Exempt Offer, as defined in the Offered Securities Rules module of the DFSA Rulebook, or the OSR, in accordance with the Offered Securities Rules of the Dubai Financial Services Authority. This document is intended for distribution only to persons, as defined in the OSR, of a type specified
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in those rules. It must not be delivered to, or relied on by, any other person. The Dubai Financial Services Authority has no responsibility for reviewing or verifying any documents in connection with Exempt Offers. The Dubai Financial Services Authority has not approved this document nor taken steps to verify the information set out in it, and has no responsibility for it. The ADSs to which this document relates may be illiquid and/or subject to restrictions on their resale.
Prospective purchasers of the ADSs offered should conduct their own due diligence on the ADSs. If you do not understand the contents of this document you should consult an authorized financial adviser.
European Economic Area
In relation to each Member State of the European Economic Area which has implemented the Prospectus Directive, or each a Relevant Member State, an offer to the public of any ADSs may not be made in that Relevant Member State, except that an offer to the public in that Relevant Member State of any ADSs may be made at any time under the following exemptions under the Prospectus Directive, if they have been implemented in that Relevant Member State:
| to any legal entity which is a qualified investor as defined in the Prospectus Directive; |
| to fewer than 100 or, if the Relevant Member State has implemented the relevant provision of the 2010 PD Amending Directive, 150, natural or legal persons (other than qualified investors as defined in the Prospectus Directive), as permitted under the Prospectus Directive, subject to obtaining the prior consent of the representatives for any such offer; or |
| in any other circumstances falling within Article 3(2) of the Prospectus Directive, provided that no such offer of the ADSs shall result in a requirement for the publication by us or any underwriter of a prospectus pursuant to Article 3 of the Prospectus Directive. |
For the purposes of this provision, the expression an offer to the public in relation to any ADSs in any Relevant Member State means the communication in any form and by any means of sufficient information on the terms of the offer and any ADSs to be offered so as to enable an investor to decide to purchase any ADSs, as the same may be varied in that Member State by any measure implementing the Prospectus Directive in that Member State; the expression Prospectus Directive means Directive 2003/71/EC (and amendments thereto, including the 2010 PD Amending Directive, to the extent implemented in the Relevant Member State), and includes any relevant implementing measure in the Relevant Member State; and the expression 2010 PD Amending Directive means Directive 2010/73/EU.
Hong Kong
The ADSs may not be offered or sold by means of any document other than (i) in circumstances which do not constitute an offer to the public within the meaning of the Companies (Winding Up and Miscellaneous Provisions) Ordinance (Cap. 32, Laws of Hong Kong), or (ii) to professional investors within the meaning of the Securities and Futures Ordinance (Cap. 571, Laws of Hong Kong) and any rules made thereunder, or (iii) in other circumstances which do not result in the document being a prospectus within the meaning of the Companies Ordinance (Cap. 32, Laws of Hong Kong), and no advertisement, invitation or document relating to the ADSs may be issued or may be in the possession of any person for the purpose of issue (in each case whether in Hong Kong or elsewhere), which is directed at, or the contents of which are likely to be accessed or read by, the public in Hong Kong (except if permitted to do so under the laws of Hong Kong) other than with respect to ADSs which are or are intended to be disposed of only to persons outside Hong Kong or only to professional investors within the meaning of the Securities and Futures Ordinance (Cap. 571, Laws of Hong Kong) and any rules made thereunder.
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Indonesia
This prospectus does not, and is not intended to, constitute a public offering in Indonesia under Law Number 8 of 1995 regarding Capital Market. This prospectus may not be distributed in the Republic of Indonesia and the ADSs may not be offered or sold in the Republic of Indonesia or to Indonesian citizens wherever they are domiciled, or to Indonesia residents, in a manner which constitutes a public offering under the laws of the Republic of Indonesia.
Israel
In the State of Israel, the ADSs offered hereby may not be offered to any person or entity other than the following:
| a fund for joint investments in trust (i.e., mutual fund), as such term is defined in the Law for Joint Investments in Trust, 5754-1994, or a management company of such a fund; |
| a provident fund as defined in Section 47(a)(2) of the Income Tax Ordinance of the State of Israel, or a management company of such a fund; |
| an insurer, as defined in the Law for Oversight of Insurance Transactions, 5741-1981, a banking entity or satellite entity, as such terms are defined in the Banking Law (Licensing), 5741-1981, other than a joint services company, acting for their own account or for the account of investors of the type listed in Section 15A(b) of the Securities Law 1968; |
| a company that is licensed as a portfolio manager, as such term is defined in Section 8(b) of the Law for the Regulation of Investment Advisors and Portfolio Managers, 5755-1995, acting on its own account or for the account of investors of the type listed in Section 15A(b) of the Securities Law 1968; |
| a company that is licensed as an investment advisor, as such term is defined in Section 7(c) of the Law for the Regulation of Investment Advisors and Portfolio Managers, 5755-1995, acting on its own account; |
| a company that is a member of the Tel Aviv Stock Exchange, acting on its own account or for the account of investors of the type listed in Section 15A(b) of the Securities Law 1968; |
| an underwriter fulfilling the conditions of Section 56(c) of the Securities Law, 5728-1968; |
| a venture capital fund (defined as an entity primarily involved in investments in companies which, at the time of investment, (i) are primarily engaged in research and development or manufacture of new technological products or processes and (ii) involve above-average risk); |
| an entity primarily engaged in capital markets activities in which all of the equity owners meet one or more of the above criteria; and |
| an entity, other than an entity formed for the purpose of purchasing the ADSs in this offering, in which the shareholders equity (including pursuant to foreign accounting rules, international accounting regulations and U.S. generally accepted accounting rules, as defined in the Securities Law Regulations (Preparation of Annual Financial Statements), 1993) is in excess of NIS 250 million. |
Any offeree of the ADSs offered hereby in the State of Israel shall be required to submit written confirmation that it falls within the scope of one of the above criteria. This prospectus will not be distributed or directed to investors in the State of Israel who do not fall within one of the above criteria.
Japan
No registration pursuant to Article 4, paragraph 1 of the Financial Instruments and Exchange Law of Japan (Law No. 25 of 1948, as amended), or the FIEL, has been made or will be made with respect to the solicitation of the application for the acquisition of the ADSs.
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Accordingly, the ADSs have not been, directly or indirectly, offered or sold and will not be, directly or indirectly, offered or sold in Japan or to, or for the benefit of, any resident of Japan (which term as used herein means any person resident in Japan, including any corporation or other entity organized under the laws of Japan) or to others for re-offering or re-sale, directly or indirectly, in Japan or to, or for the benefit of, any resident of Japan except pursuant to an exemption from the registration requirements, and otherwise in compliance with, the FIEL and the other applicable laws and regulations of Japan.
Korea
The ADSs may not be offered, sold and delivered directly or indirectly, or offered or sold to any person for reoffering or resale, directly or indirectly, in Korea or to any resident of Korea except pursuant to the applicable laws and regulations of Korea, including the Korea Securities and Exchange Act and the Foreign Exchange Transaction Law and the decrees and regulations thereunder. The ADSs have not been registered with the Financial Services Commission of Korea for public offering in Korea. Furthermore, the ADSs may not be resold to Korean residents unless the purchaser of the ADSs complies with all applicable regulatory requirements (including but not limited to government approval requirements under the Foreign Exchange Transaction Law and its subordinate decrees and regulations) in connection with the purchase of the ADSs.
Kuwait
Unless all necessary approvals from the Kuwait Ministry of Commerce and Industry required by Law No. 31/1990 Regulating the Negotiation of Securitise and Establishment of Investment Funds, its Executive Regulations and the various Ministerial Orders issued pursuant thereto or in connection therewith, have been given in relation to the marketing and sale of the ADSs, these may not be marketed, offered for sale, nor sold in the State of Kuwait. Neither this prospectus (including any related document), nor any of the information contained therein is intended to lead to the conclusion of any contract of whatsoever nature within Kuwait.
Malaysia
The offering of the ADSs has not been and will not be approved by the Securities Commission Malaysia, or SC, and this document has not been and will not be registered as a prospectus with the SC under the Malaysian Capital Markets and Services Act 2007, or CMSA. Accordingly, no ADSs or invitation to purchase is being made to any person in Malaysia under this document except to persons falling within any of paragraphs 2(g)(i) to (xi) of Schedule 5 of the CMSA and distributed only by a holder of a Capital Markets Services License who carries on the business of dealing in securities.
Peoples Republic of China
This prospectus may not be circulated or distributed in the PRC and the ADSs may not be offered or sold, and will not offer or sell to any person for re-offering or resale directly or indirectly to any resident of the PRC except pursuant to applicable laws and regulations of the PRC. For the purposes of this paragraph, the PRC does not include Taiwan and the special administrative regions of Hong Kong and Macau.
Philippines
THE ADSS BEING OFFERED OR SOLD HAVE NOT BEEN AND WILL NOT BE REGISTERED WITH THE PHILIPPINE SECURITIES AND EXCHANGE COMMISSION UNDER THE SECURITIES REGULATION CODE OF THE PHILIPPINES, OR THE SRC. ANY FUTURE OFFER OR SALE OF THE ADSS WITHIN THE PHILIPPINES IS SUBJECT TO THE REGISTRATION REQUIREMENTS UNDER THE SRC UNLESS SUCH OFFER OR SALE QUALIFIES AS A TRANSACTION EXEMPT FROM THE REGISTRATION UNDER THE SRC.
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Accordingly, this prospectus, and any other document or material in connection with the offer or sale, or invitation for subscription or purchase of the ADSs, may not be circulated or distributed in the Philippines, and the ADSs may not be offered or sold, or be made the subject of an invitation for subscription or purchase, to persons in the Philippines, other than (i) to qualified investors in transactions that are exempt from the registration requirements of the SRC; and (ii) by persons licensed to make such offers or sales in the Philippines.
Qatar
In the State of Qatar, the offer contained herein is made on an exclusive basis to the specifically intended recipient thereof, upon that persons request and initiative, for personal use only an shall in no way be construed as a general offer for the sale of securities to the public or an attempt to do business as a bank, an investment company or otherwise in the State of Qatar. This prospectus and the underlying securities have not been approved or licensed by the Qatar Central Bank or the Qatar Financial Center Regulatory Authority or any other regulator in the State of Qatar. The information contained in this prospectus shall only be shared with any third parties in Qatar on a need to know basis for the purpose of evaluating the contained offer. Any distribution of this prospectus by the recipient to third parties in Qatar beyond the terms hereof is not permitted and shall be at the liability of such recipient.
Saudi Arabia
This prospectus may not be distributed in the Kingdom except to such persons as are permitted under the Offers of Securities Regulations issued by the Capital Market Authority. The Capital Market Authority does not make any representation as to the accuracy or completeness of this prospectus, and expressly disclaims any liability whatsoever for any loss arising from, or incurred in reliance upon, any part of this prospectus. Prospective purchasers of the securities offered hereby should conduct their own due diligence on the accuracy of the information relating to the securities. If you do not understand the contents of this prospectus you should consult an authorized financial adviser.
Singapore
This prospectus has not been registered as a prospectus with the Monetary Authority of Singapore. Accordingly, this prospectus and any other document or material in connection with the offer or sale, or invitation for subscription or purchase, of the ADSs may not be circulated or distributed, nor may the ADSs be offered or sold, or be made the subject of an invitation for subscription or purchase, whether directly or indirectly, to persons in Singapore other than (i) to an institutional investor under Section 274 of the Securities and Futures Act, Chapter 289 of Singapore, or the SFA, (ii) to a relevant person pursuant to Section 275(1), or any person pursuant to Section 275(1A), and in accordance with the conditions specified in Section 275, of the SFA, or (iii) otherwise pursuant to, and in accordance with the conditions of, any other applicable provision of the SFA.
Where the ADSs are subscribed or purchased under Section 275 of the SFA by a relevant person which is:
| a corporation (which is not an accredited investor (as defined in Section 4A of the SFA)) the sole business of which is to hold investments and the entire share capital of which is owned by one or more individuals, each of whom is an accredited investor; or |
| a trust (where the trustee is not an accredited investor) whose sole purpose is to hold investments and each beneficiary of the trust is an individual who is an accredited investor, |
securities (as defined in Section 239(1) of the SFA) of that corporation or the beneficiaries rights and interest (howsoever described) in that trust shall not be transferred within six months after that corporation or that trust has acquired the ADSs pursuant to an offer made under Section 275 of the SFA, except:
| to an institutional investor or to a relevant person defined in Section 275(2) of the SFA, or to any person arising from an offer referred to in Section 275(1A) or Section 276(4)(i)(B) of the SFA; |
218
| where no consideration is or will be given for the transfer; |
| where the transfer is by operation of law; |
| as specified in Section 276(7) of the SFA; or |
| as specified in Regulation 32 of the Securities and Futures (Offers of Investments) (Shares and Debentures) Regulations 2005 of Singapore. |
Switzerland
The ADSs may not be offered or sold to any investors in Switzerland other than on a non-public basis. This prospectus does not constitute a prospectus within the meaning of Article 652a and Art. 1156 of the Swiss Code of Obligations (Schweizerisches Obligationenrecht). Neither this offering nor the ADSs have been or will be approved by any Swiss regulatory authority.
Taiwan
The ADSs have not been and will not be registered or filed with, or approved by, the Financial Supervisory Commission of Taiwan pursuant to relevant securities laws and regulations and may not be offered or sold in Taiwan through a public offering or in circumstances which constitute an offer within the meaning of the Securities and Exchange Act of Taiwan or relevant laws and regulations that require a registration, filing or approval of the Financial Supervisory Commission of Taiwan. No person or entity in Taiwan has been authorized to offer or sell the ADSs in Taiwan through a public offering or in such an offering that require registration, filing or approval of the Financial Supervisory Commission of Taiwan except pursuant to the applicable laws and regulations of Taiwan and the competent authoritys ruling thereunder.
Thailand
This prospectus does not, and is not intended to, constitute a public offering in Thailand. The ADSs may not be offered or sold to persons in Thailand, unless such offering is made under the exemptions from approval and filing requirements under applicable laws, or under circumstances which do not constitute an offer for sale of the shares to the public for the purposes of the Securities and Exchange Act of 1992 of Thailand, nor require approval from the Office of the Securities and Exchange Commission of Thailand.
United Arab Emirates
The ADSs have not been offered or sold, and will not be offered or sold, directly or indirectly, in the United Arab Emirates, except: (1) in compliance with all applicable laws and regulations of the United Arab Emirates; and (2) through persons or corporate entities authorized and licensed to provide investment advice and/or engage in brokerage activity and/or trade in respect of foreign securities in the United Arab Emirates. The information contained in this prospectus does not constitute a public offer of securities in the United Arab Emirates in accordance with the Commercial Companies Law (Federal Law No. 8 of 1984 (as amended)) or otherwise and is not intended to be a public offer and is addressed only to persons who are sophisticated investors.
United Kingdom
Each underwriter has represented and agreed that:
| it has only communicated or caused to be communicated and will only communicate or cause to be communicated an invitation or inducement to engage in investment activity (within the meaning of Section 21 of the Financial Services and Markets Act 2000, or FSMA, received by it in connection with the issue or sale of the ADSs in circumstances in which Section 21(1) of the FSMA does not apply to us; and |
219
| it has complied and will comply with all applicable provisions of the FSMA with respect to anything done by it in relation to the ADSs in, from or otherwise involving the United Kingdom. |
Vietnam
This offering of ADSs has not been and will not be registered with the State Securities Commission of Vietnam under the Law on Securities of Vietnam and its guiding decrees and circulars. The ADSs will not be offered or sold in Vietnam through a public offering and will not be offered or sold to Vietnamese persons other than those who are licensed to invest in offshore securities under the Law on Investment of Vietnam.
220
EXPENSES RELATED TO THIS OFFERING
Set forth below is an itemization of the total expenses, excluding underwriting discounts and commissions, which are expected to be incurred in connection with the offer and sale of the ADSs by us. With the exception of the SEC registration fee and the Financial Industry Regulatory Authority filing fee, all amounts are estimates.
SEC registration fee |
US$ | |||
NYSE listing fee |
||||
Financial Industry Regulatory Authority filing fee |
||||
Printing and engraving expenses |
||||
Legal fees and expenses |
||||
Accounting fees and expenses |
||||
Miscellaneous |
||||
|
|
|||
Total |
US$ | |||
|
|
These expenses will be borne by us, except for underwriting discounts and commissions, which will be borne by us in proportion to the numbers of ADSs sold in the offering by us, respectively.
221
We are being represented by Simpson Thacher & Bartlett LLP with respect to certain legal matters of United States federal securities and New York state law. The underwriters are being represented by Davis Polk & Wardwell LLP with respect to certain legal matters as to United States. The validity of the Class A ordinary shares represented by the ADSs offered in this offering and legal matters as to Cayman Islands law will be passed upon for us by Conyers Dill & Pearman. Certain legal matters as to PRC law will be passed upon for us by Fangda Partners and for the underwriters by Tian Yuan Law Firm. Conyers Dill & Pearman may rely upon Fangda Partners with respect to matters governed by PRC law. Davis Polk & Wardwell LLP may rely upon Tian Yuan Law Firm with respect to matters governed by PRC law.
The consolidated financial statements of Cango Inc. and Shanghai Autohome Financing Lease Co., Ltd. at December 31, 2017 and 2016 and for the years then ended, appearing in this Prospectus and Registration Statement, have been audited by Ernst & Young Hua Ming LLP, independent registered public accounting firm, as set forth in their reports thereon appearing elsewhere herein, and are included in reliance upon such reports given on the authority of such firm as experts in accounting and auditing.
The office of Ernst & Young Hua Ming LLP is located at 50/F, Shanghai World Financial Center, 100 Century Avenue, Pudong New Area, Shanghai, Peoples Republic of China.
222
WHERE YOU CAN FIND MORE INFORMATION
We have filed with the SEC a registration statement on Form F-1, including relevant exhibits and schedules under the Securities Act with respect to underlying Class A ordinary shares represented by the ADSs, to be sold in this offering. A related registration statement on F-6 will be filed with the SEC to register the ADSs. This prospectus, which constitutes a part of the registration statement, does not contain all of the information contained in the registration statement. You should read the registration statement and its exhibits and schedules for further information with respect to us and our ADSs.
Immediately upon closing of this offering, we will become subject to periodic reporting and other informational requirements of the Exchange Act as applicable to foreign private issuers. Accordingly, we will be required to file reports, including annual reports on Form 20-F, and other information with the SEC. All information filed with the SEC can be inspected and copied at the public reference facilities maintained by the SEC at 100 F Street, N.E., Washington, D.C. 20549. You can request copies of these documents upon payment of a duplicating fee, by writing to the SEC. Please call the SEC at 1-800-SEC-0330 for further information on the operation of the public reference rooms. Additional information may also be obtained over the Internet at the SECs web site at www.sec.gov .
As a foreign private issuer, we are exempt under the Exchange Act from, among other things, the rules prescribing the furnishing and content of proxy statements, and our executive officers, directors and principal shareholders are exempt from the reporting and short-swing profit recovery provisions contained in Section 16 of the Exchange Act. In addition, we will not be required under the Exchange Act to file periodic reports and financial statements with the SEC as frequently or as promptly as U.S. companies whose securities are registered under the Exchange Act. However, we intend to furnish the depositary with our annual reports, which will include a review of operations and annual audited consolidated combined financial statements prepared in conformity with U.S. GAAP, and all notices of shareholders meeting and other reports and communications that are made generally available to our shareholders. The depositary will make such notices, reports and communications available to holders of ADSs and will mail to all record holders of ADSs the information contained in any notice of a shareholders meeting received by the depositary from us.
223
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
CONTENTS
F-1
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Shareholders and Board of Directors of Cango Inc.,
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Cango Inc. (the Company) as of December 31, 2017 and 2016, the related consolidated statements of comprehensive income, shareholders deficit and cash flows for the years then ended, 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, 2017 and 2016, and the results of its operations and its cash flows for the years then ended, in conformity with U.S. generally accepted accounting principles.
Basis for Opinion
These financial statements are the responsibility of the Companys management. Our responsibility is to express an opinion on the Companys financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits 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. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Companys internal control over financial reporting. Accordingly, we express no such opinion.
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.
/s/ Ernst & Young Hua Ming LLP
We have served as the Companys auditor since 2018.
Shanghai, the Peoples Republic of China
May 4, 2018, except for Note 26, as to which the date is June 22, 2018
F-2
CONSOLIDATED BALANCE SHEETS
AS OF DECEMBER 31, 2016 AND 2017
(Amounts in Renminbi (RMB) and US dollar (US$), except for number of shares and per share data)
As of December 31, | ||||||||||||||||
2016 | 2017 | |||||||||||||||
Note | RMB | RMB | US$ | |||||||||||||
ASSETS |
||||||||||||||||
Current assets |
||||||||||||||||
Cash and cash equivalents |
44,989,215 | 803,270,815 | 128,060,264 | |||||||||||||
Restricted cash |
1,010,998 | 10,060,360 | 1,603,858 | |||||||||||||
Short-term investments |
3 | 106,000,000 | 62,380,000 | 9,944,839 | ||||||||||||
Accounts receivable, net (net of allowance of RMB nil as of December 31, 2016 and 2017, respectively) |
4 | 469,385 | 85,595,207 | 13,645,890 | ||||||||||||
Financing receivables, net (net of allowance of RMB nil and RMB156,124 (US$ 24,890) as of December 31, 2016 and 2017, respectively) |
| 832,052 | 132,649 | |||||||||||||
Short-term amounts due from related parties |
21 | 138,559,323 | 1,253,833 | 199,890 | ||||||||||||
Prepaid expenses and other current assets |
5 | 11,024,270 | 144,858,222 | 23,093,808 | ||||||||||||
|
|
|
|
|
|
|||||||||||
Total current assets |
302,053,191 | 1,108,250,489 | 176,681,198 | |||||||||||||
|
|
|
|
|
|
|||||||||||
Non-current assets |
||||||||||||||||
Restricted cash |
| 319,352,347 | 50,912,277 | |||||||||||||
Long-term investments |
6 | 185,800,000 | 191,002,602 | 30,450,308 | ||||||||||||
Equity method investments |
7 | 70,803,382 | 165,659,951 | 26,410,093 | ||||||||||||
Property and equipment, net |
8 | 3,888,392 | 9,751,738 | 1,554,656 | ||||||||||||
Intangible assets |
9 | 1,227,474 | 1,701,770 | 271,302 | ||||||||||||
Deferred tax assets |
17 | 54,888,520 | 67,774,187 | 10,804,800 | ||||||||||||
Long-term amounts due from related parties |
21 | 69,496,274 | 122,383,094 | 19,510,744 | ||||||||||||
Other non-current assets |
10 | 26,699,307 | 10,991,399 | 1,752,288 | ||||||||||||
|
|
|
|
|
|
|||||||||||
Total non-current assets |
412,803,349 | 888,617,088 | 141,666,468 | |||||||||||||
|
|
|
|
|
|
|||||||||||
TOTAL ASSETS |
714,856,540 | 1,996,867,577 | 318,347,666 | |||||||||||||
|
|
|
|
|
|
The accompanying notes are an integral part of these consolidated financial statements.
F-3
CANGO INC.
CONSOLIDATED BALANCE SHEETS - continued
AS OF DECEMBER 31, 2016 AND 2017
(Amounts in Renminbi (RMB) and US dollar (US$), except for number of shares and per share data)
As of December 31, | ||||||||||||||||
2016 | 2017 | |||||||||||||||
Note | RMB | RMB | US$ | |||||||||||||
LIABILITIES, MEZZANINE EQUITY AND SHAREHOLDERS EQUITY |
||||||||||||||||
Current liabilities |
||||||||||||||||
Accrued expenses and other current liabilities (including accrued expenses and other current liabilities of the consolidated VIE without recourse to the Company of RMB 85,854,197 and RMB 328,522,735 (US$ 52,374,252) as of December 31, 2016 and 2017, respectively) |
12 | 85,854,197 | 328,522,735 | 52,374,252 | ||||||||||||
Short-term amounts due to related parties (including short-term amounts due to related parties of the consolidated VIE without recourse to the Company of RMB 4,515,000 and RMB 5,525,000 (US$ 880,815) as of December 31, 2016 and 2017, respectively) |
21 | 4,515,000 | 5,525,000 | 880,815 | ||||||||||||
Risk assurance liabilities (including risk assurance liabilities of the consolidated VIE without recourse to the Company of RMB 149,787,763 and RMB 129,935,457 (US$ 20,714,769) as of December 31, 2016 and 2017, respectively) |
13 | 149,787,763 | 129,935,457 | 20,714,769 | ||||||||||||
Income tax payable (including income tax payable of the consolidated VIE without recourse to the Company of RMB 46,717,244 and RMB 62,320,855 (US$ 9,935,410) as of December 31, 2016 and 2017, respectively) |
46,717,244 | 62,320,855 | 9,935,410 | |||||||||||||
|
|
|
|
|
|
|||||||||||
Total current liabilities |
286,874,204 | 526,304,047 | 83,905,246 | |||||||||||||
|
|
|
|
|
|
|||||||||||
Non-current liabilities |
||||||||||||||||
Long-term debt (including long-term debt of the consolidated VIE without recourse to the Company of RMB 189,572,500 and RMB 175,000,000 (US$ 27,899,117) as of December 31, 2016 and 2017, respectively) |
11 | 189,572,500 | 175,000,000 | 27,899,117 | ||||||||||||
Other non-current liabilities (including other non-current liabilities of the consolidated VIE without recourse to the Company of RMB 27,322,652 and RMB 35,555,908 (US$ 5,668,448) as of December 31, 2016 and 2017, respectively) |
14 | 27,322,652 | 35,555,908 | 5,668,448 | ||||||||||||
|
|
|
|
|
|
|||||||||||
Total non-current liabilities |
216,895,152 | 210,555,908 | 33,567,565 | |||||||||||||
|
|
|
|
|
|
|||||||||||
Total liabilities |
503,769,356 | 736,859,955 | 117,472,811 | |||||||||||||
|
|
|
|
|
|
The accompanying notes are an integral part of these consolidated financial statements.
F-4
CANGO INC.
CONSOLIDATED BALANCE SHEETS - continued
AS OF DECEMBER 31, 2016 AND 2017
(Amounts in Renminbi (RMB) and US dollar (US$), except for number of shares and per share data)
The accompanying notes are an integral part of these consolidated financial statements.
F-5
CANGO INC.
CONSOLIDATED BALANCE SHEETS - continued
AS OF DECEMBER 31, 2016 AND 2017
(Amounts in Renminbi (RMB) and US dollar (US$), except for number of shares and per share data)
As of December 31, | ||||||||||||||||
2016 | 2017 | |||||||||||||||
Note | RMB | RMB | US$ | |||||||||||||
Shareholders (deficit) equity |
||||||||||||||||
Ordinary shares (US$ 0.0001 par value; 372,138,271 shares authorized, 124,969,987 shares issued and outstanding at December 31, 2016 and 2017; 500,000,000 shares authorized, 252,831,716 shares issued and outstanding, unaudited, pro forma) |
83,145 | 83,145 | 13,255 | |||||||||||||
Series A-2 preferred shares (US$ 0.0001 par value; 2,179,215 shares authorized and outstanding as of December 31, 2016 and 2017; nil of shares authorized, issued and outstanding, unaudited, pro forma) |
1,450 | 1,450 | 231 | |||||||||||||
Additional paid-in capital |
4,611,881 | 4,100,000 | 653,636 | |||||||||||||
Accumulated other comprehensive loss |
| (398,698 | ) | (63,562 | ) | |||||||||||
Accumulated deficit |
(3,750,749,590 | ) | (2,711,414,472 | ) | (432,263,252 | ) | ||||||||||
Total Cango Inc.s deficit |
(3,746,053,114 | ) | (2,707,628,575 | ) | (431,659,692 | ) | ||||||||||
|
|
|
|
|
|
|||||||||||
Non-controlling interests |
15,294,222 | 25,790,121 | 4,111,552 | |||||||||||||
|
|
|
|
|
|
|||||||||||
Total shareholders deficit |
(3,730,758,892 | ) | (2,681,838,454 | ) | (427,548,140 | ) | ||||||||||
|
|
|
|
|
|
|||||||||||
TOTAL LIABILITIES, MEZZANINE EQUITY AND SHAREHOLDERS EQUITY |
714,856,540 | 1,996,867,577 | 318,347,666 | |||||||||||||
|
|
|
|
|
|
The accompanying notes are an integral part of these consolidated financial statements.
F-6
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
FOR THE YEARS ENDED DECEMBER 31, 2016 AND 2017
(Amounts in Renminbi (RMB) and US dollar (US$), except for number of shares and per share data)
For the years ended December 31, | ||||||||||||||||
2016 | 2017 | |||||||||||||||
Note | RMB | RMB | US$ | |||||||||||||
Revenues |
||||||||||||||||
(Including related party amounts of RMB 319,436,092 and RMB 547,340,661 (US$ 87,258,977) for the years ended December 31, 2016 and 2017, respectively) |
434,279,994 | 1,052,203,719 | 167,746,025 | |||||||||||||
|
|
|
|
|
|
|||||||||||
Operating cost and expenses |
||||||||||||||||
Cost of revenue |
15 | 170,044,374 | 386,053,922 | 61,546,077 | ||||||||||||
Sales and marketing |
39,536,654 | 114,145,319 | 18,197,449 | |||||||||||||
General and administrative |
34,550,094 | 101,276,675 | 16,145,884 | |||||||||||||
Research and development |
4,999,844 | 19,418,576 | 3,095,778 | |||||||||||||
Net loss (gain) on risk assurance liabilities |
743,874 | (38,866,874 | ) | (6,196,294 | ) | |||||||||||
Provision for financing receivables |
| 156,124 | 24,890 | |||||||||||||
|
|
|
|
|
|
|||||||||||
Total operation cost and expense |
249,874,840 | 582,183,742 | 92,813,784 | |||||||||||||
Income from operations |
184,405,154 | 470,019,977 | 74,932,241 | |||||||||||||
|
|
|
|
|
|
|||||||||||
Interest income |
||||||||||||||||
(Including related party amounts of RMB 3,296,361 and RMB 5,086,733 (US$ 810,945) for the years ended December 31, 2016 and 2017, respectively) |
4,099,155 | 16,164,309 | 2,576,971 | |||||||||||||
(Loss) income from equity method investments |
(9,987,809 | ) | 4,855,508 | 774,082 | ||||||||||||
Interest expense |
(449,690 | ) | (12,993,624 | ) | (2,071,489 | ) | ||||||||||
Foreign exchange loss, net |
| (25,403,473 | ) | (4,049,911 | ) | |||||||||||
Other income |
16 | 8,660,772 | 16,196,581 | 2,582,116 | ||||||||||||
Other expenses |
(232,208 | ) | (378,846 | ) | (60,397 | ) | ||||||||||
|
|
|
|
|
|
|||||||||||
Net income before income taxes |
186,495,374 | 468,460,432 | 74,683,613 | |||||||||||||
Income tax expenses |
17 | (53,014,312 | ) | (119,403,000 | ) | (19,035,647 | ) | |||||||||
|
|
|
|
|
|
|||||||||||
Net income |
133,481,062 | 349,057,432 | 55,647,966 | |||||||||||||
|
|
|
|
|
|
|||||||||||
Less: Net income attributable to non-controlling interests |
4,575,078 | 8,047,621 | 1,282,980 | |||||||||||||
Net income attributable to Cango Inc.s shareholders |
128,905,984 | 341,009,811 | 54,364,986 | |||||||||||||
|
|
|
|
|
|
The accompanying notes are an integral part of these consolidated financial statements.
F-7
CANGO INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME - continued
FOR THE YEARS ENDED DECEMBER 31, 2016 AND 2017
(Amounts in Renminbi (RMB) and US dollar (US$), except for number of shares and per share data)
For the years ended December 31, | ||||||||||||||||
2016 | 2017 | |||||||||||||||
Note | RMB | RMB | US$ | |||||||||||||
Earnings per share attributable to ordinary shareholders and Series A-2 preferred shareholder: |
||||||||||||||||
Basic and diluted |
19 | 0.51 | 1.35 | 0.22 | ||||||||||||
Weighted average shares used to compute earnings per share attributable to ordinary shareholders and Series A-2 preferred shareholder: |
||||||||||||||||
Basic |
19 | 127,149,202 | 127,149,202 | 127,149,202 | ||||||||||||
Diluted |
19 | 252,831,716 | 252,831,716 | 252,831,716 | ||||||||||||
Pro forma income per share attributable to ordinary shareholdersbasic and diluted (unaudited) |
19 | 1.15 | 0.18 | |||||||||||||
Shares used in pro forma income per share computationbasic and diluted (unaudited) |
19 | 295,898,332 | 295,898,332 | |||||||||||||
Other comprehensive loss, net of tax |
18 | |||||||||||||||
Unrealized losses on available-for-sale securities |
| (2,463,956 | ) | (392,813 | ) | |||||||||||
Reclassification of losses to net income |
| 2,065,258 | 329,251 | |||||||||||||
|
|
|
|
|
|
|||||||||||
Total comprehensive income, net of tax |
133,481,062 | 348,658,734 | 55,584,404 | |||||||||||||
|
|
|
|
|
|
|||||||||||
Total comprehensive income attributable to non-controlling interests |
4,575,078 | 8,047,621 | 1,282,980 | |||||||||||||
|
|
|
|
|
|
|||||||||||
Total comprehensive income attributable to Cango Inc.s shareholders |
128,905,984 | 340,611,113 | 54,301,424 | |||||||||||||
|
|
|
|
|
|
The accompanying notes are an integral part of these consolidated financial statements.
F-8
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS DEFICIT
FOR THE YEARS ENDED DECEMBER 31, 2016 AND 2017
(Amounts in Renminbi (RMB) and US dollar (US$), except for number of shares and per share data)
Attributable to Cango Inc. |
Non-
controlling interests |
Total
shareholders deficit |
||||||||||||||||||||||||||||||||||||||
Ordinary shares | A-2 convertible preferred shares |
Additional
paid-in capital |
Accumulated
other comprehensive loss |
Accumulated
deficit |
Total
Cango Inc.s deficit |
|||||||||||||||||||||||||||||||||||
Number of
Shares |
Amount | Number of shares | Amount | |||||||||||||||||||||||||||||||||||||
Balance at December 31, 2015 |
124,969,987 | 83,145 | 2,179,215 | 1,450 | | | (3,879,655,574 | ) | (3,879,570,979 | ) | 13,454,025 | (3,866,116,954 | ) | |||||||||||||||||||||||||||
Share-based compensation (Note 22) |
| | | | 4,100,000 | | | 4,100,000 | | 4,100,000 | ||||||||||||||||||||||||||||||
Purchase of subsidiarys equity from non-controlling interests holder |
| | | | 511,881 | | | 511,881 | (1,711,881 | ) | (1,200,000 | ) | ||||||||||||||||||||||||||||
Dividends to non-controlling interests |
| | | | | | | | (1,023,000 | ) | (1,023,000 | ) | ||||||||||||||||||||||||||||
Net income |
| | | | | | 128,905,984 | 128,905,984 | 4,575,078 | 133,481,062 | ||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||
Balance at December 31, 2016 |
124,969,987 | 83,145 | 2,179,215 | 1,450 | 4,611,881 | | (3,750,749,590 | ) | (3,746,053,114 | ) | 15,294,222 | (3,730,758,892 | ) | |||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||
Capital contribution by shareholders |
| | | | 698,661,704 | | | 698,661,704 | | 698,661,704 | ||||||||||||||||||||||||||||||
Shareholder distribution |
| | | | (698,661,704 | ) | | 698,661,704 | | | | |||||||||||||||||||||||||||||
Sale of subsidiaries equity to non-controlling interests holders |
| | | | (511,881 | ) | | (336,397 | ) | (848,278 | ) | 2,448,278 | 1,600,000 | |||||||||||||||||||||||||||
Other comprehensive loss |
| | | | | (398,698 | ) | | (398,698 | ) | | (398,698 | ) | |||||||||||||||||||||||||||
Net income |
| | | | | | 341,009,811 | 341,009,811 | 8,047,621 | 349,057,432 | ||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||
Balance at December 31, 2017 |
124,969,987 | 83,145 | 2,179,215 | 1,450 | 4,100,000 | (398,698 | ) | (2,711,414,472 | ) | (2,707,628,575 | ) | 25,790,121 | (2,681,838,454 | ) | ||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these consolidated financial statements.
F-9
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 2016 AND 2017
(Amounts in Renminbi (RMB) and US dollar (US$), except for number of shares and per share data)
For the years ended December 31, | ||||||||||||
2016 | 2017 | |||||||||||
RMB | RMB | US$ | ||||||||||
Cash flows from operating activities: |
||||||||||||
Net income |
133,481,062 | 349,057,432 | 55,647,966 | |||||||||
Adjustments to reconcile net income to net cash used in operating activities: |
||||||||||||
Depreciation and amortization |
1,501,400 | 2,971,273 | 473,691 | |||||||||
Share-based compensation expense |
4,100,000 | | | |||||||||
Loss (gain) on risk assurance liabilities |
743,874 | (38,866,874 | ) | (6,196,294 | ) | |||||||
Provision of financing receivables |
| 156,124 | 24,890 | |||||||||
Loss (gain) from equity method investment |
9,987,809 | (4,855,508 | ) | (774,082 | ) | |||||||
Loss on disposal of property and equipment |
| 32,592 | 5,196 | |||||||||
Foreign exchange loss, net |
| 25,403,473 | 4,049,911 | |||||||||
Deferred income tax expense (income) |
2,863,061 | (12,752,767 | ) | (2,033,091 | ) | |||||||
Changes in operating assets and liabilities: |
||||||||||||
Accounts receivable |
526,478 | (85,125,822 | ) | (13,571,059 | ) | |||||||
Financing receivables |
| (988,176 | ) | (157,539 | ) | |||||||
Receivables from related parties |
(141,984,860 | ) | 132,218,757 | 21,078,780 | ||||||||
Other current and non-current assets |
(23,050,832 | ) | (64,476,000 | ) | (10,278,991 | ) | ||||||
Payables to related parties |
3,015,000 | 1,010,000 | 161,018 | |||||||||
Risk assurance liabilities |
(21,720,806 | ) | 19,014,568 | 3,031,369 | ||||||||
Other current and non-current liabilities |
113,564,407 | 266,504,344 | 42,487,061 | |||||||||
|
|
|
|
|
|
|||||||
Net cash provided by operating activities |
83,026,593 | 589,303,416 | 93,948,826 | |||||||||
|
|
|
|
|
|
|||||||
Cash flows from investing activities: |
||||||||||||
Proceeds from redemption of short-term investments |
205,071,101 | 1,463,310,000 | 233,286,038 | |||||||||
Proceeds from sale of long-term investments |
| 332,826,300 | 53,060,342 | |||||||||
Proceeds from shareholder loans |
38,024,160 | 3,000,000 | 478,271 | |||||||||
Disposal of property and equipment and intangible assets |
441,860 | 244,735 | 39,017 | |||||||||
Purchase of short-term investments |
(295,500,000 | ) | (1,419,690,000 | ) | (226,331,984 | ) | ||||||
Purchase of long-term investments |
(185,800,000 | ) | (338,560,500 | ) | (53,974,508 | ) | ||||||
Purchases of property and equipment and intangible assets |
(2,576,037 | ) | (9,586,242 | ) | (1,528,272 | ) | ||||||
Purchase of equity method investment |
| (141,500,000 | ) | (22,558,429 | ) | |||||||
Loans provided to shareholders |
(31,699,913 | ) | (52,950,131 | ) | (8,441,497 | ) | ||||||
|
|
|
|
|
|
|||||||
Net cash used in investing activities |
(272,038,829 | ) | (162,905,838 | ) | (25,971,022 | ) | ||||||
|
|
|
|
|
|
The accompanying notes are an integral part of these consolidated financial statements.
F-10
CANGO INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS - continued
FOR THE YEARS ENDED DECEMBER 31, 2016 AND 2017
(Amounts in Renminbi (RMB) and US dollar (US$), except for number of shares and per share data)
For the years ended December 31, | ||||||||||||
2016 | 2017 | |||||||||||
RMB | RMB | US$ | ||||||||||
Cash flows from financing activities: |
||||||||||||
Contribution from shareholders |
| 698,661,704 | 111,383,111 | |||||||||
Sale of subsidiaries equity to non-controlling interests holders |
| 1,600,000 | 255,078 | |||||||||
Proceeds from borrowings |
189,369,514 | 400,340,000 | 63,823,614 | |||||||||
Purchase of subsidiarys equity from non-controlling interests holder |
(1,200,000 | ) | | | ||||||||
Repayment of borrowings |
| (414,912,500 | ) | (66,146,813 | ) | |||||||
Distribution to shareholders |
(1,023,000 | ) | | | ||||||||
|
|
|
|
|
|
|||||||
Net cash provided by financing activities |
187,146,514 | 685,689,204 | 109,314,990 | |||||||||
|
|
|
|
|
|
|||||||
Effect of exchange rate changes on cash, cash equivalents and restricted cash |
| (25,403,473 | ) | (4,049,911 | ) | |||||||
|
|
|
|
|
|
|||||||
Net (decrease) increase in cash, cash equivalents and restricted cash |
(1,865,722 | ) | 1,086,683,309 | 173,242,883 | ||||||||
|
|
|
|
|
|
|||||||
Cash, cash equivalents and restricted cash at beginning of the year |
47,865,935 | 46,000,213 | 7,333,516 | |||||||||
Cash, cash equivalents and restricted cash at the end of the year |
46,000,213 | 1,132,683,522 | 180,576,399 | |||||||||
|
|
|
|
|
|
|||||||
Including: |
||||||||||||
Cash, cash equivalents |
44,989,215 | 803,270,815 | 128,060,264 | |||||||||
Restricted cash |
1,010,998 | 329,412,707 | 52,516,135 | |||||||||
Supplemental disclosures of cash flow information: |
||||||||||||
Income taxes paid |
19,766,908 | 116,552,157 | 18,581,156 | |||||||||
Interest expense paid |
202,986 | 13,240,328 | 2,110,820 |
The accompanying notes are an integral part of these consolidated financial statements.
F-11
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2016 AND 2017
(Amounts in Renminbi (RMB) and US dollar (US$), except for number of shares and per share data)
1. | ORGANIZATION |
Cango Inc. (the Company, and where appropriate, the term Company also refers to its subsidiaries, variable interest entity, and subsidiaries of the variable interest entity as a whole) is an exempt company incorporated in the Cayman Islands with limited liability under the laws of the Cayman Islands on October 9, 2017. The Company, through its subsidiaries, variable interest entity (VIE), and subsidiaries of the VIE, are principally engaged in the provision of automotive financing facilitation, automotive transaction facilitation, and aftermarket service facilitation in the Peoples Republic of China (the PRC). The Company conducts its primary business operations through its VIE and the subsidiaries of the VIE.
In preparation of its initial public offering in the United States, the Company was restructured on March 23, 2018 (the Restructuring date) in order to establish the Company as the parent company. As part of the restructuring, the business operations of the VIE were transferred to the Company. In return, the Company issued 39,442,798 of ordinary shares to Eagle Central Holding Limited, a company wholly owned by Mr. Xiaojun Zhang, 39,882,922 of ordinary shares to Medway Brilliant Holding Limited, a company wholly owned by Mr. Jiayuan Lin, 13,075,290 of ordinary shares to Huaiyuan L.P., 11,285,322 of ordinary shares to Minghuai L.P., 21,283,655 of ordinary shares to Xiehuai L.P. as well as 53,431,125 of Series A-1 preferred shares, 2,179,215 of Series A-2 preferred shares, 10,308,663 of Series A-3 preferred shares (collectively Series A), and 61,942,726 of Series B preferred shares to the same group of third party shareholders of the VIE.
As the shareholdings in the Company and the VIE were identical immediately before and after the restructuring, the transaction was accounted for under common ownership, in a manner similar to a pooling of interests. Therefore, the accompanying consolidated financial statements have been prepared as if the corporate structure of the Company had been in existence since the beginning of the periods presented. Furthermore, the Series A and B preferred shares were recorded at fair value upon restructuring and presented on a retroactive basis.
As of December 31, 2017, the Companys subsidiaries, VIE and subsidiaries of the VIE are as follows:
Entity |
Date of incorporation |
Place of incorporation |
Percentage of
|
Principal activities |
||||
Subsidiaries |
||||||||
Cango Group Limited (Cango HK) |
October 31, 2017 |
Hong Kong (HK) |
100% |
Investment holding |
||||
Can Gu Long (Shanghai) Information Technology Consultation Service Co., Ltd. (Cangulong or Wholly Foreign Owned Enterprise WFOE) |
January 25, 2018 | PRC | 100% |
Investment holding |
||||
VIE |
||||||||
Shanghai Cango Investment and Management Consultation Service Co., Ltd. (Shanghai Cango) |
August 30, 2010 | PRC | Nil |
Provision of automotive financing facilitation, automotive transaction facilitation and aftermarket service facilitation. |
F-12
CANGO INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - continued
FOR THE YEARS ENDED DECEMBER 31, 2016 AND 2017
(Amounts in Renminbi (RMB) and US dollar (US$), except for number of shares and per share data)
1. | ORGANIZATION - CONTINUED |
Entity |
Date of incorporation |
Place of incorporation |
Percentage of
|
Principal activities |
||||
Subsidiaries of the VIE |
||||||||
Shanghai Wangjin Financial Information Service Co., Ltd. (Shanghai Wangjin) |
June 21, 2013 | PRC | Nil |
Finance and information technology |
||||
Shanghai Huixie Automotive Service Co., Ltd. (Shanghai Huixie) |
November 27, 2014 | PRC | Nil |
Automotive technology development, sale of automotive parts |
||||
Shanghai Cango Electronic Technology Co., Ltd. (Electronic Technology) |
July 13, 2016 | PRC | Nil |
Automotive technology development, sale of automotive parts |
||||
Shanghai Cango Automobile Sales Co., Ltd. (Automobile Sales) |
September 30, 2016 | PRC | Nil |
Sale of automobiles and automotive parts |
||||
Guangzhou Cango Automotive Information Consultation Service Co., Ltd. (Guangzhou Cango) |
February 28, 2015 | PRC | Nil |
Automotive information consultation services |
||||
Tianjin Changtong Automotive Leasing Co., Ltd. (Tianjin Changtong) |
January 10, 2013 | PRC | Nil |
Automotive leasing, automotive information consultation services |
||||
Shenyang Cango Automotive Information Consultation Co., Ltd. (Shenyang Cango) |
January 27, 2015 | PRC | Nil |
Automotive information consultation services |
||||
Jiangsu Tongyuan Automotive Consulting Service Co., Ltd. (Jiangsu Tongyuan) |
November 18, 2010 | PRC | Nil |
Automotive information consultation services |
||||
Nanjing Canyuan Automotive Service Co., Ltd. (Nanjing Canyuan) |
April 3, 2015 | PRC | Nil |
Automotive information consultation services |
||||
Hubei Huaitai Automotive Consulting Service Co., Ltd. (Hubei Huaitai) |
March 27, 2013 | PRC | Nil |
Automotive information consultation services |
||||
Sichuan Xintongda Automotive Service Co., Ltd. (Sichuan Xintongda) |
December 6, 2010 | PRC | Nil |
Automotive leasing, automotive information consultation services |
||||
Chengdu Cango Automotive Service Co., Ltd. (Chengdu Cango) |
October 13, 2015 | PRC | Nil |
Automotive leasing, automotive information consultation services |
||||
Xian Cango Automotive Consulting Service Co., Ltd. (Xian Cango) |
February 6, 2015 | PRC | Nil |
Automotive information consultation services |
||||
Shijiazhuang Cango Automotive Leasing Co., Ltd. (Shijiazhuang Cango) |
March 4, 2015 | PRC | Nil |
Automotive leasing, automotive information consultation services |
||||
Shanxi Huirui Automotive Consulting Service Co., Ltd. (Shanxi Huirui) |
April 9, 2013 | PRC | Nil |
Automotive information consultation services |
||||
Henan Cango Automotive Service Co., Ltd. (Henan Cango) |
April 22, 2015 | PRC | Nil |
Automotive leasing, automotive information consultation services |
||||
Heilongjiang Cango Automotive Information Consultation Co., Ltd. (Heilongjiang Cango) |
November 9, 2015 | PRC | Nil |
Automotive information consultation services |
||||
Shandong Huaitong Automotive Consulting Service Co., Ltd. (Shandong Huaitong) |
October 11, 2013 | PRC | Nil |
Automotive information consultation services |
||||
Hefei Cango Automotive Service Co., Ltd. (Hefei Cango) |
February 10, 2015 | PRC | Nil |
Automotive leasing, automotive information consultation services |
F-13
CANGO INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - continued
FOR THE YEARS ENDED DECEMBER 31, 2016 AND 2017
(Amounts in Renminbi (RMB) and US dollar (US$), except for number of shares and per share data)
1. | ORGANIZATION - CONTINUED |
Entity |
Date of incorporation |
Place of incorporation |
Percentage of
|
Principal activities |
||||
Fujian Changhui Automotive Service Co., Ltd. (Fujian Changhui) |
March 5, 2012 | PRC | Nil |
Automotive leasing, automotive information consultation services |
||||
Changsha Cango Automotive Service Co., Ltd. (Changsha Cango) |
January 20, 2015 | PRC | Nil |
Automotive leasing, automotive information consultation services |
||||
Guangxi Canyuan Automotive Consulting Service Co., Ltd. (Guangxi Canyuan) |
June 27, 2011 | PRC | Nil |
Automotive information consultation services |
||||
Guangxi Nanning Cango Automotive Consulting Service Co., Ltd. (Nanning Cango) |
February 13, 2015 | PRC | Nil |
Automotive information consultation services |
||||
Jiangxi Cango Automotive Consulting Service Co., Ltd. (Jiangxi Cango) |
February 12, 2015 | PRC | Nil |
Automotive information consultation services |
||||
Guizhou Cango Automotive Service Co., Ltd. (Guizhou Cango) |
March 25, 2015 | PRC | Nil |
Automotive leasing, automotive information consultation services |
||||
Kunming Cango Automotive Information Consultation Service Co., Ltd. (Kunming Cango) |
February 13, 2015 | PRC | Nil |
Automotive information consultation services |
||||
Beijing Cango Automotive Consulting Service Co., Ltd. (Beijing Cango) |
August 8, 2017 | PRC | Nil |
Automotive information consultation services |
||||
Shanghai Wangtian Investment Co., Ltd. (Shanghai Wangtian) |
February 10, 2015 | PRC | Nil |
Investment holding |
On October 31, 2017, the Company incorporated a wholly-owned subsidiary, Cango HK, in Hong Kong. On January 25, 2018, the Company incorporated another wholly-owned subsidiary, Cangulong, in the PRC. On March 23, 2018, Shanghai Cango signed a series of contractual agreements with Cangulong and its nominee shareholders (the VIE Agreements).
The Company operates its business primarily through the VIE and the subsidiaries of the VIE. The Company, through the WFOE, entered into power of attorney and an exclusive option agreement with the nominee shareholders of the VIE, that gave the WFOE the power to direct the activities that most significantly affect the economic performance of the VIE and to acquire the equity interests in the VIE when permitted by the PRC laws, respectively. Certain exclusive agreements have been entered into with the VIE through the WFOE, which obligate the WFOE to absorb a majority of the risk of loss from the VIEs activities and entitles the WFOE to receive a majority of their residual returns. In addition, the Company entered into a share pledge agreement for equity interests in the VIE held by the nominee shareholders of the VIE. On March 22, 2018, Cango Inc. agreed to provide unlimited financial support to the VIE for its operations. As a result of the VIE Agreements, the Company exercises effective control over the significant business activities of the VIE through the WFOE and provides unlimited financial support to the VIE. Therefore Cango Inc. is determined to be most closely associated with the VIE within the group of related parties and was considered to be the Primary Beneficiary of the VIE.
Despite the lack of technical majority ownership, the Company has effective control of the VIE through the VIE Agreements and a parent-subsidiary relationship exists between the Company and the VIE. Through the VIE Agreements, the shareholders of the VIE effectively assigned all of their voting rights underlying their
F-14
CANGO INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - continued
FOR THE YEARS ENDED DECEMBER 31, 2016 AND 2017
(Amounts in Renminbi (RMB) and US dollar (US$), except for number of shares and per share data)
1. | ORGANIZATION - CONTINUED |
equity interest in the VIE to the Company. In addition, through the other exclusive agreements, which consist of exclusive option agreement, exclusive business cooperation agreement, and equity pledge agreement, the Company, through its wholly-owned subsidiaries in the PRC, have the right to receive economic benefits from the VIE that potentially could be significant to the VIE. Lastly, through the financial support undertaking letter, the Company has the obligation to absorb losses of the VIE that could potentially be significant to the VIE. Therefore, the Company is considered the primary beneficiary of the VIE and consolidates the VIE and its consolidated subsidiaries as required by SEC Regulation S-X Rule 3A-02 and ASC topic 810 (ASC 810), Consolidation .
The following is a summary of the VIE Agreements:
(1) | Power of Attorney Agreements: |
Pursuant to the power of attorney signed between Shanghai Cangos nominee shareholders and the WFOE, each nominee shareholder irrevocably appointed the WFOE as its attorney-in-fact to exercise on each nominee shareholders behalf any and all rights that each nominee shareholder has in respect of its equity interest in Shanghai Cango (including but not limited to executing the exclusive right to purchase agreements, the voting rights and the right to appoint directors and executive officers of Shanghai Cango). This agreement is effective and irrevocable as long as the nominee shareholder remains a shareholder of Shanghai Cango.
(2) | Exclusive Option Agreement: |
Pursuant to the exclusive option agreement entered into between Shanghai Cangos nominee shareholders and the WFOE, the nominee shareholders irrevocably granted the WFOE a call option to request the nominee shareholders to transfer or sell any part or all of its equity interests in the VIE, or any or all of the assets of the VIE, to the WFOE, or their designees. The purchase price of the equity interests in the VIE is equal to the minimum price required by PRC law. Without the WFOEs prior written consent, the VIE and its nominee shareholders cannot amend its articles of association, increase or decrease the registered capital, sell or otherwise dispose of its assets or beneficial interest, create or allow any encumbrance on its assets or other beneficial interests and provide any loans or guarantees. The nominee shareholders cannot request any dividends or other form of assets. If dividends or other form of assets were distributed, the nominee shareholders are required to transfer all received distribution to the WFOE or their designees. This agreement is not terminated until all of the equity interest of the VIE is transferred to the WFOE or the person(s) designated by the WFOE. None of the nominee shareholders have the right to terminate or revoke the agreement under any circumstance unless otherwise regulated by law.
(3) | Exclusive Business Cooperation Agreement: |
Pursuant to the exclusive business cooperation agreement entered into by the WFOE and Shanghai Cango and its subsidiaries, the WFOE provides exclusive technical support and consulting services in return for fees based on 100% of Shanghai Cangos profit before tax, which is adjustable at the sole discretion of the WFOE. Without the WFOEs consent, the VIE and its subsidiaries cannot procure services from any third party or enter into similar service arrangements with any other third party, other
F-15
CANGO INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - continued
FOR THE YEARS ENDED DECEMBER 31, 2016 AND 2017
(Amounts in Renminbi (RMB) and US dollar (US$), except for number of shares and per share data)
1. | ORGANIZATION - CONTINUED |
(3) | Exclusive Business Cooperation Agreement - continued: |
than the WFOE. In addition, the consolidated VIE granted the WFOE an exclusive right to purchase any or all of the business or assets of each of the profitable consolidated VIE and its subsidiaries at the lowest price permitted under PRC law. This agreement is irrevocable or can only be unilaterally revoked/amended by the WFOE.
(4) | Equity Pledge Agreement: |
Pursuant to the equity pledge agreements, the nominee shareholders representing over 90% of the VIEs equity interest have pledged all of their respective equity interests in the VIE to the WFOE as continuing first priority security interest to guarantee the nominee shareholders and the VIEs obligations under the power of attorney agreement, the exclusive option agreement and the exclusive business cooperation agreement. The WFOE is entitled to collect dividends during the effective period of the share pledge unless it agrees otherwise in writing. If Shanghai Cango or any of the nominee shareholder breaches its contractual obligations, the WFOE will be entitled to certain rights regarding the pledged equity interests, including receiving proceeds from the auction or sale of all or part of the pledged equity interests of Shanghai Cango in accordance with PRC law. None of the nominee shareholders may assign or transfer to any third party, distribute dividends and create or cause any security interest and any liability in whatsoever form to be created on, all or any part of the equity interests it holds in the VIE without the written consent of the WFOE. This agreement is not terminated until all of the technical support and consulting and service fees are fully paid under the exclusive business cooperation agreement and all of Shanghai Cango obligations have been terminated under the other controlling agreements. The Company will register the equity pledge with the relevant office of the administration for industry and commerce in accordance with the PRC Property Rights Law.
In March 2018, the following supplementary agreements were entered into:
(1) | Financial support undertaking letter |
Pursuant to the financial support undertaking letter, the Company is obligated to provide unlimited financial support to the VIE, to the extent permissible under the applicable PRC laws and regulations. The Company will not request repayment of the loans or borrowings if the VIE Entity or its shareholders do not have sufficient funds or are unable to repay.
(2) | Resolutions of the sole director of Cango Inc. (the Resolutions) |
The sole director resolved that each of Mr. Xiaojun Zhang, Mr. Jiayuan Lin and Mr. Yongyi Zhang (each, an Authorized Officer) shall cause the WFOE to exercise its rights under the power of attorney agreements and the exclusive option agreement when the Authorized Officer determines that such exercise is in the best interests of the Company and the WFOE to do so.
In the opinion of the Companys legal counsel, (i) the ownership structure of the PRC subsidiaries and the VIE, both currently and immediately after giving effect to the initial public offering, does not and will not violate applicable PRC laws and regulations; (ii) each of the VIE Agreements is valid, binding
F-16
CANGO INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - continued
FOR THE YEARS ENDED DECEMBER 31, 2016 AND 2017
(Amounts in Renminbi (RMB) and US dollar (US$), except for number of shares and per share data)
1. | ORGANIZATION - CONTINUED |
(2) | Resolutions of the sole director of Cango Inc. (the Resolutions) - continued |
and enforceable in accordance with its terms and applicable PRC laws or regulations and will not violate applicable PRC laws or regulations; (iii) the financial support letter issued by the Company to the VIE, dated on March 22, 2018 and the resolutions contained in the Resolutions are valid in accordance with the articles of association of the Company and Cayman Islands Law.
However, uncertainties in the PRC legal system could cause the Companys current ownership structure to be found in violation of existing and/or future PRC laws or regulations and could limit the Companys ability to enforce its rights under these contractual arrangements. Furthermore, the nominee shareholders of the VIE may have interests that are different than those of the Company, which could potentially increase the risk that they would seek to act contrary to the terms of the contractual agreements with the VIE.
In addition, if the current structure or any of the contractual arrangements is found to be in violation of any existing or future PRC laws or regulations, the Company could be subject to penalties, which could include, but not be limited to, revocation of business and operating licenses, discontinuing or restricting business operations, restricting the Companys right to collect revenues, temporary or permanent blocking of the Companys internet platforms, restructuring of the Companys operations, imposition of additional conditions or requirements with which the Company may not be able to comply, or other regulatory or enforcement actions against the Company that could be harmful to its business. The imposition of any of these or other penalties could have a material adverse effect on the Companys ability to conduct its business.
F-17
CANGO INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - continued
FOR THE YEARS ENDED DECEMBER 31, 2016 AND 2017
(Amounts in Renminbi (RMB) and US dollar (US$), except for number of shares and per share data)
1. | ORGANIZATION - CONTINUED |
Except for all assets of the consolidated trusts, there was no other pledge or collateralization of the VIEs assets. Creditors of the VIE have no recourse to the general credit of the Company, who is the primary beneficiary of the VIE, through its 100% controlled subsidiary Cangulong. The Company has not provided any financial or other support that it was not previously contractually required to provide to the VIE during the periods presented. The table sets forth the assets and liabilities of the VIEs included in the Companys consolidated balance sheets:
As of December 31, | ||||||||||||
2016 | 2017 | |||||||||||
RMB | RMB | US$ | ||||||||||
Cash and cash equivalents |
44,989,215 | 803,270,815 | 128,060,264 | |||||||||
Restricted cash |
1,010,998 | 10,060,360 | 1,603,858 | |||||||||
Short-term investments |
106,000,000 | 62,380,000 | 9,944,839 | |||||||||
Accounts receivable, net |
469,385 | 85,595,207 | 13,645,890 | |||||||||
Financing receivables, net |
| 832,052 | 132,649 | |||||||||
Short-term amounts due from related parties |
138,559,323 | 1,253,833 | 199,890 | |||||||||
Prepaid expenses and other current assets |
11,024,270 | 144,858,222 | 23,093,808 | |||||||||
|
|
|
|
|
|
|||||||
Total current assets |
302,053,191 | 1,108,250,489 | 176,681,198 | |||||||||
|
|
|
|
|
|
|||||||
Restricted cash |
| 319,352,347 | 50,912,277 | |||||||||
Long-term investments |
185,800,000 | 191,002,602 | 30,450,308 | |||||||||
Equity method investments |
70,803,382 | 165,659,951 | 26,410,093 | |||||||||
Property and equipment, net |
3,888,392 | 9,751,738 | 1,544,656 | |||||||||
Intangible assets |
1,227,474 | 1,701,770 | 271,302 | |||||||||
Deferred tax assets |
54,888,520 | 67,774,187 | 10,804,800 | |||||||||
Long-term amounts due from related parties |
69,496,274 | 122,383,094 | 19,510,744 | |||||||||
Other non-current assets |
26,699,307 | 10,991,399 | 1,752,288 | |||||||||
|
|
|
|
|
|
|||||||
Total non-current assets |
412,803,349 | 888,617,088 | 141,666,468 | |||||||||
|
|
|
|
|
|
|||||||
Total assets |
714,856,540 | 1,996,867,577 | 318,347,666 | |||||||||
|
|
|
|
|
|
|||||||
Total current liabilities |
286,874,204 | 526,304,047 | 83,905,246 | |||||||||
Total non-current liabilities |
216,895,152 | 210,555,908 | 33,567,565 | |||||||||
|
|
|
|
|
|
|||||||
Total liabilities |
503,769,356 | 736,859,955 | 117,472,811 | |||||||||
|
|
|
|
|
|
The VIEs net asset balance was RMB 211,087,184 and RMB 1,260,007,622 (US$ 200,874,856) as of December 31, 2016 and 2017.
F-18
CANGO INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - continued
FOR THE YEARS ENDED DECEMBER 31, 2016 AND 2017
(Amounts in Renminbi (RMB) and US dollar (US$), except for number of shares and per share data)
1. | ORGANIZATION - CONTINUED |
The table sets forth the results of operations of the VIE included in the Companys consolidated statements of comprehensive income:
For the years ended December 31, | ||||||||||||
2016 | 2017 | |||||||||||
RMB | RMB | US$ | ||||||||||
Revenues |
434,279,994 | 1,052,203,719 | 167,746,025 | |||||||||
Net income |
133,481,062 | 349,057,432 | 55,647,966 |
The table sets forth the cash flows of the VIE included in the Companys consolidated statements of cash flows:
For the years ended December 31, | ||||||||||||
2016 | 2017 | |||||||||||
RMB | RMB | US$ | ||||||||||
Net cash provided by operating activities |
83,026,593 | 589,303,416 | 93,948,826 | |||||||||
Net cash used in investing activities |
(272,038,829 | ) | (162,905,838 | ) | (25,971,022 | ) | ||||||
Net cash provided by financing activities |
187,146,514 | 685,689,204 | 109,314,990 |
Consolidated trusts
The Company established trusts (Trusts) to invest in subordinated tranches of automobile backed loans. The Company contributed capital to these Trusts, determined the investment strategy, and is the sole beneficiary of these Trusts. These Trusts are administered by third party trust companies as the trustees. The Company consolidates these Trusts as it has the power to direct the activities of them that most significantly impacts their economic performance and the obligation to absorb losses of these Trusts that potentially could be significant to the Company.
For the year ended December 31, 2016, the Company invested in subordinated trust units of automobile backed loans issued by Jincheng Bank amounting to RMB185,800,000, which was classified as long-term investments. As of December 31, 2016, the investments in subordinated trust units of automobile backed loans were not in an unrealized loss position and no other-than-temporary impairment was recognized in earnings.
The table sets forth the assets and liabilities of the consolidated trusts included in the Companys consolidated balance sheets:
As of December 31, | ||||||||||||
2016 | 2017 | |||||||||||
RMB | RMB | US$ | ||||||||||
Total non-current assets |
187,676,775 | 141,534,200 | 22,563,881 | |||||||||
Total non-current liabilities |
| 125,000,000 | 19,927,941 |
F-19
CANGO INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - continued
FOR THE YEARS ENDED DECEMBER 31, 2016 AND 2017
(Amounts in Renminbi (RMB) and US dollar (US$), except for number of shares and per share data)
1. | ORGANIZATION - CONTINUED |
Non-consolidated trust
As of December 31, 2016 and 2017, the Company (through its consolidated trusts) invested in subordinated tranches of automobile backed loans that were originated through a third party trust. The subordinated tranches provides specific returns based on the credit risk of the underlying loans. The Company does not have any additional liquidity arrangements, guarantees, or other commitments to the third party trust. The trust is held by and administered by a third party company as a trustee. The Company is not the primary beneficiary and does not consolidate this trust because the Company does not have power over decisions that significantly affect the trusts economic performance. The Company accounts for the subordinated tranches of automobile backed loans as long-term investments. As of December 31, 2016 and 2017, the net carrying amount of the subordinated tranches of automobile backed loans was RMB 185,800,000 and RMB 191,002,602 (US$ 30,450,308), respectively, and the Companys maximum exposure to loss in the trust, is limited to the subordinated tranches of automobile backed loans.
2. | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES |
Basis of presentation
The consolidated financial statements of the Company have been prepared in accordance with the generally accepted accounting principles of the United States (U.S. GAAP).
Principles of consolidation
The consolidated financial statements include the financial statements of the Company, its subsidiaries, VIE, and the subsidiaries of the VIE. All inter-company transactions and balances have been eliminated.
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 date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Significant accounting estimates reflected in the Companys consolidated financial statements include, but are not limited to revenue recognition, allowance for accounts receivable, allowance for financing receivables, fair value of risk assurance liabilities, share-based compensation, valuation allowance for deferred tax assets, fair value of assets and liabilities assumed in business combination, assessment of recoverability of the Companys property and equipment, intangible assets, uncertain tax positions, fair value of convertible redeemable preferred shares and fair value of investments. Actual results could differ from these estimates.
Revenue recognition
The Company generates revenue primarily by providing automotive financing facilitation services and post-origination administrative services (PAS) to financial institutions. The Company entered into non-risk
F-20
CANGO INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - continued
FOR THE YEARS ENDED DECEMBER 31, 2016 AND 2017
(Amounts in Renminbi (RMB) and US dollar (US$), except for number of shares and per share data)
2. | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED |
Revenue recognition-continued
assured and risk assured facilitation arrangements with various financial institutions. Borrowers that pass the Companys credit assessment processes are recommended to the financial institutions. Once the borrower is independently approved by the financial institutions, the financial institutions will directly fund the borrowers automobile purchase and the Company will earn a loan facilitation fee from the financial institution. Additionally, the Company will provide PAS, such as tracking through telematics devices in the automobiles; and sending short-message-service (SMS) payment reminder to borrowers, throughout the terms of the loans. The Company determined that it is not the legal lender or legal borrower in the loan origination and repayment process, respectively. Therefore, the Company does not record loan receivables and payable arising from the loans between borrowers and financial institutions on its consolidated balance sheet.
The Company also generates revenue from other contingent fees, such as car recovery and disposal services.
In accordance with ASC 605, Revenue recognition (ASC 605), the Company recognizes revenue when the following four revenue recognition criteria are met:
(i) | Persuasive evidence of an arrangement exists; |
(ii) | Services have been provided; |
(iii) | The fee is fixed and determinable, and |
(iv) | Collectability is reasonably assured. |
Multiple element revenue recognition
For each successful loan facilitation, the Company earns a loan facilitation fee and a recurring service fee for PAS throughout the term of the loans. Borrowers make repayments directly to the financial institutions, and the financial institutions will then remit the loan facilitation fee and recurring service fee to the Company on a periodic basis. The two deliverables provided by the Company are loan facilitation and PAS. In addition, for certain arrangements, the Company may provide a risk assurance obligation to certain financial institutions which requires the Company to make either delinquent installment repayments and/or purchase the loans after a specified period on an individual loan basis. The Company considers the loan facilitation services and the PAS as a multiple element revenue arrangement, and the financial institutions as the sole customer in the arrangement. The Company first allocates the consideration to the risk assurance liability equaling to the fair value of the risk assurance liability if the Company provides a risk assurance obligation to the financial institution in the arrangement. The remaining consideration is then allocated to the loan facilitation services and PAS.
The Company does not have vendor specific objective evidence (VSOE) of selling price for the loan facilitation services and PAS because the Company does not provide loan facilitation services or PAS on a standalone basis. There is also no third-party evidence of the prices charged by third-party service providers when such services are sold separately. As a result, the Company uses its best estimate of selling prices of loan facilitation services and PAS as the basis of revenue allocation.
F-21
CANGO INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - continued
FOR THE YEARS ENDED DECEMBER 31, 2016 AND 2017
(Amounts in Renminbi (RMB) and US dollar (US$), except for number of shares and per share data)
2. | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED |
Revenue recognition-continued
The fee allocated to loan facilitation is recognized as revenue upon each successful loan facilitation, while the fee allocated to PAS are deferred and amortized over the period of the loan on a straight line method as the PAS services are performed. In instances where the fee is not collected entirely upfront but over time, the amount allocated to the delivered loan facilitation services is limited to the amount that is not contingent on the delivery of the undelivered PAS in accordance with ASC 605-25. As the remaining consideration from the revenue arrangement is contingent on the borrowers timely installment repayments to the financial institutions, the remaining loan facilitation service income is recorded when the contingency is resolved.
The loan facilitation services and post-origination administrative services are recorded as revenue in the consolidated statements of comprehensive income.
Cost of revenues
Cost of revenues consist primarily of commissions paid to car dealers who refer borrowers to the Company, employee compensation costs, cost of telematics devices installed in automobiles and third party outsourcing fees for vehicle repossession services. Cost of revenues are expensed as incurred when the corresponding services have been provided.
Foreign currency translation and transactions
The functional currency of the Company and Cango HK is the US$. The Companys subsidiaries, VIE, and subsidiaries of the VIE with operations in the PRC adopted RMB as their functional currencies. The determination of the respective functional currency is based on the criteria stated in ASC 830, Foreign Currency Matters . The Company uses RMB as its reporting currency. The financial statements of the Company and Cango HK are translated into RMB using the exchange rate as of the balance sheet date for assets and liabilities and average exchange rate for the year for income and expense items. Translation gains and losses are recorded in accumulated other comprehensive retained earnings (deficit), as a component of shareholders equity.
Transactions in currencies other than the functional currency are measured and recorded in the functional currency at the exchange rate prevailing on the transaction date.
Monetary assets and liabilities denominated in currencies other than the functional currency are re-measured into the functional currency at the rates of exchange prevailing at the balance sheet dates. Transaction gains and losses are recognized in the consolidated statements of comprehensive income during the period or year in which they occur.
Cash and cash equivalents
Cash and cash equivalents primarily consist of cash, money market funds, investments in interest bearing demand deposit accounts, time deposits, and highly liquid investments with original maturities of three months or less from the date of purchase and are stated at cost which approximates their fair value. All cash and cash equivalents are unrestricted as to withdrawal and use.
F-22
CANGO INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - continued
FOR THE YEARS ENDED DECEMBER 31, 2016 AND 2017
(Amounts in Renminbi (RMB) and US dollar (US$), except for number of shares and per share data)
2. | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED |
Restricted cash
Restricted cash represents cash deposited with the respective financial institution customers as (i) general collaboration deposits, and (ii) guarantee deposits for risk assured arrangements. The Company is required to deposit 5% of the total outstanding loan balances under certain risk assured arrangements as of December 31, 2017 where financial institutions make corresponding deductions from the Companys deposit account, when borrowers are delinquent in their installment repayments and/or when loans are required to be purchased by the Company after a specified delinquency period. Such restricted cash is not available to fund the general liquidity needs of the Company.
The balance of restricted cash deposited as general collaboration deposits was RMB 1,010,998 and RMB 10,060,360 (US$ 1,603,858) as of December 31, 2016 and 2017, respectively. The balance of restricted cash deposited as guarantee deposits for risk assured arrangements was RMB nil and RMB 319,352,347 (US$ 50,912,277) as of December 31, 2016 and 2017.
Accounts receivable and allowance for doubtful accounts
Accounts receivable are recorded at the invoiced amount, net of allowances for doubtful accounts. An allowance for doubtful accounts is recorded in the period when loss is probable based on many factors, including the age of the balance, the customers payment history and current economic trends. The Company reviews the accounts receivable on a periodic basis and makes general and specific allowances when there is doubt as to the collectability of individual balances. Bad debts are written off after all collection efforts have been exhausted.
Short-term investments
All highly liquid investments with original maturities of greater than three months, but less than twelve months, are classified as short-term investments.
Investments that are expected to be realized in cash during the next twelve months are also included in short-term investments. The Company accounts for short-term investments in accordance with ASC topic 320, InvestmentsDebt and Equity Securities (ASC 320). The Company classifies the short-term investments as held-to-maturity, trading or available-for-sale, whose classification determines the respective accounting methods stipulated by ASC 320.
The securities that the Company has the positive intent and the ability to hold to maturity are classified as held-to-maturity securities and stated at amortized cost.
The securities that are bought and held principally for the purpose of selling them in the near term are classified as trading securities. Unrealized holding gains and losses for trading securities are included in earnings.
Investments not classified as trading or as held-to-maturity are classified as available-for-sale securities. Available-for-sale investments are reported at fair value, with unrealized gains and losses recorded in accumulated other comprehensive income. Realized gains or losses are included in earnings
F-23
CANGO INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - continued
FOR THE YEARS ENDED DECEMBER 31, 2016 AND 2017
(Amounts in Renminbi (RMB) and US dollar (US$), except for number of shares and per share data)
2. | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED |
Short-term investments-continued
during the period in which the gain or loss is realized. An impairment loss on the available-for-sale securities is recognized in the consolidated statements of comprehensive income when the decline in value is determined to be other-than-temporary.
Investments
Cost method equity investments
Subordinated trust units which do not provide guaranteed returns and bears losses are equity securities. As the Company does not have significant influence over the subordinated trust and the subordinated trust units do have readily determinable fair values, they are accounted for as cost method equity investments. The Companys cost method equity investments are accounted for in accordance with ASC 325-20, Cost Method Investments . The Company carries these investment at cost and adjusts for other-than-temporary declines in fair value. Management measures impairment by comparing the present value of the remaining cash flows as estimated at investment year end date against the present value of the cash flows expected to be collected at each financial reporting date, using the effective interest rate method. The Company records an impairment loss in earnings equal to the excess of the investments cost over its fair value at the balance sheet date of the reporting period.
Available-for-sale debt securities
Subordinated trust units which provide a guaranteed return are debt securities and represents a beneficial interest that are accounted for in accordance with ASC 320 InvestmentsDebt and Equity Securities and ASC 325-40 Investmentsother, beneficial interests in securitized financial assets . The subordinated trust units are classified as available-for-sale debt securities and measured subsequently at fair value. The Company recognizes the accretable yield as interest income over the life of the contractual life of the subordinated trust units using the effective yield method. In order to determine the interest recorded in each period, the Company estimates the timing and amount of future cash flows attributable to the beneficial interests over the estimated life of the trust. The Company reevaluates the estimated future cash flows periodically to determine whether an adjustment to the accretable yield is required or if an other-than-temporary impairment should be recorded. An other-than-temporary impairment is considered to have occurred when, based on current information and events, there has been an adverse change in the timing or amount of cash flows expected to be collected or when the Company intends to sell the securities or it is required to sell the securities before recovery of its amortized cost basis.
Risk assurance liabilities
The Company provides risk assurance to various financial institution customers. The risk assurance liability requires the Company to either make delinquent installment repayments or purchase the loans after a specified period on an individual loan basis. The risk assurance liability is exempted from being accounted for as a derivative in accordance with ASC 815-10-15-58.
F-24
CANGO INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - continued
FOR THE YEARS ENDED DECEMBER 31, 2016 AND 2017
(Amounts in Renminbi (RMB) and US dollar (US$), except for number of shares and per share data)
2. | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED |
Risk assurance liabilities-continued
The risk assurance liability consists of two components. The Companys obligation to stand ready to make delinquent payments or to purchase the loan over the term of the arrangement (the non-contingent aspect) is accounted for in accordance with ASC 460 Guarantees (ASC 460). The contingent obligation relating to the contingent loss arising from the arrangement is accounted for in accordance with ASC 450. Contingencies (ASC 450). At inception, the Company recognizes the non-contingent aspect of the risk assurance liability at fair value, which considers the premium required by a third party market participant to issue the same risk assurance in a standalone transaction.
Subsequent to the initial recognition, the non-contingent aspect of the risk assurance liability is reduced over the term of the arrangement as the Company is released from its stand ready obligation on a loan-by-loan basis based on the borrowers repayment of the loan principal. The contingent loss arising from the obligation to make future payments is recognized when borrower default is probable and the amount of loss is estimable. The Company considers the underlying risk profile including delinquency status, overdue period, and historical loss experience when assessing the probability of contingent loss. Borrowers are grouped based on common risk characteristics, such as product type. The Company measured contingent loss based on the future payout of the arrangement estimated using the historical default rates of a portfolio of similar loans less the fair value of the recoverable collateral.
Financing receivables
The Company records financing receivables in accordance with ASC 310-30 Loan and debt securities acquired with deteriorated credit quality when it exercises its obligation to purchase a delinquent loan under the risk assurance obligation and obtains legal title to any subsequent payments made by the borrower and the repossessed asset. Financing receivables are recorded at their purchase price, which is presumed to be the financing receivables fair value. The Company subsequently records an allowance for financing receivables, if based on current information and events, it is probable that the Company is unable to collect all of the expected cash flows at acquisition, plus additional cash flows expected to be collected arising from changes in estimates after acquisition.
The Company derecognizes financing receivables upon physical possession of the repossessed asset, which includes the transfer of title through the completion of regulatory proceedings. The Company derecognizes the financing receivables and records the repossessed asset at its estimated fair value, less cost to sell, as other non-current assets on the consolidated balance sheet. Any difference between the estimated fair value of the repossessed asset and the financing receivables is recognized in the consolidated statements of comprehensive income.
Repossessed assets are initially recognized at the fair value of the asset less estimated costs to sell. Any gain or loss from the disposal of the repossessed assets are recognized as net gain (loss) of risk assurance liabilities in the consolidated statements of comprehensive income.
F-25
CANGO INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - continued
FOR THE YEARS ENDED DECEMBER 31, 2016 AND 2017
(Amounts in Renminbi (RMB) and US dollar (US$), except for number of shares and per share data)
2. | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED |
Property and equipment, net
Property and equipment are stated at cost less accumulated depreciation. Depreciation is provided using the straight-line method with the residual value based on the estimated useful lives of the class of asset, which range as follows:
Category | Estimated Useful Life | Estimated Residual Value | ||||
Office and electronic equipment |
3-5 years | 5 | % | |||
Motor vehicles |
4 years | 5 | % | |||
Leasehold improvements |
Over the shorter of the expected life of leasehold improvements or the lease term |
0 | % |
Costs associated with the repair and maintenance of property and equipment are expensed as incurred.
Intangible assets
Intangible assets represent purchased computer software. These intangible assets are amortized on a straight-line basis over their estimated useful lives of the respective assets, which vary from 6-10 years.
Research and development
Research and development expenses are primarily incurred in the development of new services, new features, and general improvement of the Companys technology infrastructure to support its business operations. Research and development costs are expensed as incurred unless such costs qualify for capitalization as software development costs. In order to qualify for capitalization, (i) the preliminary project should be completed, (ii) management has committed to funding the project and it is probable that the project will be completed and the software will be used to perform the function intended, and (iii) it will result in significant additional functionality in the Companys services. No research and development costs were capitalized during any period and year presented as the Company has not met all of the necessary capitalization requirements.
Impairment of long-lived assets and intangible assets with definite lives
Long-lived assets including intangible assets with definite lives, are assessed for impairment, whenever events or changes in circumstances indicate the carrying value of an asset may not be recoverable in accordance with ASC 360 , Property, Plant and Equipment . The Company measures the carrying amount of long-lived assets against the estimated undiscounted future cash flows associated with it. Impairment exists when the estimated undiscounted future cash flows are less than the carrying value of the asset being evaluated. Impairment loss is calculated as the amount by which the carrying value of the asset exceeds its fair value. No impairment loss was recognized for the years ended December 31, 2016 and 2017, respectively.
F-26
CANGO INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - continued
FOR THE YEARS ENDED DECEMBER 31, 2016 AND 2017
(Amounts in Renminbi (RMB) and US dollar (US$), except for number of shares and per share data)
2. | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED |
Employee defined contribution plan
Full time employees of the Company in the PRC participate in a government mandated multi-employer defined contribution plan pursuant to which certain pension benefits, medical care, unemployment insurance, employee housing fund, and other welfare benefits are provided to employees. Chinese labor regulations require that the Company make contributions to the government for these benefits based on a certain percentage of the employees salaries. The Company has no legal obligation for the benefits beyond the contributions. The total amount that was expensed as incurred was RMB 12,803,649 and RMB 29,093,509 (US$ 4,638,190) for the years ended December 31, 2016, and 2017, respectively.
Value added taxes (VAT)
Since its inception, Shanghai Cango was certified as a general VAT taxpayer whose applicable tax rate was 6%. The subsidiaries of the VIE are all general VAT taxpayers, except for Tianjin Changtong, and Kunming Cango which are certified as small-scale VAT taxpayers with an applicable tax rate of 3% and Automobile Sales, whose applicable tax rate was 17%. VAT is reported as a deduction to revenue when incurred and amounted to RMB 33,126,862 and RMB 90,843,315 (US$ 14,482,561) for the years ended December 31, 2016 and 2017, respectively. Entities that are VAT general taxpayers are allowed to offset qualified input VAT paid to suppliers against their output VAT liabilities. Net VAT balance between input VAT and output VAT is recorded in accrued expenses and other current liabilities on the consolidated balance sheets.
Income taxes
The Company accounts for income taxes using the liability approach and recognizes deferred tax assets and liabilities for the expected future consequences of events that have been recognized in the consolidated financial statements or in the Companys tax returns. Deferred tax assets and liabilities are recognized on the basis of the temporary differences that exist between the tax basis of assets and liabilities and their reported amounts in the consolidated financial statements using enacted tax rates in effect for the year end period in which the differences are expected to reverse. Changes in deferred tax assets and liabilities are recorded in earnings. Deferred tax assets are reduced by a valuation allowance through a charge to income tax expense when, in the opinion of management, it is more-likely-than-not that a portion of or all of the deferred tax assets will not be realized. The Company evaluates the potential for recovery of deferred tax assets by estimating the future taxable profits expected and considering prudent and feasible tax planning strategies. The components of the deferred tax assets and liabilities are classified as non-current.
The Company accounts for uncertainty in income taxes recognized in the consolidated financial statements by applying a two-step process to determine the amount of the benefit to be recognized. First, the tax position must be evaluated to determine the likelihood that it will be sustained upon external examination by the taxing authorities. If the tax position is deemed more-likely-than-not to be sustained (defined as a likelihood of more than fifty percent of being sustained upon an audit, based on the technical merits of the tax position), the tax position is then assessed to determine the amount of benefits to recognize in the consolidated financial statements. The amount of the benefits that may be recognized is the largest amount that has a greater than 50% likelihood of being realized upon ultimate settlement. Interest and penalties on
F-27
CANGO INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - continued
FOR THE YEARS ENDED DECEMBER 31, 2016 AND 2017
(Amounts in Renminbi (RMB) and US dollar (US$), except for number of shares and per share data)
2. | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED |
Income taxes-continued
income taxes will be classified as a component of the provisions for income taxes. The Company did not recognize any income tax due to uncertain tax position or incur any interest and penalties related to potential underpaid income tax expenses for the years ended December 31, 2016 and 2017, respectively.
Segment information
The Companys chief operating decision maker is the Chief Executive Officer, who makes resource allocation decisions and assesses performance based on the consolidated financial results. As a result, the Company has only one reportable segment.
As the Company generates substantially all of its revenues in the PRC, no geographical segments is presented.
Operating leases
Leases where substantially all the rewards and risks of ownership of assets remain with the lessor are accounted for as operating leases. Rentals applicable to such operating leases are recognized on a straight-line basis over the lease term. Certain operating lease agreements contain rent holidays. Rent holidays are considered in determining the straight-line rent expense to be recorded over the lease term.
Fair value measurements
Accounting guidance defines fair value as the price that would be received from selling an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. When determining the fair value measurements for assets and liabilities required or permitted to be recorded at fair value, the Company considers the principal or most advantageous market in which it would transact and it considers assumptions that market participants would use when pricing the asset or liability.
Accounting guidance establishes a fair value hierarchy that requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. A financial instruments categorization within the fair value hierarchy is based upon the lowest level of input that is significant to the fair value measurement. Accounting guidance establishes three levels of inputs that may be used to measure fair value:
Level 1 | Observable inputs that reflect quoted prices (unadjusted) for identical assets or liabilities in active markets. | |
Level 2 | Include other inputs that are directly or indirectly observable in the marketplace. | |
Level 3 | Unobservable inputs which are supported by little or no market activity. |
Accounting guidance also 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
F-28
CANGO INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - continued
FOR THE YEARS ENDED DECEMBER 31, 2016 AND 2017
(Amounts in Renminbi (RMB) and US dollar (US$), except for number of shares and per share data)
2. | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED |
Fair value measurements-continued
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 assets and liabilities of the Company primarily consist of cash and cash equivalents, restricted cash, financing receivables, amounts due from related parties, other current assets, short-term and long-term debts, amounts due to related parties, income tax payable, accrued expenses and other liabilities. The carrying amounts of these financial instruments, except for non-current portion of restricted cash, approximate their fair values because of their generally short maturities. The carrying amount of non-current portion of restricted cash approximates their fair values due to the fact that the related interest rates approximate rates currently offered by financial institutions for similar debt instruments of comparable maturities.
Share-based compensation
Share-based payment transactions with employees are measured based on the grant date fair value of the equity instrument. The Company recognizes the compensation costs net of estimated forfeitures using the straight-line method, over the applicable vesting period for each separately vesting portion of the award. The estimate of forfeitures will be adjusted over the requisite service period to the extent that actual forfeitures differ, or are expected to differ, from such estimates. Changes in estimated forfeitures will be recognized through a cumulative catch-up adjustment in the period of change and will also impact the amount of share-based compensation expense to be recognized in future periods.
Non-controlling interests
For the Companys majority-owned subsidiaries and consolidated VIEs, a non-controlling interest is recognized to reflect the portion of their equity which is not attributable, directly or indirectly, to the Company. Consolidated net income attributed to the Companys shareholders excludes the net income attributable to non-controlling interests. The cumulative results of operations attributed to non-controlling interests are recorded as non-controlling interests in the Companys consolidated balance sheets.
Equity method investments
The Company uses the equity method to account for equity investments over which it has significant influence but does not own a majority equity interest or otherwise control, generally accompanying a shareholding of between 20% and 50% of the voting rights. The share of earnings or losses of the investee are recognized in the consolidated statements of comprehensive income. Equity method adjustments include the companys proportionate share of investee income or loss and other adjustments required by the equity method.
F-29
CANGO INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - continued
FOR THE YEARS ENDED DECEMBER 31, 2016 AND 2017
(Amounts in Renminbi (RMB) and US dollar (US$), except for number of shares and per share data)
2. | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED |
Equity method investments-continued
The Company assesses its equity investment for other than temporary impairment by considering relevant information including, but not limited to, current economic and market conditions, the operating performance of the investee, including current earning trends, the general market conditions in the investees industry or geographic area, factors related to the investees ability to remain in business, such as the investees liquidity, debt ratios, and cash burn rate and other company-specific information.
Earnings per share
Basic earnings per share is computed by dividing net income attributable to ordinary shareholders by the weighted average number of ordinary shares outstanding during the period and year presented.
Diluted earnings per ordinary share reflect the potential dilution that could occur if securities were exercised or converted into ordinary shares.
Government grants
Government grants include cash subsidies received by the Companys entities in the PRC from local governments as incentives for investing in certain local districts and are typically granted based on the amount of investment made by the Company in these local districts. Such grants allow the Company full discretion in utilizing the funds and are used by the Company for general corporate purposes. The Company recognize government grants as other income when cash is received from the government.
Significant risks and uncertainties
Currency convertibility risk
Substantially all of the Companys businesses are transacted in RMB, which is not freely convertible into foreign currencies. All foreign exchange transactions take place either through the Peoples Bank of China (PBOC) or other authorized financial institution at exchange rates quoted by PBOC. Approval of foreign currency payments by the PBOC or other regulatory institutions requires submitting a payment application form together with suppliers invoices and signed contracts.
Concentration of credit risk
Financial assets that potentially expose the Company to concentrations of credit risk consist primarily of cash and cash equivalents, restricted cash, short-term and long-term investments, financing receivables, and accounts receivable.
The Company places its cash and cash equivalents and short-term investments, with reputable financial institutions which have high-credit ratings. There has been no recent history of default related to these financial institutions.
F-30
CANGO INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - continued
FOR THE YEARS ENDED DECEMBER 31, 2016 AND 2017
(Amounts in Renminbi (RMB) and US dollar (US$), except for number of shares and per share data)
2. | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED |
Significant risks and uncertainties-continued
Concentration of credit risk(Continued)
The Company manages credit risk of accounts receivable through ongoing monitoring of the outstanding balances.
Concentration of customers
Approximately 79.0% and 96.7% of revenues were derived from provision of services to top two financial institutions and related borrowers for the years ended December 31, 2016 and 2017, respectively.
Interest rate risk
The Company is exposed to interest rate risk on its interest-bearing assets and liabilities. As part of its asset and liability risk management, the Company reviews and takes appropriate steps to manage its interest rate exposures on its interest-bearing assets and liabilities. The Company has not been exposed to material risks due to changes in market interest rates, and does not use any derivative financial instruments to manage the interest risk exposure during the year presented.
Borrower default risk
The Company entered into certain risk assured facilitation arrangements whereby it is obligated to purchase delinquent loans from financial institutions. The Companys operating results could be adversely affected by a significant increases in the overall borrower default rate for loans facilitated under such arrangements. The Company manages its borrowers default risk by performing credit checks on each prospective borrower and ongoing monitoring of the Company overall loan portfolio facilitated through the risk assured facilitation arrangement.
Business and economic risk
The Company believes that changes in any of the following areas could have a material adverse effect on the Companys 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; regulatory considerations and risks associated with the Companys ability to attract employees necessary to support its growth. The Companys operations could also be adversely affected by significant political, regulatory, economic and social uncertainties in the PRC.
Recent accounting pronouncements
In May 2014, the Financial Accounting Standard Board (FASB) issued ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606). The guidance substantially converges final standards on revenue recognition between the FASB and the International Accounting Standards Board providing a framework on addressing revenue recognition issues and, upon its effective date, replaces almost all exiting revenue recognition guidance, including industry-specific guidance, in current U.S. GAAP.
F-31
CANGO INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - continued
FOR THE YEARS ENDED DECEMBER 31, 2016 AND 2017
(Amounts in Renminbi (RMB) and US dollar (US$), except for number of shares and per share data)
2. | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED |
Recent accounting pronouncements-continued
The core principle of the guidance is that an entity should recognize revenues to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. To achieve this core principle, an entity should apply the following steps:
Step 1: Identify the contract(s) with a customer.
Step 2: Identify the performance obligations in the contract.
Step 3: Determine the transaction price.
Step 4: Allocate the transaction price to the performance obligations in the contract.
Step 5: Recognize revenue when (or as) the entity satisfies a performance obligation.
In August 2015, the FASB issued its final standard formally amending the effective date of the new revenue recognition guidance. The amendments in this ASU are effective for private companies annual reporting periods beginning after December 15, 2018, including interim periods within that reporting period. As an emerging growth company, or EGC, the Company has elected to take advantage of the extended transition period provided in the Securities Act Section 7(a)(2)(B) for complying with new or revised accounting standards applicable to private companies. The Company is in the process of evaluating the impact of adoption of this guidance on its consolidated financial statements.
In November 2015, the FASB issued ASU No. 2015-17, Balance Sheet Classification of Deferred Taxes (ASU 2015-17), that requires that all deferred tax assets and liabilities, along with any related valuation allowance, be classified as noncurrent on the balance sheet. This ASU, which may be adopted either prospectively or retrospectively, is effective for annual periods beginning after December 15, 2016 and interim periods within those annual periods. Early adoption is permitted. The Company has early adopted this standard with effect from January 1, 2016.
In January 2016, the FASB issued ASU No. 2016-01, Financial Instruments Overall (Subtopic 825-10). The amendments require all equity investments to be measured at fair value with changes in the fair value recognized through net income (other than those accounted for under equity method of accounting or those that result in consolidation of the investee). The amendments also require an entity to present separately in other comprehensive income the portion of the total change in the fair value of a liability resulting from a change in the instruments-specific credit risk when the entity has elected to measure the liability at fair value in accordance with the fair value option for financial instruments. In addition, the amendments eliminate the requirement to disclose the fair value of financial instruments measured at amortized cost for entities that are not public business entities and the requirement for to disclose the method(s) and significant assumptions used to estimate the fair value that is required to be disclosed for financial instruments measured at amortized cost on the balance sheet for public business entities. This updated guidance is effective for private companies for the annual period beginning after December 15, 2018, including interim periods within the year. As an EGC, the Company has elected to take advantage of the extended transition period provided in Securities Act Section 7(a)(2)(B) of the Securities Act for complying with new or revise accounting standards applicable to private companies. The Company is in the process of evaluating the impact of the adoption of this guidance on its consolidated financial statements.
F-32
CANGO INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - continued
FOR THE YEARS ENDED DECEMBER 31, 2016 AND 2017
(Amounts in Renminbi (RMB) and US dollar (US$), except for number of shares and per share data)
2. | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED |
Recent accounting pronouncements-continued
In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842). This ASU modifies existing guidance for off-balance sheet treatment of a lessees operating leases by requiring lessees to recognize lease assets and lease liabilities, whilst, lessor accounting is largely unchanged. This ASU is effective for private companies for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. As an EGC, the Company has elected to take advantage of the extended transition period provided in Securities Act Section 7(a)(2)(B) for complying with new or revised accounting standards applicable to private companies. The Company is in the process of evaluating the impact of adoption of this guidance on its consolidated financial statements.
In March 2016, the FASB issued ASU No. 2016-06, Derivatives and Hedging (Topic 815), which clarifies the requirements for assessing whether contingent call (put) options that can accelerate the payment of principal on debt instruments are clearly and closely related to their debt hosts. An entity performing the assessment under the amendments in this ASU is required to assess the embedded call (put) options solely in accordance with the four step decision sequence. For private entities, the amendments in this ASU are effective for financial statements issued for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. An entity should apply the amendments in this ASU on a modified retrospective basis to existing debt instruments as of the beginning of the fiscal year for which the amendments are effective. As an EGC, the Company has elected to take advantage of the extended transition period provided in Securities Act Section 7(a)(2)(B) for complying with new or revised accounting standards applicable to private companies. The Company is in the process of evaluating the impact of adoption of this guidance on its consolidated financial statements.
In March 2016, the FASB issued ASU No. 2016-09, Compensation-Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting. This ASU makes targeted amendments to the accounting for employee share-based payments. This guidance is to be applied using various transition methods such as full retrospective, modified retrospective, and prospective based on the criteria for the specific amendments as outlined in the guidance. For private entities, the guidance is effective for annual periods, and interim periods within those annual periods, beginning after December 15, 2017. As an EGC, the Company has elected to take advantage of the extended transition period provided in Securities Act Section 7(a)(2)(B) for complying with new or revised accounting standards applicable to private companies. The Company is in the process of evaluating the impact of adoption of this guidance on its consolidated financial statements.
In June 2016, the FASB issued ASU No. 2016-13, Financial InstrumentsCredit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. This ASU is intended to improve financial reporting by requiring timelier recording of credit losses on loans and other financial instruments held by financial institutions and other organizations. This ASU requires the measurement of all expected credit losses for financial assets held at the reporting date based on historical experience, current conditions, and reasonable and supportable forecasts. This ASU requires enhanced disclosures to help investors and other financial statement users better understand significant estimates and judgments used in estimating credit losses, as well as the credit quality and underwriting standards of the Companys portfolio. These disclosures include qualitative and quantitative requirements that provide additional information about the amounts recorded in the financial statements. For private entities, this ASU is effective for annual periods
F-33
CANGO INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - continued
FOR THE YEARS ENDED DECEMBER 31, 2016 AND 2017
(Amounts in Renminbi (RMB) and US dollar (US$), except for number of shares and per share data)
2. | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED |
Recent accounting pronouncements-continued
beginning after December 15, 2020, and interim reporting periods beginning within annual reporting periods beginning after December 15, 2021. As an EGC, the Company has elected to take advantage of the extended transition period provided in Securities Act Section 7(a)(2)(B) for complying with new or revised accounting standards applicable to private companies. The Company is in the process of evaluating the impact of adoption of this guidance on its consolidated financial statements.
In August 2016, the FASB issued ASU No. 2016-15, Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments. This ASU is intended to improve financial reporting by requiring timelier recording of credit losses on loans and other financial instruments held by financial institutions and other organizations. This ASU requires the measurement of all expected credit losses for financial assets held at the reporting date based on historical experience, current conditions, and reasonable and supportable forecasts. This ASU requires enhanced disclosures to help investors and other financial statement users better understand significant estimates and judgments used in estimating credit losses, as well as the credit quality and underwriting standards of the Companys portfolio. These disclosures include qualitative and quantitative requirements that provide additional information about the amounts recorded in the financial statements. All entities may adopt the amendments in this Update earlier as of the fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. The Company is in the process of evaluating the impact of adoption of this guidance on its consolidated financial statements.
In November 2016, the FASB issued ASU No. 2016-18, Statement of Cash Flows (Topic 230): Restricted Cash . This ASU requires that a statement of cash flows explain the change during the period in the total of cash, cash equivalents, and amounts generally described as restricted cash or restricted cash equivalents. Therefore, amounts generally described as restricted cash and restricted cash equivalents should be included with cash and cash equivalents when reconciling the beginning-of-period and end-of-period total amounts shown on the statement of cash flows. This ASU does not provide a definition of restricted cash or restricted cash equivalents. This ASU is effective for public business entities for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. The Company has early adopted this standard.
In January 2017, the FASB issued ASU No. 2017-01, Business Combinations (Topic 805): Clarifying Definition of a Business . This ASU clarifies the framework for determining whether an integrated set of assets and activities meets the definition of a business. The revised framework establishes a screen for determining whether an integrated set of assets and activities is a business and narrows the definition of a business, which is expected to result in fewer transactions being accounted for as business combinations. Acquisitions of integrated sets of assets and activities that do not meet the definition of a business are accounted for as asset acquisitions. This update is effective for fiscal years, and for interim periods within those fiscal years, beginning after December 15, 2018. As an EGC, the Company has elected to take advantage of the extended transition period provided in Securities Act Section 7(a)(2)(B) for complying with new or revised accounting standards applicable to private companies. The Company is in the process of evaluating the impact of adoption of this guidance on its consolidated financial statements.
In January 2017, the FASB issued ASU No. 2017-04, Simplifying the Test for Goodwill Impairment, which simplifies the accounting for goodwill impairment by eliminating Step two from the goodwill impairment
F-34
CANGO INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - continued
FOR THE YEARS ENDED DECEMBER 31, 2016 AND 2017
(Amounts in Renminbi (RMB) and US dollar (US$), except for number of shares and per share data)
2. | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED |
Recent accounting pronouncements-continued
test. If the carrying amount of a reporting unit exceeds its fair value, an impairment loss shall be recognized in an amount equal to that excess, as opposed to determining an implied fair value in Step two to measure the impairment loss. 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 Company does not believe this standard will have a material impact on the results of operations or financial condition.
In February 2017, the FASB issued ASU No. 2017-05, Other incomeGains and Losses from the Derecognition of Nonfinancial assets, which clarifies that a financial asset is within the scope of Subtopic 610-20 if it meets the definition of an in substance nonfinancial asset. The amendments in this update also clarify that nonfinancial assets within the scope of Subtopic 610-20 may include nonfinancial assets transferred within a legal entity to a counterparty. This update is effective for fiscal years beginning after December 15, 2018, including interim reporting periods within that reporting period. As an EGC, the Company has elected to take advantage of the extended transition period provided in Securities Act Section 7(a)(2)(B) for complying with new or revised accounting standards applicable to private companies. The Company is in the process of evaluating the impact of adoption of this guidance on its consolidated financial statements.
3. | SHORT-TERM INVESTMENTS |
Short-term available-for-sale debt securities consist of wealth management products issued by Bank of China Limited (Bank of China) and Shanghai Pudong Development Bank Co., Ltd., which are redeemable by the Company at any time. The wealth management products are primarily invested in debt securities issued by the PRC government, corporate debt securities and central bank bills. The Company valued the short-term available-for-sale debt securities based on the quoted subscription/redemption price published by the relevant banks. As of December 31, 2016 and 2017, the net adjustments to unrealized holding gains/losses on short-term investments was nil.
4. | ACCOUNTS RECEIVABLE, NET |
Accounts receivable and the related allowance for doubtful accounts are summarized as follows:
As of December 31, | ||||||||||
2016 |
2017 |
|||||||||
RMB | RMB | US$ | ||||||||
Accounts receivable | 469,385 | 85,595,207 |
13,645,890 |
|||||||
Less: Allowance for doubtful accounts | | |
|
|||||||
|
|
|
|
|||||||
Accounts receivable, net | 469,385 | 85,595,207 |
13,645,890 |
|||||||
|
|
|
|
No amounts have been written off during the year ended December 31, 2016 and 2017, respectively.
F-35
CANGO INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - continued
FOR THE YEARS ENDED DECEMBER 31, 2016 AND 2017
(Amounts in Renminbi (RMB) and US dollar (US$), except for number of shares and per share data)
5. | PREPAID EXPENSES AND OTHER CURRENT ASSETS |
Prepaid expenses and other current assets consist of the following:
As of December 31, | ||||||||||||||
2016 | 2017 | |||||||||||||
RMB | RMB | US$ | ||||||||||||
Prepaid expenses |
2,412,121 | 7,555,209 | 1,204,478 | |||||||||||
Prepaid deposit for investment |
| 51,500,000 | 8,210,312 | |||||||||||
Deposits held by third-parties |
5,080,260 | 3,128,151 | 498,701 | |||||||||||
Telematics devices |
961,143 | 3,791,271 | 604,418 | |||||||||||
Loans to suppliers |
| 67,577,700 | 10,773,475 | |||||||||||
Others |
2,570,746 | 11,305,891 | 1,802,424 | |||||||||||
|
|
|
|
|
|
|||||||||
11,024,270 | 144,858,222 | 23,093,808 | ||||||||||||
|
|
|
|
|
|
6. | LONG-TERM INVESTMENTS |
The Companys long-term investments consist of subordinated trust units of automobile backed loans, further comprise the following:
Cost method equity investments
The carrying amount of Companys cost method equity investments was RMB 63,400,000 and RMB 141,534,200 (US$ 22,563,881) as of December 31, 2016 and 2017, respectively. No impairment loss had been recognized during the year ended December 31, 2016 and 2017.
Available-for-sale debt securities
The carrying amount of Companys available-for-sale debt securities was RMB 122,400,000 and RMB 49,468,402 (US$ 7,886,427) as of December 31, 2016 and 2017, respectively. The unrealized loss for available-for-sale debt securities was RMB nil and RMB 531,598 (US$ 84,749) for the year ended December 31, 2016 and 2017, respectively. No impairment loss had been recognized during the year ended December 31, 2016 and 2017.
7. | EQUITY METHOD INVESTMENTS |
In September 2015, the Company and three third parties jointly established Shanghai Autohome Financing Lease Co., Ltd. (Shanghai Autohome), which mainly provides automobile finance leasing services, with registered capital of RMB 300,000,000. Each of the founding parties held a 25% equity interest. As the Company has significant influence over Shanghai Autohome, Shanghai Autohome was accounted for as an equity method investment.
In June 2017, the Company acquired an additional 25% equity interest in Shanghai Autohome with a purchase consideration of RMB 90,000,000.
In September 2017, the Company entered into a series of agreements to acquire another additional 25% of the equity interest in Shanghai Autohome for RMB 103,000,000. This acquisition is not closed as of the date of this report.
F-36
CANGO INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - continued
FOR THE YEARS ENDED DECEMBER 31, 2016 AND 2017
(Amounts in Renminbi (RMB) and US dollar (US$), except for number of shares and per share data)
7. | EQUITY METHOD INVESTMENTS - CONTINUED |
The Companys share of (loss) profit in Shanghai Autohome for the years ended December 31, 2016 and 2017 of RMB 9,375,123 loss and RMB 4,855,508 (US$ 774,082) profit, was recognized in the consolidated statements of comprehensive income.
The Companys share of profit (loss) in the remaining equity method investments were not material for the years ended December 31, 2016 and 2017.
8. | PROPERTY AND EQUIPMENT, NET |
Property and equipment consist of the following:
As of December 31, | ||||||||||||
2016 | 2017 | |||||||||||
RMB | RMB | US$ | ||||||||||
Office and electronic equipment |
4,795,793 | 10,766,719 | 1,716,468 | |||||||||
Motor vehicles |
1,659,128 | 1,488,347 | 237,278 | |||||||||
Leasehold improvements |
| 2,514,950 | 400,942 | |||||||||
Less: Accumulated depreciation |
2,566,529 | 5,018,278 | 800,032 | |||||||||
|
|
|
|
|
|
|||||||
3,888,392 | 9,751,738 | 1,554,656 | ||||||||||
|
|
|
|
|
|
Depreciation expenses for the years ended December 31, 2016 and 2017 was RMB 939,143 and RMB 2,733,596 (US$ 435,800), respectively.
9. | INTANGIBLE ASSETS |
Intangible assets consist of the following:
As of December 31, | ||||||||||||
2016 | 2017 | |||||||||||
RMB | RMB | US$ | ||||||||||
Software |
2,088,478 | 2,846,996 | 453,878 | |||||||||
Less: Accumulated amortization |
861,004 | 1,145,226 | 182,576 | |||||||||
|
|
|
|
|
|
|||||||
1,227,474 | 1,701,770 | 271,302 | ||||||||||
|
|
|
|
|
|
Amortization expenses for the years ended December 31, 2016 and 2017 was RMB 232,317 and RMB 284,222(US$45,312), respectively.
The estimated useful life of the intangible assets are 6-10 years. The estimated aggregate amortization expenses for each of the five succeeding fiscal years are as follows:
2018 | 2019 | 2020 | 2021 | 2022 | ||||||||||||||||
RMB | RMB | RMB | RMB | RMB | ||||||||||||||||
Software |
311,742 | 311,742 | 311,742 | 285,389 | 133,087 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
US$ | US$ | US$ | US$ | US$ | ||||||||||||||||
Software |
49,699 | 49,699 | 49,699 | 45,498 | 21,217 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
F-37
CANGO INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - continued
FOR THE YEARS ENDED DECEMBER 31, 2016 AND 2017
(Amounts in Renminbi (RMB) and US dollar (US$), except for number of shares and per share data)
10. | OTHER NON-CURRENT ASSETS |
Other non-current assets consist of the following:
As of December 31, | ||||||||||||||
2016 | 2017 | |||||||||||||
RMB | RMB | US$ | ||||||||||||
Loans to shareholders |
17,245,633 | 5,390,000 | 859,293 | |||||||||||
Repossessed assets |
5,503,330 | 4,130,966 | 658,573 | |||||||||||
Others |
3,950,344 | 1,470,433 | 234,422 | |||||||||||
|
|
|
|
|
|
|||||||||
26,699,307 | 10,991,399 | 1,752,288 | ||||||||||||
|
|
|
|
|
|
11. | LONG-TERM DEBT |
The following table presents long-term debt from funding partners as of December 31, 2016 and 2017.
As of December 31, | ||||||||||||||||||
Name |
Fixed annual rate (%) |
Term |
2016 | 2017 | ||||||||||||||
RMB | RMB | US$ | ||||||||||||||||
Trust borrowings |
4.75% | 3 years | 189,572,500 | 50,000,000 | 7,971,176 | |||||||||||||
Securitization debts payable |
|
11.00%-
16.00% |
|
19-21 months | | 125,000,000 | 19,927,941 | |||||||||||
|
|
|
|
|
|
|||||||||||||
189,572,500 | 175,000,000 | 27,899,117 | ||||||||||||||||
|
|
|
|
|
|
In December 2017, the Company entered into a securitization agreement with Minmetals International Trust Co., Ltd. (Wukuang Trust). The Company transferred its cost method equity investments of RMB 141,534,200 to Wukuang Trust, which issued RMB 70,000,000 of debt securities at an annual interest rate of 11.00% due in July 2019, and RMB 55,000,000 of debt securities at an annual interest rate of 16.00% due in September 2019.
The weighted average interest rate for the outstanding debts was approximately 4.75% and 10.79% as of December 31, 2016 and 2017, respectively.
The following table sets forth the contractual obligations which has not included impact of discount of time value as of December 31, 2016 and 2017:
Payment due by period | ||||||||||||||
Less than
1 year |
1 2 years |
2 -3 years |
Total | |||||||||||
As of December 31, 2016 (RMB) |
||||||||||||||
Long-term debts |
9,004,694 | 9,004,694 | 198,577,194 | 216,586,582 | ||||||||||
|
|
|
|
|
|
|
||||||||
As of December 31, 2017 (RMB) |
||||||||||||||
Long-term debts |
18,875,000 | 187,730,068 |
|
206,605,068 | ||||||||||
|
|
|
|
|
|
|
||||||||
As of December 31, 2017 (US$) |
||||||||||||||
Long-term debts |
3,009,119 | 29,928,589 |
|
32,937,708 | ||||||||||
|
|
|
|
|
|
|
F-38
CANGO INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - continued
FOR THE YEARS ENDED DECEMBER 31, 2016 AND 2017
(Amounts in Renminbi (RMB) and US dollar (US$), except for number of shares and per share data)
11. | LONG-TERM DEBT - CONTINUED |
As of December 31, 2016 and 2017, long-term investments amounting to RMB185,800,000 and RMB191,002,602 (US$30,450,308) were collateralized for the Companys long-term debts, respectively.
12. | ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES |
Accrued expenses and other current liabilities consist of the following:
As of December 31, | ||||||||||||
2016 | 2017 | |||||||||||
RMB | RMB | US$ | ||||||||||
Deposit due to third-parties |
24,980,871 | 22,612,238 | 3,604,923 | |||||||||
Customer advances |
1,100,669 | 40,555,351 | 6,465,477 | |||||||||
Unearned income |
| 62,337,147 | 9,938,008 | |||||||||
Payable to dealers |
25,803,669 | 57,622,356 | 9,186,359 | |||||||||
Payable to employees |
11,916,910 | 73,959,819 | 11,790,935 | |||||||||
Payable to suppliers |
4,954,846 | 9,358,099 | 1,491,901 | |||||||||
Other tax payables |
16,156,135 | 30,700,490 | 4,894,380 | |||||||||
Accrued professional service fees |
| 12,358,652 | 1,970,260 | |||||||||
Others |
941,097 | 19,018,583 | 3,032,009 | |||||||||
|
|
|
|
|
|
|||||||
85,854,197 | 328,522,735 | 52,374,252 | ||||||||||
|
|
|
|
|
|
13. | RISK ASSURANCE LIABILITIES |
The movement of risk assurance liabilities during the year ended December 31, 2016 and 2017 are as follows:
As of December 31, | ||||||||||||
2016 | 2017 | |||||||||||
RMB | RMB | US$ | ||||||||||
Balance at the beginning of the year |
170,764,695 | 149,787,763 | 23,879,693 | |||||||||
Fair value of risk assurance liabilities upon the inception of new loans |
31,959,646 | 93,633,337 | 14,927,357 | |||||||||
Performed risk assurance liabilities |
(53,680,452 | ) | (74,618,769 | ) | (11,895,987 | ) | ||||||
Net loss (gain) on risk assurance liabilities |
743,874 | (38,866,874 | ) | (6,196,294 | ) | |||||||
|
|
|
|
|
|
|||||||
Balance at the end of the year |
149,787,763 | 129,935,457 | 20,714,769 | |||||||||
|
|
|
|
|
|
The maximum potential undiscounted future payment which the Company would be required to make under its risk assurance obligation is RMB 1,546,296,254 and RMB 7,112,161,756(US$ 1,133,845,894) as of December 31, 2016 and 2017, respectively. The term of the risk assurance obligation ranges from 6 months to 60 months, as of December 31, 2016 and 2017.
F-39
CANGO INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - continued
FOR THE YEARS ENDED DECEMBER 31, 2016 AND 2017
(Amounts in Renminbi (RMB) and US dollar (US$), except for number of shares and per share data)
14. | OTHER NON-CURRENT LIABILITIES |
Other non-current liabilities consist of the following:
As of December 31, | ||||||||||||||
2016 | 2017 | |||||||||||||
RMB | RMB | US$ | ||||||||||||
Amount due to third-parties | 27,322,652 | 35,555,908 | 5,668,448 | |||||||||||
|
|
|
|
|
|
15. | COST OF REVENUE |
Cost of revenue consists of the following:
For the years ended December 31, | ||||||||||||||
2016 | 2017 | |||||||||||||
RMB | RMB | US$ | ||||||||||||
Commission to car dealerships |
60,138,793 | 178,155,199 | 28,402,130 | |||||||||||
Staff cost |
27,197,325 | 51,609,219 | 8,227,724 | |||||||||||
Staff incentive |
25,222,277 | 64,820,841 | 10,333,966 | |||||||||||
Others |
57,485,979 | 91,468,663 | 14,582,257 | |||||||||||
|
|
|
|
|
|
|||||||||
170,044,374 | 386,053,922 | 61,546,077 | ||||||||||||
|
|
|
|
|
|
16. | OTHER INCOME |
Other income consist of the followings:
For the years ended December 31, | ||||||||||||||
2016 | 2017 | |||||||||||||
RMB | RMB | US$ | ||||||||||||
Government grants | 8,151,444 | 15,438,463 | 2,461,254 | |||||||||||
Others | 509,328 | 758,118 | 120,862 | |||||||||||
|
|
|
|
|
|
|||||||||
8,660,772 | 16,196,581 | 2,582,116 | ||||||||||||
|
|
|
|
|
|
17. | INCOME TAXES |
The Company was incorporated in the Cayman Islands. It is tax-exempted under the tax laws of the Cayman Islands. Cango HK is domiciled in Hong Kong, and is subject to 16.5% statutory income tax rate in the periods presented.
The VIE and its subsidiaries domiciled in the PRC are subject to 25% statutory income tax rate in the periods presented. The Company is tax-exempt.
The Enterprise Income Tax Law (the EIT Law) of the PRC includes a provision specifying that legal entities organized outside PRC will be considered residents for Chinese income tax purposes if their place of effective management or control is within PRC. If legal entities organized outside PRC were considered
F-40
CANGO INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - continued
FOR THE YEARS ENDED DECEMBER 31, 2016 AND 2017
(Amounts in Renminbi (RMB) and US dollar (US$), except for number of shares and per share data)
17. | INCOME TAXES - CONTINUED |
residents for Chinese income tax purpose, they would become subject to the EIT Law on their worldwide income. This would cause any income from legal entities organized outside PRC earned to be subject to PRCs 25% EIT. The Implementation Rules to the EIT Law provides that non-resident legal entities will be considered as PRC residents if substantial and overall management and control over the manufacturing and business operations, personnel, accounting, and properties, etc. reside within PRC.
Despite the present uncertainties resulting from the limited PRC tax guidance on the issue, the Company does not believe that the legal entities organized outside PRC should be characterized as PRC residents for EIT Law purposes.
The current and deferred component of income tax expenses which were substantially attributable to the Companys PRC subsidiaries, VIE and subsidiaries of the VIE, are as follows:
For the years ended December 31, | ||||||||||||
2016 | 2017 | |||||||||||
RMB | RMB | US$ | ||||||||||
Current income tax expense |
50,151,251 | 132,155,767 | 21,068,738 | |||||||||
Deferred income tax expense (income) |
2,863,061 | (12,752,767 | ) | (2,033,091 | ) | |||||||
|
|
|
|
|
|
|||||||
Total income tax expense |
53,014,312 | 119,403,000 | 19,035,647 | |||||||||
|
|
|
|
|
|
The principal components of the deferred tax assets and liabilities are as follows:
For the years ended December 31, | ||||||||||||
2016 | 2017 | |||||||||||
RMB | RMB | US$ | ||||||||||
Non-current deferred tax assets |
||||||||||||
Risk assurance liabilities |
54,342,250 | 65,709,975 | 10,475,716 | |||||||||
Accrued expense |
546,270 | 1,931,313 | 307,897 | |||||||||
Unrealized loss for available-for-sale securities |
| 132,899 | 21,187 | |||||||||
Net operating loss carry forwards |
2,438,628 | 5,859,860 | 934,200 | |||||||||
Less: valuation allowance |
(2,438,628 | ) | (5,859,860 | ) | (934,200 | ) | ||||||
|
|
|
|
|
|
|||||||
Non-current deferred tax assets, net |
54,888,520 | 67,774,187 | 10,804,800 | |||||||||
|
|
|
|
|
|
|||||||
Non-current deferred tax liabilities |
| | | |||||||||
|
|
|
|
|
|
The Company operates through its subsidiaries, VIE and subsidiaries of the VIE. The valuation allowance is considered on an individual entity basis. The Company records a valuation allowance where, based on all available evidence, it is more likely than not some portion or all of the recorded deferred tax assets will not be realized in future periods.
F-41
CANGO INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - continued
FOR THE YEARS ENDED DECEMBER 31, 2016 AND 2017
(Amounts in Renminbi (RMB) and US dollar (US$), except for number of shares and per share data)
17. | INCOME TAXES - CONTINUED |
Reconciliation between the income tax expense computed by applying the PRC tax rate to income before the provision of income taxes and the actual provision for income taxes is as follows:
For the years ended December 31, | ||||||||||||
2016 | 2017 | |||||||||||
RMB | RMB | US$ | ||||||||||
Income before provision of income tax |
186,495,374 | 468,460,432 | 74,683,613 | |||||||||
PRC statutory income tax rate |
25% | 25% | 25% | |||||||||
Income tax at statutory tax rate |
46,623,844 | 117,115,108 | 18,670,903 | |||||||||
Expenses not deductible for tax purposes |
3,951,840 | 80,537 | 12,839 | |||||||||
Income not taxable for tax purposes |
| (1,213,877 | ) | (193,521 | ) | |||||||
Change in valuation allowance |
2,438,628 | 3,421,232 | 545,426 | |||||||||
|
|
|
|
|
|
|||||||
Income tax expenses |
53,014,312 | 119,403,000 | 19,035,647 | |||||||||
|
|
|
|
|
|
The Company did not incur any interest and penalties related to potential underpaid income tax expenses.
The relevant tax authorities have not conducted tax examinations on PRC entities. In accordance with relevant PRC tax administration laws, the tax for the years ended December 31, 2016 and 2017 of the Companys PRC subsidiaries, VIE and subsidiaries of the VIE remain subject to tax audits by the relevant tax authorities as of December 31, 2016 and 2017.
Management has asserted to indefinitely reinvest the undistributed earnings of the subsidiaries located in the PRC. The cumulative amount of the temporary differences in respect of investments in foreign subsidiaries is RMB 425 million (US$ 68 million) as of December 31, 2017. Upon repatriation of the foreign subsidiaries and the VIEs earnings, in the form of dividends or otherwise, the Company would be subject to various PRC income taxes including withholding income tax. The related unrecognized deferred tax liabilities were approximately RMB 170 million (US$ 27 million).
18. | OTHER COMPREHENSIVE LOSS, NET OF TAX |
The changes in accumulated other comprehensive loss by component, net of tax, were as follows:
For the years ended December 31, | ||||||||||||
2016 | 2017 | |||||||||||
RMB | RMB | US$ | ||||||||||
Unrealized loss on available-for-sale securities: |
||||||||||||
Balance at the beginning of the year |
| | | |||||||||
Other comprehensive loss before reclassification |
| (2,463,956 | ) | (392,813 | ) | |||||||
Amounts reclassified from other comprehensive loss |
| 2,065,258 | 329,251 | |||||||||
|
|
|
|
|
|
|||||||
Net other comprehensive loss |
| (398,698 | ) | (63,562 | ) | |||||||
|
|
|
|
|
|
|||||||
Balance at the end of the year |
| (398,698 | ) | (63,562 | ) | |||||||
|
|
|
|
|
|
F-42
CANGO INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - continued
FOR THE YEARS ENDED DECEMBER 31, 2016 AND 2017
(Amounts in Renminbi (RMB) and US dollar (US$), except for number of shares and per share data)
19. | EARNINGS PER SHARE (EPS) |
The following table sets forth the computation of basic and diluted net income per share for the years ended December 31, 2016 and 2017:
Undistributed earnings allocated to participating securities are subtracted from net income in determining net income attributable to ordinary shareholders. Basic EPS is computed by dividing net income attributable to ordinary shareholders by the weighted-average number of shares of our ordinary share outstanding, adjusted for participating securities that are convertible in the future.
For the years ended December 31, | ||||||||||||||||||||||||
Basic EPS: |
2016 | 2017 | ||||||||||||||||||||||
Ordinary Shares |
Series
A-2
preferred shares |
Ordinary Shares |
Series
A-2
preferred shares |
|||||||||||||||||||||
RMB | RMB | RMB | US$ | RMB | US$ | |||||||||||||||||||
Numerator: |
||||||||||||||||||||||||
Net income attributable to Cango Incs shareholders |
126,696,659 | 2,209,325 | 335,165,231 | 53,433,222 | 5,844,580 | 931,764 | ||||||||||||||||||
Less: Allocation of net income to participating securities |
62,980,843 | 1,098,254 | 166,610,461 | 26,561,627 | 2,905,338 | 463,179 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Net income attributable to ordinary shareholders and Series A-2 preferred shareholders |
63,715,816 | 1,111,071 | 168,554,770 | 26,871,595 | 2,939,242 | 468,585 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Denominator: |
||||||||||||||||||||||||
Number of shares used for Basic EPS computation (millions of shares) |
124.97 | 2.18 | 124.97 | 124.97 | 2.18 | 2.18 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Basic EPS |
0.51 | 0.51 | 1.35 | 0.22 | 1.35 | 0.22 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
The computation of the diluted EPS assumes the conversion of all convertible preferred shares to ordinary share. Diluted EPS attributable to ordinary shareholders is computed by dividing the resulting net income attributable to ordinary shareholders by the weighted-average number of fully diluted ordinary shares outstanding.
F-43
CANGO INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - continued
FOR THE YEARS ENDED DECEMBER 31, 2016 AND 2017
(Amounts in Renminbi (RMB) and US dollar (US$), except for number of shares and per share data)
19. | EARNINGS PER SHARE (EPS) - CONTINUED |
Basic and diluted EPS are the same for each class of ordinary share because they are entitled to the same liquidation and dividend rights.
For the years ended December 31, | ||||||||||||||||||||||||
Diluted EPS: |
2016 | 2017 | ||||||||||||||||||||||
Ordinary
Shares |
Series A-2
preferred shares |
Ordinary Shares |
Series
A-2
preferred shares |
|||||||||||||||||||||
RMB | RMB | RMB | US$ | RMB | US$ | |||||||||||||||||||
Numerator: |
||||||||||||||||||||||||
Net income attributable to ordinary shareholders and Series A-2 preferred shareholders |
63,715,816 | 1,111,071 | 168,554,770 | 26,871,595 | 2,939,242 | 468,585 | ||||||||||||||||||
Reallocation of net income attributable to participating securities |
64,079,097 | | 169,515,799 | 27,024,806 | | | ||||||||||||||||||
Reallocation of net income as a result of conversion of Series A-2 preferred shares to ordinary shares |
1,111,071 | | 2,939,242 | 468,585 | | | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Net income attributable to ordinary shareholders and Series A-2 preferred shareholders for diluted EPS |
128,905,984 | 1,111,071 | 341,009,811 | 54,364,986 | 2,939,242 | 468,585 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Denominator: |
||||||||||||||||||||||||
Number of shares used for basic EPS computation (millions of shares) |
124.97 | 2.18 | 124.97 | 124.97 | 2.18 | 2.18 | ||||||||||||||||||
Conversion of Series A-2 preferred shares to ordinary shares (millions of shares) |
2.18 | | 2.18 | 2.18 | | | ||||||||||||||||||
Weighted average effect of dilutive securities: |
||||||||||||||||||||||||
Conversion of Series A-1, |
||||||||||||||||||||||||
A-3 and B preferred shares to ordinary shares (millions of shares) | 125.68 | | 125.68 | 125.68 | | | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Number of shares used for diluted EPS computation (millions of shares) |
252.83 | 2.18 | 252.83 | 252.83 | 2.18 | 2.18 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Diluted EPS |
0.51 | 0.51 | 1.35 | 0.22 | 1.35 | 0.22 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
The unaudited pro forma net income per ordinary share is computed using the weighted-average number of ordinary shares outstanding and assumes the automatic conversion of all Series A, Series B and Series C Preferred Shares into 169,239,905 weighted-average shares of ordinary shares upon the closing of the Companys qualified IPO, as if it had occurred on January 1, 2017.
F-44
CANGO INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - continued
FOR THE YEARS ENDED DECEMBER 31, 2016 AND 2017
(Amounts in Renminbi (RMB) and US dollar (US$), except for number of shares and per share data)
19. | EARNINGS PER SHARE (EPS) - CONTINUED |
The following table summarizes the unaudited pro forma net income per share:
Pro forma Basic and Diluted EPS: |
For the years ended December 31, 2017 | |||||||||||||||
Ordinary shares | Series A-2 preferred shares | |||||||||||||||
(Unaudited) | (Unaudited) | (Unaudited) | (Unaudited) | |||||||||||||
RMB | US$ | RMB | US$ | |||||||||||||
Numerator: |
||||||||||||||||
Net income attributable to ordinary shareholders and Series A-2 preferred shareholdersbasic |
144,022,413 | 22,960,560 | 2,511,449 | 400,385 | ||||||||||||
Reallocation of net income attributable to participating securities |
192,530,096 | 30,693,826 | | | ||||||||||||
Reallocation of net income as a result of conversion of Series A-2 preferred shares to ordinary shares |
2,511,449 | 400,385 | | | ||||||||||||
Reallocation of net income for dividends distribution in excess of current year earnings |
1,945,853 | 310,215 | | | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Net income attributable to ordinary shareholders for basic and diluted pro forma EPS |
341,009,811 | 54,364,986 | 2,511,449 | 400,385 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Denominator: |
||||||||||||||||
Number of shares used for basic EPS computation (millions of shares) |
124.97 | 124.97 | 2.18 | 2.18 | ||||||||||||
Conversion of Series A-2 preferred shares to ordinary shares (millions of shares) |
2.18 | 2.18 | | | ||||||||||||
Weighted average effect of dilutive securities: |
||||||||||||||||
Conversion of Series A-1, A-3, B and C preferred shares to ordinary shares (millions of shares) |
167.06 | 167.06 | | | ||||||||||||
Adjustment to IPO shares for dividends in excess of current year earnings (millions of shares) |
1.69 | 1.69 | | | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Number of shares used for basic and diluted pro forma EPS (millions of shares) |
295.90 | 295.90 | 2.18 | 2.18 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Pro forma EPSBasic and Diluted |
1.15 | 0.18 | 1.15 | 0.18 | ||||||||||||
|
|
|
|
|
|
|
|
20. | FAIR VALUE MEASUREMENTS |
Assets and liabilities measured or disclosed at fair value
Following are descriptions of the valuation techniques and key inputs, and significant assumptions utilized for fair value measurements.
| Short term investments are carried at fair value based on observable market prices, when available. If observable market prices are not available, the Company determines fair value based using a market-based discount rate and considers recent market transactions, experience with similar securities, and current business conditions; |
| Available-for-sale debt securities are carried at fair value using the present value of the cash flows expected to be collected. The Company updates the estimated cash flow at each reporting period and considers all relevant available information, including past events, current conditions and reasonable and supportable forecasts; |
F-45
CANGO INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - continued
FOR THE YEARS ENDED DECEMBER 31, 2016 AND 2017
(Amounts in Renminbi (RMB) and US dollar (US$), except for number of shares and per share data)
20. | FAIR VALUE MEASUREMENTS - CONTINUED |
Assets and liabilities measured or disclosed at fair value-continued
| Cost method equity investments are investments in subordinated trust units where the underlying are automobile loans originated by a third party financial institution. There is no active market for such investments. Additionally it is not practicable for the Company to estimate the fair value of these assets using an income based approach as key inputs to estimating current fair value of the asset (borrower credit worthiness, delinquency data, loan term, and interest rates) are proprietary information held by the third party, and cannot be readily obtained by either the Company or third party valuation specialists. |
The following table summarizes the Companys financial assets measured and recorded at fair value on recurring basis as of December 31, 2016:
As of December 31, 2016 | ||||||||||||||||
Active market
(Level 1) |
Observable input
(Level 2) |
Non-observable input
(Level 3) |
Total | |||||||||||||
RMB | RMB | RMB | RMB | |||||||||||||
Assets: |
||||||||||||||||
Short-term available-for-sale debt securities |
| 106,000,000 | | 106,000,000 | ||||||||||||
Long-term available-for-sale debt securities |
| | 122,400,000 | 122,400,000 |
The following table summarizes the Companys financial assets measured and recorded at fair value on recurring basis as of December 31, 2017:
As of December 31, 2017 | ||||||||||||||||
Active market
(Level 1) |
Observable input
(Level 2) |
Non-observable input
(Level 3) |
Total | |||||||||||||
RMB | RMB | RMB | RMB | |||||||||||||
Assets: |
||||||||||||||||
Short-term available-for-sale debt securities |
| 62,380,000 | | 62,380,000 | ||||||||||||
Long-term available-for-sale debt securities |
| | 49,468,402 | 49,468,402 |
As of December 31, 2017 | ||||||||||||||||
Active market
(Level 1) |
Observable
input (Level 2) |
Non-observable input
(Level 3) |
Total | |||||||||||||
US$ | US$ | US$ | US$ | |||||||||||||
Assets: |
||||||||||||||||
Short-term available-for-sale debt securities |
| 9,944,839 | | 9,944,839 | ||||||||||||
Long-term available-for-sale debt securities |
| | 7,886,427 | 7,886,427 |
F-46
CANGO INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - continued
FOR THE YEARS ENDED DECEMBER 31, 2016 AND 2017
(Amounts in Renminbi (RMB) and US dollar (US$), except for number of shares and per share data)
20. | FAIR VALUE MEASUREMENTS - CONTINUED |
Assets and liabilities measured or disclosed at fair value-continued
The Company did not transfer any assets in or out of level 3 during the year ended December 31, 2016 and 2017.
The following table summarizes the fair value of the Companys financial liabilities measured and recorded at amortized cost as of December 2016 and 2017:
As of December 31, 2016 | ||||||||||||||||
Active market
(Level 1) |
Observable input
(Level 2) |
Non-observable input
(Level 3) |
Total | |||||||||||||
RMB | RMB | RMB | RMB | |||||||||||||
Liabilities: |
||||||||||||||||
Long-term debt |
||||||||||||||||
Trust borrowings |
| 189,572,500 | | 189,572,500 | ||||||||||||
As of December 31, 2017 | ||||||||||||||||
Active market
(Level 1) |
Observable input
(Level 2) |
Non-observable input
(Level 3) |
Total | |||||||||||||
RMB | RMB | RMB | RMB | |||||||||||||
Liabilities: |
||||||||||||||||
Long-term debt |
||||||||||||||||
Trust borrowings |
| 50,000,000 | | 50,000,000 | ||||||||||||
Securitization debts payable |
| 141,444,141 | | 141,444,141 | ||||||||||||
As of December 31, 2017 | ||||||||||||||||
Active market
(Level 1) |
Observable input
(Level 2) |
Non-observable input
(Level 3) |
Total | |||||||||||||
US$ | US$ | US$ | US$ | |||||||||||||
Liabilities: |
||||||||||||||||
Long-term debt |
||||||||||||||||
Trust borrowings |
| 7,971,176 | | 7,971,176 | ||||||||||||
Securitization debts payable |
| 22,549,523 | | 22,549,523 |
The Company estimates the fair value of the available-for-sale debt securities using a discounted cash flow methodology. The significant unobservable input used in the fair value measurement is the discount rate applied in the valuation models. This input in isolation can cause significant increases or decreases in fair value. Specifically, when a discounted cash flow model is used to determine fair value, the significant input used in the valuation model is the discount rate applied to present value the projected cash flows. Increases in the discount rate can significantly lower the fair value of available-for-sale debt securities; conversely a decrease in the discount rate can significantly increase the fair value of the available-for-sale debt securities. The discount rate is determined based on the market rates.
F-47
CANGO INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - continued
FOR THE YEARS ENDED DECEMBER 31, 2016 AND 2017
(Amounts in Renminbi (RMB) and US dollar (US$), except for number of shares and per share data)
20. | FAIR VALUE MEASUREMENTS - CONTINUED |
Significant Unobservable Inputs
Financial Assets |
Unobservable |
As of December 31,2016
Weighted Average |
As of December 31,2017
Weighted Average |
|||||||||
Available-for-sale debt securities |
Discount rate | 5.77 | % | 7.76 | % |
The following table presents a reconciliation of all financial assets measured at fair value on a recurring basis using unobservable inputs (level 3):
As of December 31 | ||||||||||||
2016 | 2017 | |||||||||||
RMB | RMB | US$ | ||||||||||
Balance at January 1 |
| 122,400,000 | 19,513,439 | |||||||||
Additions during the period |
122,400,000 | 155,000,000 | 24,710,646 | |||||||||
Unrealized fair value (loss) included in other comprehensive income |
| (531,598 | ) | (84,749 | ) | |||||||
Disposals during the period |
| (227,400,000 | ) | (36,252,909 | ) | |||||||
Balance at December 31 |
122,400,000 | 49,468,402 | 7,886,427 |
21. | RELATED PARTY BALANCES AND TRANSACTIONS |
Name of related parties |
Relationship with the Company |
|
Mr. Xiaojun Zhang |
Principal shareholder and co-founder of the Company | |
Mr. Jiayuan Lin |
Principal shareholder and Chief Executive Officer of the Company | |
Jincheng Bank (i) |
Company under significant influence of principal shareholder of the Company | |
Shanghai Wangjin Investment Management Co., Ltd. |
Company controlled by principal shareholder of the Company | |
Shanghai Autohome |
The Companys equity method investee | |
Hebei Jiahui Consultation Service Co., Ltd. |
The Companys equity method investee | |
Liaoning Junan Automobile Consultation Service Co., Ltd. |
The Companys equity method investee |
(i) | Mr. Xiaojun Zhang, one of the co-founders and principal shareholders of the Company, was appointed as a member of the Board of Directors of Jincheng Bank on March 24, 2015. He subsequently resigned from the Board of Directors on September 19, 2017. Therefore, Jincheng Bank was deemed to be a related party for the year ended December 31, 2016 and for the period from January 1, 2017 through September 19, 2017. |
F-48
CANGO INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - continued
FOR THE YEARS ENDED DECEMBER 31, 2016 AND 2017
(Amounts in Renminbi (RMB) and US dollar (US$), except for number of shares and per share data)
21. | RELATED PARTY BALANCES AND TRANSACTIONS - CONTINUED |
Details of related party balances and transactions as of December 31, 2016 and 2017 are as follows:
21.1 | Amounts due to related parties |
As of December 31, |
||||||
2016 |
2017 |
|||||
RMB | RMB | US$ | ||||
Hebei Jiahui Consultation Service Co., Ltd. |
700,000 | 1,200,000 | 191,308 | |||
Liaoning Junan Automobile Consultation Service Co., Ltd. |
3,315,000 | 4,315,000 | 687,913 | |||
Shanghai Autohome. |
500,000 | 10,000 | 1,594 | |||
|
|
|
||||
4,515,000 | 5,525,000 | 880,815 | ||||
|
|
|
21.2 | Amounts due from related parties |
As of December 31, | ||||||||||||||||
Notes | 2016 | 2017 | ||||||||||||||
RMB | RMB | US$ | ||||||||||||||
Shanghai Autohome |
(i) | 8,963,726 | 1,253,833 | 199,890 | ||||||||||||
Jincheng Bank |
(i) | 129,595,597 | | | ||||||||||||
Mr. Jiayuan Lin |
(ii) | 37,708,972 | 79,548,880 | 12,681,963 | ||||||||||||
Shanghai Wangjin Investment Management Co., Ltd. |
(ii) | 31,787,302 | 42,834,214 | 6,828,781 | ||||||||||||
|
|
|
|
|
|
|||||||||||
208,055,597 | 123,636,927 | 19,710,634 | ||||||||||||||
|
|
|
|
|
|
(i) | The balance mainly represents automotive financing facilitation service fees, in the ordinary course of business. |
(ii) | The balance represents the borrowings provided to related parties. The borrowing terms were approximately 5 years. The weighted average interest rate for the outstanding borrowings was 4.90% as of December 31, 2016 and 2017, respectively. The Company intends to settle the loans extended to related parties and it is anticipated that the remaining loans will be repaid in full as of 2020 or before the companys qualified initial public offering, whichever is earlier. |
21.3 | Transactions with related parties |
For the years ended December 31, | ||||||||||||
2016 | 2017 | |||||||||||
RMB | RMB | US$ | ||||||||||
Revenue |
||||||||||||
Shanghai Autohome |
32,125,478 | 20,913,903 | 3,334,168 | |||||||||
Jincheng Bank |
287,310,614 | 526,426,758 | 83,924,809 | |||||||||
|
|
|
|
|
|
|||||||
319,436,092 | 547,340,661 | 87,258,977 | ||||||||||
|
|
|
|
|
|
|||||||
Interest income |
||||||||||||
Mr. Jiayuan Lin |
2,359,015 | 3,189,865 | 508,540 | |||||||||
Shanghai Wangjin Investment Management Co., Ltd |
937,346 | 1,896,868 | 302,405 | |||||||||
|
|
|
|
|
|
|||||||
3,296,361 | 5,086,733 | 810,945 | ||||||||||
|
|
|
|
|
|
F-49
CANGO INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - continued
FOR THE YEARS ENDED DECEMBER 31, 2016 AND 2017
(Amounts in Renminbi (RMB) and US dollar (US$), except for number of shares and per share data)
21. | RELATED PARTY BALANCES AND TRANSACTIONS - CONTINUED |
21.3 | Transactions with related parties - continued |
In June 2017, the Company completed a step acquisition of 25% of Shanghai Autohome by acquiring 100% equity interest of Shanghai Wangtian from Mr. Xiaojun Zhang, the principal shareholder and co-founder of the Company, with total cash consideration of RMB 16,000,000 (US$2,550,776).
21.4 | Guarantee provided for related parties |
The company provided guarantee for short-term and long-term debts of Shanghai Autohome for the years ended December 31, 2016 and 2017, as following.
As of December 31, | ||||||||||||||||
Notes | 2016 | 2017 | ||||||||||||||
RMB | RMB | US$ | ||||||||||||||
Shanghai Autohome |
(i | ) | 488,888,000 | 420,022,521 | 66,961,471 |
(i) | The Company provided guarantees to Shanghai Autohome in 2016 and 2017 to help it obtain short-term and long-term debts. The Companys obligation under the guarantee contract will be terminated on December, 2019 when Shanghai Autohome has paid off its short-term and long-term debts. The Company did not charge any commission on the guarantee service. |
22. | SHARE-BASED COMPENSATION |
The Company granted 4,000,000 fully vested equity interests of the subsidiaries of its VIE for a nominal consideration to sales and marketing employees in recognition of their services to the Company for the years ended December 31, 2016. The Company determined the fair value of the equity interests based on the grant date fair value of its subsidiaries. The Company estimated the fair value of its subsidiaries using an income approach based on discounted future cash flow model. The Company used certain assumptions including the projected operating and financial performance of the subsidiaries, development stage of the subsidiaries market performance of industry peers, and weighted average cost of capital in estimating the fair value of the equity interests.
In accordance with ASC Topic 718 Share based payments, the Company recorded share-based compensation expense on the grant date of the equity interests to its employees equal to the estimated fair- value of such equity interests at the measurement date, which was determined to be RMB4,100,000 for the year ended December 31, 2016. The share-based compensation expense was recorded in sales and marketing expenses on the consolidated statements of comprehensive income.
F-50
CANGO INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - continued
FOR THE YEARS ENDED DECEMBER 31, 2016 AND 2017
(Amounts in Renminbi (RMB) and US dollar (US$), except for number of shares and per share data)
23. COMMITMENTS AND CONTINGENCIES
Operating lease commitments
The Company leases facilities in the PRC under non-cancelable operating leases expiring on different dates. Payments under operating leases are expensed on a straight-line basis over the periods of the respective leases. The Companys lease agreements are entered into with third parties and usually have a renewal option with an advance notice period of one to twelve months, and no restrictions or contingent rents. For lease agreements with escalated rental payments, they are recognized on a straight-line basis over the lease term.
Future minimum payments under non-cancelable operating leases for office rental consist of the following as of December 31, 2017:
RMB | US$ | |||||||
Year ending December 31: |
||||||||
2018 |
12,138,740 | 1,935,201 | ||||||
2019 |
9,511,733 | 1,516,394 | ||||||
2020 and after |
4,632,191 | 738,480 | ||||||
|
|
|
|
|||||
Total |
26,282,664 | 4,190,075 | ||||||
|
|
|
|
Indemnification commitments
The Company indemnified short-term and long-term debts from Shanghai Autohome in 2016 and 2017. The Companys obligation under the guarantee contract will be terminated in December 2019 upon maturity the Shanghai Autohome debts. The Company did not charge an additional fee for the guarantee service. The Company did not accrue any loss contingency accruals as the probability of loss was remote and potential loss amounts were not estimable.
Legal contingencies
The Company is not currently involved in any legal proceedings which could result in material loss contingencies.
F-51
CANGO INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - continued
FOR THE YEARS ENDED DECEMBER 31, 2016 AND 2017
(Amounts in Renminbi (RMB) and US dollar (US$), except for number of shares and per share data)
23. | COMMITMENTS AND CONTINGENCIES - CONTINUED |
Risk assurance contingencies
The Company estimated and accrued for the contingent loss related to the risk assurance liability as disclosed in Note 13.
24. | REDEEMABLE CONVERTIBLE PREFERRED SHARES |
The Company issued Series A-1, Series A-2, Series A-3 and Series B Preferred Shares (collectively, the Preferred Shares) to the same group of third party shareholders of the VIE on March 23, 2018. Series A-1, Series A-3, and Series B Preferred Shares (collectively, the Redeemable Preferred Shares) are recorded at fair value on the issuance date and is presented on a retroactive basis.
The following is a summary of the significant terms of the Preferred Shares:
Conversion rights
The holders of the Preferred Shares are entitled to convert, at the option of the holder thereof, at any time after the date of issuance of the respective Preferred Shares, into such number of fully paid and non-assessable ordinary shares as is determined by the applicable conversion price. The initial conversion ratio for corresponding Preferred Shares shall be 1:1.
Automatic Conversion
Each Preferred Share will be automatically converted, based on the then-effective applicable Conversion Price without the payment of any additional consideration, into fully-paid and non-assessable Ordinary Shares upon the earlier of (a) the closing of a qualified IPO, or (b) the date specified by written consent or agreement of the holders of a majority of the corresponding series Preferred Shares.
Dividends
Each preferred share held by certain major investors or their assigns or transferees (on an as-if-converted basis) will be entitled to receive, on a pari passu basis, dividends, if declared, out of funds or assets legally available for the payment therefor, prior and in preference to any declaration or payment of any dividend on Series A-2 Preferred Shares and Ordinary Shares. If declared by the Board, each time the amount of dividends distributed shall be not less than 20% of the then total undistributed profit of the Company.
No dividends have been declared for the Redeemable Preferred Shares for the periods presented.
Voting rights
The holder of Preferred Shares will be entitled to such number of votes as equals the number of ordinary shares into which such holders collective Preferred Shares are convertible at the voting date. To the extent that the Companys articles allow the Preferred Shares to vote separately as a class or series with respect to any matters, such Preferred Shares shall have the right to vote separately as a class or series with respect to such matters.
F-52
CANGO INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - continued
FOR THE YEARS ENDED DECEMBER 31, 2016 AND 2017
(Amounts in Renminbi (RMB) and US dollar (US$), except for number of shares and per share data)
24. | REDEEMABLE CONVERTIBLE PREFERRED SHARES - CONTINUED |
Redemption
The Redeemable Preferred Shares are redeemable by the holders at any time after the earlier of the occurrence of the following event:
(i) | a qualified IPO is not consummated by the Company by the 4th anniversary of the Series B investment date; with respect to Series B Preferred Shareholder, automatic conversion is triggered if a Qualified IPO has not been consummated by the Company before December 31, 2022; or an initial public offering of the Company at any time which is not a qualified IPO; |
(ii) | any material breach of the Preferred Share transaction documents, at an amount equal to the sum of the investment price, plus an amount accruing daily at 15% per annum and all declared but unpaid dividends; |
(iii) | any other redeeming holder has delivered a redemption notice. |
Liquidation Preference
In the event of any liquidation, dissolution or winding up of the Company, all assets and funds of the Company legally available for distribution will be made as follows:
| The holders of Series B Preferred Shares are entitled to receive an amount equal to investment price plus an amount accruing daily at 12% per annum, in preference to any distribution to the holders of the Series A-3 Preferred Shares, Series A-1 Preferred Shares, Series A-2 Preferred Shares and the ordinary shareholders of the Company; |
| After the payment to the holders of Series B Preferred Shares, the holders of Series A-3 Preferred Shares are entitled to receive an amount equal to investment price plus an amount accruing daily at 12% per annum, in preference to any distribution to the holders of the Series A-1 Preferred Shares, Series A-2 Preferred Shares and the ordinary shareholders of the Company; |
| After the payment to the holders of Series A-3 Preferred Shares, the holders of Series A-1 Preferred Shares are entitled to receive an amount equal to investment price plus an amount accruing daily at 12% per annum, in preference to any distribution to the holders of the Series A-2 Preferred Shares and the ordinary shareholders of the Company. |
If there are any assets or funds remaining after the preference amount is distributed or paid in full to the Series B, Series A-3, and Series A-1 Preferred Shareholders, the remaining assets and funds of the Company available for distribution will be distributed ratably among all shareholders (including the holders of Redeemable Preferred Shares) according to the relative number of ordinary shares held by such shareholder on an if converted basis.
Initial Measurement and Subsequent Accounting for Redeemable Preferred Shares
The Redeemable Preferred Shares do not meet the criteria of mandatorily redeemable financial instruments specified in ASC 480-10-S99, and have been classified as mezzanine equity in the consolidated balance
F-53
CANGO INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - continued
FOR THE YEARS ENDED DECEMBER 31, 2016 AND 2017
(Amounts in Renminbi (RMB) and US dollar (US$), except for number of shares and per share data)
24. | REDEEMABLE CONVERTIBLE PREFERRED SHARES - CONTINUED |
Initial Measurement and Subsequent Accounting for Redeemable Preferred Shares - continued
sheets. The Redeemable Preferred Shares were initially measured at fair value. Beneficial conversion features exist when the conversion price of the convertible preferred shares is lower than the fair value of the ordinary shares at the commitment date, which is the issuance date in the Companys case. When a beneficial conversion feature exists as of the commitment date, its intrinsic value is bifurcated from the carrying value of the convertible preferred shares as a contribution to additional paid-in capital. On the commitment date, the most favorable conversion price used to measure the beneficial conversion feature of the Redeemable Preferred Shares was higher than the fair value per ordinary share and therefore no bifurcation of beneficial conversion feature was recognized. The Company determined the fair value of ordinary shares with the assistance of an independent third party valuation firm.
The Company elected to recognize the changes in redemption value immediately as they occur and adjust the carrying amount of the Redeemable Preferred Shares to equal the redemption value at each reporting period. The changes in redemption value including cumulative dividends shall be recorded as a reduction of income available to ordinary shareholders in accordance with ASC 480-10-S99 3A.
The Company concluded that there is no accretion to be recognized because the carrying amount of the Redeemable Preferred Shares is greater than the redemption value. Therefore, no adjustment will be made to the initial carrying amount of the Redeemable Preferred Shares until the redemption amount exceeds the carrying amount of the Redeemable Preferred Shares. The liquidation preference amount was RMB nil and RMB920.9 million (US$146.8 million) as of December 31, 2016 and 2017, respectively.
25. | RESTRICTED NET ASSETS |
The Companys ability to pay dividends is primarily dependent on the Company receiving distributions of funds from its subsidiaries. Relevant PRC statutory laws and regulations permit payments of dividends by the VIE and subsidiaries of the VIE incorporated in PRC only out of their retained earnings, if any, as determined in accordance with PRC accounting standards and regulations. The consolidated results of operations reflected in the consolidated financial statements prepared in accordance with U.S. GAAP differ from those reflected in the statutory financial statements of the Companys subsidiaries.
Under PRC law, the Companys subsidiaries, VIE and the subsidiaries of the VIE located in the PRC (collectively referred as the PRC entities) are required to provide for certain statutory reserves, namely a general reserve, an enterprise expansion fund and a staff welfare and bonus fund. The PRC entities are required to allocate at least 10% of their after tax profits on an individual company basis as determined under PRC accounting standards to the statutory reserve and has the right to discontinue allocations to the statutory reserve if such reserve has reached 50% of registered capital on an individual company basis. In addition, the registered capital of the PRC entities is also restricted.
Appropriations to the enterprise expansion fund and staff welfare and bonus fund are at the discretion of the Board of Directors of the subsidiary. The PRC entities are also subject to similar statutory reserve requirements. These reserves can only be used for specific purposes and are not transferable to the Company in the form of loans, advances or cash dividends.
F-54
CANGO INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - continued
FOR THE YEARS ENDED DECEMBER 31, 2016 AND 2017
(Amounts in Renminbi (RMB) and US dollar (US$), except for number of shares and per share data)
25. | RESTRICTED NET ASSETS - CONTINUED |
Amounts restricted that include paid in capital and statutory reserve funds, as determined pursuant to PRC GAAP, are RMB 230,481,894 and RMB 1,070,449,112 (US$170,654,770) as of December 31, 2016 and 2017, respectively.
26. | SUBSEQUENT EVENTS |
The subsequent events have been evaluated through June 22, 2018, the date the consolidated financial statements were issued.
In January, 2018, a group of the Companys majority owned subsidiaries approved a dividend distribution plan (the Distribution Plan). According to the Distribution Plan, these subsidiaries declared cash dividends of RMB26.9 million (US$4.3 million) to minority shareholders. The dividends to the minority shareholders were fully paid as of the issuance of the consolidated financial statements.
On June 4, 2018, the Company signed the Series C Convertible Preferred Shares Purchase Agreement (the Series C Preferred Shares). On June 15, 2018, the Company issued 41,378,176 Series C Preferred Shares with a par value of $0.0001 per share for an aggregate purchase price of US$245,634,283 or US$5.9363 per share.
In May, 2018, the Company adopted the Share Incentive Plan 2018 (the Plan) which enables eligible grantees to purchase an aggregate of no more than 27,845,526 ordinary shares of the Company.
On May 10, 2018, the Company entered into an agreement with Shanghai Autohomes shareholder to acquire its remaining 25% equity interest in Shanghai Autohome for a total cash consideration of RMB103,000,000. This transaction will be closed, after the acquisition of the 25% shareholding in Shanghai Autohome from another shareholder as stipulated in a separate agreement signed in September 2017 is completed. Subsequent to the completion of the two transactions, Shanghai Autohome will become a wholly owned subsidiary of the Company.
On June 6, 2018, the Company entered into the Capital Contribution Agreement with Beijing Chehejia Information Technology Co., Ltd. (Chehejia), the other investors and the existing shareholders of Chehejia, pursuant to which Chehejia will increase its registered capital by RMB62,868,669 and the Company will subscribe for additional registered capital of RMB7,063,895 at a consideration of RMB100,000,000 in cash, representing a premium of RMB92,936,105.
F-55
CANGO INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - continued
FOR THE YEARS ENDED DECEMBER 31, 2016 AND 2017
(Amounts in Renminbi (RMB) and US dollar (US$), except for number of shares and per share data)
27. | CONDENSED FINANCIAL INFORMATION OF THE PARENT COMPANY |
The following is the condensed financial information of the Company on a parent company only basis.
Condensed balance sheets
As of December 31, | ||||||||||||
2016 | 2017 | |||||||||||
RMB | RMB | US$ | ||||||||||
ASSETS |
||||||||||||
Non-current assets |
||||||||||||
Investments in subsidiaries, VIE and VIEs subsidiaries |
211,087,184 | 1,260,007,622 | 200,874,856 | |||||||||
|
|
|
|
|
|
|||||||
Total non-current assets |
211,087,184 | 1,260,007,622 | 200,874,856 | |||||||||
|
|
|
|
|
|
|||||||
Total assets |
211,087,184 | 1,260,007,622 | 200,874,856 | |||||||||
|
|
|
|
|
|
|||||||
LIABILITY |
||||||||||||
Total liability |
| | | |||||||||
|
|
|
|
|
|
|||||||
Mezzanine equity |
||||||||||||
Redeemable Convertible Preferred Shares |
||||||||||||
Series A-1 (US$0.0001 par value; 53,431,125 shares authorized, and outstanding as of December 31, 2016 and 2017) |
1,501,153,698 | 1,501,153,698 | 239,319,213 | |||||||||
Series A-3 (US$0.0001 par value; 10,308,663 shares authorized, and outstanding as of December 31, 2016 and 2017) |
307,816,408 | 307,816,408 | 49,073,177 | |||||||||
Series B (US$0.0001 par value; 61,942,726 shares authorized, and outstanding as of December 31, 2016 and 2017) |
2,132,875,970 | 2,132,875,970 | 340,030,605 | |||||||||
|
|
|
|
|
|
|||||||
Total mezzanine equity |
3,941,846,076 | 3,941,846,076 | 628,422,995 | |||||||||
|
|
|
|
|
|
|||||||
Shareholders deficit |
||||||||||||
Ordinary shares(US$0.0001 par value; 372,138,271 shares authorized, 124,969,987 shares issued and outstanding at December 31, 2016 and 2017) |
83,145 | 83,145 | 13,255 | |||||||||
Series A-2 preferred shares (US$0.0001 par value; 2,179,215 shares authorized and outstanding as of December 31, 2016 and 2017) |
1,450 | 1,450 | 231 | |||||||||
Additional paid-in capital |
4,611,881 | 4,100,000 | 653,636 | |||||||||
Accumulated other comprehensive loss |
| (398,698 | ) | (63,562 | ) | |||||||
Accumulated deficit |
(3,735,455,368 | ) | (2,685,624,351 | ) | (428,151,699 | ) | ||||||
|
|
|
|
|
|
|||||||
Total shareholders deficit |
(3,730,758,892 | ) | (2,681,838,454 | ) | (427,548,139 | ) | ||||||
|
|
|
|
|
|
|||||||
TOTAL LIABILITIES, MEZZANINE EQUITY AND SHAREHOLDERS EQUITY |
211,087,184 | 1,260,007,622 | 200,874,856 | |||||||||
|
|
|
|
|
|
F-56
CANGO INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - continued
FOR THE YEARS ENDED DECEMBER 31, 2016 AND 2017
(Amounts in Renminbi (RMB) and US dollar (US$), except for number of shares and per share data)
27. | CONDENSED FINANCIAL INFORMATION OF THE PARENT COMPANY - CONTINUED |
Condensed statements of comprehensive income
For the years ended December 31, | ||||||||||||
2016 | 2017 | |||||||||||
RMB | RMB | US$ | ||||||||||
Income from equity method investments |
128,905,984 | 341,009,811 | 54,364,986 | |||||||||
|
|
|
|
|
|
|||||||
Net income before income taxes |
128,905,984 | 341,009,811 | 54,364,986 | |||||||||
|
|
|
|
|
|
|||||||
Income tax expense |
| | | |||||||||
Net income |
128,905,984 | 341,009,811 | 54,364,986 | |||||||||
|
|
|
|
|
|
|||||||
Other comprehensive loss, net of tax |
| (398,698 | ) | (63,562 | ) | |||||||
|
|
|
|
|
|
|||||||
Total comprehensive income, net of tax |
128,905,984 | 340,611,113 | 54,301,424 | |||||||||
|
|
|
|
|
|
Condensed statements of cash flows
For the years ended December 31, | ||||||||||||
2016 | 2017 | |||||||||||
RMB | RMB | US$ | ||||||||||
Net income |
128,905,984 | 341,009,811 | 54,364,986 | |||||||||
|
|
|
|
|
|
|||||||
Share of profit in subsidiaries, VIE and VIEs subsidiaries |
(128,905,984 | ) | (341,009,811 | ) | (54,364,986 | ) | ||||||
|
|
|
|
|
|
|||||||
Net cash provided by (used in) operating activities |
| | | |||||||||
Net cash provided by (used in) investing activities |
| | | |||||||||
Net cash provided by (used in) financing activities |
| | | |||||||||
Effect of exchange rate changes on cash and cash equivalents and restricted cash |
| | | |||||||||
|
|
|
|
|
|
|||||||
Net increase (decrease) in cash and cash equivalents and restricted cash |
| | | |||||||||
Cash and cash equivalents and restricted cash at beginning of the year |
| | | |||||||||
|
|
|
|
|
|
|||||||
Cash and cash equivalents and restricted cash at end of the year |
| | | |||||||||
|
|
|
|
|
|
Basis of presentation
Condensed financial information is used for the presentation of the Company, or the parent company. The condensed financial information of the parent company has been prepared using the same accounting policies as set out in the Companys consolidated financial statements except that the parent company used the equity method to account for investment in its subsidiaries and VIE.
The parent company records its investment in its subsidiaries and VIE under the equity method of accounting as prescribed in ASC 323 Investments-Equity Method and Joint Ventures . Such investments are presented on the condensed balance sheets as Investment in subsidiaries and VIEs and their respective
F-57
CANGO INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - continued
FOR THE YEARS ENDED DECEMBER 31, 2016 AND 2017
(Amounts in Renminbi (RMB) and US dollar (US$), except for number of shares and per share data)
27. | CONDENSED FINANCIAL INFORMATION OF THE PARENT COMPANY - CONTINUED |
Basis of presentation-continued
profit or loss as Equity in profits of subsidiaries and VIEs on the condensed statements of comprehensive income. Equity method accounting ceases when the carrying amount of the investment, including any additional financial support, in a subsidiary and VIE is reduced to zero unless the parent company has guaranteed obligations of the subsidiary and VIE or is otherwise committed to provide further financial support. If the subsidiary and VIE subsequently reports net income, the parent company shall resume applying the equity method only after its share of that net income equals the share of net losses not recognized during the period the equity method was suspended.
The parent companys condensed financial statements should be read in conjunction with the Companys consolidated financial statements.
F-58
UNAUDITED INTERIM CONDENSED CONSOLIDATED BALANCE SHEETS AS OF DECEMBER 31, 2017 AND MARCH 31, 2018
(Amounts in Renminbi (RMB) and US dollar (US$), except for number of shares and per share data)
As of
December 31, 2017 |
As of March 31, 2018 | Pro forma as of March 31, 2018 | ||||||||||||||||||||||
Note | RMB | RMB | US$ | RMB | US$ | |||||||||||||||||||
ASSETS |
||||||||||||||||||||||||
Current assets |
||||||||||||||||||||||||
Cash and cash equivalents |
803,270,815 | 1,962,700,728 | 312,900,668 | 3,553,826,728 | 566,563,583 | |||||||||||||||||||
Restricted cash |
10,060,360 | 18,042,125 | 2,876,339 | 18,042,125 | 2,876,339 | |||||||||||||||||||
Short-term investments |
62,380,000 | 599,720,000 | 95,609,476 | 599,720,000 | 95,609,476 | |||||||||||||||||||
Accounts receivable, net (net of allowance of RMB nil as of December 31, 2017 and March 31, 2018, respectively) |
85,595,207 | 116,904,194 | 18,637,279 | 116,904,194 | 18,637,279 | |||||||||||||||||||
Financing receivables, net (net of allowance of RMB 156,124 and RMB 1,599,233 (US$ 254,955) as of December 31, 2017 and March 31, 2018, respectively) |
832,052 | 2,513,661 | 400,737 | 2,513,661 | 400,737 | |||||||||||||||||||
Short-term amounts due from related parties |
10 | 1,253,833 | 7,435,695 | 1,185,425 | 7,435,695 | 1,185,425 | ||||||||||||||||||
Prepaid expenses and other current assets |
144,858,222 | 142,190,606 | 22,668,527 | 142,190,606 | 22,668,527 | |||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
Total current assets |
1,108,250,489 | 2,849,507,009 | 454,278,451 | 4,440,633,009 | 707,941,366 | |||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
Non-current assets |
||||||||||||||||||||||||
Restricted cash |
319,352,347 | 438,589,019 | 69,921,407 | 438,589,019 | 69,921,407 | |||||||||||||||||||
Long-term investments |
3 | 191,002,602 | 191,106,582 | 30,466,885 | 191,106,582 | 30,466,885 | ||||||||||||||||||
Equity method investments |
4 | 165,659,951 | 163,326,260 | 26,038,048 | 163,326,260 | 26,038,048 | ||||||||||||||||||
Property and equipment, net |
9,751,738 | 12,495,322 | 1,992,048 | 12,495,322 | 1,992,048 | |||||||||||||||||||
Intangible assets |
1,701,770 | 1,695,294 | 270,270 | 1,695,294 | 270,270 | |||||||||||||||||||
Deferred tax assets |
7 | 67,774,187 | 84,048,783 | 13,399,353 | 84,048,783 | 13,399,353 | ||||||||||||||||||
Long-term amounts due from related parties |
10 | 122,383,094 | | | | | ||||||||||||||||||
Other non-current assets |
10,991,399 | 14,026,087 | 2,236,088 | 14,026,087 | 2,236,088 | |||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
Total non-current assets |
888,617,088 | 905,287,347 | 144,324,099 | 905,287,347 | 144,324,099 | |||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
TOTAL ASSETS |
1,996,867,577 | 3,754,794,356 | 598,602,550 | 5,345,920,356 | 852,265,465 | |||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these unaudited interim condensed consolidated financial statements.
F-59
CANGO INC.
UNAUDITED INTERIM CONDENSED CONSOLIDATED BALANCE SHEETS AS OF DECEMBER 31, 2017 AND MARCH 31, 2018 - continued
(Amounts in Renminbi (RMB) and US dollar (US$), except for number of shares and per share data)
As of
December 31, 2017 |
As of March 31, 2018 |
Pro forma as of March 31,
2018 |
||||||||||||||||||||||
Note | RMB | RMB | US$ | RMB | US$ | |||||||||||||||||||
LIABILITIES, MEZZANINE EQUITY AND SHAREHOLDERS EQUITY |
||||||||||||||||||||||||
Current liabilities |
||||||||||||||||||||||||
Accrued expenses and other current liabilities (including accrued expenses and other current liabilities of the consolidated VIE without recourse to the Company of RMB 328,522,735 and RMB 235,779,969 (US$ 37,588,874) as of December 31, 2017 and March 31, 2018, respectively) |
328,522,735 | 235,779,969 | 37,588,874 | 235,779,969 | 37,588,874 | |||||||||||||||||||
Short-term amounts due to related parties (including short-term amounts due to related parties of the consolidated VIE without recourse to the Company of RMB 5,525,000 and RMB 10,167,656 (US$ 1,620,964) as of December 31, 2017 and March 31, 2018, respectively) |
10 | 5,525,000 | 10,167,656 | 1,620,964 | 10,167,656 | 1,620,964 | ||||||||||||||||||
Risk assurance liabilities (including risk assurance liabilities of the consolidated VIE without recourse to the Company of RMB 129,935,457 and RMB 155,353,050 (US$ 24,766,931) as of December 31, 2017 and March 31, 2018, respectively) |
5 | 129,935,457 | 155,353,050 | 24,766,931 | 155,353,050 | 24,766,931 | ||||||||||||||||||
Income tax payable (including income tax payable of the consolidated VIE without recourse to the Company of RMB 62,320,855 and RMB 40,398,847 (US$6,440,527) as of December 31, 2017 and March 31, 2018, respectively) |
7 | 62,320,855 | 40,398,847 | 6,440,527 | 40,398,847 | 6,440,527 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
Total current liabilities |
526,304,047 | 441,699,522 | 70,417,296 | 441,699,522 | 70,417,296 | |||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these unaudited interim condensed consolidated financial statements.
F-60
CANGO INC.
UNAUDITED INTERIM CONDENSED CONSOLIDATED BALANCE SHEETS AS OF DECEMBER 31, 2017 AND MARCH 31, 2018 - continued
(Amounts in Renminbi (RMB) and US dollar (US$), except for number of shares and per share data)
As of
December 31, 2017 |
As of March 31, 2018 | Pro forma as of March 31, 2018 | ||||||||||||||||||||||
Note | RMB | RMB | US$ | RMB | US$ | |||||||||||||||||||
Non-current liabilities |
||||||||||||||||||||||||
Long-term debts (including long-term debts of the consolidated VIE without recourse to the Company of RMB 175,000,000 and RMB 175,000,000 (US$ 27,899,117) as of December 31, 2017 and and March 31, 2018, respectively) |
175,000,000 | 175,000,000 | 27,899,117 | 175,000,000 | 27,899,117 | |||||||||||||||||||
Other non-current liabilities (including other non-current liabilities of the consolidated VIE without recourse to the Company of RMB 35,555,908 and RMB 35,127,462 (US$ 5,600,142) as of December 31, 2017 and March 31, 2018, respectively) |
35,555,908 | 35,127,462 | 5,600,142 | 35,127,462 | 5,600,142 | |||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
Total non-current liabilities |
210,555,908 | 210,127,462 | 33,499,259 | 210,127,462 | 33,499,259 | |||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
Total liabilities |
736,859,955 | 651,826,984 | 103,916,555 | 651,826,984 | 103,916,555 | |||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
Commitments and contingencies |
11 | |||||||||||||||||||||||
Mezzanine equity |
||||||||||||||||||||||||
Redeemable Convertible Preferred Shares |
||||||||||||||||||||||||
Series A-1 (US$ 0.0001 par value; 53,431,125 shares authorized, issued and outstanding as of December 31, 2017 and March 31, 2018) |
1,501,153,698 | 1,501,153,698 | 239,319,213 | | | |||||||||||||||||||
Series A-3 (US$ 0.0001 par value; 10,308,663 shares authorized, issued and outstanding as of December 31, 2017 and March 31, 2018) |
307,816,408 | 307,816,408 | 49,073,177 | | | |||||||||||||||||||
Series B (US$ 0.0001 par value; 61,942,726 shares authorized, issued and outstanding as of December 31, 2017 and March 31, 2018) |
2,132,875,970 | 2,132,875,970 | 340,030,605 | | | |||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
Total mezzanine equity |
3,941,846,076 | 3,941,846,076 | 628,422,995 | | | |||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these unaudited interim condensed consolidated financial statements.
F-61
CANGO INC.
UNAUDITED INTERIM CONDENSED CONSOLIDATED BALANCE SHEETS AS OF DECEMBER 31, 2017 AND MARCH 31, 2018 - continued
(Amounts in Renminbi (RMB) and US dollar (US$), except for number of shares and per share data)
As of December 31,
2017 |
As of March 31, 2018 |
Pro forma as of March 31,
2018 |
||||||||||||||||||||||
Note | RMB | RMB | US$ | RMB | US$ | |||||||||||||||||||
Shareholders (deficit) equity |
||||||||||||||||||||||||
Ordinary shares (US$ 0.0001 par value; 330,760,095 shares authorized, 124,969,987 shares issued and outstanding as of December 31, 2017 and March 31, 2018; 500,000,000 shares authorized, 294,209,892 shares issued and outstanding, unaudited pro forma) |
83,145 | 83,145 | 13,255 | 184,547 | 29,421 | |||||||||||||||||||
Series A-2 preferred shares (US$ 0.0001 par value; 2,179,215 shares authorized and outstanding as of December 31, 2017 and March 31, 2018; nil shares authorized, issued and outstanding, unaudited pro forma) |
1,450 | 1,450 | 231 | | | |||||||||||||||||||
Additional paid-in capital |
4,100,000 | 4,100,000 | 653,636 | 4,210,213,280 | 671,207,040 | |||||||||||||||||||
Accumulated other comprehensive loss |
(398,698 | ) | (320,714 | ) | (51,129 | ) | (320,714 | ) | (51,129 | ) | ||||||||||||||
Accumulated (deficit) retained earnings |
(2,711,414,472 | ) | (851,322,284 | ) | (135,720,799 | ) | 475,436,560 | 75,795,772 | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
Total Cango Inc.s (deficit) equity |
(2,707,628,575 | ) | (847,458,403 | ) | (135,104,806 | ) | 4,685,513,673 | 746,981,104 | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
Non-controlling interests |
6 | 25,790,121 | 8,579,699 | 1,367,806 | 8,579,699 | 1,367,806 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
Total shareholders (deficit) equity |
(2,681,838,454 | ) | (838,878,704 | ) | (133,737,000 | ) | 4,694,093,372 | 748,348,910 | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
TOTAL LIABILITIES, MEZZANINE EQUITY AND SHAREHOLDERS EQUITY |
1,996,867,577 | 3,754,794,356 | 598,602,550 | 5,345,920,356 | 852,265,465 | |||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these unaudited interim condensed consolidated financial statements.
F-62
UNAUDITED INTERIM CONDENSED CONSOLIDATED STATEMENTS OF
COMPREHENSIVE INCOME
FOR THE THREE MONTHS ENDED MARCH 31, 2017 AND 2018
(Amounts in Renminbi (RMB) and US dollar (US$), except for number of shares and per share data)
Three months ended March 31, | ||||||||||||||||
2017 | 2018 | |||||||||||||||
Note |
RMB |
RMB |
US$ |
|||||||||||||
Revenues |
||||||||||||||||
(Including related party amounts of RMB 147,356,993 and RMB 3,545,354 (US$ 565,213) for the period ended March 31, 2017 and 2018, respectively) |
195,096,312 | 248,819,200 | 39,667,634 | |||||||||||||
|
|
|
|
|
|
|||||||||||
Operating cost and expenses |
||||||||||||||||
Cost of revenue |
74,337,466 | 80,855,739 | 12,890,307 | |||||||||||||
Sales and marketing |
20,206,515 | 34,818,388 | 5,550,870 | |||||||||||||
General and administrative |
12,017,470 | 26,744,045 | 4,263,630 | |||||||||||||
Research and development |
2,266,163 | 6,452,126 | 1,028,621 | |||||||||||||
Net (gain) loss on risk assurance liabilities |
(13,355,567 | ) | 3,767,948 | 600,700 | ||||||||||||
Provision for financing receivables |
| 3,061,743 | 488,114 | |||||||||||||
|
|
|
|
|
|
|||||||||||
Total operation cost and expense |
95,472,047 | 155,699,989 | 24,822,242 | |||||||||||||
Income from operations |
99,624,265 | 93,119,211 | 14,845,392 | |||||||||||||
|
|
|
|
|
|
|||||||||||
Interest income (Including related party amounts of RMB 807,520 and RMB 1,215,066 (US$ 193,710) for the period ended March 31, 2017 and 2018, respectively) |
2,768,521 | 8,077,396 | 1,287,727 | |||||||||||||
Income (loss) from equity method investments |
1,254,762 | (2,333,691 | ) | (372,045 | ) | |||||||||||
Interest expense |
(1,677,587 | ) | (4,789,726 | ) | (763,595 | ) | ||||||||||
Foreign exchange loss, net |
| (2,623,389 | ) | (418,230 | ) | |||||||||||
Other income |
1,248,741 | 22,021,823 | 3,510,796 | |||||||||||||
Other expenses |
(10,071 | ) | (106,088 | ) | (16,914 | ) | ||||||||||
|
|
|
|
|
|
|||||||||||
Net income before income taxes |
103,208,631 | 113,365,536 | 18,073,131 | |||||||||||||
Income tax expenses |
7 | (28,947,785 | ) | (29,339,041 | ) | (4,677,333 | ) | |||||||||
|
|
|
|
|
|
|||||||||||
Net income |
74,260,846 | 84,026,495 | 13,395,798 | |||||||||||||
|
|
|
|
|
|
|||||||||||
Less: Net income attributable to non-controlling interests |
6 | 129,979 | 3,934,307 | 627,220 | ||||||||||||
|
|
|
|
|
|
|||||||||||
Net income attributable to Cango Inc.s shareholders |
74,130,867 | 80,092,188 | 12,768,578 | |||||||||||||
|
|
|
|
|
|
The accompanying notes are an integral part of these unaudited interim condensed consolidated financial statements.
F-63
CANGO INC.
UNAUDITED INTERIM CONDENSED CONSOLIDATED STATEMENTS OF
COMPREHENSIVE INCOME - continued
FOR THE THREE MONTHS ENDED MARCH 31, 2017 AND 2018
(Amounts in Renminbi (RMB) and US dollar (US$), except for number of shares and per share data)
Three months ended March 31, | ||||||||||||||
2017 | 2018 | |||||||||||||
Note |
RMB |
RMB |
US$ |
|||||||||||
Earnings per share attributable to ordinary shareholders and Series A-2 preferred shareholder: |
||||||||||||||
Basic and diluted |
8 | 0.29 | 0.32 | 0.05 | ||||||||||
Weighted average shares used to compute earnings per share attributable to ordinary shareholders and Series A-2 preferred shareholder : |
||||||||||||||
Basic |
8 | 127,149,202 | 127,149,202 | 127,149,202 | ||||||||||
Diluted |
8 | 252,831,716 | 252,831,716 | 252,831,716 | ||||||||||
Pro forma income per share attributable to ordinary shareholdersbasic and diluted (unaudited) |
8 | 0.27 | 0.04 | |||||||||||
Shares used in pro forma income per share computationbasic and diluted (unaudited) |
8 | 295,898,332 | 295,898,332 | |||||||||||
Other comprehensive loss, net of tax |
||||||||||||||
Unrealized losses on available-for-sale securities |
377,198 | 77,984 | 12,432 | |||||||||||
|
|
|
|
|
|
|||||||||
Total comprehensive income, net of tax |
74,638,044 | 84,104,479 | 13,408,230 | |||||||||||
|
|
|
|
|
|
|||||||||
Total comprehensive income attributable to non-controlling interests |
129,979 | 3,934,307 | 627,220 | |||||||||||
|
|
|
|
|
|
|||||||||
Total comprehensive income attributable to Cango Inc.s shareholders |
74,508,065 | 80,170,172 | 12,781,010 | |||||||||||
|
|
|
|
|
|
The accompanying notes are an integral part of these unaudited interim condensed consolidated financial statements.
F-64
UNAUDITED INTERIM CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 2017 AND 2018
(Amounts in Renminbi (RMB) and US dollar (US$), except for number of shares and per share data)
Three months ended March 31, | ||||||||||||||||
2017 | 2018 | |||||||||||||||
Note | RMB | RMB | US$ | |||||||||||||
Cash flows from operating activities: |
||||||||||||||||
Net income |
74,260,846 | 84,026,495 | 13,395,798 | |||||||||||||
Adjustments to reconcile net income to net cash used in operating activities: |
||||||||||||||||
Depreciation and amortization |
518,771 | 1,935,544 | 308,571 | |||||||||||||
(Gain) loss on risk assurance liabilities |
(13,355,567 | ) | 3,767,948 | 600,700 | ||||||||||||
Provision of financing receivables |
| 3,061,743 | 488,114 | |||||||||||||
Gain (loss) from equity method investment |
(1,254,762 | ) | 2,333,691 | 372,045 | ||||||||||||
Loss on disposal of property and equipment |
870 | 19,227 | 3,065 | |||||||||||||
Foreign exchange loss, net |
| 2,623,389 | 418,230 | |||||||||||||
Deferred income tax expense (income) |
1,724,897 | (16,300,592 | ) | (2,598,698 | ) | |||||||||||
Changes in operating assets and liabilities: |
||||||||||||||||
Accounts receivable |
217,940 | (31,308,987 | ) | (4,991,389 | ) | |||||||||||
Financing receivables |
| (6,361,986 | ) | (1,014,250 | ) | |||||||||||
Receivables from related parties |
(8,900,777 | ) | 2,193,232 | 349,653 | ||||||||||||
Other current and non-current assets |
(8,550,736 | ) | 1,081,718 | 172,452 | ||||||||||||
Payables to related parties |
| 4,642,656 | 740,149 | |||||||||||||
Risk assurance liabilities |
(9,496,829 | ) | 21,649,645 | 3,451,463 | ||||||||||||
Other current and non-current liabilities |
35,751,766 | (115,608,571 | ) | (18,430,724 | ) | |||||||||||
|
|
|
|
|
|
|||||||||||
Net cash provided by (used in) operating activities |
70,916,419 | (42,244,848 | ) | (6,734,821 | ) | |||||||||||
|
|
|
|
|
|
|||||||||||
Cash flows from investing activities: |
||||||||||||||||
Proceeds from redemption of short-term investments |
135,000,000 | 327,500,000 | 52,211,204 | |||||||||||||
Proceeds from shareholder loans |
| 114,000,000 | 18,174,282 | |||||||||||||
Disposal of property and equipment and intangible assets |
190 | | | |||||||||||||
Purchase of short-term investments |
(172,000,000 | ) | (864,840,000 | ) | (137,875,841 | ) | ||||||||||
Purchase of long-term investments |
(88,000,000 | ) | | | ||||||||||||
Purchases of property and equipment and intangible assets |
(2,006,691 | ) | (4,514,035 | ) | (719,644 | ) | ||||||||||
|
|
|
|
|
|
|||||||||||
Net cash used in investing activities |
(127,006,501 | ) | (427,854,035 | ) | (68,209,999 | ) | ||||||||||
|
|
|
|
|
|
The accompanying notes are an integral part of these unaudited interim condensed consolidated financial statements.
F-65
CANGO INC.
UNAUDITED INTERIM CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 2017 AND 2018 - continued
(Amounts in Renminbi (RMB) and US dollar (US$), except for number of shares and per share data)
Three months ended March 31, | ||||||||||||||||
2017 | 2018 | |||||||||||||||
Note | RMB | RMB | US$ | |||||||||||||
Cash flows from financing activities: |
||||||||||||||||
Contribution from shareholders |
| 1,785,800,000 | 284,698,530 | |||||||||||||
Sale of subsidiaries equity to non-controlling interests holders |
400,000 | | | |||||||||||||
Proceeds from borrowings |
88,892,100 | | | |||||||||||||
Distribution to non-controlling interest holders |
| (26,429,378 | ) | (4,213,465 | ) | |||||||||||
|
|
|
|
|
|
|||||||||||
Net cash provided by financing activities |
89,292,100 | 1,759,370,622 | 280,485,065 | |||||||||||||
|
|
|
|
|
|
|||||||||||
Effect of exchange rate changes on cash, cash equivalents and restricted cash |
| (2,623,389 | ) | (418,230 | ) | |||||||||||
|
|
|
|
|
|
|||||||||||
Net increase in cash, cash equivalents and restricted cash |
33,202,018 | 1,286,648,350 | 205,122,015 | |||||||||||||
|
|
|
|
|
|
|||||||||||
Cash, cash equivalents and restricted cash at beginning of the period |
46,000,213 | 1,132,683,522 | 180,576,399 | |||||||||||||
|
|
|
|
|
|
|||||||||||
Cash, cash equivalents and restricted cash at the end of the period |
79,202,231 | 2,419,331,872 | 385,698,414 | |||||||||||||
|
|
|
|
|
|
|||||||||||
Including: |
||||||||||||||||
Cash, cash equivalents |
78,187,821 | 1,962,700,728 | 312,900,668 | |||||||||||||
Restricted cash |
1,014,410 | 456,631,144 | 72,797,746 |
The accompanying notes are an integral part of these unaudited interim condensed consolidated financial statements.
F-66
NOTES TO THE UNAUDITED INTERIM CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 31, 2017 AND 2018
(Amounts in Renminbi (RMB) and US dollar (US$), except for number of shares and per share data)
1. | ORGANIZATION |
The unaudited interim condensed consolidated financial statements include the accounts of Cango Inc. (the Company, and where appropriate, the term Company also refers to its subsidiaries, variable interest entity, and subsidiaries of the variable interest entity as a whole), its subsidiaries, variable interest entity (VIE), and the subsidiaries of the VIE.
These unaudited interim condensed consolidated financial statements of the Company have been prepared in accordance with U.S. generally accepted accounting principles (U.S. GAAP) for interim financial information using accounting policies that are consistent with those used in the preparation of the Companys audited consolidated financial statements for the year ended December 31, 2017. Accordingly, these unaudited interim condensed consolidated financial statements do not include all of the information and footnotes required by U.S. GAAP for annual financial statements.
In the opinion of the Companys management, the accompanying unaudited interim condensed consolidated financial statements contain all normal recurring adjustments necessary to present fairly the financial position, operating results and cash flows of the Company for each of the periods presented. The results of operations for the three months ended March 31, 2017 and 2018 are not necessarily indicative of results to be expected for any other interim period or for the year ending December 31, 2018. The condensed consolidated balance sheet as of December 31, 2017 was derived from the audited consolidated financial statements at that date but does not include all of the disclosures required by U.S. GAAP for annual financial statements. These unaudited condensed consolidated financial statements should be read in conjunction with the Companys consolidated financial statements for the year ended December 31, 2017.
F-67
CANGO INC.
NOTES TO THE UNAUDITED INTERIM CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS - continued
FOR THE THREE MONTHS ENDED MARCH 31, 2017 AND 2018
(Amounts in Renminbi (RMB) and US dollar (US$), except for number of shares and per share data)
1. | ORGANIZATION - CONTINUED |
VIE disclosures
Except for all assets of the consolidated trusts, there was no other pledge or collateralization of the VIEs assets. Creditors of the VIE have no recourse to the general credit of the Company, who is the primary beneficiary of the VIE, through its 100% controlled subsidiary Cangulong. The Company has not provided any financial or other support that it was not previously contractually required to provide to the VIE during the periods presented. The table sets forth the assets and liabilities of the VIE included in the Companys consolidated balance sheets:
As of
December 31, 2017 |
As of
March 31, 2018 |
|||||||||||
RMB | RMB | US$ | ||||||||||
Cash and cash equivalents |
803,270,815 | 1,962,700,728 | 312,900,668 | |||||||||
Other current assets |
304,979,674 | 886,806,281 | 141,377,783 | |||||||||
|
|
|
|
|
|
|||||||
Total current assets |
1,108,250,489 | 2,849,507,009 | 454,278,451 | |||||||||
|
|
|
|
|
|
|||||||
Restricted cash |
319,352,347 | 438,589,019 | 69,921,407 | |||||||||
Long-term investments |
191,002,602 | 191,106,582 | 30,466,885 | |||||||||
Equity method investments |
165,659,951 | 163,326,260 | 26,038,048 | |||||||||
Other non-current assets |
212,602,188 | 112,265,486 | 17,897,759 | |||||||||
|
|
|
|
|
|
|||||||
Total non-current assets |
888,617,088 | 905,287,347 | 144,324,099 | |||||||||
|
|
|
|
|
|
|||||||
Total assets |
1,996,867,577 | 3,754,794,356 | 598,602,550 | |||||||||
|
|
|
|
|
|
|||||||
Total current liabilities |
526,304,047 | 441,699,522 | 70,417,296 | |||||||||
Total non-current liabilities |
210,555,908 | 210,127,462 | 33,499,259 | |||||||||
|
|
|
|
|
|
|||||||
Total liabilities |
736,859,955 | 651,826,984 | 103,916,555 | |||||||||
|
|
|
|
|
|
The table sets forth the results of operations of the VIE included in the Companys consolidated statements of comprehensive income:
Three months ended March 31, | ||||||||||||
2017 | 2018 | |||||||||||
RMB | RMB | US$ | ||||||||||
Revenues |
195,096,312 | 248,819,200 | 39,667,634 | |||||||||
Net income |
74,260,846 | 84,026,495 | 13,395,798 |
F-68
CANGO INC.
NOTES TO THE UNAUDITED INTERIM CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS - continued
FOR THE THREE MONTHS ENDED MARCH 31, 2017 AND 2018
(Amounts in Renminbi (RMB) and US dollar (US$), except for number of shares and per share data)
1. | ORGANIZATION - CONTINUED |
VIE disclosures - continued
The table sets forth the cash flows of the VIE included in the Companys consolidated statements of cash flows:
Three months ended March 31, | ||||||||||||
2017 | 2018 | |||||||||||
RMB | RMB | US$ | ||||||||||
Net cash provided by (used in) operating activities |
70,916,419 | (42,244,848 | ) | (6,734,821 | ) | |||||||
Net cash used in investing activities |
(127,006,501 | ) | (427,854,035 | ) | (68,209,999 | ) | ||||||
Net cash provided by financing activities |
89,292,100 | 1,759,370,622 | 280,485,065 |
Consolidated trusts
The Company established trusts (Trusts) to invest in subordinated tranches of automobile backed loans. The Company contributed capital to these Trusts, determined the investment strategy, and is the sole beneficiary of these Trusts. These Trusts are administered by third party trust companies as the trustees. The Company consolidates these Trusts as it has the power to direct the activities of them that most significantly impacts their economic performance and the obligation to absorb losses of these Trusts that potentially could be significant to the Trusts.
The Company invested in subordinated trust units of automobile backed loans issued by Jincheng Bank amounting to RMB 141,534,200 and RMB 141,534,200 (US$ 22,563,881) which was classified as long-term investments as of December 31, 2017 and March 31, 2018 respectively. The investments in subordinated trust units of automobile backed loans were not in an unrealized loss position and no other-than-temporary impairment was recognized in earnings.
The table sets forth the assets and liabilities of the consolidated trusts included in the Companys consolidated balance sheets:
As of
December 31, 2017 |
As of
March 31, 2018 |
|||||||||||
RMB | RMB | US$ | ||||||||||
Total non-current assets |
141,534,200 | 141,534,200 | 22,563,881 | |||||||||
Total non-current liabilities |
125,000,000 | 125,000,000 | 19,927,941 |
Non-consolidated trust
As of December 31, 2017 and March 31, 2018, the Company (through its consolidated trusts) invested in subordinated tranches of automobile backed loans that were originated through a third party trust. The subordinated tranches provides specific returns based on the credit risk of the underlying loans. The Company does not have any additional liquidity arrangements, guarantees, or other commitments to the third party trust. The trust is held by and administered by a third party company as a trustee. The Company is not the primary beneficiary and does not consolidate this trust because the Company does not have power
F-69
CANGO INC.
NOTES TO THE UNAUDITED INTERIM CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS - continued
FOR THE THREE MONTHS ENDED MARCH 31, 2017 AND 2018
(Amounts in Renminbi (RMB) and US dollar (US$), except for number of shares and per share data)
1. | ORGANIZATION - CONTINUED |
VIE disclosures - continued
Non-consolidated trust-continued
over decisions that significantly affect the trusts economic performance. The Company accounts for the subordinated tranches of automobile backed loans as long-term investments. As of December 31, 2017 and March 31, 2018, the net carrying amount of the subordinated tranches of automobile backed loans was RMB 191,002,602 and RMB 191,106,582(US$ 30,466,885), respectively, and the Companys maximum exposure to loss in the trust, is limited to the subordinated tranches of automobile backed loans.
2. | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES |
Pro forma information (Unaudited)
The unaudited pro forma balance sheet information as of March 31, 2018 assumes the automatic conversion of all of the outstanding Convertible Preferred Shares and 41,378,176 of Series C Convertible Preferred Shares (the Series C Preferred Shares) into 169,239,905 ordinary shares upon the completion of the qualified IPO.
Convenience translation for financial statements presentation
Translations of amounts from RMB into US$ for the convenience of the reader have been calculated at the exchange rate of RMB 6.2726 per US$1.00 on March 30, 2018, the last business day in March 2018, as published on the website of the United States Federal Reserve Board. No representation is made that the RMB amounts could have been, or could be, converted into U.S. dollars at such rate.
Derivative Instruments
The Company entered into various foreign currency forward contracts that allow the Company to sell US Dollars at a pre-determined exchange rate on maturity date. The total notional amount of the outstanding foreign currency forward contracts was RMB 248.0 million (US$ 39.5 million) as of March 31, 2018. The Company did not have any forward contracts outstanding as of December 31, 2017.
The Company accounts for the foreign currency forward contracts in accordance with ASC 815, Derivatives and hedging . The foreign currency forward contracts were measured at fair value and classified as other current assets within the condensed consolidated balance sheets. The Company estimates the fair value of the foreign currency forward contract at each reporting period using a market based approach using prevailing market rates and industry standard valuation techniques. Any change in the fair value of the foreign currency forward contracts are recorded as other income (loss) in the condensed consolidated statement of comprehensive income for each period until the contract matures, is terminated, or sold. During the three months ended March 31, 2018, the unrealized gains (losses) recognized in the comprehensive income related to the foreign currency forward contracts were not material. There were no unrealized gains (losses) during the three months ended March 31, 2017.
F-70
CANGO INC.
NOTES TO THE UNAUDITED INTERIM CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS - continued
FOR THE THREE MONTHS ENDED MARCH 31, 2017 AND 2018
(Amounts in Renminbi (RMB) and US dollar (US$), except for number of shares and per share data)
2. | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED |
Derivative Instruments-continued
The foreign currency forward contracts may expose the Company to credit risk to the extent that the counterparty may be unable to meet the terms of the arrangement. The Company mitigates this credit risk by transacting with major financial institutions with high credit ratings. The Company pledged RMB 7.9 million (US$ 1.3 million) as cash collateral for its foreign currency forward contracts as of March 31, 2018.
3. | LONG-TERM INVESTMENTS |
The Companys long-term investments consist of the following:
Long-term cost method equity securities
The carrying amount of the Companys long-term cost method equity securities was RMB 141,534,200 and RMB 141,534,200 (US$ 22,563,881) as of December 31, 2017 and March 31, 2018, respectively. No impairment loss was recognized during the three months ended March 31, 2017 and 2018.
Long-term available-for-sale debt securities
The carrying amount of the Companys long-term available-for-sale debt securities was RMB 49,468,402 and RMB 49,572,382 (US$ 7,903,004) as of December 31, 2017 and March 31, 2018, respectively. The unrealized gain for long-term available-for-sale debt securities was RMB 502,930 and RMB 103,980 (US$ 16,577) for the three months ended March 31, 2017 and 2018, respectively. No impairment loss was recognized during the three months ended March 31, 2017 and 2018.
4. | EQUITY METHOD INVESTMENTS |
In September 2015, the Company and three founding parties jointly established Shanghai Autohome Financing Lease Co., Ltd. (Shanghai Autohome), which mainly provides automobile finance leasing services, with RMB 300,000,000 registered capital. Each of the founding parties held a 25% equity interest. As the Company has significant influence over Shanghai Autohome, Shanghai Autohome was accounted for as an equity method investment.
In June 2017, the Company acquired an additional 25% equity interest in Shanghai Autohome for a purchase consideration of RMB 90,000,000.
In September 2017, the Company entered into a series of agreements to acquire another additional 25% of the equity interest in Shanghai Autohome for RMB 103,000,000. This acquisition is not closed as of the date of this report.
The Companys share of (loss) profit in Shanghai Autohome for the three months ended March 31, 2017 and 2018 of RMB 1,571,240 profit and RMB 1,949,160 (US$ 310,742) loss, was recognized in the consolidated statements of comprehensive income.
F-71
CANGO INC.
NOTES TO THE UNAUDITED INTERIM CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS - continued
FOR THE THREE MONTHS ENDED MARCH 31, 2017 AND 2018
(Amounts in Renminbi (RMB) and US dollar (US$), except for number of shares and per share data)
4. | EQUITY METHOD INVESTMENTS - CONTINUED |
The Companys share of profit (loss) in the remaining equity method investments were not material for the three months ended March 31, 2017 and 2018.
5. | RISK ASSURANCE LIABILITIES |
The movement of risk assurance liabilities during the three months ended March 31, 2017 and 2018 are as follows:
As of March 31, | ||||||||||||
2017 | 2018 | |||||||||||
RMB | RMB | US$ | ||||||||||
Balance at the beginning of the period |
149,787,763 | 129,935,457 | 20,714,769 | |||||||||
Fair value of risk assurance liabilities upon the inception of new loans |
4,215,273 | 46,297,325 | 7,380,882 | |||||||||
Performed risk assurance liabilities |
(13,711,874 | ) | (24,647,680 | ) | (3,929,420 | ) | ||||||
Net (gain) loss on risk assurance liabilities |
(13,355,567 | ) | 3,767,948 | 600,700 | ||||||||
|
|
|
|
|
|
|||||||
Balance at the end of the period |
126,935,595 | 155,353,050 | 24,766,931 | |||||||||
|
|
|
|
|
|
The maximum potential undiscounted future payment which the Company would be required to make under its risk assurance obligation is RMB 10,051,661,346 (US$ 1,602,471,279) as of March 31, 2018. The term of the risk assurance obligation ranges from 6 months to 60 months as of March 31, 2018.
6. | NON-CONTROLLING INTERESTS |
The movement of non-controlling interests during the three months ended March 31, 2017 and 2018 are as follows:
As of March 31, | ||||||||||||
2017 | 2018 | |||||||||||
RMB | RMB | US$ | ||||||||||
Balance at the beginning of the period |
15,294,222 | 25,790,121 | 4,111,553 | |||||||||
Capital contribution by non-controlling interests shareholders |
| 5,800,000 | 924,656 | |||||||||
Dividends distribution to non-controlling interests shareholders |
| (26,944,729 | ) | (4,295,623 | ) | |||||||
Sale of subsidiaries equity to non-controlling interests shareholders |
556,036 | | | |||||||||
Net income attributed to non-controlling interests |
129,979 | 3,934,307 | 627,220 | |||||||||
|
|
|
|
|
|
|||||||
Balance at the end of the period |
15,980,237 | 8,579,699 | 1,367,806 | |||||||||
|
|
|
|
|
|
7. | INCOME TAXES |
The Companys tax provision for interim periods is determined using an estimated annual effective tax rate, adjusted for discrete items arising in that quarter. In each quarter, the Company updates the estimated annual
F-72
CANGO INC.
NOTES TO THE UNAUDITED INTERIM CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS - continued
FOR THE THREE MONTHS ENDED MARCH 31, 2017 AND 2018
(Amounts in Renminbi (RMB) and US dollar (US$), except for number of shares and per share data)
7. | INCOME TAXES - CONTINUED |
effective tax rate and make a year-to-date adjustment to the provision. The estimated annual effective tax rate is subject to change in subsequent quarters as the estimates of pretax income or loss for the year increase or decrease and certain subsidiaries of the Company may or may not continue to qualify for certain preferential tax rates.
The Company did not provide deferred income taxes and foreign withholding taxes on the undistributed earnings of foreign subsidiaries and VIEs for the year ended 2017 and the three months ended March 31, 2018 on the basis of its intent to permanently reinvest foreign subsidiaries and VIEs earnings. As of March 31, 2018, the total amount of undistributed earnings from the Companys PRC subsidiaries and VIEs for which no withholding tax has been accrued was RMB 486 million (US$ 77 million).
8. | EARNINGS PER SHARE (EPS) |
The following table sets forth the computation of basic and diluted net income per share for the three months ended March 31, 2017 and 2018:
Undistributed earnings allocated to participating securities are subtracted from net income in determining net income attributable to ordinary shareholders. Basic EPS is computed by dividing net income attributable to ordinary shareholders by the weighted-average number of shares of our ordinary share outstanding, adjusted for participating securities that are convertible in the future.
Three months ended March 31, |
||||||||||||||
Basic EPS: |
2017 |
2018 |
||||||||||||
Ordinary
|
Series A-2
preferred shares |
Ordinary Shares |
Series
A-2
|
|||||||||||
RMB | RMB | RMB | US$ | RMB | US$ | |||||||||
Numerator: |
||||||||||||||
Net income attributable to Cango Incs shareholders |
72,860,335 | 1,270,532 | 78,719,485 | 12,549,737 | 1,372,703 | 218,841 | ||||||||
Less: Allocation of net income to participating securities |
36,218,834 | 631,581 | 39,131,415 | 6,238,468 | 682,370 | 108,786 | ||||||||
|
|
|
|
|
|
|
||||||||
Net income attributable to ordinary shareholders and Series A-2 preferred shareholders |
36,641,501 | 638,951 | 39,588,070 | 6,311,269 | 690,333 | 110,055 | ||||||||
|
|
|
|
|
|
|
||||||||
Denominator: |
||||||||||||||
Number of shares used for Basic EPS computation (millions of shares) |
124.97 | 2.18 | 124.97 | 124.97 | 2.18 | 2.18 | ||||||||
|
|
|
|
|
|
|
||||||||
Basic EPS |
0.29 | 0.29 | 0.32 | 0.05 | 0.32 | 0.05 | ||||||||
|
|
|
|
|
|
|
The computation of the diluted EPS assumes the conversion of all convertible preferred shares to ordinary share. Diluted EPS attributable to ordinary shareholders is computed by dividing the resulting net income attributable to ordinary shareholders by the weighted-average number of fully diluted ordinary shares outstanding.
F-73
CANGO INC.
NOTES TO THE UNAUDITED INTERIM CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS - continued
FOR THE THREE MONTHS ENDED MARCH 31, 2017 AND 2018
(Amounts in Renminbi (RMB) and US dollar (US$), except for number of shares and per share data)
8. | EARNINGS PER SHARE (EPS) - CONTINUED |
Basic and diluted EPS are the same for each class of ordinary share because they are entitled to the same liquidation and dividend rights.
Three months ended March 31, | ||||||||||||||||||||||||
Diluted EPS: |
2017 | 2018 | ||||||||||||||||||||||
Ordinary
Shares |
Series
A-2
preferred shares |
Ordinary Shares |
Series
A-2
preferred shares |
|||||||||||||||||||||
RMB | RMB | RMB | US$ | RMB | US$ | |||||||||||||||||||
Numerator: |
||||||||||||||||||||||||
Net income attributable to ordinary shareholders and Series A-2 preferred shareholders |
36,641,501 | 638,951 | 39,588,070 | 6,311,269 | 690,333 | 110,055 | ||||||||||||||||||
Reallocation of net income attributable to participating securities |
36,850,415 | | 39,813,785 | 6,347,254 | | | ||||||||||||||||||
Reallocation of net income as a result of conversion of Series A-2 preferred shares to ordinary shares |
638,951 | | 690,333 | 110,055 | | | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Net income attributable to ordinary shareholders and Series A-2 preferred shareholders for diluted EPS |
74,130,867 | 638,951 | 80,092,188 | 12,768,578 | 690,333 | 110,055 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Denominator: |
||||||||||||||||||||||||
Number of shares used for basic EPS computation (millions of shares) |
124.97 | 2.18 | 124.97 | 124.97 | 2.18 | 2.18 | ||||||||||||||||||
Conversion of Series A-2 preferred shares to ordinary shares (millions of shares) |
2.18 | | 2.18 | 2.18 | | | ||||||||||||||||||
Weighted average effect of dilutive securities: |
||||||||||||||||||||||||
Conversion of Series A-1, A-3 and B preferred shares to ordinary shares (millions of shares) |
125.68 | | 125.68 | 125.68 | | | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Number of shares used for diluted EPS computation (millions of shares) |
252.83 | 2.18 | 252.83 | 252.83 | 2.18 | 2.18 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Diluted EPS |
0.29 | 0.29 | 0.32 | 0.05 | 0.32 | 0.05 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
F-74
CANGO INC.
NOTES TO THE UNAUDITED INTERIM CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS - continued
FOR THE THREE MONTHS ENDED MARCH 31, 2017 AND 2018
(Amounts in Renminbi (RMB) and US dollar (US$), except for number of shares and per share data)
8. | EARNINGS PER SHARE (EPS) - CONTINUED |
The unaudited pro forma net income per ordinary share is computed using the weighted-average number of ordinary shares outstanding and assumes the automatic conversion of all Series A, Series B and Series C preferred Shares into 169,239,905 weighted-average shares of ordinary shares upon the closing of the Companys qualified IPO, as if it had occurred on January 1, 2018.
The following table summarizes the unaudited pro forma net income per share:
Pro forma Basic and Diluted EPS: |
Three months ended March 31, 2018 | |||||||||||||||
Ordinary shares | Series A-2 preferred shares | |||||||||||||||
(Unaudited) | (Unaudited) | (Unaudited) | (Unaudited) | |||||||||||||
RMB | US$ | RMB | US$ | |||||||||||||
Numerator: |
||||||||||||||||
Net income attributable to ordinary shareholders and Series A-2 preferred shareholdersbasic |
33,826,212 | 5,392,694 | 589,858 | 94,037 | ||||||||||||
Reallocation of net income attributable to participating securities |
45,219,100 | 7,208,988 | | | ||||||||||||
Reallocation of net income as a result of conversion of Series A-2 preferred shares to ordinary shares |
589,858 | 94,037 | | | ||||||||||||
Reallocation of net income for dividends distribution in excess of current year earnings |
457,018 | 72,859 | | | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Net income attributable to ordinary shareholders for basic and diluted pro forma EPS |
80,092,188 | 12,768,578 | 589,858 | 94,037 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Denominator: |
||||||||||||||||
Number of shares used for basic EPS computation (millions of shares) |
124.97 | 124.97 | 2.18 | 2.18 | ||||||||||||
Conversion of Series A-2 preferred shares to ordinary shares (millions of shares) |
2.18 | 2.18 | | | ||||||||||||
Weighted average effect of dilutive securities: |
||||||||||||||||
Conversion of Series A-1, A-3, B and C preferred shares to ordinary shares (millions of shares) |
167.06 | 167.06 | | | ||||||||||||
Adjustment to IPO shares for dividends in excess of current year earnings (millions of shares) |
1.69 | 1.69 | | | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Number of shares used for basic and diluted pro forma EPS (millions of shares) |
295.90 | 295.90 | 2.18 | 2.18 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Pro forma EPSBasic and Diluted |
0.27 | 0.04 | 0.27 | 0.04 | ||||||||||||
|
|
|
|
|
|
|
|
9. | FAIR VALUE MEASUREMENTS |
Assets and liabilities measured or disclosed at fair value
Following are descriptions of the valuation techniques and key in puts, and significant assumptions utilized for fair value measurements.
| Short-term availablefor-sale debt securities are carried at fair value based on observable market prices; |
F-75
CANGO INC.
NOTES TO THE UNAUDITED INTERIM CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS - continued
FOR THE THREE MONTHS ENDED MARCH 31, 2017 AND 2018
(Amounts in Renminbi (RMB) and US dollar (US$), except for number of shares and per share data)
9. | FAIR VALUE MEASUREMENTS - CONTINUED |
Assets and liabilities measured or disclosed at fair value-continued
| Derivative instruments are carried at fair value based on a market approach using prevailing market rates and industry standard valuation techniques; |
| Long-term available-for-sale debt securities are carried at fair value using the present value of the cash flows expected to be collected. The Company updates the estimated cash flow at each reporting period and considers all relevant available information, including past events, current conditions and reasonable and supportable forecasts; |
| Long-term cost method equity securities are investments in subordinated trust units where the underlying are automobile loans originated by a third party financial institution. There is no active market for such investments. Additionally, it is not practicable for the Company to estimate the fair value of these assets using an income based approach as key inputs to estimating current fair value of the asset (borrower credit worthiness, delinquency data, loan term, and interest rates) are proprietary information held by the third party, and cannot be readily obtained by either the Company or third party valuation specialists. |
Assets measured at fair value on a recurring basis
As of December 31, 2017 | ||||||||||||||||
Active market
(Level 1) |
Observable input
(Level 2) |
Non-observable input
(Level 3) |
Total | |||||||||||||
RMB | RMB | RMB | RMB | |||||||||||||
Assets: |
||||||||||||||||
Short-term available-for-sale debt securities |
| 62,380,000 | | 62,380,000 | ||||||||||||
Long-term available-for-sale debt securities |
| | 49,468,402 | 49,468,402 |
As of March 31, 2018 | ||||||||||||||||
Active market
(Level 1) |
Observable input
(Level 2) |
Non-observable input
(Level 3) |
Total | |||||||||||||
RMB | RMB | RMB | RMB | |||||||||||||
Assets: |
||||||||||||||||
Short-term available-for-sale debt securities |
| 599,720,000 | | 599,720,000 | ||||||||||||
Long-term available-for-sale debt securities |
| | 49,572,382 | 49,572,382 | ||||||||||||
Derivative instruments |
| 1,366,971 | | 1,366,971 |
F-76
CANGO INC.
NOTES TO THE UNAUDITED INTERIM CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS - continued
FOR THE THREE MONTHS ENDED MARCH 31, 2017 AND 2018
(Amounts in Renminbi (RMB) and US dollar (US$), except for number of shares and per share data)
9. | FAIR VALUE MEASUREMENTS - CONTINUED |
Assets measured at fair value on a recurring basis-continued
As of March 31, 2018 | ||||||||||||||||
Active market
(Level 1) |
Observable input
(Level 2) |
Non-observable input
(Level 3) |
Total | |||||||||||||
US$ | US$ | US$ | US$ | |||||||||||||
Assets: |
||||||||||||||||
Short-term available-for-sale debt securities |
| 95,609,476 | | 95,609,476 | ||||||||||||
Long-term available-for-sale debt securities |
| | 7,903,004 | 7,903,004 | ||||||||||||
Derivative instruments |
| 217,927 | | 217,927 |
The Company did not transfer any assets in or out of level 3 during the three months ended March 31, 2017 and 2018.
The following table summarizes the fair value of the Companys financial liabilities measured and recorded at amortized cost as of December 2017 and March 31, 2018:
As of December 31, 2017 | ||||||||||||||||
Active market
(Level 1) |
Observable input
(Level 2) |
Non-observable input
(Level 3) |
Total | |||||||||||||
RMB | RMB | RMB | RMB | |||||||||||||
Liabilities: |
||||||||||||||||
Long-term debts |
||||||||||||||||
Trust borrowings |
| 50,000,000 | | 50,000,000 | ||||||||||||
Securitization debts payable |
| 141,444,141 | | 141,444,141 |
As of March 31, 2018 | ||||||||||||||||
Active market
(Level 1) |
Observable input
(Level 2) |
Non-observable input
(Level 3) |
Total | |||||||||||||
RMB | RMB | RMB | RMB | |||||||||||||
Liabilities: |
||||||||||||||||
Long-term debts |
||||||||||||||||
Trust borrowings |
| 50,000,000 | | 50,000,000 | ||||||||||||
Securitization debts payable |
| 139,186,124 | | 139,186,124 |
F-77
CANGO INC.
NOTES TO THE UNAUDITED INTERIM CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS - continued
FOR THE THREE MONTHS ENDED MARCH 31, 2017 AND 2018
(Amounts in Renminbi (RMB) and US dollar (US$), except for number of shares and per share data)
9. | FAIR VALUE MEASUREMENTS - CONTINUED |
Assets measured at fair value on a recurring basis-continued
As of March 31, 2018 | ||||||||||||||||
Active market
(Level 1) |
Observable input
(Level 2) |
Non-observable input
(Level 3) |
Total | |||||||||||||
US$ | US$ | US$ | US$ | |||||||||||||
Liabilities: |
||||||||||||||||
Long-term debts |
||||||||||||||||
Trust borrowings |
| 7,971,176 | | 7,971,176 | ||||||||||||
Securitization debts payable |
| 22,189,542 | | 22,189,542 |
The Company estimates the fair value of the available-for-sale debt securities using a discounted cash flow methodology. The significant unobservable input used in the fair value measurement is the discount rate applied in the valuation models. This input in isolation can cause significant increases or decreases in fair value. Specifically, when a discounted cash flow model is used to determine fair value, the significant input used in the valuation model is the discount rate applied to present value the projected cash flows. Increases in the discount rate can significantly lower the fair value of available-for-sale debt securities; conversely a decrease in the discount rate can significantly increase the fair value of the available-for-sale debt securities. The discount rate is determined based on the market rates.
Significant Unobservable Inputs
As of December 31, 2017 | As of March 31, 2018 | |||||||||
Financial Assets |
Unobservable |
WeightedAverage | WeightedAverage | |||||||
Available for sale debt securities |
Discount rate | 7.76 | % | 6.71 | % |
The following table presents a reconciliation of all financial assets measured at fair value on a recurring basis using unobservable inputs (level 3):
As of March 31, | ||||||||||||
2017 | 2018 | |||||||||||
RMB | RMB | US$ | ||||||||||
Balance at January 1 |
122,400,000 | 49,468,402 | 7,886,427 | |||||||||
Additions during the period |
56,000,000 | | | |||||||||
Unrealized fair value gain included in other comprehensive income |
502,930 | 103,980 | 16,577 | |||||||||
|
|
|
|
|
|
|||||||
Balance at March 31 |
178,902,930 | 49,572,382 | 7,903,004 | |||||||||
|
|
|
|
|
|
F-78
CANGO INC.
NOTES TO THE UNAUDITED INTERIM CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS - continued
FOR THE THREE MONTHS ENDED MARCH 31, 2017 AND 2018
(Amounts in Renminbi (RMB) and US dollar (US$), except for number of shares and per share data)
10. | RELATED PARTY BALANCES AND TRANSACTIONS |
Name of related parties |
Relationship with the Company |
|
Mr. Xiaojun Zhang |
Principal shareholder and co-founder of the Company | |
Mr. Jiayuan Lin |
Principal shareholder and Chief Executive Officer of the Company | |
Jincheng Bank (i) |
Company under significant influence of principal shareholder of the Company | |
Shanghai Wangjin Investment Management Co., Ltd. |
Company controlled by principal shareholder of the Company | |
Shanghai Autohome |
The Companys equity method investee | |
Hebei Jiahui Consultation Service Co., Ltd. |
The Companys equity method investee | |
Liaoning Junan Automobile Consultation Service Co., Ltd. |
The Companys equity method investee |
(i) | Mr. Xiaojun Zhang, one of the co-founders and principal shareholders of the Company, was appointed as a member of the Board of Directors of Jincheng Bank on March 24, 2015. He subsequently resigned from the Board of Directors on September 19, 2017. Therefore, Jincheng Bank was deemed to be a related party for the three months ended March 31, 2017. |
Details of related party balances and transactions as of December 31, 2017 and March 31, 2018 are as follows:
10.1 | Amounts due to related parties |
As of December 31,
2017 |
As of March 31,
2018 |
|||||||||||
RMB | RMB | US$ | ||||||||||
Hebei Jiahui Consultation Service Co., Ltd. |
1,200,000 | 1,200,000 | 191,308 | |||||||||
Liaoning Junan Automobile Consultation Service Co., Ltd. |
4,315,000 | 4,315,000 | 687,913 | |||||||||
Shanghai Autohome |
10,000 | 4,652,656 | 741,743 | |||||||||
|
|
|
|
|
|
|||||||
5,525,000 | 10,167,656 | 1,620,964 | ||||||||||
|
|
|
|
|
|
F-79
CANGO INC.
NOTES TO THE UNAUDITED INTERIM CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS - continued
FOR THE THREE MONTHS ENDED MARCH 31, 2017 AND 2018
(Amounts in Renminbi (RMB) and US dollar (US$), except for number of shares and per share data)
10. | RELATED PARTY BALANCES AND TRANSACTIONS - CONTINUED |
10.2 | Amounts due from related parties |
Notes |
As of December 31,
2017 |
As of March 31,
2018 |
||||||||||||||
RMB | RMB | US$ | ||||||||||||||
Shanghai Autohome |
(i | ) | 1,253,833 | 1,102,009 | 175,686 | |||||||||||
Mr. Jiayuan Lin |
(ii | ) | 79,548,880 | 6,333,686 | 1,009,739 | |||||||||||
Shanghai Wangjin Investment Management Co., Ltd. |
(ii | ) | 42,834,214 | | | |||||||||||
|
|
|
|
|
|
|||||||||||
123,636,927 | 7,435,695 | 1,185,425 | ||||||||||||||
|
|
|
|
|
|
(i) | The balance mainly represents automotive financing facilitation service fees, in the ordinary course of business. |
(ii) | The balance represents the borrowings provided to related parties. The borrowing terms were approximately 5 years. The weighted average interest rate for the outstanding borrowings was 4.90% as of December 31, 2017 and March 31, 2018, respectively. The Company intends to settle the loans extended to related parties and it is anticipated that the remaining loans will be repaid in full as of 2020 or before the companys qualified initial public offering, whichever is earlier. |
10.3 | Transactions with related parties |
Three months ended March 31, | ||||||||||||
2017 | 2018 | |||||||||||
RMB | RMB | US$ | ||||||||||
Revenue |
||||||||||||
Shanghai Autohome |
7,070,716 | 3,545,354 | 565,213 | |||||||||
Jincheng Bank |
140,286,277 | | | |||||||||
|
|
|
|
|
|
|||||||
147,356,993 | 3,545,354 | 565,213 | ||||||||||
|
|
|
|
|
|
|||||||
Interest income |
||||||||||||
Mr. Jiayuan Lin |
413,426 | 784,805 | 125,116 | |||||||||
Shanghai Wangjin Investment Management Co., Ltd |
394,094 | 430,261 | 68,594 | |||||||||
|
|
|
|
|
|
|||||||
807,520 | 1,215,066 | 193,710 | ||||||||||
|
|
|
|
|
|
F-80
CANGO INC.
NOTES TO THE UNAUDITED INTERIM CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS - continued
FOR THE THREE MONTHS ENDED MARCH 31, 2017 AND 2018
(Amounts in Renminbi (RMB) and US dollar (US$), except for number of shares and per share data)
10. | RELATED PARTY BALANCES AND TRANSACTIONS - CONTINUED |
10.4 | Guarantee provided for related parties |
The company provided a guarantee for short-term and long-term debts of Shanghai Autohome for the year ended December 31, 2017 and the three months ended March 31, 2018, as following.
Notes |
As of December 31,
2017 |
As of March 31,
2018 |
||||||||||||||
RMB | RMB | US$ | ||||||||||||||
Shanghai Autohome |
(i | ) | 420,022,521 | 547,021,884 | 87,208,157 | |||||||||||
|
|
|
|
|
|
(i) | In 2017, the Company provided a guarantee on Shanghai Autohomes short-term and long-term debts to Shanghai Autohomes creditors. The Companys obligation under the guarantee contract was terminated on December, 2019 when Shanghai Autohome repay its short-term and long-term debts. The Company did not charge any commission on the guarantee service. |
11. | COMMITMENTS AND CONTINGENCIES |
Operating lease commitments
The Company leases facilities in the PRC under non-cancelable operating leases expiring on different dates. Payments under operating leases are expensed on a straight-line basis over the periods of the respective leases. The Companys lease agreements are entered into with third parties and usually have a renewal option with an advance notice period of one to twelve months, and no restrictions or contingent rents. For lease agreements with escalated rental payments, they are recognized on a straight-line basis over the lease term.
Future minimum payments under non-cancelable operating leases for office rental consist of the following as of March 31, 2018:
RMB | US$ | |||||||
Three months ended March 31, 2018: |
||||||||
2018 (April 1 December 31) |
12,640,618 | 2,015,212 | ||||||
2019 |
14,356,825 | 2,288,816 | ||||||
2020 and after |
10,688,555 | 1,704,007 | ||||||
|
|
|
|
|||||
37,685,998 | 6,008,035 | |||||||
|
|
|
|
Indemnification commitments
The Company indemnified short-term and long-term debts from Shanghai Autohome for the three months ended March 31, 2017 and 2018 The Companys obligation under the guarantee contract will be terminated in December 2019 upon maturity the Shanghai Autohome debts. The Company did not charge a fee for the guarantee. The Company did not accrue any loss contingency accruals as the probability of loss was remote and the potential loss was not estimable.
F-81
CANGO INC.
NOTES TO THE UNAUDITED INTERIM CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS - continued
FOR THE THREE MONTHS ENDED MARCH 31, 2017 AND 2018
(Amounts in Renminbi (RMB) and US dollar (US$), except for number of shares and per share data)
11. | COMMITMENTS AND CONTINGENCIES - CONTINUED |
Legal contingencies
The Company is not currently involved in any legal proceedings which could result in material loss contingencies.
Risk assurance contingencies
The Company estimated and accrued for the contingent loss related to the risk assurance liability as disclosed in Note 5.
12. | REDEEMABLE CONVERTIBLE PREFERRED SHARES |
The Company issued Series A-1, Series A-2, Series A-3 and Series B Preferred Shares (collectively, the Preferred Shares) to the same group of third party shareholders of the VIE on March 23, 2018. Series A-1, Series A-3, and Series B Preferred Shares (collectively, the Redeemable Preferred Shares) are recorded at fair value on the issuance date and is presented on a retroactive basis.
The Redeemable Preferred Shares were initially measured at fair value. The Company elected to recognize the changes in redemption value immediately as they occur and adjust the carrying amount of the Redeemable Preferred Shares to equal the redemption value at each reporting period. The changes in redemption value including cumulative dividends shall be recorded as a reduction of income available to ordinary shareholders in accordance with ASC 480-10-S99 3A. The Company concluded that there is no accretion to be recognized because the carrying amount of the Redeemable Preferred Shares is greater than the redemption value. Therefore, no adjustment will be made to the initial carrying amount of the Redeemable Preferred Shares until the redemption amount exceeds the carrying amount of the Redeemable Preferred Shares. The liquidation preference amount was RMB920.9 million and RMB2,929.1 million (US$467.0 million) as of December 31, 2017 and March 31, 2018, respectively.
13. | SUBSEQUENT EVENTS |
The subsequent events have been evaluated through June 22, 2018, the date the consolidated financial statements were issued.
On June 4, 2018, the Company signed the Series C Convertible Preferred Shares Purchase Agreement (the Series C Preferred Shares). On June 15, 2018, the Company issued 41,378,176 Series C Preferred Shares with a par value of $0.0001 per share for an aggregate purchase price of US$245,634,283 or US$5.9363 per share.
In May, 2018, the Company adopted the Share Incentive Plan 2018 (the Plan) which enables eligible grantees to purchase an aggregate of no more than 27,845,526 ordinary shares of the Company.
On May 10, 2018, the Company entered into an agreement with Shanghai Autohomes shareholder to acquire its remaining 25% equity interest in Shanghai Autohome for a total cash consideration of RMB103,000,000. This transaction will be closed, after the acquisition of the 25% shareholding in Shanghai Autohome from another shareholder as stipulated in a separate agreement signed in September 2017 is
F-82
CANGO INC.
NOTES TO THE UNAUDITED INTERIM CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS - continued
FOR THE THREE MONTHS ENDED MARCH 31, 2017 AND 2018
(Amounts in Renminbi (RMB) and US dollar (US$), except for number of shares and per share data)
13. | SUBSEQUENT EVENTS - CONTINUED |
completed. Subsequent to the completion of the two transactions, Shanghai Autohome will become a wholly owned subsidiary of the Company.
On June 6, 2018, the Company entered into the Capital Contribution Agreement with Beijing Chehejia Information Technology Co., Ltd. (Chehejia), the other investors and the existing shareholders of Chehejia, pursuant to which Chehejia will increase its registered capital by RMB62,868,669 and the Company will subscribe for additional registered capital of RMB7,063,895 at a consideration of RMB100,000,000 in cash, representing a premium of RMB92,936,105.
F-83
REPORT OF INDEPENDENT AUDITORS
The Board of Directors and the Shareholders of Shanghai Autohome Financing Lease Co., Ltd.,
We have audited the accompanying consolidated financial statements of Shanghai Autohome Financing Lease Co., Ltd. (the Company), which comprise the consolidated balance sheets as of December 31, 2017 and 2016, and the related consolidated statements of comprehensive (loss) income and cash flows for the years then ended, and the related notes to the consolidated financial statements.
Managements Responsibility for the Financial Statements
Management is responsible for the preparation and fair presentation of these financial statements in conformity with U.S. generally accepted accounting principles; this includes the design, implementation and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free of material misstatement, whether due to fraud or error.
Auditors Responsibility
Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditors judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entitys preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entitys internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.
Opinion
In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Shanghai Autohome Financing Lease Co., Ltd. at December 31, 2017 and 2016, and the consolidated results of its operations and its cash flows for the years then ended in conformity with U.S. generally accepted accounting principles.
/s/ Ernst & Young Hua Ming LLP
Shanghai, the Peoples Republic of China
May 4, 2018, except for Note 13, as to which the date is June 22, 2018
F-84
SHANGHAI AUTOHOME FINANCING LEASE CO., LTD.
CONSOLIDATED BALANCE SHEETS
AS OF DECEMBER 31, 2016 AND 2017
(Amounts in Renminbi (RMB) and US dollar (US$))
As of December 31, | ||||||||||||||||
2016 | 2017 | 2017 | ||||||||||||||
Note | RMB | RMB | US$ | |||||||||||||
ASSETS |
||||||||||||||||
Current assets |
||||||||||||||||
Cash and cash equivalents |
13,601,858 | 83,583,116 | 13,325,115 | |||||||||||||
Restricted Cashcurrent |
| 24,971,111 | 3,980,983 | |||||||||||||
Finance lease receivablescurrent (net of allowance of RMB 5,479,139 and RMB 12,526,193 (US$ 1,996,971) as of December 31, 2016 and 2017, respectively) |
3 | 467,365,670 | 428,718,714 | 68,347,848 | ||||||||||||
Short-term amounts due from related parties |
8 | 500,000 | 10,000 | 1,594 | ||||||||||||
Prepaid expenses |
797,637 | 732,556 | 116,787 | |||||||||||||
Other current assets |
6,386,972 | 4,541,956 | 724,092 | |||||||||||||
|
|
|
|
|
|
|||||||||||
Total current assets |
488,652,137 | 542,557,453 | 86,496,419 | |||||||||||||
|
|
|
|
|
|
|||||||||||
Non-current assets |
||||||||||||||||
Restricted Cashnon-current |
14,087,200 | 10,000,000 | 1,594,235 | |||||||||||||
Finance lease receivablesnon-current (net of allowance of RMB 4,824,849 and RMB 5,158,585 (US$ 822,400) as of December 31, 2016 and 2017, respectively) |
3 | 493,021,435 | 245,298,203 | 39,106,304 | ||||||||||||
Property and equipment, net |
4 | 2,202,342 | 1,533,667 | 244,503 | ||||||||||||
Intangible assets |
5 | 54,003 | 48,321 | 7,704 | ||||||||||||
Deferred tax asset |
7 | | | | ||||||||||||
Other non-current assets |
2,132,997 | 1,671,642 | 266,499 | |||||||||||||
|
|
|
|
|
|
|||||||||||
Total non-current assets |
511,497,977 | 258,551,833 | 41,219,245 | |||||||||||||
|
|
|
|
|
|
|||||||||||
TOTAL ASSETS |
1,000,150,114 | 801,109,286 | 127,715,664 | |||||||||||||
|
|
|
|
|
|
|||||||||||
LIABILITIES AND SHAREHOLDERS EQUITY |
||||||||||||||||
Current liabilities |
||||||||||||||||
Short-term debts |
6 | 424,888,000 | 128,300,000 | 20,454,038 | ||||||||||||
Long-term debtscurrent (including long-term debtcurrent of the consolidated VIE without recourse to the Company of RMB nil and RMB 16,353,743 (US$ 2,607,171) as of December 31, 2016 and December 31, 2017, respectively) |
6 | 76,667,172 | 168,258,564 | 26,824,373 | ||||||||||||
Short-term amounts due to related parties |
8 | 8,963,726 | 1,253,833 | 199,890 | ||||||||||||
Income tax payable |
| 4,069,084 | 648,708 | |||||||||||||
Accrued expenses and other current liabilities |
6,912,271 | 9,749,208 | 1,554,253 | |||||||||||||
|
|
|
|
|
|
|||||||||||
Total current liabilities |
517,431,169 | 311,630,689 | 49,681,262 | |||||||||||||
|
|
|
|
|
|
|||||||||||
Non-current liabilities |
||||||||||||||||
Long-term debtsnon-current (including long-term debtnon-current of the consolidated VIE without recourse to the Company of RMB 66,065,839 and RMB 131,920,000 (US$ 21,031,151) as of December 31, 2016 and December 31, 2017, respectively) |
6 | 205,176,591 | 214,928,452 | 34,264,651 | ||||||||||||
|
|
|
|
|
|
|||||||||||
Total non-current liabilities |
205,176,591 | 214,928,452 | 34,264,651 | |||||||||||||
|
|
|
|
|
|
|||||||||||
Total liabilities |
722,607,760 | 526,559,141 | 83,945,913 | |||||||||||||
|
|
|
|
|
|
|||||||||||
Commitments and contingencies |
9 | |||||||||||||||
Shareholders Equity |
||||||||||||||||
Paid-in capital |
10 | 300,000,000 | 300,000,000 | 47,827,057 | ||||||||||||
Accumulated deficit |
11 | (22,457,646 | ) | (25,449,855 | ) | (4,057,306 | ) | |||||||||
|
|
|
|
|
|
|||||||||||
Total shareholders equity |
277,542,354 | 274,550,145 | 43,769,751 | |||||||||||||
|
|
|
|
|
|
|||||||||||
TOTAL LIABILITIES AND SHAREHOLDERS EQUITY |
1,000,150,114 | 801,109,286 | 127,715,664 | |||||||||||||
|
|
|
|
|
|
F-85
SHANGHAI AUTOHOME FINANCING LEASE CO., LTD.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
FOR THE YEARS ENDED DECEMBER 31, 2016 and 2017
(Amounts in Renminbi (RMB) and US dollar (US$))
Year ended December 31, | ||||||||||||||||
2016 | 2017 | 2017 | ||||||||||||||
Note | RMB | RMB | US$ | |||||||||||||
Revenues |
||||||||||||||||
Financing lease income |
45,333,157 | 132,400,252 | 21,107,715 | |||||||||||||
|
|
|
|
|
|
|||||||||||
Total revenues |
45,333,157 | 132,400,252 | 21,107,715 | |||||||||||||
|
|
|
|
|
|
|||||||||||
Operating cost and expenses: |
||||||||||||||||
Cost of revenue (including related party amounts of RMB 19,170,348 and RMB 31,084,763(US$ 4,955,643) for the year ended December 31, 2016 and 2017, respectively) |
(36,515,582 | ) | (82,092,382 | ) | (13,087,457 | ) | ||||||||||
Sales and marketing |
(7,521,129 | ) | (13,365,191 | ) | (2,130,726 | ) | ||||||||||
General and administrative |
(14,359,336 | ) | (10,014,097 | ) | (1,596,483 | ) | ||||||||||
Provision for finance lease receivables |
(11,400,680 | ) | (27,005,865 | ) | (4,305,370 | ) | ||||||||||
|
|
|
|
|
|
|||||||||||
(Loss) from operations |
(24,463,570 | ) | (77,283 | ) | (12,321 | ) | ||||||||||
Interest income |
2,355,536 | 1,555,238 | 247,942 | |||||||||||||
Other income |
502 | 109,003 | 17,378 | |||||||||||||
Other expenses |
| (35,076 | ) | (5,593 | ) | |||||||||||
Net (loss) income before income taxes |
(22,107,532 | ) | 1,551,882 | 247,406 | ||||||||||||
|
|
|
|
|
|
|||||||||||
Income tax expenses |
7 | | (4,544,091 | ) | (724,435 | ) | ||||||||||
Net (loss) |
(22,107,532 | ) | (2,992,209 | ) | (477,029 | ) | ||||||||||
|
|
|
|
|
|
|||||||||||
TOTAL COMPREHENSIVE (LOSS) |
(22,107,532 | ) | (2,992,209 | ) | (477,029 | ) | ||||||||||
|
|
|
|
|
|
F-86
SHANGHAI AUTOHOME FINANCING LEASE CO., LTD.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 2016 and 2017
(Amounts in Renminbi (RMB) and US dollar (US$))
Year ended December 31, | ||||||||||||||
2016 | 2017 | 2017 | ||||||||||||
Note | RMB | RMB | US$ | |||||||||||
Cash flows from operating activities: |
||||||||||||||
Net (loss) |
(22,107,532 | ) | (2,992,209 | ) | (477,029 | ) | ||||||||
Adjustments to reconcile net (loss) income to net cash used in operating activities: |
||||||||||||||
Depreciation and amortization |
483,325 | 874,282 | 139,381 | |||||||||||
Provision for finance lease receivables |
11,400,680 | 27,005,865 | 4,305,370 | |||||||||||
Loss on disposal of property and equipment |
| 35,074 | 5,592 | |||||||||||
Changes in operating assets and liabilities: |
||||||||||||||
Receivables from related parties |
(500,000 | ) | 490,000 | 78,118 | ||||||||||
Other current and non-current assets |
(9,317,607 | ) | 2,371,451 | 378,065 | ||||||||||
Payables to related parties |
8,963,727 | (7,709,894 | ) | (1,229,138 | ) | |||||||||
Other current and non-current liabilities |
6,912,270 | 6,906,023 | 1,100,982 | |||||||||||
|
|
|
|
|
|
|||||||||
Net cash (used in) provided by operating activities |
(4,165,137 | ) | 26,980,592 | 4,301,341 | ||||||||||
|
|
|
|
|
|
|||||||||
Cash flows from investing activities: |
||||||||||||||
Principal collections and recoveries on finance lease receivables |
214,258,014 | 508,192,016 | 81,017,762 | |||||||||||
Origination of finance lease receivables, net of initial direct cost |
(1,186,045,798 | ) | (248,827,693 | ) | (39,668,988 | ) | ||||||||
Purchases of property and equipment and intangible assets |
(2,739,670 | ) | (234,999 | ) | (37,464 | ) | ||||||||
|
|
|
|
|
|
|||||||||
Net cash (used in) provided by investing activities |
(974,527,454 | ) | 259,129,324 | 41,311,310 | ||||||||||
Cash flows from financing activities: |
||||||||||||||
Proceeds from debts |
946,356,800 | 438,901,659 | 69,971,249 | |||||||||||
Repayment of debts |
(239,625,037 | ) | (634,146,406 | ) | (101,097,855 | ) | ||||||||
|
|
|
|
|
|
|||||||||
Net cash provided by (used in) financing activities |
706,731,763 | (195,244,747 | ) | (31,126,606 | ) | |||||||||
|
|
|
|
|
|
|||||||||
Net (decrease) increase in cash, cash equivalents and restricted cash |
(271,960,828 | ) | 90,865,169 | 14,486,045 | ||||||||||
|
|
|
|
|
|
|||||||||
Cash, cash equivalents and restricted cash at beginning of the year |
299,649,886 | 27,689,058 | 4,414,288 | |||||||||||
|
|
|
|
|
|
|||||||||
Cash, cash equivalents and restricted cash at end of year |
27,689,058 | 118,554,227 | 18,900,333 | |||||||||||
|
|
|
|
|
|
|||||||||
Including: |
||||||||||||||
Cash and cash equivalents |
13,601,858 | 83,583,116 | 13,325,115 | |||||||||||
Restricted cash |
14,087,200 | 34,971,111 | 5,575,218 | |||||||||||
Supplemental disclosures of cash flow information: |
||||||||||||||
Income taxes paid |
| 475,006 | 75,727 | |||||||||||
Interest expense paid |
13,526,965 | 47,858,857 | 7,629,828 |
F-87
SHANGHAI AUTOHOME FINANCING LEASE CO., LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2016 and 2017
(Amounts in Renminbi (RMB) and US dollar (US$))
1. | ORGANIZATION |
Shanghai Autohome Financing Lease Co., Ltd. (the Company) was established on September 16, 2015 in the Peoples Republic of China (PRC). The Company consists of one legal entity domiciled in the PRC. The Company was collectively owned by Shanghai Cango Investment and Management Consultation Service Co., Ltd (Shanghai Cango), Shanghai Wangtian Investment Management Co., Ltd (Shanghai Wangtian), Ningbo Meishan Bonded Harbor Zone Xinxiang Investment Management L.P. (formerly known as Beijing Chehejia Technology L.P.), and Autohome Financing Hong Kong Limited (Hong Kong Autohome), with each party holding a 25% equity interest in the Company. In June 2017, Shanghai Cango acquired an additional 25% equity interest in the Company for RMB 90,000,000. On September 17, 2017, Shanghai Cango entered into an agreement to acquire an additional 25% of the equity interest in the Company for RMB 103,000,000, this acquisition is not closed as of the date of this report.
The Company provides consumer automotive finance leasing service in the PRC.
Consolidated variable interest entities (VIEs)
The Company transfers finance lease receivables or lease-related assets to securitization trusts (Trusts), which issue asset-backed securities. The asset-backed securities are in turn sold to investors.
The Company is involving in servicing assets held by the Trusts and retains residual interests. These transactions are structured without recourse. These Trusts are considered VIEs under U.S. GAAP and are consolidated because the Company have: (i) power over the significant activities of the Trusts and (ii) an obligation to absorb losses or the right to receive benefits from the Trusts which could be significant to the Trusts. Accordingly, the Company is the primary beneficiary of the Trusts and the finance lease receivables, leasing related assets, and the related securitization short-term and long-term debts remain on the consolidated balance sheets.
The table sets forth the assets and liabilities of the VIEs included in the Companys consolidated balance sheet:
As of December 31, | ||||||||||||
2016 | 2017 | 2017 | ||||||||||
RMB | RMB | US$ | ||||||||||
Restricted cash |
| 10,883,911 | 1,735,151 | |||||||||
Finance lease receivables, net |
57,466,942 | 170,892,249 | 27,244,245 | |||||||||
Prepaid expenses |
223,174 | 14,840 | 2,366 | |||||||||
|
|
|
|
|
|
|||||||
Total assets |
57,690,116 | 181,791,000 | 28,981,762 | |||||||||
|
|
|
|
|
|
|||||||
Long-term debtscurrent |
| 16,353,743 | 2,607,171 | |||||||||
Long-term debtsnon-current |
66,065,839 | 131,920,000 | 21,031,151 | |||||||||
|
|
|
|
|
|
|||||||
Total liabilities |
66,065,839 | 148,273,743 | 23,638,322 | |||||||||
|
|
|
|
|
|
F-88
SHANGHAI AUTOHOME FINANCING LEASE CO., LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - continued
FOR THE YEARS ENDED DECEMBER 31, 2016 and 2017
(Amounts in Renminbi (RMB) and US dollar (US$))
1. | ORGANIZATION - CONTINUED |
Consolidated variable interest entities (VIEs)-continued
The table sets forth the results of operations of the VIE included in the Companys consolidated statements of comprehensive income:
Year ended December 31, | ||||||||||||
2016 | 2017 | 2017 | ||||||||||
RMB | RMB | US$ | ||||||||||
Revenues |
8,484,029 | 12,211,294 | 1,946,768 | |||||||||
Interest expense |
(633,679 | ) | (2,812,781 | ) | (448,423 | ) | ||||||
Provision for finance lease receivables |
(623,892 | ) | (1,764,625 | ) | (281,323 | ) | ||||||
Compensation to trust administrator |
(44,650 | ) | (177,326 | ) | (28,270 | ) |
The table sets forth the cash flows of the VIE included in the Companys consolidated statements of cash flows:
Year ended December 31, | ||||||||||||
2016 | 2017 | 2017 | ||||||||||
RMB | RMB | US$ | ||||||||||
Net cash provided by operating activities |
1,276,964 | 8,764,137 | 1,397,210 | |||||||||
Net cash used in investing activities |
(67,342,803 | ) | (113,068,131 | ) | (18,025,720 | ) | ||||||
Net cash provided by financing activities |
66,065,839 | 115,187,905 | 18,363,662 |
2. | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES |
Basis of presentation
The consolidated financial statements of the Company have been prepared in accordance with United States generally accepted accounting principles (U.S. GAAP).
Principles of consolidation
The consolidated financial statements include the financial statements of the Company and its VIEs. All inter-company transactions and balances have been eliminated.
Use of estimates
The preparation of 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 date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Significant accounting estimates reflected in the Companys financial statements include, but are not limited to, allowance for finance lease receivables, valuation allowances on deferred tax assets and income tax uncertainties, among others. Management bases these estimates on its historical experience and on 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 differ from these estimates.
F-89
SHANGHAI AUTOHOME FINANCING LEASE CO., LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - continued
FOR THE YEARS ENDED DECEMBER 31, 2016 and 2017
(Amounts in Renminbi (RMB) and US dollar (US$))
2. | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED |
Cash and cash equivalents
Cash and cash equivalents primarily consist of cash and time deposits, which approximates their fair value. All cash and cash equivalents are unrestricted as to withdrawal and use.
Restricted cash
Restricted cash represents cash held by the Trusts through segregated bank accounts and cash held as collateral for short-term and long-term debts. Such restricted cash is not available to fund the general liquidity needs of the Company. The balance of restricted cash held by the Trusts through segregated bank accounts was RMB nil and RMB 10,883,911 (US$ 1,735,151) as of December 31, 2016 and 2017, respectively. The balance of restricted cash held as collateral for short-term and long-term debts was RMB 14,087,200, RMB 24,087,200 (US$ 3,840,067) as of December 31, 2016 and 2017, respectively.
Finance lease receivables
Finance lease receivables are carried at amortized cost comprising of original financing lease and direct costs, net of unearned income and allowance for finance lease receivables. An account is considered delinquent if a substantial portion of a scheduled payment has not been received by the date such payment was contractually due. Finance lease receivables are collateralized by vehicle titles and, subject to local laws, the Company generally have the right to repossess the vehicle in the event the borrower defaults on the payment terms of the contract. Finance lease receivables are divided among pools based on common risk characteristics, such as product and delinquent status. These pools are collectively evaluated for impairment based on a statistical calculation, which is supplemented by management judgment. The allowance is aggregated for each of the pools. Provisions for finance lease receivables are charged to operations in amounts sufficient to maintain the allowance for finance lease receivables at levels considered adequate to cover probable losses inherent in our finance lease receivables.
Impaired finance lease receivables
A finance lease receivable is considered impaired when, based on current information and events, it is probable that the Company will be unable to collect all amounts due according to the terms of the contract. Factors such as payment history, compliance with terms and conditions of the underlying financing lease agreement and other subjective factors related to the financial stability of the borrower are considered when determining whether finance lease receivables are impaired.
Nonaccrual policy
The Company does not accrue financing lease income on financing lease principals that are considered impaired or delinquent. A corresponding allowance is determined under ASC 450-20 and allocated accordingly. Accrual of financing lease income is suspended on accounts that are delinquent, accounts in bankruptcy and accounts in repossession. Payments received on non-accrual finance lease receivables are first applied to any fees due, then to any interest due and, finally, any remaining amounts received are
F-90
SHANGHAI AUTOHOME FINANCING LEASE CO., LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - continued
FOR THE YEARS ENDED DECEMBER 31, 2016 and 2017
(Amounts in Renminbi (RMB) and US dollar (US$))
2. | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED |
Finance lease receivables-continued
recorded to principal. Interest accrual resumes once an account has received payments bringing the delinquency status to non-delinquent.
Allowance for finance lease receivables
The Company considers the finance lease receivables to be homogenous as they are all automotive finance lease receivables collateralized by vehicle titles of similar principal amounts. Therefore, the Company applies a consistent credit risk management framework to the entire portfolio of finance lease receivables in accordance with ASC 450-20.
The allowance for finance lease receivables is calculated based on historical loss experience using a roll rate-based model. The roll rate-based model take into consideration factors of historical delinquency migration to loss and loss given default. The Company stratifies the finance lease receivables by delinquency stages (i.e., current, 1-30 days past due, and 31-60 days past due etc.) and projected forward in one-month increments using rates of historical delinquency migration to loss. In each month of the simulation, delinquency migration on the finance lease receivables are captured, and the ending delinquency stratification serves as the beginning point of the next iteration. This process is repeated on a monthly rolling basis. Loss given default is projected based on historical experience of actual loss and considered proceeds from recovery of the repossessed assets. The loss rate relatively calculated for each delinquency stage is then applied to the respective finance lease receivables. The Company adjusts the allowance that is determined by the roll rate-based model for various Chinese macroeconomic factors i.e. gross-domestic product rates, per capita disposable income, interest rates and consumer price indexes. Each of these macroeconomic factors are equally weighted, and a score is applied to each factor based on year-on-year increases and decreases in that respective factor.
Finance lease receivables are charged off when a settlement is reached for an amount that is less than the outstanding balance or when the Company has determined the balance is uncollectable. In general, the Company considers finance fee receivables meeting any of the following conditions as uncollectable and charged-off: (i) death of the borrower; (ii) identification of fraud, and the fraud is officially reported to and filed with relevant law enforcement departments or (iii) the amount remained outstanding 180 days past due and therefore deemed uncollectible; (iv) the collateral are physically repossessed.
Property and equipment, net
Property and equipment are stated at cost less accumulated depreciation. Depreciation is provided using the straight-line method with the residual value based on the estimated useful lives of the class of asset, which range as follows:
Category | Estimated Useful Life | Estimated Residual Value | ||||||
Office and electronic equipment |
3-5 years | 5% | ||||||
Leasehold improvements |
|
Over the shorter of the expected life of
leasehold improvements or the lease term |
|
0% |
F-91
SHANGHAI AUTOHOME FINANCING LEASE CO., LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - continued
FOR THE YEARS ENDED DECEMBER 31, 2016 and 2017
(Amounts in Renminbi (RMB) and US dollar (US$))
2. | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED |
Property and equipment, net-continued
Costs associated with the repair and maintenance of property and equipment are expensed as incurred.
Intangible assets
Intangible assets represent purchased computer software. These intangible assets are amortized on a straight line basis over their estimated useful lives of the respective assets, which is 10 years.
Impairment of long-lived assets and intangible assets with definite lives
Long-lived assets including intangible assets with definite lives, are assessed for impairment, whenever events or changes in circumstances indicate the carrying value of an asset may not be recoverable in accordance with ASC 360, Property, Plant and Equipment . The Company measures the carrying amount of long-lived assets against the estimated undiscounted future cash flows associated with it. Impairment exists when the estimated undiscounted future cash flows are less than the carrying value of the asset being evaluated. Impairment loss is calculated as the amount by which the carrying value of the asset exceeds its fair value. No impairment loss was recognized for the year ended December 31, 2016 and 2017, respectively.
Employee defined contribution plan
Full time employees of the Company in the PRC participate in a government mandated multi-employer defined contribution plan pursuant to which certain pension benefits, medical care, unemployment insurance, employee housing fund and other welfare benefits are provided to employees. Chinese labor regulations require that the Company make contributions to the government for these benefits based on a certain percentage of the employees salaries. The Company has no legal obligation for the benefits beyond the contributions. The total amount that was expensed as incurred, was RMB 2,152,081 and RMB 2,561,528 (US$ 408,368) for the year ended December 31, 2016, and 2017, respectively.
Revenue recognition
Financing lease income related to direct finance lease receivables is recognized using the effective interest method. Initial direct cost received and direct origination costs are generally deferred and amortized over the term of the related finance lease receivables using the effective interest method and are removed from the consolidated balance sheets when the related finance lease receivables are sold, charged off or paid in full.
Value added taxes
The Company was certified as a VAT taxpayer whose applicable tax rate was 17% before May 1, 2016. Since May 1, 2016, the policy of replacing business tax with value-added tax has been implemented in the finance industry, resulting in the tax of leaseback projects decreasing from 17% to 6%. VAT is reported as a deduction to revenue when incurred and amounted to RMB 2,039,716 and RMB 5,033,874 (US$ 802,518)
F-92
SHANGHAI AUTOHOME FINANCING LEASE CO., LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - continued
FOR THE YEARS ENDED DECEMBER 31, 2016 and 2017
(Amounts in Renminbi (RMB) and US dollar (US$))
2. | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED |
Value added taxes-continued
for the year ended December 31, 2016 and 2017, respectively. The Company is allowed to offset qualified input VAT paid to suppliers against its output VAT liabilities. Net VAT balance between input VAT and output VAT is recorded in accrued expenses and other current liabilities on the balance sheets.
Income taxes
The Company accounts for income taxes using the liability approach and recognizes deferred tax assets and liabilities for the expected future consequences of events that have been recognized in the consolidated financial statements or in the Companys tax returns. Deferred tax assets and liabilities are recognized on the basis of the temporary differences that exist between the tax basis of assets and liabilities and their reported amounts in the consolidated financial statements using enacted tax rates in effect for the year in which the differences are expected to reverse. Changes in deferred tax assets and liabilities are recorded in earnings. Deferred tax assets are reduced by a valuation allowance through a charge to income tax expense when, in the opinion of management, it is more-likely-than-not that a portion of or all of the deferred tax assets will not be realized. Potential for recovery of deferred tax assets is evaluated by estimating the future taxable profits expected and considering prudent and feasible tax planning strategies. The components of the deferred tax assets and liabilities are classified as non-current.
The Company accounts for uncertainty in income taxes recognized in the consolidated financial statements by applying a two-step process to determine the amount of the benefit to be recognized. First, the tax position must be evaluated to determine the likelihood that it will be sustained upon external examination by the taxing authorities. If the tax position is deemed more-likely-than-not to be sustained (defined as a likelihood of more than fifty percent of being sustained upon an audit, based on the technical merits of the tax position), the tax position is then assessed to determine the amount of benefits to recognize in the consolidated financial statements. The amount of the benefits that may be recognized is the largest amount that has a greater than 50% likelihood of being realized upon ultimate settlement. Interest and penalties on income taxes will be classified as a component of the provisions for income taxes. The Company did not recognize any income tax due to uncertain tax position or incur any interest and penalties related to potential underpaid income tax expenses for the year ended December 31, 2016 and 2017, respectively.
Operating Leases
Leases where substantially all the rewards and risks of ownership of assets remain with the lessor are accounted for as operating leases. Rentals applicable to such operating leases are recognized on a straight-line basis over the lease term. Certain of the operating lease agreements contain rent holidays. Rent holidays are considered in determining the straight-line rent expense to be recorded over the lease term.
Fair value measurements
Accounting guidance defines fair value as the price that would be received from selling an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. When determining the fair value measurements for assets and liabilities required or permitted to be recorded at fair
F-93
SHANGHAI AUTOHOME FINANCING LEASE CO., LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - continued
FOR THE YEARS ENDED DECEMBER 31, 2016 and 2017
(Amounts in Renminbi (RMB) and US dollar (US$))
2. | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED |
Fair value measurements-continued
value, the Company considers the principal or most advantageous market in which it would transact and it considers assumptions that market participants would use when pricing the asset or liability.
Accounting guidance establishes a fair value hierarchy that requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. A financial instruments categorization within the fair value hierarchy is based upon the lowest level of input that is significant to the fair value measurement. Accounting guidance establishes three levels of inputs that may be used to measure fair value:
Level 1 | Observable inputs that reflect quoted prices (unadjusted) for identical assets or liabilities in active markets. | |
Level 2 | Include other inputs that are directly or indirectly observable in the marketplace. | |
Level 3 | Unobservable inputs which are supported by little or no market activity. |
Accounting guidance also 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 assets and liabilities of the Company primarily consist of as cash and cash equivalents, restricted cash, finance lease receivables, amounts due from related parties, other current assets, short-term and long-term debts, amounts due to related parties, income tax payable, accrued expenses and other liabilities. The carrying amounts of these financial instruments, except for non-current portion of restricted cash, finance lease receivables, non-current portion of long-term debts, approximate their fair values because of their generally short maturities. The carrying amount of non-current portion of restricted cash, finance lease receivables and non-current portion of long-term debts approximates their fair values due to the fact that the related interest rates approximate rates currently offered by financial institutions for similar debt instruments of comparable maturities.
Significant risks and uncertainties
Currency convertibility risk
Substantially all of the Companys businesses are transacted in RMB, which is not freely convertible into foreign currencies. All foreign exchange transactions take place either through the Peoples Bank of China (PBOC) or other authorized financial institution at exchange rates quoted by PBOC. Approval of foreign currency payments by the PBOC or other regulatory institutions requires submitting a payment application form together with suppliers invoices and signed contracts.
F-94
SHANGHAI AUTOHOME FINANCING LEASE CO., LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - continued
FOR THE YEARS ENDED DECEMBER 31, 2016 and 2017
(Amounts in Renminbi (RMB) and US dollar (US$))
2. | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED |
Significant risks and uncertainties-continued
Concentration of credit risk
Financial assets that potentially expose the Company to concentrations of credit risk consist primarily of cash, restricted cash and cash equivalents, finance lease receivables and other receivables.
The Company places its cash, restricted cash and cash equivalents, with reputable financial institutions that have high-credit ratings and quality. There has been no recent history of default in relation to these financial institutions.
The Company manages credit risk of finance lease receivables by performing credit assessments on its leases and its ongoing monitoring of the outstanding balances.
Interest rate risk
The Company is exposed to interest rate risk on its interest-bearing assets and liabilities. As part of its asset and liability risk management, the Company reviews and takes appropriate steps to manage its interest rate exposures on its interest-bearing assets and liabilities. The Company has not been exposed to material risks due to changes in market interest rates, and not used any derivative financial instruments to manage the interest risk exposure during the year presented.
Business and economic risk
The Company believes that changes in any of the following areas could have a material adverse effect on the Companys 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; regulatory considerations and risks associated with the Companys ability to attract employees necessary to support its growth. The Companys operations could also be adversely affected by significant political, economic and social uncertainties in the PRC.
Recent accounting pronouncements
In May 2014, the Financial Accounting Standard Board (FASB) issued Accounting Standards Update (ASU) 2014-09, Revenue from Contracts with Customers (Topic 606) . The guidance substantially converges final standards on revenue recognition between the FASB and the International Accounting Standards Board providing a framework on addressing revenue recognition issues and, upon its effective date, replaces almost all exiting revenue recognition guidance, including industry-specific guidance, in current U.S. GAAP.
The core principle of the guidance is that an entity should recognize revenues to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. To achieve this core principle, an entity should apply the following steps:
Step 1: Identify the contract(s) with a customer.
F-95
SHANGHAI AUTOHOME FINANCING LEASE CO., LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - continued
FOR THE YEARS ENDED DECEMBER 31, 2016 and 2017
(Amounts in Renminbi (RMB) and US dollar (US$))
2. | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED |
Recent accounting pronouncements-continued
Step 2: Identify the performance obligations in the contract.
Step 3: Determine the transaction price.
Step 4: Allocate the transaction price to the performance obligations in the contract.
Step 5: Recognize revenue when (or as) the entity satisfies a performance obligation.
In August 2015, FASB issued its final standard formally amending the effective date of the new revenue recognition guidance. The amendments in this ASU are effective for annual reporting periods beginning after December 15, 2018 including interim periods within that reporting period. As a private company, the Company is in the process of evaluating the impact of adoption of this guidance on its consolidated financial statements.
In January 2016, the FASB issued ASU No. 2016-01, Financial InstrumentsOverall (Subtopic 825-10) . The amendments require all equity investments to be measured at fair value with changes in the fair value recognized through net income (other than those accounted for under equity method of accounting or those that result in consolidation of the investee). The amendments also require an entity to present separately in other comprehensive income the portion of the total change in the fair value of a liability resulting from a change in the instruments-specific credit risk when the entity has elected to measure the liability at fair value in accordance with the fair value option for financial instruments. In addition, the amendments eliminate the requirement to disclose the fair value of financial instruments measured at amortized cost for entities that are not public business entities and the requirement for to disclose the method(s) and significant assumptions used to estimate the fair value that is required to be disclosed for financial instruments measured at amortized cost on the balance sheet for public business entities. This updated guidance is effective for the annual period beginning after December 15, 2018 including interim periods within the year. As a private company, the Company is in the process of evaluating the impact of the adoption of this guidance on its consolidated financial statements.
In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842) . This ASU modifies existing guidance for off-balance sheet treatment of a lessees operating leases by requiring lessees to recognize lease assets and lease liabilities, whilst, lessor accounting is largely unchanged. This ASU is effective for fiscal years beginning after December 15, 2019 including interim periods within those fiscal years. As a private company, the Company is in the process of evaluating the impact of the adoption of this guidance on its consolidated financial statements.
In June 2016, the FASB issued ASU No. 2016-13, Financial InstrumentsCredit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. This ASU is intended to improve financial reporting by requiring timelier recording of credit losses on loans and other financial instruments held by financial institutions and other organizations. This ASU requires the measurement of all expected credit losses for financial assets held at the reporting date based on historical experience, current conditions, and reasonable and supportable forecasts. This ASU requires enhanced disclosures to help investors and other financial statement users better understand significant estimates and judgments used in estimating credit losses, as well as the credit quality and underwriting standards of the Companys portfolio. These disclosures include qualitative and quantitative requirements that provide additional information about the
F-96
SHANGHAI AUTOHOME FINANCING LEASE CO., LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - continued
FOR THE YEARS ENDED DECEMBER 31, 2016 and 2017
(Amounts in Renminbi (RMB) and US dollar (US$))
2. | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED |
Recent accounting pronouncements-continued
amounts recorded in the financial statements. For private entities, this ASU is effective for annual periods beginning after December 15, 2020, and interim reporting periods beginning within annual reporting periods beginning after December 15, 2021. The Company is in the process of evaluating the impact of adoption of this guidance on its consolidated financial statements.
In August 2016, the FASB issued ASU No. 2016-15, Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments . This ASU is intended to improve financial reporting by requiring timelier recording of credit losses on loans and other financial instruments held by financial institutions and other organizations. This ASU requires the measurement of all expected credit losses for financial assets held at the reporting date based on historical experience, current conditions, and reasonable and supportable forecasts. This ASU requires enhanced disclosures to help investors and other financial statement users better understand significant estimates and judgments used in estimating credit losses, as well as the credit quality and underwriting standards of the Companys portfolio. These disclosures include qualitative and quantitative requirements that provide additional information about the amounts recorded in the financial statements. All entities may adopt the amendments in this Update earlier as of the fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. The Company is in the process of evaluating the impact of adoption of this guidance on its financial statements.
In November 2016, the FASB issued ASU No. 2016-18, Statement of Cash Flows (Topic 230): Restricted Cash . This ASU requires that a statement of cash flows explain the change during the period in the total of cash, cash equivalents, and amounts generally described as restricted cash or restricted cash equivalents. Therefore, amounts generally described as restricted cash and restricted cash equivalents should be included with cash and cash equivalents when reconciling the beginning-of-period and end-of-period total amounts shown on the statement of cash flows. This ASU do not provide a definition of restricted cash or restricted cash equivalents. This ASU is effective for public business entities for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. Early adoption is permitted, including adoption in an interim period. The Company has early adopted this standard.
In January 2017, the FASB issued ASU No. 2017-01, Business Combinations (Topic 805): Clarifying Definition of a Business . This ASU clarifies the framework for determining whether an integrated set of assets and activities meets the definition of a business. The revised framework establishes a screen for determining whether an integrated set of assets and activities is a business and narrows the definition of a business, which is expected to result in fewer transactions being accounted for as business combinations. Acquisitions of integrated sets of assets and activities that do not meet the definition of a business are accounted for as asset acquisitions. This update is effective for fiscal years, and for interim periods within those fiscal years, beginning after December 15, 2017, with early adoption permitted for transactions that have not been reported in previously issued (or available to be issued) financial statements. The Company does not believe this standard will have a material impact on the results of operations or financial condition.
In January 2017, the FASB issued ASU No. 2017-04, Simplifying the Test for Goodwill Impairment , which simplifies the accounting for goodwill impairment by eliminating Step two from the goodwill impairment test. If the carrying amount of a reporting unit exceeds its fair value, an impairment loss shall be recognized in an amount equal to that excess, versus determining an implied fair value in Step two to measure the
F-97
SHANGHAI AUTOHOME FINANCING LEASE CO., LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - continued
FOR THE YEARS ENDED DECEMBER 31, 2016 and 2017
(Amounts in Renminbi (RMB) and US dollar (US$))
2. | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED |
Recent accounting pronouncements-continued
impairment loss. 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 Company does not believe this standard will have a material impact on the results of operations or financial condition.
In February 2017, the FASB issued ASU No. 2017-05, Other incomeGains and Losses from the Derecognition of Nonfinancial assets , which clarifies that a financial asset is within the scope of Subtopic 610-20 if it meets the definition of an in substance nonfinancial asset. The amendments in this update also clarify that nonfinancial assets within the scope of Subtopic 610-20 may include nonfinancial assets transferred within a legal entity to a counterparty. This update is effective for fiscal years beginning after December 15, 2018, including interim reporting periods within that reporting period. As a private company, the Company is in the process of evaluating the impact of the adoption of this guidance on its consolidated financial statements.
3. | FINANCE LEASE RECEIVABLES, NET |
3.1 | The following presents an analysis of the finance lease receivables: |
As of December 31, | ||||||||||||
2016 | 2017 | 2017 | ||||||||||
RMB | RMB | US$ | ||||||||||
Finance lease receivables |
1,152,652,107 | 788,405,970 | 125,690,459 | |||||||||
Add: unamortized initial direct costs |
15,444,655 | 6,779,743 | 1,080,851 | |||||||||
Less: unearned income |
197,405,669 | 103,484,018 | 16,497,787 | |||||||||
Less: allowance for finance lease receivablescollective |
10,303,988 | 17,684,778 | 2,819,371 | |||||||||
|
|
|
|
|
|
|||||||
Total finance lease receivables, net |
960,387,105 | 674,016,917 | 107,454,152 | |||||||||
|
|
|
|
|
|
|||||||
Finance lease receivablescurrent |
467,365,670 | 428,718,714 | 68,347,848 | |||||||||
Finance lease receivablesnon-current |
493,021,435 | 245,298,203 | 39,106,304 |
3.2 | Contractual maturities on finance lease receivables are as follows: |
Contractual maturities | ||||||||||||||||||||
2018 | 2019 | 2020 | Thereafter | Total | ||||||||||||||||
Finance lease receivables |
475,578,569 | 256,032,837 | 53,487,196 | 3,307,368 | 788,405,970 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
F-98
SHANGHAI AUTOHOME FINANCING LEASE CO., LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - continued
FOR THE YEARS ENDED DECEMBER 31, 2016 and 2017
(Amounts in Renminbi (RMB) and US dollar (US$))
3. | FINANCE LEASE RECEIVABLES, NET - CONTINUED |
3.3 | The following tables present an analysis of the past due finance lease receivables principal as of December 31, 2016 and 2017: |
The Company placed all delinquent finance lease receivables in nonaccrual status as of December 31, 2016 and 2017.
3.4 | Movement of allowance for finance lease receivables is as follows: |
As of December 31, | ||||||||||||
2016 | 2017 | 2017 | ||||||||||
RMB | RMB | US$ | ||||||||||
Balance at the beginning of the year |
| 10,303,988 | 1,642,700 | |||||||||
Additions |
11,400,680 | 27,005,865 | 4,305,370 | |||||||||
Charge-offs |
(1,096,692 | ) | (19,625,075 | ) | (3,128,699 | ) | ||||||
|
|
|
|
|
|
|||||||
Balance at the end of the year |
10,303,988 | 17,684,778 | 2,819,371 | |||||||||
|
|
|
|
|
|
4. | PROPERTY AND EQUIPMENT, NET |
Property and equipment consist of the following:
As of December 31, | ||||||||||||
2016 | 2017 | 2017 | ||||||||||
RMB | RMB | US$ | ||||||||||
Office and electronic equipment |
1,222,236 | 1,369,084 | 218,264 | |||||||||
Leasehold improvement |
1,460,614 | 1,482,835 | 236,399 | |||||||||
Less: Accumulated depreciation |
480,508 | 1,318,252 | 210,160 | |||||||||
|
|
|
|
|
|
|||||||
2,202,342 | 1,533,667 | 244,503 | ||||||||||
|
|
|
|
|
|
Depreciation expenses for the year ended December 31, 2016 and 2017 were RMB 480,508 and RMB 868,600 (US$ 138,475), respectively.
F-99
SHANGHAI AUTOHOME FINANCING LEASE CO., LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - continued
FOR THE YEARS ENDED DECEMBER 31, 2016 and 2017
(Amounts in Renminbi (RMB) and US dollar (US$))
5. | INTANGIBLE ASSETS |
Intangible assets consist of the following:
As of December 31, | ||||||||||||
2016 | 2017 | 2017 | ||||||||||
RMB | RMB | US$ | ||||||||||
Software |
56,820 | 56,820 | 9,059 | |||||||||
Less: Accumulated amortization |
2,817 | 8,499 | 1,355 | |||||||||
|
|
|
|
|
|
|||||||
54,003 | 48,321 | 7,704 | ||||||||||
|
|
|
|
|
|
Amortization expenses for the year ended December 31, 2016 and 2017 were RMB 2,817 and RMB 5,682 (US$906), respectively.
The estimated aggregate amortization expenses for the remaining period of 2017 and each of the five succeeding fiscal years are as follows:
2018 | 2019 | 2020 | 2021 | 2022 | ||||||||||||||||
RMB | RMB | RMB | RMB | RMB | ||||||||||||||||
Software |
5,682 | 5,682 | 5,682 | 5,682 | 5,682 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
US$ |
US$ |
US$ |
US$ |
US$ |
||||||||||||||||
Software |
906 | 906 | 906 | 906 | 906 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
6. | SHORT-TERM AND LONG-TERM DEBTS |
Short-term debts consist of the following:
As of December 31, | ||||||||||||||||||||
Name |
Fixed annual rate | Term | 2016 | 2017 | 2017 | |||||||||||||||
RMB | RMB | US$ | ||||||||||||||||||
Short-term borrowings |
7.2%-8.0% | 12 months | 424,888,000 | 100,000,000 | 15,942,352 | |||||||||||||||
Factoring debts payables (ii) |
6.5%-7.9% | 3-12 months | | 28,300,000 | 4,511,686 | |||||||||||||||
|
|
|
|
|
|
|||||||||||||||
424,888,000 | 128,300,000 | 20,454,038 | ||||||||||||||||||
|
|
|
|
|
|
F-100
SHANGHAI AUTOHOME FINANCING LEASE CO., LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - continued
FOR THE YEARS ENDED DECEMBER 31, 2016 and 2017
(Amounts in Renminbi (RMB) and US dollar (US$))
6. | SHORT-TERM AND LONG-TERM DEBTS - CONTINUED |
Long-term debts consist of the following:
As of December 31, | ||||||||||||||||||||
Name |
Fixed annual rate | Term | 2016 | 2017 | 2017 | |||||||||||||||
RMB | RMB | US$ | ||||||||||||||||||
Long-term borrowings |
8.0%-9.38% | 24-36 months | 215,777,924 | 75,110,752 | 11,974,418 | |||||||||||||||
Securitization debt payables (i) |
5.5%-8.2% | 17-24 months | 66,065,839 | 148,273,743 | 23,638,324 | |||||||||||||||
Factoring and subleasing debt payables (ii) |
6.2%-8.4% | 24-36 months | | 115,806,733 | 18,462,318 | |||||||||||||||
Co-financing debt payables (iii) |
6.60% | 24-36 months | | 43,995,788 | 7,013,964 | |||||||||||||||
|
|
|
|
|
|
|||||||||||||||
281,843,763 | 383,187,016 | 61,089,024 | ||||||||||||||||||
|
|
|
|
|
|
(i) | Asset-backed debt securities issued to unrelated third-party beneficial interest holders. |
(ii) | In the ordinary course of business, the Company transfers finance leases to certain Funding Partners. However, in accordance with ASC 860 Transfers and Servicing the finance leases are not derecognized upon transfer as they are not legally isolated. Hence, the Company continues to report the transferred finance leases in the consolidated balance sheets and account for the proceeds from the transfer as a secured borrowing with pledge of collateral. |
(iii) | The Company provides consumer loans to borrowers through commercial banks. The Company is required to make scheduled payments to the commercial banks regardless of borrower repayments. |
Financing lease receivables amounting to RMB 615,865,838 and RMB 552,338,224 (US$ 88,055,706) were collateralized for the Companys short-term and long-term debts, as of December 31, 2016 and 2017, respectively. Additionally, short-term and long-term debts amounting to RMB 488,888,000 and RMB 420,022,521 (US$ 66,961,471) were guaranteed by Shanghai Cango, as of December 31, 2016 and 2017, respectively.
The weighted average interest rate for the outstanding debts was approximately 7.83% and 7.63% as of December 31, 2016 and 2017.
The following table sets forth the contractual obligations of long-term debtsnon-current which does not included the impact from time value of money as of December 31, 2016 and 2017:
Long-term borrowings and interest payables
As of December 31, |
||||||||||||
2016 | 2017 | 2017 | ||||||||||
RMB | RMB | US$ | ||||||||||
Less than 1 year |
16,022,836 | 16,628,777 | 2,651,018 | |||||||||
1 2 years |
195,381,584 | 224,355,919 | 35,767,611 | |||||||||
2 3 years |
19,657,765 | 13,232,042 | 2,109,499 | |||||||||
|
|
|
|
|
|
|||||||
231,062,185 | 254,216,738 | 40,528,128 | ||||||||||
|
|
|
|
|
|
F-101
SHANGHAI AUTOHOME FINANCING LEASE CO., LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - continued
FOR THE YEARS ENDED DECEMBER 31, 2016 and 2017
(Amounts in Renminbi (RMB) and US dollar (US$))
7. | INCOME TAXES |
The Company was incorporated in the PRC and was subject to 25% statutory income tax rate in the periods presented.
The Companys deferred tax assets and liabilities as of the year ended December 31, 2016 and 2017 are as follows:
Year ended December 31, | ||||||||||||
2016 | 2017 | 2017 | ||||||||||
RMB | RMB | US$ | ||||||||||
Current income tax expense |
| 4,544,091 | 724,435 | |||||||||
Deferred income tax expense |
| | | |||||||||
|
|
|
|
|
|
|||||||
Total income tax expense |
| 4,544,091 | 724,435 | |||||||||
|
|
|
|
|
|
The principal components of the deferred tax assets and liabilities are as follows:
Year ended December 31, | ||||||||||||
2016 | 2017 | 2017 | ||||||||||
RMB | RMB | US$ | ||||||||||
Non-current deferred tax assets |
||||||||||||
Allowance for finance lease receivables |
2,850,170 | 9,601,636 | 1,530,727 | |||||||||
Net operating loss carry forwards |
2,638,679 | | | |||||||||
Less: valuation allowance |
(5,488,849 | ) | (9,601,636 | ) | (1,530,727 | ) | ||||||
|
|
|
|
|
|
|||||||
Non-current deferred tax assets, net |
| | | |||||||||
|
|
|
|
|
|
|||||||
Non-current deferred tax liabilities |
| | | |||||||||
|
|
|
|
|
|
The Company records a valuation allowance where, based on all available evidence. It is move likely than not that some portion or all of the deferred assets will not be realized in future periods.
A reconciliation of the difference between the statutory tax rate and the effective tax is as follows:
Year ended December 31, | ||||||||||||
2016 | 2017 | 2017 | ||||||||||
RMB | RMB | US$ | ||||||||||
(Loss) gain before provision of income tax |
(22,107,532 | ) | 1,551,882 | 247,406 | ||||||||
PRC statutory income tax rate |
25% | 25% | 25% | |||||||||
Income tax at statutory tax rate |
(5,526,883 | ) | 387,971 | 61,852 | ||||||||
Expenses not deductible for tax purposes |
38,034 | 43,333 | 6,908 | |||||||||
Changes in valuation allowance |
5,488,849 | 4,112,787 | 655,675 | |||||||||
|
|
|
|
|
|
|||||||
Total income tax expense |
| 4,544,091 | 724,435 | |||||||||
|
|
|
|
|
|
The Company did not incur any interest and penalties related to potential underpaid income tax expenses.
F-102
SHANGHAI AUTOHOME FINANCING LEASE CO., LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - continued
FOR THE YEARS ENDED DECEMBER 31, 2016 and 2017
(Amounts in Renminbi (RMB) and US dollar (US$))
8. | RELATED PARTY BALANCES AND TRANSACTIONS |
Name of related parties |
Relationship with the Company |
|
Shanghai Cango |
Principal shareholder of the Company | |
Beijing Autohome Information Technology Co., Ltd* |
The company under the control of the ultimate principal shareholder |
* | Beijing Autohome Information Technology Co., Ltd is no longer a related party of the company since August 2017. |
Details of related party balances and transactions as of December 31, 2016 and December 31, 2017 are as follows:
8.1 | Amounts due to related parties |
As of December 31, | ||||||||||||||
2016 | 2017 | 2017 | ||||||||||||
RMB | RMB | US$ | ||||||||||||
Shanghai Cango (i) | 8,963,726 | 1,253,833 | 199,890 | |||||||||||
|
|
|
|
|
|
(i) | The balance mainly represents automotive financing facilitation service fees, in the ordinary course of business. |
8.2 | Amounts due from related parties |
As of December 31, | ||||||||||||
2016 | 2017 | 2017 | ||||||||||
RMB | RMB | US$ | ||||||||||
Shanghai Cango (i) |
500,000 | 10,000 | 1,594 | |||||||||
|
|
|
|
|
|
(i) | The balance mainly represents the platform deposits with related party. |
8.3 | Transactions with related parties |
Year ended December 31, | ||||||||||||
2016 | 2017 | 2017 | ||||||||||
RMB | RMB | US$ | ||||||||||
Cost of revenue |
||||||||||||
Shanghai Cango |
16,680,823 | 29,578,814 | 4,715,559 | |||||||||
Beijing Autohome Information Technology Co., Ltd. |
2,489,525 | 1,505,949 | 240,084 | |||||||||
|
|
|
|
|
|
|||||||
19,170,348 | 31,084,763 | 4,955,643 | ||||||||||
|
|
|
|
|
|
F-103
SHANGHAI AUTOHOME FINANCING LEASE CO., LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - continued
FOR THE YEARS ENDED DECEMBER 31, 2016 and 2017
(Amounts in Renminbi (RMB) and US dollar (US$))
8. | RELATED PARTY BALANCES AND TRANSACTIONS - CONTINUED |
8.4 | Guarantee provided by related parties |
Shanghai Cango provided guarantee for the Companys short-term and long-term debts for the years ended December 31, 2016 and 2017. Total principal amount guaranteed under these arrangements are as follows:
Year ended December 31, | ||||||||||||
2016 | 2017 | 2017 | ||||||||||
RMB | RMB | US$ | ||||||||||
Shanghai Cango |
488,888,000 | 420,022,521 | 66,961,471 | |||||||||
|
|
|
|
|
|
This related party did not charge commission on the guarantee service.
9. | COMMITMENTS AND CONTINGENCIES |
Operating lease commitments
The Company leased facilities in the PRC under non-cancelable operating leases agreements which expire through the year ending 2019. The Companys lease agreements contain renewal options with an advance notice period of one to twelve months. The lease agreements do not contain restrictions or contingent rents. The Company expenses payments made under operating leases on a straight-line basis over the lease term.
Future minimum payments under non-cancelable operating leases for office rental consist of the following as of December 31, 2017:
RMB | US$ | |||||||
2018 |
5,126,880 | 817,345 | ||||||
2019 |
854,480 | 136,224 | ||||||
|
|
|
|
|||||
5,981,360 | 953,569 | |||||||
|
|
|
|
10. | PAID-IN CAPITAL |
As of December 31, | ||||||||||||
2016 | 2017 | 2017 | ||||||||||
RMB | RMB | US$ | ||||||||||
Balance at the beginning and end of the year |
300,000,000 | 300,000,000 | 47,827,057 | |||||||||
|
|
|
|
|
|
11. | ACCUMULATED DEFICIT |
As of December 31, | ||||||||||||
2016 | 2017 | 2017 | ||||||||||
RMB | RMB | US$ | ||||||||||
Balance at the beginning of the year |
(350,114 | ) | (22,457,646 | ) | (3,580,277 | ) | ||||||
Net (loss) |
(22,107,532 | ) | (2,992,209 | ) | (477,029 | ) | ||||||
|
|
|
|
|
|
|||||||
Balance at the end of the year |
(22,457,646 | ) | (25,449,855 | ) | (4,057,306 | ) | ||||||
|
|
|
|
|
|
F-104
SHANGHAI AUTOHOME FINANCING LEASE CO., LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - continued
FOR THE YEARS ENDED DECEMBER 31, 2016 and 2017
(Amounts in Renminbi (RMB) and US dollar (US$))
12. | PROFIT APPROPRIATION AND RESTRICTED NET ASSETS |
Under PRC law, the Company is required to provide for certain statutory reserves, namely a general reserve, an enterprise expansion fund and a staff welfare and bonus fund. The PRC entities are required to allocate at least 10% of their after tax profits on an individual company basis as determined under PRC accounting standards to the statutory reserve and has the right to discontinue allocations to the statutory reserve if such reserve has reached 50% of registered capital on an individual company basis. In addition, the registered capital of the PRC entities is also restricted.
Appropriations to the enterprise expansion fund and staff welfare and bonus fund are at the discretion of the Board of Directors of the subsidiary. The PRC entities are also subject to similar statutory reserve requirements. These reserves can only be used for specific purposes and are not transferable to the Company in the form of loans, advances or cash dividends.
13. | SUBSEQUENT EVENTS |
The subsequent events have been evaluated through June 22, 2018 the date the financial statements were issued.
F-105
SHANGHAI AUTOHOME FINANCING LEASE CO., LTD.
UNAUDITED INTERIM CONDENSED CONSOLIDATED BALANCE SHEETS
AS OF DECEMBER 31, 2017 AND MARCH 31, 2018
(Amounts in Renminbi (RMB) and US dollar (US$))
As of
December 31, 2017 |
As of
March 31, 2018 |
|||||||||||||||
Note | RMB | RMB | US$ | |||||||||||||
ASSETS |
||||||||||||||||
Current assets |
||||||||||||||||
Cash and cash equivalents |
83,583,116 | 249,448,468 | 39,767,954 | |||||||||||||
Restricted cashcurrent |
24,971,111 | 315,045 | 50,226 | |||||||||||||
Finance lease receivablescurrent (net of allowance of RMB 12,526,193 and RMB 10,681,247 (US$1,702,842) as of December 31, 2017 and March 31, 2018, respectively) |
3 | 428,718,714 | 389,891,973 | 62,157,953 | ||||||||||||
Short-term amounts due from related parties |
6 | 10,000 | 4,652,656 | 741,743 | ||||||||||||
Prepaid expenses |
732,556 | 523,532 | 83,463 | |||||||||||||
Other current assets |
4,541,956 | 1,093,752 | 174,370 | |||||||||||||
|
|
|
|
|
|
|||||||||||
Total current assets |
542,557,453 | 645,925,426 | 102,975,709 | |||||||||||||
|
|
|
|
|
|
|||||||||||
Non-current assets |
||||||||||||||||
Restricted cashnon-current |
10,000,000 | 10,000,000 | 1,594,235 | |||||||||||||
Finance lease receivablesnon-current (net of allowance of RMB 5,158,585 and RMB 3,042,975 (US$ 485,122) as of December 31, 2017 and March 31, 2018, respectively) |
3 | 245,298,203 | 179,788,448 | 28,662,508 | ||||||||||||
Property and equipment, net |
1,533,667 | 1,319,349 | 210,335 | |||||||||||||
Intangible assets |
48,321 | 46,901 | 7,477 | |||||||||||||
Other non-current assets |
1,671,642 | 1,281,720 | 204,336 | |||||||||||||
|
|
|
|
|
|
|||||||||||
Total non-current assets |
258,551,833 | 192,436,418 | 30,678,891 | |||||||||||||
|
|
|
|
|
|
|||||||||||
TOTAL ASSETS |
801,109,286 | 838,361,844 | 133,654,600 | |||||||||||||
|
|
|
|
|
|
|||||||||||
LIABILITIES AND SHAREHOLDERS EQUITY |
||||||||||||||||
Current liabilities |
||||||||||||||||
Short-term debt |
4 | 128,300,000 | 165,100,000 | 26,320,824 | ||||||||||||
Long-term debtcurrent (including long-term debtcurrent of the consolidated VIE without recourse to the Company of RMB 16,353,743 and RMB nil as of December 31, 2017 and March 31, 2018, respectively) |
4 | 168,258,564 | 142,378,430 | 22,698,471 | ||||||||||||
Short-term amounts due to related parties |
6 | 1,253,833 | 1,102,009 | 175,686 | ||||||||||||
Income tax payable |
4,069,084 | 4,690,969 | 747,851 | |||||||||||||
Accrued expenses and other current liabilities |
9,749,208 | 11,200,767 | 1,785,666 | |||||||||||||
Deferred tax liabilities |
| 611,860 | 97,545 | |||||||||||||
|
|
|
|
|
|
|||||||||||
Total current liabilities |
311,630,689 | 325,084,035 | 51,826,043 | |||||||||||||
|
|
|
|
|
|
|||||||||||
Non-current liabilities |
||||||||||||||||
Long-term debtnon-current (including long-term debtnon-current of the consolidated VIE without recourse to the Company of RMB 131,920,000 and RMB 97,456,663 (US$ 15,536,885) as of December 31, 2017 and March 31, 2018, respectively) |
4 | 214,928,452 | 239,543,454 | 38,188,862 | ||||||||||||
|
|
|
|
|
|
|||||||||||
Total non-current liabilities |
214,928,452 | 239,543,454 | 38,188,862 | |||||||||||||
|
|
|
|
|
|
|||||||||||
Total liabilities |
526,559,141 | 564,627,489 | 90,014,905 | |||||||||||||
|
|
|
|
|
|
|||||||||||
Commitments and contingencies |
7 | |||||||||||||||
Shareholders equity |
||||||||||||||||
Paid-in capital |
300,000,000 | 300,000,000 | 47,827,057 | |||||||||||||
Accumulated deficit |
(25,449,855 | ) | (26,265,645 | ) | (4,187,362 | ) | ||||||||||
|
|
|
|
|
|
|||||||||||
Total shareholders equity |
274,550,145 | 273,734,355 | 43,639,695 | |||||||||||||
|
|
|
|
|
|
|||||||||||
TOTAL LIABILITIES AND SHAREHOLDERS EQUITY |
801,109,286 | 838,361,844 | 133,654,600 | |||||||||||||
|
|
|
|
|
|
The accompanying notes are an integral part of these unaudited interim condensed consolidated financial statements.
F-106
SHANGHAI AUTOHOME FINANCING LEASE CO., LTD.
UNAUDITED INTERIM CONDENSED CONSOLIDATED STATEMENTS OF
COMPREHENSIVE INCOME
FOR THE THREE MONTHS ENDED MARCH 31, 2017 AND 2018
(Amounts in Renminbi (RMB) and US dollar (US$))
The three months ended March 31, | ||||||||||||||||
2017 | 2018 | 2018 | ||||||||||||||
Note | RMB | RMB | US$ | |||||||||||||
Revenues |
||||||||||||||||
Financing lease income |
41,381,011 | 26,686,366 | 4,254,435 | |||||||||||||
|
|
|
|
|
|
|||||||||||
Total revenues |
41,381,011 | 26,686,366 | 4,254,435 | |||||||||||||
|
|
|
|
|
|
|||||||||||
Operating cost and expenses: |
||||||||||||||||
Cost of revenues (including related party amounts of RMB 9,135,673 and RMB 5,508,359 (US$ 878,162) for the three month ended March 31, 2017 and 2018, respectively) |
(24,149,714 | ) | (18,960,228 | ) | (3,022,706 | ) | ||||||||||
Sales and marketing |
(3,125,324 | ) | (2,968,256 | ) | (473,210 | ) | ||||||||||
General and administrative |
(2,991,555 | ) | (2,492,660 | ) | (397,389 | ) | ||||||||||
Provision for finance lease receivables |
(5,950,528 | ) | (2,038,180 | ) | (324,934 | ) | ||||||||||
|
|
|
|
|
|
|||||||||||
Income from operations |
5,163,890 | 227,042 | 36,196 | |||||||||||||
Interest income |
52,447 | 190,913 | 30,436 | |||||||||||||
Net income before income taxes |
5,216,337 | 417,955 | 66,632 | |||||||||||||
|
|
|
|
|
|
|||||||||||
Income tax expenses |
5 | (15,274,041 | ) | (1,233,745 | ) | (196,688 | ) | |||||||||
Net (loss) |
(10,057,704 | ) | (815,790 | ) | (130,056 | ) | ||||||||||
|
|
|
|
|
|
|||||||||||
TOTAL COMPREHENSIVE (LOSS) |
(10,057,704 | ) | (815,790 | ) | (130,056 | ) | ||||||||||
|
|
|
|
|
|
The accompanying notes are an integral part of these unaudited interim condensed consolidated financial statements.
F-107
SHANGHAI AUTOHOME FINANCING LEASE CO., LTD.
UNAUDITED INTERIM CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 2017 AND 2018
(Amounts in Renminbi (RMB) and US dollar (US$))
The three months ended March 31, | ||||||||||||||||
2017 | 2018 | 2018 | ||||||||||||||
Note | RMB | RMB | US$ | |||||||||||||
Cash flows from operating activities: |
||||||||||||||||
Net (loss) |
(10,057,704 | ) | (815,790 | ) | (130,056 | ) | ||||||||||
Adjustments to reconcile net income (loss) to net cash used in operating activities: |
||||||||||||||||
Depreciation and amortization |
210,557 | 228,815 | 36,478 | |||||||||||||
Provision for finance lease receivables |
5,950,528 | 2,038,180 | 324,934 | |||||||||||||
Deferred income tax expense |
15,120,393 | 611,860 | 97,545 | |||||||||||||
Changes in operating assets and liabilities: |
||||||||||||||||
Receivables from related parties |
| (4,642,656 | ) | (740,149 | ) | |||||||||||
Other current and non-current assets |
(252,274 | ) | 4,047,150 | 645,211 | ||||||||||||
Payables to related parties |
(6,247,987 | ) | (151,824 | ) | (24,204 | ) | ||||||||||
Other current and non-current liabilities |
366,723 | 2,073,444 | 330,555 | |||||||||||||
|
|
|
|
|
|
|||||||||||
Net cash provided by operating activities |
5,090,236 | 3,389,179 | 540,314 | |||||||||||||
|
|
|
|
|
|
|||||||||||
Cash flows from investing activities: |
||||||||||||||||
Principal collections and recoveries on finance lease receivables |
132,244,804 | 304,017,764 | 48,467,583 | |||||||||||||
Origination of finance lease receivables, net of initial direct cost |
(134,351,124 | ) | (201,719,448 | ) | (32,158,825 | ) | ||||||||||
Purchases of property and equipment and intangible assets |
(93,333 | ) | (13,077 | ) | (2,085 | ) | ||||||||||
|
|
|
|
|
|
|||||||||||
Net cash (used in) provided by investing activities |
(2,199,653 | ) | 102,285,239 | 16,306,673 | ||||||||||||
|
|
|
|
|
|
|||||||||||
Cash flows from financing activities: |
||||||||||||||||
Proceeds from debts |
103,840,000 | 148,154,188 | 23,619,263 | |||||||||||||
Repayment of debts |
(33,670,004 | ) | (112,619,320 | ) | (17,954,169 | ) | ||||||||||
|
|
|
|
|
|
|||||||||||
Net cash provided by financing activities |
70,169,996 | 35,534,868 | 5,665,094 | |||||||||||||
|
|
|
|
|
|
|||||||||||
Net increase in cash, cash equivalents and restricted cash |
73,060,579 | 141,209,286 | 22,512,081 | |||||||||||||
|
|
|
|
|
|
|||||||||||
Cash, cash equivalents and restricted cash at beginning of the year |
27,689,058 | 118,554,227 | 18,900,334 | |||||||||||||
|
|
|
|
|
|
|||||||||||
Cash, cash equivalents and restricted cash at end of year |
100,749,637 | 259,763,513 | 41,412,415 | |||||||||||||
|
|
|
|
|
|
|||||||||||
Including: |
||||||||||||||||
Cash and cash equivalents |
86,662,437 | 249,448,468 | 39,767,954 | |||||||||||||
Restricted cash |
14,087,200 | 10,315,045 | 1,644,461 | |||||||||||||
Supplemental disclosures of cash flow information: |
||||||||||||||||
Income taxes paid |
| | | |||||||||||||
Interest expense paid |
12,280,472 | 11,303,830 | 1,802,096 |
The accompanying notes are an integral part of these unaudited interim condensed consolidated financial statements.
F-108
SHANGHAI AUTOHOME FINANCING LEASE CO., LTD.
NOTES TO THE UNAUDITED INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 31, 2017 AND 2018
(Amounts in Renminbi (RMB) and US dollar (US$))
1. | ORGANIZATION |
Shanghai Autohome Financing Lease Co., Ltd. (the Company) was established on September 16, 2015 in the Peoples Republic of China (PRC). The Company consists of one legal entity domiciled in the PRC. The Company was collectively owned by Shanghai Cango Investment and Management Consultation Service Co., Ltd (Shanghai Cango), Shanghai Wangtian Investment Management Co., Ltd (Shanghai Wangtian), Ningbo Meishan Bonded Harbor Zone Xinxiang Investment Management L.P. (formerly known as Beijing Chehejia Technology L.P.), and Autohome Financing Hong Kong Limited (Hong Kong Autohome), with each party holding a 25% equity interest in the Company. In June 2017, Shanghai Cango acquired an additional 25% equity interest in the Company for RMB 90,000,000.
The Company provides consumer automotive financing lease service in the PRC.
Consolidated variable interest entities (VIEs)
The Company transfers finance lease receivables or lease-related assets to securitization trusts (Trusts), which issue one or more tranches of asset-backed securities. The asset-backed securities are in turn sold to investors.
The Company services the assets held by the Trusts and retains residual interests. These transactions are structured without recourse. These Trusts are considered VIEs under U.S. GAAP and are consolidated because the Company has: (i) the power over the significant activities of the Trusts and (ii) an obligation to absorb losses or the right to receive benefits from the Trusts which could be significant to the Trusts. Accordingly, the Company is the primary beneficiary of the Trusts and the finance lease receivables, leasing related assets, and the related securitization short-term and long-term debts remain on the consolidated balance sheets.
The table sets forth the assets and liabilities of the VIEs included in the Companys consolidated balance sheet:
As of
December 31, 2017 |
As of
March 31, 2018 |
|||||||||||
Restricted cash |
10,883,911 | 315,045 | 50,226 | |||||||||
Finance lease receivables, net |
170,892,249 | 104,466,230 | 16,654,375 | |||||||||
Prepaid expenses |
14,840 | | | |||||||||
|
|
|
|
|
|
|||||||
Total VIE assets |
181,791,000 | 104,781,275 | 16,704,601 | |||||||||
|
|
|
|
|
|
|||||||
Long-term debtscurrent |
16,353,743 | | | |||||||||
Long-term debtsnon-current |
131,920,000 | 97,456,663 | 15,536,885 | |||||||||
|
|
|
|
|
|
|||||||
Total VIE liabilities |
148,273,743 | 97,456,663 | 15,536,885 | |||||||||
|
|
|
|
|
|
F-109
SHANGHAI AUTOHOME FINANCING LEASE CO., LTD.
NOTES TO THE UNAUDITED INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - continued
FOR THE THREE MONTHS ENDED MARCH 31, 2017 AND 2018
(Amounts in Renminbi (RMB) and US dollar (US$))
1. | ORGANIZATION - CONTINUED |
Consolidated variable interest entities (VIEs)-continued
The table sets forth the results of operations of the VIE included in the Companys consolidated statements of comprehensive income:
For the three months ended March 31, | ||||||||||||
2017 | 2018 | 2018 | ||||||||||
RMB | RMB | US$ | ||||||||||
Revenues |
3,082,701 | 3,999,542 | 637,621 | |||||||||
Interest expense |
(915,930 | ) | (2,326,068 | ) | (370,830 | ) | ||||||
Provision for finance lease receivables |
(299,813 | ) | (423,866 | ) | (67,574 | ) | ||||||
Compensation to trust administrator |
(62,782 | ) | (80,321 | ) | (12,805 | ) |
The table sets forth the cash flows of the VIE included in the Companys consolidated statements of cash flows:
For the three months ended March 31, | ||||||||||||
2017 | 2018 | 2018 | ||||||||||
RMB | RMB | US$ | ||||||||||
Net cash provided by operating activities |
2,831,961 | (11,760,376 | ) | (1,874,881 | ) | |||||||
Net cash used in investing activities |
11,182,322 | 52,008,590 | 8,291,393 | |||||||||
Net cash provided by financing activities |
(14,014,283 | ) | (50,817,080 | ) | (8,101,438 | ) |
2. | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES |
These unaudited interim condensed consolidated financial statements of the Company have been prepared in accordance with U.S. generally accepted accounting principles (U.S. GAAP) for interim financial information using accounting policies that are consistent with those used in the preparation of the Companys audited consolidated financial statements for the year ended December 31, 2017. Accordingly, these unaudited interim condensed consolidated financial statements do not include all of the information and footnotes required by U.S. GAAP for annual financial statements.
In the opinion of the Companys management, the accompanying unaudited interim condensed consolidated financial statements contain all normal recurring adjustments necessary to present fairly the financial position, operating results and cash flows of the Company for each of the periods presented. The results of operations for the three months ended March 31, 2017 and 2018 are not necessarily indicative of results to be expected for any other interim period or for the year ending December 31, 2018. The condensed consolidated balance sheet as of December 31, 2017 was derived from the audited consolidated financial statements at that date but does not include all of the disclosures required by U.S. GAAP for annual financial statements. These unaudited condensed consolidated financial statements should be read in conjunction with the Companys consolidated financial statements for the year ended December 31, 2017.
F-110
SHANGHAI AUTOHOME FINANCING LEASE CO., LTD.
NOTES TO THE UNAUDITED INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - continued
FOR THE THREE MONTHS ENDED MARCH 31, 2017 AND 2018
(Amounts in Renminbi (RMB) and US dollar (US$))
2. | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED |
Convenience translation for financial statements presentation
Translations of amounts from RMB into US$ for the convenience of the reader have been calculated at the exchange rate of RMB 6.2726 per US$1.00 on March 30, 2018, the last business day in March 2018, as published on the website of the United States Federal Reserve Board. No representation is made that the RMB amounts could have been, or could be, converted into U.S. dollars at such rate.
3. | FINANCE LEASE RECEIVABLES, NET |
3.1 | Finance lease receivables reported at gross consist of the following: |
As of
December 31, 2017 |
As of
March 31, 2018 |
|||||||||||
RMB | RMB | US$ | ||||||||||
Finance lease receivables collectively evaluated for impairment |
788,405,970 | 660,391,493 | 105,281,939 | |||||||||
|
|
|
|
|
|
|||||||
Total finance lease receivables |
788,405,970 | 660,391,493 | 105,281,939 | |||||||||
|
|
|
|
|
|
|||||||
Add: unamortized initial direct costs |
6,779,743 | 4,816,739 | 767,902 | |||||||||
Less: unearned income |
103,484,018 | 81,803,589 | 13,041,416 | |||||||||
Less: allowance for credit lossescollective |
17,684,778 | 13,724,222 | 2,187,964 | |||||||||
|
|
|
|
|
|
|||||||
Total finance lease receivables, net |
674,016,917 | 569,680,421 | 90,820,461 | |||||||||
|
|
|
|
|
|
|||||||
Finance lease receivablescurrent |
428,718,714 | 389,891,973 | 62,157,953 | |||||||||
Finance lease receivablesnon-current |
245,298,203 | 179,788,448 | 28,662,508 |
3.2 | Contractual maturities on finance lease receivables are as follows: |
Contractual maturities | ||||||||||||||||||||
2018 | 2019 | 2020 | Thereafter | Total | ||||||||||||||||
(April 1 December 31) | ||||||||||||||||||||
Finance lease receivables |
339,570,354 | 257,820,963 | 58,735,316 | 4,264,860 | 660,391,493 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
F-111
SHANGHAI AUTOHOME FINANCING LEASE CO., LTD.
NOTES TO THE UNAUDITED INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - continued
FOR THE THREE MONTHS ENDED MARCH 31, 2017 AND 2018
(Amounts in Renminbi (RMB) and US dollar (US$))
3. | FINANCE LEASE RECEIVABLES, NET - CONTINUED |
3.3 | The following tables present the aging of past-due finance lease receivables principal as of December 31, 2017 and March 31, 2018: |
As of
December 31, 2017 |
As of
March 31, 2018 |
|||||||||||
RMB | RMB | US$ | ||||||||||
Aging of finance lease receivables principal: |
||||||||||||
Current |
639,089,308 | 542,468,190 | 86,482,191 | |||||||||
1-30 days past due |
35,193,316 | 28,309,511 | 4,513,202 | |||||||||
31-60 days past due |
2,875,323 | 4,047,785 | 645,312 | |||||||||
61-90 days past due |
4,802,594 | 2,146,271 | 342,166 | |||||||||
91-120 days past due |
4,653,917 | 2,048,045 | 326,507 | |||||||||
121-150 days past due |
2,650,053 | 1,572,143 | 250,637 | |||||||||
151-180 days past due |
2,437,184 | 2,812,698 | 448,410 | |||||||||
|
|
|
|
|
|
|||||||
691,701,695 | 583,404,643 | 93,008,425 | ||||||||||
|
|
|
|
|
|
The Company placed all delinquent finance lease receivables in nonaccrual status as of December 31, 2017 and March 31, 2018.
3.4 | Movement of allowance for finance lease receivables is as follows: |
For the three months ended March 31, | ||||||||||||
2017 | 2018 | 2018 | ||||||||||
RMB | RMB | US$ | ||||||||||
Balance at the beginning of the year |
10,303,988 | 17,684,778 | 2,819,370 | |||||||||
Additions |
5,950,528 | 2,038,180 | 324,934 | |||||||||
Charge-offs |
(2,240,903 | ) | (5,998,736 | ) | (956,340 | ) | ||||||
|
|
|
|
|
|
|||||||
Balance at the end of the year |
14,013,613 | 13,724,222 | 2,187,964 | |||||||||
|
|
|
|
|
|
4. | SHORT-TERM AND LONG-TERM DEBT |
Short-term debt consist of the following:
Name |
Fixed annual rate | Term |
As of
December 31, 2017 |
As of
March 31, 2018 |
||||||||||||||||
RMB | RMB | US$ | ||||||||||||||||||
Short-term debt |
7.20% | 12 months | 100,000,000 | 100,000,000 | 15,942,353 | |||||||||||||||
Factoring debts payables (ii) |
6.5%-7.9% | 3-12 months | 28,300,000 | 65,100,000 | 10,378,471 | |||||||||||||||
|
|
|
|
|
|
|||||||||||||||
128,300,000 | 165,100,000 | 26,320,824 | ||||||||||||||||||
|
|
|
|
|
|
F-112
SHANGHAI AUTOHOME FINANCING LEASE CO., LTD.
NOTES TO THE UNAUDITED INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - continued
FOR THE THREE MONTHS ENDED MARCH 31, 2017 AND 2018
(Amounts in Renminbi (RMB) and US dollar (US$))
4. | SHORT-TERM AND LONG-TERM DEBT - CONTINUED |
Long-term debtcurrent consist of the following:
Name |
Fixed annual rate | Term |
As of
December 31, 2017 |
As of
March 31, 2018 |
||||||||||||||||
RMB | RMB | US$ | ||||||||||||||||||
Long-term debt |
8.0%-9.38% | 24-36 months | 55,907,950 | 47,485,693 | 7,570,336 | |||||||||||||||
Securitization debt payables (i) |
5.5%-8.2% | 17-24 months | 16,353,743 | | | |||||||||||||||
Factoring and subleasing debt payables (ii) |
6.2%-8.4% | 14-36 months | 79,386,733 | 73,954,667 | 11,790,114 | |||||||||||||||
Co-financing debt payables(iii) |
6.60% | 24-36 months | 16,610,138 | 20,938,070 | 3,338,021 | |||||||||||||||
|
|
|
|
|
|
|||||||||||||||
168,258,564 | 142,378,430 | 22,698,471 | ||||||||||||||||||
|
|
|
|
|
|
Long-term debtnon-current consist of the following:
Name |
Fixed annual rate | Term |
As of
December 31, 2017 |
As of
March 31, 2018 |
||||||||||||||||
RMB | RMB | US$ | ||||||||||||||||||
Long-term debt |
8.0%-9.38% | 24-36 months | 19,202,802 | 9,142,766 | 1,457,572 | |||||||||||||||
Securitization debt payables (i) |
5.5%-8.2% | 17-24 months | 131,920,000 | 97,456,663 | 15,536,885 | |||||||||||||||
Factoring and subleasing debt payables (ii) |
6.2%-8.4% | 14-36 months | 36,420,000 | 100,400,000 | 16,006,122 | |||||||||||||||
Co-financing debt payables(iii) |
6.60% | 24-36 months | 27,385,650 | 32,544,025 | 5,188,283 | |||||||||||||||
|
|
|
|
|
|
|||||||||||||||
214,928,452 | 239,543,454 | 38,188,862 | ||||||||||||||||||
|
|
|
|
|
|
(i) | Asset-backed debt securities issued to unrelated third-party beneficial interest holders. |
(ii) | In the ordinary course of business, the Company transfers finance leases to certain Funding Partners. However, in accordance with ASC 860 Transfers and Servicing the finance leases are not derecognized upon transfer as they are not legally isolated. Hence, the Company continues to report the transferred finance leases in the consolidated balance sheets and accounts for the proceeds from the transfer as a secured borrowing with pledge of collateral. |
(iii) | The Company provides consumer loans to borrowers through commercial banks. The Company is required to make scheduled payments to the commercial banks regardless of borrower repayments. |
Financing lease receivables amounting to RMB 552,338,224 and RMB 418,346,628 (US$ 66,694,294) were collateralized for the Companys short-term and long-term debts, as of December 31, 2017 and March 31, 2018, respectively. Additionally, short-term and long-term debts amounting to RMB 420,022,521 and RMB547,021,884 (US$ 87,208,157) were guaranteed by Shanghai Cango, as of December 31, 2017 and March 31, 2018, respectively.
F-113
SHANGHAI AUTOHOME FINANCING LEASE CO., LTD.
NOTES TO THE UNAUDITED INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - continued
FOR THE THREE MONTHS ENDED MARCH 31, 2017 AND 2018
(Amounts in Renminbi (RMB) and US dollar (US$))
4. | SHORT-TERM AND LONG-TERM DEBT - CONTINUED |
The weighted average interest rate for the outstanding borrowings was approximately 7.63% as of December 31, 2017 and March 31, 2018.
The following table sets forth the contractual obligations of long-term debtsnon-current which has not included impact of discount of time value as of December 31, 2017 and March 31, 2018:
Long-term debt and interest payables | ||||||||||||
As of
December 31, 2017 |
As of
March 31, 2018 |
|||||||||||
RMB | RMB | US$ | ||||||||||
Less than 1 year |
16,628,777 | 18,732,060 | 2,986,331 | |||||||||
1 2 years |
224,355,919 | 242,274,838 | 38,624,309 | |||||||||
2 3 years |
13,232,042 | 12,233,058 | 1,950,237 | |||||||||
|
|
|
|
|
|
|||||||
254,216,738 | 273,239,956 | 43,560,877 | ||||||||||
|
|
|
|
|
|
5. | INCOME TAXES |
The tax provision for interim periods is determined using an estimated annual effective tax rate, adjusted for discrete items arising in that quarter. In each quarter, the Company updates the estimated annual effective tax rate and makes a year-to-date adjustment to the provision.
The Company was incorporated in the PRC and was subject to a 25% statutory income tax rate for the periods presented.
The Company recorded income tax expense of RMB 15,274,041 and RMB 1,233,745 (US$ 196,688), representing effective tax rates of 293% and 295% for the three months ended March 31, 2017 and 2018, respectively. The primary difference between the PRC statutory tax rate of 25% and the effective tax rate for the three months ended March 31, 2017 and 2018 is primarily due to a full valuation allowance related to the Companys deferred tax assets.
6. | RELATED PARTY BALANCES AND TRANSACTIONS |
Name of related parties |
Relationship with the Company |
|
Shanghai Cango |
Principal shareholder of the Company | |
Beijing Autohome Information Technology Co., Ltd* |
The company under the common control of the principal shareholder |
*Beijing | Autohome Information Technology Co., Ltd is no longer a related party of the company since August 2017. |
F-114
SHANGHAI AUTOHOME FINANCING LEASE CO., LTD.
NOTES TO THE UNAUDITED INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - continued
FOR THE THREE MONTHS ENDED MARCH 31, 2017 AND 2018
(Amounts in Renminbi (RMB) and US dollar (US$))
6. | RELATED PARTY BALANCES AND TRANSACTIONS - CONTINUED |
Details of related party balances and transactions as of December 31, 2017 and March 31, 2018 are as follows:
6.1 | Amounts due to related parties |
As of
December 31, 2017 |
As of
March 31, 2018 |
|||||||||||
RMB | RMB | US$ | ||||||||||
Shanghai Cango (i) |
1,253,833 | 1,102,009 | 175,686 | |||||||||
|
|
|
|
|
|
(i) | The balance mainly represents automotive financing facilitation service fees, in the ordinary course of business. |
6.2 | Amounts due from related parties |
As of
December 31, 2017 |
As of
March 31, 2018 |
|||||||||||
RMB | RMB | US$ | ||||||||||
Shanghai Cango (i) |
10,000 | 4,652,656 | 741,743 | |||||||||
|
|
|
|
|
|
(i) | The balance mainly represents the platform deposits with related party and other receivables from related party, in the ordinary course of business. |
6.3 | Transactions with related parties |
For the three months ended March 31, | ||||||||||||
2017 | 2018 | 2018 | ||||||||||
RMB | RMB | US$ | ||||||||||
Cost of revenue |
||||||||||||
Shanghai Cango (ii) |
8,694,790 | 5,508,359 | 878,162 | |||||||||
Beijing Autohome Information Technology Co., Ltd. (ii) |
440,883 | | | |||||||||
|
|
|
|
|
|
|||||||
(ii) The amount mainly represents commission service fee paid to a related party. |
||||||||||||
9,135,673 | 5,508,359 | 878,162 | ||||||||||
|
|
|
|
|
|
F-115
SHANGHAI AUTOHOME FINANCING LEASE CO., LTD.
NOTES TO THE UNAUDITED INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - continued
FOR THE THREE MONTHS ENDED MARCH 31, 2017 AND 2018
(Amounts in Renminbi (RMB) and US dollar (US$))
6. | RELATED PARTY BALANCES AND TRANSACTIONS - CONTINUED |
6.4 | Guarantee provided by related parties |
Shanghai Cango provided guarantees for certain short-term and long-term debts of the Company in exchange for nil consideration. These guarantees remain outstanding as of December 31, 2017 and March 31, 2018. Total principal amount guaranteed under these arrangements are as follows:
As of
December 31, 2017 |
As of
March 31, 2018 |
|||||||||||
RMB | RMB | US$ | ||||||||||
Shanghai Cango |
420,022,521 | 547,021,884 | 87,208,157 | |||||||||
|
|
|
|
|
|
7. | COMMITMENTS AND CONTINGENCIES |
Operating lease commitments
The Company leased facilities in the PRC under non-cancelable operating leases agreements which expire through the year ending 2019. The Companys lease agreements contain renewal options with an advance notice period of one to twelve months. The lease agreements do not contain restrictions or contingent rents. The Company expenses payments made under operating leases on a straight-line basis over the lease term.
Future minimum payments under non-cancelable operating leases for office rental consist of the following as of March 31, 2018:
RMB | US$ | |||||||
2018 (April 1 December 31) |
3,845,160 | 613,009 | ||||||
2019 |
854,480 | 136,224 | ||||||
|
|
|
|
|||||
4,699,640 | 749,233 | |||||||
|
|
|
|
8. | SUBSEQUENT EVENTS |
The subsequent events have been evaluated through June 22, 2018, the date the financial statements were issued.
F-116
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION
In September 2015, Shanghai Cango Investment and Management Consultation Service Co., Ltd (Shanghai Cango) and Cango Inc.s (the Company) variable interest entity (VIE), established Shanghai Autohome Financing Lease Co., Ltd. (Shanghai Autohome) with registered capital of RMB 300,000,000 in conjunction with three parties. Shanghai Autohome provides consumer automotive finance leasing services. Each shareholder holds 25% equity interest in Shanghai Autohome. In June 2017, Shanghai Cango acquired an additional 25% equity interest in Shanghai Autohome for a total consideration of RMB 90,000,000. In September 2017, the Company entered into a series of agreements with its shareholder, Shanghai Autohomes shareholder and their related parties to acquire another additional 25% of the equity interest in Shanghai Autohome for a total consideration of RMB 103,000,000. In May 2018, Shanghai Cango entered into an agreement with Shanghai Autohomes third party shareholder to acquire the remaining 25% equity interests in Shanghai Autohome with a total cash consideration of RMB 103,000,000 to be closed when the September 2017 transaction is completed (collectively, the Acquisition).
Upon closing of the transactions contemplated above (the Closing), Cango Inc., through its VIE, will assume 100% of the equity interest in Autohome Financing.
The following unaudited pro forma condensed combined financial information are based on the Companys historical consolidated financial statements and Shanghai Autohomes historical consolidated financial statements as adjusted to give effect to the Companys acquisition of Shanghai Autohome and the related financing transactions. The unaudited pro forma condensed combined statements of operations for the year ended 31 December 2017 and the three months ended 31 March 2018 gives effect to these transactions as if they had occurred on 1 January 2017. The unaudited pro forma condensed combined balance sheet as of 31 March 2018 gives effect to these transactions as if they had occurred on 31 March 2018. The assumptions and estimates underlying the unaudited adjustments to the pro forma condensed combined financial information are described in the accompanying notes, which should be read together with the pro forma condensed combined financial information. The unaudited pro forma condensed combined financial information should be read together with the Companys historical financial statements and Shanghai Autohomes historical financial statements, which are included elsewhere in this registration statement.
P-1
UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET
AS OF MARCH 31, 2018
(Amounts in Renminbi (RMB) thousands)
P-2
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENTS OF INCOME
FOR THE YEAR ENDED DECEMBER 31, 2017
(Amounts in Renminbi (RMB) thousands)
Cango Inc.
Historical |
Shanghai
Autohome Historical |
Pro Forma
Adjustments |
Pro Forma
Combined |
|||||||||||||||
Note3 | ||||||||||||||||||
REVENUES: |
||||||||||||||||||
Facilitation service and other income |
(a) | 1,052,204 | | (20,914 | ) | 1,031,290 | ||||||||||||
Financing lease income |
| 132,400 | | 132,400 | ||||||||||||||
|
|
|
|
|
|
|
|
|||||||||||
OPERATING COST AND EXPENSES: |
||||||||||||||||||
Cost of revenues |
(a) | (386,054 | ) | (82,092 | ) | 29,579 | (438,567 | ) | ||||||||||
Sales and marketing expenses |
(114,145 | ) | (13,365 | ) | | (127,510 | ) | |||||||||||
General and administrative expenses |
(101,277 | ) | (10,014 | ) | | (111,291 | ) | |||||||||||
Provision for financing lease receivables |
| (27,006 | ) | | (27,006 | ) | ||||||||||||
Other operating costs and expenses |
19,292 | | | 19,292 | ||||||||||||||
|
|
|
|
|
|
|
|
|||||||||||
Income (loss) from operations |
470,020 | (77 | ) | 8,665 | 478,608 | |||||||||||||
|
|
|
|
|
|
|
|
|||||||||||
Interest income |
16,164 | 1,555 | | 17,719 | ||||||||||||||
Income from equity method investments |
(e) | 4,856 | | (4,856 | ) | | ||||||||||||
Other income and expenses |
(22,579 | ) | 74 | | (22,505 | ) | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||||
Net income before income taxes |
468,461 | 1,552 | 3,809 | 473,822 | ||||||||||||||
Income tax expenses |
(119,403 | ) | (4,544 | ) | | (123,947 | ) | |||||||||||
|
|
|
|
|
|
|
|
|||||||||||
NET INCOME (LOSS) |
349,058 | (2,992 | ) | 3,809 | 349,875 | |||||||||||||
|
|
|
|
|
|
|
|
P-3
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENTS OF INCOME
THREE MONTHS ENDED MARCH 31, 2018
(Amounts in Renminbi (RMB) thousands)
Cango Inc.
Historical |
Shanghai
Autohome Historical |
Pro Forma
Adjustments |
Pro Forma
Combined |
|||||||||||||||||
Note 3 | ||||||||||||||||||||
REVENUES: |
||||||||||||||||||||
Facilitation service and other income |
(a | ) | 248,819 | | (3,545 | ) | 245,274 | |||||||||||||
Financing lease income |
| 26,686 | | 26,686 | ||||||||||||||||
|
|
|
|
|
|
|
|
|||||||||||||
OPERATING COST AND EXPENSES: |
||||||||||||||||||||
Cost of revenues |
(a | ) | (80,856 | ) | (18,960 | ) | 5,508 | (94,308 | ) | |||||||||||
Sales and marketing expenses |
(34,818 | ) | (2,968 | ) | | (37,786 | ) | |||||||||||||
General and administrative expenses |
(26,744 | ) | (2,493 | ) | | (29,237 | ) | |||||||||||||
Provision for financing lease receivables |
| (2,038 | ) | | (2,038 | ) | ||||||||||||||
Other operating costs and expenses |
(13,282 | ) | | | (13,282 | ) | ||||||||||||||
|
|
|
|
|
|
|
|
|||||||||||||
Income from operations |
93,119 | 227 | 1,963 | 95,309 | ||||||||||||||||
|
|
|
|
|
|
|
|
|||||||||||||
Interest income |
8,077 | 191 | | 8,268 | ||||||||||||||||
Income from equity method investments |
(e | ) | (2,334 | ) | | 1,949 | (385 | ) | ||||||||||||
Other income and expenses |
14,503 | | | 14,503 | ||||||||||||||||
|
|
|
|
|
|
|
|
|||||||||||||
Net income before income taxes |
113,365 | 418 | 3,912 | 117,695 | ||||||||||||||||
Income tax expenses |
(29,339 | ) | (1,234 | ) | | (30,573 | ) | |||||||||||||
|
|
|
|
|
|
|
|
|||||||||||||
NET INCOME |
84,026 | (816 | ) | 3,912 | 87,122 | |||||||||||||||
|
|
|
|
|
|
|
|
P-4
NOTES TO THE UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENT
YEAR ENDED DECEMBER 31, 2017 AND THREE MONTHS ENDED MARCH 31, 2018
(Amounts in Renminbi (RMB) thousands)
Note 1Basis of presentation
The historical consolidated financial statements have been adjusted in the pro forma condensed combined financial information to give effect to pro forma events that are (1) directly attributable to the business combination, (2) factually supportable and (3) with respect to the pro forma condensed combined statements of operations, expected to have a continuing impact on the combined results following the business combination.
The business combination was accounted for under the acquisition method of accounting in accordance with ASC Topic 805, Business Combinations . As the acquirer for accounting purposes, the Company has estimated the fair value of Shanghai Autohomes assets acquired and liabilities assumed and conformed the accounting policies of Shanghai Autohome to its own accounting policies.
The pro forma combined financial information do not necessarily reflect what the combined companys financial condition or results of operations would have been had the acquisition occurred on the dates indicated. They also may not be useful in predicting the future financial condition and results of operations of the combined company. The actual financial position and results of operations may differ significantly from the pro forma amounts reflected herein due to a variety of factors.
The combined pro forma financial information does not reflect the realization of any expected cost savings or other synergies from the acquisition of Shanghai Autohome as a result of restructuring activities and other planned cost savings initiatives following the completion of the business combination.
Note 2Preliminary purchase price allocation
The Company has performed a preliminary purchase price allocation of Shanghai Autohomes assets and liabilities. The following table summarizes the allocation of the preliminary purchase price as of the acquisition date:
RMB000 | ||||
Cash and cash equivalents |
249,448 | |||
Restricted cash |
10,315 | |||
Finance lease receivables |
569,680 | |||
Identifiable intangible assets* |
247 | |||
Goodwill |
138,066 | |||
Other assets |
8,872 | |||
Short-term and long-term debts |
(547,022 | ) | ||
Income tax payable |
(4,691 | ) | ||
Deferred tax liabilities |
(612 | ) | ||
Other liabilities |
(12,303 | ) | ||
|
|
|||
Total consideration |
412,000 | |||
|
|
* | As part of the preliminary purchase price allocation, the Company identified intangible assets related to Shanghai Autohomes finance leasing business license. The fair value of the identifiable intangible assets is determined primarily using the market approach was calculated to be RMB 0.2 million. The finance leasing business license has an indefinite useful life. The Company compared the fair value of the finance leasing business license with past sales transactions of similar finance leasing business licenses that were sold within the last three to six months. |
P-5
CANGO INC.
NOTES TO THE UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENT
YEAR ENDED DECEMBER 31, 2017 AND THREE MONTHS ENDED MARCH 31, 2018
(Amounts in Renminbi (RMB) thousands)
Note 2Preliminary purchase price allocation - Continued
This preliminary purchase price allocation has been used to prepare pro forma adjustments in the pro forma balance sheet and income statement. The final purchase price allocation will be determined when the Company has completed the detailed valuations and necessary calculations. The final allocation could differ materially from the preliminary allocation used in the pro forma adjustments. The final allocation may include (1) changes in fair values of property, plant and equipment, (2) changes in allocations to intangible assets such as trade names, technology and customer relationships as well as goodwill and (3) other changes to assets and liabilities.
Note 3Pro forma adjustments
The pro forma adjustments are based on the Companys preliminary estimates and assumptions that are subject to change. The following adjustments have been reflected in the unaudited pro forma condensed combined financial information:
(a) | Reflects the elimination of facilitation revenue Cango charges Shanghai Autohome which Shanghai Autohome defers as initial direct costs from origination of finance lease receivables. |
(b) | Reflects the elimination adjustment relating to intercompany balances between the Company and Shanghai Autohome. |
(c) | Represents preliminary gain from the re-measurement of Cangos existing equity interest in Shanghai Autohome of RMB 47.5 million and the related deferred tax liabilities of RMB 11.9 million as of March 31, 2018, respectively. |
(d) | Reflects the payment of RMB154.5 million cash consideration and elimination of RMB51.5 million prepaid deposit for the Acquisition, and reflects the adjustment to eliminate the Companys equity investment of Shanghai Autohome of RMB 206.0 million subsequent to re-measurement of equity interest in (d). Records goodwill and identifiable intangible assets associated with the Acquisition as shown in Note 2, respectively. |
(e) | Reflects the elimination adjustment relating to the Companys income from equity method investments from Shanghai Autohome assuming the transaction was consummated on January 1, 2017. |
P-6
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 6. Indemnification of Directors and Officers
Cayman Islands law does not limit the extent to which a companys articles of association may provide indemnification of officers and directors, except to the extent any such provision may be held by the Cayman Islands courts to be contrary to the public interest, such as providing indemnification against civil fraud or the consequences of committing a crime. The registrants articles of association provide that each officer or director of the registrant shall be indemnified out of the assets of the registrant against any liability incurred by him or her in defending any proceedings, whether civil or criminal, in which judgment is given in his or her favor, or the proceedings are otherwise disposed of without any finding or admission of any material breach of duty on his or her part, or in which he or she is acquitted or in connection with any application in which relief is granted to him or her by the court from liability for negligence, default, breach of duty or breach of trust in relation to the affairs of the registrant.
Under the form of indemnification agreements to be filed as Exhibit 10.1 to this registration statement, we will agree to indemnify our directors and executive officers against certain liabilities and expenses incurred by such persons in connection with claims made by reason of their being such a director or executive officer.
The form of underwriting agreement to be filed as Exhibit 1.1 to this registration statement will also provide for indemnification of us and our officers and directors.
Insofar as indemnification for liabilities arising under the Securities Act may be permitted to 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.
Item 7. Recent Sales of Unregistered Securities
We are incorporated as Cango Inc. in October 2017 and has since then issued and sold the securities described below without registering the securities under the Securities Act. None of these transactions involved any underwriters underwriting discounts or commissions, or any public offering. We believe that each of the following issuances was exempt from registration under the Securities Act in reliance on Regulation S or Rule 701 under the Securities Act or pursuant to Section 4(2) of the Securities Act regarding transactions not involving a public offering.
In the fourth quarter of 2017, we issued 120,126,900 of our ordinary shares to five investors, including Medway Brilliant Holding Limited, Eagle Central Holding Limited, Xiehuai L.P. and Huaiyuan L.P., for consideration of US$12,013. In March 2018, we issued 4,843,087 of our ordinary shares to four investors, including Eagle Central Holding Limited, Xiehuai L.P. and Huaiyuan L.P., for consideration of US$484.
In March 2018, we issued 53,431,125 of our Series A-1 preferred shares to Warburg Pincus Cango Fintech Investment Company Limited for consideration of US$5,343, 2,179,215 of our Series A-2 preferred shares to an investor for consideration of $218 and 10,308,663 of our Series A-3 preferred shares to an investor for consideration of $1,031.
In March 2018, we issued 61,942,726 of our Series B preferred shares to nine investors, including Tencent Mobility Limited, for consideration of US$6,194.
In June 2018, we issued 38,744,512 of our Series C preferred shares to DiDi Sunshine Investments L.P. and 2,633,664 of our Series C preferred shares to another investor. The aggregate consideration for issuance of Series C preferred shares is US$245.6 million, or US$5.9363 per share.
II-1
Item 8. Exhibits and Financial Statement Schedules
(a) Exhibits
See Exhibit Index beginning on page II-3 of this Registration Statement.
(b) Financial Statement Schedules.
All supplement schedules are omitted because of the absence of conditions under which they are required or because the information is shown in the financial statements or notes thereto.
Item 9. Undertakings
The undersigned registrant hereby undertakes to provide to the underwriter at the closing specified in the underwriting agreements, certificates in such denominations and registered in such names as required by the underwriter to permit prompt delivery to each purchaser. Insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers and controlling persons of the registrant under the provisions described in Item 6, or otherwise, the registrant has been advised that in the opinion of the SEC such indemnification is against public policy as expressed in the Securities Act and is therefore unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the registrant of expenses incurred or paid by a director, officer or controlling person of the registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Securities Act and will be governed by the final adjudication of such issue.
The undersigned registrant hereby undertakes that:
(1) | For purposes of determining any liability under the Securities Act, the information omitted from the form of prospectus filed as part of this registration statement in reliance upon Rule 430A and contained in a form of prospectus filed by the registrant under Rule 424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed to be part of this registration statement as of the time it was declared effective. |
(2) | For the purpose of determining any liability under the Securities Act, each post-effective amendment that contains a form of prospectus shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. |
II-2
EXHIBIT INDEX
II-3
* | To be filed by amendment. |
** | Incorporated by reference to the Registration Statement on Form F-6 to be filed with the Securities and Exchange Commission with respect to American depositary shares representing our ordinary shares. |
II-4
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the registrant certifies that it has reasonable grounds to believe that it meets all of the requirements for filing on Form F-1 and has duly caused this registration statement to be signed on its behalf by the undersigned, thereunto duly authorized, in Shanghai, China on June 22, 2018.
CANGO INC. | ||||
By: |
/s/ Xiaojun Zhang |
|||
Name: | Xiaojun Zhang | |||
Title: | Chairman |
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below does hereby constitute and appoint Xiaojun Zhang, Jiayuan Lin and Yongyi Zhang, and each of them singly, as his or her true and lawful attorney-in-fact and agents, each with full power of substitution and re-substitution, for him or her and in his or her name, place and stead, in any and all capacities, to sign any and all amendments (including post-effective amendments) to this Registration Statement and sign any registration statement for the same offering covered by this Registration Statement that is to be effective upon filing pursuant to Rule 462(b) promulgated under the Securities Act of 1933, as amended, and all post-effective amendments thereto and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorney-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done in connection therewith and about the premises, as fully to all intents and purposes as he or she might or could do in person, hereby ratifying and confirming all that said attorney-in-fact and agents, or his or her substitutes or substitutes, may lawfully do or cause to be done by virtue hereof. Pursuant to the requirements of the Securities Act of 1933, as amended, this Registration Statement has been signed by the following persons in the capacities and on the dates indicated.
Signature |
Capacity |
Date |
||
/s/ Xiaojun Zhang |
Chairman | June 22, 2018 | ||
Xiaojun Zhang |
||||
/s/ Jiayuan Lin |
Chief Executive Officer and Director | June 22, 2018 | ||
Jiayuan Lin |
(principal executive officer) | |||
/s/ Langlang Zhou |
Director | June 22, 2018 | ||
Langlang Zhou |
||||
/s/ Zuyu Tan |
Director | June 22, 2018 | ||
Zuyu Tan |
||||
/s/ Yongyi Zhang |
Chief Financial Officer and Director | June 22, 2018 | ||
Yongyi Zhang |
(principal financial and accounting officer) | |||
/s/ Weibiao Zhan |
Director | June 22, 2018 | ||
Weibiao Zhan |
||||
/s/ Xiaoyu Liu |
Director | June 22, 2018 | ||
Xiaoyu Liu |
||||
/s/ Zhipeng Song |
Director | June 22, 2018 | ||
Zhipeng Song |
||||
/s/ Yun Ye |
Head of Legal Division and Director | June 22, 2018 | ||
Yun Ye |
II-5
SIGNATURE OF AUTHORIZED REPRESENTATIVE IN THE UNITED STATES
Pursuant to the Securities Act of 1933, as amended, the undersigned, the duly authorized representative in the United States of Cango Inc. has signed this registration statement or amendment thereto in New York, New York on June 22, 2018.
By: |
/s/ Shek Yuen Ting |
|
Name: Shek Yuen Ting | ||
Title: Assistant Secretary |
II-6
Exhibit 3.1
Execution Version
THE COMPANIES LAW (2018 REVISION)
OF THE CAYMAN ISLANDS
COMPANY LIMITED BY SHARES
SECOND AMENDED AND RESTATED MEMORANDUM AND ARTICLES
OF
ASSOCIATION
OF
CANGO INC.
(adopted by a Special Resolution passed on June 15, 2018)
THE COMPANIES LAW (2018 REVISION)
OF THE CAYMAN ISLANDS
COMPANY LIMITED BY SHARES
SECOND AMENDED AND RESTATED MEMORANDUM OF ASSOCIATION
OF
CANGO INC.
(adopted by a Special Resolution passed on June 15, 2018)
1. | The name of the Company is Cango Inc.. |
2. | The Registered Office of the Company shall be at the office of Sertus Incorporations (Cayman) Limited, Sertus Chambers, Governors Square, Suite #5-204, 23 Lime Tree Bay Avenue, P.O. Box 2547, Grand Cayman, KY1-1104, Cayman Islands, or at such other place as the Directors may from time to time decide. |
3. | The objects for which the Company is established are unrestricted and the Company shall have full power and authority to carry out any object not prohibited by the Companies Law (2018 Revision) or as the same may be revised from time to time, or any other law of the Cayman Islands. |
4. | The liability of each Member is limited to the amount from time to time unpaid on such Members Shares. |
5. | The authorized share capital of the Company is US$50,000 divided into (i) 330,760,095 Ordinary Shares of par value US$0.0001 each, (ii) 53,431,125 Series A-1 Preferred Shares of par value US$0.0001 each, (iii) 2,179,215 Series A-2 Preferred Shares of par value US$0.0001 each, (iv) 10,308,663 Series A-3 Preferred Shares of par value US$0.0001 each, (v) 61,942,726 Series B Preferred Shares of par value US$0.0001 each, and (vi) 41,378,176 Series C Preferred Shares of par value US$0.0001 each. |
- 1 -
6. | If the Company is registered as exempted, its operations will be carried on subject to the provisions of Section 174 of the Companies Law (2018 Revision) and, subject to the provisions of the Companies Law (2018 Revision) and the Articles of Association, it shall have the power to register by way of continuation as a body corporate limited by shares under the laws of any jurisdiction outside the Cayman Islands and to be deregistered in the Cayman Islands. |
7. | Capitalized terms that are not defined in this Memorandum of Association bear the same meaning as those given in the Articles of Association of the Company. |
- 2 -
THE COMPANIES LAW (2018 REVISION)
OF THE CAYMAN ISLANDS
COMPANY LIMITED BY SHARES
SECOND AMENDED AND RESTATED ARTICLES OF ASSOCIATION
OF
CANGO INC.
(adopted by a Special Resolution passed on June 15, 2018)
INTERPRETATION
1. | In these Articles Table A in the First Schedule to the Statute does not apply and, unless there is something in the subject or context inconsistent therewith: |
Affiliate |
means, with respect to a Person, any other Person that, directly or indirectly, Controls, is Controlled by or is under common Control with such Person. In the case of an individual, the term Affiliate also includes the Immediate Family Members of such individual, and in the case of an Investor, the term Affiliate also includes (a) any shareholder of the Investor, (b) any of the shareholders or the Investors general partners or limited partners, (c) the fund manager managing such shareholder or Investor (and general partners, limited partners and officers thereof) and other funds managed by such fund manager, (d) trusts Controlled by or for the benefit of any such Person referred to in (a), (b) or (c). | |
Articles |
means these articles of association of the Company as originally formed or as from time to time altered by Special Resolution. | |
Automatic Conversion |
shall have the meaning set forth in Article 8.3(C) hereof. |
- 2 -
Conversion Price |
means, with respect to the Series A-1 Preferred Shares, the Series A-1 Conversion Price, with respect to the Series A-2 Preferred Shares, the Series A-2 Conversion Price, with respect to the Series A-3 Preferred Shares, the Series A-3 Conversion Price, with respect to the Series B Preferred Shares, the Series B Conversion Price, and with respect to the Series C Preferred Shares, the Series C Conversion Price. | |
Convertible Securities |
shall have the meaning set forth in Article 8.3(E)(5)(a)(ii) hereof. | |
Deemed Liquidation Event |
means any of the following events: | |
(1) any consolidation, amalgamation, scheme of arrangement or merger of any Group Company with or into any other Person or other reorganization in which the Members or shareholders of such Group Company immediately prior to such consolidation, amalgamation, merger, scheme of arrangement or reorganization own less than fifty percent (50%) of such Group Companys voting power in the aggregate immediately after such consolidation, merger, amalgamation, scheme of arrangement or reorganization, or any transaction or series of related transactions to which such Group Company is a party in which in excess of fifty percent (50%) of such Group Companys voting power is transferred; | ||
(2) a sale, transfer, lease or other disposition of all or substantially all of the assets of any Group Company (or any series of related transactions resulting in such sale, transfer, lease or other disposition of all or substantially all of the assets of such Group Company); or | ||
(3) the exclusive licensing of all or substantially all of any Group Companys intellectual properties to a third party; or | ||
(4)Share Sale; or | ||
(5) any termination of, unapproved amendment to or material breach of any Control Documents or other contracts among the Group Companies and their shareholders which results in the loss of the Companys Control over, and the ability to consolidate the financial statements of the Domestic Company. |
- 3 -
Didi |
means Links Advance and any of its Affiliates that holds any Shares. | |
Didi Director |
shall have the meaning set forth in Article 63.1. | |
Didi Director Veto Matters |
shall have the meaning set forth in Article 8.4(B)(2)(e). | |
Didi Observer |
shall have the meaning set forth in Article 63.2. | |
Director |
means a director serving on the Board for the time being of the Company and shall include an alternate Director appointed in accordance with these Articles. | |
Domestic Company |
means Shanghai Cango Investment and Management Consultation Service Co., Ltd. (上海灿谷投资管理咨询服务有限公司), a limited liability company incorporated under the laws of the PRC. | |
Electronic Record |
has the same meaning as given in the Electronic Transactions Law (2003 Revision). | |
Equity Securities |
means, with respect to any Person that is a legal entity, any and all shares of capital stock, membership interests, units, profits interests, ownership interests, equity interests, registered capital, and other equity securities of such Person, and any right, warrant, option, call, commitment, conversion privilege, preemptive right or other right to acquire any of the foregoing, or security convertible into, exchangeable or exercisable for any of the foregoing, or any contract providing for the acquisition of any of the foregoing. | |
Excepted Issuances |
shall have the meaning set forth in Article 8.3(E)(5)(a)(iii) hereof. |
- 4 -
Exempted Distribution |
means (1) dividends payable solely in Ordinary Shares to the holders of the Preferred Shares and Ordinary Shares on a pro rata basis, based on the number of Ordinary Shares then held by each holder on an as-converted basis, (2) the purchase, repurchase or redemption of Ordinary Shares by the Company at no more than cost from terminated employees, officers or consultants in accordance with the ESOP (on the terms compliant with Section 12.9 of the Shareholders Agreement), or pursuant to the exercise of a contractual right of first refusal held by the Company under the Right of First Refusal and Co-Sale Agreement, or pursuant to written contractual arrangements with the Company approved by the Shareholders (so long as such approval includes the approval of each of the Major Investors), and (3) the payment of dividends to the holders of the Preferred Shares in accordance with Article 8.1 hereof. | |
Existing Purchase Agreement |
means the Shares Purchase Agreement, dated March 23, 2018 by and among the Company and certain other parties named therein. | |
ESOP |
has the meaning as set forth in the Shareholders Agreement. | |
Governmental Authority |
means any government of any nation or any federation, province or state or any other political subdivision thereof, any entity, authority or body exercising executive, legislative, judicial, regulatory or administrative functions of or pertaining to government, including any government authority, agency, department, board, commission or instrumentality of the PRC or any other country, or any political subdivision thereof, any court, tribunal or arbitrator, and any self-regulatory organization. | |
Group Companies |
has the meaning as set forth in the Series C Purchase Agreement. | |
Haitong |
means Haitong International Investment Holdings Limited. | |
HK Company |
means Cango Group Limited, a company duly incorporated under the laws of the Hong Kong Special Administrative Region of the PRC by the Company for the sole purpose of holding equity interests in the WFOE. |
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Immediate Family Member |
means a child, stepchild, grandchild, parent, step-parent, grandparent, spouse, sibling, mother-in-law, father-in-law, son-in-law, daughter-in-law, brother-in-law, or sister-in-law, including adoptive relationships, of a person referred to herein. | |
Indebtedness |
of any Person means, without duplication, each of the following of such Person: (i) all indebtedness for borrowed money, (ii) all obligations issued, undertaken or assumed as the deferred purchase price of property or services (other than trade payables entered into in the ordinary course of business), (iii) all reimbursement or payment obligations with respect to letters of credit, surety bonds and other similar instruments, (iv) all obligations evidenced by notes, bonds, debentures or similar instruments, including obligations so evidenced that are incurred in connection with the acquisition of properties, assets or businesses, (v) all indebtedness created or arising under any conditional sale or other title retention agreement, or incurred as financing, in either case with respect to any property or assets acquired with the proceeds of such indebtedness (even though the rights and remedies of the seller or bank under such agreement in the event of default are limited to repossession or sale of such property), (vi) all obligations that are capitalized (including capitalized lease obligations), (vii) all obligations under bankers acceptance, letter of credit or similar facilities, (viii) all obligations to purchase, redeem, retire, defease or otherwise acquire for value any Equity Securities of such Person, (ix) all obligations in respect of any interest rate swap, hedge or cap agreement, and (x) all guarantees issued in respect of the Indebtedness referred to in clauses (i) through (ix) above of any other Person, but only to the extent of the Indebtedness guaranteed. | |
Investor(s) |
shall have the meaning set forth in Shareholders Agreement. | |
Investor Director(s) |
shall have the meaning set forth in Article 63.1. | |
Interested Transaction |
shall have the meaning set forth in Article 82 hereof. |
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Lien |
means any claim, charge, easement, encumbrance, lease, covenant, security interest, lien, option, pledge, rights of others, or restriction (whether on voting, sale, transfer, disposition or otherwise), whether imposed by contract, understanding, law, equity or otherwise. | |
Links Advance |
means Links Advance Holdings Limited. | |
Major Group Companies |
shall have the meaning set forth in Shareholders Agreement. | |
Major Investors |
shall have the meaning set forth in Shareholders Agreement. | |
Major Series A Investors |
shall have the meaning set forth in Shareholders Agreement. | |
Major Series B Investors |
shall have the meaning set forth in Shareholders Agreement. | |
Major Series C Investor |
shall have the meaning set forth in Shareholders Agreement. | |
Material Breach Event |
means any of the following: (a) any fraud of any of the Company, the HK Company, the WFOE, the Domestic Company, the Principals, the Principal Holding Companies or other members of the management in any aspects (including but not limited to management and operation, audit and financial accounting, acquirement and maintaining of approval and permit), or any material breach of the applicable Transaction Documents by any of the Company, the HK Company, the WFOE, the Domestic Company, the Principal Holding Companies or the Principals, for purpose of this definition Material Breach Event, with respect to the Series A-1 Investor, the Transaction Documents shall also include Onshore JV Contract and WP Onshore Subscription Agreement (as defined in the Existing Purchase Agreement), with respect to the Series A-3 Investor, the Transaction Documents shall also include Onshore JV Contract and PV Onshore Subscription Agreement (as defined in the Existing Purchase Agreement), with respect to Taikang, the Transaction Documents shall also include Onshore JV Contract and TK Onshore Subscription Agreement, with respect to Tencent, Links Advance, Cinda, Taihe and Weijinke, the Transaction Documents shall also include Onshore JV Contract and Series B Onshore Subscription Agreement (as defined in the Existing Purchase Agreement), with respect to Boyu and Haitong, the Transaction Documents shall also include Onshore JV Contract and Onshore Transfer Agreement, (b) the termination by any Principal of his employment relationship with the Company and/or the Group Companies, or the material breach by any Principal of the employment contract, intellectual property ownership and confidentiality agreement and non-compete agreement entered into by him, (c) the failure to obtain, renew, or the revocation of, approvals, registrations, permits, licenses, qualifications and any similar permissions that are essential to the Business of the Group Companies; and (d) any change made by any Principal to the shareholding structure of any Group Companies without the approval of each Major Investor that is not generally acceptable in the international market. |
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Member |
has the same meaning as in the Statute. | |
Memorandum |
means the memorandum of association of the Company as originally formed or as from time to time altered by Special Resolution. | |
New Securities |
shall have the meaning set forth in Article 8.3(E)(5)(a)(iii) hereof. | |
New Price |
shall have the meaning set forth in Article 8.3(E)(5)(d) hereof. | |
Observer(s) |
shall have the meaning set forth in Article 63.2. | |
Onshore JV Contract |
means the Joint Venture Contract entered into among the Principals, Shanghai Wangjin Investment Management Co., Ltd. (上海网金投资管理有限公司), Shanghai Xiehuai Investment Management Partnership L.P. (上海协怀投资管理合伙企业(有限合伙)), Shanghai Huaiyuan Investment Management Partnership L.P. (上海怀元投资管理合伙企业(有限合伙)), Shanghai Minghuai Investment Management Partnership L.P. (上海明怀投资管理合伙企业(有限合伙)), Chunhua Qiushi (Tianjin) Equity Investment Partnership L.P. (春华秋实(天津)股权投资合伙企业(有限合伙)), Warburg Pincus Financial Global Ltd, PV Chivalry Limited, Taikang Life Insurance Co., Ltd. (泰康人寿保险有限公司), Shandong State-controlled Taikang Phase I Industrial Development Fund Partnership Enterprise (Limited Partnership) (山东国控泰康一期产业发展基金合伙企业(有限合伙)), Tencent Mobility Limited, Links Advance Holdings Limited, Haitong International Investment Holdings Limited, Harbourside 1712 Limited, Beijing Taihedingcheng Investment Consultancy Co., Ltd. (北京泰合鼎诚投资咨询有限公司), Boyu III (Shanghai) Equity Investment Partnership L.P. (博裕三期(上海)股权投资合伙企业(有限合伙)) Shenzhen Weizhong Financial Technology Group Limited (深圳微众金融科技集团股份有限公司) and the Domestic Company. |
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Onshore Transfer Agreement |
means the Equity Transfer Agreement entered into among Lin Jiayuan (林佳元), Shanghai Wangjin Investment Management Co., Ltd. (上海网金投资管理有限公司), Boyu III (Shanghai) Equity Investment Partnership L.P. (博裕三期(上海)股权投资合伙企业(有限合伙)) and Haitong International Investment Holdings Limited. | |
Options |
shall have the meaning set forth in Article 8.3(E)(5)(a)(i) hereof. | |
Ordinary Directors |
shall have the meaning set forth in Article 63.1. | |
Ordinary Resolution |
means a resolution of a duly constituted general meeting of the Company passed by a simple majority of the votes cast by, or on behalf of, the Members entitled to vote present in person or by proxy and voting at the meeting, or a written resolution as provided in Article 41.2. | |
Ordinary Shares |
means the Ordinary Shares of US$0.0001 par value per share in the capital of the Company having the rights, preference and privileges attaching to it as set out herein. |
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Partnerships |
means Huaiyuan L.P., a limited partnership incorporated under the Laws of British Virgin Islands, Minghuai L.P., a limited partnership incorporated under the Laws of British Virgin Islands, and Xiehuai L.P., a limited partnership incorporated under the Laws of British Virgin Islands. | |
Person |
means any individual, corporation, partnership, limited partnership, proprietorship, association, limited liability company, firm, joint venture, trust, estate, unincorporated organization, Governmental Authority or other enterprise or entity. | |
PRC |
means the Peoples Republic of China, but solely for the purposes hereof excludes the Hong Kong Special Administrative Region, the Macau Special Administrative Region and Taiwan. | |
Preference Amount |
shall have the meaning set forth in Article 8.2(A)(4). | |
Preferred Shares |
means collectively, the Series A Preferred Shares, the Series B Preferred Shares and the Series C Preferred Shares. | |
Preferred Share Issue Date |
means Series A-1 Issue Date, Series A-3 Issue Date, Series B Issue Date, and Series C Issue Date. | |
Principal or Principals |
shall have the meaning set forth in the Shareholders Agreement. | |
Principal Holding Company (ies) |
shall have the meaning set forth in the Shareholders Agreement. | |
PV Observer |
shall have the meaning set forth in Article 63.2. |
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Qualified IPO |
means, with respect to the Series A Investors, Series B Investors and Series C Investors, a public offering of Ordinary Shares of the Company, provided that: (i) the exchange of such offering is a Qualified Exchange; (ii) with respect to Series A Investors and Series B Investors only, if the Qualified IPO occurs within two (2) years after the Series B Investment Date, the implied valuation of the Company shall be an amount implying an internal rate of return of no less than thirty percent (30%) per annum for the Series A Investors and/or Series B Investors; and if the Qualified IPO occurs after two (2) years of the Series B Investment Date, the implied valuation of the Company shall be an amount implying an internal rate of return of no less than twenty percent (20%) per annum for the Series A Investors and/or Series B Investors; (iii) with respect to Series C Investors only, if the Qualified IPO occurs on or before December 31, 2018, the implied valuation of the Company shall be no less than US$1,746,525,437, being the post-money valuation of the Company on the Series C Investment Date; and if the Qualified IPO occurs at any time after December 31, 2018, the implied valuation of the Company shall be an amount implying an internal rate of return of no less than twenty percent (20%) per annum for the Series C Investors; (iv) such offering is conducted in accordance with securities Laws or regulations applicable to the Qualified Exchange; and (v) immediately after such offering, the ratio of the number of Ordinary Shares of the Company available for public trading to all outstanding shares of the Company complies with the applicable Laws of the Qualified Exchange. | |
Qualified Exchange |
means the New York Stock Exchange, the NASDAQ Stock Market, the Stock Exchange of Hong Kong, the Shanghai Stock Exchange, the Shenzhen Stock Exchange or other stock exchanges unanimously approved by the Series A-1 Investor, Series A-3 Investor, Taikang, Tencent and Didi. For the avoidance of doubt, unless approved by the Series A-1 Investor, Series A-3 Investor, Taikang, Tencent and Didi, in no event shall a Qualified Exchange include the National Equities Exchange and Quotations System (全国中小企业股份转让系统). | |
Redeemed Preferred Shares |
means Redeemed Series A-1 Shares, Redeemed Series A-3 Shares, Redeemed Series B Shares and Redeemed Series C Shares. | |
Redeemed Series A-1 Shares |
shall have the meaning set forth in Article 8.5(A)(4). | |
Redeemed Series A-3 Shares |
shall have the meaning set forth in Article 8.5(A)(3). |
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Redeemed Series B Shares |
shall have the meaning set forth in Article 8.5(A)(2). | |
Redeemed Series C Shares |
shall have the meaning set forth in Article 8.5(A)(1). | |
Redeeming Holder(s) |
shall have the meaning set forth in Article 8.5(A)(4). | |
Redeeming Series A-1 Holder |
shall have the meaning set forth in Article 8.5(A)(4). | |
Redeeming Series A-3 Holder |
shall have the meaning set forth in Article 8.5(A)(3). | |
Redeeming Series B Holder |
shall have the meaning set forth in Article 8.5(A)(2). | |
Redeeming Series C Holder |
shall have the meaning set forth in Article 8.5(A)(1). | |
Redemption Closing Date |
shall have the meaning set forth in Article 8.5(C). | |
Redemption Exercise Notice |
shall have the meaning set forth in Article 8.5(C). | |
Redemption Exercisable Notice |
shall have the meaning set forth in Article 8.5(C). | |
Redemption Exercisable Period |
shall have the meaning set forth in Article 8.5(C). | |
Redemption Notice |
shall have the meaning set forth in Article 8.5(C). | |
Redemption Price |
shall have the meaning set forth in Article 8.5(B)(4). | |
Registered Office |
means the registered office for the time being of the Company. | |
Register of Members |
means the register of members of the Company maintained in accordance with the Statute and includes (except where otherwise stated) any duplicate Register of Members. | |
Right of First Refusal and Co-Sale Agreement |
means the Amended and Restated Right of First Refusal and Co-Sale Agreement, dated June 15, 2018 by and among the Company and certain other parties named therein, as amended from time to time. | |
Series A Issue Date |
means the Series A-1 Issue Date and/or the Series A-3 Issue Date. | |
Series A Investment Price |
means the Series A-1 Investment Price and/or the Series A-3 Investment Price. |
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Series A Investor(s) |
means the Series A-1 Investor, the Series A-2 Investor and/or Series A-3 Investor. | |
Series A Preferred Shares |
means collectively, the Series A-1 Preferred Shares, the Series A-2 Preferred Shares and the Series A-3 Preferred Shares. | |
Series A-1 Conversion Price |
shall have the meaning set forth in Article 8.3(A) hereof. | |
Series A-1 Investor |
shall have the meaning set forth in Shareholders Agreement. | |
Series A-1 Investment Date |
means May 11, 2017. | |
Series A-1 Investment Price |
means US$1.7951, as appropriately adjusted for share splits, share dividends, combinations, recapitalizations and similar events with respect to the Series A1 Preferred Shares after the date hereof. | |
Series A-1 Issue Date |
means the date of the first issuance of a Series A-1 Preferred Share. | |
Series A-1 Preferred Shares |
means the Series A-1 Preferred Shares of US$0.0001 par value per share in the capital of the Company having the rights, preference and privileges attaching to it as set out herein. | |
Series A-1 Preference Amount |
shall have the meaning set forth in Article 8.2(A)(4). | |
Series A-1 Redemption Closing Date |
means the Redemption Closing Date applicable to the relevant Redeemed Series A-1 Shares. | |
Series A-1 Redemption Events |
shall have the meaning set forth in Article 8.5(A)(4). | |
Series A-2 Conversion Price |
shall have the meaning set forth in Article 8.3(A) hereof. | |
Series A-2 Investor |
shall have the meaning set forth in Shareholders Agreement. | |
Series A-2 Investment Price |
means US$1.7951, as appropriately adjusted for share splits, share dividends, combinations, recapitalizations and similar events with respect to the Series A-2 Preferred Shares after the date hereof. |
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Series A-2 Preferred Shares |
means the Series A-2 Preferred Shares of US$0.0001 par value per share in the capital of the Company having the rights, preference and privileges attaching to it as set out herein. | |
Series A-3 Conversion Price |
shall have the meaning set forth in Article 8.3(A) hereof. | |
Series A-3 Investor |
shall have the meaning set forth in Shareholders Agreement. | |
Series A-3 Investment Date |
means September 1, 2017. | |
Series A-3 Investment Price |
means US$2.9437, as appropriately adjusted for share splits, share dividends, combinations, recapitalizations and similar events with respect to the Series A-3 Preferred Shares after the date hereof. | |
Series A-3 Issue Date |
means the date of the first issuance of a Series A-3 Preferred Share. | |
Series A-3 Preferred Shares |
means the Series A-3 Preferred Shares of US$0.0001 par value per share in the capital of the Company having the rights, preference and privileges attaching to it as set out herein. | |
Series A-3 Preference Amount |
shall have the meaning set forth in Article 8.2(A)(3). | |
Series A-3 Redemption Closing Date |
means the Redemption Closing Date applicable to the relevant Redeemed Series A-3 Shares. | |
Series A-3 Redemption Events |
shall have the meaning set forth in Article 8.5(A)(3). | |
Series B Investor |
shall have the meaning set forth in Shareholders Agreement. | |
Series B Conversion Price |
shall have the meaning set forth in Article 8.3(A) hereof. | |
Series B Investment Date |
means March 8, 2018. |
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Series B Investment Price |
means US$5.0037, as appropriately adjusted for share splits, share dividends, combinations, recapitalizations and similar events with respect to the Series B Preferred Shares. | |
Series B Issue Date |
means the date of the first issuance of a Series B Preferred Share. | |
Series B Preferred Shares |
means the Series B Preferred Shares of US$0.0001 par value per share in the capital of the Company having the rights, preference and privileges attaching to it as set out herein. | |
Series B Preference Amount |
shall have the meaning set forth in Article 8.2(A)(2). | |
Series B Redemption Closing Date |
means the Redemption Closing Date applicable to the relevant Redeemed Series B Shares. | |
Series B Redemption Events |
shall have the meaning set forth in Article 8.5(A)(2). | |
Series C Investor |
shall have the meaning set forth in Shareholders Agreement. | |
Series C Conversion Price |
shall have the meaning set forth in Article 8.3(A) hereof. | |
Series C Investment Date |
means June 15, 2018. | |
Series C Investment Price |
means US$5.9363, as appropriately adjusted for share splits, share dividends, combinations, recapitalizations and similar events with respect to the Series C Preferred Shares after the date hereof. | |
Series C Issue Date |
means the date of the first issuance of a Series C Preferred Share. | |
Series C Preferred Shares |
means the Series C Preferred Shares of US$0.0001 par value per share in the capital of the Company having the rights, preference and privileges attaching to it as set out herein. | |
Series C Purchase Agreement |
means the Series C Preferred Shares Purchase Agreement, dated June 4, 2018 by and among the Company and certain other parties named therein. |
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Series C Preference Amount |
shall have the meaning set forth in Article 8.2(A)(1). | |
Series C Redemption Closing Date |
means the Redemption Closing Date applicable to the relevant Redeemed Series C Shares. | |
Series C Redemption Events |
shall have the meaning set forth in Article 8.5(A)(1). | |
Seal |
means the common seal of the Company and includes every duplicate seal. | |
Share and Shares |
means a share or shares in the capital of the Company and includes a fraction of a share. | |
Shareholders Agreement |
means the Amended and Restated Shareholders Agreement, dated June 15, 2018 by and among the Company and certain other parties named therein, as amended from time to time. | |
Share Sale |
means a transaction or series of related transactions in which a Person, or a group of related Persons, acquires any Equity Securities of the Company such that, immediately after such transaction or series of related transactions, such Person or group of related Persons holds Equity Securities of the Company representing more than fifty percent (50%) of the outstanding voting power of the Company. | |
Special Resolution |
has the same meaning as in the Statute and includes a unanimous written resolution of all Members entitled to vote and expressed to be a special resolution. | |
Statute |
means the Companies Law (2018 Revision) of the Cayman Islands as amended and every statutory modification or re-enactment thereof for the time being in effect. | |
Subsidiary |
means, with respect to any given Person, any other Person that is Controlled directly or indirectly by such given Person. | |
Taihe |
means China TH Capital Limited中国泰合资本有限公司. |
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Taikang |
means Magic Spark Inc. and TK Autolink Inc.. | |
Taikang Director |
shall have the meaning set forth in Article 63.1. | |
Taikang Investment Date |
means January 19, 2018. | |
Tencent |
means Tencent Mobility Limited. | |
Tencent Director |
shall have the meaning set forth in Article 63.1. | |
Tencent Director Veto Matters |
shall have the meaning set forth in Article 8.4(B)(2)(d). | |
TK Director Veto Matters |
shall have the meaning set forth in Article 8.4(B)(2)(c). | |
Transaction Documents |
means (i) the Existing Purchase Agreement or the Series C Purchase Agreement (as applicable), (ii) the Control Documents, (iii) the Shareholders Agreement, (iv) the Memorandum and these Articles, (v) the Right of First Refusal and Co-Sale Agreement, and (vi) the other agreements and/or documents in relation to any of the agreements or documents referred to in Items (i) to (v). | |
Weijinke |
means RXD International. Ltd. | |
WFOE |
means Can Gu Long (Shanghai) Information Technology Consulting Services Co., Ltd. (灿谷隆(上海)信息科技咨询服务有限公司), a wholly foreign owned enterprise formed under the laws of the PRC by the HK Company, which in turn Controls the Domestic Company by a Captive Structure as defined in the Series C Purchase Agreement. | |
WP Director |
shall have the meaning set forth in Article 63.1. | |
WP Director Veto Matters |
shall have the meaning set forth in Article 8.4(B)(2)(b). |
2. | In the Articles: |
2.1 | words importing the singular number include the plural number and vice-versa; |
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2.2 | words importing the masculine gender include the feminine gender; |
2.3 | written and in writing include all modes of representing or reproducing words in visible form, including in the form of an Electronic Record (which has the same meaning as in the Electronic Transactions Law (2003 Revision) of the Cayman Islands, as may be amended from time to time). Sections 8 and 19(3) of the Electronic Transactions Law shall not apply; |
2.4 | references to provisions of any law or regulation shall be construed as references to those provisions as amended, modified, re-enacted or replaced from time to time; |
2.5 | any phrase introduced by the terms including, include, in particular or any similar expression shall be construed as illustrative and shall not limit the sense of the words preceding those terms; |
2.6 | the term voting power refers to the number of votes attributable to the Shares (on an as converted basis) in accordance with the terms of the Memorandum and these Articles; |
2.7 | the term or is not exclusive; |
2.8 | the term including will be deemed to be followed by, but not limited to; |
2.9 | the terms shall, will, and agrees are mandatory, and the term may is permissive; |
2.10 | the term day means calendar day, and month means calendar month; |
2.11 | the phrase directly or indirectly means directly, or indirectly through one or more intermediate Persons or through contractual or other arrangements, and direct or indirect has the correlative meaning; |
2.12 | unless otherwise specified, references to any documents shall be construed as references to such document as the same may be amended, supplemented or novated from time to time; |
2.13 | all references to dollars or to US$ are to currency of the United States of America and all references to RMB are to currency of the PRC (and each shall be deemed to include reference to the equivalent amount in other currencies); |
2.14 | headings are inserted for reference only and shall be ignored in construing these Articles; and |
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2.15 | in calculations of share numbers, (a) references to a non-diluted basis mean that the calculation is to be made taking into account only Ordinary Shares then in issue, and (b) references to an as-converted basis mean that the calculation is to be made assuming that all Preferred Shares in issue have been converted into Ordinary Shares. |
3. | For the avoidance of doubt, each other Article herein is subject to the provisions of Article 8, and, subject to the requirements of the Statute, in the event of any conflict, the provisions of Article 8 shall prevail over any other Article herein. |
COMMENCEMENT OF BUSINESS
4. | The business of the Company may be commenced as soon after incorporation as the Directors shall see fit notwithstanding that any part of the Shares may not have been allotted. The Company shall have perpetual existence until wound up or struck off in accordance with the Statute and these Articles. |
5. | The Directors may pay, out of the capital or any other monies of the Company, all expenses incurred in or about the formation and establishment of the Company, including the expenses of registration. |
ISSUE OF SHARES
6. | Subject to the provisions, if any, in the Memorandum (and to any direction that may be given by the Company in a general meeting) and to the provisions of Articles 8 and 9 and Section 7 of the Shareholders Agreement, and without prejudice to any rights, preferences and privileges attached to any existing Shares, (a) the Directors may allot, issue, grant options or warrants over or otherwise dispose of two classes of Shares to be designated, respectively, as Ordinary Shares and Preferred Shares; (b) the Preferred Shares may be allotted and issued from time to time in one or more series; and (c) the Preferred Shares shall be designated prior to their allotment and issue. In the event that any Preferred Shares shall be converted pursuant to Article 8.3 hereof, the Preferred Shares so converted shall be cancelled and shall not be re-issuable by the Company. Further, any Preferred Share acquired by the Company by reason of redemption, repurchase, conversion or otherwise shall be cancelled and shall not be re-issuable by the Company. |
7. | The Company shall not issue Shares to bearer. |
PREFERRED SHARES
8. | Certain rights, preferences and privileges of the Preferred Shares of the Company are as follows: |
8.1 | Dividends Rights . |
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A. | Preference . |
Subject to the provisions of the Statute and these Articles (including but not limited to the other requirements of Article 8.4(B)), each Preferred Share held by each of the Major Investors and/or their assigns or transferees (on an as-if-converted basis) shall be entitled to receive, on a pari passu basis, dividends, if declared, out of funds or assets legally available for the payment therefor, prior and in preference to any declaration or payment of any dividend on Series A-2 Preferred Shares, Ordinary Shares, Series B Preferred Shares held by Haitong, Cinda, Boyu, Weijinke and Taihe, and Series C Preferred Shares held by CHJ. Subject to Article 8.4(B), if declared by the Board, each time the amount of dividends distributed shall be not less than twenty percent (20%) of the then total undistributed profit of the Company, and the dividends shall be distributed among all shareholders of the Company according to their respective shareholding percentage in the Company.
B. | Restrictions; Participation . |
Except for an Exempted Distribution, no dividend or distribution, whether in cash, in property, or in any other shares of the Company, shall be declared, paid, set aside or made with respect to the Series A-2 Preferred Shares, Ordinary Shares, Series B Preferred Shares held by Haitong, Cinda, Boyu, Weijinke and Taihe, and Series C Preferred Shares held by CHJ at any time unless (i) all accrued but unpaid dividends on the Preferred Shares held by each of the Major Investors and/or their assigns or transferees set forth in Article 8.1(A) have been paid in full, and (ii) in addition to the dividend declared and paid in accordance with Article 8.1(A), a dividend or distribution is likewise declared, paid, set aside or made, respectively, at the same time with respect to each outstanding Preferred Shares held by each of the Major Investors and/or their assigns or transferees such that the dividend or distribution declared, paid, set aside or made to the holder thereof shall be equal to the dividend or distribution that such holder would have received pursuant to this Article 8.1(B) if such Preferred Shares held by each of the Major Investors and/or their assigns or transferees had been converted into Ordinary Shares immediately prior to the record date for such dividend or distribution, or if no such record date is established, the date such dividend or distribution is made.
8.2 | Liquidation Rights . |
A. | Liquidation Preferences . In the event of any liquidation, dissolution or winding up of the Company, whether voluntary or involuntary, all assets and funds of the Company legally available for distribution to the Members (after satisfaction of all creditors claims and claims that may be preferred by law) shall be distributed to the Members of the Company as follows: |
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(1) First, the holders of the Series C Preferred Shares shall be entitled to receive for each Series C Preferred Share held by such holder, on parity with each other and prior and in preference to any distribution of any of the assets or funds of the Company to the holders of Series B Preferred Shares, Series A-3 Preferred Shares, Series A-2 Preferred Shares, Series A-1 Preferred Shares and Ordinary Shares by reason of their ownership of such shares, an amount equal to the sum of (i) one hundred percent (100%) of the applicable Series C Investment Price, and (ii) an interest thereon accrued on daily basis at a simple interest rate of twelve percent (12%) per annum, commencing from the Series C Investment Date and ending on the date when any amounts due and payable in respect of such Series C Preferred Share under this clause shall have been paid in full (the Series C Preference Amount ). For the avoidance of doubt, the Series C Preference Amount shall not include any declared dividends accrued on the Series C Preferred Shares, regardless of whether paid or unpaid. If the entire assets and funds of the Company legally available for the distribution to the holders of the Series C Preferred Shares shall be insufficient to permit the payment in full of the Series C Preference Amount (as defined above), then such assets and funds of the Company legally available for the distribution to the holders of Series C Preferred Shares shall be distributed ratably among the holders of Series C Preferred Shares in proportion to the aggregate Series C Preference Amount each such holder is otherwise entitled to receive pursuant to this subclause (1).
(2) Second, if there are any assets or funds remaining after the aggregate Series C Preference Amount has been distributed or paid in full to the holders of Series C Preferred Shares pursuant to Articles 8.2(A)(1) above, the holders of the Series B Preferred Shares shall be entitled to receive for each Series B Preferred Share held by such holder, on parity with each other and prior and in preference to any distribution of any of the assets or funds of the Company to the holders of Series A-3 Preferred Shares, Series A-2 Preferred Shares, Series A-1 Preferred Shares and Ordinary Shares by reason of their ownership of such shares, an amount equal to the sum of (i) one hundred percent (100%) of the applicable Series B Investment Price, and (ii) an interest thereon accrued on daily basis at a simple interest rate of twelve percent (12%) per annum, commencing from the Series B Investment Date (with respect to Taikang, from the Taikang Investment Date) and ending on the date when any amounts due and payable in respect of such Series B Preferred Share under this clause shall have been paid in full (the Series B Preference Amount ). For the avoidance of doubt, the Series B Preference Amount shall not include any declared dividends accrued on the Series B Preferred Shares, regardless of whether paid or unpaid. If the entire assets and funds of the Company legally available for the distribution to the holders of the Series B Preferred Shares shall be insufficient to permit the payment in full of the Series B Preference Amount (as defined above), then such assets and funds of the Company legally available for the distribution to the holders of Series B Preferred Shares shall be distributed ratably among the holders of Series B Preferred Shares in proportion to the aggregate Series B Preference Amount each such holder is otherwise entitled to receive pursuant to this subclause (2).
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(3) Third, if there are any assets or funds remaining after the aggregate Series C Preference Amount and Series B Preference Amount has been distributed or paid in full to the holders of Series C Preferred Shares and Series B Preferred Shares pursuant to Articles 8.2(A)(1) and Article 8.2(A)(2) above, the holders of the Series A-3 Preferred Shares shall be entitled to receive for each Series A-3 Preferred Share held by such holder, on parity with each other and prior and in preference to any distribution of any of the assets or funds of the Company to the holders of Series A-2 Preferred Shares, Series A-1 Preferred Shares and Ordinary Shares by reason of their ownership of such shares, the amount equal to the sum of (i) one hundred percent (100%) of the applicable Series A-3 Investment Price, and (ii) an interest thereon accrued on daily basis at a simple interest rate of twelve percent (12%) per annum, commencing from the Series A-3 Investment Date and ending on the date when any amounts due and payable in respect of such Series A-3 Preferred Share under this clause shall have been paid in full (the Series A-3 Preference Amount ). For the avoidance of doubt, the Series A-3 Preference Amount shall not include any declared dividends accrued on the Series A-3 Preferred Shares, regardless of whether paid or unpaid. If the assets and funds thus distributed among the holders of the Series A-3 Preferred Shares shall be insufficient to permit the payment in full to such holders of the Series A-3 Preference Amount, then the assets and funds of the Company legally available for distribution to the holders of Series A-3 Preferred Shares shall be distributed ratably among the holders of Series A-3 Preferred Shares in proportion to the aggregate Series A-3 Preference Amount each such holder is otherwise entitled to receive pursuant to this subclause (3).
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(4) Fourth, if there are any assets or funds remaining after the aggregate Series C Preference Amount, Series B Preference Amount and Series A-3 Preference Amount has been distributed or paid in full to the holders of Series C Preferred Shares, Series B Preferred Shares and Series A-3 Preferred Shares pursuant to Articles 8.2(A)(1), 8.2(A)(2) and 8.2(A)(3) above, the holders of the Series A-1 Preferred Shares shall be entitled to receive for each Series A-1 Preferred Share held by such holder, on parity with each other and prior and in preference to any distribution of any of the assets or funds of the Company to the holders of Series A-2 Preferred Shares and Ordinary Shares by reason of their ownership of such shares, the amount equal to the sum of (i) one hundred percent (100%) of the applicable Series A-1 Investment Price, and (ii) an interest thereon accrued on daily basis at a simple interest rate of twelve percent (12%) per annum, commencing from the Series A-1 Investment Date and ending on the date when any amounts due and payable in respect of such Series A-1 Preferred Share under this clause shall have been paid in full ( the Series A- 1 Preference Amount , together with the Series A-3 Preference Amount, the Series B Preference Amount and the Series C Preference Amount, the Preference Amount ). For the avoidance of doubt, the Series A-1 Preference Amount shall not include any declared dividends accrued on the Series A-1 Preferred Shares, regardless of whether paid or unpaid. If the assets and funds thus distributed among the holders of the Series A-1 Preferred Shares shall be insufficient to permit the payment in full to such holders of the Series A-1 Preference Amount, then the assets and funds of the Company legally available for distribution to the holders of Series A-1 Preferred Shares shall be distributed ratably among the holders of Series A-1 Preferred Shares in proportion to the aggregate Series A-1 Preference Amount each such holder is otherwise entitled to receive pursuant to this subclause (4).
(5) If there are any assets or funds remaining after the Preference Amount has been distributed or paid in full to the applicable holders of Series C Preferred Shares, Series B Preferred Shares, Series A-3 Preferred Shares and Series A-1 Preferred Shares pursuant to subclauses (1), (2), (3) and (4) above, the remaining assets and funds of the Company available for distribution to the Members shall be distributed ratably among all Members (including the holders of Preferred Shares) according to the relative number of Ordinary Shares held by such Member on an as if converted basis.
B. | Deemed Liquidation Event . A Deemed Liquidation Event shall be deemed to be a liquidation, dissolution or winding up of the Company for purposes of Article 8.2(A), and any proceeds, whether in cash or properties, resulting from a Deemed Liquidation Event shall be distributed in accordance with the terms of Article 8.2(A). |
C. | Valuation of Properties . In the event the Company proposes to distribute assets other than cash in connection with any liquidation, dissolution or winding up of the Company pursuant to Article 8.2(A) or pursuant to a Deemed Liquidation Event of the Company pursuant to Article 8.2(B), the value of the assets to be distributed to the Members shall be determined in good faith by the Board (including the affirmative votes from all Investor Directors); provided that any securities not subject to investment letter or similar restrictions on free marketability shall be valued as follows: |
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(1) If traded on a securities exchange, the value shall be deemed to be the average of the securitys closing prices on such exchange over the thirty (30) day period ending one (1) day prior to the distribution;
(2) If traded over-the-counter, the value shall be deemed to be the average of the closing bid prices over the thirty (30) day period ending three (3) days prior to the distribution; and
(3) If there is no active public market, the value shall be the fair market value thereof as determined in good faith by the liquidator or, in the case of any proposed distribution in connection with a Deemed Liquidation Event, by the Board (including the affirmative votes from all Investor Directors);
provided further that the method of valuation of securities subject to investment letter or other restrictions on free marketability shall be adjusted to make an appropriate discount from the market value determined as above in clauses (1), (2) or (3) to reflect the fair market value thereof as determined in good faith by the liquidator or, in the case of any proposed distribution in connection with a Deemed Liquidation Event, by the Board (including the affirmative votes from all Investor Directors) so long as such determination applies in a consistent manner to assets distributed to all Members.
Regardless of the foregoing, any Major Investor shall have the right to challenge any determination by the Board of value pursuant to this Article 8.2(C), in which case the determination of value shall be made by an independent appraiser selected jointly by the liquidator or the Board (including the affirmative votes from all Investor Directors), as applicable, and the challenging parties, with the cost of such appraisal to be borne equally by the Company and the challenging parties.
D. | Notices . In the event that the Company shall propose at any time to consummate a liquidation, dissolution or winding up of the Company or a Deemed Liquidation Event, then, in connection with each such event, subject to any necessary approval required in the Statute and these Articles, the Company shall send to the holders of Series A-1 Preferred Shares and/or Series A-3 Preferred Shares and/or Series B Preferred Shares and/or Series C Preferred Shares at least thirty (30) days prior written notice of the date when the same shall take place; provided , however, that the foregoing notice periods may be shortened or waived with the vote or written consent of the Major Investors. |
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E. | Enforcement . In the event the requirements of this Article 8.2 are not complied with, the Company shall forthwith either (i) cause the closing of the applicable transaction to be postponed until such time as the requirements of this Article 8.2 have been complied with, or (ii) cancel such transaction. |
8.3 | Conversion Rights |
The holders of the Preferred Shares shall have the rights described below with respect to the conversion of the Preferred Shares into Ordinary Shares:
A. | Conversion Ratio . The number of Ordinary Shares to which a holder shall be entitled upon conversion of each Series A-1 Preferred Share shall be the quotient of the Series A-1 Investment Price divided by the then effective Series A-1 Conversion Price (the Series A-1 Conversion Price ), which shall initially be the Series A-1 Investment Price, resulting in an initial conversion ratio for Series A-1 Preferred Shares of 1:1, being no less than par value. The number of Ordinary Shares to which a holder shall be entitled upon conversion of each Series A-2 Preferred Share shall be the quotient of the Series A-2 Investment Price divided by the then effective Series A-2 Conversion Price (the Series A- 2 Conversion Price ), which shall initially be the Series A-2 Investment Price, resulting in an initial conversion ratio for Series A-2 Preferred Shares of 1:1, being no less than par value. The number of Ordinary Shares to which a holder shall be entitled upon conversion of each Series A-3 Preferred Share shall be the quotient of the Series A-3 Investment Price divided by the then effective Series A-3 Conversion Price (the Series A- 3 Conversion Price ), which shall initially be the Series A-3 Investment Price, resulting in an initial conversion ratio for Series A-3 Preferred Shares of 1:1, being no less than par value. The number of Ordinary Shares to which a holder shall be entitled upon conversion of each Series B Preferred Share shall be the quotient of the Series B Investment Price divided by the then effective Series B Conversion Price (the Series B Conversion Price ), which shall initially be the Series B Investment Price, resulting in an initial conversion ratio for Series B Preferred Shares of 1:1, being no less than par value. The number of Ordinary Shares to which a holder shall be entitled upon conversion of each Series C Preferred Share shall be the quotient of the Series C Investment Price divided by the then effective Series C Conversion Price (the Series C Conversion Price ), which shall initially be the Series C Investment Price, resulting in an initial conversion ratio for Series C Preferred Shares of 1:1, being no less than par value. |
B. | Optional Conversion . Subject to the Statute and these Articles, any Preferred Share may, at the option of the holder thereof, be converted at any time after the date of issuance of such shares, without the payment of any additional consideration, into fully-paid and non-assessable Ordinary Shares based on the then-effective applicable Conversion Price. |
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C. | Automatic Conversion . Each Series A-1 Preferred Share shall automatically be converted, based on the then-effective applicable Conversion Price, without the payment of any additional consideration, into fully-paid and non-assessable Ordinary Shares upon the earlier of (i) the closing of an applicable Qualified IPO, or (ii) the date specified by written consent or agreement of the holders of a majority of the Series A-1 Preferred Shares. Each Series A-2 Preferred Share shall automatically be converted, based on the then-effective applicable Conversion Price, without the payment of any additional consideration, into fully-paid and non-assessable Ordinary Shares upon the earlier of (i) the closing of an applicable Qualified IPO, or (ii) the date specified by written consent or agreement of the holders of a majority of the Series A-2 Preferred Shares. Each Series A-3 Preferred Share shall automatically be converted, based on the then-effective applicable Conversion Price, without the payment of any additional consideration, into fully-paid and non-assessable Ordinary Shares upon the earlier of (i) the closing of an applicable Qualified IPO, or (ii) the date specified by written consent or agreement of the holders of a majority of the Series A-3 Preferred Shares. Each Series B Preferred Share shall automatically be converted, based on the then-effective applicable Conversion Price, without the payment of any additional consideration, into fully-paid and non-assessable Ordinary Shares upon the earlier of (i) the closing of an applicable Qualified IPO, or (ii) the date specified by written consent or agreement of the holders of a majority of the Series B Preferred Shares (including the approval from each Major Series B Investor). Each Series C Preferred Share shall automatically be converted, based on the then-effective applicable Conversion Price, without the payment of any additional consideration, into fully-paid and non-assessable Ordinary Shares upon the earlier of (i) the closing of an applicable Qualified IPO, or (ii) the date specified by written consent or agreement of the Major Series C Investor. Any conversion pursuant to this Article 8.3(C) shall be referred to as an Automatic Conversion . |
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D. | Conversion Mechanism . The conversion hereunder of any applicable Preferred Share shall be effected in the following manner: |
(1) Except as provided in Articles 8.3(D)(2) and 8.3(D)(3) below, before any holder of any Preferred Shares shall be entitled to convert the same into Ordinary Shares, such holder shall surrender the certificate or certificates therefor (if any) (or in lieu thereof shall deliver an affidavit of lost certificate and indemnity therefor) at the office of the Company or of any transfer agent for such share to be converted and shall give notice to the Company at its principal corporate office, of the election to convert the same and shall state therein the name or names in which the certificate or certificates for Ordinary Shares are to be issued. The Company shall, as soon as practicable thereafter, issue and deliver at such office to such holder of applicable Preferred Shares, or to the nominee or nominees of such holder, a certificate or certificates for the number of Ordinary Shares to which such holder shall be entitled as aforesaid. Such conversion shall be deemed to have been made immediately prior to the close of business on the date of such notice and such surrender of the Preferred Shares to be converted, and the Register of Members shall be updated accordingly to reflect the same, and the Person or Persons entitled to receive the Ordinary Shares issuable upon such conversion shall be treated for all purposes as the record holder or holders of such Ordinary Shares as of such date.
(2) If the conversion is in connection with an underwritten public offering of securities, the conversion will be conditioned upon the closing with the underwriter(s) of the sale of securities pursuant to such offering and the Person(s) entitled to receive the Ordinary Shares issuable upon such conversion shall not be deemed to have converted the applicable Preferred Shares until immediately prior to the closing of such sale of securities.
(3) Upon the occurrence of an event of Automatic Conversion, all applicable holders of Preferred Shares to be automatically converted will be given at least ten (10) days prior written notice of the date fixed (which date shall in the case of an applicable Qualified IPO be the latest practicable date immediately prior to the closing of the applicable Qualified IPO) and the place designated for automatic conversion of all such Preferred Shares pursuant to this Article 8.3(D). Such notice shall be given pursuant to Articles 108 through 112 to each record holder of such Preferred Shares at such holders address appearing on the Register of Members. On or before the date fixed for conversion, each holder of such Preferred Shares shall surrender the applicable certificate or certificates (if any) (or in lieu thereof shall deliver an affidavit of lost certificate and indemnity therefor) for all such shares to the Company at the place designated in such notice. On the date fixed for conversion, the Company shall promptly effect such conversion and update its Register of Members to reflect such conversion, and all rights with respect to such Preferred Shares so converted will terminate, with the exception of the right of a holder thereof to receive the Ordinary Shares issuable upon conversion of such Preferred Shares, and upon surrender of the certificate or certificates therefor (if any) (or in lieu thereof shall deliver an affidavit of lost certificate and indemnity therefor), to receive certificates (if applicable) for the number of Ordinary Shares into which such Preferred Shares have been converted. All certificates evidencing such Preferred Shares shall, from and after the date of conversion, be deemed to have been retired and cancelled and the Preferred Shares represented thereby converted into Ordinary Shares for all purposes, notwithstanding the failure of the holder or holders thereof to surrender such certificates on or prior to such date.
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(4) The Company may effect the conversion of Preferred Shares in any manner available under applicable law, including redeeming or repurchasing the relevant Preferred Shares and applying the proceeds thereof towards payment for the new Ordinary Shares. For purposes of the repurchase or redemption, the Company may, subject to the Company being able to pay its debts in the ordinary course of business, make payments out of its capital.
(5) No fractional Ordinary Shares shall be issued upon conversion of any Preferred Shares. In lieu of any fractional shares to which the holder would otherwise be entitled, the Company shall at the discretion of the Board of Directors either (i) pay cash equal to such fraction multiplied by the fair market value for the applicable Preferred Share as determined and approved by the Board of Directors in good faith, or (ii) issue one whole Ordinary Share for each fractional share to which the holder would otherwise be entitled.
(6) Upon conversion, all declared but unpaid share dividends on the applicable Preferred Shares shall be paid in shares and all declared but unpaid cash dividends on the applicable Preferred Shares shall be paid either in cash or by the issuance of a number of further Ordinary Shares equal to the value of such cash amount, at the option of the holders of the applicable Preferred Shares.
E. | Adjustment of the Conversion Price . Each Conversion Price shall be adjusted and readjusted from time to time as provided below, save that no adjustment shall have the effect that the relevant Conversion Price would be less than the par value of the Ordinary Shares into which the applicable Preferred Shares are to be converted: |
(1) Adjustment for Share Splits and Combinations . If the Company shall at any time, or from time to time, effect a subdivision of the outstanding Ordinary Shares, the Conversion Price in effect immediately prior to such subdivision with respect to each Preferred Share shall be proportionately decreased. Conversely, if the Company shall at any time, or from time to time, combine the outstanding Ordinary Shares into a smaller number of shares, the Conversion Price in effect immediately prior to such combination with respect to each Preferred Share shall be proportionately increased. Any adjustment under this paragraph shall become effective at the close of business on the date the subdivision or combination becomes effective.
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(2) Adjustment for Ordinary Share Dividends and Distributions . If the Company makes (or fixes a record date for the determination of holders of Ordinary Shares entitled to receive) a dividend or other distribution solely to the holders of Ordinary Shares payable in additional Ordinary Shares, the Conversion Price then in effect with respect to each Preferred Share shall be decreased as of the time of such issuance (or in the event such record date is fixed, as of the close of business on such record date) by multiplying such Conversion Price by a fraction (i) the numerator of which is the total number of Ordinary Shares issued and outstanding immediately prior to the time of such issuance or the close of business on such record date, and (ii) the denominator of which is the total number of Ordinary Shares issued and outstanding immediately prior to the time of such issuance or the close of business on such record date plus the number of Ordinary Shares issuable in payment of such dividend or distribution.
Notwithstanding the foregoing, (i) if such record date shall have been fixed and such dividend is not fully paid or if such distribution is not fully made on the date fixed therefor, the applicable Conversion Price shall be recomputed accordingly as of the close of business on such record date and thereafter the applicable Conversion Price shall be adjusted pursuant to this subsection as of the time of actual payment of such dividends or distributions; and (ii) that no such adjustment shall be made if the holders of the applicable series of Preferred Shares simultaneously receive a dividend or other distribution of shares of Ordinary Shares in a number equal to the number of shares of Ordinary Shares as they would have received if all outstanding shares of such series of Preferred Shares had been converted into Ordinary Shares on the date of such event.
(3) Adjustments for Other Distributions . In the event the Company at any time or from time to time makes, or files a record date for the determination of holders of Ordinary Shares entitled to receive any distribution payable in securities or assets of the Company other than Ordinary Shares, then and in each such event provision shall be made so that the holders of Preferred Shares shall receive upon conversion thereof, in addition to the number of Ordinary Shares receivable thereupon, the amount of securities or assets of the Company which they would have received had their Preferred Shares been converted into Ordinary Shares on the date of such event and had they thereafter, during the period from the date of such event to and including the date of conversion, retained such securities or assets receivable by them as aforesaid during such period, subject to all other adjustment called for during such period under this Clause 8.3(E)(2) with respect to the rights of the holders of the Preferred Shares.
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(4) Adjustments for Reorganizations, Mergers, Consolidations, Reclassifications, Exchanges, Substitutions . If at any time, or from time to time, any capital reorganization or reclassification of the Ordinary Shares (other than as a result of a share dividend, subdivision, split or combination otherwise treated above) occurs or the Company is consolidated, merged or amalgamated with or into another Person (other than a consolidation, merger or amalgamation treated as a liquidation in Article 8.2(B)), then in any such event, provision shall be made so that, upon conversion of any Preferred Share thereafter, the holder thereof shall receive the kind and amount of shares and other securities and property which the holder of such shares would have received in connection with such event had the relevant Preferred Shares been converted into Ordinary Shares immediately prior to such event.
(5) | Adjustments to Conversion Price for Dilutive Issuance . |
(a) Special Definition. For purpose of this Article 8.3(E)(5), the following definitions shall apply:
(i) Options mean rights, options or warrants to subscribe for, purchase or otherwise acquire either Ordinary Shares or Convertible Securities.
(ii) Convertible Securities shall mean any indebtedness, shares or other securities directly or indirectly convertible into or exchangeable for Ordinary Shares.
(iii) New Securities shall mean all Ordinary Shares issued (or, pursuant to Article 8.3(E)(5)(c), deemed to be issued) by the Company after the date on which these Articles are adopted, other than the following issuances (collectively, the Excepted Issuances ):
a). | any Ordinary Shares and/or options or warrants therefor issued pursuant to the ESOP (on the terms compliant with Section 12.9 of the Shareholders Agreement); |
b). | Ordinary Shares actually issued upon the conversion or exchange of Convertible Securities, provided such issuance is pursuant to the terms of such Convertible Security and the issuance of such Convertible Security is approved pursuant to Article 8.4(B)(2)(a) below; |
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c). | any Equity Securities of the Company issued in connection with any share split, share dividend, reclassification or other similar event duly approved pursuant to Article 8.4(B)(2)(a) below, in which all of the Members have the right to participate on a pro-rata basis; |
d). | any Equity Securities of the Company issued pursuant to a Qualified IPO; |
e). | any Equity Securities of the Company issued pursuant to the bona fide acquisition of another corporation or entity by the Company by consolidation, merger, purchase of assets, or other reorganization, in which the Company acquires, in a single transaction or series of related transactions, all or substantially all assets of such other corporation or entity, or fifty percent (50%) or more of the equity ownership or voting power of such other corporation or entity, in any case, as duly approved pursuant to Article 8.4(B)(2)(a) below; |
f). | Ordinary Shares issued upon the conversion of Preferred Shares; and |
g). | any Equity Securities of the Company issued pursuant to the Series C Purchase Agreement. |
(b) No Adjustment of Conversion Price . No adjustment in the Conversion Price with respect to any Preferred Share shall be made in respect of the issuance of New Securities unless the consideration per Ordinary Share (determined pursuant to Article 8.3(E)(5)(e) hereof) for the New Securities issued or deemed to be issued by the Company is less than such Conversion Price in effect immediately prior to such issuance, as provided for by Article 8.3(E)(5)(d). No adjustment or readjustment in the Conversion Price with respect to any Preferred Share otherwise required by this Article 8.3 shall affect any Ordinary Shares issued upon conversion of any applicable Preferred Share prior to such adjustment or readjustment, as the case may be.
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(c) Deemed Issuance of New Securities. In the event the Company at any time or from time to time after the applicable Preferred Share Issue Date shall issue any Options or Convertible Securities or shall fix a record date for the determination of holders of any series or class of securities entitled to receive any such Options or Convertible Securities, then the maximum number of Ordinary Shares (as set forth in the instrument relating thereto without regard to any provisions contained therein for a subsequent adjustment of such number for anti-dilution adjustments) issuable upon the exercise of such Options or, in the case of Convertible Securities and Options therefor, the conversion or exchange of such Convertible Securities or the exercise of such Options, shall be deemed to be New Securities issued as of the time of such issue or, in case such a record date shall have been fixed, as of the close of business on such record date, provided that in any such case in which New Securities are deemed to be issued:
(i) no further adjustment in the Conversion Price with respect to any Preferred Share shall be made upon the subsequent issue of Convertible Securities or Ordinary Shares upon the exercise of such Options or conversion or exchange of such Convertible Securities;
(ii) if such Options or Convertible Securities by their terms provide, with the passage of time or otherwise, for any change in the consideration payable to the Company, or change in the number of Ordinary Shares issuable, upon the exercise, conversion or exchange thereof, the then effective Conversion Price with respect to any Preferred Share computed upon the original issue thereof (or upon the occurrence of a record date with respect thereto), and any subsequent adjustments based thereon, shall, upon any such change becoming effective, be recomputed to reflect such change insofar as it affects such Options or the rights of conversion or exchange under such Convertible Securities;
(iii) no readjustment pursuant to Article 8.3(E)(5)(c)(ii) shall have the effect of increasing the then effective Conversion Price with respect to any Preferred Share to an amount which exceeds the Conversion Price with respect to such Preferred Share that would have been in effect had no adjustments in relation to the issuance of the Options or Convertible Securities as referenced in Article 8.3(E)(5)(c)(ii) been made;
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(iv) upon the expiration of any such Options or any rights of conversion or exchange under such Convertible Securities that have not been exercised, the then effective Conversion Price with respect to any Preferred Share computed upon the original issue thereof (or upon the occurrence of a record date with respect thereto) and any subsequent adjustment based thereon shall, upon such expiration, be recomputed as if:
(x) | in the case of Convertible Securities or Options for Ordinary Shares, the only New Securities issued were the Ordinary Shares, if any, actually issued upon the exercise of such Options or the conversion or exchange of such Convertible Securities and the consideration received therefor was the consideration actually received by the Company for the issue of such exercised Options plus the consideration actually received by the Company upon such exercise or for the issue of all such Convertible Securities that were actually converted or exchanged, plus the additional consideration, if any, actually received by the Company upon such conversion or exchange, and |
(y) | in the case of Options for Convertible Securities, only the Convertible Securities, if any, actually issued upon the exercise thereof were issued at the time of issue of such Options, and the consideration received by the Company for the New Securities deemed to have been then issued was the consideration actually received by the Company for the issue of such exercised Options, plus the consideration deemed to have been received by the Company (determined pursuant to Article 8.3(E)(4)(e)) upon the issue of the Convertible Securities with respect to which such Options were actually exercised; and |
(v) if such record date shall have been fixed and such Options or Convertible Securities are not issued on the date fixed therefor, the adjustment previously made in the Conversion Price with respect to any Preferred Share which became effective on such record date shall be canceled as of the close of business on such record date, and thereafter the Conversion Price with respect to such Preferred Share shall be adjusted pursuant to this Article 8.3(E)(5)(c) as of the actual date of their issuance.
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(d) Adjustment of the Conversion Price upon Issuance of New Securities . Subject to the Article 8.4(B) hereof, in the event of an issuance of New Securities, at any time after the applicable Preferred Share Issue Date, for a consideration per Ordinary Share or Preferred Share received by the Company (net of any selling concessions, discounts or commissions) (the New Price ) less than the applicable Conversion Price with respect to any Series A-1 Preferred Share and/or Series A-3 Preferred Share and/or Series B Preferred Share and/or Series C Preferred Share in effect immediately prior to such issue, then and in such event, the applicable Conversion Price with respect to such Series A Preferred Share and/or Series B Preferred Share and/or Series C Preferred Share shall be reduced, concurrently with such issue, to such New Price.
(e) Determination of Consideration . For purposes of this Article 8.3(E)(5), the consideration received by the Company for the issuance of any New Securities shall be computed as follows:
(i) Cash and Property . Such consideration shall:
(1) insofar as it consists of cash, be computed at the aggregate amount of cash received by the Company excluding amounts paid or payable for accrued interest or accrued dividends and excluding any discounts, commissions or placement fees payable by the Company to any underwriter or placement agent in connection with the issuance of any New Securities;
(2) insofar as it consists of property other than cash, be computed at the fair market value thereof at the time of such issue, as determined and approved in good faith by the Board of Directors (so long as such approval includes the approval of all the Investor Directors); provided, however, that no value shall be attributed to any services performed by any employee, officer or director of any Group Company;
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(3) in the event New Securities are issued together with other Shares or securities or other assets of the Company for consideration which covers both, be the proportion of such consideration so received which relates to such New Securities, computed as provided in clauses (1) and (2) above, as reasonably determined in good faith by the Board of Directors, including the consent of all the Investor Directors.
(ii) Options and Convertible Securities . The consideration per Ordinary Share received by the Company for New Securities deemed to have been issued pursuant to Article 8.3(E)(5)(c) hereof relating to Options and Convertible Securities, shall be determined by dividing (x) the total amount, if any, received or receivable by the Company as consideration for the issue of such Options or Convertible Securities (determined in the manner described in paragraph (i) above), plus the minimum aggregate amount of additional consideration (as set forth in the instruments relating thereto, without regard to any provision contained therein for a subsequent adjustment of such consideration) payable to the Company upon the exercise of such Options or the conversion or exchange of such Convertible Securities, or in the case of Options for Convertible Securities, the exercise of such Options for Convertible Securities and the conversion or exchange of such Convertible Securities by (y) the maximum number of Ordinary Shares (as set forth in the instruments relating thereto, without regard to any provision contained therein for a subsequent adjustment of such number) issuable upon the exercise of such Options or the conversion or exchange of such Convertible Securities.
(6) Other Dilutive Events. In case any event shall occur as to which the other provisions of this Article 8.3(E) are not strictly applicable, but the failure to make any adjustment to the Conversion Price with respect to any Preferred Share, would not fairly protect the conversion rights of the holders of such Preferred Shares in accordance with the essential intent and principles hereof, then the Company, in good faith, shall determine the appropriate adjustment to be made, on a basis consistent with the essential intent and principles established in this Article 8.3(E), necessary to preserve, without dilution, the conversion rights of the holders of such Preferred Shares.
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(7) No Impairment . The Company will not, by amendment of these Articles or through any reorganization, recapitalization, transfer of assets, consolidation, merger, amalgamation, scheme of arrangement, dissolution, issue or sale of securities or any other voluntary action, avoid or seek to avoid the observance or performance of any of the terms to be observed or performed hereunder by the Company, but will at all times in good faith assist in the carrying out of all the provisions of this Article 8.3 and in the taking of all such action as may be necessary or appropriate to protect the conversion rights of the holders of Preferred Shares against impairment.
(8) Certificate of Adjustment . In the case of any adjustment or readjustment of the Conversion Price with respect to any Preferred Share, the Company, at its sole expense, shall compute such adjustment or readjustment in accordance with the provisions hereof and prepare a certificate showing such adjustment or readjustment, and shall deliver such certificate by notice to each registered holder of such Preferred Shares at the holders address as shown in the Companys books. The certificate shall set forth such adjustment or readjustment, showing in detail the facts upon which such adjustment or readjustment is based, including a statement of (i) the consideration received or deemed to be received by the Company for any New Securities issued or sold or deemed to have been issued or sold, (ii) the number of New Securities issued or sold or deemed to be issued or sold, (iii) the Conversion Price with respect to such Preferred Share, in effect before and after such adjustment or readjustment, and (iv) the type and number of Equity Securities of the Company, and the type and amount, if any, of other property which would be received upon conversion of such Preferred Shares after such adjustment or readjustment.
(9) Notice of Record Date . In the event the Company shall propose to take any action of the type or types requiring an adjustment set forth in this Article 8.3(E), the Company shall give notice to the holders of the relevant Preferred Shares, which notice shall specify the record date, if any, with respect to any such action and the date on which such action is to take place. Such notice shall also set forth such facts with respect thereto as shall be reasonably necessary to indicate the effect of such action (to the extent such effect may be known at the date of such notice) on the Conversion Price with respect to the relevant Preferred Share, and the number, kind or class of shares or other securities or property which shall be deliverable upon the occurrence of such action or deliverable upon the conversion of the relevant Preferred Shares. In the case of any action which would require the fixing of a record date, such notice shall be given at least twenty (20) days prior to the date so fixed, and in the case of all other actions, such notice shall be given at least thirty (30) days prior to the taking of such proposed action.
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(10) Reservation of Shares Issuable Upon Conversion . The Company shall at all times reserve and keep available out of its authorized but unissued Ordinary Shares, solely for the purpose of effecting the conversion of the Preferred Shares, such number of its Ordinary Shares as shall from time to time be sufficient to effect the conversion of all outstanding Preferred Shares. If at any time the number of authorized but unissued Ordinary Shares shall not be sufficient to effect the conversion of all then outstanding Preferred Shares, in addition to such other remedies as shall be available to the holders of Preferred Shares, the Company and its Members will take such corporate action as may, in the opinion of its counsel, be necessary to increase its authorized but unissued Ordinary Shares to such number of shares as shall be sufficient for such purpose.
(11) Notices . Any notice required or permitted pursuant to this Article 8.3 shall be given in writing and shall be given in accordance with Articles 108 through 112.
(12) Payment of Taxes . The Company will pay all taxes (other than taxes based upon income) and other governmental charges that may be imposed with respect to the issue or delivery of Ordinary Shares upon conversion of the Preferred Shares, excluding any tax or other charge imposed in connection with any transfer involved in the issue and delivery of Ordinary Shares in a name other than that in which such Preferred Shares so converted were registered.
8.4 | Voting Rights . |
A. | General Rights . Subject to the provisions of the Memorandum and these Articles, at all general meetings of the Company: (a) the holder of Ordinary Shares issued and outstanding shall have one (1) vote in respect of each Ordinary Share held by such holder, and (b) the holder of Preferred Shares shall be entitled to such number of votes as equals the number of Ordinary Shares into which such holders collective Preferred Shares are convertible immediately after the close of business on the record date of the determination of the Companys Members entitled to vote or, if no such record date is established, at the date such vote is taken or any written consent of the Companys Members is first solicited. To the extent that the Statute or these Articles allow the Preferred Shares to vote separately as a class or series with respect to any matters, such Preferred Shares shall have the right to vote separately as a class or series with respect to such matters. |
B. | Protective Provisions . |
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(1) | Approval by the Board . Subject to Article 8.4(B)(2), the Board shall be entitled to decide all major matters of the Company, including but without limitation the following (if any of the following matter requires the approval of the Members of the Company in accordance with the applicable Laws and other Transaction Documents, then the Company shall not take any action unless such matter has been approved by such Members): |
(a) | any acquisition of any equity interests or material assets of any Persons by the Group Companies in an amount equal to or exceeding RMB30,000,000; use or establishment of any trade name or brands other than those are currently used by the Group Companies as of the date hereof; |
(b) | any change of the size or composition of the board of directors of the Company, the Major Group Companies and/or the Special Group Companies (for the purpose of this Article 8.4(B)(1)(b), the term Special Group Company shall not include any regional sales company established by the Group Companies); |
(c) | any adoption, modification, implementation of the profit distribution plans and loss recovery plans of the Company, the Major Group Companies and/or the Special Group Companies; any capitalization of the capital surplus of any Group Company; |
(d) | any change to the Business, entering into or investment in any new business that is not related to the business of automobiles or financial services or any new business that is related to the business of automobiles or financial services but may have adverse effect on the Business; |
(e) | any approval, modification or amendment of any terms of the related party transactions between the Company, the Major Group Companies and/or the Special Group Companies as one party, and any director, shareholder, senior management, employees of the Company, the Major Group Companies and/or the Special Group Companies, or the Affiliates of such Persons, or any Affiliate of the Company, the Major Group Companies and/or the Special Group Companies (except for the Major Group Companies and the Special Group Companies) as the other party (other than any business cooperation or similar transaction or arrangement between the Company, any Major Group Company and/or any Special Group Company, on the one hand, and Didi and/or any of its Affiliates, on the other hand), including without limitation, directly or indirectly providing loans, guarantee to any director, shareholder, senior management or employees of the Company, the Major Group Companies and/or the Special Group Companies or any of their Affiliates or providing indemnity or guarantee to any debts of any director, shareholder, senior management or employees of the Company, the Major Group Companies and/or the Special Group Companies or any of their Affiliates (for the avoidance of doubt, the payment of the commission and services fees by the Domestic Company to the other Group Companies Controlled by the Domestic Company in the ordinary course of business of automobiles financial services shall not be deemed as related party transactions, provided that such commission and services fees shall be priced on an arms-length basis and consistent with the past practice of the Domestic Company in connection with the payment of commission and/or services fees to the Subsidiaries Controlled by the Domestic Company); |
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(f) | any incurrence by the Company, the Major Group Companies and/or the Special Group Companies of any Indebtedness to any third party outside the ordinary cause of the business (for the purpose of this Article 8.4(B)(1)(f) , the ordinary cause of the business means, to the extent permitted by applicable Laws, (i) cooperating with banks or other financial institutions to repurchase or provide guarantee to overdue auto-loans in the business of automobile financing, (ii) incurrence of Indebtedness or provision of guarantees to banks or trusts in the business of financial lease, (iii) the working capital credit facility not exceeding RMB100,000,000 in aggregate provided by the financial institutions to the Domestic Company); |
(g) | any sale, Transfer, license, pledge or disposal in any other form of any Intellectual Property of the Company, the Major Group Company and/or the Special Group Company; |
(h) | any lending by any Group Company to any third parties, or making any capital commitment, payment or expenditure out of annual budget in an amount exceeding RMB5,000,000 for a single transaction or exceeding RMB10,000,000 in the aggregate for all such transactions during any fiscal year; |
(i) | any provision by any Group Company of any guarantee for the benefit of any third party (except for those occurring in the ordinary course of business to financial institutions); |
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(j) | creation of Lien over the assets, business, rights or shares of any Group Company, other than the guarantee of Indebtedness to financial institutions incurred in a Group Companys ordinary course of business or share pledge as provided under the Control Documents; |
(k) | any investment in or the set-up of (i) any Subsidiary, joint venture, partnership Controlled by any Group Company (except for those regional sales companies established by the Group Companies in the ordinary course of business which do not meet the standard as set forth in the sub-section (ii) of this Article 8.4(B)(1)(k)), (ii) any Subsidiary, joint venture or partnerships, the net asset value of which exceeds RMB 10,000,000, (iii) any Subsidiary, joint venture, partnership with the capital contributions (in a single transaction or in the aggregate) exceeding RMB 10,000,000 by any Group Company; |
(l) | the approval of, or any deviation from or amendment of, the annual budget (including the budget for Indebtedness and capital expenditure) and final accounts plan of the Company, the Major Group Companies and/or the Special Group Companies; |
(m) | the appointment and removal of any member of the senior management of the Company, the Major Group Companies and/or the Special Group Companies, including but not limited to the general manager, chief executive officer, chief financial officer, chief operation officer and other officers of or above such level; |
(n) | any undertaking or agreement to indemnify any third party made by the Company, the Major Group Companies and/or the Special Group Companies (other than those occur in the ordinary course of business); |
(o) | the introduction of key management member or other natural Person of any Major Group Companies and/or Special Group Companies by issuance of Equity Securities of such Group Companies as the incentives to such natural Person; |
(p) | the introduction of key management member or other natural Person of any Group Companies (other than the Major Group Companies and the Special Group Companies) by issuance of Equity Securities of such Group Companies as the incentives to such natural Person; |
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(q) | the allocation of reserve fund, enterprise development fund, employees bonus and allowance fund and certain other funds by the Domestic Company, the WFOE or other PRC Group Companies required by the applicable Laws; |
(r) | the approval of, or any deviation from or amendment of, the business plan of the Company, the Major Group Companies and/or the Special Group Companies; |
(s) | determination of the remuneration of the chairman of the Board; |
(t) | provided that the terms are compliant with Section 12.9 of the Shareholders Agreement, the adoption, amendment, implementation, or termination of the ESOP or any other equity incentive, purchase or participation plan for the benefit of any employees, officers, directors, contractors, advisors or consultants of any of the Group Companies; the determination of the grant or issuance of options under the ESOP; |
(u) | setting up a new branch office, or any other Subsidiaries, joint ventures, partnerships other than those as set forth in Article 8.4(B)(1)(k); and |
(v) | upon reasonable judgment, any other matters which may have material effect on the Company or the Domestic Company or the WFOE. |
(2) | Special Approval . |
(a) | Notwithstanding anything else to the contrary contained herein or in the Charter Documents of any other Group Company or in the Shareholders Agreement, any matters listed below shall be approved by each of the Major Investors, provided that with respect to the matters set out in Article 8.4(B)(2)(a)(viii), the approval of each Major Investor shall be required only when such amendment, change or removal is relating to, or creates any limitation on, or would adversely affect the rights, preference, powers or privileges that such Major Investor is entitled to: |
(i) any merger, amalgamation, division, consolidation, or reorganization, liquidation, dissolution, cessation of business, winding up or Deemed Liquidation Event of any Group Company, any Transfer (as defined in the Right of First Refusal and Co-Sale Agreement) of any Equity Securities of any Group Company (other than the Company) or all or sustainably all assets or goodwill of any Group Company, any change to or restructuring on the capital structure of any Group Company, or any dilution of the shareholding percentage of the Company in any other Group Companies, any other matter involving a change of Control of any Group Companies;
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(ii) any amendment or modification to any of the Charter Documents of the Company, any Major Group Company and Special Group Company (as defined in the Shareholders Agreement);
(iii) except for the issuance of Equity Securities or options by the Company pursuant to the ESOP Plan (as defined in the Shareholders Agreement) and in compliance with Section 12.9 of the Shareholders Agreement, any action that changes the capital structure of any Company, Major Group Company or Special Group Company, including but without limitation any increase or decrease of the authorized capital or the registered capital, the issuance of any new Equity Securities, convertible securities, bonds, notes, warrants, options, any redemption of shares or other actions which may directly or indirectly dilute the shareholding percentage of any Major Investor in the Company, or any action which may directly or indirectly dispose or dilute the interests of the Company in any Major Group Companies or Special Group Companies;
(iv) any sale or issuance of any Equity Securities, bonds, notes, warrants or options by the Company, the Major Group Companies and/or the Special Group Companies (except for the issuance of Equity Securities or options by the Company pursuant to the ESOP Plan and in compliance with Section 12.9 of the Shareholders Agreement); any purchase of any Equity Securities, bonds, notes, warrants or options of any other Persons by the Company, the Major Group Companies and/or the Special Group Companies;
(v) any public offering of any Equity Securities of the Company, the Major Group Companies and/or the Special Group Companies (including the determination of the plan, time, valuation, gross proceeds, stock exchange, and the underwriters therefor);
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(vi) any action, dispute, claim, litigation, arbitration or other legal proceedings initiated by any Principal, any Principal Holding Company or any Group Companies which may directly or indirectly affect the interests of the applicable Major Investors in the Group Companies (except for those (x) occurring in the ordinary course of the business of the Group Companies or (y) initiated by such Principal, Principal Holding Company or Group Companies for purposes of enforcing their rights, privileges or remedies pursuant to any of the Transaction Documents in accordance with their terms);
(vii) any termination, modification or waiver of, or amendment to, any Control Documents;
(viii) any amendment or change to or removal of the rights, preferences, privileges, powers, or provisions in favor of any Investor, or creation of any limitations thereon;
(ix) any actions that grant any other Shareholder the rights, preferences, privileges, or powers senior to or on a parity with those granted to the Major Investors as to liquidation, dividend and asset distribution preference.
Notwithstanding anything else to the contrary contained herein or in the Charter Documents of any other Group Company or in the Shareholders Agreement, in the absence of the affirmative vote of each of the Major Investors, none of the Company or its representatives shall have the right to take, or permit the Company or any applicable Group Company to take, approve, authorize, or agree or commit to do any matter listed in this Article 8.4(B)(2)(a), otherwise the relevant shareholder resolution or Board resolution and any action taken by the Company or any applicable Group Company or their respective representatives with respect to such matters shall be void, and be considered a material breach of the Transaction Documents by the Principals, Principal Holding Companies, the Partnerships and the Group Companies.
(b) | Any matters listed in Article 8.4(B)(1)(a) through Article 8.4(B)(1)(o) (collectively, the WP Director Veto Matters ) shall be approved by the Board including the affirmative vote of WP Director. In the absence of the above affirmative vote of WP Director, none of the Company or its representatives shall have the right to take, or permit the Company or any applicable Group Company to take or authorize, any matter in relation to the WP Director Veto Matters, otherwise the relevant Board resolution and any action taken by the Company, its representatives or any Group Company with respect to such matters shall be void, and be considered a material breach of the Transaction Documents of the Principals, Principal Holding Companies, the Partnerships and the Group Companies. |
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(c) | Any matters listed in Article 8.4(B)(1)(a) through Article 8.4(B)(1)(o) other than the matters listed in Article 8.4(B)(1)(l) and Article 8.4(B)(1)(m) (collectively, the TK Director Veto Matters ) shall be approved by the Board (including the affirmative vote of Taikang Director). In the absence of the above affirmative vote of Taikang Director, none of the Company or its representatives shall have the right to take, or permit the Company or any applicable Group Company to take or authorize, any matter in relation to the TK Director Veto Matters, otherwise the relevant Board resolution and any actions taken by the Company, its representatives or any Group Company with respect to such matters shall be void, and be considered a material breach of the Transaction Documents of the Principals, Principal Holding Companies, the Partnerships and the Group Companies. |
(d) | Any matters listed in Article 8.4(B)(1)(a) through Article 8.4(B)(1)(o) (collectively, the Tencent Director Veto Matters ) shall be approved by the Board including the affirmative vote of Tencent Director. In the absence of the above affirmative vote of Tencent Director, none of the Company or its representatives shall have the right to take, or permit the Company or any applicable Group Company to take or authorize, any matter in relation to the Tencent Director Veto Matters, otherwise the relevant Board resolution and any actions taken by the Company, its representatives or any Group Company with respect to such matters shall be void, and be considered a material breach of the Transaction Documents of the Principals, Principal Holding Companies, the Partnerships and the Group Companies. Notwithstanding the foregoing, the following matters shall be approved by Tencent or with the affirmative vote of Tencent Director (as the case may be): (i) any adoption or modification of the annual business plan and annual financial plan of the Company, (ii) any action that grant any rights, preferences, privileges (other than with respect to any legal right of the shareholder in accordance with applicable laws) to any other Person or change of the rights of such Person, senior to or on a parity with Tencent, and (iii) any material change of the ESOP Plan and the employee share incentives to be granted according to such ESOP Plan, or setting up, modification of, or canceling any employee share incentive plan except for the ESOP as set out in Section 12.9 of the Shareholders Agreement. |
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(e) | Any matters listed in Article 8.4(B)(1)(a) through Article 8.4(B)(1)(o) (collectively, the Didi Director Veto Matters ) shall be approved by the Board including the affirmative vote of Didi Director. In the absence of the above affirmative vote of Didi Director, none of the Company or its representatives shall have the right to take, or permit the Company or any applicable Group Company to take or authorize, any matter in relation to the Didi Director Veto Matters, otherwise the relevant Board resolution and any actions taken by the Company, its representatives or any Group Company with respect to such matters shall be void, and be considered a material breach of the Transaction Documents of the Principals, Principal Holding Companies, the Partnerships and the Group Companies. Notwithstanding the foregoing, the declaration or payment of a dividend or other distribution on Ordinary Shares or Preferred Shares shall be approved by Didi or with the affirmative vote of Didi Director (as the case may be). Notwithstanding the foregoing, the following matters shall be approved by Didi or with the affirmative vote of Didi Director (as the case may be): (i) any adoption or modification of the annual business plan and annual financial plan of the Company, (ii) any action that grant any rights, preferences, privileges (other than with respect to any legal right of the shareholder in accordance with applicable laws) to any other Person or change of the rights of such Person, senior to or on a parity with Didi, and (iii) any material change of the ESOP Plan and the employee share incentives to be granted according to such ESOP Plan, or setting up, modification of, or canceling any employee share incentive plan except for the ESOP as set out in Section 12.9 of the Shareholders Agreement. |
8.5 | Redemption Rights |
A. | Redemption . |
(1) | At any time and from time to time, upon written notice of any holder of Series C Preferred Shares ( Redeeming Series C Holder ), the Company shall redeem all or a portion of the Series C Preferred Shares held by such Redeeming Series C Holder ( Redeemed Series C Shares ) at the Series C Redemption Price (as defined below), provided that any of the following events (collectively, the Series C Redemption Events ) occurs: |
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(a) | an applicable Qualified IPO has not been consummated by the Company by the fourth (4 th ) anniversary of the Series B Investment Date; |
(b) | an initial public offering of the Company at any time which is not a Qualified IPO, unless such Redeeming Series C Holder agrees in writing to deem such initial public offering as a Qualified IPO and waives its redemption right under this Article 8.5; |
(c) | the occurrence of any Material Breach Event; or |
(d) | any other Redeeming Holder has delivered a Redemption Notice. |
(2) | At any time and from time to time, upon written notice of any holder of Series B Preferred Shares ( Redeeming Series B Holder ), the Company shall redeem all or a portion of the Series B Preferred Shares held by such Redeeming Series B Holder ( Redeemed Series B Shares ) at the Series B Redemption Price (as defined below), provided that any of the following events (collectively, the Series B Redemption Events ) occurs: |
(a) | an applicable Qualified IPO has not been consummated by the Company by the fourth (4 th ) anniversary of the Series B Investment Date, provided that Tencent may exercise its redemption rights under this Article 8.5(A)(2) if a Qualified IPO has not been consummated by the Company before December 31, 2022; |
(b) | an initial public offering of the Company at any time which is not a Qualified IPO, unless such Redeeming Series B Holder agrees in writing to deem such initial public offering as a Qualified IPO and waives its redemption right under this Article 8.5; |
(c) | the occurrence of any Material Breach Event; or |
(d) | any other Redeeming Holder has delivered a Redemption Notice. |
(3) | At any time and from time to time, upon written notice of any holder of Series A-3 Preferred Shares ( Redeeming Series A-3 Holder ), the Company shall redeem all or a portion of the Series A-3 Preferred Shares held by such Redeeming Series A-3 Holder ( Redeemed Series A-3 Shares ) at the Series A-3 Redemption Price (as defined below), provided that any of the following events (collectively, the Series A-3 Redemption Events ) occurs: |
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(a) | an applicable Qualified IPO has not been consummated by the Company by the fourth (4 th ) anniversary of the Series B Investment Date; |
(b) | an initial public offering of the Company at any time which is not a Qualified IPO, unless such Redeeming Series A-3 Holder agrees in writing to deem such initial public offering as a Qualified IPO and waives its redemption right under this Article 8.5; |
(c) | the occurrence of any Material Breach Event; or |
(d) | any other Redeeming Holder has delivered a Redemption Notice. |
(4) | At any time and from time to time, upon written notice of the holder of Series A-1 Preferred Shares ( Redeeming Series A-1 Holder , together with the Redeeming Series A-3 Holder, Redeeming Series B Holder and Redeeming Series C Holder, collectively, the Redeeming Holders and each, a Redeeming Holder ), the Company shall redeem all or a portion of 40,355,835 Series A-1 Preferred Shares held by such Redeeming Series A-1 Holder ( Redeemed Series A-1 Shares ) at the Series A-1 Redemption Price (as defined below), provided that any of the following events (collectively, the Series A-1 Redemption Events ) occurs: |
(a) | an applicable Qualified IPO has not been consummated by the Company by the fourth (4 th ) anniversary of the Series B Investment Date; |
(b) | an initial public offering of the Company at any time which is not a Qualified IPO, unless such Redeeming Series A-1 Holder agrees in writing to deem such initial public offering as a Qualified IPO and waives its redemption right under this Article 8.5; |
(c) | the occurrence of any Material Breach Event; or |
(d) | any other Redeeming Holder has delivered a Redemption Notice. |
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B. | Redemption Price and Preference. |
(1) | The Series C Redemption Price for each Redeemed Series C Share redeemed pursuant to Article 8.5(A)(1)(a) or Article 8.5(A)(1)(c) above (in respect of Article 8.5(A)(1)(c), provided that any other Redeeming Holder has delivered a Redemption Notice due to the event under Article 8.5(A)(2)(a), 8.5(A)(3)(a) or 8.5(A)(4)(a)) shall be the sum of (x) 100% of the Series C Investment Price, and (y) an interest accrued thereon on daily basis at a simple interest rate of twelve percent (12%) per annum, commencing from the Series C Investment Date and ending on the Series C Redemption Closing Date, in each case, in respect of the Redeemed Series C Shares held by such Redeeming Series C Holder. Notwithstanding the foregoing, in the event that any Material Breach Event has occurred or any other Redeeming Holder has delivered a Redemption Notice after the occurrence of any Material Breach Event, the Series C Redemption Price for each Redeemed Series C Share shall be the sum of (x) 100% of the Series C Investment Price, and (y) an interest accrued thereon on daily basis at a simple interest rate of fifteen percent (15%) per annum, commencing from the Series C Investment Date and ending on the Series C Redemption Closing Date. For the avoidance of doubt, the Series C Redemption Price shall not include any declared dividends accrued on the Series C Preferred Shares, regardless of whether paid or unpaid. |
(2) | The Series B Redemption Price for each Redeemed Series B Share redeemed pursuant to Article 8.5(A)(2)(a) or Article 8.5(A)(2)(c) above (in respect of Article 8.5(A)(2)(c), provided that any other Redeeming Holder has delivered a Redemption Notice due to the event under Article 8.5(A)(1)(a), 8.5(A)(3)(a) or 8.5(A)(4)(a)) shall be the sum of (x) 100% of the Series B Investment Price, and (y) an interest accrued thereon on daily basis at a simple interest rate of twelve percent (12%) per annum, commencing from the Series B Investment Date and ending on the Series B Redemption Closing Date, in each case, in respect of the Redeemed Series B Shares held by such Redeeming Series B Holder. Notwithstanding the foregoing, in the event that any Material Breach Event has occurred or any other Redeeming Holder has delivered a Redemption Notice after the occurrence of any Material Breach Event, the Series B Redemption Price for each Redeemed Series B Share shall be the sum of (x) 100% of the Series B Investment Price, and (y) an interest accrued thereon on daily basis at a simple interest rate of fifteen percent (15%) per annum, commencing from the Series B Investment Date and ending on the Series B Redemption Closing Date. For the avoidance of doubt, the Series B Redemption Price shall not include any declared dividends accrued on the Series B Preferred Shares, regardless of whether paid or unpaid. |
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(3) | The Series A-3 Redemption Price for each Redeemed Series A-3 Share redeemed pursuant to Article 8.5(A)(3)(a) or Article 8.5(A)(3)(c) above (in respect of Article 8.5(A)(3)(c), provided that any other Redeeming Holder has delivered a Redemption Notice due to the event under Article 8.5(A)(1)(a), 8.5(A)(2)(a) or 8.5(A)(4)(a)) shall be the sum of (x) 100% of the Series A-3 Investment Price, and (y) an interest accrued thereon on daily basis at a simple interest rate of twelve percent (12%) per annum, commencing from the Series A-3 Investment Date and ending on the Series A-3 Redemption Closing Date, in each case, in respect of all of the Redeemed Series A-3 Shares held by such Redeeming Series A-3 Holder. Notwithstanding the foregoing, in the event that any Material Breach Event has occurred or any other Redeeming Holder has delivered a Redemption Notice after the occurrence of any Material Breach Event, the Series A-3 Redemption Price for each Redeemed Series A-3 Share shall be the sum of (x) 100% of the Series A-3 Investment Price, and (y) an interest accrued thereon on daily basis at a simple interest rate of fifteen percent (15%) per annum, commencing from the Series A-3 Investment Date and ending on the Series A-3 Redemption Closing Date. For the avoidance of doubt, the Series A-3 Redemption Price shall not include any declared dividends accrued on the Series A-3 Preferred Shares, regardless of whether paid or unpaid. |
(4) | The Series A-1 Redemption Price for each Redeemed Series A-1 Share redeemed pursuant to Article 8.5(A)(4)(a) or Article 8.5(A)(4)(c) above (in respect of Article 8.5(A)(4)(c), provided that any other Redeeming Holder has delivered a Redemption Notice due to the event under Article 8.5(A)(1)(a), 8.5(A)(2)(a) or 8.5(A)(3)(a)) shall be the sum of (x) 100% of the Series A-1 Investment Price, and (y) an interest accrued thereon on daily basis at a simple interest rate of twelve percent (12%) per annum, commencing from the Series A-1 Investment Date and ending on the Series A-1 Redemption Closing Date, in each case, in respect of all of the Redeemed Series A-1 Shares held by such Redeeming Series A-1 Holder. Notwithstanding the foregoing, in the event that any Material Breach Event has occurred or any other Redeeming Holder has delivered a Redemption Notice after the occurrence of any Material Breach Event, the Series A-1 Redemption Price for each Redeemed Series A-1 Share shall be the sum of (x) 100% of the Series A-1 Investment Price, and (y) an interest accrued thereon on daily basis at a simple interest rate of fifteen percent (15%) per annum, commencing from the Series A-1 Investment Date and ending on the Series A-1 Redemption Closing Date, in each case, in respect of the Redeemed Series A-1 Shares held by such Redeeming Series A-1 Holder. The Series C Redemption Price, Series B Redemption Price, Series A-3 Redemption Price and the Series A-1 Redemption Price shall be individually and collectively referred to as the Redemption Price . For the avoidance of doubt, the Series A-1 Redemption Price shall not include any declared dividends accrued on the Series A-1 Preferred Shares, regardless of whether paid or unpaid. |
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C. | Any Redeeming Holders shall be entitled (but not be obliged) to deliver to the Company a written notice (a Redemption Notice ) of the election by such holder to exercise its redemption rights under this Article 8.5. Upon receipt of such Redemption Notice, the Company shall promptly (in no event late than two (2) Business Days thereafter) give a written notice ( Redemption Exercisable Notice ) of the redemption request to each of the non-requesting Redeeming Holders stating the existence of such request. Each of the non-requesting Redeeming Holders may also elect to require the Company to redeem all or a portion of their Redeemed Preferred Shares by delivering a separate redemption notice (the Redemption Exercise Notice ) to the Company within thirty (30) days ( R e demption Exercisable Period ) of the receipt of the Redemption Exercisable Notice. For the avoidance of doubt, the failure of or delay in delivering such Redemption Exercise Notice shall not be constituted to be a waiver of the redemption rights of such non-requesting Redeeming Holders with respect to such events (including the alleged redemption events as described in the Redemption Notice), or a waiver of any other events occurring thereafter. The Company shall enter into certain redemption agreement(s) with each Redeeming Holder elects to exercise its redemption rights within fifteen (15) Business Days after the receipt of the Redemption Notice or Redemption Exercise Notice (as applicable); and the redemption of the Redeemed Preferred Shares pursuant to Article 8.5 hereof shall have its closing on a date no later than thirty (30) days after the execution of such redemption agreement(s) (such closing date, the Redemption Closing Date ). |
D. | Upon the applicable Redemption Closing Date, each redeeming holder of Redeemed Preferred Shares shall surrender its certificate or certificates representing such Redeemed Preferred Shares to be redeemed to the Company and a dated and signed instrument of transfer therefor in the manner and at the place designated by the Company for that purpose, and immediately thereupon on the same date such Redemption Price shall be paid to the order of the Person whose name appears on such certificate or certificates as the owner of such Shares and each such certificate shall be cancelled. In the event less than all the Shares represented by any such certificate are redeemed, a new certificate shall be promptly issued representing the unredeemed Shares. Unless there has been a default in payment of the applicable Redemption Price, upon cancellation of the certificate representing such Redeemed Preferred Shares to be redeemed, all dividends on such Redeemed Preferred Shares designated for redemption on the Redemption Closing Date shall cease to accrue and all rights of the holders thereof, except the right to receive the respective Redemption Price thereof, shall cease and terminate, and such Redeemed Preferred Shares shall be immediately upon the Redemption Closing Date converted into Ordinary Shares based on the then-effective Conversion Price with respect to such Redeemed Preferred Shares. |
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E. | On each Redemption Closing Date, if the total number of the Redeemed Series C Shares, the Redeemed Series B Shares, the Redeemed Series A-3 Shares and the Redeemed Series A-1 Shares which could be redeemed by the Company in light of the assets and funds available to the Company or otherwise is less than the total number of the Redeemed Series C Shares, Redeemed Series B Shares, the Redeemed Series A-3 Shares and Redeemed Series A-1 Shares requested to be redeemed in the Redemption Notice, the Company shall not (i) redeem any number of the Redeemed Series B Shares, Redeemed Series A-1 Shares or Redeemed Series A-3 Shares requested to be redeemed in the applicable Redemption Notice unless and until all number of the Redeemed Series C Shares requested to be redeemed in the applicable Redemption Notice have been redeemed by the Company; (ii) redeem any number of the Redeemed Series A-1 Shares or Redeemed Series A-3 Shares requested to be redeemed in the applicable Redemption Notice unless and until all number of the Redeemed Series C Shares and Redeemed Series B Shares requested to be redeemed in the applicable Redemption Notice have been redeemed by the Company; or (iii) redeem any number of Redeemed Series A-1 Shares requested to be redeemed in the applicable Redemption Notice unless and until all number of the Redeemed Series A-3 Shares, Redeemed Series B Shares and Redeemed Series C Shares requested to be redeemed in the applicable Redemption Notice have been redeemed by the Company. |
If on the Series C Redemption Closing Date, the number of Redeemed Series C Shares that could be legally redeemed by the Company in light of the assets and funds available to the Company or otherwise is less than the number of such Redeemed Series C Shares requested to be redeemed on that day pursuant to this Article 8.5, then (i) the number of such Redeemed Series C Shares held by the Redeeming Series C Holders then redeemed shall be in proportion to the aggregate Series C Redemption Price each such Redeeming Series C Holder is otherwise entitled to receive pursuant to this Article 8.5 , and (ii) the remaining Redeemed Series C Shares which shall have been redeemed shall be carried forward and redeemed as soon as the Company has legally available funds to do so. Without limiting any rights of each Redeeming Series C Holder set forth in this Article, or are otherwise available under the applicable laws, any Series C Preferred Shares subject to redemption hereunder with respect to which the Company has become obligated, but failed to pay the Series C Redemption Price in full, shall continue to have all the powers, designations, preferences and relative participating, optional, and other special rights (including, without limitation, rights to accrue dividends) which such Redeeming Series C Holder had prior to the Series C Redemption Closing Date, until the Series C Redemption Price and all other redemption payments (including without limitation any dividend and other distribution, if any) accrued after the Series C Redemption Closing Date have been paid in full with respect to such Redeemed Series C Shares.
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If on the Series B Redemption Closing Date, the number of Redeemed Series B Shares that could be legally redeemed by the Company in light of the assets and funds available to the Company or otherwise is less than the number of such Redeemed Series B Shares requested to be redeemed on that day pursuant to this Article 8.5, then (i) the number of such Redeemed Series B Shares held by the Redeeming Series B Holders then redeemed shall be in proportion to the aggregate Series B Redemption Price each such Redeeming Series B Holder is otherwise entitled to receive pursuant to this Article 8.5 , and (ii) the remaining Redeemed Series B Shares which shall have been redeemed shall be carried forward and redeemed as soon as the Company has legally available funds to do so. Without limiting any rights of each Redeeming Series B Holder set forth in this Article, or are otherwise available under the applicable laws, any Series B Preferred Shares subject to redemption hereunder with respect to which the Company has become obligated, but failed to pay the Series B Redemption Price in full, shall continue to have all the powers, designations, preferences and relative participating, optional, and other special rights (including, without limitation, rights to accrue dividends) which such Redeeming Series B Holder had prior to the Series B Redemption Closing Date, until the Series B Redemption Price and all other redemption payments (including without limitation any dividend and other distribution, if any) accrued after the Series B Redemption Closing Date have been paid in full with respect to such Redeemed Series B Shares.
If on the Series A-3 Redemption Closing Date, the number of Redeemed Series A-3 Shares that could be legally redeemed by the Company in light of the assets and funds available to the Company or otherwise is less than the number of such Redeemed Series A-3 Shares requested to be redeemed on that day pursuant to this Article 8.5 , then the remaining Redeemed Series A-3 Shares which shall have been redeemed shall be carried forward and redeemed as soon as the Company has legally available funds to do so. Without limiting any rights of the Redeeming Series A-3 Holder set forth in this Article, or are otherwise available under the applicable laws, any Series A-3 Preferred Shares subject to redemption hereunder with respect to which the Company has become obligated but failed to pay in full the Series A-3 Redemption Price, shall continue to have all the powers, designations, preferences and relative participating, optional, and other special rights (including, without limitation, rights to accrue dividends) which such Series A-3 Preferred Shares had prior to the Series A-3 Redemption Closing Date, until the Series A-3 Redemption Price and all other redemption payments (including without limitation any dividend and other distribution, if any) accrued after the Series A-3 Redemption Closing Date have been paid in full with respect to such Redeemed Series A-3 Shares.
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If on the Series A-1 Redemption Closing Date, the number of Redeemed Series A-1 Shares that could then be legally redeemed by the Company in light of the assets and funds available to the Company or otherwise is less than the number of such Redeemed Series A-1 Shares requested to be redeemed on that day pursuant to this Article 8.5, then the remaining Redeemed Series A-1 Shares which shall have been redeemed shall be carried forward and redeemed as soon as the Company has legally available funds to do so. Without limiting any rights of the Redeeming Series A-1 Holder set forth in this Article, or are otherwise available under the applicable laws, any Series A-1 Preferred Shares subject to redemption hereunder with respect to which the Company has become obligated but failed to pay in full the Series A-1 Redemption Price, shall continue to have all the powers, designations, preferences and relative participating, optional, and other special rights (including, without limitation, rights to accrue dividends) which such Series A-1 Preferred Shares had prior to the Series A-1 Redemption Closing Date, until the Series A-1 Redemption Price and all other redemption payments (including without limitation any dividend and other distribution, if any) accrued after the Series A-1 Redemption Closing Date have been paid in full with respect to such Redeemed Series A-1 Shares.
F. | In the event that Company fails (for whatever reason) to redeem any of the Preferred Shares which should have been redeemed according to this Article 8.5 on relevant Redemption Closing Date, as from such date until the date on which the same are redeemed and fully paid according to this Article 8.5 , the Company shall not declare or pay, other than solely for the purpose of the payment of the Redemption Price, any dividends nor otherwise make any distribution of or otherwise decrease its profits available for distribution. |
G. | To the extent permitted by the applicable laws, the Company shall procure that the profits of each of the Group Companies for the time being available for distribution shall be paid to it by way of dividend and/or other distribution if and to the extent that, but for such payment, the Company would not itself otherwise have sufficient profits available for distribution to make any redemption of Redeemed Preferred Shares required to be made pursuant to this Article 8.5. |
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H. | Without limiting the generality of the foregoing Article 8.5(G), at all times after the receipt of a Redemption Notice, the Company shall take any and all action necessary and use its best endeavours to, and, to the extent not expressly prohibited by the applicable laws, and the Redeeming Holders of Redeemed Preferred Shares shall have the right to, directly or indirectly through actions of its Investor Director appointed by them (if any), cause each of the Group Companies, in each case to realize the rights entitled by the Redeeming Holders, to (i) borrow funds from available sources, (ii) declare and pay a cash dividend and/or any other distribution, (iii) sell, transfer or otherwise dispose of any and all of its properties and assets, and apply any and all proceeds from any of the foregoing transactions for the purpose of the payment of the Redemption Price, and/or (iv) upon the request of the applicable Redeeming Holder, within thirty (30) days after the execution of the relevant redemption agreement(s), the Company shall execute and deliver to each holder a promissory note for the full amount of the redemption payment due but not paid to such holder with the following terms and conditions that: (1) such promissory note shall be due and payable no later than twelve (12) month after the Redemption Closing, and the full amount due under such promissory note shall accrue interest daily (on the basis of a 365-day year) at a rate of ten percent (10%) per annum; (2) each promissory note shall have the seniority sequence in line with that provided in this Article 8.5; (3) the Principals and the Members Controlled by the Principals, Principal Holding Companies shall be jointly and severally liable with the Company under each promissory note and (4) the Company, Principals, Principal Holding Companies and the Members Controlled by the Principals shall provide other collateral or guarantees satisfactory to the Redeeming Holders to secure the payment obligations under the promissory note. |
I. | Each of the Group Companies and each holder of Equity Securities shall execute such further instruments and to take such further action as may be reasonably necessary to carry out the intent of this Article 8.5. The Company shall and shall cause the Group Companies and the holders of Ordinary Shares to use their best efforts to ensure that the rights granted under this Article 8.5 to the redeeming holders of Redeemed Preferred Shares are effective and that the Redeeming Holders enjoy the benefits thereof. The Company shall and shall cause each of the Group Companies and the holders of Ordinary Shares to use its best efforts and take any and all actions as may be necessary, advisable or reasonably requested by the Redeeming Holders in order to carry out the transactions contemplated by this Article 8.5 and to protect the rights of the redeeming holders under this Article 8.5 against impairment. |
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J. | In addition to and without prejudice to the generality of Article 8.5(I) above, in the event any transaction proposed, or voted in favour of, by a Redeeming Holder in connection with the exercise of its redemption right is to be brought to a vote at a shareholder meeting of the Company, each holder of Equity Securities entitled to vote at such meeting agrees: |
(1) to be present, in person or by proxy, at all such meetings and be counted for the purposes of determining the presence of a quorum at such meetings and the presence of the number of votes necessary for the effectiveness of any shareholder resolutions;
(2) to vote (in person, by proxy or by action by written consent, as applicable) all shares of the Company as to which it has beneficial ownership in favor of such transaction and in opposition of any and all other proposals that could reasonably be expected to delay or impair the ability of the Company to consummate such transaction; and
(3) to execute and deliver all related documentation and take such other action in support of the transaction as shall reasonably be requested by such Redeeming Holder.
K. | Each Principal and each Principal Holding Company hereby irrevocably and unconditionally guarantees to the Redeeming Holders the proper and punctual performance by the Company of the Companys obligations under this Article 8.5. Upon the occurrence of the Series C Redemption Events, Series B Redemption Events, Series A-3 Redemption Events or the Series A-1 Redemption Events, each Redeeming Holder shall have a put option to sell to the Principals and/or the Principal Holding Companies all or any portion of its Redeemed Preferred Shares requested to be redeemed at the per share price equal to the applicable Series C Redemption Price, Series B Redemption Price, Series A-3 Redemption Price or Series A-1 Redemption Price set forth in this Articles 8.5, provided , however, that, absent intentional or malicious transfer of assets or the Equity Securities directly or indirectly held by any Principal, such Principals redemption liability hereunder shall be his/her personal liability limited to his/her personal property and the Equity Interests of the Company directly or indirectly held by such Principal (including those Equity Interests holding in trust for the benefit of such Principal by other Shareholders). For purpose of this Article 8.5(K), with respect to each Principal, the term personal property shall not include any marital property or any property that is under the name of any Immediate Family Member of such Principal. For the avoidance of doubt, except for those Equity Interests of the Company as subscribed or purchased by the Immediate Family Member of the Principals in accordance with the terms and conditions of the Transaction Documents, the Equity Interests directly or indirectly held by any Principal shall not be registered under the name of any Immediate Family Member of such Principal, or Transferred to any Immediate Family Member of such Principal for any reason other than the inheriting pursuant to the applicable Laws and each of the Principal shall cause the spouse of such Principal to waive his/her rights to the interests in connection with the Equity Securities of the Company directly or indirectly held by such Principal. |
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ORDINARY SHARES
9. | Certain rights, preferences, privileges and limitations of the Ordinary Shares of the Company are as follows: |
9.1 | Dividend Provision . Subject to the preferential rights of holders of all series and classes of Shares in the Company at the time outstanding having preferential rights as to dividends, the holders of the Ordinary Shares shall, subject to the Statute and these Articles, be entitled to receive, when, as and if declared by the Directors, out of any assets of the Company legally available therefor, such dividends as may be declared from time to time by the Directors. |
9.2 | Liquidation . Upon the liquidation, dissolution or winding up of the Company, the assets of the Company shall be distributed as provided in Article 8.2. |
9.3 | Voting Rights . The holder of Ordinary Shares shall have the right to one vote with respect to each Ordinary Share held by it, and shall be entitled to notice of any Members meeting in accordance with these Articles, and shall be entitled to vote upon such matters and in such manner as may be provided for in these Articles. |
REGISTER OF MEMBERS
10. | The Company shall maintain or cause to be maintained the Register of Members in accordance with the Statute. The Register of Members shall be the only evidence as to who are the Members entitled to examine the Register of Members, the list required to be sent to Members under Article 38, or the other books and records of the Company, or to vote in person or by proxy at any meeting of Members. |
FIXING RECORD DATE
11. | The Directors may fix in advance a date as the record date for any determination of Members entitled to notice of or to vote at a meeting of the Members, or any adjournment thereof, and for the purpose of determining the Members entitled to receive payment of any dividend the Directors may, at or within ninety (90) days prior to the date of declaration of such dividend fix a subsequent date as the record date for such determination. |
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12. | If no record date is fixed for the determination of Members entitled to notice of, or to vote at, a meeting of Members or Members entitled to receive payment of a dividend, the date on which notice of the meeting is sent or the date on which the resolution of the Directors declaring such dividend is adopted, as the case may be, shall be the record date for such determination of Members. When a determination of Members entitled to vote at any meeting of Members has been made as provided in this Article, such determination shall apply to any adjournment thereof. |
CERTIFICATES FOR SHARES
13. | Share certificates representing Shares, if any, shall be in such form as the Directors may determine. Share certificates shall be signed by one or more Directors or other Person authorised by the Directors. The Directors may authorise certificates to be issued with the authorised signature(s) affixed by mechanical process. All certificates for Shares shall be consecutively numbered or otherwise identified and shall specify the Shares to which they relate. All certificates surrendered to the Company for transfer shall be cancelled and, subject to these Articles, no new certificate shall be issued until the former certificate representing a like number of relevant Shares shall have been surrendered and cancelled. |
14. | The Company shall not be bound to issue more than one certificate for Shares held jointly by more than one Person and delivery of a certificate to one joint holder shall be a sufficient delivery to all of them. |
15. | If a share certificate is defaced, worn out, lost or destroyed, it may be renewed on such terms (if any) as to evidence and indemnity and on the payment of such expenses reasonably incurred by the Company in investigating evidence, as the Directors may prescribe, and (in the case of defacement or wearing out) upon delivery of the old certificate. |
TRANSFER OF SHARES
16. | The Shares of the Company are subject to transfer restrictions as set forth in the Shareholders Agreement and the Right of First Refusal and Co-Sale Agreement, by and among the Company and certain of its Members. The Company will only register transfers of Shares that are made in accordance with such agreements and will not register transfers of Shares that are made in violation of such agreements. The instrument of transfer of any Share shall be in writing and shall be executed by or on behalf of the transferor (and, if the Directors so require, signed by the transferee). The transferor shall be deemed to remain the holder of a Share until the name of the transferee is entered in the Register of Members. |
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REDEMPTION AND REPURCHASE OF SHARES
17. | The Company is permitted to redeem, purchase or otherwise acquire any of the Companys Shares, so long as such redemption, purchase or acquisition (i) is pursuant to any redemption provisions set forth in the Memorandum and these Articles, (ii) is pursuant to the ESOP (on the terms compliant with Section 12.9 of the Shareholders Agreement), or (iii) is as otherwise agreed by the holder of such Share and the Company, subject in the case of clause (ii) or (iii) to compliance with any applicable restrictions set forth in the Shareholders Agreement, the Right of First Refusal and Co-Sale Agreement, the Memorandum and these Articles. |
18. | Subject to the provisions of the Statute and these Articles, the Company may issue Shares that are to be redeemed or are liable to be redeemed at the option of the Member or the Company. Subject to the provisions of the Statute and these Articles, the Directors may authorize the redemption or purchase by the Company of its own Shares in such manner and on such terms as they think fit and may make a payment in respect of the redemption or purchase of its own Shares in any manner permitted by the Statute, including out of capital. |
VARIATION OF RIGHTS OF SHARES
19. | Subject to Article 8, if at any time the share capital of the Company is divided into different classes of Shares, the rights attached to any class (unless otherwise provided by the terms of issue of the Shares of that class) may only be varied with the consent in writing of Members holding not less than a majority of the votes entitled to be cast by holders (in person or by proxy) of Shares on a poll at a general meeting of such class affected by the proposed variation of rights or with the sanction of a resolution of such Members holding not less than a majority of the votes which could be cast by holders (in person or by proxy) of Shares of such class on a poll at a general meeting but not otherwise. Notwithstanding the foregoing, for purposes of this Article 19, all Series A-1 Preferred Shares shall be deemed to be a single class and the rights attached to the Series A-1 Preferred Shares may be varied with the consent in writing of Members holding not less than a majority of the votes entitled to be cast by holders (in person or by proxy) of the Series A-1 Preferred Shares; all Series A-2 Preferred Shares shall be deemed to be a single class and the rights attached to the Series A-2 Preferred Shares may be varied with the consent in writing of Members holding not less than a majority of the votes entitled to be cast by holders (in person or by proxy) of the Series A-2 Preferred Shares; all Series A-3 Preferred Shares shall be deemed to be a single class and the rights attached to the Series A-3 Preferred Shares may be varied with the consent in writing of Members holding not less than a majority of the votes entitled to be cast by holders (in person or by proxy) of the Series A-3 Preferred Shares; all Series B Preferred Shares shall be deemed to be a single class and the rights attached to the Series B Preferred Shares may be varied with the consent in writing of Major Series B Investors; and all Series C Preferred Shares shall be deemed to be a single class and the rights attached to the Series C Preferred Shares may be varied with the consent in writing of Major Series C Investor. |
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20. | For the purpose of the preceding Article, all of the provisions of these Articles relating to general meetings shall apply, to the extent applicable, mutatis mutandis , to every meeting of holders of separate class of shares, except that the necessary quorum shall be one or more Persons holding or representing by proxy at least a majority of the issued Shares of such class and that any Member holding Shares of such class, present in person or by proxy, may demand a poll. |
21. | Subject to Article 8, the rights conferred upon the holders of Shares or any class of Shares shall not, unless otherwise expressly provided by the terms of issue of such Shares, be deemed to be varied by the creation, redesignation, or issue of Shares ranking pari passu therewith. |
COMMISSION ON SALE OF SHARES
22. | The Company may, with the approval of the Board (so long as such approval includes the approval of all the Investor Directors), so far as the Statute permits, pay a commission to any Person in consideration of his or her subscribing or agreeing to subscribe whether absolutely or conditionally for any Shares of the Company. Such commissions may be satisfied by the payment of cash and/or the issue of fully or partly paid-up Shares. The Company may also on any issue of Shares pay such brokerage as may be lawful. |
NON-RECOGNITION OF INTERESTS
23. | The Company shall not be bound by or compelled to recognise in any way (even when having notice thereof) any equitable, contingent, future or partial interest in any Share, or (except only as is otherwise provided by these Articles or the Statute) any other rights in respect of any Share other than an absolute right to the entirety thereof in the registered holder. |
TRANSMISSION OF SHARES
24. | If a Member dies, the survivor or survivors where such Member was a joint holder, and his or her legal personal representatives where such Member was a sole holder, shall be the only Persons recognised by the Company as having any title to such Members interest. The estate of a deceased Member is not thereby released from any liability in respect of any Share that had been jointly held by such Member. |
25. | Any Person becoming entitled to a Share in consequence of the death or bankruptcy or liquidation or dissolution of a Member (or in any other way than by transfer) may, upon such evidence being produced as may from time to time be required by the Directors, elect either to become the holder of the Share or to have some Person nominated by him or her as the transferee. |
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26. | If the Person so becoming entitled shall elect to be registered as the holder, such Person shall deliver or send to the Company a notice in writing signed by such Person stating that he or she so elects. |
AMENDMENTS OF MEMORANDUM AND ARTICLES OF ASSOCIATION AND
ALTERATION OF CAPITAL
27. | Subject to Article 8, the Company may by Ordinary Resolution: |
27.1 | increase the share capital by such sum as the resolution shall prescribe and with such rights, priorities and privileges annexed thereto, as the Company in general meeting may determine; |
27.2 | consolidate and divide all or any of its share capital into Shares of larger amount than its existing Shares; |
27.3 | by subdivision of its existing Shares or any of them divide the whole or any part of its share capital into Shares of smaller amount than is fixed by the Memorandum; |
27.4 | cancel any Shares that at the date of the passing of the resolution have not been taken or agreed to be taken by any Person; and |
27.5 | perform any action not required to be performed by Special Resolution. |
28. | Subject to the provisions of the Statute and the provisions of these Articles as regards the matters to be dealt with by Ordinary Resolution, and subject further to Articles 8 and 19, the Company may by Special Resolution: |
28.1 | change its name; |
28.2 | alter or add to these Articles; |
28.3 | alter or add to the Memorandum with respect to any objects, powers or other matters specified therein; and |
28.4 | reduce its share capital and any capital redemption reserve fund. |
REGISTERED OFFICE
29. | Subject to the provisions of the Statute, the Company may by resolution of the Directors change the location of its Registered Office. |
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GENERAL MEETINGS
30. | All general meetings other than annual general meetings shall be called extraordinary general meetings. |
31. | The Company shall, if required by the Statute, in each year hold a general meeting as its annual general meeting, and shall specify the meeting as such in the notices calling it. The annual general meeting shall be held at such time and place as the Directors shall appoint. At these meetings, the report of the Directors (if any) shall be presented. |
32. | The Directors may call general meetings, and they shall on a Members requisition forthwith proceed to convene an extraordinary general meeting of the Company. |
33. | A Members requisition is a requisition of Members of the Company holding, on the date of deposit of the requisition, not less than either (i) a majority of the voting power of all of the Ordinary Shares, (ii) a majority of the voting power of the Series A Preferred Shares (on an as-converted basis), (iii) a majority of the voting power of the Series B Preferred Shares (on an as-converted basis), or (iv) a majority of the voting power of the Series C Preferred Shares (on an as-converted basis) entitled to attend and vote at general meetings of the Company. |
34. | The requisition must state the objects of the meeting and must be signed by the requisitionists and deposited at the Registered Office, and may consist of several documents in like form each signed by one or more requisitionists. |
35. | If the Directors do not within twenty-one (21) days from the date of the deposit of the requisition duly proceed to convene a general meeting to be held within a further twenty-one (21) days, the requisitionists, or any of them representing more than one-half of the total voting rights of all of them, may themselves convene a general meeting, but any meeting so convened shall not be held after the expiration of three (3) months after the expiration of the said twenty-one (21) days. |
36. | A general meeting convened as aforesaid by requisitionists shall be convened in the same manner as nearly as possible as that in which general meetings are to be convened by Directors. |
NOTICE OF GENERAL MEETINGS
37. | At least ten (10) Business Days notice shall be given of any general meeting unless such notice is waived either before, at or after such meeting both (i) by the Members (or their proxies) holding a majority of the aggregate voting power of all of the Ordinary Shares entitled to attend and vote thereat (including the Preferred Shares on an as-converted basis), and (ii) by the Major Investors (or their proxies). Every notice shall be exclusive of the day on which it is given or deemed to be given and shall specify the place, the day and the hour of the meeting and the general nature of the business and shall be given in the manner hereinafter mentioned or in such other manner, if any, as may be prescribed by the Company, provided that a general meeting of the Company shall, whether or not the notice specified in this regulation has been given and whether or not the provisions of these Articles regarding general meetings have been complied with, be deemed to have been duly convened if it is so agreed both (i) by the Members (or their proxies) holding a majority of the aggregate voting power of all of the Ordinary Shares entitled to attend and vote thereat (including the Preferred Shares on an as-converted basis), and (ii) by the Major Investors (or their proxies). |
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38. | The officer of the Company who has charge of the Register of Members shall prepare and make, at least two (2) Business Days before every general meeting, a complete list of the Members entitled to vote at the general meeting, arranged in alphabetical order, and showing the address of each Member and the number of shares registered in the name of each Member. Such list shall be open to examination by any Member for any purpose germane to the meeting, during ordinary business hours, for a period of at least two (2) Business Days prior to the meeting, either at a place within the city where the meeting is to be held, which place shall be specified in the notice of the meeting, or, if not so specified, at the place where the meeting is to be held. The list shall also be produced and kept at the time and place of the meeting during the whole time thereof, and may be inspected by any Member of the Company who is present. |
PROCEEDINGS AT GENERAL MEETINGS
39. | (i) The holders of a majority of the aggregate voting power of all of the Ordinary Shares entitled to notice of and to attend and vote at such general meeting, (ii) the Major Series A Investors, (iii) the Major Series B Investors, and (iv) the Major Series C Investor together, present in person or by proxy or if a company or other non-natural Person by its duly authorised representative shall be a quorum. Subject to Article 42, no business shall be transacted at any general meeting unless a quorum is present at the time when the meeting proceeds to business. |
40. | A Person may participate at a general meeting by conference telephone or other communications equipment by means of which all the Persons participating in the meeting can communicate with each other. Participation by a Person in a general meeting in this manner is treated as presence in person at that meeting. |
41. | A resolution in writing (in one or more counterparts) shall be as valid and effective as if the resolution had been passed at a duly convened and held general meeting of the Company if: |
41.1 | in the case of a Special Resolution, it is signed by all Members required for such Special Resolution to be deemed effective under the Statute; or |
41.2 | in the case of any resolution passed other than as a Special Resolution, it is signed by Members for the time being holding Shares carrying in aggregate not less than the minimum number of votes that would be necessary to authorize or take such action at a general meeting at which all Shares entitled to vote thereon were present and voted (calculated in accordance with Article 8.4(A)) (or, being companies, signed by their duly authorised representative). |
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42. | A quorum, once established, shall not be broken by the withdrawal of enough votes to leave less than a quorum and the votes present may continue to transact business until adjournment. If, however, such quorum shall not be present or represented at any general meeting, the Members (or their proxies) holding a majority of the aggregate voting power of all of the Shares of the Company represented at the meeting may adjourn the meeting from time to time, until a quorum shall be present or represented; provided that , if notice of such meeting has been duly delivered to all Members ten (10) Business Days prior to the scheduled meeting in accordance with the notice procedures hereunder, and the quorum is not present within one hour from the time appointed for the meeting solely because of the absence of any Member, the meeting shall be adjourned to the seventh (7 th ) following Business Day at the same time and place (or to such other time or such other place as the directors may determine) with notice delivered to all Members 48 hours prior to the adjourned meeting in accordance with the notice procedures under Articles 108 through 112 and, if at the adjourned meeting, the quorum is not present within one half hour from the time appointed for the meeting solely because of the absence of any Member, then the presence of such Member shall not be required at such adjourned meeting for purposes of establishing a quorum. At such adjourned meeting, no business shall be transacted other than the business that might have been transacted at the meeting as originally notified. |
43. | The chairman of the Board of Directors shall preside as chairman at every general meeting of the Company, or if there is no such chairman, or if he or she shall not be present within ten (10) minutes after the time appointed for the holding of the meeting, or is unwilling or unable to act, the Directors present shall elect one of their number, or shall designate a Member, to be chairman of the meeting. |
44. | With the consent of a general meeting at which a quorum is present, the chairman may (and shall if so directed by the meeting), adjourn the meeting from time to time and from place to place, but no business shall be transacted at any adjourned meeting other than the business left unfinished at the meeting from which the adjournment took place. When a general meeting is adjourned, notice of the adjourned meeting shall be given as in the case of an original meeting. |
45. | A resolution put to the vote of the meeting shall be decided by poll and not on a show of hands. |
46. | On a poll a Member shall have one vote for each Ordinary Share he holds on an as-converted basis. |
47. | Except on a poll on a question of adjournment, a poll shall be taken as the chairman directs, and the result of the poll shall be deemed to be the resolution of the general meeting at which the poll was demanded. |
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48. | A poll on a question of adjournment shall be taken forthwith. |
49. | A poll on any other question shall be taken at such time as the chairman of the general meeting directs, and any business other than that upon which a poll has been demanded or is contingent thereon may proceed pending the taking of the poll. |
VOTES OF MEMBERS
50. | Except as otherwise required by law or these Articles, the Ordinary Shares, the Series A-1 Preferred Shares, the Series A-2 Preferred Shares, the Series A-3 Preferred Shares, the Series B Preferred Shares and the Series C Preferred Shares shall vote together on an as-converted basis on all matters submitted to a vote of Members. |
51. | In the case of joint holders of record, the vote of the senior holder who tenders a vote, whether in person or by proxy, shall be accepted to the exclusion of the votes of the other joint holders, and seniority shall be determined by the order in which the names of the holders stand in the Register of Members. |
52. | A Member of unsound mind, or in respect of whom an order has been made by any court, having jurisdiction in lunacy, may vote by his or her committee, receiver, or other Person on such Members behalf appointed by that court, and any such committee, receiver, or other Person may vote by proxy. |
53. | No Person shall be entitled to vote at any general meeting or at any separate meeting of the holders of a class or series of Shares unless he or she is registered as a Member on the record date for such meeting nor unless all calls or other monies then payable by such Member in respect of Shares have been paid. |
54. | No objection shall be raised to the qualification of any voter except at the general meeting or adjourned general meeting at which the vote objected to is given or tendered and every vote not disallowed at the meeting shall be valid. Any objection made in due time shall be referred to the chairman whose decision shall be final and conclusive. |
55. | Votes may be cast either personally or by proxy. A Member may appoint more than one proxy or the same proxy under one or more instruments to attend and vote at a meeting. |
56. | A Member holding more than one Share need not cast the votes in respect of his or her Shares in the same way on any resolution and therefore may vote a Share or some or all such Shares either for or against a resolution and/or abstain from voting a Share or some or all of the Shares and, subject to the terms of the instrument appointing him or her, a proxy appointed under one or more instruments may vote a Share or some or all of the Shares in respect of which he or she is appointed either for or against a resolution and/or abstain from voting. |
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PROXIES
57. | The instrument appointing a proxy shall be in writing, be executed under the hand of the appointor or of his or her attorney duly authorised in writing, or, if the appointor is a corporation, under the hand of an officer or attorney duly authorised for that purpose. A proxy need not be a Member of the Company. |
58. | The instrument appointing a proxy shall be deposited at the Registered Office or at such other place as is specified for that purpose in the notice convening the meeting, no later than the time for holding the meeting or adjourned meeting. |
59. | The instrument appointing a proxy may be in any usual or common form and may be expressed to be for a particular meeting or any adjournment thereof or generally until revoked. An instrument appointing a proxy shall be deemed to include the power to demand or join or concur in demanding a poll. |
60. | Votes given in accordance with the terms of an instrument of proxy shall be valid notwithstanding the previous death or insanity of the principal or revocation of the proxy or of the authority under which the proxy was executed, or the transfer of the Share in respect of which the proxy is given unless notice in writing of such death, insanity, revocation or transfer was received by the Company at the Registered Office before the commencement of the general meeting or adjourned meeting at which it is sought to use the proxy. |
CORPORATE MEMBERS
61. | Any corporation or other non-natural Person that is a Member may in accordance with its constitutional documents, or in the absence of such provision by resolution of its directors or other governing body, authorise such Person as it thinks fit to act as its representative at any meeting of the Company or any class of Members, and the Person so authorised shall be entitled to exercise the same powers on behalf of the corporation which he or she represents as the corporation could exercise if it were an individual Member. |
SHARES THAT MAY NOT BE VOTED
62. | Shares in the Company that are beneficially owned by the Company or held by it in a fiduciary capacity shall not be voted, directly or indirectly, at any meeting and shall not be counted in determining the total number of outstanding Shares at any given time. |
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APPOINTMENT OF DIRECTORS; OBSERVERS
63. | 63.1 The authorized number of directors on the Board shall consist of nine (9) directors, with the composition of the Board determined as follows: (a) the Principal Holding Companies, shall be exclusively entitled to designate, appoint, remove, replace and reappoint at any time or from time to time five (5) directors on the Board (the Ordinary Directors ), one of whom shall be the then chief executive officer of the Company, (b) the Series A-1 Investor shall be exclusively entitled to designate, appoint, remove, replace and reappoint at any time or from time to time one (1) director on the Board (the WP Director ), (c) Taikang shall be exclusively entitled to designate, appoint, remove, replace and reappoint at any time or from time to time one (1) director on the Board ( Taikang Director ), (d) Tencent shall be exclusively entitled to designate, appoint, remove, replace and reappoint at any time or from time to time one (1) director on the Board (the Tencent Director ) and (e) Didi shall be exclusively entitled to designate, appoint, remove, replace and reappoint at any time or from time to time one (1) director on the Board (the Didi Director , together with Tencent Director, WP Director and Taikang Director, collectively, the Investor Directors and each, an Investor Director ). If the size of the Board increases in the future due to future investment into, or capital increases by, the Company, the number of Ordinary Directors shall increase correspondingly such that Ordinary Directors shall represent not less than fifty percent (50%) of the members of the Board. |
63.2 Series A-3 Investor and Series A-2 Investor shall jointly have the right to appoint and remove one (1) observer (the PV Observer ) to the Board (and any subcommittee thereunder (if any)), and, to the extent none of the Directors is nominated or appointed by Didi, Links Advance shall have the right to appoint and remove one (1) observer (the Didi Observer , together with the PV Observer, collectively the Observers and each, an Observer ) to the Board (and any subcommittee thereunder (if any)). Each Observer is entitled to attend all meetings of the Board and all subcommittees of the Board (if any) and make statements on such meetings, in a nonvoting observer capacity. The Company shall give each Observer copies of all notices, minutes, consents, and other materials that the Company provides to the Directors at the same time and in the same manner as provided to such Directors; provided , however, that the Observer shall agree to hold in confidence all information so provided pursuant to the applicable Laws of Cayman Islands and the Transaction Documents. To avoid any doubt, if any matter was approved by the Board by a written resolution without holding a Board meeting, then each Observer is entitled to receive copies of all materials in the same manner as provided to the Directors. For the avoidance of doubt, in any event the Series A-3 Investor or its Affiliate transfers all the Equity Securities it held in the Company and assigns such right to appoint the PV Observer to any third party transferee other than its Affiliates, then the Series A-2 Investor shall not have the right to jointly appoint the PV Observer to the Board or subcommittees of the Board (if any).
POWERS OF DIRECTORS
64. | Subject to the provisions of the Statute, the Memorandum and these Articles and to any directions given by Special Resolution, the business of the Company shall be managed by or under the direction of the Directors who may exercise all the powers of the Company; provided , however , that the Company shall not carry out any action inconsistent with Articles 8 and 9. No alteration of the Memorandum or these Articles and no such direction shall invalidate any prior act of the Directors that would have been valid if that alteration had not been made or that direction had not been given. A duly convened meeting of Directors at which a quorum is present may exercise all powers exercisable by the Directors. |
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65. | All cheques, promissory notes, drafts, bills of exchange and other negotiable instruments and all receipts for monies paid to the Company shall be signed, drawn, accepted, endorsed or otherwise executed as the case may be in such manner as the Directors shall determine. |
66. | Subject to Article 8, the Directors on behalf of the Company may pay a gratuity or pension or allowance on retirement to any Director who has held any other salaried office or place of profit with the Company or to his or her spouse or dependants and may make contributions to any fund and pay premiums for the purchase or provision of any such gratuity, pension or allowance. |
67. | Subject to Article 8, the Directors may exercise all the powers of the Company to borrow money and to mortgage or charge its undertaking, property and uncalled capital or any part thereof and to issue debentures, debenture shares, mortgages, bonds and other such securities whether outright or as security for any debt, liability or obligation of the Company or of any third party. |
VACATION OF OFFICE AND REMOVAL OF DIRECTOR
68. | The office of a Director shall be vacated if: |
68.1 | such Director gives notice in writing to the Company that he or she resigns the office of Director; or |
68.2 | such Director dies, becomes bankrupt or makes any arrangement or composition with such Directors creditors generally; or |
68.3 | such Director is found to be or becomes of unsound mind. |
69. | Any Director who shall have been elected by a specified group of Members may be removed during the aforesaid term of office, either for or without cause, by, and only by, the affirmative vote of the group of Members then entitled to elect such Director in accordance with Article 63, given at a special meeting of such Members duly called or by an action by written consent for that purpose. Any vacancy in the Board of Directors caused as a result of such removal or one or more of the events set out in Article 68 of any Director who shall have been elected by a specified group of Members, may be filled by, and only by, the affirmative vote of the group of Members then entitled to elect such Director in accordance with Article 63, given at a special meeting of such Members duly called or by an action by written consent for that purpose, unless otherwise agreed upon among such Members. |
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PROCEEDINGS OF DIRECTORS
70. | A Director may by a written instrument appoint an alternate who need not be a Director, and an alternate is entitled to attend meetings in the absence of the Director who appointed him and to vote or consent in place of the Director. At all meetings of the Board of Directors a majority of the number of the Directors in office elected in accordance with Article 63 that includes all the Investor Directors shall be necessary and sufficient to constitute a quorum for the transaction of business, and the vote of a majority of the Directors present (in person or in alternate) at any meeting at which there is a quorum, shall be the act of the Board of Directors, except as may be otherwise specifically provided by the Statute, the Memorandum or these Articles . If only one Director is elected, such sole Director shall constitute a quorum. If a quorum shall not be present at any meeting of the Board of Directors, the Directors present thereat may adjourn the meeting, until a quorum shall be present. |
71. | Subject to the provisions of these Articles, the Directors may regulate their proceedings as they think fit, provided however that (i) the board meetings shall be held at least once every three (3) months unless the Board otherwise approves (so long as such approval includes the approval of all the Investor Directors), (ii) more than one third (1/3) of the Directors or each Investor Director shall be entitled to suggest the chairman to hold an extraordinary board meeting, and that a written notice of each meeting, agenda of the business to be transacted at the meeting and all documents and materials to be circulated at or presented to the meeting shall be sent to all Directors entitled to receive notice of the meeting at least five (5) days before the meeting and a copy of the minutes of the meeting shall be sent to such Persons. |
72. | A Person may participate in a meeting of the Directors or committee of the Board of Directors by conference telephone or other communications equipment by means of which all the Persons participating in the meeting can communicate with each other at the same time. Participation by a Person in a meeting in this manner is treated as presence in person at that meeting. Unless otherwise determined by the Directors, the meeting shall be deemed to be held at the place where the chairman is at the start of the meeting. In the event of a deadlock of the votes at any meeting of the Directors, the relevant matters shall be submitted to the Members for approval, subject to compliance with Article 8.4(B) hereof. |
73. | Subject to Article 8.4, a resolution in writing (in one or more counterparts) signed by all the Directors or all the members of a committee of the Board of Directors shall be as valid and effectual as if it had been passed at a meeting of the Directors, or committee of the Board of Directors as the case may be, duly convened and held. |
74. | Meetings of the Board of Directors may be called by any Director on forty-eight (48) hours notice to each Director in accordance with Articles 108 through 112. |
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75. | The continuing Directors may act notwithstanding any vacancy in their body, but if and so long as their number is reduced below the number fixed by or pursuant to these Articles as the necessary quorum of Directors, the continuing Directors or Director may act for the purpose of increasing the number of Directors to that number, or of summoning a general meeting of the Company, but for no other purpose. |
76. | The chairman of the Board shall be selected from one of the Ordinary Directors. |
77. | Subject to Article 8.4, all acts done by any meeting of the Directors or of a committee of the Board of Directors shall, notwithstanding that it be afterwards discovered that there was some defect in the appointment of any Director or that they or any of them were disqualified, be as valid as if every such Person had been duly appointed and qualified to be a Director. |
PRESUMPTION OF ASSENT
78. | A Director of the Company who is present at a meeting of the Directors at which action on any Company matter is taken shall be presumed to have assented to the action taken unless the Directors dissent shall be entered in the minutes of the meeting or unless the Director shall file his or her written dissent from such action with the Person acting as the chairman or secretary of the meeting before the adjournment thereof or shall forward such dissent by registered post to such Person immediately after the adjournment of the meeting. Such right to dissent shall not apply to a Director who voted in favour of such action. |
DIRECTORS INTERESTS
79. | Subject to Article 82, a Director may hold any other office or place of profit under the Company (other than the office of the Company Accountant) in conjunction with his or her office of Director for such period and on such terms as to remuneration and otherwise as the Directors may determine. |
80. | Subject to Article 82, a Director may act by himself or herself or his or her firm in a professional capacity for the Company and such Director or firm shall be entitled to remuneration for professional services as if such Director were not a Director. |
81. | Subject to Article 82, a Director of the Company may be or become a director or other officer of or otherwise interested in any company promoted by the Company or in which the Company may be interested as Member or otherwise, and no such Director shall be accountable to the Company for any remuneration or other benefits received by such Director as a director or officer of, or from his or her interest in, such other company. |
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82. | In addition to any further restrictions set forth in these Articles, no Person shall be disqualified from the office of Director or prevented by such office from contracting with the Company, either as vendor, purchaser or otherwise, nor shall any such contract or any contract or transaction entered into by or on behalf of the Company in which any Director shall be in any way interested (each, an Interested Transaction ) be or be liable to be avoided, nor shall any Director so contracting or being so interested be liable to account to the Company for any profit realised by any such Interested Transaction by reason of such Director holding office or of the fiduciary relation thereby established, and any such director may vote at a meeting of directors on any resolution concerning a matter in which that director has an interest (and if he votes his vote shall be counted) and shall be counted towards a quorum of those present at such meeting, in each case so long as the material facts of the interest of each Director in the agreement or transaction and his interest in or relationship to any other party to the agreement or transaction are disclosed in good faith to and are known by the other Directors. A general notice or disclosure to the Directors or otherwise contained in the minutes of a meeting or a written resolution of the directors or any committee thereof that a Director is a member of any specified firm or company and is to be regarded as interested in any transaction with such firm or company shall be sufficient disclosure under this Article. |
MINUTES
83. | The Directors shall cause minutes to be made in books kept for the purpose of all appointments of officers made by the Directors, all proceedings at meetings of the Company or the holders of any series of Shares and of the Directors, and of committees of the Board of Directors including the names of the Directors present at each meeting. |
DELEGATION OF DIRECTORS POWERS
84. | Subject to these Articles, the Board of Directors may establish any committees, and approve the delegation of any of their powers to any committee consisting of one or more Directors, provided that each of the Investor Directors shall be appointed as a member of such committee and the Observers shall be appointed to such committee. The Board of Directors may designate one or more Directors as alternate members of any committee, who may replace any absent or disqualified member at any meeting of any such committee. In the absence or disqualification of a member of a committee, and in the absence of a designation by the Board of Directors of an alternate member to replace the absent or disqualified member, the member or members thereof present at any meeting and not disqualified from voting, whether or not he, she or they constitute a quorum, may unanimously appoint another Director to act at the meeting in the place of the absent or disqualified member if such other Directors appointment is approved or ratified by the Board of Directors. |
85. | Any committee, to the extent allowed by law and provided in the resolution establishing such committee, shall have and may exercise all the powers and authority of the Board of Directors in the management of the business and affairs of the Company. Each committee shall keep regular minutes and report to the Board of Directors when required. Subject to these Articles, the proceedings of a committee of the Board of Directors shall be governed by the Articles regulating the proceedings of the Board of Directors, so far as they are capable of applying. |
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86. | The Board of Directors may also, with prior consents of all the Investor Directors, delegate to any managing Director or any Director holding any other executive office such of their powers as they consider desirable to be exercised by such Person provided that the appointment of a managing Director shall be revoked forthwith if he or she ceases to be a Director. Any such delegation may be made subject to any conditions the Board of Directors, with prior consents of all the Investor Directors, may impose, and either collaterally with or to the exclusion of their own powers and may be revoked or altered. |
87. | Subject to these Articles, the Directors may by power of attorney or otherwise appoint any company, firm, Person or body of Persons, whether nominated directly or indirectly by the Directors, to be the attorney or authorised signatory of the Company for such purpose and with such powers, authorities and discretions (not exceeding those vested in or exercisable by the Directors under these Articles) and for such period and subject to such conditions as they may think fit, and any such powers of attorney or other appointment may contain such provisions for the protection and convenience of Persons dealing with any such attorneys or authorised signatories as the Directors may think fit and may also authorise any such attorney or authorised signatory to delegate all or any of the powers, authorities and discretions vested in him or her. |
88. | Subject to these Articles, the Directors may appoint such officers as they consider necessary on such terms, at such remuneration and to perform such duties, and subject to such provisions as to disqualification and removal as the Directors may think fit. Unless otherwise specified in the terms of an officers appointment, an officer may be removed by resolution of the Directors or Members. |
NO MINIMUM SHAREHOLDING
89. | There is no minimum shareholding required to be held by a Director. |
REMUNERATION OF DIRECTORS
90. | The remuneration to be paid to the Directors, if any, shall be such remuneration as determined by the Board (including the consents of all the Investor Directors). The Director who is not an employee of any Group Company shall also be entitled to be paid all reasonable travelling, hotel and other out-of-pocket expenses properly incurred by them in connection with their attendance at meetings of the Board of Directors or committees of the Board of Directors, or general meetings of the Company, or separate meetings of the holders of any series of Shares or debentures of the Company, or otherwise in connection with the business of the Company. |
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91. | The Directors may by resolution of the majority of the Board (including the consents of all the Investor Directors) approve additional remuneration to any Director for any services other than his or her ordinary routine work as a Director. Any fees paid to a Director who is also counsel or solicitor to the Company, or otherwise serves it in a professional capacity shall be in addition to his or her remuneration as a Director. |
SEAL
92. | The Company may, if the Directors so determine, have a Seal. The Seal shall only be used by the authority of the Directors or of a committee of the Board of Directors authorised by the Board of Directors. Every instrument to which the Seal has been affixed shall be signed by at least one Person who shall be either a Director or some officer or other Person appointed by the Directors for the purpose. |
93. | The Company may have for use in any place or places outside the Cayman Islands a duplicate Seal or Seals each of which shall be a facsimile of the common Seal of the Company and, if the Directors so determine, with the addition on its face of the name of every place where it is to be used. |
94. | A Director or officer, representative or attorney of the Company may without further authority of the Directors affix the Seal over his or her signature alone to any document of the Company required to be authenticated by him or her under seal or to be filed with the Registrar of Companies in the Cayman Islands or elsewhere wheresoever. |
DIVIDENDS, DISTRIBUTIONS AND RESERVE
95. | Subject to the Statute and these Articles, the Directors may declare dividends and distributions on Shares in issue and authorise payment of the dividends or distributions out of the assets of the Company lawfully available therefor. No dividend or distribution shall be paid except out of the realised or unrealised profits of the Company, or out of the share premium account or as otherwise permitted by the Statute. |
96. | All dividends and distributions shall be declared and paid according to the provisions of Articles 8 and 9. |
97. | The Directors may deduct from any dividend or distribution payable to any Member all sums of money (if any) then payable by such Member to the Company on account of calls or otherwise. |
98. | Subject to the provisions of Articles 8 and 9, the Directors may declare that any dividend or distribution be paid wholly or partly by the distribution of specific assets and in particular of shares, debentures or securities of any other company or in any one or more of such ways and where any difficulty arises in regard to such distribution, the Directors may settle the same as they think expedient and in particular may issue fractional Shares and fix the value for distribution of such specific assets or any part thereof and may determine that cash payments shall be made to any Members upon the basis of the value so fixed in order to adjust the rights of all Members and may vest any such specific assets in trustees as may seem expedient to the Directors. |
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99. | Any dividend, distribution, interest or other monies payable in cash in respect of Shares may be paid by wire transfer to the holder or by cheque or warrant sent through the post directed to the registered address of the holder or, in the case of joint holders, to the registered address of the holder who is first named on the Register of Members or to such Person and to such address as such holder or joint holders may in writing direct. Every such cheque or warrant shall be made payable to the order of the Person to whom it is sent. Any one of two or more joint holders may give effectual receipts for any dividends, bonuses or other monies payable in respect of the Share held by them as joint holders. |
100. | No dividend or distribution shall bear interest against the Company, except as expressly provided in these Articles. |
101. | Any dividend that cannot be paid to a Member and/or that remains unclaimed after six (6) months from the date of declaration of such dividend may, in the discretion of the Directors, be paid into a separate account in the Companys name, provided that the Company shall not be constituted as a trustee in respect of that account and the dividend shall remain as a debt due to the Member. Any dividend that remains unclaimed after a period of six (6) years from the date of declaration of such dividend shall be forfeited and shall revert to the Company. |
CAPITALIZATION
102. | Subject to these Articles, including but not limited to Article 8, the Directors may capitalise any sum standing to the credit of any of the Companys reserve accounts (including share premium account and capital redemption reserve fund) or any sum standing to the credit of profit and loss account or otherwise available for distribution and to appropriate such sum to Members in the proportions in which such sum would have been divisible amongst them had the same been a distribution of profits by way of dividend as set forth in Articles 8 and 9 hereof and to apply such sum on their behalf in paying up in full unissued Shares for allotment and distribution credited as fully paid-up to and amongst them in the proportion aforesaid. In such event, the Directors shall do all acts and things required to give effect to such capitalization, with full power to the Directors to make such provisions as they think fit for the case of Shares becoming distributable in fractions (including provisions whereby the benefit of fractional entitlements accrue to the Company rather than to the Members concerned). The Directors may authorise any Person to enter on behalf of all of the Members interested into an agreement with the Company providing for such capitalization and matters incidental thereto and any agreement made under such authority shall be effective and binding on all concerned. |
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BOOKS OF ACCOUNT
103. | Subject to Article 8, the Directors shall cause proper books of account to be kept at such place as they may from time to time designate with respect to all sums of money received and expended by the Company and the matters in respect of which the receipt or expenditure takes place, all sales and purchases of goods by the Company and the assets and liabilities of the Company. Proper books shall not be deemed to be kept if there are not kept such books of account as are necessary to give a true and fair view of the state of the Companys affairs and to explain its transactions. The Directors shall from time to time determine whether and to what extent and at what times and places, and under what conditions or regulations, the accounts and books of the Company or any of them shall be open to inspection of Members not being Directors and no such Member shall have any right of inspecting any account or book or document of the Company except as conferred by the Statute or authorized by the Directors or the Company in general meeting or in a written agreement binding on the Company. The Company shall cause all books of account to be maintained for a minimum period of five years from the date on which they were prepared. |
104. | The Directors may from time to time cause to be prepared and to be laid before the Company in general meeting profit and loss accounts, balance sheets, group accounts (if any) and such other reports and accounts as may be required by law. |
AUDIT
105. | The Directors may appoint the Company Accountant of the Company who shall hold office until removed from office by a resolution of the Directors, and may fix the Company Accountants remuneration. |
106. | Every Company Accountant of the Company shall have a right of access at all times to the books and accounts and vouchers of the Company and shall be entitled to require from the Directors and officers of the Company such information and explanation as may be necessary for the performance of the duties of the Company Accountant. |
107. | Company Accountants shall, if so required by the Directors, make a report on the accounts of the Company during their tenure of office at the next annual general meeting following their appointment in the case of a company that is registered with the Registrar of Companies as an ordinary company, and at the next extraordinary general meeting following their appointment in the case of a company that is registered with the Registrar of Companies as an exempted company and at any other time during their term of office, upon request of the Directors or any general meeting of the Members. |
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NOTICES
108. | Except as otherwise provided in these Articles, notices shall be in writing. Notice may be given by the Company to any Member or Director either personally or by sending it by next-day or second-day courier service, fax, electronic mail or similar means to such Member or Director (as the case may be) or to the address of such Member or Director as shown in the Register of Members or the Register of Directors (as the case may be) (or where the notice is given by electronic mail by sending it to the electronic mail address provided by such Member or Director). |
109. | Where a notice is sent by next-day or second-day courier service, service of the notice shall be deemed to be effected by properly addressing, pre-paying and sending by next-day or second-day service through an internationally-recognized courier a letter containing the notice, with a confirmation of delivery, and to have been effected at the expiration of two (2) days (not including Saturdays or Sundays or public holidays) after the letter containing the same is sent as aforesaid. Where a notice is sent by fax to a fax number provided by the intended recipient, service of the notice shall be deemed to be effected when the receipt of the fax is acknowledged by the recipient. Where a notice is given by electronic mail to the electronic mail address provided by the intended recipient, service shall be deemed to be effected when the receipt of the electronic mail is acknowledged by the recipient. |
110. | A notice may be given by the Company to the Person or Persons that the Company has been advised are entitled to a Share or Shares in consequence of the death or bankruptcy of a Member in the same manner as other notices that are required to be given under these Articles and shall be addressed to them by name, or by the title of representatives of the deceased, or trustee of the bankrupt, or by any like description at the address supplied for that purpose by the Persons claiming to be so entitled, or at the option of the Company, by giving the notice in any manner in which the same might have been given if the death or bankruptcy had not occurred. |
111. | Notice of every general meeting shall be given in any manner hereinbefore authorised to every Person shown as a Member in the Register of Members on the record date for such meeting except that in the case of joint holders the notice shall be sufficient if given to the joint holder first named in the Register of Members and every Person upon whom the ownership of a Share devolves by reason of his or her being a legal personal representative or a trustee in bankruptcy of a Member of record where the Member of record but for his or her death or bankruptcy would be entitled to receive notice of the meeting, and no other Person shall be entitled to receive notices of general meetings. |
112. | Whenever any notice is required by law or these Articles to be given to any Director, member of a committee or Member, a waiver thereof in writing, signed by the Person or Persons entitled to said notice, whether before or after the time stated therein, shall be deemed equivalent thereto. |
WINDING UP
113. | If the Company shall be wound up, assets available for distribution amongst the Members shall be distributed, in accordance with Articles 8 and 9. |
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114. | If the Company shall be wound up, the liquidator may, with the sanction of a Special Resolution of the Company and any other sanction required by the Statute, divide amongst the Members in kind the whole or any part of the assets of the Company (whether they shall consist of property of the same kind or not) and may for that purpose value any assets and, subject to Articles 8 and 9, determine how the division shall be carried out as between the Members or different classes of Members. The liquidator may, with the like sanction, vest the whole or any part of such assets in trustees upon such trusts for the benefit of the Members as the liquidator, with the like sanction, shall think fit, but so that no Member shall be compelled to accept any asset upon which there is a liability. |
INDEMNITY
115. | To the maximum extent permitted by applicable law, the Directors, officers and the Observers for the time being of the Company and any trustee for the time being acting in relation to any of the affairs of the Company and their heirs, executors, administrators and personal representatives respectively shall be indemnified out of the assets of the Company from and against all actions, proceedings, costs, charges, losses, damages and expenses that they or any of them shall or may incur or sustain by reason of any act done or omitted in or about the execution of their duty in their respective offices or trusts, except such (if any) as they shall incur or sustain by or through their own fraud or dishonesty, and no such Director or Observer or officer or trustee shall be answerable for the acts, receipts, neglects or defaults of any other Director or Observer or officer or trustee or for joining in any receipt for the sake of conformity or for the solvency or honesty of any banker or other Persons with whom any monies or effects belonging to the Company may be lodged or deposited for safe custody or for any insufficiency of any security upon which any monies of the Company may be invested or for any other loss or damage due to any such cause as aforesaid or which may happen in or about the execution of his or her office or trust unless the same shall happen through the fraud or dishonesty of such Director, Observer or officer or trustee. Except with respect to proceedings to enforce rights to indemnification pursuant to this Article, the Company shall indemnify any such indemnitee pursuant to this Article in connection with a proceeding (or part thereof) initiated by such indemnitee only if such proceeding (or part thereof) was authorized by the Board of Directors. The right to indemnification conferred in this Article shall include the right to be paid by the Company the expenses incurred in defending any such proceeding in advance of its final disposition to the maximum extent provided by, and subject to the requirements of, applicable law, so long as the indemnitee agrees with the Company to repay all amounts so advanced if it shall ultimately be determined by final judicial decision from which there is no further right to appeal that such indemnitee is not entitled to be indemnified for such expenses under this Article. |
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116. | To the maximum extent permitted by applicable law, the Directors, Observers and officers for the time being of the Company and any trustee for the time being acting in relation to any of the affairs of the Company and their heirs, executors, administrators and personal representatives respectively shall not be personally liable to the Company or its Members for monetary damages for breach of their duty in their respective offices, except such (if any) as they shall incur or sustain by or through their own fraud or dishonesty respectively. |
FINANCIAL YEAR
117. | Unless the Directors otherwise prescribe, the financial year of the Company shall end on the 31st of December in each year and, following the year of incorporation, shall begin on the 1st of January in each year. |
TRANSFER BY WAY OF CONTINUATION
118. | If the Company is exempted as defined in the Statute, it shall, subject to the provisions of the Statute and with the approval of a Special Resolution and the written consent of the Major Investors, have the power to register by way of continuation as a body corporate under the laws of any jurisdiction outside the Cayman Islands and to be deregistered in the Cayman Islands. |
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Exhibit 4.1
Incorporated in the Cayman Islands
Cango Inc.
This is to certify that
is / are the registered shareholders of:
No. of Shares | Type of Share | Par Value | ||||
Class A Ordinary | USD 0.0001 | |||||
Date of Record |
Certificate Number | % Paid |
The above shares are subject to the Memorandum and Articles of Association of the Company and transferrable in accordance therewith.
|
Director |
Exhibit 4.5
V OTING A GREEMENT
This Voting Agreement (this Agreement ) is made and entered into as of May 29, 2018 by and between Mr. Xiaojun Zhang ( Mr. Zhang ) and Mr. Jiayuan Lin ( Mr. Lin , and together with Mr. Zhang, either of them, a Party and collectively, the Parties ).
WHEREAS,
(1) | As of the date of this Agreement, the Parties collectively beneficially owned 39.8% of the equity interest in Cango Inc. (the Company ), a company incorporated in the Cayman Islands; |
(2) | The Company is preparing the initial public offering (the IPO ) of its shares in the form of American deposit shares in the United States; and |
(3) | The Parties hereby agree to exercise their voting rights in shareholders meetings of the Company in accordance with the provisions hereof. |
NOW, THEREFORE, for a valid consideration, the Parties agree as follows:
ARTICLE I EXERCISE OF VOTING RIGHTS
1.1 | The Parties shall consult with each other and reach a consensus before making a proposal to a shareholders meeting of the Company according to the articles of association of the Company or relevant laws and regulations, and if no consensus could be reached through consultation, the decision made by Mr. Zhang shall prevail, provided that the foregoing provision shall not apply to any matter that will result in the removal of either of the Parties from the Companys board of directors. |
1.2 | The Parties shall consult with each other and reach a consensus before exercising voting rights in a shareholders meeting of the Company, and if no consensus could be reached through consultation, Mr. Lin shall entrust voting rights over which he has effective control to Mr. Zhang, provided that the foregoing provision shall not apply to any matter that will result in the removal of either of the Parties from the Companys board of directors. |
ARTICLE II EFFECTIVE PERIOD AND TERMINATION
2.1 | This Agreement shall become effective on the closing date of the IPO and be terminated upon the earliest occurrence of: |
(i) | the disposal of all of either Partys equity interests, directly or indirectly, in the Company; |
(ii) | the death of either Party; |
(iii) | the tenth anniversary of the date of this Agreement; and |
(iv) | the entering into a termination agreement by the Parties. |
2.2 | The Parties agree that by entrusting his voting rights to Mr. Zhang in accordance with the provisions of Section 1.2, Mr. Lin is not responsible for any legal liabilities associated with the exercise of such voting rights by Mr. Zhang. |
2.3 | Except for the confidential obligations provided in Article 3, all rights, obligations and undertakings hereunder will be terminated upon the termination of this Agreement. |
ARTICLE III CONFIDENTIALITY
The Parties shall make their best endeavor to keep all the information in or related to this Agreement strictly confidential. Unless according to applicable laws and regulations, or required by governmental authorities, and without prior written consent of the other Party, neither Party shall make any disclosure of the matters contained in or related to this Agreement in any method.
ARTICLE IV LIABILITIES FOR BREACH OF AGREEMENT
4.1 | The Parties agree and confirm that, the violation of any provision in this Agreement or the failure to exercise any obligations under this Agreement shall constitute a breach of this Agreement. The non-breaching Party has the right to request the breaching Party to rectify or take remedial measures within ten (10) days after the non-breaching Party sends written notice. |
4.2 | The non-breaching Party shall have the right to request the breaching Party to continue performing his obligations under this Agreement even after the breaching Party has paid damages according to the above provision. |
ARTICLE V DISPUTE RESOLUTION
The Parties agree to negotiate in good faith to resolve any dispute arising out of or in connection with the interpretation and performance of this Agreement. In the event that the Parties fail to resolve a dispute through negotiation, either Party may submit such dispute to peoples court located in Shanghai Municipality, the Peoples Republic of China (the PRC ).
ARTICLE VI MISCELLANEOUS
6.1 | The Parties confirm that the undertakings made by them under this Agreement shall not be changed due to a change in company name, an increase in capital and share, merger, division, restructurings or any other matter involving the Company. |
6.2 | This Agreement shall be effective upon execution by the Parties. Any modification, supplement or change of this Agreement shall be made in writing and signed by both Parties. |
6.3 | This Agreement shall be interpreted by the laws of the PRC. |
IN WITNESS WHEREOF, the Parties have executed this Agreement as of the date first written above.
XIAOJUN ZHANG |
/s/ Xiaojun Zhang |
JIAYUAN LIN |
/s/ Jiayuan Lin |
Exhibit 5.1
[●], 2018
Matter No.:826024
Doc Ref: AC/CB/cy/103922770
Cango Inc.
Cricket Square, Hutchins Drive
PO Box 2681
Grand Cayman KY1-1111
Cayman Islands
Dear Sirs,
Cango Inc. (the Company )
We have acted as special legal counsel in the Cayman Islands to the Company in connection with a registration statement on form F-1 to be filed with the U.S. Securities and Exchange Commission (the Commission ) on or about [●], 2018 (the Registration Statement , which term does not include any other document or agreement whether or not specifically referred to therein or attached as an exhibit or schedule thereto) relating to the registration under the U.S. Securities Act of 1933, as amended, (the Securities Act ) of class A ordinary shares, par value US$0.001 each (the Class A Ordinary Shares ) of the Company.
For the purposes of giving this opinion, we have examined a copy of the Registration Statement. We have also reviewed (1) the currently adopted second amended and restated memorandum and articles of association of the Company provided to us on [●], 2018, (2) the unanimous written resolutions of the directors of the Company and unanimous written resolutions of the members of the Company passed on [●], 2018 (the Listing Resolutions ), (3) the third amended and restated memorandum of association and the amended and restated articles of association of the Company to become effective prior to the closing of the Companys initial public offering of Class A Ordinary Shares represented by American Depositary Shares (the Listing M&As ), (4) a Certificate of Good Standing issued by the Registrar of Companies in relation to the Company on [●], 2018 (the Certificate Date ), and (5) such other documents and made such enquiries as to questions of law as we have deemed necessary in order to render the opinion set forth below.
We have assumed (a) the genuineness and authenticity of all signatures and the conformity to the originals of all copies (whether or not certified) examined by us and the authenticity and completeness of the originals from which such copies were taken, (b) that where a document has been examined by us in draft form, it will be or has been executed and/or filed in the form of that draft, and where a number of drafts of a document have been examined by us all changes thereto have been marked or otherwise drawn to our attention, (c) the accuracy and completeness of all factual representations made in the Registration Statement and other documents reviewed by us, (d) that the Listing Resolutions, will be or have been passed at one or more duly convened, constituted and quorate meetings or by unanimous written resolutions, will remain in full force and effect and will not be rescinded or amended, (e) that the Listing M&As will become effective prior to the closing of the Companys initial public offering of Class A Ordinary Shares represented by American Depositary Shares, (f) that there is no provision of the law of any jurisdiction, other than the Cayman Islands, which would have a n y implication in relation to the opinions expressed herein, (g) that upon issue of any Class A Ordinary Shares to be sold by the Company, the Company will receive consideration for the full issue price thereof which shall be equal to at least the par value thereof, and (f) the validity and binding effect under the laws of the United States of America of the Registration Statement and that the Registration Statement will be duly filed with the Commission.
We have made no investigation of and express no opinion in relation to the laws of any jurisdiction other than the Cayman Islands. This opinion is to be governed by and construed in accordance with the laws of the Cayman Islands and is limited to and is given on the basis of the current law and practice in the Cayman Islands.
On the basis of and subject to the foregoing, we are of the opinion that:
1. | The Company is duly incorporated and existing under the law of the Cayman Islands and, based on the Certificate of Good Standing, is in good standing as at the Certificate Date. Pursuant to the Companies Law (the Law ), a company is deemed to be in good standing if all fees and penalties under the Law have been paid and the Registrar of Companies has no knowledge that the Company is in default under the Law. |
2. | When issued and paid for as contemplated by the Registration Statement, the Class A Ordinary Shares will be validly issued, fully paid and non-assessable (which term means when used herein that no further sums are required to be paid by the holders thereof in connection with the issue of such shares). |
Page 2 of 3
We hereby consent to the filing of this opinion as an exhibit to the Registration Statement and to the references to our firm under the captions Enforcement of Civil Liabilities and Legal Matters in the prospectus forming a part of the Registration Statement. In giving this consent, we do not hereby admit that we are within the category of persons whose consent is required under Section 7 of the Securities Act or the Rules and Regulations of the Commission promulgated thereunder.
Yours faithfully,
Conyers Dill & Pearman
Page 3 of 3
Exhibit 8.1
Simpson Thacher & Bartlett LLP
425 LEXINGTON AVENUE
NEW YORK , NY 10017-3954
TELEPHONE : +1-212-455-2000
FACSIMILE : +1-212-455-2502
[●], 2018
Cango Inc.
10A, Building 3, Youyou Century Plaza
428 South Yanggao Road
Pudong New Area, Shanghai 200127
Peoples Republic of China
Ladies and Gentlemen:
We have acted as U.S. counsel to Cango Inc., a Cayman Islands company (the Company), in connection with the registration statement on Form F-1 (File No. 333- [ ]) (the Registration Statement), filed on the date hereof by the Company with the U.S. Securities and Exchange Commission (the Commission) under the U.S. Securities Act of 1933, as amended, relating to the registration of Class A ordinary shares, par value US$0.0001 per share, of the Company which will be represented by American depositary shares (ADSs) evidenced by American depositary receipts.
We have examined the Registration Statement (including the form of prospectus contained therein (the Prospectus)) and a form of deposit agreement among the Company, Citibank N.A., as depositary, and holders from time to time of ADSs (the Deposit Agreement), including the form of American depositary receipt. In addition, we have examined, and have relied as to matters of fact upon, originals, or duplicates or certified or conformed copies, of such records, agreements, documents and other instruments and such certificates or comparable documents of public officials and of officers and representatives of the Company, and have made such other and further investigations as we have deemed necessary or appropriate as a basis for the opinion hereinafter set forth. In such examination, we have assumed the accuracy of the factual matters described in the Registration Statement and that the Registration Statement and other documents will be executed by the parties in the forms provided to and reviewed by us. We have also assumed that the Deposit Agreement will be executed in the form reviewed by us.
BEIJING HONG KONG HOUSTON LONDON LOS ANGELES PALO ALTO SAO PAULO SEOUL TOKYO WASHINGTON, D.C.
Simpson Thacher & Bartlett LLP
Cango Inc.
In rendering the opinion set forth below, we have assumed the genuineness of all signatures, the legal capacity of natural persons, the authenticity of all documents submitted to us as originals, the conformity to original documents of all documents submitted to us as duplicates or certified or conformed copies and the authenticity of the originals of such latter documents.
Based upon the foregoing, and subject to the qualifications, assumptions and limitations stated herein and in the Prospectus, we hereby confirm that the discussion set forth on pages [193-197] of the Prospectus under the caption Taxation Certain United States Federal Income Tax Considerations, insofar as such discussion relates to matters of United States federal income tax law, constitutes our opinion as to the U.S. federal income tax consequences to United States Holders (as such term is defined in the Prospectus) of the purchase, ownership and disposition of the Companys ADSs and ordinary shares.
We note that, because the determination of the Companys status as a passive foreign investment company (a PFIC) for U.S. federal income tax purposes is based on an annual determination that cannot be made until the close of a taxable year, and involves extensive factual investigation, we do not express any opinion herein with respect to the Companys PFIC status in any taxable year.
2
Simpson Thacher & Bartlett LLP
Cango Inc.
We do not express any opinion herein concerning any law other than the U.S. federal income tax law.
We hereby consent to the filing of this opinion with the Commission as an exhibit to the Registration Statement and to the reference to our firm under the heading Taxation in the Prospectus.
Very truly yours, |
SIMPSON THACHER & BARTLETT LLP |
3
Exhibit 8.2
[●], 2018
Matter No.:826024
Doc Ref: AC/CB/cy/103922766
Cango Inc.
Cricket Square, Hutchins Drive
PO Box 2681
Grand Cayman KY1-1111
Cayman Islands
Dear Sirs,
Cango Inc. (the Company )
We have acted as special legal counsel in the Cayman Islands to the Company in connection with a registration statement on form F-1 to be filed with the U.S. Securities and Exchange Commission (the Commission ) on or about [●], 2018 (the Registration Statement , which term does not include any other document or agreement whether or not specifically referred to therein or attached as an exhibit or schedule thereto) relating to the registration under the U.S. Securities Act of 1933, as amended, (the Securities Act ) of class A ordinary shares, par value US$0.0001 each of the Company.
For the purposes of giving this opinion, we have examined and relied upon copies of the following documents:
(i) | the Registration Statement; and |
(ii) | a draft of the prospectus (the Prospectus ) contained in the Registration Statement which is in substantially final form. |
We have also reviewed and relied upon (1) the currently adopted second amended and restated memorandum of association and articles of association of the Company, (2) the third amended and restated memorandum of association and articles of association of the Company to become effective prior to the closing of the Companys initial public offering of class A ordinary shares, par value US$0.0001 each, represented by American Depositary Shares, and (3) such other documents and made such enquiries as to questions of law as we have deemed necessary in order to render the opinion set forth below.
We have assumed (a) the genuineness and authenticity of all signatures, stamps and seals and the conformity to the originals of all copies of documents (whether or not certified) examined by us and the authenticity and completeness of the originals from which such copies were taken; (b) the accuracy and completeness of all factual representations made in the Prospectus and Registration Statement reviewed by us; (c) the validity and binding effect under the laws of the United States of America of the Registration Statement and the Prospectus and that the Registration Statement will be duly filed with or declared effective by the Commission; and (d) that the Prospectus, when published, will be in substantially the same form as that examined by us for purposes of this opinion.
We have made no investigation of and express no opinion in relation to the laws of any jurisdiction other than the Cayman Islands. This opinion is to be governed by and construed in accordance with the laws of the Cayman Islands and is limited to and is given on the basis of the current law and practice in the Cayman Islands.
On the basis of and subject to the foregoing, we are of the opinion that the statements under the caption Taxation Cayman Islands Taxation in the Prospectus forming part of the Registration Statement, to the extent that they constitute statements of Cayman Islands law, are accurate in all material respects and that such statements constitute our opinion.
We hereby consent to the use of this opinion in, and the filing hereof as an exhibit to, the Registration Statement and further consent to the reference of our name in the Prospectus forming part of the Registration Statement. In giving this consent, we do not hereby admit that we are experts within the meaning of Section 11 of the Securities Act or that we are within the category of persons whose consent is required under Section 7 of the Securities Act or the Rules and Regulations of the Commission promulgated thereunder.
Yours faithfully,
Conyers Dill & Pearman
Page 2 of 2
Exhibit 10.3
Equity Interest Pledge Agreement
This Equity Interest Pledge Agreement (this Agreement) has been executed by and among the following parties on , 2018 in Shanghai, the Peoples Republic of China (China or the PRC):
Party A: | Can Gu Long (Shanghai) Information Technology Consulting Services Co., Ltd. (hereinafter Pledgee), a wholly foreign owned enterprise, organized and existing under the laws of the PRC, with its address at Room 3001, Building 13, No.258, Juxun Village, Chengqiao Town, Chongming District, Shanghai; | |
Party B: | (hereinafter Pledgor), a organized and existing under the laws of , with its address at ; and | |
Party C: | Shanghai Cango Investment and Management Consultation Service Co., Ltd., a limited liability company organized and existing under the laws of the PRC, with its address at Room 418, Building 13, No.258, Juxun Village, Chengqiao Town, Chongming District, Shanghai. |
In this Agreement, each of Pledgee, Pledgor and Party C shall be referred to as a Party respectively, and they shall be collectively referred to as the Parties.
Whereas:
1 . | As of the date hereof, the Pledgor holds RMB in the registered capital of Party C. Party C is a limited liability company registered in Shanghai, China. Party C acknowledges the respective rights and obligations of Pledgor and Pledgee under this Agreement, and intends to provide any necessary assistance in registering the Pledge; |
2 . | Pledgee is a wholly foreign-owned enterprise registered in China. Pledgee and Party C have executed an Exclusive Business Cooperation Agreement (as defined below) in Shanghai; Party C, Pledgee and Pledgor have executed an Exclusive Option Agreement (as defined below); Pledgor has executed a Power of Attorney (as defined below) in favor of Pledgee; |
3 . | To ensure that Party C and Pledgor fully perform their obligations under the Exclusive Business Cooperation Agreement, the Exclusive Option Agreement and the Power of Attorney, Pledgor hereby pledges to the Pledgee all of the equity interest that Pledgor holds in Party C as security for Party Cs and Pledgors obligations under the Exclusive Business Cooperation Agreement, the Exclusive Option Agreement and the Power of Attorney. |
To perform the provisions of the Transaction Documents (as defined below), the Parties have mutually agreed to execute this Agreement upon the following terms.
1
Strictly Confidential
1. | Definitions |
Unless otherwise provided herein, the terms below shall have the following meanings:
1.1 | Pledge: shall refer to the security interest granted by Pledgor to Pledgee pursuant to Section 2 of this Agreement, i.e., the right of Pledgee to be paid in priority with the Equity Interest based on the monetary valuation that such Equity Interest is converted into or from the proceeds from auction or sale of the Equity Interest. |
1.2 | Equity Interest: shall refer to RMB in the registered capital of Party C currently held by Pledgor, and all of the equity interest hereafter acquired by Pledgor in Party C. |
1.3 | Term of Pledge: shall refer to the term set forth in Section 3 of this Agreement. |
1.4 | Transaction Documents: shall refer to the Exclusive Business Cooperation Agreement executed by and between Party C and Pledgee on , 2018 (the Exclusive Business Cooperation Agreement), the Exclusive Option Agreement executed by and among Party C, Pledgee and Pledgor on , 2018 (the Exclusive Option Agreement), Power of Attorney executed on , 2018 by Pledgor (the Power of Attorney) and any modification, amendment and restatement to the aforementioned documents. |
1.5 | Contract Obligations: shall refer to all the obligations of Pledgor under the Exclusive Option Agreement, the Power of Attorney and this Agreement; all the obligations of Party C under the Exclusive Business Cooperation Agreement, the Exclusive Option Agreement and this Agreement. |
1.6 | Secured Indebtedness: shall refer to all the direct, indirect and derivative losses and losses of anticipated profits, suffered by Pledgee, incurred as a result of any Event of Default. The amount of such loss shall be calculated in accordance with the reasonable business plan and profit forecast of Pledgee, the consulting and service fees payable to Pledgee under the Exclusive Business Cooperation Agreement, all expenses occurred in connection with enforcement by Pledgee of Pledgors and/or Party Cs Contract Obligations and etc. |
1.7 | Event of Default: shall refer to any of the circumstances set forth in Section 7 of this Agreement. |
1.8 | Notice of Default: shall refer to the notice issued by Pledgee in accordance with this Agreement declaring an Event of Default. |
2. | Pledge |
2.1 | Pledgor agrees to pledge all the Equity Interest as security for performance of the Contract Obligations and payment of the Secured Indebtedness under this Agreement. Party C hereby assents that Pledgor pledges the Equity Interest to the Pledgee pursuant to this Agreement. |
2
Strictly Confidential
2.2 | During the term of the Pledge, Pledgee is entitled to receive dividends distributed on the Equity Interest. Pledgor may receive dividends distributed on the Equity Interest only with prior written consent of Pledgee. Dividends received by Pledgor on Equity Interest after deduction of all applicable taxes paid by Pledgor shall be, as required by Pledgee, (1) deposited into an account designated and supervised by Pledgee and used to secure the Contract Obligations and pay the Secured Indebtedness prior and in preference to make any other payment; or (2) unconditionally donated to Pledgee or any other person designated by Pledgee to the extent permitted under applicable PRC laws. |
2.3 | Pledgor may subscribe for capital increase in Party C only with prior written consent of Pledgee. Any equity interest obtained by Pledgor as a result of Pledgors subscription of the increased registered capital of the Company shall also be deemed as Equity Interest. |
2.4 | In the event that Party C is required by PRC law to be liquidated or dissolved, any interest distributed to Pledgor upon Party Cs dissolution or liquidation (after deduction of all applicable taxes paid by Pledgor) shall, upon the request of the Pledgee, be (1) deposited into an account designate and supervised by Pledgee and used to secure the Contract Obligations and pay the Secured Indebtedness prior and in preference to make any other payment; or (2) unconditionally donated to Pledgee or any other person designated by Pledgee to the extent permitted under applicable PRC laws. |
3. | Term of Pledge |
3.1 | The Pledge shall become effective on such date when the pledge of the Equity Interest contemplated herein is registered with relevant administration for industry and commerce (the AIC). The Pledge shall remain effective until all Contract Obligations have been fully performed and all Secured Indebtedness have been fully paid. Pledgor and Party C shall (1) register the Pledge in the shareholders register of Party C within 3 business days following the execution of this Agreement, and (2) submit an application to the AIC for the registration of the Pledge of the Equity Interest contemplated herein within 30 business days following the execution of this Agreement. The parties covenant that for the purpose of registration of the Pledge, the parties hereto and all other shareholders of Party C shall submit to the AIC this Agreement or an equity interest pledge contract in the form required by the AIC at the location of Party C which shall truly reflect the information of the Pledge hereunder (the AIC Pledge Contract). For matters not specified in the AIC Pledge Contract, the parties shall be bound by the provisions of this Agreement. Pledgor and Party C shall submit all necessary documents and complete all necessary procedures, as required by the PRC laws and regulations and the relevant AIC, to ensure that the Pledge of the Equity Interest shall be registered with the AIC as soon as possible after submission for filing. |
3
Strictly Confidential
3.2 | During the Term of Pledge, in the event Pledgor and/or Party C fails to perform the Contract Obligations or pay Secured Indebtedness in any material aspect, Pledgee shall have the right, but not the obligation, to exercise the Pledge in accordance with the provisions of this Agreement. |
4. | Custody of Records for Equity Interest subject to Pledge |
4.1 | During the Term of Pledge set forth in this Agreement, Pledgor shall deliver to Pledgees custody the capital contribution certificate for the Equity Interest and the shareholders register containing the Pledge within one week from the execution of this Agreement. Pledgee shall have custody of such documents during the entire Term of Pledge set forth in this Agreement. |
5. | Representations and Warranties of Pledgor and Party C |
As of the execution date of this Agreement, Pledgor and Party C hereby jointly and severally represent and warrant to Pledgee that:
5.1 | Pledgor is the sole legal and beneficial owner of the Equity Interest. |
5.2 | Pledgee shall have the right to dispose of and transfer the Equity Interest in accordance with the provisions set forth in this Agreement. |
5.3 | Except for the Pledge, Pledgor has not placed any security interest or other encumbrance on the Equity Interest. |
5.4 | Pledgor and Party C have respectively obtained any and all corporate approvals and any and all consents from third parties (if required) for execution, delivery and performance of this Agreement. |
5.5 | The execution, delivery and performance of this Agreement will not: (i) violate any relevant PRC laws; (ii) conflict with Party Cs articles of association or other constitutional documents; (iii) result in any breach of or constitute any default under any contract or instrument to which it is a party or by which it is otherwise bound; (iv) result in any violation of any condition for the grant and/or maintenance of any permit or approval granted to any Party; or (v) cause any permit or approval granted to any Party to be suspended, cancelled or attached with additional conditions. |
6. | Covenants of Pledgor and Party C |
6.1 | During the term of this Agreement, Pledgor and Party C hereby jointly and severally covenant to the Pledgee: |
6.1.1 | Pledgor shall not transfer the Equity Interest, place or permit the existence of any security interest or other encumbrance on the Equity Interest or any portion thereof, without the prior written consent of Pledgee, except for the performance of the Transaction Documents; |
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6.1.2 | Pledgor and Party C shall comply with the provisions of all laws and regulations applicable to the pledge of rights, and within five (5) days of receipt of any notice, order or recommendation issued or prepared by relevant competent authorities regarding the Pledge, shall present the aforementioned notice, order or recommendation to Pledgee, and shall comply with the aforementioned notice, order or recommendation or submit objections and representations with respect to the aforementioned matters upon Pledgees reasonable request or upon consent of Pledgee; |
6.1.3 | Pledgor and Party C shall promptly notify Pledgee of any event or notice received by Pledgor that may have an impact on the Equity Interest or any portion thereof, as well as any event or notice received by Pledgor that may have an impact on any guarantees and other obligations of Pledgor arising out of this Agreement. |
6.1.4 | Party C shall complete the registration procedures for extension of the term of operation within three (3) months prior to the expiration of such term to maintain the validity of this Agreement. |
6.2 | Pledgor agrees that the rights acquired by Pledgee in accordance with this Agreement with respect to the Pledge shall not be interrupted or harmed by Pledgor or any heirs or representatives of Pledgor or any other persons through any legal proceedings. |
6.3 | To protect or perfect the security interest granted by this Agreement for the Contract Obligations and Secured Indebtedness, to the extent permissible under the applicable laws, Pledgor hereby undertakes to execute in good faith and to cause other parties who have an interest in the Pledge to execute all certificates, agreements, deeds and/or covenants required by Pledgee. Pledgor also undertakes to perform and to cause other parties who have an interest in the Pledge to perform actions required by Pledgee, to facilitate the exercise by Pledgee of its rights and authority granted thereto by this Agreement, and to enter into all relevant documents regarding ownership of Equity Interest with Pledgee or designee(s) of Pledgee (natural persons/legal persons). Pledgor undertakes to provide Pledgee within a reasonable time with all notices, orders and decisions regarding the Pledge that are required by Pledgee. |
6.4 | Pledgor hereby undertakes to comply with and perform all guarantees, promises, agreements, representations and conditions under this Agreement. In the event of failure or partial performance of its guarantees, promises, agreements, representations and conditions in any material aspect, Pledgor shall indemnify Pledgee for all losses resulting therefrom. |
7. | Event of Breach |
7.1 | The following circumstances shall be deemed Event of Default: |
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7.1.1 | Pledgors any breach to any obligations in any material aspect under the Transaction Documents and/or this Agreement. |
7.1.2 | Party Cs any breach to any obligations under the Transaction Documents and/or this Agreement. |
7.2 | Upon notice or discovery of the occurrence of any circumstances or event that may lead to the aforementioned circumstances described in Section 7.1, Pledgor and Party C shall immediately notify Pledgee in writing accordingly. |
7.3 | Unless an Event of Default set forth in this Section 7.1 has been successfully resolved to Pledgees satisfaction within twenty (20) days after the Pledgee and /or Party C delivers a notice to the Pledgor requesting ratification of such Event of Default, Pledgee may issue a Notice of Default to Pledgor in writing at any time thereafter, demanding the Pledgor to immediately exercise the Pledge in accordance with the provisions of Section 8 of this Agreement. |
8. | Exercise of Pledge |
8.1 | Pledgee shall issue a written Notice of Default to Pledgor when it exercises the Pledge. |
8.2 | Subject to the provisions of Section 7.3, Pledgee may exercise the right to enforce the Pledge at any time after the issuance of the Notice of Default in accordance with Section 8.1. Once Pledgee elects to enforce the Pledge, Pledgor shall cease to be entitled to any rights or interests associated with the Equity Interest. |
8.3 | After Pledgee issues a Notice of Default to Pledgor in accordance with Section 8.1, Pledgee may exercise any remedy measure under applicable PRC laws, the Transaction Documents and this Agreement, including but not limited to being paid in priority with the Equity Interest based on the monetary valuation that such Equity Interest is converted into or from the proceeds from auction or sale of the Equity Interest. The Pledgee shall not be liable for any loss incurred by its duly exercise of such rights and powers. |
8.4 | The proceeds from exercise of the Pledge by Pledgee shall be used to pay for tax and expenses incurred as result of disposing the Equity Interest and to perform Contract Obligations and pay the Secured Indebtedness to the Pledgee prior and in preference to any other payment. After the payment of the aforementioned amounts, the remaining balance shall be returned to Pledgor or any other person who have rights to such balance under applicable laws or be deposited to the local notary public office where Pledgor resides, with all expense incurred being borne by Pledgor. To the extent permitted under applicable PRC laws, Pledgor shall unconditionally donate the aforementioned proceeds to Pledgee or any other person designated by Pledgee. |
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8.5 | Pledgee may exercise any remedy measure available simultaneously or in any order. Pledgee may exercise the right to being paid in priority with the Equity Interest based on the monetary valuation that such Equity Interest is converted into or from the proceeds from auction or sale of the Equity Interest under this Agreement, without exercising any other remedy measure first. |
8.6 | Pledgee is entitled to designate an attorney or other representatives to exercise the Pledge on its behalf, and Pledgor or Party C shall not raise any objection to such exercise. |
8.7 | When Pledgee disposes of the Pledge in accordance with this Agreement, Pledgor and Party C shall provide necessary assistance to enable Pledgee to enforce the Pledge in accordance with this Agreement. |
9. | Breach of Agreement |
9.1 | If Pledgor or Party C conducts any material breach of any term of this Agreement, Pledgee shall have right to terminate this Agreement and/or require Pledgor or Party C to indemnify all damages; this Section 9 shall not prejudice any other rights of Pledgee herein; |
9.2 | Pledgor or Party C shall not have any right to terminate this Agreement in any event unless otherwise required by applicable laws. |
10. | Assignment |
10.1 | Without Pledgees prior written consent, Pledgor and Party C shall not have the right to assign or delegate their rights and obligations under this Agreement. |
10.2 | This Agreement shall be binding on Pledgor and his/her successors and permitted assigns, and shall be valid with respect to Pledgee and each of his/her successors and assigns. |
10.3 | At any time, Pledgee may assign any and all of its rights and obligations under the Transaction Documents and this Agreement to its designee(s), in which case the assigns shall have the rights and obligations of Pledgee under the Transaction Documents and this Agreement, as if it were the original party to the Transaction Documents and this Agreement. |
10.4 | In the event of change of Pledgee due to assignment, Pledgor and/or Party C shall, at the request of Pledgee, execute a new pledge agreement with the new pledgee on the same terms and conditions as this Agreement, and register the same with the relevant AIC. |
10.5 | Pledgor and Party C shall strictly abide by the provisions of this Agreement and other contracts jointly or separately executed by the Parties hereto or any of them, including the Transaction Documents, perform the obligations hereunder and thereunder, and refrain from any action/omission that may affect the effectiveness and enforceability thereof. Any remaining rights of Pledgor with respect to the Equity Interest pledged hereunder shall not be exercised by Pledgor except in accordance with the written instructions of Pledgee. |
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11. | Termination |
11.1 | Upon the fulfillment of all Contract Obligations and the full payment of all Secured Indebtedness by Pledgor and Party C, Pledgee shall release the Pledge under this Agreement upon Pledgors request as soon as reasonably practicable and shall assist Pledgor to de-register the Pledge from the shareholders register of Party C and with relevant PRC local administration for industry and commerce. |
11.2 | The provisions under Sections 9, 13, 14 and 11.2 herein of this Agreement shall survive the expiration or termination of this Agreement. |
12. | Handling Fees and Other Expenses |
All fees and out of pocket expenses relating to this Agreement, including but not limited to legal costs, costs of production, stamp tax and any other taxes and fees, shall be borne by Party C.
13. | Confidentiality |
The Parties acknowledge that the existence and the terms of this Agreement and any oral or written information exchanged between the Parties in connection with the preparation and performance this Agreement are regarded as confidential information. Each Party shall maintain confidentiality of all such confidential information, and without obtaining the written consent of the other Party, it shall not disclose any relevant confidential information to any third parties, except for the information that: (a) is or will be in the public domain (other than through the receiving Partys unauthorized disclosure); (b) is under the obligation to be disclosed pursuant to the applicable laws or regulations, rules of any stock exchange, or orders of the court or other government authorities; or (c) is required to be disclosed by any Party to its shareholders, directors, employees, legal counsels or financial advisors regarding the transaction contemplated hereunder, provided that such shareholders, directors, employees, legal counsels or financial advisors shall be bound by the confidentiality obligations similar to those set forth in this Section. Disclosure of any confidential information by the shareholders, director, employees of or agencies engaged by any Party shall be deemed disclosure of such confidential information by such Party and such Party shall be held liable for breach of this Agreement.
14. | Governing Law and Resolution of Disputes |
14.1 | The execution, effectiveness, construction, performance, amendment and termination of this Agreement and the resolution of disputes hereunder shall be governed by the laws of China. |
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14.2 | In the event of any dispute with respect to the construction and performance of this Agreement, the Parties shall first resolve the dispute through friendly negotiations. In the event the Parties fail to reach an agreement on the dispute within 30 days after either Partys request to the other Parties for resolution of the dispute through negotiations, either Party may submit the relevant dispute to the Shanghai International Economic and Trade Arbitration Commission (Shanghai International Arbitration Center) for arbitration, in accordance with its Arbitration Rules. The arbitration proceedings shall be conducted in Chinese. The arbitration shall be conducted in Shanghai. The arbitration award shall be final and binding on all Parties. |
14.3 | Upon the occurrence of any disputes arising from the construction and performance of this Agreement or during the pending arbitration of any dispute, except for the matters under dispute, the Parties to this Agreement shall continue to exercise their respective rights under this Agreement and perform their respective obligations under this Agreement. |
15. | Notices |
15.1 | All notices and other communications required or permitted to be given pursuant to this Agreement shall be delivered personally or sent by registered mail, postage prepaid, by a commercial courier service or by facsimile transmission to the address of such party set forth below. A confirmation copy of each notice shall also be sent by E-mail. The dates on which notices shall be deemed to have been effectively given shall be determined as follows: |
15.2 | Notices given by personal delivery, by courier service or by registered mail, postage prepaid, shall be deemed effectively given on the date of delivery or refusal at the address specified for notices. |
15.3 | Notices given by facsimile transmission shall be deemed effectively given on the date of successful transmission (as evidenced by an automatically generated confirmation of transmission). |
15.4 | For the purpose of notices, the addresses of the Parties are as follows: |
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Party C: Shanghai Cango Investment and Management Consultation Service Co., Ltd.
Address: Building 10A, No 3, Youyou Shijiguangchang, No 428, Yanggaonanlu, Pudong New District, Shanghai
Attn:
Phone:
15.5 | Any Party may at any time change its address for notices by a notice delivered to the other Parties in accordance with the terms hereof. |
16. | Severability |
In the event that one or several of the provisions of this Contract are found to be invalid, illegal or unenforceable in any aspect in accordance with any laws or regulations, the validity, legality or enforceability of the remaining provisions of this Contract shall not be affected or compromised in any respect. The Parties shall strive in good faith to replace such invalid, illegal or unenforceable provisions with effective provisions that accomplish to the greatest extent permitted by law and the intentions of the Parties, and the economic effect of such effective provisions shall be as close as possible to the economic effect of those invalid, illegal or unenforceable provisions.
17. | Attachments |
The attachments set forth herein shall be an integral part of this Agreement.
18. | Effectiveness |
18.1 | This Agreement shall become effective upon execution by the Parties. |
18.2 | Any amendments, changes and supplements to this Agreement shall be in writing and shall become effective upon completion of the governmental filing procedures (if applicable) after the affixation of the signatures or seals of the Parties. |
19. | Language and Counterparts |
This Agreement is written in Chinese and English in four copies. Pledgor, Pledgee and Party C shall hold one copy respectively and the other copy shall be used for registration. In case there is any conflict between the Chinese version and the English version, the Chinese version shall prevail.
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IN WITNESS WHEREOF, the Parties have caused their authorized representatives to execute this Equity Interest Pledge Agreement as of the date first above written.
Party B:
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IN WITNESS WHEREOF, the Parties have caused their authorized representatives to execute this Equity Interest Pledge Agreement as of the date first above written.
Party A: Can Gu Long (Shanghai) Information Technology Consulting Services Co., Ltd.
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Party C: Shanghai Cango Investment and Management Consultation Service Co., Ltd.
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Attachments:
1. | Shareholders Register of Party C; |
2. | The Capital Contribution Certificate for Party C; |
3. | Exclusive Business Cooperation Agreement. |
4. | Exclusive Option Agreement |
5. | Power of Attorney |
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Exhibit 10.4
Power of Attorney
We, , a company and existing under the laws of , with its address at , hold RMB in the registered capital in Shanghai Cango Investment and Management Consultation Co., Ltd. (Shanghai Cango) as of the date when the Power of Attorney is executed, hereby irrevocably authorize Can Gu Long (Shanghai) Information Technology Consulting Services Co., Ltd. (WFOE) to exercise the following rights relating to all equity interests held by me now and in the future in Shanghai Cango (My Shareholding) during the term of this Power of Attorney:
WFOE is hereby authorized to act on behalf of myself as my exclusive agent and attorney with respect to all matters concerning My Shareholding, including without limitation to: 1) attending shareholders meetings of Shanghai Cango; 2) exercising all the shareholders rights and shareholders voting rights I am entitled to under the laws of China and Shanghai Cango Articles of Association, including but not limited to the sale or transfer or pledge or disposition of My Shareholding in part or in whole; and 3) designate and appoint on behalf of myself the legal representative, the directors, supervisors, the chief executive officer and other senior management members of Shanghai Cango.
Without limiting the generality of the powers granted hereunder, WFOE shall have the power and authority to, on behalf of myself, execute all the documents I shall sign as stipulated in the Exclusive Option Agreement entered into by and among me, WFOE and Shanghai Cango on , 2018 and the Equity Pledge Agreement entered into by and among me, WFOE and Shanghai Cango on , 2018 (including any modification, amendment and restatement thereto, collectively the Transaction Documents), and perform the terms of the Transaction Documents.
All the actions associated with My Shareholding conducted by WFOE shall be deemed as my own actions, and all the documents related to My Shareholding executed by WFOE shall be deemed to be executed by me. I hereby acknowledge and ratify those actions and/or documents by WFOE.
WFOE is entitled to re-authorize or assign its rights related to the aforesaid matters to any other person or entity at its own discretion and without giving prior notice to me or obtaining my consent. If required by PRC laws, WFOE shall designate a PRC citizen to exercise the aforementioned rights.
During the period that I am a shareholder of Shanghai Cango, this Power of Attorney shall be irrevocable and continuously effective and valid from the date of execution of this Power of Attorney.
During the term of this Power of Attorney, I hereby waive all the rights associated with My Shareholding, which have been authorized to WFOE through this Power of Attorney, and shall not exercise such rights by myself.
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This Power of Attorney is written in Chinese and English. In case there is any conflict between the Chinese version and the English version, the Chinese version shall prevail.
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Acknowledged by :
Can Gu Long (Shanghai) Information Technology Consulting Services Co., Ltd.
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Exhibit 10.5
Exclusive Business Cooperation Agreement
This Exclusive Business Cooperation Agreement (this Agreement) is made and entered into by and between the following parties on March 23, 2018 in Shanghai, the Peoples Republic of China (China or the PRC).
Party A: | Can Gu Long (Shanghai) Information Technology Consulting Services Co., Ltd. | |
Address: | Room 3001, Building 13, No.258, Juxun Village, Chengqiao Town, Chongming District, Shanghai | |
Party B: | Shanghai Cango Investment and Management Consultation Co., Ltd. | |
Address: | Room 418, Building 13, No.258, Juxun Village, Chengqiao Town, Chongming District, Shanghai |
Each of Party A and Party B shall be hereinafter referred to as a Party respectively, and as the Parties collectively.
Whereas,
1. | Party A is a wholly foreign owned enterprise established in China, and has the necessary resources to provide technical and consulting services; |
2. | Party B is a Sino-foreign joint venture enterprise established in China. The businesses which Party B is conducting currently and/or will conduct during the term of this Agreement are collectively referred to as the Principal Business; |
3. | Party A is willing to provide Party B with technical support, consulting services and other services on an exclusive basis in relation to the Principal Business during the term of this Agreement, utilizing its advantages in technology, human resources, and information, and Party B is willing to accept such services provided by Party A or Party As designee(s), in each case on the terms set forth herein. |
Now, therefore, through mutual discussion, the Parties have reached the following agreements:
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1. | Services Provided by Party A |
1.1 | Party B hereby appoints Party A as Party Bs exclusive services provider to provide Party B with comprehensive technical support, consulting services and other services during the term of this Agreement, in accordance with the terms and conditions of this Agreement, including but not limited to the following: |
(1) | Licensing Party B to use any software which Party A has legitimate rights to use or license others to use; |
(2) | Development, maintenance and upgrade of software involved in Party Bs business; |
(3) | Design, installation, daily management, maintenance and updating of Party Bs network system, hardware and database; |
(4) | Technical support and training for employees of Party B; |
(5) | Assisting Party B in consultancy, collection and research of technology and market information (excluding market research business that wholly foreign-owned enterprises are prohibited from conducting under PRC law); |
(6) | Providing business management consultation for Party B; |
(7) | Providing marketing and promotion services for Party B; |
(8) | Providing customer order management and customer services for Party B; |
(9) | Leasing of equipments or properties; and |
(10) | Other services requested by Party B from time to time to the extent permitted under PRC law. |
1.2 | Party B agrees to accept all the services provided by Party A. Party B further agrees that without Party As prior written consent, during the term of this Agreement, Party B shall not directly or indirectly accept the same or any similar services provided by any third party, nor shall it enter into any similar corporation relationship with any third party regarding the subject matters contemplated by this Agreement. Party A may designate or appoint other parties to provide Party B with the services under this Agreement and to enter into agreements with Party B for such services in accordance with Section 1.3 hereof. |
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1.3 | Service Providing Methodology |
1.3.1 | Party A and Party B agree that during the term of this Agreement, where necessary, Party B may enter into further service agreements with Party A or any other party designated by Party A, which shall provide the specific contents, manner, personnel, and fees for the specific services. |
1.3.2 | To fulfill this Agreement, Party A and Party B agree that during the term of this Agreement, where necessary, Party B may enter into equipment or property leases with Party A or any other party designated by Party A which shall permit Party B to use Party As relevant equipment or property based on the needs of the business of Party B. |
1.3.3 | Party B hereby grants to Party A an irrevocable and exclusive option to purchase from Party B, Shanghai Youche Youjia Financial Leasing Co., Ltd. and/or any other subsidiary controlled by Party B (collectively, Granting Entities, each a Granting Entity), at Party As sole discretion, any or all of the assets and business of any of such Granting Entities, to the extent permitted under the laws of China, at the lowest purchase price permitted by the laws of China. For the purpose of this section, Party B shall procure each Granting Entity (other than Party B) to acknowledge and accept the provisions in this section and to agree to grant Party A the option in accordance with this section. Where Party A exercises the option, Party A and the relevant Granting Entity shall then enter into a separate assets or business transfer agreement, specifying the terms and conditions of the transfer of the assets, provided that the purchase price shall conform with provisions hereunder. |
2. | The Calculation and Payment of the Service Fees |
Both Parties agree that, in consideration of the services provided by Party A, Party B shall pay Party A fees (the Service Fees) equal to 100% of the consolidated basis net income of Party B, which equals the balance of the gross income less the costs of Party B acceptable to the Parties (the Net Income). The Service Fees shall be due and payable on a monthly basis. Within 30 days after the end of each month, Party B shall (a) deliver to Party A the management accounts and operating statistics of Party B for such month, including the Net Income of Party B during such month (the Monthly Net Income), and (b) pay 100% of such Monthly Net Income to Party A (each such payment, a Monthly Payment). Within ninety (90) days after the end of each fiscal year, Party B shall (a) deliver to Party A audited consolidated financial statements of Party B for such fiscal year, which shall be audited and certified by an independent certified public accountant approved by Party A, and (b) pay an amount to Party A equal to the shortfall, if any, of the aggregate net income of Party B for such fiscal year, as shown in such audited consolidated financial statements, as compared to the aggregate amount of the Monthly Payments paid by Party B to Party A in such fiscal year. Party A and Party B further agree that, according to the actual cooperation between Party A and Party B and the revenue and expenditure situation of Party B, the Parties can reasonably adjust the calculation ratio of the Service Fees provided herein, and Party A is entitled to determine, as its sole discretion, whether to permit Party B to defer the payment of part of Service Fees under certain particular circumstances.
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3. | Intellectual Property Rights and Confidentiality Clauses |
3.1 | Party A shall have exclusive and proprietary ownership, rights and interests in any and all intellectual properties arising out of or created during the performance of this Agreement, including but not limited to copyrights, patents, patent applications, software, technical secrets, trade secrets and others. Party B shall execute all appropriate documents, take all appropriate actions, submit all filings and/or applications, render all appropriate assistance and otherwise conduct whatever is necessary as deemed by Party A at its sole discretion for the purposes of vesting any ownership, right or interest of any such intellectual property rights in Party A, and/or perfecting the protections for any such intellectual property rights of Party A. |
3.2 | The Parties acknowledge that the existence and the terms of this Agreement and any oral or written information exchanged between the Parties in connection with the preparation and performance of this Agreement are regarded as confidential information. Each Party shall maintain confidentiality of all such confidential information, and without obtaining the written consent of the other Party, it shall not disclose any relevant confidential information to any third party, except for the information that: (a) is or will be in the public domain (other than through the receiving Partys unauthorized disclosure); (b) is disclosed by a Party pursuant to the applicable laws or regulations, rules of any stock exchange, or orders of the court or other government authorities; or (c) is required to be disclosed by any Party to its shareholders, directors, employees, legal counsels or financial advisors regarding the transaction contemplated hereunder, provided that such shareholders, directors, employees, legal counsels or financial advisors shall be bound by the confidentiality obligations similar to those set forth in this Section. Disclosure of any confidential information by the shareholders, director, employees of or agencies engaged by any Party shall be deemed disclosure of such confidential information by such Party and such Party shall be held liable for breach of this Agreement. |
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4. | Representations and Warranties |
4.1 | Party A hereby represents, warrants and covenants as follows: |
4.1.1 | Party A is a wholly foreign owned enterprise legally established and validly existing in accordance with the laws of China; Party A or the service providers designated by Party A will obtain all government permits and licenses for providing the service under this Agreement before providing such services. |
4.1.2 | Party A has taken all necessary corporate actions, obtained all necessary authorizations as well as all consents and approvals from third parties and government agencies (if required) for the execution, delivery and performance of this Agreement. Party As execution, delivery and performance of this Agreement do not violate any explicit requirements under any law or regulation. |
4.1.3 | This Agreement constitutes Party As legal, valid and binding obligations, enforceable against it in accordance with its terms. |
4.2 | Party B hereby represents, warrants and covenants as follows: |
4.2.1 | Party B is a company legally established and validly existing in accordance with the laws of China and has obtained and will maintain all permits and licenses for engaging in the Principal Business in a timely manner. |
4.2.2 | Party B has taken all necessary corporate actions, obtained all necessary authorizations as well as all consents and approvals from third parties and government agencies (if required) for the execution, delivery and performance of this Agreement. Party Bs execution, delivery and performance of this Agreement do not violate any explicit requirements under any law or regulation. |
4.2.3 | This Agreement constitutes Party Bs legal, valid and binding obligations, and shall be enforceable against it in accordance with its terms. |
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5. | Term of Agreement |
5.1 | This Agreement shall become effective upon execution by the Parties. Unless terminated in accordance with the provisions of this Agreement or terminated in writing by Party A, this Agreement shall remain effective. |
5.2 | During the term of this Agreement, each Party shall renew its operation term prior to the expiration thereof so as to enable this Agreement to remain effective. This Agreement shall be terminated upon the expiration of the operation term of a Party if the application for renewal of its operation term is not approved by relevant government authorities. |
5.3 | The rights and obligations of the Parties under Sections 3, 6, 7 and this Section 5.3 shall survive the termination of this Agreement. |
6. | Governing Law and Resolution of Disputes |
6.1 | The execution, effectiveness, construction, performance, amendment and termination of this Agreement and the resolution of disputes hereunder shall be governed by the laws of China. |
6.2 | In the event of any dispute with respect to the construction and performance of this Agreement, the Parties shall first resolve the dispute through friendly negotiations. In the event the Parties fail to reach an agreement on the dispute within 30 days after either Partys request to the other Party for resolution of the dispute through negotiations, either Party may submit the relevant dispute to the Shanghai International Economic and Trade Arbitration Commission (Shanghai International Arbitration Center) for arbitration, in accordance with its arbitration rules. The arbitration shall be conducted in Shanghai, and the arbitration proceedings shall be conducted in Chinese. The arbitration award shall be final and binding on both Parties. |
6.3 | Upon the occurrence of any disputes arising from the construction and performance of this Agreement or during the pending arbitration of any dispute, except for the matters under dispute, the Parties shall continue to exercise their respective rights under this Agreement and perform their respective obligations under this Agreement. |
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7. | Breach of Agreement and Indemnification |
7.1 | If Party B conducts any material breach of any term of this Agreement, Party A shall have right to terminate this Agreement and/or require Party B to indemnify all damages; this Section 7.1 shall not prejudice any other rights of Party A herein. |
7.2 | Unless otherwise required by applicable laws, Party B shall not have any right to terminate this Agreement in any event. |
7.3 | Party B shall indemnify and hold harmless Party A from any losses, injuries, obligations or expenses caused by any lawsuit, claims or other demands against Party A arising from or caused by the services provided by Party A to Party B pursuant this Agreement, except where such losses, injuries, obligations or expenses arise from the gross negligence or willful misconduct of Party A. |
8. | Force Majeure |
8.1 | In the case of any force majeure events (Force Majeure) such as earthquake, typhoon, flood, fire, flu, war, strikes or any other events that cannot be predicted and are unpreventable and unavoidable by the affected Party, which directly or indirectly causes the failure of either Party to perform or completely perform this Agreement, then the Party affected by such Force Majeure shall give the other Party written notices without any delay, and shall provide details of such event within 15 days after sending out such notice, explaining the reasons for such failure of, partial or delay of performance. |
8.2 | If such Party claiming Force Majeure fails to notify the other Party and furnish it with proof pursuant to the above provision, such Party shall not be excused from the non-performance of its obligations hereunder. The Party so affected by the event of Force Majeure shall use reasonable efforts to minimize the consequences of such Force Majeure and to promptly resume performance hereunder whenever the causes of such excuse are cured. Should the Party so affected by the event of Force Majeure fail to resume performance hereunder when the causes of such excuse are cured, such Party shall be liable to the other Party. |
8.3 | In the event of Force Majeure, the Parties shall immediately consult with each other to find an equitable solution and shall use all reasonable endeavours to minimize the consequences of such Force Majeure. |
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9. | Notices |
9.1 | All notices and other communications required or permitted to be given pursuant to this Agreement shall be delivered personally or sent by registered mail, postage prepaid, by a commercial courier service or by facsimile transmission to the address of such Party set forth below. A confirmation copy of each notice shall also be sent by email. The dates on which notices shall be deemed to have been effectively given shall be determined as follows: |
9.1.1 | Notices given by personal delivery, by courier service or by registered mail, postage prepaid, shall be deemed effectively given on the date of receipt or refusal at the address specified for notices. |
9.1.2 | Notices given by facsimile transmission shall be deemed effectively given on the date of successful transmission (as evidenced by an automatically generated confirmation of transmission). |
9.2 | For the purpose of notices, the addresses of the Parties are as follows: |
9.3 | Any Party may at any time change its address for notices by a notice delivered to the other Party in accordance with the terms hereof. |
10 . | Assignment |
10.1 | Without Party As prior written consent, Party B shall not assign its rights and obligations under this Agreement to any third party. |
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10.2 | Party B agrees that Party A may assign its obligations and rights under this Agreement to any third party and in case of such assignment, Party A is only required to give written notice to Party B and does not need any consent from Party B for such assignment. |
11. | Severability |
In the event that one or several of the provisions of this Agreement are found to be invalid, illegal or unenforceable in any aspect in accordance with any laws or regulations, the validity, legality or enforceability of the remaining provisions of this Agreement shall not be affected or compromised in any aspect. The Parties shall negotiate in good faith to replace such invalid, illegal or unenforceable provisions with effective provisions that accomplish to the greatest extent permitted by law and the intentions of the Parties, and the economic effect of such effective provisions shall be as close as possible to the economic effect of those invalid, illegal or unenforceable provisions.
12. | Amendments and Supplements |
Any amendments and supplements to this Agreement shall be in writing. The amendment agreements and supplementary agreements that have been signed by the Parties and relate to this Agreement shall be an integral part of this Agreement and shall have the same legal validity as this Agreement.
13. | Language and Counterparts |
This Agreement is written in both Chinese and English language in two copies, each Party having one copy. In case there is any conflict between the Chinese version and the English version, the Chinese version shall prevail.
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IN WITNESS WHEREOF, the Parties have caused their authorized representatives to execute this Exclusive Business Cooperation Agreement as of the date first above written.
Party A: Can Gu Long (Shanghai) Information Technology Consulting Services Co., Ltd. (Seal) |
By: |
/s/ ZHANG Xiaojun |
|
Name: | ZHANG Xiaojun | |
Title: | Legal Representative |
Party B: Shanghai Cango Investment and Management Consultation Co., Ltd. (Seal) |
By: |
/s/ ZHANG Xiaojun |
|
Name: | ZHANG Xiaojun | |
Title: | Legal Representative |
Exhibit 10.6
Exclusive Option Agreement
This Exclusive Option Agreement (this Agreement) is executed by and among the following Parties on , 2018 in Shanghai, the Peoples Republic of China (China or the PRC):
Party A: | Can Gu Long (Shanghai) Information Technology Consulting Services Co., Ltd., a wholly foreign owned enterprise, organized and existing under the laws of the PRC, with its address at Room 3001, Building 13, No.258, Juxun Village, Chengqiao Town, Chongming District, Shanghai; | |
Party B: | ||
Party C: | Shanghai Cango Investment and Management Consultation Service Co., Ltd., a limited liability company organized and existing under the laws of the PRC, with its address at Room 418, Building 13, No.258, Juxun Village, Chengqiao Town, Chongming District, Shanghai. |
In this Agreement, each of Party A, Party B and Party C shall be referred to as a Party respectively, and they shall be collectively referred to as the Parties.
Whereas:
Party B is a shareholder of Party C and as of the date hereof holds RMB in the registered capital of Party C.
Now therefore, upon mutual discussion and negotiation, the Parties have reached the following agreement:
1. | Sale and Purchase of Equity Interest |
1.1 | Option Granted |
Party B hereby irrevocably grants Party A an irrevocable and exclusive right to purchase, or designate one or more persons agreed by the board of directors of the Party A (include the affirmative vote of the director appointed by Warburg Pincus Financial Global Ltd, Tencent Mobility Limited, Taikang Life Insurance Co., Ltd., Shandong State-Controlled Taikang Industry Development Fund I, L.P. or their affiliates), PV Chivalry Limited and Links Advance Holdings Limited (each, a Designee) to purchase the equity interests in Party C then held by Party B once or at multiple times at any time in part or in whole at Party As sole and absolute discretion to the extent permitted by Chinese laws and at the price described in Section 1.3 herein (such right being the Equity Interest Purchase Option). Except for Party A and the Designee(s), no other person shall be entitled to the Equity Interest Purchase Option or other rights with respect to the equity interests of Party B. Party C hereby agrees to the grant by Party B of the Equity Interest Purchase Option to Party A. The term person as used herein shall refer to individuals, corporations, partnerships, partners, enterprises, trusts or non-corporate organizations.
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1.2 | Steps for Exercise of Equity Interest Purchase Option |
Subject to the provisions of the laws and regulations of China, Party A may exercise the Equity Interest Purchase Option by issuing a written notice to Party B (the Equity Interest Purchase Option Notice), specifying: (a) Party As or the Designees decision to exercise the Equity Interest Purchase Option; (b) the portion of equity interests to be purchased by Party A or the Designee from Party B (the Optioned Interests); and (c) the date for purchasing the Optioned Interests or the date for transfer of the Optioned Interests.
1.3 | Equity Interest Purchase Price |
The purchase price of the Optioned Interests shall be the minimum price regulated by PRC law (the Equity Interest Purchase Price).
1.4 | Transfer of Optioned Interests |
For each exercise of the Equity Interest Purchase Option:
1.4.1 | Party C Shall promptly convene a shareholders meeting, at which a resolution shall be adopted approving Party Bs transfer of the Optioned Interests to Party A and/or the Designee(s); |
1.4.2 | Party B shall execute an equity interest transfer contract with respect to each transfer with Party A and/or each Designee (whichever is applicable), in accordance with the provisions of this Agreement and the Equity Interest Purchase Option Notice regarding the Optioned Interests; |
1.4.3 | The relevant Parties shall execute all other necessary contracts, agreements or documents, obtain all necessary government licenses and permits and take all necessary actions to transfer valid ownership of the Optioned Interests to Party A and/or the Designee(s), unencumbered by any security interests, and cause Party A and/or the Designee(s) to become the registered owner(s) of the Optioned Interests. For the purpose of this Section and this Agreement, security interests shall include securities, mortgages, third partys rights or interests, any stock options, acquisition right, right of first refusal, right to offset, ownership retention or other security arrangements, but shall be deemed to exclude any security interest created by this Agreement, Party Bs Equity Interest Pledge Agreement and Party Bs Power of Attorney. Party Bs Equity Interest Pledge Agreement as used in this Agreement shall refer to the Interest Pledge Agreement executed by and among Party A, Party B and Party C on the date hereof and any modification, amendment and restatement thereto. Party Bs Power of Attorney as used in this Agreement shall refer to the Power of Attorney executed by Party B on the date hereof granting Party A with power of attorney and any modification, amendment and restatement thereto. |
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2. | Covenants |
2.1 | Covenants regarding Party C |
Party C hereby covenants as follows:
2.1.1 | Without the prior written consent of Party A, it shall not in any manner supplement, change or amend the articles of association of Party C, increase or decrease its registered capital, or change its structure of registered capital in other manners; |
2.1.2 | It shall maintain Party Cs corporate existence in accordance with good financial and business standards and practices, obtain and maintain all necessary government licenses and permits by prudently and effectively operating its business and handling its affairs; |
2.1.3 | Without the prior written consent of Party A, it shall not, during any 12-month period following the date hereof, sell, transfer, mortgage or dispose of in any manner any material assets of Party C or legal or beneficial interest in the material business or revenues of Party C of more than RMB 1,000,000 in a single transaction or in aggregate, or allow the encumbrance thereon of any security interest; |
2.1.4 | Without the prior written consent of Party A, it shall not incur, inherit, guarantee or suffer the existence of any debt, except for payables incurred in the ordinary course of business other than through loans; |
2.1.5 | It shall always operate businesses in the ordinary course of business to maintain the asset value of Party C and refrain from any action/omission that may affect Party Cs operating status and asset value; |
2.1.6 | Without the prior written consent of Party A, it shall not execute any major contract, except the contracts in the ordinary course of business (for purpose of this subsection, a contract with a price exceeding RMB2,000,000 shall be deemed a major contract); |
2.1.7 | Without the prior written consent of Party A, it shall not provide any person with any loan or credit; |
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2.1.8 | It shall provide Party A with information on Party Cs business operations and financial condition at Party As request; |
2.1.9 | If requested by Party A, it shall procure and maintain insurance in respect of Party Cs assets and business from an insurance carrier acceptable to Party A, at an amount and type of coverage typical for companies that operate similar businesses; |
2.1.10 | Without the prior written consent of Party A, it shall not merge, consolidate with, acquire or invest in any person; |
2.1.11 | It shall immediately notify Party A of the occurrence or possible occurrence of any litigation, arbitration or administrative proceedings relating to Party Cs assets, business or revenue; |
2.1.12 | To maintain the ownership by Party C of all of its assets, it shall execute all necessary or appropriate documents, take all necessary or appropriate actions, file all necessary or appropriate complaints, and raise necessary or appropriate defenses against all claims; |
2.1.13 | Without the prior written consent of Party A, it shall not in any manner distribute dividends to its shareholders, provided that upon Party As written request, Party C shall immediately distribute all distributable profits to its shareholders; |
2.1.14 | At the request of Party A, it shall appoint any person designated by Party A as the director of Party C. |
2.1.15 | Without Party As prior written consent, it shall not engage in any business in competition with Party A or its affiliates; and |
2.1.16 | Unless otherwise required by PRC law, Party C shall not be dissolved or liquated without prior written consent by Party A. |
2.2 | Covenants of Party B |
Party B hereby covenants as follows:
2.2.1 | Without the prior written consent of Party A, Party B shall not sell, transfer, mortgage or otherwise dispose of any legal or beneficial interest in the equity interests in Party C held by Party B, or allow the encumbrance thereon, except for the interest placed in accordance with Party Bs Equity Interest Pledge Agreement and Party Bs Power of Attorney; |
2.2.2 | Party B shall immediately notify Party A of the occurrence or possible occurrence of any litigation, arbitration or administrative proceedings relating to the equity interests in Party C held by Party B; |
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2.2.3 | To the extent necessary to maintain Party Bs ownership in Party C, Party B shall execute all necessary or appropriate documents, take all necessary or appropriate actions, file all necessary or appropriate complaints, and raise necessary or appropriate defenses against all claims; |
2.2.4 | Party B shall appoint any designee of Party A as the director or the executive director of Party C, at the request of Party A; |
2.2.5 | Party B hereby waives its right of first of refusal to transfer of equity interest by any other shareholder of Party C to Party A (if any), and gives consent to execution by each other shareholder of Party C with Party A and Party C the exclusive option agreement, the equity interest pledge agreement and the power of attorney similar to this Agreement, Party Bs Equity Interest Pledge Agreement and Party Bs Power of Attorney and undertakes not to take any action in conflict with such documents executed by the other shareholders; |
2.2.6 | Party B shall promptly donate any profit, interest, dividend or proceeds of liquidation to Party A or any other person designated by Party A to the extent permitted under applicable PRC laws; and |
2.2.7 | Party B shall strictly abide by the provisions of this Agreement and other contracts jointly or separately executed by and among Party B, Party C and Party A, perform the obligations hereunder and thereunder, and refrain from any action/omission that may affect the effectiveness and enforceability thereof. To the extent that Party B has any remaining rights with respect to the equity interests subject to this Agreement hereunder or under the Party Bs Equity Interest Pledge Agreement or under the Party Bs Power of Attorney, Party B shall not exercise such rights except in accordance with the written instructions of Party A. |
3. | Representations and Warranties |
Party B and Party C hereby represent and warrant to Party A, severally and not jointly, as of the date of this Agreement and each date of transfer of the Optioned Interests, that:
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3.1 | They have the power, capacity and authority to execute and deliver this Agreement and any equity interest transfer contracts to which they are parties concerning the Optioned Interests to be transferred thereunder (each, a Transfer Contract), and to perform their obligations under this Agreement and any Transfer Contracts. To the extent permissible under the applicable laws, Party B and Party C agree to enter into Transfer Contracts consistent with the terms of this Agreement upon Party As exercise of the Equity Interest Purchase Option. This Agreement and the Transfer Contracts to which they are parties constitute or will constitute their legal, valid and binding obligations and shall be enforceable against them in accordance with the provisions thereof; |
3.2 | Party B and Party C have respectively obtained any and all corporate approvals and consents from third parties (if required) for execution, delivery and performance of this Agreement. |
3.3 | The execution and delivery of this Agreement or any Transfer Contracts and the obligations under this Agreement or any Transfer Contracts shall not: (i) cause any violation of any applicable laws of China; (ii) be inconsistent with their respective articles of association, bylaws or other organizational documents; (iii) cause the violation of any contracts or instruments to which they are a party or which are binding on them, or constitute any breach under any contracts or instruments to which they are a party or which are binding on them; (iv) cause any violation of any condition for the grant and/or continued effectiveness of any licenses or permits issued to either of them; or (v) cause the suspension or revocation of or imposition of additional conditions to any licenses or permits issued to either of them; |
3.4 | Party B has a good and merchantable title to the equity interests held by Party B in Party C. Except for Party Bs Equity Interest Pledge Agreement and Party Bs Power of Attorney, Party B has not placed any security interest on such equity interests; |
3.5 | Party C has a good and merchantable title to all of its assets, and has not placed any security interest on the aforementioned assets (this Section 3.5 only applies to Party C). |
4. | Effective Date and Term |
This Agreement shall become effective upon execution by the Parties, and remain effective until all equity interests held by Party B in Party C have been transferred or assigned to Party A and/or any other person designated by Party A in accordance with this Agreement.
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5. | Governing Law and Resolution of Disputes |
5.1 | Governing law |
The execution, effectiveness, construction, performance, amendment and termination of this Agreement and the resolution of disputes hereunder shall be governed by the laws of PRC.
5.2 | Methods of Resolution of Disputes |
In the event of any dispute with respect to the construction and performance of this Agreement, the Parties shall first resolve the dispute through friendly negotiations. In the event the Parties fail to reach an agreement on the dispute within 30 days after either Partys request to the other Parties for resolution of the dispute through negotiations, either Party may submit the relevant dispute to the Shanghai International Economic and Trade Arbitration Commission (Shanghai International Arbitration Center) for arbitration, in accordance with its arbitration rules. The arbitration shall be conducted in Chinese. The arbitration shall be conducted in Shanghai. The arbitration award shall be final and binding on all Parties.
6. | Taxes and Fees |
All fees and out of pocket expenses relating to this Agreement, including but not limited to legal costs, costs of production, stamp tax and any other taxes and fees, shall be borne by Party C.
7. | Notices |
7.1 | All notices and other communications required or permitted to be given pursuant to this Agreement shall be delivered personally or sent by registered mail, postage prepaid, by a commercial courier service or by facsimile transmission to the address of such Party set forth below. A confirmation copy of each notice shall also be sent by email. The dates on which notices shall be deemed to have been effectively given shall be determined as follows: |
7.1.1 | Notices given by personal delivery, by courier service or by registered mail, postage prepaid, shall be deemed effectively given on the date of receipt or refusal at the address specified for notices; |
7.1.2 | Notices given by facsimile transmission shall be deemed effectively given on the date of successful transmission (as evidenced by an automatically generated confirmation of transmission). |
7.2 | For the purpose of notices, the addresses of the Parties are as follows: |
Party A: | Can Gu Long (Shanghai) Information Technology Consulting Services Co., Ltd. | |||
Address: | Room 3001, Building 13, No.258, Juxun Village, Chengqiao Town, Chongming District, Shanghai | |||
Attn: | ||||
Phone: |
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Party B: | ||||
Address: | ||||
Attn: | ||||
Phone: | ||||
Party C: | Shanghai Cango Investment and Management Consultation Service Co., Ltd. | |||
Address: | Building 10A, No 3, Youyou Shijiguangchang, No 428, Yanggaonanlu, Pudong New District, Shanghai | |||
Attn: | ||||
Phone: |
7.3 | Any Party may at any time change its address for notices by a notice delivered to the other Parties in accordance with the terms hereof. |
8. | Confidentiality |
The Parties acknowledge that the existence and the terms of this Agreement, and any oral or written information exchanged between the Parties in connection with the preparation and performance this Agreement are regarded as confidential information. Each Party shall maintain confidentiality of all such confidential information, and without obtaining the written consent of other Parties, it shall not disclose any relevant confidential information to any third parties, except for the information that: (a) is or will be in the public domain (other than through the receiving Partys unauthorized disclosure); (b) is under the obligation to be disclosed pursuant to the applicable laws or regulations, rules of any stock exchange, or orders of the court or other government authorities; or (c) is required to be disclosed by any Party to its shareholders, directors, employees, legal counsels or financial advisors regarding the transaction contemplated hereunder, provided that such shareholders, directors, employees, legal counsels or financial advisors shall be bound by the confidentiality obligations similar to those set forth in this Section. Disclosure of any confidential information by the shareholders, director, employees of or agencies engaged by any Party shall be deemed disclosure of such confidential information by such Party and such Party shall be held liable for breach of this Agreement.
9. | Further Warranties |
The Parties agree to promptly execute documents that are reasonably required for or are conducive to the implementation of the provisions and purposes of this Agreement and take further actions that are reasonably required for or are conducive to the implementation of the provisions and purposes of this Agreement.
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10. | Breach of Agreement |
10.1 | If Party B or Party C conducts any material breach of any term of this Agreement, Party A shall have right to terminate this Agreement and/or require the Party B or Party C to compensate all damages; this Section 10 shall not prejudice any other rights of Party A herein; |
10.2 | Notwithstanding anything to the contrary herein, Party B is liable only to the damages resulting from the material breach of this Agreement by Party B; except for the enforcement of equity interests in Party C held by Party B which have been pledged in favor of Party A, Party B has no obligation to make compensation to Party A in any other form; Party B is not liable to the damages of Party A or other relevant parties arising out of the reasons other than the Party Bs breach of this Agreement; |
10.3 | Party B or Party C shall not have any right to terminate this Agreement in any event unless otherwise required by applicable laws or agreed by the Parties. |
11. | Miscellaneous |
11.1 | Amendment, change and supplement |
Any amendment, change and supplement to this Agreement shall require the execution of a written agreement by all of the Parties.
11.2 | Entire agreement |
Except for the amendments, supplements or changes in writing executed after the execution of this Agreement, this Agreement shall constitute the entire agreement reached by and among the Parties hereto with respect to the subject matter hereof, and shall supercede all prior oral and written consultations, representations and contracts reached with respect to the subject matter of this Agreement.
11.3 | Headings |
The headings of this Agreement are for convenience only, and shall not be used to interpret, explain or otherwise affect the meanings of the provisions of this Agreement.
11.4 | Language |
This Agreement is written in both Chinese and English language in three copies, each Party having one copy. In case there is any conflict between the Chinese version and the English version, the Chinese version shall prevail.
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11.5 | Severability |
In the event that one or several of the provisions of this Agreement are found to be invalid, illegal or unenforceable in any aspect in accordance with any laws or regulations, the validity, legality or enforceability of the remaining provisions of this Agreement shall not be affected or compromised in any respect. The Parties shall strive in good faith to replace such invalid, illegal or unenforceable provisions with effective provisions that accomplish to the greatest extent permitted by law and the intentions of the Parties, and the economic effect of such effective provisions shall be as close as possible to the economic effect of those invalid, illegal or unenforceable provisions.
11.6 | Successors |
This Agreement shall be binding on and shall inure to the interest of the respective successors of the Parties and the permitted assigns of such Parties.
11.7 | Survival |
11.7.1 | Any obligations that occur or that are due as a result of this Agreement upon the expiration or early termination of this Agreement shall survive the expiration or early termination thereof. |
11.7.2 | The provisions of Sections 5, 8, 10 and this Section 11.7 shall survive the termination of this Agreement. |
11.8 | Waivers |
Any Party may waive the terms and conditions of this Agreement, provided that such a waiver must be provided in writing and shall require the signatures of the Parties. No waiver by any Party in certain circumstances with respect to a breach by other Parties shall operate as a waiver by such a Party with respect to any similar breach in other circumstances.
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IN WITNESS WHEREOF, the Parties have caused their authorized representatives to execute this Exclusive Option Agreement as of the date first above written.
Party A: Can Gu Long (Shanghai) Information Technology Consulting Services Co., Ltd.
By: |
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Name: | ||
Title: |
Party B:
By: |
|
|
Name: | ||
Title: |
Party C: Shanghai Cango Investment and Management Consultation Service Co., Ltd.
By: |
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Name: | ||
Title: |
Exhibit 10.7
March 22, 2018
To: Shanghai Cango Investment and Management Consultation Service Co., Ltd. (the VIE Entity )
To Whom It May Concern:
To ensure the cash flow requirements of the VIE Entitys operations are met and/or to set off any loss accrued during such operations, the undersigned, Cango Inc. (the Company ), is obligated and hereby undertakes to provide unlimited financial support to the VIE Entity, to the extent permissible under the applicable laws and regulations of the PRC and the Cayman Islands whether or not any such operational loss is actually incurred. The form of financial support shall include, but not limited to, extension of cash, entrusted loans and borrowings. The Company will not request repayment of the loans or borrowings if the VIE Entity or its shareholders do not have sufficient funds or are unable to repay.
The undersigned agrees and acknowledges such undertaking shall be irrevocable and continuously valid from the date hereof until the date on which all of the equity interests of the VIE Entity have been acquired directly or indirectly by the Company or its designated representative (individual or legal person).
Please confirm receipt of this letter by returning a signed copy of this letter to the undersigned.
Cango Inc. | ||
/s/ Xiaojun Zhang |
||
Name: | Xiaojun Zhang | |
Title: | Authorized Signatory |
Exhibit 10.11
Equity Interest Transfer Agreement
This equity transfer agreement (the Agreement) was entered between the following parties in Beijing, China, on September 19, 2017:
1. | Autohome Financing Hong Kong Limited, a limited liability company incorporated and existing under the laws of the Hong Kong Special Administrative Region of the Peoples Republic of China, with the domicile being Room 603, 6/F, Laws Commercial Plaza, 788 Cheung Sha Wan Road, Kowloon, Hong Kong, and the authorized representative being Lu Min (Party A or the Transferor); |
2. | Express Group Development Limited, a company incorporated under the laws of Hong Kong, with the registered address being Room 602, Chung Wai Commercial Building, 447-449 Lockhart Road, Causeway Bay, Hong Kong (Party B or the Transferee); |
3. | Shanghai Cango Investment and Management Consultation Service Co.,Ltd, a limited liability company incorporated and existing under the laws of the Peoples Republic of China, with the registered address being Room 418, Building 13, 258 Juxun Village, Chengqiao Town, Chongming County, Shanghai City (Party C or Cango); and |
4. | Beijing Cheerbright Technologies Co., Ltd, a limited liability company incorporated and existing under the laws of the Peoples Republic of China, with the registered address being Room 1010, Floor 10, Building B, 3 Danleng Street, Haidian District, Beijing City (Party D ). |
(the above parties shall be referred to individually as a Party and collectively as the Parties)
Introduction
Whereas :
1. | Shanghai Autohome Finance Leasing Co., Ltd. (the Target) is a Sino-foreign joint venture mainly engaged in financial leasing business, with the registered capital being RMB300 million (RMB300,000,000). |
2. | The Transferor is a current shareholder of the Target, and holds a stake of 25% in the Target, representing RMB75,000,000 of registered capital (the Underlying Equity). |
3. | The Transferor agrees to transfer the Underlying Equity it holds to the Transferee, and the Transferee agrees to receive the Underlying Equity hold by the Transferor, under the terms and conditions of the Agreement, (the Transaction). |
4. | Cango is a PRC affiliate of the Transferee, and agrees to pay the alternative performance bond for the Transaction, under the terms and conditions of the Agreement. |
5. |
Party D is a PRC affiliate of the Transferor, and agrees to receive and return the alternative performance bond for the Transaction, under the terms and conditions of the Agreement. |
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In order to execute the above items smoothly, the Parties enter the Agreement on the related issues, for each party to comply |
Chapter 1 Definition and Interpretation
1.1 Definition
For the purpose of the Agreement, the following terms have the following meaning, unless they shall be interpreted otherwise based on the context (for convenience of reading, the following term are listed in the Pinyin alphabetical order of the first Chinese character of the term):
Warranty: any representation and warranties made by any party of the Agreement under the Agreement
Industrial and commercial bureau: the State Administration for Industry and Commerce of PRC and its authorized local agencies
Closing Date: the date on which the Transferee pays the consideration in full for the equity transfer to the Transferor in accordance with the Agreement
Transaction: the equity transfer between the Transferee and the Transferor of the Agreement
Close of the Transaction: The close of the equity transfer under the Agreement, conditional on the completion of full payment of equity transfer consideration by the Transferee to the Transferor
Disclosure: all materials, facts and maters related to the Target and the transfer subject, disclosed by the Transferor to the Transferee, for the purpose of entering the Agreement with the Transferee
Signing date: the date on which the parties sign the Agreement
Approving authority: the administration authority in charge of the approval to the transaction proposed in the Agreement, in accordance with the relevant investment laws of China
Loss: all loss, expenses (including but not limited to legal expenses and expert & advisor fees), payment, spending, as well as the expenditure arising from assumption of liabilities, litigation, legal proceedings and claims for compensation and rights
Taxes: Any and all applicable taxes (including value added tax, business tax, stamp duty and other taxes, levies, tax revenue, charges, deductions or withholding in any nature or form) impose, levied, charged, or rated by any authority anywhere
Liabilities: For any persons, it is defined as any obligation to make any payment or cash refund resulting from any credit facilities, borrowings or obligations or liabilities assumed (whether at present or in the future and whether it is a principal debt or a guarantee obligation).
Government departments: Represents the central, provincial and local governments in China, including all the ministries, commission, department, bureau and policy stations in the state, provinces, county and other authorities who have the rights to exercise supervision and management functions that have jurisdiction over one party with activities relating to events set out in the Agreement;
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Transfer: Represents the activity of the Transferor to transfer the underlying equity to the Transferee in accordance to the terms and conditions set out in the Agreement;
Asset: Represents all the properties and assets owned and used by the Target in the due course of operation.
1.2 Interpretation and Miscellaneous
1.2.1 Interpretation
Except stated otherwise, in the Agreement:
One authorization includes any authorization, approval, consent, resolution, permit, filing, registration and waiver;
Law and /or regulation include any constitutional provisions, laws and regulations, departmental regulations or the laws, regulations officially issued by other competent authorities in accordance with the Legislative Law of the Peoples Republic of China or any regulations officially issued by the provincially government in the jurisdiction area where the Target is located (including the interpretation and application to the above items, also including any legal documents passed to replace, revise, supplement or integrate the above items)
China is defined as the mainland of the Peoples Republic of China, excluding Hong Kong, Macao and Taiwan region for the purpose of the Agreement.
1.2.2 Miscellaneous
Except agreed otherwise in the context or clearly stated otherwise in the provisions of the Agreement, or:
(1) | Titles of the Agreement is for reference only and shall not impact the interpretation of the Agreement |
(2) | Any term or paragraph when mentioned shall refer to the corresponding term or paragraph except otherwise required in the context; |
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(3) | Any document when mentioned shall include all revisions, supplements or update to such document, however, any revision, supplement, replacement or update rules which are in breach of the Agreement shall not be included; |
(4) | The party who mentions any document shall include such party and any successor and the Transferee permitted; |
(5) | The time mentioned in the Agreement shall refer to Beijing time except stated otherwise; |
Singular expression shall have plural meanings and vice versa except otherwise agreed in the context.
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Chapter 2 Transaction Overview
2.1 Equity Transfer
2.1.1 Overview
In accordance with the terms and conditions set out in the Agreement, the Transferor agrees to transfer the underlying shares it holds to the Transferee and the Transferee agrees to purchase the underlying shares held by the Transferor, including all rights and interests attached to such underlying shares at the present and in the future.
2.1.2 Transfer Price
The Transferor and Transferee confirm that the transfer price of the underlying shares is RMB103,000,000 or equivalent amount in US$, that is, the price for the underlying shares that the Transferee shall pay to the Transferor shall be RMB103,000,000 or equivalent amount in US$ (hereinafter referred to as Transfer Price). For the avoidance of any doubt, the transfer price, to be specific, has included all income taxes payable according to the relevant law due to such transfer.
Chapter 3 Transaction Execution
For the smooth execution of the transaction under this Agreement, the parties agree to comply with the principles and contents of this Agreement and the following conditions and procedures, and each party shall actively assist in the timely provision of various information and the execution of relevant documents to jointly execute and complete the following issues:
3.1 Payment of Equity Transfer
3.1.1 Within 10 business days after signing the Agreement, on the premise that the various pre-conditions of closing stated in following Article 3.1.5 are met or unmet but are waived in writing by the Transferee, the Transferee is required to pay the Transferor 50% of the transfer payment, i.e. RMB51.50mm or equivalent amount in USD to the designated account of the Transferor (Initial Payment):
Name of account opening body: Autohome Financing Hong Kong Limited
Account opening bank: China Merchants Bank, Hong Kong Branch Hong Kong
Bank address: 21/F, Bank of America Tower 12 Harcourt Road, Central Hong Kong
SWIFT code: [REDACTED]
Account number: [REDACTED]
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3.1.2 The Transferor will issue a confirmation letter in writing to the Transferee within one business day after receiving the above payment, and undergo corresponding Target equity change/registration procedures with tax, industrial and commercial bureau and foreign investment approving/filing authorities (except for delay caused by approving regulators or non-cooperative situations by the Target caused by the Transferee/not by the Transferor) and complete tax filing for the equity transfer. The Transferee will obtain full rights and interests of the underlying equities upon the completion day of industrial and commercial change registration (subject to the Targets obtaining of the notice issued by the industrial and commercial bureau to confirm the change of Target shareholders.
3.1.3 On the premise that (1) the Transferor has delivered the photocopies of the tax filing form and tax payment certificate regarding the equity transfer to the Transferee, and (2) the Transferor and Party D has, per Article 3.2.5 of the Agreement, returned to Cango all alternative performance bonds (if necessary), within 7 business days of the Targets obtaining of the notice issued by the industrial and commercial bureau to confirm the change of Target shareholders regarding the Transaction, the transferee shall pay the remaining transfer payment to the Transferor, i.e. RMB51.50mm or equivalent amount in USD to the designated account of the Transferor. The Transferor will issue a confirmation letter in writing to the Transferee within one business day after receiving the above payment.
3.1.4 To avoid any doubt, if the Transferee pays for the transfer payment in USD, the conversion of USD and RMB involved in the Agreement shall be calculated per the middle rate of forex announced by the PBOC (or other authorized regulators) on the day of transfer payment.
3.1.5 The Transferee pays to the Transferor the transfer payment per Article 3.1.1 of the Agreement should be on the premise that each of the following conditions (Closing Conditions) is met or waived by the Transferee in writing:
(a) The statement and warranty of the Transferor in the Agreement shall be true, correct and complete in all aspects on the signing day of the Agreement and on the first payment day, and have equal force and effects as they are made on the first payment day (but specify only statements and warranties made on certain dates are exceptional); the commitments and agreements contained in the Agreement that shall be performed by the Transferor on the first payment day or before have been fulfilled.
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(b) The Transferor has signed and delivered the Agreement to the Transferee.
(c) Any government agency has not defined, issued, promulgated, implemented or passed any law or government orders that may cause the proposed transaction by the Agreement illegal or otherwise prohibit the proposed transaction by the Agreement.
(d) No appeal targeting the Transferor or underlying equities has taken place or may take place, and such appeal aims to restrict the proposed transaction by the Agreement, or cause material changes to the terms of the transaction, or may cause the completion of such transaction unachievable or illegal or not appropriate to proceed with such transaction, or may impose material negative impacts on the Transferee or underlying equities.
(e) The Target has made a relevant shareholder meeting resolution (which contains abandoning of the ROFR of shareholders with such right regarding the equity transfer) and board meeting resolution. The Transferor has obtained all permission, regulation, approval or consent for signing and performing the Agreement and the equity transfer (if applicable) (including internal company permission, approval or resolution procedures), and signing and performing transaction documents may not result the Transferor in violating any applicable laws, constitutional organization documents and any contract to which it is a party.
3.1.6 Restricted to Article 3.2 of the Agreement, either of the Transferor and Transferee shall undertake liabilities of breach to the remaining non-breaching party, should it violate the Agreement not to perform, or delay and be negligent in fulfilling any issue of Article 3 (transaction implementation), apart from paying liquidated damages to the non-breaching party per Article 7.2.2 and Article 7.2.3 of the Agreement, it shall also compensate all direct losses resulted hereunder (if any).
3.1.7 The expenses incurred for undergoing all equity transfer name changing and registration procedures per Chinese laws shall be borne by the Transferor and Transferee, respectively according to relevant laws and the Agreement.
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3.2. Payment of alternative performance bond
3.2.1. In case that all precedent conditions for delivery as set forth in article 3.1.5 have been satisfied (or otherwise with the waiver from the transferee in writing) and the Transferee fails to make initial payment in 10 business days after the execution of this agreement as set forth in article 3.1.1, then an alternative performance bond of RMB51,500,000 shall be paid by Cango to Party Ds onshore bank account in 10 business days after the execution of this agreement. In avoidance of doubt, Party D will designate an onshore recipient to the Transferor for receiving the alternative performance bond. In 1 business day after receiving the above-mentioned amount, Party D will sent the confirmation letter to Cango.
Name of the account opening entity: Beijing Cheerbright Technology Co Ltd (北京齐尔布莱特科技有限公司)
Bank: China Merchant Bank, Beijing Haidian Sub-branch (招商银行北京海淀支行)
Account: [REDACTED]
3.2.2. The Transferor acknowledges that, in case of all payment of alternative performance bond by Cango as agreed in Article 3.2.1, the Transferor shall not take actions to hold the Transferee responsible for violation of the agreement (including the payment of damages) or make any claims against the Transferee because of the Transferees failure to make initial payment as set forth in article 3.1.1
3.2.3. In case that the alternative performance bond is made by Cango as set forth in article 3.2, the Transferor shall not terminate the Agreement as set forth in Article 6.1.6, and the transaction arrangement as agreed in article 3.1.2 and article 3.1.3 will be proceeded after initial payment is made by the Transferee. In avoidance of any doubt, alternative performance bond shall not be deemed as or to offset the initial payment
3.2.4. In 3 business days after the initial payment of the Transferee, the Transferor and Party D shall return to Cango all alternative performance bond (without interest however) paid by Congo to its designated onshore bank account. The Transferor and Party D will be held jointly and severally liable for the refund of the alternative performance bond.
Chapter 4: Representations and Warranties
4.1. On the date of the Agreement signing, all parties make representations and warranties as follows:
4.1.1 The Party is a corporation duly organized, validly existing and in good standing under the laws of the country where it is incorporated;
4.1.2. The Party has the full right, power, and authority to enter into this Agreement and to carry out its obligation pursuant to this Agreement and have already obtained relevant approvals from the shareholder meeting and board meeting;
4.1.3. The Party has already empowered its authorized representative to execute this Agreement; and
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4.1.4. The Party will sign on the Agreement and perform its obligation under this Agreement: (1) will not violate any requirements stipulated in its business license, establishment agreement, articles of association or documentation with similar natures; (2) will not violate any laws, rules, regulations, or government authorization or approvals; and (3) will not lead to any material breach of any contract of or by which it is a party or bounded.
In addition to above, the transferor makes the following representations and warranties to the transferee with regards to the underlying equities:
4.1.5. The Transferor is the sole legal and beneficial owner of the underlying shares, and has the right, power and authority to sell and transfer the underlying Shares, free from any fake investment, entrusted holding (or similar arrangement), any security rights such as pledge or collaterals etc or any form of encumbrances (including but not limited to any conditional sales or other ownership retaining agreement, any security interest granting agreement or any documentation designating 3 rd parties as loss payees), or any other 3 rd party rights (in terms of equities of any persons, including but not limited to any options, or conversion rights or preemptive rights of any natures). Transfer of underlying shares will not violate the requirement of any right of first refusal. After receiving the underlying shares under the Agreement, the transferee will be entitled to any and all rights and power of such shares, which shall not be inferior to the right and power of any other shareholders of the Company.
4.1.6. There is no action, lawsuit, legal proceeding or enquiry pending or received in writing from any 3 rd parties, courts government agencies or arbitrators with regards to the ownership of underlying shares which may have material or adverse impact on the transferors ability to perform its obligations under the Equity Transfer Agreement.
The representations and warranties of all parties hereof are consistent which shall be deemed as repetitively made on the signing date of the Agreement and before the close of the transaction, and shall not be made invalid due to close of the transaction.
In addition to the above-mentioned representations and warranties, the transferee further acknowledges that it is made aware of and fully understands the Targets all situations, including but not limited to its business, operation, finance, tax, debt rights and obligations as well as legal affairs etc. the transferor has no obligation to disclose to any transferee any issues relating to the Target.
Chapter Five. Debt Undertakings
5.1. The principle of debt undertaking
5.1.1. The Transferee acknowledges that as of the date herein, all liabilities (including contingent liabilities) of the Target will be undertaken by the Transferee and other shareholders of the Target based on their ownership and registered capital in the Target at the closing of the transaction. The Transferor will not be liable for any debt obligations any longer.
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5.1.2 During the period from signing of the Agreement till closing day, if the Target Company incurs new debts, it has nothing to do with transferor. For the avoidance of doubt, if the new debt is caused by the transferor, then it has nothing to do with the transferee and the Target Company.
Section 6. Termination
6.1 Termination
The Agreement will terminate if following scenario takes place:
6.1.1 After signing of the Agreement, if the Agreement fails to be executed or the purpose of the Agreement fails to be achieved due to state policy or newly enacted laws. If the scenario cannot be solved after 90 days, then the Agreement will be automatically terminated after any party of the Agreement issues the written notice.
6.1.2 All parties of the Agreement agree to terminate the Agreement.
6.1.3 If the Agreement is terminated due to force majeure event, force majeure event refers to the event out of the transferor or transferees control (the affected party), including but not limited to strike, riot, war, terrorist attack, pandemic or plague (including severe acute respiratory syndrome (SARS) or bird flu), any law, regulations, rules, policy, decree or announcement issued or executed by any government authority, fire, flood, earthquake and natural disaster. If the force majeure event continues more than 60 days since its happening, and have material adverse impacts on execution of the Agreement, after the all parties agree, the Agreement may be terminated.
6.1.4 The Target Company enters into liquidation process.
6.1.5 Where all equity transfer change and registration process fails to complete within 60 days since signing of the Agreement due to cause not attributable to the transferor (any delay caused by force majeure or approver itself or delay not caused by the transferor itself, except the Target Company fails is not very supportive), and other scenarios that the transferee has right to unilaterally terminate the Agreement by issuing written notice as agreed.
6.1.6 Restricted by the Article 3.2.2 and Article 3.2.3, if the transferee fails to pay the transferor the transfer price as agreed for 60 days overdue, the transferor has right to unilaterally terminate the Agreement by issuing the written notice; in avoidance of doubt, if such failure to pay is caused due to force majeure, the transferor and /or government policy and law, then the transferor has no right to terminate the Agreement unilaterally.
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6.1.7 Once the Agreement is terminated, unless all parties of the Agreement otherwise agreed at the time, the Agreement shall follow the principle of impartiality, equality and integrity, respectively return the other parties consideration under the Agreement to restore to the status as the Agreement is signed (including refund already paid fulfilment payment).
6.2 No Impact Article
The non-defaulting party will exercise the right of relief and terminate the Agreement according to the Agreement, which would not affect and undermine any other rights and reliefs owned by the non-defaulting party according to the Agreement and other agreements and the right to require the defaulting party to undertake defalting responsibility and compensation for the losses.
Section 7 Default and Compensation
7.1 Default responsibility
7.1.1 If any party of the Agreement breach or doesnt fulfill any requirement or obligation set forth by the Agreement, in addition to taking on the compensation responsibility set forth by article 7.2.1 of the Agreement, it shall also pay the non-defaulting party the default fine as agreed by Article 7.2.2 and Article 7.2.3. in avoidance of doubt, any delay of transfer price payment not caused by transferee will not be treated as transferees default, the transferor shall not hold the transferee accountable for the default or claim any other rights.
7.1.2 After the defaulting party of the Agreement pay the non-defaulting party default fine, it shall not be viewed as the counterparty giving up its right and power, also shall not undermine, affect or limit the partys all rights and powers under the Agreement and related laws and regulations.
7.2 Compensation
7.2.1 Unless otherwise specified by the Agreement, in addition to payment of default fine, once requested by the non-defaulting party, the defaulting party shall compensate the non-defaulting party and prevent the non-defaulting party from suffering any direct losses caused by following issues.
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(1) | Where the defaulting party breach any guarantee |
(2) | Defaulting party breaches any commitment or agreement set forth by the Agreement or fails to fulfill any obligations of the Agreement. |
7.2.2. The transferee shall ensure to fully pay the equity transfer consideration as scheduled according to the Agreement. Restricted by the article 3.2.3 of the Agreement, for each additional day that is overdue, the transferee shall pay the transferor overdue fine based on 0.1% of outstanding payment; in avoidance of doubt, if such overdue payment is caused by force majeure, the transferor and /or government policy and law, then its not required for the transferee to pay the default fine.
7.2.3 Where the transferor overdue transfer equity by breaching Article 3.1.2, for each additional day that is overdue, the defaulting party shall pay the transferee the default fine based on 0.1% of the transferees already paid consideration. If such overdue payment is caused by force majeure, then its not required for the transferee to pay the default fines
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Chapter VIII Other Clauses
8.1 Confidentiality
8.1.1 Both Parties, and representatives of the other parties, shall not make or issue the announcement or notice on the existence of the Agreement, the transaction or other terms of the proposed transaction under the Agreement without the prior written consent of the other party (the consent shall not be unreasonably withheld or delayed); however the restriction shall not be applicable to any announcement or notice required the law or any government departments; the party responsible for making announcement or notice shall conduct negotiation within reasonable scopes with the other parties prior performing of its obligations.
8.1.2 Subject to above provisions, both parties admits the transaction under the Agreement is confidentiality in nature, which shall not be disclosed except required by applicable laws. Any party shall not disclose the detail terms of the Agreement to the public (except required by laws, and with format and content of the disclosure be agreed in advance by both parties). However the above restrictions shall not be applicable to the situation of disclosure detail terms or the transaction under the Agreement to advisors of any parties (legal, financial or others), agent or borrowers.
8.2 Expenses & Tax
Each Party shall undertake any and all expenses and tax (including but not limited to intermediaries fees, audit fees, legal fees, income tax and stamp tax if applicable) incurred during their preparation, negotiation and execution of the Agreement and performance of the transaction.
8.3 General
8.3.1 Any amendments and modifications of the Agreement must in written forms and be executed by all parties, otherwise the amendments and modifications shall be invalid.
8.3.2 Rights and remedies of the Transferee herein are cumulative, and not excluding rights and remedies available under laws.
8.3.3 Neither a failure nor a delay in enforcing any right or remedy under the Agreement or available under laws shall constitute impairment or waiver of the right or remedy, or impairment or waiver of any other rights or remedies.
8.3.4 Except fulfilled obligations or agreed otherwise under the Agreement, obligations herein shall remain valid after closing of the transaction.
8.3.5 Any grace or delay granted by a party to other party in terms of any default or delay shall not be construed as waiver of its right and power, and shall also not impair, impact or restrict the right and power available to the party under the Agreement or relevant laws and regulations.
8.3.6 If any provision under the Agreement becomes invalid, illegal or unenforceable in any respect under any law in China, such provision shall not affect or derogate the validity, legality or enforceability of the remaining provisions. However meanwhile the Parties shall stop enforcing the invalid, illegal or unenforceable provision, and negotiate in good faith to modify the provision to the extent that enforceable under the specific fact and scenario and most close to their willingness.
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8.3.7 For the purpose of completing the settlement of the transaction and amendment of the Industrial and commercial registration, the Transferee has rights to consign its rights and power under the Agreement to the designated third party with written consent in advance from the Transferor.
8.4 Notices
8.4.1 All notices and other communications (refer to as notices) given under, or in connection with, the Agreement shall be in writing and in Chinese, and shall be delivered to the address / email of the recipient listed in ③ below via personal delivery, well-known express or email.
8.4.2 The Notice shall be deemed to have been properly received under each below scenario unless other evidences showing an earlier time of receipt:
① at the time of leaving the notice at the address listed in ③, if delivered by personal;
② the next following business day of delivery, if delivered by well-known express;
③ Address and email of the parties are as below:
Party | Address | Designated addressee | ||||
Party A |
10
th
Floor, Building B, China Electronics Plaza
No. 3 Danleng Street, Haidian District, Beijing |
[REDACTED] | Li Yuan | |||
Party B | Warbrug Pincus Asia LLC, Suite 6703, Two International Finance Centre, 8 Finance Street, Hong Kong | [REDACTED] | Andrew Chan | |||
Party C | 10 th Floor, Building 3, Century Plaza, No. 428 South Yanggao Road, Pudong, Shanghai | [REDACTED] | Ye Yun | |||
Party D |
10
th
Floor, Building B, China Electronics Plaza
No. 3 Danleng Street, Haidian District, Beijing |
[REDACTED] | Pei Pei |
8.5 Governing Law and Dispute Resolution
This Agreement shall be governed by PRC laws. All disputes arising out of or in relation to the Agreement shall be referred to the Beijing Arbitration Commission, i.e. Beijing International Arbitration Center for arbitration in accordance with its then-effective arbitration rules. The arbitration shall be final and binding on both Parties.
8.6 Effectiveness and Term of the Agreement
The Agreement shall become effective upon execution and sealed by the authorized representatives of each Party.
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8.7 Documents of the Agreement
The agreement is in octuplicate and each party shall hold one copy, with other copies for purpose of approval and filling, the Target shall archive if there is any remaining, each copy shall be deemed equally authentic. Each copy of the Agreement that executed and delivered shall be deemed as an original copy.
(Below is intentionally left blank without body text)
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Transferor: | ||
Autohome Financing Hong Kong Limited | ||
Authorized representative: Lu Min | ||
Signature: |
/s/ Lu Min |
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Transferee: | ||
Express Group Development Limited | ||
Authorized representative: David J. Sreter | ||
Signature: |
/s/ David J. Sreter |
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(This page is intentionally left blank without body text, only for signatures of the Equity Transfer Agreement)
Party C:
Shanghai Cango Investment and Management Consultation Service Co., Ltd.
Authorized representative: Zhang Xiaojun
Signature: |
/s/ Xiaojun Zhang |
|
[Seal] |
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(This page is intentionally left blank without body text, only for signatures of the Equity Transfer Agreement)
Party D:
Beijing Cheerbright Technologies Co., Ltd.
Authorized representative: Lu Min
Signature: |
/s/ Lu Min |
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Exhibit 10.12
Execution Version
SHARE PURCHASE AGREEMENT
THIS SHARE PURCHASE AGREEMENT (this Agreement ) is made and entered into as of March 23, 2018, by and among:
1. | Cango Inc., a company incorporated under the Laws of the Cayman Islands (the Company ), |
2. | Cango Group Limited, a company incorporated under the Laws of Hong Kong (the HK Company ), |
3. | Can Gu Long (Shanghai) Information Technology Consulting Services Co., Ltd. ( 灿谷隆 ( 上海 ) 信息科技咨询服务有限公司 ), a wholly foreign-owned enterprise incorporated under the Laws of the PRC (the WFOE ), |
4. | Shanghai Cango Investment and Management Consultation Service Co., Ltd. ( 上海灿谷投资管理咨询服务有限公司 ), a limited liability company incorporated under the Laws of the PRC (the Domestic Company ), |
5. | each of the individuals and their respective holding companies owned by such individual listed on Schedule I attached hereto (each such individual, the Principal and collectively, the Principals , each such holding company, the Principal Holding Company and collectively, the Principal Holding Companies ), |
6. | Huaiyuan L.P., a limited partnership incorporated under the Laws of British Virgin Islands, |
7. | Minghuai L.P., a limited partnership incorporated under the Laws of British Virgin Islands, |
8. | Xiehuai L.P., a limited partnership incorporated under the Laws of British Virgin Islands (together with Huaiyuan L.P. and Minghuai L.P., each, a Partnership and collectively, the Partnerships ), and |
9. | each Person listed on Schedule II hereto (each, an Investor , and collectively, the Investors ). |
Each of the parties listed above is referred to herein individually as a Party and collectively as the Parties .
RECITALS
A. | The shareholders of the Domestic Company intend to conduct certain restructurings pursuant to the Restructuring Plan such that the Company will effectively Control all the economic interests and voting rights in the Domestic Company. |
B. | The Parties contemplate that upon the completion of the Restructuring Plan the ownership structure of the Group Companies shall be as follows: (i) the Company owns 100% of the equity interest in the HK Company; and (ii) the HK Company owns 100% of the equity interest in the WFOE, which in turn Controls the Domestic Company by a Captive Structure. |
Share Purchase Agreement |
C. | The Investors wish to invest in the Company by subscribing for certain number of Series A-1 Preferred Shares, Series A-2 Preferred Shares, Series A-3 Preferred Shares or Series B Preferred Shares respectively at the Closing pursuant to the terms and subject to the conditions of this Agreement. |
D. | The Company wishes to issue, allot and sell certain number of Series A-1 Preferred Shares, Series A-2 Preferred Shares, Series A-3 Preferred Shares and Series B Preferred Shares at the Closing pursuant to the terms and subject to the conditions of this Agreement. |
E. | The Parties desire to enter into this Agreement and make the respective representations, warranties, covenants and agreements set forth herein on the terms and conditions set forth herein. |
WITNESSETH
NOW, THEREFORE, in consideration of the foregoing recitals, the mutual promises hereinafter set forth, and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Parties intending to be legally bound hereto hereby agree as follows:
1. | Definitions. |
1.1 | The following terms shall have the meanings ascribed to them below: |
Accounting Standards means generally accepted accounting principles in the United States or PRC, as applicable, applied on a consistent basis.
Action means any charge, claim, action, complaint, petition, investigation, appeal, suit, litigation, grievance, inquiry or other proceeding, whether administrative, civil, regulatory or criminal, whether at law or in equity, or otherwise under any applicable Law, and whether or not before any mediator, arbitrator or Governmental Authority.
Affiliate means, with respect to a Person, any other Person that, directly or indirectly, Controls, is Controlled by or is under common Control with such Person. In the case of an individual, the term Affiliate also includes the Immediate Family Members of such individual, and in the case of an Investor, the term Affiliate also includes (a) any shareholder of the Investor, (b) any of the shareholders or the Investors general partners or limited partners, (c) the fund manager managing such shareholder or Investor (and general partners, limited partners and officers thereof) and other funds managed by such fund manager, (d) trusts Controlled by or for the benefit of any such Person referred to in (a), (b) or (c).
Boyu means Harmonic Century Limited.
Board or Board of Directors means the board of directors of the Company.
Business means business in relation to automotive financing facilitation, automotive transaction facilitation and aftermarket service facilitation.
2 | Share Purchase Agreement |
Business Day means any day that is not a Saturday, Sunday, legal holiday or other day on which commercial banks are required or authorized by law to be closed in the Hong Kong, the PRC, Singapore or the United States.
Captive Structure means the structure under which the WFOE Controls the Domestic Company through the Control Documents.
Charter Documents means, with respect to a particular legal entity, the articles of incorporation, certificate of incorporation, formation or registration (including, if applicable, certificates of change of name), memorandum of association, articles of association, bylaws, articles of organization, limited liability company agreement, trust deed, trust instrument, operating agreement, joint venture agreement, business license, or similar or other constitutive, governing, or charter documents, or equivalent documents, of such entity.
Cinda means Harbourside 1712 Limited.
CIRC shall mean the China Insurance Regulatory Commission.
Circular 37 means the Circular on Relevant Issues Concerning Foreign Exchange Administration for Domestic Residents to Engage in Overseas Investment, Financing and Round Trip Investment via Special Purpose Companies issued by SAFE on July 14, 2014, as amended from time to time.
Code means the United States Internal Revenue Code of 1986, as amended.
Consent means any consent, approval, authorization, release, waiver, permit, grant, franchise, concession, agreement, license, exemption or order of, registration, certificate, declaration or filing with, or report or notice to, any Person, including any Governmental Authority.
Contract means, a contract, agreement, understanding, indenture, note, bond, loan, instrument, lease, mortgage, franchise, license, commitment, purchase order, and other legally binding arrangement, whether written or oral.
Control of a given Person means the power or authority, whether exercised or not, to direct the business, management and policies of such Person, directly or indirectly, whether through the ownership of voting securities, by Contract or otherwise. The terms Controlled and Controlling have meanings correlative to the foregoing.
Control Documents means the following contracts collectively: (i) Exclusive Business Cooperation Agreements ( 独家业务合作协议 ) to be entered into by and between the WFOE and the Domestic Company, (ii) Exclusive Option Agreements ( 独家购买权合同 ) to be entered into by and among the WFOE, the Domestic Company and each equity holder of the Domestic Company, (iii) Power of Attorneys ( 授权委托书 ) to be entered into by and between the WFOE and each equity holder of the Domestic Company, (iv) Share Pledge Agreements ( 股权质押协议 ) to be entered into by and among the WFOE, the Domestic Company and each equity holder of the Domestic Company, and (v) Spousal Consent issued by the spouse of each Principal.
3 | Share Purchase Agreement |
Conversion Shares means Ordinary Shares issuable upon conversion of any Series A-1 Preferred Shares, Series A-2 Preferred Shares, Series A-3 Preferred Shares, and Series B Preferred Shares.
Didi means Links Advance Holdings Limited.
Equity Securities means, with respect to any Person that is a legal entity, any and all shares of capital stock, membership interests, units, profits interests, ownership interests, equity interests, registered capital, and other equity securities of such Person, and any right, warrant, option, call, commitment, conversion privilege, preemptive right or other right to acquire any of the foregoing, or security convertible into, exchangeable or exercisable for any of the foregoing, or any Contract providing for the acquisition of any of the foregoing.
ESOP has the meaning given to such term in the Shareholders Agreement.
Governmental Authority means any government of any nation or any federation, province or state or any other political subdivision thereof, any entity, authority or body exercising executive, legislative, judicial, regulatory or administrative functions of or pertaining to government, including any government authority, agency, department, board, commission or instrumentality of the PRC or any other country, or any political subdivision thereof, any court, tribunal or arbitrator, and any self-regulatory organization.
Governmental Order means any applicable order, ruling, decision, verdict, decree, writ, subpoena, mandate, precept, command, directive, consent, approval, award, judgment, injunction or other similar determination or finding by, before or under the supervision of any Governmental Authority.
4 | Share Purchase Agreement |
Group Companies means, collectively, the Company, the HK Company, the WFOE, the Domestic Company, Shanghai Wangjin Financial Information Services Co., Ltd. ( 上海网金金融信息服务有限公司 ), Shanghai Can Gu Electronic Technology Co., Ltd. ( 上海灿谷电子科技有限公司 ), Shanghai Can Gu Automobile Sale Services Co., Ltd. ( 上海灿谷汽车销售服务有限公司 ), Shanghai Youcheyoujia Financial Leasing Co., Ltd. ( 上海有车有家融资租赁有限公司 ) ( Youcheyoujia ), Beijing Can Gu Automobile Consultancy Services Co., Ltd. ( 北京灿谷汽车咨询服务有限公司 ), Sichuan Xintongda Automobile Services Co., Ltd. ( 四川鑫通达汽车服务有限公司 ), Tianjin Changtong Automobile Rental Co., Ltd. ( 天津昌通汽车租赁有限公司 ), Hubei Huaitai Automobile Consultancy Services Co., Ltd. ( 湖北省怀泰汽车咨询服务有限公司 ), Shanxi Huirui Automobile Consultancy Services Co., Ltd. ( 山西汇瑞汽车咨询服务有限公司 ), Shandong Huaitong Automobile Consultancy Services Co., Ltd. ( 山东怀通汽车咨询服务有限公司 ), Jiangsu Tongyuan Automobile Consultancy Services Co., Ltd. ( 江苏通元汽车咨询服务有限公司 ), Guangxi Canyuan Automobile Consultancy Co., Ltd. ( 广西灿源汽车咨询服务有限公司 ), Hebei Jiahui Consultancy Services Co., Ltd. ( 河北佳辉咨询服务有限公司 ), Fujian Changhui Automobile Services Co., Ltd. ( 福建昌汇汽车服务有限公司 ), Shanghai Huixie Automobile Services Co., Ltd. ( 上海汇协汽车服务有限公司 ), Nanjing Canyuan Automobile Services Co., Ltd. ( 南京灿元汽车服务有限公司 ), Guangxi Nanning Can Gu Automobile Consultancy Services Co., Ltd. ( 广西南宁灿谷汽车咨询服务有限公司 ), Shijiazhuang Can Gu Automobile Rental Co., Ltd. ( 石家庄灿谷汽车租赁有限公司 ), Guizhou Can Gu Automobile Services Co., Ltd. ( 贵州灿谷汽车服务有限公司 ), Shenyang Can Gu Automobile Information Consultancy Co., Ltd. ( 沈阳灿谷汽车信息咨询有限公司 ), Xian Can Gu Automobile Consultancy Co., Ltd. ( 西安灿谷汽车咨询服务有限公司 ), Chengdu Can Gu Automobile Services Co., Ltd. ( 成都灿谷汽车服务有限公司 ), Kunming Can Gu Automobile Information Consultancy Services Co., Ltd. ( 昆明灿谷汽车信息咨询服务有限公司 ), Changsha Can Gu Automobile Services Co., Ltd. ( 长沙灿谷汽车服务有限公司 ), Hefei Can Gu Automobile Services Co., Ltd. ( 合肥灿谷汽车服务有限公司 ), Guangzhou Can Gu Automobile Information Consultancy Services Co., Ltd. ( 广州灿谷汽车信息咨询服务有限公司 ), Heilongjiang Can Gu Automobile Information Consultancy Services Co., Ltd. ( 黑龙江灿谷汽车信息咨询有限公司 ), Jiangxi Can Gu Automobile Consultancy Services Co., Ltd. ( 江西灿谷汽车咨询服务有限公司 ), Henan Can Gu Automobile Services Co., Ltd. ( 河南灿谷汽车服务有限公司 ), Shanghai Wangtian Investment Co., Ltd. ( 上海网天投资有限公司 ), together with each Subsidiary of the Company, and Group Company refers to any of the Group Companies. For avoidance of any doubt, in any event the term Group Companies or Group Company shall not include Liaoning Junan Automotive Consulting Co., Ltd. ( 辽宁君安汽车咨询服务有限公司 ).
Haitong means Haitong International Investment Holdings Limited.
Hong Kong means the Hong Kong Special Administrative Region of the Peoples Republic of China.
Immediate Family Member has the meaning given to such term in the Memorandum and Articles.
Intellectual Property means any and all (i) patents, patent rights and applications therefor and reissues, reexaminations, continuations, continuations-in-part, divisions, and patent term extensions thereof, (ii) inventions (whether patentable or not), discoveries, improvements, concepts, innovations and industrial models, (iii) registered and unregistered copyrights, copyright registrations and applications, mask works and registrations and applications therefor, authors rights and works of authorship (including artwork, software, computer programs, source code, object code and executable code, firmware, development tools, files, records and data, and related documentation), (iv) URLs, web sites, web pages and any part thereof, (v) technical information, know-how, trade secrets, drawings, designs, design protocols, specifications, proprietary data, customer lists, databases, proprietary processes, technology, formulae, and algorithms and other intellectual property, (vi) trade names, trade dress, trademarks, domain names, service marks, logos, business names, and registrations and applications therefor, and (vii) the goodwill symbolized or represented by the foregoing.
Indemnifiable Loss means, with respect to any Person, any action, claim, cost, damage, deficiency, diminution in value of any Group Company, disbursement, expense, liability, loss, obligation, penalty or settlement of any kind or nature imposed on or otherwise incurred or suffered by such Person, including without limitation, reasonable legal, accounting and other professional fees and expenses.
5 | Share Purchase Agreement |
Investor Affiliates means Series A-1 Investor Affiliate, Series A-2 Investor Affiliate, Series A-3 Investor Affiliate and Series B Investor Affiliates.
Law or Laws means any and all provisions of any applicable constitution, treaty, statute, law, regulation, ordinance, code, rule, or rule of common law, any governmental approval, concession, grant, franchise, license, agreement, directive, requirement, or other governmental restriction or any similar form of decision of, or determination by, or any interpretation or administration of any of the foregoing by, any Governmental Authority, in each case as amended, and any and all applicable Governmental Orders.
Liabilities or Liability means, with respect to any Person, all liabilities, obligations and commitments of such Person of any nature, whether accrued, absolute, contingent or otherwise, and whether due or to become due.
Lien means any claim, charge, easement, encumbrance, lease, covenant, security interest, lien, option, pledge, rights of others, or restriction (whether on voting, sale, transfer, disposition or otherwise), whether imposed by Contract, understanding, Law, equity or otherwise.
Memorandum and Articles means the amended and restated memorandum of association of the Company and the amended and restated articles of association of the Company attached hereto as Exhibit A-1 and Exhibit A-2 , respectively, to be adopted in accordance with the Companies Law (2016 Revision) of the Cayman Islands, as each may be amended and/or restated from time to time.
Ordinary Shares means the Companys Ordinary Shares, par value US$0.0001 per share.
O nshore Equity Transfer Agreement means the Equity Transfer Agreement entered into among Mr. Lin Jiayuan ( 林佳元 ), Shanghai Wangjin Investment Management Co., Ltd. ( 上海网金投资管理有限公司 ), Boyu III (Shanghai) Equity Investment Partnership L.P. ( 博裕三期 ( 上海 ) 股权投资合伙企业 ( 有限合伙 )) and Haitong International Investment Holdings Limited dated as of January 24, 2018.
Person means any individual, corporation, partnership, limited partnership, proprietorship, association, limited liability company, firm, joint venture, trust, estate, unincorporated organization, Governmental Authority or other enterprise or entity.
PRC means the Peoples Republic of China, but solely for the purposes of this Agreement and the other Transaction Documents, excluding Hong Kong, the Macau Special Administrative Region and Taiwan.
PRC Companies means, collectively, the Domestic Company and the WFOE, together with each Subsidiary of any of the foregoing in the PRC.
Preferred Shares means collectively, the Series A Preferred Shares and the Series B Preferred Shares of the Company.
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PV Onshore Subscription Agreement means the Share Subscription Agreement entered into among the Series A-3 Investor Affiliate, the Principals, the Domestic Company and other parties thereto dated as of July 21, 2017 as supplemented or amended from time to time.
Restructuring Plan means the plan to restructure the Group Companies such that the Company will effectively Control the Business and receive all economic and voting rights in all Group Companies (other than the Company) through the contractual arrangements under the Control Documents, which and any amendment thereto shall be agreed and confirmed by the Investors and the Principals.
Right of First Refusal & Co-Sale Agreement means the Right of First Refusal and Co-Sale Agreement to be entered into by and among the parties named therein on or prior to the Closing, which shall be in the form attached hereto as Exhibit B .
SAFE means the State Administration of Foreign Exchange of the PRC.
SAFE Rules and Regulations means collectively, Circular 37 and any other applicable SAFE rules and regulations.
SAIC means the State Administration of Industry and Commerce of the PRC or, with respect to the issuance of any business license or filing or registration to be effected by or with the State Administration of Industry and Commerce, any Governmental Authority which is similarly competent to issue such business license or accept such filing or registration under the Laws of the PRC.
Securities Act means the U.S. Securities Act of 1933, as amended and interpreted from time to time.
Series A Preferred Shares means collectively, Series A-1 Preferred Shares, Series A-2 Preferred Shares and Series A-3 Preferred Shares of the Company.
Series A Investors means Series A-1 Investor, Series A-2 Investor and Series A-3 Investor.
Series A-1 Preferred Shares means Series A-1 Preferred Shares of the Company, par value US$0.0001 per share, with the rights and privileges as set forth in the Memorandum and Articles and the other Transaction Documents.
Series A-1 Investor means Warburg Pincus Cango Fintech Investment Company Limited.
Series A-1 Investor Affiliate means the applicable entity as set forth in the Schedule II of this Agreement.
Series A-2 Preferred Shares means Series A-2 Preferred Shares of the Company, par value US$0.0001 per share, with the rights and privileges as set forth in the Memorandum and Articles and the other Transaction Documents.
Series A-2 Investor means PV Peacock Limited .
Series A-2 Investor Affiliate means the applicable entity as set forth in the Schedule II of this Agreement.
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Series A-3 Preferred Shares means Series A-3 Preferred Shares of the Company, par value US$0.0001 per share, with the rights and privileges as set forth in the Memorandum and Articles and the other Transaction Documents.
Series A-3 Investor means Zodiac One Limited.
Series A-3 Investor Affiliate means the applicable entity as set forth in the Schedule II of this Agreement.
Series B Onshore Subscription Agreement means the Share Subscription Agreement entered into among the Series B Investor Affiliates other than Taikang Life Insurance Co., Ltd. ( 泰康人寿保险有限公司 ) and Shandong State-controlled Taikang Phase I Industrial Development Fund Partnership Enterprise (Limited Partnership) ( 山东国控泰康一期产业发展基金合伙企业(有限合伙) ), the Principals, the Domestic Company and other parties thereto dated as of January 24, 2018, as supplemented or amended from time to time.
Series B Preferred Shares means Series B Preferred Shares of the Company, par value US$0.0001 per share, with the rights and privileges as set forth in the Memorandum and Articles and other Transaction Documents.
Series B Investors means the applicable entities as set forth in the Schedule II of this Agreement.
Series B Investor Affiliates means the applicable entities as set forth in the Schedule II of this Agreement.
Shareholders Agreement means the Shareholders Agreement to be entered into by and among the parties named therein on or prior to the Closing, which shall be in the form attached hereto as Exhibit C .
SOE Regulations means any and all Laws that applicable to an entity directly or indirectly owned or invested by any Governmental Authority in the PRC, which shall include without being limited to the Measures for the Supervision and Administration of the Transactions of State-Owned Assets of Enterprises issued by the PRC State Council and the PRC Ministry of Finance on June 24, 2016.
Subsidiary means, with respect to any given Person, any other Person that is Controlled directly or indirectly by such given Person.
Taikang means Magic Spark Inc. and TK Autolink Inc..
Tencent means Tencent Mobility Limited.
TK Onshore Subscription Agreement means the Share Subscription Agreement entered into among Taikang Life Insurance Co., Ltd. ( 泰康人寿保险有限公司 ) and Shandong State-controlled Taikang Phase I Industrial Development Fund Partnership Enterprise (Limited Partnership) ( 山东国控泰康一期产业发展基金合伙企业(有限合伙) ), the Principals, the Domestic Company and other parties thereto dated as of December 26, 2017, as supplemented or amended from time to time.
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Transaction Documents means this Agreement, the Shareholders Agreement, the Right of First Refusal & Co-Sale Agreement, the Memorandum and Articles, the Control Documents and each of the other agreements and documents otherwise required in connection with implementing the transactions contemplated by any of the foregoing.
WP Onshore Subscription Agreement means the Share Subscription Agreement entered into among Warburg Pincus Financial Global Ltd , the Principals, the Domestic Company and other parties thereto dated as of March 21, 2017, as supplemented or amended from time to time.
Warrantors means, collectively, the Group Companies, the Principals and the Principal Holding Companies.
1.2 | Other Defined Terms . The following terms shall have the meanings defined for such terms in the Sections set forth below: |
Agreement | Preamble | |
Arbitration Notice | Section 7.5(i) | |
Business | Recitals | |
Closing | Section 2.2(i) | |
Company | Preamble | |
Confidential Information | Section 7.12(i) | |
Disclosing Party | Section 7.12(iii) | |
Disclosure Schedule | Section 3 | |
Dispute | Section 7.5(i) | |
Domestic Company | Preamble | |
ESOP Shares | Section 3.2(i) | |
HK Company | Preamble | |
HKIAC | Section 7.5 (ii) | |
HKIAC Rules | Section 7.5 (ii) | |
Hong Kong | Section 7.4 | |
Indemnification Agreement | Section 5(g) | |
Indemnified Party | Section 7.8(iv) | |
Indemnifying Party | Section 7.8(iv) | |
Investor/Investors | Preamble | |
Onshore Subscription Agreements | Section 7.10 | |
Partnership(s) | Preamble | |
Party / Parties | Preamble | |
Principal(s) | Preamble | |
Principal Holding Company(ies) | Preamble | |
SEC | Section 4.1(f) | |
WFOE | Preamble |
2. Purchase, Allotment and Sale of Shares.
2.1 | Sale, allotment and Issuance of the Preferred Shares . |
(i) Subject to the terms and conditions of this Agreement, at the Closing (as defined below), in consideration of the Series A-1 Investor Affiliates execution of the Control Documents, the Company agrees to issue and sell to the Series A-1 Investor, that number of Series A-1 Preferred Shares set forth opposite the Series A-1 Investors name on Schedule II attached hereto.
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(ii) Subject to the terms and conditions of this Agreement, at the Closing, in consideration of the Series A-2 Investor Affiliates execution of the Control Documents, the Company agrees to issue and sell to the Series A-2 Investor, that number of Series A-2 Preferred Shares set forth opposite the Series A-2 Investors name on Schedule II attached hereto.
(iii) Subject to the terms and conditions of this Agreement, at the Closing, in consideration of the Series A-3 Investor Affiliates execution of the Control Documents, the Company agrees to issue and sell to the Series A-3 Investor, that number of Series A-3 Preferred Shares set forth opposite the Series A-3 Investors name on Schedule II attached hereto.
(iv) Subject to the terms and conditions of this Agreement, at the Closing, in consideration of each Series B Investor Affiliates execution of the Control Documents, the Company agrees to issue and sell to the respective Series B Investor, that number of Series B Preferred Shares set forth opposite such Series B Investors name on Schedule II attached hereto.
2.2 | Closing |
(i) Closing. The consummation of the sale, allotment and issuance of the Preferred Shares pursuant to Section 2.1 (the Closing ) shall take place remotely via the exchange of documents and signatures as soon as practicable after all closing conditions specified in Section 5 hereof have been satisfied or otherwise waived, or at such other time and place as the Company and the Investors shall mutually agree in writing. The Companys shareholding structure immediately after the Closing (reflecting all outstanding and issued Equity Securities of the Company) shall be as set forth in the Companys capitalization table attached hereto as Schedule III .
(ii) Deliveries by the Company at Closing . At the Closing, the Company shall deliver to each Investor (x) the updated register of members of the Company, certified by the registered agent of the Company, reflecting the issuance to each Investor of the applicable Preferred Shares being purchased by such Investor at the Closing pursuant to Section 2.1 , (y) the updated register of directors of the Company, certified by the registered agent of the Company, evidencing the appointment of the directors as contemplated by Section 5(h) hereof, and (z) the duly executed share certificate or certificates issued in the name of such Investor representing the applicable Preferred Shares being issued to such Investor at the Closing.
(iii) Deliveries by the Investors at Closing . At the Closing, subject to the satisfaction or waiver of all the conditions set forth in Section 5 below, each Investor shall (or procure its respective Investor Affiliate to), severally and not jointly, execute and deliver to the Company the Control Documents to which it is a party.
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3. Representations and Warranties of the Warrantors. Subject to such exceptions as may be specifically set forth in the disclosure schedule delivered by the Warrantors to the Investors as of the date hereof (the Disclosure Schedule , attached hereto as Exhibit D ), each of the Warrantors jointly and severally represents and warrants to the Investors that, each of the statements contained in this Section 3 is true, correct and complete as of the date of this Agreement, and that each of such statements and information shall be true, correct and complete on and as of the date of the Closing, with the same effect as if made on and as of the date of the Closing.
3.1 Organization, Good Standing and Qualification. Each Group Company is duly organized, validly existing and in good standing (or equivalent status in the relevant jurisdiction) under, and by virtue of, the Laws of the place of its incorporation or establishment and has all requisite power and authority to own its properties and assets and to carry on its business as now conducted and as proposed to be conducted, and to perform each of its obligations under the Transaction Documents to which it is a party. Each Group Company is qualified to do business and is in good standing (or equivalent status in the relevant jurisdiction) in each jurisdiction. Each Group Company that is a PRC entity has a valid business license issued by the SAIC or its local branch or other relevant Government Authorities (a true and complete copy of which has been delivered to the Investors), and has, since its establishment, carried on its business in compliance with the business scope set forth in its business license.
3.2 | Capitalization and Voting Rights. |
(i) Company. The authorized share capital of the Company is and immediately prior to the Closing shall be US$50,000 divided into (a) a total of 500,000,000 authorized Ordinary Shares, 372,138,271 of which have been designated as Ordinary Shares, 120,126,900 of which are issued and outstanding immediately prior to the Closing, and 27,845,526 Ordinary Shares ( ESOP Shares ) have been reserved for issuance to officers, directors, employees, consultants or service providers of the Company pursuant to the ESOP, and the Companys shareholding structure immediately after the reservation of ESOP Shares shall be as set forth in the Companys capitalization table attached hereto as Schedule I V , (b) a total of 53,431,125 authorized Series A-1 Preferred Shares, none of which are issued and outstanding immediately prior to the Closing, (c) a total of 2,179,215 authorized Series A-2 Preferred Shares, none of which are issued and outstanding immediately prior to the Closing, (d) a total of 10,308,663 authorized Series A-3 Preferred Shares, none of which are issued and outstanding immediately prior to the Closing, and (e) a total of 61,942,726 authorized Series B Preferred Shares, none of which are issued and outstanding immediately prior to the Closing. Section 3.2(i) of the Disclosure Schedule sets forth the capitalization table of each Group Company immediately prior to the Closing and immediately after the Closing, in each case reflecting all then outstanding and issued Equity Securities of such Group Company, the record and beneficial holders thereof.
(ii) HK Company . 10,000 ordinary shares of the HK Company are issued and outstanding and held by the Company. The Company is the sole record and beneficial owner of such shares.
(iii) WFOE . The registered capital of the WFOE is set forth opposite its name on Section 3.2(i) of the Disclosure Schedule, and the HK Company is the sole record and beneficial owner of such registered capital.
(iv) Domestic Compan y . The registered capital of the Domestic Company is set forth opposite its name on Section 3.2(i) of the Disclosure Schedule, together with an accurate and complete list of the record and beneficial owners of such registered capital.
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(v) No Other Securities . Except for (a) the conversion privileges of the Preferred Shares, (b) certain rights provided in the Transaction Documents from and after the Closing, and (c) the outstanding Equity Securities set forth in Section 3.2(i) of the Disclosure Schedule, (1) there are no and at the Closing there shall be no other authorized or outstanding Equity Securities of any Group Company, (2) no Equity Securities of any Group Company are subject to any preemptive rights, rights of first refusal (except to the extent provided by applicable PRC Laws) or other rights to purchase such Equity Securities or any other rights with respect to such Equity Securities, and (3) no Group Company is a party or subject to any Contract that affects or relates to the voting or giving of written consents with respect to, or the right to cause the redemption, or repurchase of, any Equity Security of such Group Company. Except as set forth in the Shareholders Agreement (from and after the Closing), the Company has not granted any registration rights or information rights to any other Person, nor is the Company obliged to list any of the Equity Securities of any Group Companies on any securities exchange. Except as contemplated under the Transaction Documents or as disclosed in Section 3.2(v) of the Disclosure Schedule, there are no voting or similar agreements which relate to the share capital or registered capital of any Group Company.
(vi) Issuance and Status . All presently outstanding Equity Securities of each Group Company were duly and validly issued (or subscribed for) in compliance with all applicable Laws, preemptive rights of any Person, and applicable Contracts. All share capital or registered capital, as the case may be, of each Group Company have been duly and validly issued, are fully paid (or subscribed for) pursuant to its Charter Documents and nonassessable, and as of the Closing shall be free of any and all Liens (except for any restrictions on transfer under the Transaction Documents and applicable Laws). Except as contemplated under the Transaction Documents, there are no (a) resolutions pending to increase the share capital or registered capital of any Group Company or cause the liquidation, winding up, or dissolution of any Group Company, nor has any distress, execution or other process been levied against any Group Company, (b) dividends which have accrued or been declared but are unpaid by any Group Company, (c) obligations, contingent or otherwise, of any Group Company to repurchase, redeem, or otherwise acquire any Equity Securities, or (d) outstanding or authorized equity appreciation, phantom equity, equity plans or similar rights with respect to any Group Company. All dividends (if any) or distributions (if any) declared, made or paid by each Group Company, and all repurchases and redemptions of Equity Securities of each Group Company (if any), have been declared, made, paid, repurchased or redeemed, as applicable, in accordance with its Charter Documents and all applicable Laws.
(vii) Title . Each Group Company is the sole record and beneficial holder of all of the Equity Securities set forth opposite its name on Section 3.2(i) of the Disclosure Schedule, free and clear of all Liens of any kind other than those arising under applicable Laws.
3.3 Corporate Structure; Subsidiaries. Section 3.3 of the Disclosure Schedule sets forth a complete structure chart showing all Group Companies and indicating the ownership and Control relationships among all Group Companies, the nature of the legal entity which each Group Company constitutes, and the jurisdiction in which each Group Company is organized. No Group Company owns or Controls, or has ever owned or Controlled, directly or indirectly, any Equity Security, interest or share in any other Person or is or was a participant in any joint venture, partnership or similar arrangement, except as disclosed in Section 3.3 of the Disclosure Schedule. No Group Company is obligated to make any investment in or capital contribution in or on behalf of any other Person. The Company was formed solely to hold the equity interests in the HK Company and the HK Company was formed solely to hold the equity interests in the WFOE. Neither the Company nor the HK Company has engaged in any other business and has not incurred any Liability, other than those incurred during the ordinary course of their formation and maintenance, since its formation. The Domestic Company and the WFOE are engaged in the Business as set forth in the Recitals and has no other business. Neither the Principals, the Principal Holding Companies nor any Person Controlled by the Principals or the Principal Holding Companies (other than a Group Company), is engaged in the Business or has any assets in relation to the Business (other than through an advisory, employment or consulting relationship with a Group Company) or any Contract with any Group Company, except as disclosed in Section 3.3 of the Disclosure Schedule.
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3.4 Authorization. Each Warrantor has all requisite power and authority to execute and deliver the Transaction Documents to which such Warrantor is a party and to carry out and perform such Warrantors obligations thereunder. All actions on the part of each party to the Transaction Documents (other than the Investors) (and, as applicable, its officers, directors and shareholders) that are necessary for the authorization, execution and delivery of the Transaction Documents, the performance of all obligations of each such party, and, in the case of the Company, the authorization, issuance (or reservation for issuance), allotment, and sale of the Preferred Shares and the Conversion Shares, have been taken or will be taken on or prior to the Closing. Each Transaction Document shall have been duly executed and delivered on or prior to the Closing by each party thereto (other than the Investors) and constitutes valid and legally binding obligations of such party, enforceable against such party in accordance with its terms, except (i) as limited by applicable bankruptcy, insolvency, reorganization, moratorium, fraudulent conveyance and other Laws of general application affecting enforcement of creditors rights generally, and (ii) as limited by Laws relating to the availability of specific performance, injunctive relief, or other equitable remedies.
3.5 Valid Issuance of Shares. The Preferred Shares, when issued, delivered and paid for in accordance with the terms of this Agreement for the consideration expressed herein, will be duly and validly issued, fully paid and non-assessable, free from any Liens (except for any restrictions on transfer under applicable Laws and under the Transaction Documents). The Conversion Shares have been reserved for issuance and, upon issuance in accordance with the terms of the Memorandum and Articles, will be duly and validly issued, fully paid and non-assessable, free from any Liens (except for any restrictions on transfer under applicable securities Laws and under the Transaction Documents). The issuance of the Preferred Shares and the Conversion Shares is not and will not be subject to any preemptive rights, rights of first refusal or similar rights other than those set forth in the Transaction Documents.
3.6 Offering. Subject to the qualifications of the applicable shareholders as required by the Securities Act and any other applicable securities Laws, the offer, sale, allotment and issuance of the Preferred Shares are, and the issuance of the Conversion Shares will be, exempt from the registration and prospectus delivery requirements of such Securities Act and applicable securities Laws.
3.7 No Brokers . Except as disclosed in Section 3.7 of the Disclosure Schedule, neither any Group Company nor any of its Affiliates has any Contract with any broker, finder or similar agent with respect to the transactions contemplated by this Agreement or by any of the Transaction Documents, or has incurred any Liability for any brokerage fees, agents fees, commissions or finders fees in connection with any of the Transaction Documents or the consummation of the transactions contemplated therein.
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3.8 No General Solicitation . Neither any Group Company, nor any of its officers, directors, employees, agents, stockholders or partners has either directly or indirectly, including through a broker or finder (a) engaged in any general solicitation, or (b) published any advertisement in connection with the offer and sale of the Preferred Shares.
3.9 Captive Structure . The Control Documents, in the aggregate intended to establish and maintain a Captive Structure through which the WFOE controls the Domestic Company, upon execution and delivery by the parties thereto, will constitute valid and binding obligations of the parties thereto enforceable in accordance with their respective terms and adequate to establish and maintain the intended Captive Structure, under which the financial statements of the Domestic Company will be consolidated with those of the other Group Companies in accordance with the Accounting Standards. None of the Warrantors has received any oral or written inquiries, notifications or any other form of official correspondence from any Governmental Authorities challenging or questioning the legality or enforceability of any of the Control Documents.
3.10 Consents and Permits . All consents, permits, approvals, orders, authorizations or registrations, qualifications, designations, declarations or filings by or with any Governmental Authority and any third party which are required to be obtained or made by each Warrantor in connection with the consummation of the transactions contemplated hereunder and under the Transaction Documents will have been obtained or made prior to and be in full force and effect as at the Closing.
3.11 No Conflicts . The execution, delivery and performance of and compliance with the Transaction Documents and the consummation of the transactions contemplated hereby and thereby will not result in any such violation, breach or default, or be in conflict with or constitute, with or without the passage of time or the giving of notice or both, either a default under any Warrantors Charter Documents or any term or provision of any mortgage, indenture, contract, agreement or instrument to which any Warrantor is a party or by which it may be bound, or, a violation of any statutes, Laws, regulations or orders, or an event which results in the creation of any lien, charge or encumbrance upon any asset of any Group Company.
3.12 Insolvency . Each of the Warrantors (i) is and has been solvent, and (ii) is free from pending bankruptcy, corporate reorganization proceedings, liquidation, or any other insolvency or bankruptcy action or event.
3.13 Compliance with Other Instruments . None of the Warrantors is in violation or default of any provisions of its respective Charter Documents, or of any instrument, judgment, order, writ, or decree, or under any note, indenture, mortgage, lease, agreement, contract or purchase order to which it is a party or by which it is bound, or any applicable Laws.
4. | Representations and Warranties of the Investors and the Partnerships. |
4.1 Each Investor hereby represents and warrants to the Company, severally and not jointly, that as of the date of this Agreement and as of the date of the Closing:
(a) Organization, Good Standing and Qualification. Such Investor is duly organized, validly existing and in good standing (or equivalent status in the relevant jurisdiction) under, and by virtue of, the Laws of the place of its incorporation or establishment and has all requisite power and authority to own its properties and assets and to carry on its business.
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(b) Authorization. Such Investor has all requisite power and authority to execute and deliver the Transaction Documents to which it is a party and to carry out and perform its obligations thereunder. All actions on the part of such Investor that are necessary for the authorization, execution and delivery of the Transaction Documents to which it is a party, have been taken or will be taken prior to the Closing. Each Transaction Document has been duly executed and delivered by such Investor (to the extent such Investor is a party), enforceable against such Investor in accordance with its terms, except (i) as limited by applicable bankruptcy, insolvency, reorganization, moratorium, fraudulent conveyance and other Laws of general application affecting enforcement of creditors rights generally, and (ii) as limited by Laws relating to the availability of specific performance, injunctive relief, or other equitable remedies.
(c) No Conflicts . The execution, delivery and performance of each Transaction Document to which it is a party by such Investor do not, and the consummation by such Investor of the transactions contemplated hereby and thereby will not, (a) result in a violation of the Charter Documents of such Investor, (b) conflict with or result in a breach or violation in any statutes, Laws, regulations or orders applicable to such Investor, or (c) conflict with or result in a breach or violation in, or constitute a default under, any Contract to which such Investor is a party or by which such Investor is bound.
(d) No Consents . The execution, delivery and performance of each Transaction Document to which it is a party by such Investor is not subject to any consents, permits, approvals, orders, authorizations or registrations, qualifications, designations, declarations or filings by or with any Governmental Authority or any third party.
(e) Purchase for Own Account. Unless otherwise disclosed to the Company in writing, the applicable Preferred Shares being purchased by such Investor and the Conversion Shares thereof will be acquired for such Investors own account, not as a nominee or agent, and not with a view to or in connection with the sale or distribution of any part thereof.
(f) Status of Investor . Such Investor is either (i) an accredited investor within the meaning of the U.S. Securities and Exchange Commission ( SEC ) Rule 501 of Regulation D, as presently in effect, under the Securities Act, or (ii) not a U.S. person as defined in Rule 902 of Regulation S of the Securities Act. Such Investor has the knowledge, sophistication and experience necessary to make an investment decision like that involved in the purchase of the Preferred Shares and can bear the economic risk of its investment in the Preferred Shares.
(g) Restricted Securities . Such Investor understands that the applicable Preferred Shares and the Conversion Shares are restricted securities within the meaning of Rule 144 under the Securities Act; that the applicable Preferred Shares and the Conversion Shares are not registered or listed publicly and must be held indefinitely unless they are subsequently registered or listed publicly or an exemption from such registration or listing is available.
(h) Non State-owned . Such Investor is not a PRC state-owned enterprise as defined in any SOE Regulations and is not subject to any SOE Regulations, except in the case of Cinda and Boyu, the execution of the Transaction Documents to which Cinda or Boyu is a party, the consummation of the transactions contemplated hereby and thereby and any disposal of Cinda or Boyus interests in the Company is not or will not be subject to any SOE Regulations.
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4.2 Each Partnership hereby represents and warrants to the Investors, severally and not jointly, that:
(a) Organization, Good Standing and Qualification. Such Partnership is duly organized, validly existing and in good standing (or equivalent status in the relevant jurisdiction) under, and by virtue of, the Laws of the place of its incorporation or establishment and has all requisite power and authority to own its properties and assets and to carry on its business.
(b) Authorization. Such Partnership has all requisite power and authority to execute and deliver the Transaction Documents to which it is a party and to carry out and perform its obligations thereunder. All actions on the part of such Partnership that are necessary for the authorization, execution and delivery of the Transaction Documents to which it is a party, have been taken or will be taken prior to the Closing. Each Transaction Document has been duly executed and delivered by such Partnership (to the extent such Partnership is a party), enforceable against such Partnership in accordance with its terms, except (i) as limited by applicable bankruptcy, insolvency, reorganization, moratorium, fraudulent conveyance and other Laws of general application affecting enforcement of creditors rights generally, and (ii) as limited by Laws relating to the availability of specific performance, injunctive relief, or other equitable remedies.
(c) Consents and Permits . All consents, permits, approvals, orders, authorizations or registrations, qualifications, designations, declarations or filings by or with any Governmental Authority and any third party which are required to be obtained or made by each Partnership in connection with the consummation of the transactions contemplated hereunder and under the Transaction Documents have been obtained or made prior to and be in full force and effect as at the Closing.
(d) No Conflicts . The execution, delivery and performance of and compliance with the Transaction Documents and the consummation of the transactions contemplated hereby and thereby will not result in any such violation, breach or default, or be in conflict with or constitute, with or without the passage of time or the giving of notice or both, either a default under any Partnerships Charter Documents or any term or provision of any mortgage, indenture, contract, agreement or instrument to which the any Partnership is a party or by which it may be bound, or, a violation of any statutes, Laws, regulations or orders, or an event which results in the creation of any lien, charge or encumbrance upon any asset of any Partnership.
5 . Conditions of the Investors Obligations at the Closing. The obligations of each Investor to consummate the Closing under Section 2 of this Agreement are subject to the fulfillment, to the satisfaction of such Investor on or prior to the Closing, or waiver by such Investor, of the following conditions:
(a) Representations and Warranties . Each of the representations and warranties of the Warrantors and the Partnerships contained in Section 3 and Section 4.2 shall have been true and complete when made and shall be true and complete on and as of the Closing with the same effect as though such representations and warranties had been made on and as of the date of such Closing, except in either case for those representations and warranties that address matters only as of a particular date, which representations will have been true and complete as of such particular date.
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(b) Performance. Each Warrantor shall have performed and complied with all obligations and conditions contained in the Transaction Documents that are required to be performed or complied with by them, on or before the Closing.
(c) Authorizations. All Consents of any competent Governmental Authority or of any other Person that are required to be obtained by any Warrantor or Partnership in connection with the consummation of the transactions that are required to be consummated prior to the Closing as contemplated by the Transaction Documents (including but not limited to those related to the formation of the Company, the lawful issuance and sale of the Preferred Shares, and any waivers of notice requirements, rights of first refusal, preemptive rights, put or call rights) shall have been duly obtained and effective as of the Closing, and evidence thereof shall have been delivered to the Investors.
(d) Proceedings and Documents. All corporate and other proceedings in connection with the transactions to be completed at the Closing and all documents incident thereto, including without limitation written approval from all of the then current holders of equity interests of each Group Company (other than the Investors), as applicable, with respect to this Agreement and the other Transaction Documents and the transactions contemplated hereby and thereby, shall have been obtained or executed.
(e) Memorandum and Articles. The Memorandum and Articles, in the forms attached hereto as Exhibit A-1 and Exhibit A-2 , respectively, shall have been duly adopted by all necessary actions of the Board of Directors and/or the shareholders of the Company (which Memorandum and Articles shall have been submitted for filing with the appropriate authority(ies) of the Cayman Islands at or prior to the Closing), and such adoption shall have become effective prior to the Closing with no alteration or amendment as of the Closing, and reasonable evidence thereof shall have been delivered to the Investors.
(f) Transaction Documents. Each of the parties to the Transaction Documents, other than the Investors, shall have executed and delivered such Transaction Documents to the Investors.
(g) Indemnification Agreement. The Company shall have delivered to each of Series A-1 Investor, Tencent and Taikang a copy of indemnification agreement between the Company and the Investor Director (as defined in the Shareholders Agreement) appointed by Series A-1 Investor, Tencent and Taikang respectively, duly executed by the Company (the Indemnification Agreement ) in form and substance attached hereto as Exhibit E .
(h) Board of Directors. The Company shall have taken all necessary corporate actions such that immediately following the Closing (x) the board of directors of each of the Company, the HK Company, the WFOE and the Domestic Company shall have seven (7) members, among which, four (4) members shall be appointed by the Principals, one (1) member shall be appointed by the Series A-1 Investor, one (1) member shall be appointed by Tencent, and one (1) member shall be appointed by Taikang, (y) a representative nominated by the Series A-3 Investor shall have been appointed as the observer of the board of directors of the Company, the HK Company, the WFOE and the Domestic Company, and (z) a representative nominated by Didi shall have been appointed as the observer of the board of directors of the Company, the HK Company, the WFOE and the Domestic Company.
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(i) SAFE Registration . The Principals and any other holder or beneficial owner of any Equity Securities of the Company, who is a Domestic Resident as defined in Circular 37 and is subject to any of the registration or reporting requirements of Circular 37, shall have obtained a SAFE registration certificate with respect to his/her interest in the Company, and shall have no reason to believe that they may not be in full compliance with all such reporting and/or registration requirements.
(j) Opinions of Companys Counsels . Each Investor shall have received (i) from PRC counsel to the Group Companies legal opinions addressed to such Investor, dated the date of the Closing, and (ii) from Cayman Islands counsel to the Company a legal opinion addressed to such Investor, dated the date of the Closing.
(k) Closing Certificate . The Warrantors shall have executed and delivered to each Investor a certificate dated as of the Closing stating that the conditions specified in this Section 5 have been fulfilled or waived as of the Closing.
(l) Certificate of Good Standing . The Company shall have deliver to each Investor a certificate of good standing of the Company dated no earlier than ten (10) Business Days prior to the date of Closing.
(m) Certificate of Incumbency . The Company shall have delivered to each Investor a certificate of incumbency of the Company, issued by the secretary of the Company, dated no earlier than ten (10) Business Days prior to the date of the Closing.
(n) Secretarys Certificate . The secretary of the Company shall deliver to each Investor at the Closing a certificate certifying (i) the Memorandum and Articles, and (ii) resolutions of the shareholders and the board of directors of the Company approving the Transaction Documents, the transactions contemplated hereby and thereby, and the performance of all obligations of the Company hereunder and thereunder.
6. Conditions of the Company s Obligations at Closing. The obligations of the Company to consummate the Closing under Section 2 of this Agreement, unless otherwise waived in writing by the Company, are subject to the fulfillment on or before the Closing of each of the following conditions:
6.1 Representations and Warranties . The representations and warranties of each Investor contained in Section 4 .1 shall have been true and complete when made and shall be true and complete on and as of the Closing with the same effect as though such representations and warranties had been made on and as of the date of the Closing, except in either case for those representations and warranties that address matters only as of a particular date, which representations will have been true and complete as of such particular date.
6.2 Performance . Each Investor shall have performed and complied with all covenants, obligations and conditions contained in this Agreement that are required to be performed or complied with by each Investor on or before the Closing.
6.3 Transaction Documents . Each of the Transaction Documents shall have been executed and delivered by such Investor.
6.4 Filing with CIRC . In respect of Taikang, Taikang shall have completed the filing of the transaction contemplated under the Transaction Documents with the CIRC without objection or dissent (if applicable) and submitted relevant information to the Equity Investment Information Reporting System (if applicable).
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7. | Covenants; Miscellaneous. |
7.1 | Post Closing Covenants. |
(i) Compliance with Laws. Each Group Company shall, and each Principal shall cause each Group Company to, use their respective reasonable best efforts to comply in all material respects with all applicable Laws, including but not limited to applicable PRC Laws relating to the Business, Intellectual Property, anti-corruption, anti-money laundry, taxation, employment and social welfare and benefits.
(ii) Compliance with SAFE Rules and Regulations . The Principals and any other holder or beneficial owner of any Equity Securities of the Company, who is a Domestic Resident as defined in Circular 37 and is subject to any of the registration or reporting requirements of Circular 37, shall, and the Group Companies shall cause those individuals to, comply with all reporting and/or registration requirements (including filings of amendments to existing registrations) under the SAFE Rules and Regulations in respect of his/her direct and indirect record and beneficial ownership of any equity interest in the Company and each other Group Company.
(iii) Business of the Company . Unless otherwise approved by the Board or shareholders of the Company, as applicable, the business of the Company shall be restricted to the holding of shares or equity interest in the HK Company, and the business of the HK Company shall be restricted to the holding of shares or equity interest in the WFOE.
(iv) D&O Insurance . If requested by Series A-1 Investor, Tencent or Taikang, the Company shall obtain and maintain director and officer insurance with coverage and terms to the reasonable satisfaction of Series A-1 Investor, Tencent or Taikang.
(v) Equity Pledge Registration . As soon as practicable but in no event later than two (2) months after the Closing, the Company shall procure that the equity pledge made by each equity holder of the Domestic Company in favor of the WFOE pursuant to the Control Documents shall be registered with the competent PRC Governmental Authorities.
(vi) Transfer of Assets and Business Contracts . Subject to the approvals of the shareholders of relevant Group Company as provided by other Transaction Documents, as soon as practicable after the Closing, the Company shall cause the material Intellectual Property, assets and the business contracts of the Domestic Company, to the maximum extent permitted by the applicable laws, to be transferred to the WFOE. Subject to the approvals of the board of directors of relevant Group Company and/or the approvals of the shareholders of relevant Group Company as provided by other Transaction Documents, to the maximum extent permitted by the applicable laws, any future material Intellectual Property, assets of the Group Companies shall be owned in the WFOEs name and any future business contract shall be entered into by the WFOE.
7.2 Further Assurances. Upon the terms and subject to the conditions herein, each of the Parties hereto agrees to use its best efforts to take or cause to be taken all action, to do or cause to be done, to execute such further instruments, and to assist and cooperate with the other Parties hereto in doing, all things necessary, proper or advisable under applicable Laws or otherwise to consummate and make effective, in the most expeditious manner practicable, the transactions contemplated by this Agreement and other Transaction Documents, provided that except as expressly provided herein, no Party shall be obligated to grant any waiver of any condition or other waiver hereunder.
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7.3 Successors and Assigns. Except as otherwise provided herein, the terms and conditions of this Agreement shall inure to the benefit of and be binding upon the respective successors and assigns of the Parties hereto whose rights or obligations hereunder are affected by such terms and conditions. This Agreement and the rights and obligations therein may not be assigned by any Warrantor without the prior written consent of the Investors. Nothing in this Agreement, express or implied, is intended to confer upon any party other than the Parties hereto or their respective successors and assigns any rights, remedies, obligations, or liabilities under or by reason of this Agreement, except as expressly provided in this Agreement.
7.4 Governing Law. This Agreement shall be governed by and construed under the Laws of the Hong Kong, without regard to principles of conflict of Laws thereunder.
7.5 | Dispute Resolution. |
(i) Any dispute, controversy or claim (each, a Dispute ) arising out of or relating to this Agreement, or the interpretation, breach, termination, validity or invalidity thereof, shall be referred to arbitration upon the demand of either party to the dispute with notice (the Arbitration Notice ) to the other.
(ii) The Dispute shall be settled by arbitration in Hong Kong by the Hong Kong International Arbitration Centre (the HKIAC ) in accordance with the Hong Kong International Arbitration Centre Administered Arbitration Rules (the HKIAC Rules ) in force when the Arbitration Notice is submitted in accordance with the HKIAC Rules. There shall be one (1) arbitrator. The HKIAC Council shall select the arbitrator, who shall be qualified to practice law in Hong Kong.
(iii) The arbitral proceedings shall be conducted in English. To the extent that the HKIAC Rules are in conflict with the provisions of this Section, including the provisions concerning the appointment of the arbitrators, the provisions of this Section shall prevail.
(iv) Each party to the arbitration shall cooperate with each other party to the arbitration in making full disclosure of and providing complete access to all information and documents requested by such other party in connection with such arbitral proceedings, subject only to any confidentiality obligations binding on such party.
(v) The award of the arbitral tribunal shall be final and binding upon the parties thereto, and the prevailing party may apply to a court of competent jurisdiction for enforcement of such award.
(vi) The arbitral tribunal shall decide any Dispute submitted by the parties to the arbitration strictly in accordance with the substantive Laws of Hong Kong (without regard to principles of conflict of Laws thereunder) and shall not apply any other substantive Law.
(vii) Any party to the Dispute shall be entitled to seek preliminary injunctive relief, if possible, from any court of competent jurisdiction pending the constitution of the arbitral tribunal.
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(viii) During the course of the arbitral tribunals adjudication of the Dispute, this Agreement shall continue to be performed except with respect to the part in dispute and under adjudication.
7.6 Notices. Any notice required or permitted pursuant to this Agreement shall be given in writing and shall be given either personally or by sending it by next-day or second-day courier service, fax, electronic mail or similar means to the address of the relevant Party as shown on Schedule V (or at such other address as such Party may designate by ten (10) days advance written notice to the other Parties to this Agreement given in accordance with this Section). Where a notice is sent by next-day or second-day courier service, service of the notice shall be deemed to be effected by properly addressing, pre-paying and sending by next-day or second-day service through an internationally-recognized courier a letter containing the notice, with a written confirmation of delivery, and to have been effected at the earlier of (i) delivery (or when delivery is refused) and (ii) expiration of two (2) Business Days after the letter containing the same is sent as aforesaid. Where a notice is sent by fax or electronic mail, service of the notice shall be deemed to be effected by properly addressing, and sending such notice through a transmitting organization, with a written confirmation of delivery, and to have been effected on the day the same is sent as aforesaid, if such day is a Business Day and if sent during normal business hours of the recipient, otherwise the next Business Day. Notwithstanding the foregoing, to the extent a with a copy to address is designated, notice must also be given to such address in the manner above for such notice, request, consent or other communication hereunder to be effective.
7.7 Survival of Representations, Warranties and Covenants . The representations, warranties and covenants of the Warrantors contained in this Agreement shall survive any investigation made by any party hereto, and the consummation of the transactions contemplated hereby.
7.8 | Indemnity. |
(i) Each of the Warrantors hereby agrees to jointly and severally indemnify and hold harmless each Investor, and such Investors directors, officers, employees, Affiliates, agents, successors and assigns, from and against any and all Indemnifiable Losses suffered by such Investor, or such Investors directors, officers, employees, Affiliates, agents, successors and assigns, directly or indirectly, as a result of, or based upon or arising from any inaccuracy in or breach or nonperformance of any of the representations, warranties, covenants or agreements made by any Warrantors in or pursuant to this Agreement.
(ii) Each of the Partnerships hereby agrees to, severally and not jointly, indemnify and hold harmless each Investor, and such Investors directors, officers, employees, Affiliates, agents, successors and assigns, from and against any and all Indemnifiable Losses suffered by such Investor, or such Investors directors, officers, employees, Affiliates, agents, successors and assigns, directly or indirectly, as a result of, or based upon or arising from any inaccuracy in or breach or nonperformance of any of the representations, warranties, covenants or agreements made by such Partnership in or pursuant to this Agreement.
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(iii) Each Investor hereby agrees to, severally and not jointly, indemnify and hold harmless the Company from and against any and all Indemnifiable Losses suffered by the Company directly or indirectly, as a result of, or based upon or arising from any inaccuracy in or breach or nonperformance of any of the representations, warranties, covenants or agreements made by such Investor in or pursuant to this Agreement.
(iv) Any Party seeking indemnification with respect to any Indemnifiable Loss (an Indemnified Party ) shall give written notice to the party required to provide indemnity hereunder (the Indemnifying Party ).
(v) If any claim, demand or Liability is asserted by any third party against any Indemnified Party, the Indemnifying Party shall upon the written request of the Indemnified Party, defend any actions or proceedings brought against the Indemnified Party in respect of matters embraced by the indemnity under this Section 7.8 . If, after a request to defend any action or proceeding, the Indemnifying Party neglects to defend the Indemnified Party, a recovery against the Indemnified Party suffered by it in good faith shall be conclusive in its favor against the Indemnifying Party.
(vi) This Section 7.8 shall not be deemed to preclude or otherwise limit in any way the exercise of any other rights or pursuit of other remedies for the breach of this Agreement or with respect to any misrepresentation.
7.9 Rights Cumulative; Specific Performance . Each and all of the various rights, powers and remedies of a party hereto will be considered to be cumulative with and in addition to any other rights, powers and remedies which such Party may have at Law or in equity in the event of the breach of any of the terms of this Agreement. The exercise or partial exercise of any right, power or remedy will neither constitute the exclusive election thereof nor the waiver of any other right, power or remedy available to such Party. Without limiting the foregoing, the Parties hereto acknowledge and agree irreparable harm may occur for which money damages would not be an adequate remedy in the event that any of the provisions of this Agreement were not performed in accordance with their specific terms or were otherwise breached. It is accordingly agreed that the Parties shall be entitled to injunction to prevent breaches of this Agreement and to enforce specifically the terms and provisions of this Agreement.
7.10 Joint Liability. Each of the Warrantors hereby agrees to be jointly and severally liable for the Liabilities of the Principals, the holding companies of the Principals (if applicable) and the PRC Companies to each Investor and/or Investor Affiliate (as the case may be) under the WP Onshore Subscription Agreement, the PV Onshore Subscription Agreement, the TK Onshore Subscription Agreement and/or the Series B Onshore Subscription Agreement (as the case may be) (collectively, the Onshore Subscription Agreements ), including but not limited to the obligations to indemnify Investor Affiliates according to and subject to the terms thereunder as if such offshore entity was a party to the Onshore Subscription Agreements. For the avoidance of doubt, the Onshore Subscription Agreements shall remain in effect according to the terms and conditions thereunder and shall not be replaced or superseded by this Agreement. Each of the Principals and Principal Holding Companies hereby agrees to be jointly and severally liable for the Liabilities of the Principals and the holding companies of the Principals (if applicable) to Boyu, Haitong and/or their applicable Affiliates (as the case may be) under the Onshore Equity Transfer Agreement, including but not limited to the obligations to indemnify Boyu, Haitong and/or their Affiliates according to and subject to the terms thereunder as if such offshore company was a party to the Onshore Equity Transfer Agreement. For the avoidance of doubt, the Onshore Equity Transfer Agreement shall remain in effect according to the terms and conditions thereunder and shall not be replaced or superseded by this Agreement.
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7.11 Limitation on Liabilities. Notwithstanding any other provisions hereunder to the contrary, the maximum aggregate monetary liability of each Principal under this Agreement shall in no event exceed the asset directly or indirectly owned by such Principal and all the Equity Securities of the Company directly or indirectly held by such Principal (including without limitation the Equity Securities of the Company held in trust by other shareholders (if applicable) for such Principle) when such liability becomes definitive, non-appealable and due. For purpose of this Section 7.11 , absent intentional or malicious transfer of assets or the Equity Securities directly or indirectly held by any Principal, with respect to each Principal, the forgoing description the asset directly or indirectly owned by such Principal shall not include any asset that is under the name of any Immediate Family Member of such Principal and such asset that is under the name of any Immediate Family Member of such Principal shall not be deemed as the asset directly or indirectly owned by such Principal even if such property by its nature is the matrimonial community asset of such Principle and his/her spouse. For the further avoidance of doubt, except for those Equity Securities of the Company as subscribed or purchased by the Immediate Family Member of the Principals in accordance with the terms and conditions of the Transaction Documents, the Equity Securities directly or indirectly held by any Principal shall not be registered under the name of any Immediate Family Member of such Principal, or belong to any Immediate Family Member of such Principal by any means other than the inheriting pursuant to the applicable Laws and each of the Principal shall cause the spouse of such Principal to waive his/her rights to the interests in connection with the Equity Securities of the Company directly or indirectly held by such Principal (including without limitation the Equity Securities of the Company held in trust by other shareholders (if applicable) for such Principle).
7.12 | Confidentiality. |
(i) The terms and conditions of this Agreement, other Transaction Documents, any term sheet or memorandum of understanding entered into pursuant to the transactions contemplated hereby, all exhibits and schedules attached hereto and thereto, the transactions contemplated hereby and thereby, including their existence, and all information furnished by any Party hereto and by representatives of such Parties to any other Party hereof or any of the representatives of such Parties (collectively, the Confidential Information ), shall be considered confidential information and shall not be disclosed by any Party hereto to any third party except in accordance with the provisions set forth below.
(ii) Notwithstanding the foregoing, each Party may disclose (i) the Confidential Information to its current or bona fide prospective investors, partners, Affiliates, assigns and their respective employees, officers, directors, bankers, debtors, accountants or legal counsels, business partners, agents or other consultants who need to know such information, in each case only where such persons or entities are informed of the confidential nature of the Confidential Information and are under appropriate nondisclosure obligations substantially similar to those set forth in this Section 7.12 , (ii) such Confidential Information as is required to be disclosed pursuant to routine examination requests from Governmental Authorities with authority to regulate such Partys operations, in each case as such Party deems appropriate in good faith, and (iii) the Confidential Information to any Person to which disclosure is approved in writing by the other Parties. Any Party hereto may also provide disclosure in order to comply with applicable Laws, as set forth in Section 7.12(iii) below.
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(iii) Except as set forth in Section 7.12(ii) above, in the event that any Party is requested or becomes legally compelled (including without limitation, pursuant to any applicable tax, securities, other Laws of any jurisdiction, or any applicable stock exchange rules or regulations) to disclose the existence of this Agreement or any Confidential Information, such party (the Disclosing Party ) shall provide the other Parties hereto with prompt written notice of that fact and shall consult with the other Parties hereto regarding such disclosure. At the request of any other Parties, the Disclosing Party shall, to the extent reasonably possible and with the cooperation and reasonable efforts of the other Parties, seek a protective order, confidential treatment or other appropriate remedy. In any event, the Disclosing Party shall furnish only that portion of the information that is legally required and shall exercise reasonable efforts to obtain reliable assurance that confidential treatment will be accorded such information.
(iv) Notwithstanding any other provision of this Section 7.12 , the confidentiality obligations of the Parties shall not apply to: (i) information which a restricted party learns from a third party which the receiving party reasonably believes to have the right to make the disclosure, provided the restricted party complies with any restrictions imposed by the third party; (ii) information which is rightfully in the restricted partys possession prior to the time of disclosure by the protected party and not acquired by the restricted party under a confidentiality obligation; or (iii) information which enters the public domain without breach of confidentiality by the restricted party.
(v) Notwithstanding the foregoing, no Group Company shall use the name or logo of any Investor in any manner, context or format (including but not limited to reference on or links to websites, press releases) without the prior written consent of such Investor.
7.13 Severability. In case any provision of the Agreement shall be invalid, illegal or unenforceable, the validity, legality and enforceability of the remaining provisions shall not in any way be affected or impaired thereby. If, however, any provision of this Agreement shall be invalid, illegal, or unenforceable under any such applicable Law in any jurisdiction, it shall, as to such jurisdiction, be deemed modified to conform to the minimum requirements of such Law, or, if for any reason it is not deemed so modified, it shall be invalid, illegal, or unenforceable only to the extent of such invalidity, illegality, or limitation on enforceability without affecting the remaining provisions of this Agreement, or the validity, legality, or enforceability of such provision in any other jurisdiction.
7.14 Amendments and Waivers. Any term of this Agreement may be amended only with the written consent of each of (i) the Company, (ii) the Principals and the Principal Holding Companies, and (iii) the respective Investor. Any amendment effected in accordance with this paragraph shall be binding upon each of the Parties hereto. Notwithstanding the foregoing, the observance of any term of this Agreement may be waived (either generally or in a particular instance and either retroactively or prospectively) only with the written consent of the Party against whom such waiver is sought.
7.15 No Waiver . Failure to insist upon strict compliance with any of the terms, covenants, or conditions hereof will not be deemed a waiver of such term, covenant, or condition, nor will any waiver or relinquishment of, or failure to insist upon strict compliance with, any right, power or remedy power hereunder at any one or more times be deemed a waiver or relinquishment of such right, power or remedy at any other time or times.
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7.16 Delays or Omissions. No delay or omission to exercise any right, power or remedy accruing to any Party under this Agreement, upon any breach or default of any other Party under this Agreement, shall impair any such right, power or remedy of such non-breaching or non-defaulting Party nor shall it be construed to be a waiver of any such breach or default, or an acquiescence therein, or of or in any similar breach or default thereafter occurring; nor shall any waiver of any single breach or default be deemed a waiver of any other breach or default theretofore or thereafter occurring. Any waiver, permit, consent or approval of any kind or character on the part of any Party of any breach or default under this Agreement, or any waiver on the part of any Party of any provisions or conditions of this Agreement, must be in writing and shall be effective only to the extent specifically set forth in such writing.
7.17 No Presumption. The Parties acknowledge that any applicable Law that would require interpretation of any claimed ambiguities in this Agreement against the Party that drafted it has no application and is expressly waived. If any claim is made by a Party relating to any conflict, omission or ambiguity in the provisions of this Agreement, no presumption or burden of proof or persuasion will be implied because this Agreement was prepared by or at the request of any Party or its counsel.
7.18 Headings and Subtitles; Interpretation. The titles and subtitles used in this Agreement are used for convenience only and are not to be considered in construing or interpreting this Agreement. Unless a provision hereof expressly provides otherwise: (i) the term or is not exclusive; (ii) words in the singular include the plural, and words in the plural include the singular; (iii) the terms herein, hereof, and other similar words refer to this Agreement as a whole and not to any particular section, subsection, paragraph, clause, or other subdivision; (iv) the term including will be deemed to be followed by, but not limited to, (v) the masculine, feminine, and neuter genders will each be deemed to include the others; (vi) the terms shall, will, and agrees are mandatory, and the term may is permissive; (vii) the term day means calendar day, and month means calendar month, (viii) all references in this Agreement to designated Sections and other subdivisions are to the designated Sections and other subdivisions of the body of this Agreement, (ix) all references in this Agreement to designated Schedules, Exhibits and Appendices are to the Schedules, Exhibits and Appendices attached to this Agreement, (x) the phrase directly or indirectly means directly, or indirectly through one or more intermediate Persons or through contractual or other arrangements, and direct or indirect has the correlative meaning, (xi) references to Laws include any such Law modifying, re-enacting, extending or made pursuant to the same or which is modified, re-enacted, or extended by the same or pursuant to which the same is made, (xii) each representation, warranty, agreement, and covenant contained herein will have independent significance, regardless of whether also addressed by a different or more specific representation, warranty, agreement, or covenant, (xiii) all accounting terms not otherwise defined herein have the meanings assigned under the Accounting Standards, (xiv) pronouns of either gender or neuter shall include, as appropriate, the other pronoun forms, (xv) references to this Agreement, any other Transaction Documents and any other document shall be construed as references to such document as the same may be amended, supplemented or novated from time to time, and (xvi) all references to dollars or to US$ are to currency of the United States of America and all references to RMB are to currency of the PRC (and each shall be deemed to include reference to the equivalent amount in other currencies).
7.19 Counterparts. This Agreement may be executed in two or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. Facsimile and e-mailed copies of signatures shall be deemed to be originals for purposes of the effectiveness of this Agreement.
25 | Share Purchase Agreement |
7.20 Entire Agreement. This Agreement and the other Transaction Documents, together with all schedules and exhibits hereto and thereto, constitute the full and entire understanding and agreement among the Parties with regard to the subjects hereof and thereof, and supersede all other agreements between or among any of the Parties with respect to the subject matters hereof and thereof.
7.21 Termination. This Agreement may be terminated prior to the Closing by mutual written consent of the Parties hereto. In the event of a valid termination of this Agreement pursuant to this Section 7.21 , this Agreement shall become void and of no effect with no liability on the part of any Party hereto (or of any of its representatives); provided, however, that (i) Section 7.4 , Section 7.5 , Section 7.12 and Section 7.21 shall remain in full force and effect and survive termination of this Agreement, and (ii) nothing herein shall relieve any Party from liability for fraud or any willful and material breach of this Agreement prior to such termination. No Party claiming that any such breach occurred will have any duty or otherwise be obligated to mitigate any damages arising out of or resulting from such breach.
7.22 Use of English Language . This Agreement has been executed and delivered in the English language. Any translation of this Agreement into another language, if any, shall have no interpretive effect. All documents or notices to be delivered pursuant to or in connection with this Agreement shall be in the English language or, if any such document or notice is not in the English language, accompanied by an English translation thereof, and the English language version of any such document or notice shall control for purposes thereof.
7.23 Independent Nature of Investors Obligations and Rights . The obligations of each Investor under this Agreement and the other Transaction Documents are several and not joint, and no Investor is responsible in any way for the performance or conduct of any other Investor in connection with the transactions contemplated hereby. Nothing contained herein or in any other Transaction Document, and no action taken by any Investor pursuant hereto or thereto, shall be or shall be deemed to constitute a partnership, association, joint venture, or joint group with respect to the Investors. Each Investor agrees that no other Investor has acted as an agent for such Investor in connection with the transactions contemplated hereby.
[ The remainder of this page has been left intentionally blank ]
26 | Share Purchase Agreement |
IN WITNESS WHEREOF, the parties hereto have caused their respective duly authorized representatives to execute this Agreement on the date and year first above written.
GROUP COMPANIES : | ||
Cango Inc. | ||
By: |
/s/ ZHANG Xiaojun |
|
Name: ZHANG Xiaojun ( 张晓俊 ) | ||
Title: Director | ||
Cango Group Limited | ||
By: |
/s/ ZHANG Xiaojun |
|
Name: ZHANG Xiaojun ( 张晓俊 ) | ||
Title: Director | ||
Shanghai Cango Investment and Management Consultation Co., Ltd. ( 上海灿谷投资管理咨询服务有限公司 ) | ||
By: |
/s/ ZHANG Xiaojun |
|
Name: ZHANG Xiaojun ( 张晓俊 ) | ||
Title: Legal Representative | ||
[SEAL] | ||
Can Gu Long (Shanghai) Information Technology Consulting Services Co., Ltd. ( 灿谷隆 ( 上海 ) 信息科技咨询服务有限公司 ) | ||
By: |
/s/ ZHANG Xiaojun |
|
Name: ZHANG Xiaojun ( 张晓俊 ) | ||
Title: Legal Representative | ||
[SEAL] |
[Signature Page to Share Purchase Agreement]
IN WITNESS WHEREOF, the parties hereto have caused their respective duly authorized representatives to execute this Agreement on the date and year first above written.
PRINCIPAL S : | ||
/s/ ZHANG Xiaojun |
||
ZHANG Xiaojun ( 张晓俊 ) | ||
/s/ LIN Jiayuan |
||
LIN Jiayuan ( 林佳元 ) | ||
PRINCIPAL HOLDING COMPANIES: | ||
Eagle Central Holding Limited | ||
By: |
/s/ ZHANG Xiaojun |
|
Name: | ZHANG Xiaojun ( 张晓俊 ) | |
Title: | Director | |
Medway Brilliant Holding Limited | ||
By: |
/s/ LIN Jiayuan |
|
Name: | LIN Jiayuan ( 林佳元 ) | |
Title: | Director |
[Signature Page to Share Purchase Agreement]
IN WITNESS WHEREOF, the parties hereto have caused their respective duly authorized representatives to execute this Agreement on the date and year first above written.
PARTNERSHIPS: | ||
Huaiyuan L.P. | ||
By: |
/s/ XU Shouyan |
|
Name: | XU Shouyan ( 徐首雁 ) | |
Title: | Authorized Signatory | |
Minghuai L.P. | ||
By: |
/s/ YU Beibei |
|
Name: | YU Beibei ( 郁蓓蓓 ) | |
Title: | Authorized Signatory | |
Xiehuai L.P. |
||
By: |
/s/ LIN Jiayuan |
|
Name: | LIN Jiayuan ( 林佳元 ) | |
Title | Authorized Signatory |
[Signature Page to Share Purchase Agreement]
IN WITNESS WHEREOF, the parties hereto have caused their respective duly authorized representatives to execute this Agreement on the date and year first above written.
INVESTORS : | ||
Warburg Pincus Cango Fintech Investment Company Limited | ||
By: |
/s/ David Sreter |
|
Name: | David Sreter | |
Title: | Director |
[Signature Page to Share Purchase Agreement]
IN WITNESS WHEREOF, the parties hereto have caused their respective duly authorized representatives to execute this Agreement on the date and year first above written.
INVESTORS : | ||
PV Peacock Limited | ||
By: |
/s/ Ena Leung |
|
Name: | Ena Leung | |
Title: | Director |
[Signature Page to Share Purchase Agreement]
IN WITNESS WHEREOF, the parties hereto have caused their respective duly authorized representatives to execute this Agreement on the date and year first above written.
INVESTORS : | ||
Zodiac One Limited | ||
By: |
/s/ Ena Leung |
|
Name: | Ena Leung | |
Title: | Director |
[Signature Page to Share Purchase Agreement]
IN WITNESS WHEREOF, the parties hereto have caused their respective duly authorized representatives to execute this Agreement on the date and year first above written.
INVESTORS : | ||
Magic Spark Inc. | ||
By: |
/s/ Yunyun Zhang |
|
Name: | Yunyun Zhang ( 张韵韵 ) | |
Title: | Director |
[Signature Page to Share Purchase Agreement]
IN WITNESS WHEREOF, the parties hereto have caused their respective duly authorized representatives to execute this Agreement on the date and year first above written.
INVESTORS : | ||
TK Autolink Inc. | ||
By: |
/s/ Yunyun Zhang |
|
Name: | Yunyun Zhang ( 张韵韵 ) | |
Title: | Director |
[Signature Page to Share Purchase Agreement]
IN WITNESS WHEREOF, the parties hereto have caused their respective duly authorized representatives to execute this Agreement on the date and year first above written.
INVESTORS : | ||
Tencent Mobility Limited | ||
By: |
/s/ Ma Huateng |
|
Name: | Ma Huateng | |
Title: | Director |
[Signature Page to Share Purchase Agreement]
IN WITNESS WHEREOF, the parties hereto have caused their respective duly authorized representatives to execute this Agreement on the date and year first above written.
INVESTORS : | ||
Links Advance Holdings Limited | ||
By: |
/s/ CHENG Wei |
|
Name: | CHENG Wei | |
Title: | Director |
[Signature Page to Share Purchase Agreement]
IN WITNESS WHEREOF, the parties hereto have caused their respective duly authorized representatives to execute this Agreement on the date and year first above written.
INVESTORS : | ||
Haitong International Investment Holdings Limited | ||
By: |
/s/ Xi DENG |
|
Name: | Xi DENG | |
Title: | Director |
[Signature Page to Share Purchase Agreement]
IN WITNESS WHEREOF, the parties hereto have caused their respective duly authorized representatives to execute this Agreement on the date and year first above written.
INVESTORS : | ||
Harbourside 1712 Limited | ||
By: |
/s/ LI Xiaoxiao |
|
Name: | LI Xiaoxiao | |
Title: | Director |
[Signature Page to Share Purchase Agreement]
IN WITNESS WHEREOF, the parties hereto have caused their respective duly authorized representatives to execute this Agreement on the date and year first above written.
INVESTORS : | ||
China TH Capital Limited 中国泰合资本有限公司 |
||
By: |
/s/ Liangjing Song |
|
Name: |
Liangjing Song |
|
Title: | Partner |
[Signature Page to Share Purchase Agreement]
IN WITNESS WHEREOF, the parties hereto have caused their respective duly authorized representatives to execute this Agreement on the date and year first above written.
INVESTORS : | ||
Harmonic Century Limited | ||
By: |
/s/ Vincent Fok |
|
Name: | Vincent Fok | |
Title: | Director |
[Signature Page to Share Purchase Agreement]
IN WITNESS WHEREOF, the parties hereto have caused their respective duly authorized representatives to execute this Agreement on the date and year first above written.
INVESTORS : | ||
RXD International. Ltd | ||
By: |
/s/ Jing Chen |
|
Name: |
Jing Chen |
|
Title: | Director |
[Signature Page to Share Purchase Agreement]
Exhibit 10.13
Execution Version
CANGO INC.
SERIES C PREFERRED SHARES PURCHASE AGREEMENT
June 4, 2018
Exhibit 10.13
Execution Version
2
8.13 |
Remedies | 44 | ||||||
8.14 |
Expenses | 44 | ||||||
8.15 |
Termination of this Agreement | 44 | ||||||
8.16 |
Investors Obligations Being Several | 45 |
3
LIST OF SCHEDULES AND EXHIBITS
Schedule 1 : Key PRC Companies; Founders and Founder Holding Companies; Investors
Part A: Key PRC Companies (other than WFOE and Shanghai Cango)
Part B: Founders and Founder Holding Companies
Part C: Investors
Schedule 2 : Capitalization of the Group
Part A: Capitalization of the Company as of the Date hereof and Immediately prior to the Closing (without calculating ESOP Shares)
Part B: Capitalization of the Company Immediately after the Closing (without calculating ESOP Shares)
Part C: Capitalization of the Company Immediately after the Closing (calculating ESOP Shares)
Schedule 3 : Disclosure Schedule
Schedule 4 : Key Employees
Schedule 5 : Notices
Schedule 6 : Additional Covenants
Exhibit A : Form of Amended M&AA
Exhibit B : Form of Shareholders Agreement
Exhibit C : Form of Right of First Refusal and Co-Sale Agreement
Exhibit D : Form of Director Indemnification Agreement
Exhibit E : Form of Closing Certificate
Exhibit F : Form of Legal Opinion
Exhibit G : Form of Employment Agreement, Confidentiality, Non-competition and Proprietary Rights Agreement
4
SERIES C PREFERRED SHARES PURCHASE AGREEMENT
THIS SERIES C PREFERRED SHARES PURCHASE AGREEMENT (this Agreement ) is made and entered into as of June 4, 2018 by and among:
(1) Cango Inc., a company duly incorporated under the Laws of the Cayman Islands (the Company );
(2) Cango Group Limited, a company duly incorporated under the Laws of Hong Kong (the HK Company );
(3) Can Gu Long (Shanghai) Information Technology Consulting Services Co., Ltd. ( 灿谷隆 ( 上海 ) 信息科技咨询服务有限公司 ), a wholly foreign-owned enterprise incorporated under the Laws of the PRC (the WFOE );
(4) Shanghai Cango Investment and Management Consultation Service Co., Ltd. ( 上海灿谷投资管理咨询服务有限公司 ), a limited liability company incorporated under the Laws of the PRC ( Shanghai Cango );
(5) Each of the entities listed in Part A of Schedule 1 (together with the WFOE and Shanghai Cango, the Key PRC Companies and each, a Key PRC Company );
(6) Each of the individuals and their respective holding companies listed in Part B of Schedule 1 (such individuals, collectively the Founders and each a Founder ; and such holding companies, collectively the Founder Holding Companies and each a Founder Holding Company );
(7) Huaiyuan L.P., a limited partnership incorporated under the Laws of British Virgin Islands;
(8) Minghuai L.P., a limited partnership incorporated under the Laws of British Virgin Islands;
(9) Xiehuai L.P., a limited partnership incorporated under the Laws of British Virgin Islands (together with Huaiyuan L.P. and Minghuai L.P., each, a Partnership and collectively, the Partnerships ); and
(10) the Persons listed in Part C of Schedule 1 hereto (collectively, the Investor s , and each, an Investor ).
The Company, the HK Company, the Key PRC Companies, the Founders, the Founder Holding Companies, the Partnerships and the Investors shall hereinafter collectively be referred to as the Parties and respectively referred to as a Party .
Capitalized terms used in this Agreement shall have the meanings ascribed to them in Section 1.
RECITALS
A. | The capitalization of the Company as at the date hereof is set out in Part A of Schedule 2 . |
5
B. | The Company owns one hundred percent (100%) of the outstanding share capital of the HK Company, which owns one hundred percent (100%) of the registered capital of the WFOE, which exercises effective control over the business and operations of Shanghai Cango by a captive structure pursuant to the Control Documents (as defined below). |
C. | The WFOE and the Domestic Companies (as defined below) are principally engaged in the business of automotive financing facilitation, automotive transaction facilitation and aftermarket service facilitation (the Principal Business ). |
D. | The Company desires to issue and sell to the Investors, and the Investors desire to purchase from the Company, a total of 41,378,176 Series C Preferred Shares (as defined below) on the terms and conditions set forth in this Agreement. |
NOW, THEREFORE , in consideration of the premises and the mutual agreements and covenants hereinafter set forth, and intending to be legally bound hereby, the Parties hereby agree as follows:
1. | DEFINITIONS |
1.1 Certain Defined Terms . For purposes of this Agreement:
Accounting Standards means generally accepted accounting principles in the United States or PRC, as applicable, applied on a consistent basis.
Action means any notice, charge, claim, action, cause of action, demand, examination, indictment, litigation, arbitration, complaint, petition, investigation, suit or other proceeding, whether administrative, civil or criminal, whether at law or in equity, whether public or private and whether or not before any mediator, arbitrator or Governmental Authority.
Affiliate means (a) with respect to a Person, any other Person that, directly or indirectly, Controls, is Controlled by or is under common Control with such Person; and (b) in the case of an individual, shall include his spouse, child, brother, sister, parent, trustee of any trust in which such individual or any of his foregoing immediate family members is a beneficiary or a discretionary object, or any entity or company Controlled by any of the aforesaid persons; and (c) in the case of an Investor, shall include (i) any general partner of such Investor (if applicable) and any fund manager of such Investor, and (ii) any fund that directly or indirectly Controls, is Controlled by, under common Control with, or is managed by, such Investor or any fund manager of such Investor. For purposes of this Agreement, any Investor shall not be deemed to be an Affiliate of any Group Company and vice versa.
Amended M&AA means the Second Amended and Restated Memorandum and Articles of Association of the Company to be adopted by the Company on or prior to the Closing Date, substantially in the form attached hereto as Exhibit A .
Approval means any approval, license, authorization, certificate, release, order or consent required to be obtained from, or any registration, qualification, designation, declaration, filing, notice, statement or other communication required to be filed with or delivered to, any Governmental Authority or any other Person, or any waiver of any of the foregoing.
6
Benefit Plan means any deferred compensation agreement, bonus plan, incentive plan, profit sharing plan, retirement agreement or other employment compensation agreement or any other plan established or maintained by any Group Company which provides or provided benefits for any employee of any Group Company or any beneficiary or dependent of such employee or with respect to which contributions are or have been made by any Group Company on account of an employee of any Group Company.
Business Day means any day that is not a Saturday, Sunday or other day on which commercial banks are required or authorized by applicable laws or executive order to be closed in the PRC, Hong Kong or the Cayman Islands or on which a tropical cyclone warning no. 8 or above or a black rainstorm warning signal is hoisted in Hong Kong at any time between 9:00 a.m. and 5:00 p.m., Hong Kong time.
CFC means a controlled foreign corporation as defined in the Code.
Charter Documents means, as to a Person, such Persons certificate of incorporation, formation or registration (including, if relevant, certificates of change of name), memorandum of association, articles of association or incorporation, limited liability company agreement, charter, by-laws, trust deed, trust instrument, joint venture or shareholders agreement or equivalent documents and business license, in each case as amended and as applicable.
Circular 37 means Circular 37, issued by SAFE on and effective as of July 4, 2014, titled Notice Regarding Certain Administrative Measures on Offshore Investment and Financing and Round-trip Investments by PRC Residents Through Offshore Special Purpose Vehicles, and any attachment, implementation, successor rule or regulation related thereto under PRC Laws.
Code means the United States Internal Revenue Code of 1986, as amended.
Contract means any contract, agreement, undertaking, understanding, commitment, purchase order, indenture, note, bond, loan, instrument, lease, mortgage, deed of trust, franchise, license or other legally binding arrangement, whether oral or written.
Control of a given Person means the power or authority, whether exercised or not, to direct the business, management and policies of such Person, directly or indirectly, or by effective control whether through the ownership of voting securities, by contract or otherwise, which power or authority shall conclusively be presumed to exist upon possession of beneficial ownership or power to direct the vote of more than fifty percent (50%) of the votes entitled to be cast at a meeting of the members or shareholders of such Person or power to control the composition of more than fifty percent (50%) of the board of directors of such Person; the term Controlled has the meaning correlative to the foregoing.
Control Documents means the following contracts collectively: (i) Exclusive Business Cooperation Agreements ( 独家业务合作协议 ) entered into by and between the WFOE and Shanghai Cango, (ii) Exclusive Option Agreements ( 独家购买权合同 ) entered into by and among the WFOE, Shanghai Cango and each equity holder of Shanghai Cango, (iii) Power of Attorneys ( 授权委托书 ) entered into by and between the WFOE and each equity holder of Shanghai Cango, (iv) Share Pledge Agreements ( 股权质押协议 ) entered into by and among the WFOE, Shanghai Cango and each equity holder of Shanghai Cango, and (v) Spousal Consent issued by the spouse of each Founder, in each case as amended and/restated from time to time.
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Didi means DiDi Sunshine Investments L.P..
Director Indemnification Agreement means the Director Indemnification Agreement to be entered into on or prior to the Closing Date between the Company and the Investor Director, substantially in the form attached hereto as Exhibit D .
Domestic Companies means, collectively, the Group Companies incorporated or established in the PRC (other than the WFOE), and Domestic Company means any of them.
Domestic Resident has the meaning set forth in Circular 37.
Equity Securities means, with respect to a Person, (a) any shares, share capital, registered capital, equity interests, membership interests, partnership interests, joint venture or other ownership interests in such Person, (b) any options, warrants or rights to subscribe for, acquire or purchase, or any other securities or instruments convertible into or exercisable or exchangeable for, any of the foregoing and (c) any equity appreciation, phantom equity, equity plans or similar rights with respect to such Person.
ESOP means the employee incentive plan of the Group adopted by the Board on May 25, 2018 pursuant to Companys then effective shareholders agreement.
Fundamental Warranties means the representations and warranties of the Warrantors contained in Section 3.1 to Section 3.7, Section 3.21 and Section 26.
Governmental Authority means any nation or government, or any federation, province or state or any other political subdivision thereof, any entity, authority or body exercising executive, legislative, judicial, regulatory or administrative functions of or pertaining to government or any political subdivision thereof, including any government authority, agency, department, board, commission or instrumentality of the PRC, the Cayman Islands, Hong Kong or any other country, any public international organization, any court, tribunal or arbitrator or the governing body of any securities exchange or other self-regulatory organization.
Governmental Order means any order, ruling, decision, verdict, decree, writ, subpoena, mandate, precept, command, directive, consent, approval, award, judgment, injunction (whether temporary or permanent) or other similar determination or finding by, before or under the supervision of any Governmental Authority.
Group means, collectively, the Company, the HK Company, the WFOE, Shanghai Cango, the Subsidiaries of any of the foregoing and each Person (other than an individual) that is directly or indirectly Controlled by any of the foregoing, including any joint venture in which any of the foregoing holds more than fifty percent (50%) of the voting power, and Group Company means any of them. For avoidance of any doubt, in any event the term Group Companies or Group shall not include Liaoning Junan Automotive Consulting Co., Ltd. ( 辽宁君安汽车咨询服务有限公司 ).
8
Hong Kong means the Hong Kong Special Administrative Region of the Peoples Republic of China.
Indebtedness means actual or contingent obligations in respect of (a) funds borrowed, (b) any amount raised pursuant to any note purchase agreement or the issue of bonds, other than performance bonds issued in the ordinary course of business, notes, debentures, loan stock or any similar instrument, (c) receivables sold or discounted, other than any receivables to the extent they are sold on a non-recourse basis, (d) any counter-indemnity obligation in respect of a guarantee, bond, standby or documentary letter of credit or any other instrument issued by a bank or financial institution, (e) any amount raised under any other transaction (including any forward sale or purchase agreement) having the commercial effect of a borrowing and (f) the amount of any liability in respect of any guarantee for any of the items referred to in (a) to (e) above (and, when calculating the value of any such guarantee, the amount of any guarantee limit or cap shall be taken into account).
Indemnifiable Loss means, with respect to any Person, any action, proceeding, claim, cost, damage, deficiency, diminution in value, disbursement, expense, liability, loss, obligation, penalty, settlement, suit, together with all interest, penalties and legal, accounting and other professional fees and expenses incurred in the investigation, collection, prosecution and defense of claims and amounts paid in settlement, that may be imposed on or otherwise incurred or suffered by such Person, whether directly or indirectly.
Intellectual Property means any and all (a) patents, patent rights and applications therefor and all reissues, reexaminations, continuations, continuations-in-part, divisions, provisionals, renewals and patent term extensions thereof, (b) inventions (whether patentable or not), discoveries, improvements, concepts, innovations and industrial models, (c) registered or unregistered copyrights, copyrightable works, mask works, authors rights and works of authorship (including artwork of any kind and software of all types in whatever medium, inclusive of computer programs, source code, object code and executable code, and related documentation) and registrations and applications therefor, (d) URLs, domain names, web addresses, web sites, web pages and any part thereof, accounts with Twitter, Facebook, Instagram and other social media companies and the content found thereon and related thereto and uniform resource locators, (e) technical information, know-how, trade secrets, drawings, designs, design protocols, specifications for parts and devices, quality assurance and control procedures, design tools, manuals and research data concerning historic and current research and development efforts, including the results of successful and unsuccessful designs, databases and proprietary data, (f) proprietary processes, technology, engineering, formulae, algorithms and operational procedures, (g) brand names, logos, slogans, design rights, trade names, trade dress, trademarks and service marks, and registrations and applications therefor, (h) the goodwill symbolized or represented by the foregoing, customer lists, data collections and other proprietary information and common-law rights and (i) other intellectual property, whether or not registrable, in each case under any Law but excluding commercially readily available intellectual property such as off the shelf computer software.
Key Employee means, with respect to each Group Company, the president, the chief executive officer, the chief financial officer, the chief operating officer, the general manager and any other officer of or above such level, and any other employee with responsibilities similar to any of the foregoing of such Group Company.
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Knowledge means, with respect to a Person, the actual knowledge and constructive knowledge of such Person after making due and diligent inquiry into relevant underlying facts.
Law or Laws means any constitutional provision, statute, ordinance, code, treaty, decree or judgment or other law, legislative measure, rule, regulation, official policy or interpretation of any Governmental Authority, any common or customary law and any Governmental Order.
Liabilities means any and all Indebtedness and other debts, losses, fines, costs, royalties, deficiencies, obligations and liabilities owed by such Person of any nature, whether accrued, absolute, contingent or otherwise, and whether due or to become due.
Lien means (a) any mortgage, pledge, claim, security interest, hypothecation, assignment, deed of trust, title retention, lien, charge (whether fixed or floating) or other encumbrance of any kind securing, or conferring any priority of payment in respect of, any obligation of any Person, including any right granted by a transaction which, in legal terms, is not the granting of security but which has an economic or financial effect similar to the granting of security under applicable Law, (b) any lease, sub-lease, occupancy agreement, easement or covenant granting a right of use or occupancy to any Person, (c) any proxy, power of attorney, voting trust agreement, interest, option, pre-emptive right, right of first offer, negotiation or refusal or transfer restriction in favor of any Person and (d) any adverse claim as to title, possession or use.
Material Adverse Effect means any event, circumstance, occurrence, fact, condition, change or development that, individually or in the aggregate, has had, has or could reasonably be expected to have (a) a material adverse effect on the Principal Business, assets, operations, results of operations, financial condition, prospects or liabilities of the Group taken as a whole; (b) any material adverse effect on the ability or the qualifications of the Group Companies to operate and conduct the Principal Business in the manner in which it is currently or contemplated to be operated or conducted by the Group Companies, or (c) any material adverse effect on the transactions as contemplated hereunder or under any other Series C Transaction Document.
Ordinary Shares means any and all of the ordinary shares in the authorized share capital of the Company, each with a par value of US$0.0001, with the rights and privileges as set forth in the Amended M&AA.
Permitted Liens means (a) Liens for Taxes not yet delinquent or the validity of which are being contested and (b) Liens incurred in the ordinary course of business, which (i) do not individually or in the aggregate materially detract from the value, use or transferability of the assets that are subject to such Liens and (ii) were not incurred in connection with the borrowing of money.
Person means any individual, sole proprietorship, partnership, limited partnership, limited liability company, firm, joint venture, estate, trust, unincorporated organization, association, corporation, institution, public benefit corporation, entity or governmental or regulatory authority or other enterprise or entity of any kind or nature.
PFIC means a passive foreign investment company as defined in the Code.
10
PRC means the Peoples Republic of China but, solely for purposes of this Agreement, excluding Hong Kong, the Special Administrative Region of Macau and the territory of Taiwan.
Preferred Shares means the Series A-1 Preferred Shares, the Series A-2 Preferred Shares, the Series A-3 Preferred Shares, the Series B Preferred Shares and the Series C Preferred Shares.
Public Official means (a) any employee or official of any Governmental Authority, including any employee or official of any entity owned or controlled by a Governmental Authority, (b) any employee or official of a political party, (c) any candidate for political office or his employee or associate, (d) any employee or official of an international organization or (e) any Person who acts in an official capacity for or on behalf of any of the foregoing.
Right of First Refusal and Co-Sale Agreement means the Amended and Restated Right of First Refusal and Co-Sale Agreement to be entered into by and among the parties named therein on or prior to the Closing, which shall be in the form attached hereto as Exhibit C .
RMB means Renminbi, the lawful currency of the PRC.
SAFE means the State Administration of Foreign Exchange of the PRC or any of its local counterparts.
Securities Act means the United States Securities Act of 1933, as amended and interpreted from time to time.
Series A-1 Preferred Shares means any and all of the Series A-1 preferred shares in the authorized share capital of the Company, each with a par value of US$0.0001, with the rights and privileges as set forth in the Amended M&AA.
Series A-2 Preferred Shares means any and all of the Series A-2 preferred shares in the authorized share capital of the Company, each with a par value of US$0.0001, with the rights and privileges as set forth in the Amended M&AA.
Series A-3 Preferred Shares means any and all of the Series A-3 preferred shares in the authorized share capital of the Company, each with a par value of US$0.0001, with the rights and privileges as set forth in the Amended M&AA.
Series B Preferred Shares means any and all of the Series B preferred shares in the authorized share capital of the Company, each with a par value of US$0.0001, with the rights and privileges as set forth in the Amended M&AA.
Series C Preferred Shares means any and all of the Series C preferred shares in the authorized share capital of the Company, each with a par value of US$0.0001, with the rights and privileges as set forth in the Amended M&AA.
Series C Transaction Documents means this Agreement, the Shareholders Agreement, the Right of First Refusal and Co-Sale Agreement, the Amended M&AA, the Director Indemnification Agreement, the Control Documents, the exhibits attached to any of the foregoing and each of the agreements and other documents otherwise required in connection with implementing the transactions contemplated by any of the foregoing.
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Shareholders Agreement means the Amended and Restated Shareholders Agreement of the Company to be entered into on or prior to the Closing Date among the Parties and the other parties named therein, substantially in the form attached hereto as Exhibit B .
Subsidiary means, with respect to any specified Person, any other Person that is Controlled directly or indirectly by such specified Person.
Tax means any national, provincial or local income, sales and use, excise, franchise, real and personal property, gross receipt, capital stock, production, business and occupation, disability, employment, payroll, severance or withholding tax or any other type of tax, levy, assessment, custom duty or charge imposed by any Governmental Authority, any interest, addition to tax, surcharge, fine or penalty (civil or criminal) related thereto or to the non-payment thereof and any loss or tax Liability incurred in connection with the determination, settlement or litigation of any Liability arising therefrom, including any obligations to indemnify or otherwise assume or succeed to the liability of any other Person with respect to any of the foregoing items.
Tax Return means any return, declaration, disclosure, report, estimate, claim for refund, claim for extension, information return or statement relating to any Tax required to be filed with the Governmental Authorities, including any schedule, attachment or amendment thereto.
US$ means United States dollars, the lawful currency of the United States of America.
1.2 Definitions . The following terms have the meanings set forth in the Sections set forth below:
Term |
Location |
|
Agreement | Preamble | |
Anti-Bribery Laws | Section 3.17(d) | |
Anti-Money Laundering Laws | Section 3.17(g) | |
Arbitration Rules | Section 8.12 | |
Audited Financial Statements | Section 3.11(a) | |
Board | Section 5.1 | |
Closing | Section 2.3 | |
Closing Date | Section 2.3 | |
Company | Preamble | |
Company Security Holder | Section 3.8(b) | |
Confidential Information | Section 8.9(a) | |
Conversion Shares | Section 2.1(b) | |
Disclosing Party | Section 8.9(d) | |
ESOP Shares | Section 3.2(a)(iii) | |
FCPA | Section 3.17(d) | |
Financial Statements | Section 3.11(a) | |
Financing Terms | Section 8.9(a) | |
Founder or Founders | Preamble |
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Founder Holding Company or Founder | Preamble | |
Holding Companies | ||
HK Company | Preamble | |
HKIAC | Section 8.12 | |
Indemnified Party | Section 5.8(a) | |
Investor or Investors | Preamble | |
Investor Director | Section 6.3 | |
Leased Properties | Section 3.19(b) | |
Management Accounts | Section 3.11(a) | |
Management Statement Date | Section 3.11(a) | |
Material Contracts | Section 3.16(a) | |
OFAC | Section 3.17(f) | |
Partnerships | Preamble | |
Party or Parties | Preamble | |
Principal Business | Recitals | |
Purchase Price | Section 2.2 | |
Purchased Shares | Recitals | |
Related Party | Section 3.22 | |
Related Party Contract | Section 3.22 | |
Representatives | Section 3.17(d) | |
SAFE Rules and Regulations | Section 3.8(b) | |
Shanghai Cango | Preamble | |
Social Security | Section 3.24(b) | |
Statement Date | Section 3.11(a) | |
Transfer | Section 5.5 | |
Warrantor or Warrantors | Section 3 | |
WFOE | Preamble | |
Youche Youjia | Section 3.16(a) |
1.3 Interpretation and Rules of Construction .
In this Agreement, except to the extent otherwise provided or that the context otherwise requires:
(a) when a reference is made in this Agreement to a Section, Exhibit or Schedule, such reference is to a Section of, or an Exhibit or Schedule to, this Agreement;
(b) the table of contents and headings for this Agreement are for reference purposes only and do not affect in any way the meaning or interpretation of this Agreement;
(c) whenever the words include, includes or including are used in this Agreement, they are deemed to be followed by the words without limitation;
(d) the words hereof, herein and hereunder and words of similar import, when used in this Agreement, refer to this Agreement as a whole and not to any particular provision of this Agreement;
(e) all terms defined in this Agreement have the defined meanings when used in any certificate or other document made or delivered pursuant hereto;
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(f) the definitions contained in this Agreement are applicable to the singular as well as the plural forms of such terms;
(g) references to a Person are also to its successors in title and permitted assigns;
(h) the use of or is not intended to be exclusive;
(i) the phrase directly or indirectly means directly, or indirectly through one or more intermediate Persons or through contractual or other arrangements, and direct or indirect has the correlative meaning;
(j) all words (whether gender-specific or gender neutral) shall be deemed to include each of the masculine, feminine and neuter genders;
(k) in calculations of share numbers, references to a fully diluted and as-converted basis mean that the calculation is to be made assuming that all outstanding options, warrants and other Equity Securities convertible into or exercisable or exchangeable for Ordinary Shares (whether or not by their terms then currently convertible, exercisable or exchangeable) have been so converted, exercised or exchanged;
(l) references to this Agreement include the Schedules, which form an integral part hereof; and
(m) a reference to any document (including this Agreement) is to that document as amended, consolidated, supplemented, novated or replaced from time to time.
2. | SALE AND PURCHASE, CLOSING |
2.1 Authorization .
As of the Closing, the Company shall have authorized (a) the issuance, pursuant to the terms and conditions of this Agreement, of the Purchased Shares, having the rights, preferences, privileges and restrictions set forth in the Amended M&AA and the Shareholders Agreement and (b) the reservation of Ordinary Shares for issuance upon conversion of the Purchased Shares (the Conversion Shares ).
2.2 Agreement to Purchase and Sell .
Subject to the terms and conditions hereof, at the Closing, the Company shall issue and sell to each Investor, and such Investor shall purchase from the Company, that number of Series C Preferred Shares set forth opposite such Investors name in the column entitled Purchased Shares on Part C of Schedule 1 (with respect to such Investor, the Purchased Shares ) at a purchase price of US$5.9363 per share for an aggregate purchase price of such amount as set forth opposite such Investors name in the column titled Purchase Price on Part C of Schedule 1 (with respect to such Investor, the Purchase Price ).
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2.3 Closing .
The consummation of the purchase and sale of the Purchased Shares with respect to each Investor (with respect to such Investor, the Closing ) shall take place remotely via the exchange of documents and signatures on a date which is no later than ten (10) Business Days after the fulfilment or waiver in writing of the conditions to the Closing set forth in Section 6 and Section 7 (other than those conditions that by their nature are to be fulfilled at the Closing, but subject to the fulfilment or waiver of those conditions at the Closing) or on such other date as the Company and such Investor may agree to in writing (with respect to such Investor, the Closing Date ). The Company shall use all reasonable efforts to ensure the conditions set forth in Section 6 (other than Section 6.4(b)) shall be fulfilled as soon as reasonably practicable by the Closing Date. The Company shall notify each Investor in writing within one (1) Business Day of becoming aware that all closing conditions (other than those closing conditions that by their nature are to be satisfied at the Closing) that are set forth in Section 6 have been satisfied or waived.
2.4 Closing Deliverables .
At the Closing:
(a) the Company shall deliver to each Investor the following items:
(i) each item referred to in Section 6.3, Section 6.4, Section 6.6, Section 6.8 to Section 6.11 and Section 6.13, such Investors receipt of which is made an express closing condition pursuant to Section 6; and
(ii) a share certificate representing the Purchased Shares, duly issued by the Company to such Investor; and
(b) against compliance by the Company with its obligations under Section 2.4(a), each Investor shall:
(i) deliver to the Company each item referred to in Section 7.2, the Companys receipt of which is made an express closing condition pursuant to Section 7; and
(ii) pay to the Company an amount in US$ equal to the Purchase Price with respect to such Investor, by delivery of irrevocable wiring instructions, to a bank account designated by the Company not less than five (5) Business Days prior to the Closing Date.
2.5 Discharge of Payment Obligations .
Compliance by each Investor with its obligations under Section 2.4(b)(ii) shall constitute full discharge by such Investor of its obligations to pay the Company the Purchase Price for the Purchased Shares pursuant to Section 2.2.
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3. | REPRESENTATIONS AND WARRANTIES OF THE WARRANTORS |
The Company, the HK Company, the Key PRC Companies, the Founders and the Founder Holding Companies (collectively, the Warrantors and each, a Warrantor ) hereby jointly and severally represent and warrant to each Investor that, subject to such exceptions as may be specifically set forth in the disclosure schedule delivered by the Warrantors to such Investor as of the date hereof (the Disclosure Schedule , as attached hereto as Schedule 3, the contents of which shall also be deemed to be representations and warranties hereunder), each of the statements contained in this Section 3 is true, accurate and not misleading on and as of the date hereof and shall be true, accurate and not misleading on and as of the Closing Date, with the same effect as if made on and as of the Closing Date:
3.1 Organization, Good Standing and Qualification .
The Company is duly incorporated, validly existing and in good standing under the Laws of the Cayman Islands. The HK Company is duly organized, validly existing and in good standing under the Laws of Hong Kong. Each of the WFOE and the Domestic Companies is duly established, validly existing and in good standing, with its business license and articles of association in full force and effect, under, and in compliance with, the Laws of the PRC. Each other Group Company (if any) is duly organized, validly existing and in good standing under the Laws of the jurisdiction of its incorporation. Each Group Company has all requisite legal and corporate power and authority to own, lease and operate its properties and assets and to carry on the business it currently conducts, and is duly qualified to transact business in each jurisdiction in which the failure to be so qualified would reasonably be expected to result in a Material Adverse Effect. The Company was formed solely to acquire and hold shares in the HK Company and since its formation has not engaged in any other business and has not incurred any Liability other than those as set forth in Section 3.1 of the Disclosure Schedule and incidental to its formation and maintenance. The HK Company was formed solely to acquire and hold equity interests in the WFOE and since its formation has not engaged in any other business and has not incurred any Liability other than those as set forth in Section 3.1 of the Disclosure Schedule and incidental to their respective formation and maintenance. Each Group Company that is a PRC entity has a valid business license issued by the State Administration of Industry and Commerce of the PRC or its local branch or other relevant Government Authorities, and has, since its establishment, carried on its business in compliance with the business scope set forth in its business license.
3.2 Capitalization .
(a) The Company .
(i) As of the date hereof, the authorized share capital of the Company is US$50,000 divided into (A) a total of 372,138,271 Ordinary Shares, 152,815,513 of which are issued and outstanding, (B) a total of 53,431,125 Series A-1 Preferred Shares, all of which are issued and outstanding, (C) a total of 2,179,215 Series A-2 Preferred Shares, all of which are issued and outstanding,(D) a total of 10,308,663 Series A-3 Preferred Shares, all of which are issued and outstanding, and (E) a total of 61,942,726 Series B Preferred Shares, all of which are issued and outstanding.
(ii) Immediately prior to the Closing, the authorized share capital of the Company will be US$50,000 divided into (A) a total of 330,760,095 Ordinary Shares, 152,815,513 of which will be issued and outstanding, (B) a total of 53,431,125 Series A-1 Preferred Shares, all of which will be issued and outstanding, (C) a total of 2,179,215 Series A-2 Preferred Shares, all of which will be issued and outstanding, (D) a total of 10,308,663 Series A-3 Preferred Shares, all of which will be issued and outstanding, (E) a total of 61,942,726 Series B Preferred Shares, all of which will be issued and outstanding, and (F) a total of 41,378,176 Series C Preferred Shares, none of which will be issued and outstanding but all of which will be allotted and issued to the Investors at the Closing pursuant to the terms and subject to the conditions of this Agreement.
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(iii) Options . As of the Closing Date, an aggregate number of 27,845,526 Ordinary Shares ( ESOP Shares ) have been issued or reserved for issuance from time to time to the respective management and key employees of the Group Companies under the ESOP. Except for (A) the Equity Securities issued under the ESOP, (B) conversion privileges attached to the Preferred Shares and (C) the Series C Transaction Documents, there are no options, warrants, conversion privileges or other rights, or agreements with respect to the issuance thereof, presently outstanding to purchase any Equity Security in the Company. Except as contemplated by the Series C Transaction Documents, no Equity Security in the Company is subject to any Lien or other right to purchase such Equity Security (whether in favor of the Company or any other Person).
(iv) Securities Holders . The capitalization tables set forth in Part A, and in Part B and Part C, of Schedule 2 set out the capitalization of the Company on a fully diluted and as-converted basis (i) as of the date hereof and immediately prior to the Closing and (ii) immediately after the Closing, respectively, in each case reflecting all the then outstanding Equity Securities in the Company and the record and beneficial holders thereof.
(b) The HK Company . The Company holds one hundred percent (100%) of the issued share capital of the HK Company. There are no options, warrants, conversion privileges or other rights, or agreements with respect to the issuance thereof, presently outstanding to purchase any Equity Security in the HK Company. No Equity Security in the HK Company is subject to any Lien or other right to purchase such Equity Security (whether in favor of the HK Company or any other Person).
(c) The WFOE and Domestic Companies . Other than contemplated by the Control Documents, there are no options, warrants, conversion privileges or other rights, or agreements with respect to the issuance thereof, presently outstanding to purchase any Equity Security in the WFOE or any Domestic Company. Except for the options and share pledges contemplated by the Control Documents and except pursuant to applicable PRC laws, no Equity Security in the WFOE or any Domestic Company is subject to any Lien or other right to purchase such Equity Security (whether in favor of the WFOE or such Domestic Company (as applicable) or any other Person). Except as set forth in Section 3.2(c) of the Disclosure Letter, the registered capital of the WFOE or each Domestic Company has been fully paid in accordance with PRC Laws and the articles of association of WFOE and such Domestic Company (as applicable).
(d) The Group Companies . All outstanding Equity Securities in each Group Company are duly authorized and validly issued in compliance with all applicable Laws, pre-emptive rights of any Person and applicable Contracts, and are fully paid and non-assessable (except as disclosed in Section 3.3 of the Disclosure Schedule). All share capital of each Group Company is free of any and all Liens, except as provided under the Series C Transaction Documents. There are no (i) resolutions pending to increase the share capital or registered capital of any Group Company or to cause the liquidation, winding up or dissolution of any Group Company, (ii) dividends which have accrued or been declared but are unpaid by any Group Company, (iii) obligations, contingent or otherwise, of any Group Company to repurchase, redeem or otherwise acquire any Equity Securities of any Person, except as provided in the Amended M&AA, (iv) outstanding or authorized equity appreciation, phantom equity, equity plans or similar rights with respect to any Group Company, other than the ESOP, and (v) Contracts which affect or relate to the voting or giving of written consents with respect to any Equity Security in any Group Company, other than the Series C Transaction Documents.
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(e) Vesting etc.. Except as contemplated by the ESOP, no Group Companys Contracts relating to its Equity Securities provides for acceleration of vesting (or lapse of a repurchase right) or other changes in vesting provisions or other terms thereof upon the occurrence of any event or combination of events. No Group Company has ever adjusted or amended the exercise price of any share options previously awarded, whether through amendment, cancellation, replacement grant, re-pricing or any other means.
(f) Title . Other than contemplated by the Control Documents, each Group Company is the sole record and beneficial holder of all of the Equity Securities set forth opposite its name on Section 3.2(f) of the Disclosure Schedule, free and clear of all Liens of any kind other than those arising under applicable Laws.
3.3 Corporate Structure; Subsidiaries .
Section 3.3 of the Disclosure Schedule sets forth complete and accurate information (including the name, subscribed and contributed registered capital, authorized and issued share capital and shareholders) regarding each of the Group Companies immediately prior to the Closing and immediately after the Closing. There is no agreement among the Founders, the Founder Holding Companies, the Group Companies and/or, to the Knowledge of the Warrantors, any other Person with respect to the ownership or Control of any of the Group Companies, except as contemplated by the Series C Transaction Documents. Except as set forth in Section 3.3 of the Disclosure Schedule, no Group Company owns or Controls, or has ever owned or Controlled, directly or indirectly, any interest or Equity Security in any Person or is or was a participant in any joint venture, partnership or similar arrangement. No Group Company is obligated to make any investment or capital contribution in or on behalf of any other Person.
3.4 Due Authorization .
Each of the Founders is of sound mind and is not bankrupt under the laws of the PRC or any other jurisdiction. Each of the Warrantors and the other Group Companies has all requisite power and authority to execute and deliver each Series C Transaction Document to which it is a party and to carry out and perform its obligations thereunder. All action on the part of each of the Warrantors and the other Group Companies (and, as applicable, its officers, directors and shareholders) that are required for the authorization, execution and delivery of each Series C Transaction Document to which it is a party, the performance of all of its obligations thereunder and, in the case of the Company, the authorization, issuance (or reservation for issuance), sale, transfer and delivery of the Purchased Shares and the Conversion Shares has been taken or will have been taken prior to the Closing. Each of the Warrantors has duly executed and delivered this Agreement and, on the Closing Date, each of the Warrantors and the other Group Companies will have duly executed and delivered each other Series C Transaction Document to which it is a party. Each of the Series C Transaction Documents to which a Warrantor or other Group Company is a party constitutes, when executed and delivered by such Warrantor or other Group Company (as the case may be), valid and legally binding obligations of such Warrantor or other Group Company (as the case may be), enforceable against such Warrantor or other Group Company (as the case may be) in accordance with its terms, except as limited by (a) applicable bankruptcy, insolvency, reorganization, moratorium and other Laws of general application affecting enforcement of creditors rights generally and (b) Laws relating to the availability of specific performance, injunctive relief or other equitable remedies.
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3.5 Valid Issuance of Purchased Shares .
The Purchased Shares, when issued, sold and delivered in accordance with the terms of this Agreement, will be duly and validly issued, fully paid and non-assessable, free and clear of all Liens, except for any restrictions on transfer under applicable securities Laws and under the Series C Transaction Documents. The Conversion Shares have been reserved for issuance and, upon issuance in accordance with the terms of the Amended M&AA, will be duly and validly issued, fully paid and non-assessable, free and clear of all Liens, except for any restrictions on transfer under applicable securities Laws and under the Series C Transaction Documents, and will rank pari passu in all respects with the then existing Ordinary Shares. The issuance of the Purchased Shares and the Conversion Shares is not subject to any pre-emptive rights, rights of first refusal or similar rights which have not been duly waived as of the Closing Date. The Purchased Shares and the Conversion Shares will be issued in compliance with all applicable Laws, including the Securities Act.
3.6 Approvals .
All Approvals with respect to or on the part of any Warrantor or any other Group Company that are required to be obtained in connection with the valid execution, delivery and performance by each of the Warrantors and the other Group Companies of each Series C Transaction Document to which it is a party or the offer, sale, issuance, transfer or reservation for issuance of the Purchased Shares and the Conversion Shares have been obtained.
3.7 Offering .
The offer, sale, transfer and issuance of the Purchased Shares and the issuance of the Conversion Shares, in each case as contemplated by the Series C Transaction Documents, are exempt from the qualification, registration and prospectus delivery requirements of the Securities Act and any other applicable securities Laws.
3.8 Regulatory Matters .
(a) Other than as disclosed in Section 3.8 of the Disclosure Schedule, the Group Companies have obtained necessary Approvals with respect to their respective operations and the Principal Business and all such Approvals are in full force and effect. The absence, or failure of renewal or maintaining, of such Approvals as disclosed in Section 3.8 of the Disclosure Schedule has not resulted in, would not be expected to result in, any Material Adverse Effect. None of the Group Companies has engaged in any insurance or banking business or any financial services, telecommunication, utilities or other regulated business outside the scope of business as currently conducted by such Group Company. No Warrantor has reason to believe that any material Approval required for the conduct of the Principal Business or any part thereof which is subject to periodic renewal will not be granted or renewed by the relevant Governmental Authorities.
(b) Each registered holder or beneficial owner of any Equity Securities in the Company other than the Investors (each, a Company Security Holder ) who is a Domestic Resident and subject to any of the registration or reporting requirements of Circular 37 or any other applicable SAFE rules and regulations (collectively, the SAFE Rules and Regulations ) has complied with such registration and/or reporting requirements under the SAFE Rules and Regulations with respect to its investment in the Group Companies. None of the Warrantors, nor, to the Knowledge of the Warrantors, the other Company Security Holders has received any oral or written inquiries, notifications, orders or any other forms of official correspondence from SAFE or any of its local branches with respect to any actual or alleged non-compliance with the SAFE Rules and Regulations and the Company and the Company Security Holders have made all oral and written filings, registrations, reporting and any other communications required by SAFE or any of its local branches applicable to the Group Companies. The WFOE and each Domestic Company has obtained all Approvals necessary under PRC Laws to conduct foreign exchange transactions as now being conducted by it, and has no reason to believe that it cannot obtain all Approvals for the conduct of foreign exchange transactions as now being conducted and planned to be conducted.
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3.9 Tax Matters .
(a) (i) The Group Companies have complied with applicable Laws with respect to Tax in all material respects, all Tax Returns and reports in relation to the Tax of the Group Companies have been filed punctually, and all records relating to such Tax Returns or to the preparation thereof required by applicable Laws to be maintained by the Group Companies have been duly maintained; (ii) all Taxes required to be reflected in such Tax Returns and reports or otherwise due have been paid punctually; (iii) all such Tax Returns and reports are true, accurate, complete and without deliberate omissions in all material respects, and there are no misrepresentations and errors due to wilfulness or gross negligence in the taxable amounts, applicable tax rates and pre-tax deductions as set forth in such Tax Returns and reports; (iv) no Tax Authority has proposed any adjustment in connection with such Tax Returns formally or informally, and to the Knowledge of the Warrantors, there are no basis for any such adjustments; (v) there are no pending and, to the Knowledge of the Warrantors, threatened Actions against any Group Companies in relation to the assessment or collection of Taxes; (vi) no Group Company has carried out any transaction or entered into any contract or taken any other action for the purpose of evasion of Taxes illegally; (vii) the obligations of tax withholding, collection and payment have been fulfilled punctually by the Group Companies, their Affiliates and third parties in accordance with the relevant Tax Laws, and the Group Company have deducted and paid to Tax Authorities all Tax which they are obliged to withhold and pay pursuant to the applicable Laws; (viii) no Liens in relation to the Tax has been created over any assets of the Group Companies; (ix) no Group Company has paid any substantial amount of Tax or governmental charges other than as required by the applicable Laws; and (x) the Group Companies have appropriately provided for material Tax payment obligations in the Financial Statements in accordance with applicable Laws and the Accounting Standards, and the assessment of any additional Taxes with respect to any Group Company for periods for which Tax Returns have been filed is not expected to exceed the recorded Liability therefor in the most recent balance sheet in the Audited Financial Statements.
(b) During the past three years, no Group Company has become a party to or entered into any transaction, plan or arrangement in violation of applicable Laws for the purpose of avoiding or reducing Tax liabilities which could be materially adverse to the consummation of a Qualified IPO (as defined in the Amended M&AA).
(c) All subsidies, refunds and preferential treatments granted to the Group Companies by any Governmental Authorities are legal, valid and irrevocable; tax policies implemented by and all preferential tax treatments available to the Group Companies since their dates of incorporation, including and without limitation, preferential tax rates, tax discounts, tax refunds and tax holidays, have been in compliance with Laws in all material respects and approved by competent Governmental Authorities; and to the Knowledge of the Warrantors, there is no evidence showing that the subsidies, refunds and preferential treatments expected to be granted to any Group Companies in accordance with the agreements between such Group Company and any Governmental Authority will be terminated or cancelled.
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(d) No Group Company is or has ever been a PFIC or CFC. No Group Company anticipates that it will become a PFIC or CFC for the current taxable year or any future taxable year.
3.10 Internal Controls .
Each Group Company maintains systems of internal accounting controls sufficient to provide assurance that (i) transactions are executed in accordance with managements general or specific authorizations, (ii) transactions are recorded as necessary to permit preparation of financial statements in conformity with applicable Laws and with accounting standards applicable to and adopted by it in the relevant jurisdiction and to maintain asset accountability, (iii) access to assets is permitted only in accordance with managements general or specific authorization, (iv) the recorded accountability for assets is compared with the existing assets at reasonable intervals and appropriate action is taken with respect to any differences and (v) each Group Company has made and kept books, records and accounts which, in reasonable detail, accurately and fairly reflect the transactions and dispositions of assets of such Group Company and provide a sufficient basis for the preparation of the Companys consolidated financial statements in accordance with the Accounting Standards.
3.11 Financial Statements .
(a) The Company has delivered to the Investors true, correct and complete copies of (i) the audited consolidated financial statements of the Group Companies as at and for the fiscal years ended December 31, 2017 (the Statement Date ), consisting of a balance sheet, an income statement and a statement of cash flows and with a report thereon by Ernst & Young (collectively, the Audited Financial Statements ), and (ii) the unaudited consolidated balance sheet, income statement and cash flows statement of the Group Companies (the Management Statements , and together with the Audited Financial Statements, the Financial Statements ) for the three-month period ended March 31, 2018 (the Management Statement Date ).
(b) The Audited Financial Statements (i) have been derived from the accounting books and records of the Group Companies, (ii) fairly present the financial condition and position of the Group Companies as of the dates indicated therein and the results of operations and cash flows of the relevant Group Company for the periods indicated therein and (iii) were prepared in accordance with the Accounting Standards applied on a consistent basis throughout the periods involved. There are no off-balance sheet transactions, arrangements, obligations or relationships attributable to the Principal Business.
(c) The Management Statements (i) were prepared in accordance with the Accounting Standards, (ii) are fair and not misleading and do not materially misstate the assets, liabilities, profits or losses of the Group as at the Management Statement Date and (iii) as at the Management Statement Date, make full provision for all actual liabilities, disclose all contingent liabilities and make provision reasonably regarded as adequate for all bad and doubtful debts.
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(d) As of the Management Statement Date, all assets-back securities related matters involving the Group Companies have been completely, fully and accurately disclosed in the Financial Statements. Except for those agreements relating to assets-back securities disclosed in the Disclosure Schedule, there are no other similar agreements entered into by any Group Company, and except as disclosed in the Disclosure Schedule, there are no potential Liabilities of any Group Companies relating to any matter related to assets-back securities.
(e) All of the accounts receivable owing to any of the Group Companies have been fairly disclosed in the Financial Statements, and all such accounts receivable constitute valid and enforceable claims and are good and collectible in the ordinary course of business, net of any reserves shown on the Financial Statements (which reserves are adequate and were calculated on a basis consistent with the Accounting Standards). There are no contingent or asserted claims, refusals to pay or other rights of set-off with respect to any accounts receivable of the Group Companies.
3.12 Captive Structure .
The Control Documents, in the aggregate intended to establish and maintain a captive structure through which the WFOE controls Shanghai Cango, constitute valid and binding obligations of the parties thereto enforceable in accordance with their respective terms and are adequate to establish and maintain the intended captive structure, under which the financial statements of Shanghai Cango will be consolidated with those of the other Group Companies in accordance with the Accounting Standards. None of the Warrantors has received any oral or written inquiries, notifications or any other form of official correspondence from any Governmental Authorities challenging or questioning the legality or enforceability of any of the Control Documents.
3.13 Activities since the Statement Date .
Since the Statement Date, unless otherwise reflected or disclosed in the Management Statements, the Group has operated the Principal Business in the ordinary course consistent with its past practice, there has not been any Material Adverse Effect or any material change in the way the Group conducts the Principal Business and no Group Company has entered into any transaction outside of the ordinary course of business. Since the Statement Date, there has not been, by or with respect to any Group Company:
(a) any purchase, acquisition, sale, lease, disposal or other transfer of any assets (including any license of Intellectual Property rights to third parties) that are individually or in the aggregate material to the Principal Business, whether tangible or intangible, other than the purchase or sale of inventory in the ordinary course of business consistent with its past practice, or any acquisition (by merger, consolidation or other combination, or acquisition of stock or assets, or otherwise) of any business or other Person or division thereof;
(b) any authorization, sale, issuance, transfer, pledge or other disposal of any Equity Securities in any Group Company, other than the transactions expressly contemplated under this Agreement, including the authorization and issuance of the Purchased Shares;
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(c) any waiver, termination, settlement or compromise of a valuable right or of a debt;
(d) any incurrence, creation, assumption, repayment, satisfaction or discharge of any Lien or any Indebtedness, or the making of any loan or advance, other than reasonable and normal advances to employees for bona fide expenses that are incurred in the ordinary course of business consistent with its past practice, or the making of any investment or capital contribution;
(e) except in the ordinary course of business consistent with its past practice, any amendment to any Material Contract, any entry into any new Material Contract or any termination of any Contract that would have been a Material Contract if in effect on the date hereof, or any amendment to or waiver under any of its Charter Documents;
(f) any material change in any compensation arrangement or agreement with, or any resignation or termination of, any of its Key Employees, or any adoption of any new Benefit Plan, or any material change in any existing Benefit Plan;
(g) any declaration, setting aside or payment of any dividend or other distribution with respect to any Equity Securities, or any direct or indirect redemption, purchase or other acquisition of any Equity Securities;
(h) any damage, destruction or loss, whether or not covered by insurance, materially and adversely affecting its assets, properties, financial condition, operation or business;
(i) any change in accounting methods or practices or any revaluation of any of its assets;
(j) except in the ordinary course of business consistent with its past practice, entry into any closing agreement with respect to material Taxes, settlement of any claim or assessment with respect to any material Taxes or consent to any extension or waiver of the limitation period applicable to any claim or assessment with respect to any material Taxes, entry or change of any material Tax election, change of any method of accounting resulting in any material amount of additional Tax or filing of any material amended Tax Return;
(k) any commencement or settlement of any Action;
(l) any transaction with any Related Party, other than any transaction entered into with a Related Party in its capacity as a customer of the Group Companies in the ordinary course of business and on an arms-length basis; nor
(m) any agreement or commitment to do any of the things described in Section 3.13(a) to Section 3.13(l).
3.14 Action and Governmental Orders .
Except as set forth in Section 3.14 of the Disclosure Schedule, there is no Action in relation to the Principal Business pending or, to the Knowledge of the Warrantors, threatened against any Group Company, the Affiliate of such Group Company, Founder or Founder Holding Company and, to the Knowledge of the Warrantors, there is no Action in relation to the Principal Business threatened against any Group Company, the Affiliate of such Group Company, Founder or Founder Holding Company. There is no Governmental Order in effect and binding on any Group Company or their respective assets or properties. There is no Action by any Group Company pending or which any Group Company intends to initiate against any third party. To the Knowledge of the Warrantors, no Governmental Authority has at any time challenged or questioned in writing the legal right of any Group Company to conduct the Principal Business. No Group Company has received any opinion, memorandum or advice from legal counsel to the effect that it is exposed, from a legal standpoint, to any liability or disadvantage which may be material to the Principal Business.
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3.15 Liabilities .
No Group Company has any Liabilities, except for (a) Liabilities set forth in the Management Statements and (b) current Liabilities incurred since the Statement Date in the ordinary course of business consistent with its past practice.
3.16 Material Contracts .
(a) Section 3.16 of the Disclosure Schedule contains a full list of each Contract (collectively, the Material Contracts ) the term of which has not yet expired and to which a Group Company is bound, including (i) all contracts relating to real properties and other contracts affecting any right, title or interest in and to real properties; (ii) all capital expenditure contracts in each case involving an amount exceeding RMB2 million; (iii) all contracts involving financing or borrowing, debt financing, indebtedness for borrowings, any deferral payment of asset purchase price exceeding RMB2 million (other than normal trade accounts payable) or granting of security relating to any contract of a third party in any way; (iv) all joint venture, partnership or cooperation arrangements or other profit sharing contracts, including the shareholders contracts, supplementary agreements and all related contracts and documents of all Group Companies; (v) all contracts relating to the Intellectual Properties used in the conduct of the Principal Business by the Group Companies; (vi) all contracts entered into with Governmental Authorities; (vii) voting agreements relating to any Equity Securities in the Group Companies, as well as all related powers of proxy, letters of authorization or similar instruments, and agreements relates to the sale, issuance, grant, exercise, award, purchase, repurchase or redemption of, any Equity Securities of the Company and Shanghai Cango and, any Equity Securities of any other Group Company which are held by a Group Company; (viii) any contracts outside of the ordinary course of the Principal Business, in each case involving an amount exceeding RMB2 million, including all contracts relating to the acquisition of any assets or any options or pre-emptive rights relating to the acquisition of any assets; (ix) all contracts relating to the acquisition of the business of or interest in any other Person or disposition of any material assets of the Group Companies; (x) all contracts providing for indemnification to any Person or sharing of or contribution to the debts of any Person; (xi) all contracts between any Group Company and any Related Party thereof (other than contracts between any Group Company and any Related Party thereof in its capacity as a customer of the Group Companies entered into in the ordinary course of business and on an arms-length basis; provided, however, that all cooperation agreements between the Company and/or the other Group Companies on the one hand, and Shanghai Youche Youjia Financial Leasing Co., Ltd. ( Youche Youjia ) on the other, shall in any event be deemed as Material Contracts); (xii) any contracts between the Group Companies and top five customers, top five suppliers and other key suppliers and key service providers, including third party data providers and towing companies; (xiii) all contracts between the Group Companies and funding or product partners; (xiv) the agreement between the Shanghai Cango and JC Bank in respect of credit inquiry with or from the Peoples Bank of China; (xv) the contracts between Youche Youjia and each funding provider or financier, the written cooperation agreements in negotiation with or that have been executed by Youche Youjia and any of other partners, as well as the agreements or contracts entered into by Youche Youjia or any other Group Companies in respect of issuance of asset-backed securities; (xvi) any non-competition agreements or any contracts containing non-competition or exclusivity terms entered into by the Group Companies; (xvii) any contracts containing terms on termination triggered by a change of control of a Group Company or a material minority equity investment in a Group Company or otherwise as well as the contracts requiring the consent from or granting a right of first refusal to any third party in the case of sale of any Group Company or the assets of any Group Company, and (xviii) all agreements involving the waiver, compromise or settlement of any Action involving an amount exceeding RMB2 million.
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(b) Each Material Contract is a valid and binding agreement of each Group Company that is a party thereto, the performance of which does not and will not violate any applicable Law or Governmental Order in any material respect, and is in full force and effect, and such Group Company has duly performed all of its material obligations under each Material Contract to the extent that such obligations to perform have accrued, and no material breach or default, alleged breach or default or event which would (with the passage of time, notice or both) constitute a material breach or default thereunder by such Group Company or, to the Knowledge of the Warrantors, any other party or obligor with respect thereto has occurred or, as a result of the execution, delivery and performance of the Series C Transaction Documents, will occur. No Group Company has given notice (whether written or otherwise) that it intends to terminate a Material Contract or that any other party thereto has breached, violated or defaulted under any Material Contract. No Group Company has received any notice (whether written or otherwise) that it has breached, violated or defaulted under any Material Contract or that any other party thereto intends to terminate such Material Contract.
3.17 Compliance with Laws and Governmental Orders .
(a) Each Group Company has been and is in compliance in all material respects with all Laws and all Governmental Orders that are applicable to it or to the conduct or operation of the Principal Business or the ownership or use of any of its assets or properties. None of the Group Companies has committed any material breach of such Laws or Governmental Orders which may unreasonably and adversely affect the consummation of a Qualified IPO (as defined in the Amended M&AA).
(b) To the Knowledge of the Warrantors, no event has occurred and no circumstance exists that (with or without notice or lapse of time) (i) may constitute or result in a material violation by any Group Company of, or a failure on the part of such Group Company to comply with, any Law or Governmental Order or (ii) may give rise to any obligation on the part of a Group Company to undertake, or to bear all or any portion of the cost of, any remedial action of any nature.
(c) No Group Company has received any notice from any Governmental Authority regarding (i) any actual, alleged, possible or potential material violation of, or material failure to comply with, any Law or Governmental Order or (ii) any actual, alleged, possible or potential material obligation on the part of such Group Company to undertake, or to bear all or any portion of the cost of, any remedial action of any nature. None of the Group Companies is under investigation with respect to a material violation of any Law or Governmental Order.
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(d) Each of the Group Companies, the Founders and the Founder Holding Companies, and to the Knowledge of the Warrantors, as applicable, each of its directors, officers, employees, agents and other Persons explicitly authorized to act on its behalf (collectively, the Representatives ) are in compliance with and have complied with the Foreign Corrupt Practices Act of the United States of America, as amended (the FCPA ), the U.K. Bribery Act or any other applicable anti-bribery or anti-corruption Law (collectively, Anti-Bribery Laws ), internal controls Laws and Anti-Money Laundering Laws which are applicable to or binding upon such Persons. Without limiting the foregoing, none of the Group Companies, the Founders, the Founder Holding Companies nor, to the Knowledge of the Warrantors, any of their respective Representatives has, directly or indirectly, offered, authorized, promised, conducted, participated in or received notice of any allegation of, any of the following: (i) the making of any gift or payment of anything of value to any Public Official by any Person to obtain any improper advantage, affect or influence any act or decision of any such Public Official with respect to any Group Company or the business of any Group Company or assist any Group Company in obtaining or retaining business for, or with, or directing business to, any Person; (ii) the taking of any action by any Person which would violate any Anti-Bribery Laws, if taken by an entity subject to such Anti-Bribery Law, or could reasonably be expected to constitute a violation of any such Anti-Bribery Law; or (iii) the making of any false or fictitious entries in the books or records of any Group Company by any Person.
(e) The business of each Group Company is, in all material aspects, in compliance with all Laws that may be applicable, including all Laws of the PRC with respect to mergers, acquisitions, foreign investment and foreign exchange transactions.
(f) None of the Group Companies is engaged in business with (i) any individual or entity listed on the Specially Designated Nationals and Blocked Persons List administered by the United States Department of the Treasurys Office of Foreign Assets Control ( OFAC ) and/or any other similar lists administered by OFAC pursuant to any authorizing statute, executive order or regulation, (ii) the government of any country subject to any OFAC sanctions program or (iii) any individual or entity included on any list of terrorists or terrorist organizations maintained by the United Nations, the European Union and/or the countries in which any Group Company or any of its Affiliates operates.
(g) The operations of each Group Company are, and have at all times been, conducted in compliance with all anti-money laundering laws and all applicable financial record keeping and reporting requirements, rules, regulations and guidelines (collectively, the Anti-Money Laundering Laws ), and no investigation, action, suit or proceeding by or before any Governmental Authority involving any Group Company with respect to Anti-Money Laundering Laws is pending or, to the Knowledge of the Warrantors, threatened or contemplated.
3.18 Compliance with Previous Transaction Documents .
Each Warrantor has duly complied with and performed its obligations under each of the Contracts entered into by it in connection with (i) the issuance and sale of the Series A-1 Preferred Shares, Series A-2 Preferred Shares, Series A-3 Preferred Shares and Series B Preferred Shares, and (ii) the issuance and sale of any Equity Securities in Shanghai Cango. To the extent that there is any non-compliance with or non-performance of any such Contract, the relevant Warrantor has duly obtained the relevant waiver from the relevant Persons.
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3.19 Titles and Properties .
(a) The Group has good and valid title to, or a valid leasehold interest in, all of the material assets it uses or may need to use in the conduct of the Principal Business, whether real, personal or mixed (including all such assets reflected in the Financial Statements), free and clear of all Liens (other than Permitted Liens) and third party claims, including any creditors rights. The foregoing assets collectively represent all assets, rights and properties necessary for the continued conduct of the Principal Business on a stand-alone basis. Except for leased items, no Person other than a Group Company owns any interest in any such assets. There are no facts or conditions affecting any such assets which could reasonably be expected, individually or in the aggregate, to interfere with the current use, occupancy or operation of such assets. All leases of real or personal property to which a Group Company is a party are fully effective and afford such Group Company valid leasehold possession of the real or personal property that is the subject of the lease.
(b) No Group Company has any owned real properties or constructions in progress, or rights and interests similar thereto.
(c) Where any real property ( Leased Properties ) is held under lease, each lease is a legal, valid, subsisting and enforceable lease. Each of the Group Companies is in compliance with the terms and conditions of each lease to which it is a party. Each lease contains no material restriction on business currently operated on such property or any right for the lessor or landlord to terminate such lease prior to expiration of its term (unless the lessee defaults on any rental payment or breaches any lease term). There are no facilities, services, assets or properties shared with any other Person which is not a Group Company, which are used in connection with the Principal Business.
3.20 Permits.
Other than as disclosed in Section 3.8 of the Disclosure Schedule, each Group Company has all material franchises, authorizations, approvals, permits, certificates, licenses and filings (collectively, Permits ), including, if applicable, any special approval, permits or filings required under the Laws of the PRC, necessary for its business and operations as now conducted and proposed to be conducted immediately after the Closing. Each such Permit is valid and in full force and effect. No Group Company is in default or violation in any material respect of any such Permit. No Group Company has received any written notice from any Governmental Authority regarding any actual or possible default under or violation of any such Permit. To the Knowledge of the Warrantors, no suspension, cancellation or termination of any such Permits is threatened or imminent.
3.21 Compliance with Other Instruments .
No Group Company is in material violation, breach or default of its Charter Documents. The execution, delivery and performance by each of the Group Companies, the Founder Holding Companies and the Founders of, and compliance by each of the Group Companies, the Founder Holding Companies and the Founders with, each of the Series C Transaction Documents to which it is a party, and the consummation of the transactions contemplated thereby, will not result in (a) any violation, breach or default, or be in conflict with or constitute, with or without the passage of time or the giving of notice or both, a default under (i) the Charter Documents of any Group Company, (ii) any Material Contract or (iii) any applicable Law, (b) the creation or imposition of any material Lien upon, or with respect to, any of the properties, assets or rights of any Group Company or (c) any termination, modification, cancellation or suspension of any material right, or any augmentation or acceleration of any material obligation, of any Group Company.
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3.22 Related Party Transactions .
Except for (i) as disclosed in Section 3.22 of the Disclosure Schedule, (ii) any Contract entered into by any Group Company with a Related Party (as defined below) in its capacity as a customer in the ordinary course of business of such Group Company and on an arms-length basis and (iii) the employment agreements, confidentiality agreements, non-compete agreements and other Contracts of a similar nature with any Group Company, (a) no shareholder, officer, director or employee of any Group Company or any Founder Holding Company or any Affiliate of any of them (each of the foregoing, a Related Party ) has any Contract with any Group Company (each, a Related Party Contract ), (b) nor is there currently any proposed Related Party Contract or series of Related Party Contracts which, in either case of (a) or (b), has, individually or in the aggregate, a contract value in excess of US$100,000. Each Related Party Contract is on terms and conditions as favorable to the applicable Group Company as would have been obtainable by such Group Company at the time in a comparable arms-length transaction with an unrelated party.
No Related Party has any direct or indirect ownership or economic interest in (a) any Person with which a Group Company is affiliated (other than a Group Company), except as disclosed in Section 3.22 of the Disclosure Schedule, (b) any Person which is a supplier or customer of any Group Company, except as contemplated by any Control Document, (c) any Person which competes with any Group Company, or (d) any assets used by any Group Company for the operation of the Principal Business, except in the cases of (a), (b) and (c) above that a Related Party may have a passive investment of less than two percent (2%) of the stock of any publicly traded company that engages in the foregoing.
There is no outstanding loan, amount payable or any other Liability between any Group Company and any Related Party, except for any payable by any Group Company to any of its Related Parties incurred during ordinary course of business which constitutes (a) salaries, (b) reimbursements of reasonable out-of-pocket expenses, (c) employee benefits which are consistent with such benefits provided to all the employees of such Group Company, or (d) small amount of cash advances due to bone fide business needs.
3.23 Intellectual Property Rights .
(a) With respect to Intellectual Properties which are material to the operation of the Principal Business ( Material Intellectual Properties ), the Group Companies are the owners of such Material Intellectual Properties and there are no defects of rights or encumbrances over their use and continuous use of such Material Intellectual Properties. All Material Intellectual Properties are valid and subsisting. Section 3.23 of the Disclosure Schedule contains a complete and accurate list of the Material Intellectual Properties.
(b) The conduct of the Principal Business and use of Intellectual Properties by the Group Companies will not conflict with, infringe upon or misuse the Intellectual Properties of any third Person, and there are no causes that may give rise to any claim against any Group Companies. No Person has, to the Knowledge of the Warrantors, violated, infringed or misappropriated any Material Intellectual Property of the Group Companies.
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3.24 Labor and Employment Matters .
(a) Schedule 4 attached hereto sets forth a list of all the Key Employees of each Group Company as of the date hereof. Each such Key Employee is currently devoting all of his or her business time to the conduct of the business of the relevant Group Company. No Group Company has received any notice of an intention to resign from any Key Employee.
(b) Each Group Company has complied with all applicable Laws related to employment or labor relationship in all material respects, including those in relation to labor contracts, equal opportunity, minimum wages, social security (including pension insurance, medical insurance, work-related injury insurance, maternity insurance, unemployment insurance and housing funds, collectively Social Security ), working hours, overtime payments, holidays and leave and occupation disease prevention and treatment. Each Group Company has promptly: (i) withheld all amounts required by applicable Laws to be withheld from its employees and paid the same to applicable Governmental Authorities, including withholding and paying all individual income taxes and Social Security contributions required to be paid by its employees; (ii) paid in full all employee benefit amounts required by applicable Laws to be paid to applicable Governmental Authorities, including all Social Security contributions required to be paid by it; and (iii) paid all amounts required by applicable labor Laws and labor terms applicable to its employees to each of its employees, including all salaries, overtime payments, bonuses, benefits, severance payments, allowances and other payable compensation required to be paid to such employees.
(c) Except for statutory social insurance schemes and housing fund schemes and the ESOP, the Group Companies have not adopted or implemented any Benefit Plan. Each Group Company maintains, and has fully funded, any pension plan and any other labor-related plans that it is required by Law or by Contract to maintain.
3.25 Shareholder Agreements .
None of the Warrantors is a party to, nor has Knowledge of, any Contracts, written or oral, relating to the acquisition, disposition or registration under the Securities Act or any equivalent Law in another jurisdiction, or voting, of the Equity Securities in any Group Company, other than the Series C Transaction Documents.
3.26 Prior L egal M a tters.
None of the Warrantors has been (a) subject to any voluntary or involuntary petition under any bankruptcy or insolvency Law or the appointment of a receiver, fiscal agent or similar officer by a court for his business or property, (b) convicted in a criminal proceeding or named as a subject of a pending criminal proceeding, excluding traffic violations and other minor offenses, (c) subject to any Governmental Order (not subsequently reversed, suspended or vacated) permanently or temporarily enjoining him from engaging, or otherwise imposing limits or conditions on his engagement, in any business or acting as an officer or director of a public company or (d) found by a court of competent jurisdiction in a civil action or by any Governmental Authority to have violated any securities, commodities or unfair trade practices Law, which such judgment or finding has not been subsequently reversed, suspended or vacated.
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3.27 Insolvency
(a) The aggregate assets of each Major Group Company (as defined in the Shareholders Agreement), at a fair valuation, exceeds or will exceed the aggregate debt of such Major Group Company as the debt becomes absolute and mature; and the aggregate assets of the Group Companies (taken as a whole), at a fair valuation, exceeds or will exceed the aggregate debt of the Group Companies (taken as a whole) as the debt becomes absolute and mature.
(b) Except as disclosed in Section 3.27 of the Disclosure Schedule, there has not been commenced against any Group Company any involuntary Action under any applicable national, provincial, city, local or foreign bankruptcy, insolvency, receivership or similar Law, or any Action for the appointment of a receiver, liquidator, assignee, custodian, trustee, sequestrator or similar official of such Group Company or for any substantial part of its property or for the winding up or liquidation of its affairs.
3.28 Disclosure .
All facts that have or could reasonably be expected to have a Material Adverse Effect have been disclosed to the Investors. No representation or warranty by the Warrantors in this Agreement contains any misrepresentation of a material fact, or omissions to state any material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances in which they are made, not misleading.
3A. REPRESENTATIONS AND WARRANTIES OF THE PARTNERSHIPS
Each of the Partnerships hereby severally and not jointly represents and warrants to the Investors that each of the statements contained in this Section 3A is true, accurate and not misleading on and as of the date hereof and shall be true, accurate and not misleading on and as of the Closing Date, with the same effect as if made on and as of the Closing Date:
3A.1 Status .
The Partnership is duly organized, validly existing and in good standing under the Laws of the jurisdiction of its incorporation or formation and has all requisite power to perform each of its obligations under the Series C Transaction Documents to which it is a party.
3A.2 Authorization .
The Partnership has all requisite power and authority to execute and deliver each Series C Transaction Document to which it is a party and to carry out and perform its obligations thereunder. All action on the part of the Partnership (and, as applicable, its officers, directors and shareholders) that are required for the authorization, execution and delivery of each Series C Transaction Document to which it is a party, and the performance of all of its obligations thereunder, has been taken or will have been taken prior to the Closing. The Partnership has duly executed and delivered this Agreement and, prior to the Closing Date, will have duly executed and delivered each other Series C Transaction Document to which it is a party. Each of the Series C Transaction Documents to which the Partnership is a party constitutes, when executed and delivered by the Partnership, valid and legally binding obligations of the Partnership, enforceable against the Partnership in accordance with its terms, except as limited by (a) applicable bankruptcy, insolvency, reorganization, moratorium and other Laws of general application affecting enforcement of creditors rights generally and (b) Laws relating to the availability of specific performance, injunctive relief or other equitable remedies.
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3A.3 Consents; No Conflicts .
All Consents from or with any Governmental Authority or any other Person required in connection with the valid execution, delivery and performance of the Series C Transaction Documents, and the consummation of the transactions contemplated by the Series C Transaction Documents, on the part of the Partnership have been duly obtained or completed (as applicable) and are in full force and effect. The execution, delivery and performance of each of the Series C Transaction Documents, and the consummation of the transactions contemplated thereby will not contravene with, breach or violate any provision of the Charter Documents of the Partnership, any applicable Laws or any Contracts to which the Partnership is a party.
3A.4 Securities Holder .
The Partnership is the sole record and beneficial holder of all of the Equity Securities set forth opposite its name on Schedule 2 , free and clear of all Liens of any kind other than those arising under applicable Laws. There is no Contract which affect or relate to the voting or giving of written consents with respect to any Equity Security held by the Partnership in the Company, other than the Series C Transaction Documents.
3A.5 Action and Governmental Orders .
There is no Action pending or threatened against or initiated by the Partnership or its Affiliates which may have a Material Adverse Effect. There is no Governmental Order in effect and binding on the Partnership or its Affiliates or their respective assets or properties which may have a Material Adverse Effect.
4. | REPRESENTATIONS AND WARRANTIES OF THE INVESTOR S |
Each of the Investors hereby, severally but not jointly, represents and warrants to the Warrantors and the Partnerships that each of the statements contained in this Section 4 is true, accurate and not misleading on and as of the date hereof and shall be true, accurate and not misleading on and as of the Closing Date, with the same effect as if made on and as of the Closing Date:
4.1 Status .
Such Investor is duly organized, validly existing and in good standing under the Laws of the jurisdiction of its incorporation or formation.
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4.2 Authorization .
Such Investor has all requisite power and authority to execute and deliver each Series C Transaction Document to which it is a party and to carry out and perform its obligations thereunder. All action on the part of such Investor (and, as applicable, its officers, directors and shareholders) that are required for the authorization, execution and delivery of each Series C Transaction Document to which it is a party, and the performance of all of its obligations thereunder, has been taken or will have been taken prior to the Closing. Such Investor has duly executed and delivered this Agreement and, on the Closing Date, will have duly executed and delivered each other Series C Transaction Document to which it is a party. Each of the Series C Transaction Documents to which such Investor is a party constitutes, when executed and delivered by such Investor, valid and legally binding obligations of such Investor, enforceable against such Investor in accordance with its terms, except as limited by (a) applicable bankruptcy, insolvency, reorganization, moratorium and other Laws of general application affecting enforcement of creditors rights generally and (b) Laws relating to the availability of specific performance, injunctive relief or other equitable remedies.
4.3 Consents ; No Conflicts .
All Consents from or with any Governmental Authority or any other Person required in connection with the valid execution, delivery and performance of the Series C Transaction Documents, and the consummation of the transactions contemplated by the Series C Transaction Documents, on the part of such Investor have been duly obtained or completed (as applicable) and are in full force and effect. The execution, delivery and performance of each of the Series C Transaction Documents, and the consummation of the transactions contemplated thereby will not contravene with, breach or violate any provision of the Charter Documents of such Investor, any applicable Laws or any Contracts to which such Investor is a party.
4.4 Action .
There is no Action pending or threatened initiated by such Investor or its Affiliates which may affect the legality, validity or enforceability of this Agreement or any Series C Transaction Documents or the consummation of the transactions contemplated hereby or thereby.
4.5 Purchase for Own Account.
Unless otherwise disclosed to the Company in writing, the applicable Purchased Shares being purchased by such Investor and the Conversion Shares thereof will be acquired for such Investors own account, not as a nominee or agent, and not with a view to or in connection with the sale or distribution of any part thereof.
4.6 Status of Investor .
Such Investor is either (i) an accredited investor within the meaning of the U.S. Securities and Exchange Commission ( SEC ) Rule 501 of Regulation D, as presently in effect, under the Securities Act, or (ii) not a U.S. person as defined in Rule 902 of Regulation S of the Securities Act. Such Investor has the knowledge, sophistication and experience necessary to make an investment decision like that involved in the purchase of the Purchased Shares and is aware of the economic risk of its investment in the Purchased Shares.
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4.7 Restricted Securities.
Such Investor understands that the applicable Purchased Shares and the Conversion Shares are restricted securities within the meaning of Rule 144 under the Securities Act; that the applicable Purchased Shares and the Conversion Shares are not registered or listed publicly and must be held indefinitely unless they are subsequently registered or listed publicly or an exemption from such registration or listing is available.
5. | COVENANTS OF THE WARRANTORS AND PARTNERSHIPS |
The Warrantors and the Partnerships jointly and severally covenant to each Investor as follows:
5.1 Use of Proceeds .
The Company shall use the proceeds received from the issuance and sale of the Purchased Shares only for business expansion and general working capital purposes or as otherwise approved by the board of directors of the Company (the Board ) in accordance with the Shareholders Agreement and the Amended M&AA. The Company shall not use any such proceeds for (i) the repurchase or cancellation of securities held by any shareholder of any Group Company, or (ii) the payment of any debt of any Group Company, in each case without the prior written consent of Didi.
5.2 Business of the Company and the HK Company .
Except as otherwise approved by the Board and/or the shareholders of the Company in accordance with the Shareholders Agreement and the Amended M&AA, (a) the business of the Company shall be restricted to the holding, management and disposition of Equity Securities in the HK Company and (b) the business of the HK Company shall be restricted to the holding, management and disposition of Equity Securities in the WFOE.
5.3 Business of the WFOE and Domestic Companies .
Except as otherwise approved by the Board and/or the shareholders of the Company in accordance with the Shareholders Agreement and the Amended M&AA, the business of the WFOE and the Domestic Companies shall be restricted to the Principal Business.
5.4 Control Documents .
Each Group Company, each Founder and each Partnership shall comply with the Control Documents and cause all of the transactions contemplated thereunder to be consummated in accordance with the terms and conditions thereof. Each of the Warrantors and Partnerships undertakes that no amendment, assignment or termination of any Control Documents shall be made without the prior written approval of Didi.
5.5 Transfer of Securities of Founder Holding Companies .
From the date hereof to the Closing Date (both dates inclusive), none of the Founders nor the Founder Holding Companies shall directly or indirectly sell, give, assign, transfer, pledge, hypothecate, mortgage, encumber, grant a security interest in or otherwise dispose of any securities in the Company (including through the Partnerships) (each, a Transfer ). Any attempt by a Founder or a Founder Holding Company to Transfer any securities in the Company in violation of this Section 5.5 shall be null and void ab initio and each of the Company, the Founder Holdings Companies and the Founders shall not effect, register or permit the registration of such a Transfer nor treat any alleged transferee of such Transfer as the holder of such Transferred securities without the prior written approval of Didi.
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5.6 Compliance with Applicable Laws .
Each of the Group Companies shall, and each of the Warrantors and the Partnerships shall use its best efforts to cause each of the Group Companies to, comply in all material respects with all applicable Laws, including all applicable PRC rules and regulations relating to the auto finance business, software, Intellectual Property, anti-monopoly, taxation, employment and social welfare and benefits.
5.7 Validity of Approvals .
Each of the Group Companies shall, and each of the Warrantors and the Partnerships shall use its best efforts to cause each of the Group Companies to, at all times maintain the validity of, and comply with all legal and regulatory requirements with respect to, the Approvals that it has obtained and shall obtain after the Closing for the conduct of its business.
5.8 Indemni fication .
(a) The Warrantors hereby agree to jointly and severally indemnify, defend and hold harmless each Investor and its Affiliates and their respective directors, officers, employees, agents, bankers, lenders, accountants, counsels, business partners, customers, representatives and assigns (each, an Indemnified Party ) from and against any and all Indemnifiable Losses suffered by such Indemnified Party, directly or indirectly, as a result of, based upon, or arising from: (x) any inaccuracy in or breach of any of the representations or warranties made by any Warrantor in or pursuant to this Agreement or any of the other Series C Transaction Documents; (y) any breach or non-performance of any of the covenants or agreements made by any Warrantor in or pursuant to this Agreement or any of the other Series C Transaction Documents; or (z) all Indemnifiable Losses suffered or incurred by the Indemnified Parties by reason of any Action of any Governmental Authority or any claim or Action of any other third parties, provided that such claim or Action arises out of any action, inaction, event, condition, obligation or Liability of any Warrantor existed prior to the Closing. No information relating to the Group, the Founders or the Founder Holding Companies of which any Indemnified Party has knowledge (actual or constructive) and no investigation by or on behalf of any Indemnified Party shall prejudice any claim made by any Indemnified Party under the indemnity contained in this Section 5.8(a) or operate to reduce any amount recoverable thereunder. It shall not be a defense to any claim against the Warrantors that an Indemnified Party knew or ought to have known or had constructive knowledge of any information relating to the circumstances giving rise to such claim. The rights of the Indemnified Parties contained in this Section 5.8 shall not be deemed to preclude or otherwise limit in any way the exercise of any other rights or the pursuit of any other remedies for the breach of any Series C Transaction Document.
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(b) The Warrantors shall indemnify, defend and hold harmless each of the Indemnified Parties from and against any and all Indemnifiable Losses resulting from or arising out of (t) any breach of the applicable Law (including the Laws in relation to the Tax, anti-unfair competition and anti-commercial bribery) or binding Contract by any Group Company prior to the Closing Date; (u) any Action against any Group Company or participation by any Group Company as a party in any Action, arising out of the events, or circumstances existed or occurred prior to the Closing Date; (v) any breach or violation of applicable Laws or Accounting Standard during the processing of accounts by any Group Company prior to the Closing Date; (w) any Indemnifiable Loss (including legacy debts) incurred by the matters which the equity interests of the Persons other than the Group Companies are held by any Group Company (including and without limitation, the hold, transfer of the equity interests in Shaanxi Tonghuida Automobile Consulting Service Co., Ltd., Guizhou Baoyuan Automobile Consulting Service Co., Ltd., Yunnan Qianjutong Vehicle Information Consulting Service Co., Ltd., Changsha Shenghongda Car Rental Co., Ltd., Anhui Huaitong Car Rental Consulting Service Co., Ltd. and Guangdong Lianfeng Vehicle Information Consulting Service Co., Ltd. (including legacy debts); (x) any Indemnifiable Loss incurred or suffered by the Group Companies arising out of or in relation to the establishment, history or operation of Shanghai Cango Financial Leasing Co., Ltd ( 上海灿谷融资租赁有限公司 ); (y) any Indemnifiable Loss incurred or suffered by the Group Companies arising out of or in relation to any shareholder or employee of the Group Companies having held or being holding any position in Jincheng Bank or any transactions with Jincheng Bank; or (z) any penalty and overdue fine imposed on any Group Company for its failure to pay or fully pay any Taxes or its default in making any contributions to the Social Security or any deficiency in such contributions on or prior to the Closing Date, or its violation of any labor Law of PRC and other applicable Laws or any indemnity undertaking issued by any Group Company or the Investors upon the request by any Governmental Authority.
(c) The Partnerships hereby agree to, severally and not jointly, indemnify, defend and hold harmless each Indemnified Party from and against any and all Indemnifiable Losses suffered by such Indemnified Party, as a result of, based upon, or arising from, any inaccuracy in or breach or non-performance of any of the representations, warranties, covenants or agreements made by any Partnership in or pursuant to this Agreement or any of the other Series C Transaction Documents. No information relating to the Group or any Partnership of which any Indemnified Party has knowledge (actual or constructive) and no investigation by or on behalf of any Indemnified Party shall prejudice any claim made by any Indemnified Party under the indemnity contained in this Section 5.8 (c) or operate to reduce any amount recoverable thereunder. It shall not be a defense to any claim against the Partnerships that an Indemnified Party knew or ought to have known or had constructive knowledge of any information relating to the circumstances giving rise to such claim.
(d) Absent intentional or malicious transfer of assets or the Equity Securities directly or indirectly held by any Founder, each Founders liability under this Section 5.8 shall be limited to his/her personal property and the Equity Securities of the Group Companies directly or indirectly held by such Founder (including those Equity Securities held in trust for the benefit of such Founder by other Persons) as of the time when such indemnification liability is triggered. For purpose of this Section 5.8, with respect to each Founder, the term personal property shall not include any marital property or any property that is under the name of any Immediate Family Member (as defined in the Amended M&AA) of such Founder. For the avoidance of doubt, except for those Equity Securities of the Group Companies as subscribed or purchased by an Immediate Family Member of the Founders in accordance with the terms and conditions of the Series C Transaction Documents, the Equity Securities directly or indirectly held by any Founder shall not be registered under the name of any Immediate Family Member of such Founder, or transferred to any Immediate Family Member of such Founder for any reason other than inheritance pursuant to the applicable Laws and each of the Founders shall cause the spouse of such Founder to waive his/her rights to the interests in connection with any Equity Securities of the Group Companies directly or indirectly held by such Founder.
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(e) Each Investor hereby agrees to indemnify, defend and hold harmless each Warrantor and Partnership from and against any and all Indemnifiable Losses suffered by such Warrantor and Partnership, directly or indirectly, as a result of, based upon, or arising from, any inaccuracy in or breach or non-performance of any of the representations, warranties, covenants or agreements made by such Investor in or pursuant to this Agreement or any of the other Series C Transaction Documents.
5.9 Investment by the Group Companies.
After the Closing, each of the Group Companies which is a party to this Agreement shall, and each of the Warrantors and the Partnerships shall cause each of the Group Companies to:
(a) treat all employees fairly in terms of recruitment, progression, remuneration and conditions of work, irrespective of gender, race, colour, language, disability, political opinion, age, religion or national or social origin;
(b) allow consultative work-place structures and associations which provide employees with an opportunity to present their views to the management; and
(c) uphold high standards of business integrity and honesty, and operate in accordance with local Laws and international good practice (including those intended to fight extortion, bribery and financial crime).
5.10 Breaches of Representations and Warranties .
If at any time before the Closing any of the Warrantors and/or the Partnerships comes to know of any fact or event which (a) is inconsistent with any of the representations and warranties given by any of the Warrantors and/or the Partnerships in material manner, or (b) suggests that the statements represented or warranted may not be as represented or warranted or may be misleading in material manner, such Warrantor and/or the Partnership shall give immediate written notice thereof to each of the Investors, in which event, if any such fact or event results in, or is reasonably expected to result in, any Material Adverse Effect or any failure of satisfaction of any condition to the Investors obligations set out in Section 6 (other than any such condition to be satisfied by any Investor, if any), such Investor may within fourteen (14) Business Days after receiving such notice terminate this Agreement with respect to itself by written notice to the Company without any penalty or future obligations whatsoever.
5.11 Fulfilment of Conditions .
Each of the Parties shall use its best efforts to ensure the fulfilment of the conditions set out in Section 6 as soon as reasonably practicable.
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5.12 Anti-corruption etc. .
(a) None of the Group Companies shall, and each of the Warrantors and the Partnerships shall ensure that none of the Group Companies or their respective Affiliates shall, nor the respective directors, officers, managers, employees, independent contractors, representatives or agents of the Group Companies and their respective Affiliates shall, directly or indirectly, (i) offer, promise, authorize or make any payment to, or otherwise contribute any item of value to, any third party in violation of any Anti-Bribery Laws or (ii) take any action which would result in a violation of any sanctions administered or enforced by OFAC, the United Nations Security Council, the European Union, Her Majestys Treasury or any other sanctions authority.
(b) Each of the Group Companies shall, and each of the Warrantors and the Partnerships shall cause each of the Group Companies and their respective Affiliates to, (i) cease all of its activities, and remediate any actions taken by it or any of its directors, officers, managers, employees, independent contractors, representatives or agents, which are in violation of Anti-Bribery Laws and (ii) maintain systems of internal controls (including accounting systems, purchasing systems and billing systems) to ensure compliance with Anti-Bribery Laws.
5.13 Compliance with SAFE Rules and Regulations .
The Warrantors and the Partnerships shall jointly and severally cause each of the Company Security Holders who is a Domestic Resident or who has one or more Domestic Residents (including the Founders) as its beneficial owners to fully comply on a continuing basis with all registration and reporting requirements of the Governmental Authorities of the PRC with respect to its holding of Equity Securities in the Company, including the registration obligations under the SAFE Rules and Regulations. None of the Warrantors and the Partnerships shall carry out, and each of the Warrantors and the Partnerships shall ensure that none of the Group Companies carries out, any foreign exchange activities unless it has complied with all applicable SAFE Rules and Regulations.
5.14 Registration of Amended M&AA .
The Company shall, and each of the Founders and the Founder Holding Companies shall cause the Company to, (a) within ten (10) Business Days after the Closing, duly submit the Amended M&AA to the Registrar of Companies of the Cayman Islands for registration and (b) within one (1) Business Day after completion of such registration, deliver to each Investor a certified copy of the Amended M&AA registered with, and stamped by, the Registrar of Companies of the Cayman Islands.
5.15 D&O Insurance.
If requested by Didi, the Company shall obtain and maintain director and officer insurance with coverage and terms to the reasonable satisfaction of Didi.
5.16 Other Covenants.
The Warrantors and the Partnerships shall jointly and severally cause each of the actions set forth in Schedule 6 to be completed within the time periods specified in Schedule 6 .
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6. | CONDITIONS TO THE INVESTORS OBLIGATION |
The obligation of each Investor to complete the sale and purchase of the Purchased Shares with respect to such Investor pursuant to Section 2 is subject to the fulfilment, or waiver by such Investor in writing in its sole discretion, of the following conditions at or prior to the Closing:
6.1 Representations and Warranties Being True and Accurate .
The representations and warranties made by the Warrantors in Section 3 and the representations and warranties made by the Partnerships in Section 3A shall have been true, accurate and not misleading in all material respects on and as of the date of this Agreement and on and as of the Closing Date, with the same effect as if made on and as of the Closing Date, except for such representations and warranties that are made as of a specific date, which shall speak only as of such date.
6.2 Performance of Obligations .
Each of the Warrantors and the Partnerships shall have performed and complied with all, and shall not have been in breach or default under any, covenants, agreements, obligations and conditions contained in this Agreement that are required to be performed or complied with by it on or before the Closing.
6.3 Proceedings and Documents .
All necessary corporate and other proceedings in connection with the execution of, and the consummation of the transactions contemplated by, the Series C Transaction Documents (including the appointment of the director nominated by Didi to the Board pursuant to the Shareholders Agreement (the Investor Director )) shall have been completed, and Didi shall have received copies of all documents and instruments incidental thereto.
6.4 Approvals .
(a) Each of the Group Companies, the Founders, the Founder Holding Companies and the Partnerships shall have obtained any and all Approvals that are required to be obtained by it on or before the Closing for consummation of the transactions contemplated by the Series C Transaction Documents (including waivers by the existing shareholders of the Company of any pre-emptive rights and other similar rights with respect to the issuance of the Purchased Shares), each of which shall be in full force and effect as of the Closing, and such Investor shall have received copies of all such Approvals.
(b) With respect to Didi, Didi shall have obtained the requisite internal Approval, approving the transaction contemplated by the Series C Transaction Documents.
6.5 No Prohibitions .
There shall not have been any Governmental Order or any condition imposed under any Law which would, in the reasonable judgment of such Investor, (a) prohibit or restrict (i) the sale and issuance of the Purchased Shares or (ii) the consummation of the transactions contemplated by the Series C Transaction Documents, (b) subject such Investor to any material penalty or onerous condition under or pursuant to any Law if the Purchased Shares were to be sold and/or issued hereunder or (c) restrict the operation of the Principal Business in a manner that would have a Material Adverse Effect.
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6.6 Closing Certificate .
Such Investor shall have received a certificate substantially in the form attached hereto as Exhibit E , dated the Closing Date, certifying that the conditions specified in Section 6.1 to Section 6.4(a), Section 6.5, Section 6.7, Section 6.10 and Section 6.12 have been fulfilled.
6.7 Charter Documents .
The Amended M&AA shall have been duly adopted by the Company on or prior to the Closing by all necessary corporate action of the Board and the shareholders of the Company, and shall have become and remained effective under the Laws of the Cayman Islands as of the Closing.
6.8 Execution of Series C Transaction Documents .
Such Investor shall have received a copy of each of the Shareholders Agreement, Right of First Refusal and Co-Sale Agreement and, with respect to Didi, the Director Indemnification Agreement, duly executed by all of the parties thereto other than such Investor and the Investor Director.
6.9 Good Standing .
Such Investor shall have received a certificate of good standing of the Company, issued by the Registrar of Companies of the Cayman Islands on a date no earlier than ten (10) days prior to the Closing Date, in form and substance satisfactory to such Investor.
6.10 Register of Directors .
The Company shall have adopted Board and/or shareholders resolutions approving the appointment of the Investor Director, and Didi shall have received a copy of the Companys updated register of directors reflecting the appointment of the Investor Director, certified by the registered office provider of the Company as true and complete as of the Closing Date.
6.11 Register of Members .
Such Investor shall have received a copy of the Companys updated register of members reflecting the issuance of the Purchased Shares to such Investor on the Closing Date, certified by the registered office provider of the Company as true and complete as of the Closing Date.
6.12 No Material Adverse Effect .
There shall not have been any Material Adverse Effect since the Statement Date.
6.13 Legal Opinion
Such Investor shall have received a legal opinion from each of the PRC legal counsel and the Cayman Islands legal counsel of the Group Companies, dated the Closing Date and addressed to such Investor, in each case in substantially form set forth in Exhibit F.
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7. CONDITIONS | TO THE COMPANYS OBLIGATION |
The obligation of the Company to complete the sale and purchase of the Purchased Shares with respect to each Investor pursuant to Section 2 is subject to the fulfilment, or waiver by the Company in writing in its sole discretion, of the following conditions at or prior to the Closing:
7.1 Representations and Warranties .
The representations and warranties made by such Investor in Section 4 shall have been true, accurate and not misleading in all material respects on and as of the date of this Agreement and on and as of the Closing Date, with the same effect as if made on and as of the Closing Date, except for such representations and warranties that are made as of a specific date, which shall speak only as of such date.
7.2 Execution of Series C Transaction Documents .
Such Investor shall have delivered to the Company a copy of each of the Shareholders Agreement, the Right of First Refusal and Co-Sale Agreement and, with respect to Didi, the Director Indemnification Agreement, duly executed by such Investor or the Investor Director (as the case may be).
8. MISCELLANEOUS |
8.1 Survival .
Unless it is terminated pursuant to Section 8.15 below prior to the Closing, this Agreement shall continue to be effective and binding on the Parties in all respects notwithstanding occurrence of the Closing. Without any limitation to the generality of the foregoing, the representations and warranties of the Warrantors in Section 3 shall survive the Closing and shall expire after a period of two (2) years from the Closing, except that the Fundamental Warranties shall survive indefinitely and the representations and warranties set forth in Section 3.9 shall survive until the expiration of the statute of limitation applicable to the particular Tax at issue. Without any limitation to the generality of the foregoing, the representations and warranties of the Partnerships in Section 3A shall survive indefinitely.
8.2 Successors and Assigns.
The terms and conditions of this Agreement shall inure to the benefit of and be binding upon the respective successors and assigns of the Parties. This Agreement, and the rights and obligations hereunder, shall not be assigned or transferred without the prior written consent of the Parties; provided , that any Investor may, without the consent of any other Party, assign or transfer its rights and obligations hereunder to any of its Affiliates or any limited partner of Didi who is an Affiliate of any shareholder of the Company or any Affiliate of such limited partner of Didi along with the transfer of the Purchased Shares by such Investor in compliance with the Shareholders Agreement. Except as provided in Section 5.8, with respect to indemnification of Indemnified Parties, nothing in this Agreement, express or implied, is intended to confer upon any Person other than the Parties and its successors and assigns any rights, remedies, obligations or liabilities under or by reason of this Agreement pursuant to the Contracts (Rights of Third Parties) Ordinance (Chapter 623 of the Laws of Hong Kong).
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8.3 Entire Agreement .
This Agreement, the other Series C Transaction Documents and any other documents referred to herein or therein constitute the entire understanding and agreement among the Parties with regard to the subjects hereof and thereof.
8.4 Notices .
Except as may be otherwise provided herein, all notices, requests, waivers and other communications made pursuant to this Agreement shall be in writing and shall be conclusively deemed to have been duly given (a) when hand delivered to the relevant Party, upon delivery; (b) when sent by facsimile at the number set forth in Schedule 5 hereto, upon receipt of confirmation of error-free transmission; (c) seven (7) Business Days after deposit in the mail as air mail or certified mail, receipt requested, postage prepaid and addressed to the relevant Party as set forth in Schedule 5 ; or (d) three (3) Business Days after deposit with an international overnight delivery service, postage prepaid, addressed to the relevant Party as set forth in Schedule 5 with next Business Day delivery guaranteed, provided that the sending Party receives a confirmation of delivery from the delivery service provider.
Each Person making a communication hereunder by facsimile shall promptly confirm by telephone to the Person to whom such communication was addressed for each communication made by it by facsimile pursuant hereto but the absence of such confirmation shall not affect the validity of any such communication. A Party may change or supplement the addresses given in Schedule 5 , or designate additional addresses, for purposes of this Section 8.4 by giving the other Parties written notice of the new address in the manner set forth above.
8.5 Amendments and Waivers .
(a) This Agreement may be amended, modified or supplemented only by a written instrument executed by the Parties.
(b) No waiver of any provision of this Agreement by a Party, and no consent or approval of a Party, shall be effective unless set forth in a written instrument signed by such Party waiving such provision or granting such consent or approval. No failure or delay by a Party in exercising any right, power or remedy under this Agreement shall operate as a waiver thereof, nor shall any single or partial exercise of the same preclude any further exercise thereof or the exercise of any other right, power or remedy. Without limiting the foregoing, no waiver by a Party of any breach by any other Party of any provision hereof shall be deemed to be a waiver of any subsequent breach of that or any other provision hereof.
8.6 Counterparts .
This Agreement may be executed in any number of counterparts, each of which shall be an original, but all of which together shall constitute one instrument. Facsimile and e-mailed copies of signatures shall be deemed to be originals for purposes of the effectiveness of this Agreement.
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8.7 Severability .
If any provision of this Agreement is found to be invalid or unenforceable, then such provision shall be construed, to the extent feasible, so as to render such provision valid and enforceable and to provide for the consummation of the transactions contemplated hereby on substantially the same terms as originally intended by the Parties, and if no feasible construction would save such provision, such provision shall be severed from the remainder of this Agreement, which shall remain in full force and effect unless the severed provision is essential to the rights or benefits intended by the Parties. In such event, each of the Parties shall use commercially reasonable efforts to negotiate, in good faith, a substitute, valid and enforceable provision or agreement which most closely effectuates the Parties intent in entering into this Agreement.
8.8 Interpretation .
This Agreement shall be construed according to its fair language. The rule of construction to the effect that ambiguities are to be resolved against the drafting party shall not be employed in interpreting this Agreement.
8.9 Confidentiality and Non -Disclosure .
(a) The terms and conditions of this Agreement and the other Series C Transaction Documents, any term sheet or memorandum of understanding entered into pursuant to the transactions contemplated hereby and thereby, all exhibits and schedules attached hereto and thereto and the transactions contemplated hereby and thereby (collectively, the Financing Terms ), including their existence and all information of a confidential nature furnished by any Party hereto and by representatives of such Party to any other Party hereto or any of the representatives of such Party shall be considered confidential information (the Confidential Information ) and shall not be disclosed by any Party hereto to any third party except in accordance with the provisions set forth below.
(b) Except as required by law, by any Governmental Authority (including any relevant stock exchange on which the shares in a Party or any of its parent companies is listed) or otherwise agreed by all of the Parties in writing, no announcement regarding any of the Financing Terms in a press release, conference, advertisement, announcement, professional or trade publication, mass marketing materials or otherwise to the general public may be made without the prior written consent of the Investors. The final form of any press release issued by the Company shall be approved in advance in writing by the Investors.
(c) Notwithstanding Section 8.9(a), any Party may disclose (i) the Confidential Information to its current or bona fide prospective investors, Affiliates and their respective investors, shareholders, partners, limited partners, general partners, fund managers, employees, bankers, lenders, accountants, legal counsels, business partners or representatives or advisors who need to know such information, in each case only where such Persons are informed of the confidential nature of the Confidential Information and are under appropriate nondisclosure obligations substantially similar to those set forth in this Section8.8, (ii) such Confidential Information as is required to be disclosed pursuant to routine examination requests from Governmental Authorities with authority to regulate such Partys operations, in each case as such Party reasonably deems appropriate, and (iii) the Confidential Information to any Person to which disclosure is approved in writing by the other Parties hereto. Any Party hereto may also provide disclosure in order to comply with applicable Laws, as set forth in Section 8.9(d) below.
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(d) Except as set forth in Section 8.9(c) above, in the event that any Party is requested or becomes legally compelled (including pursuant to any applicable Tax, securities or other Laws of any jurisdiction) to disclose any Confidential Information, such Party (the Disclosing Party ) shall provide the other Parties hereto with prompt written notice of that fact and shall consult with the other Parties hereto regarding such disclosure. At the request of the other Parties, the Disclosing Party shall, to the extent reasonably and legally possible and with the cooperation and reasonable efforts of the other Parties, seek a protective order, confidential treatment or other appropriate remedy for such Confidential Information. In any event, the Disclosing Party shall furnish only that portion of Confidential Information that is legally required and shall exercise reasonable efforts to obtain reliable assurance that confidential treatment will be accorded to such Confidential Information.
(e) Notwithstanding any other provision of this Section8.8, the confidentiality obligations of a Party under this Agreement shall not apply to (i) information which such Party learns from a third party which, in such Partys reasonable opinion, has the right to make the disclosure, provided such Party complies with any restrictions imposed by the third party, (ii) information which is rightfully in such Partys possession prior to the time of disclosure by the relevant other Party and not acquired by such Party under a confidentiality obligation and (iii) information which enters the public domain through no breach of confidentiality by such Party.
8.10 Further Assurances .
Each Party shall from time to time and at all times hereafter make, do, execute or cause to be made, done and executed such further acts, deeds, conveyances, consents and assurances, without further consideration, which may reasonably be required to give full effect to the terms of this Agreement or to vest in any other Party such other Partys full rights and entitlements hereunder.
8.11 Governing Law .
This Agreement shall be governed by and construed under the Laws of Hong Kong, without regard to principles of conflict of laws thereunder.
8.12 Dispute Resolution .
Any dispute or controversy arising out of, relating to or concerning any interpretation, construction, performance or breach of this Agreement shall be resolved by arbitration in Hong Kong which shall be administered by the Hong Kong International Arbitration Centre (the HKIAC) in accordance with the Hong Kong International Arbitration Centre Administered Arbitration Rules in force at the time of the commencement of the arbitration (the Arbitration Rules) and as may be amended by the rest of this Section 8.12. For purposes of such arbitration, there shall be three (3) arbitrators. To the extent that one Investor is involved in such arbitration, the relevant Investor shall select one arbitrator, and to the extent that multiple Investors are involved in such arbitration, Didi shall select one arbitrator on behalf of all the relevant Investors. The Warrantors and the Partnerships shall jointly select one arbitrator. All selections shall be made within 30 days after the selecting Party gives or receives the demand for arbitration. The Chairman of the HKIAC shall select the third arbitrator. If any arbitrator to be appointed by a Party has not been appointed and consented to participate within 30 days after the selection of the first arbitrator, the relevant appointment shall be made by the Chairman of the HKIAC. Such arbitrators shall be freely selected, and the Parties and the Chairman of the HKIAC shall not be limited in their selection to any prescribed list; provided, however, that (a) all arbitrators shall be fluent in English and Chinese and (b) the third arbitrator selected by the Chairman of the HKIAC cannot be a citizen of the PRC. The arbitration shall be conducted in English and Chinese. The decision of the arbitration tribunal shall be in writing and be final, conclusive and binding on the parties to the arbitration. Judgment may be entered on the arbitration tribunals decision in any court having jurisdiction. The parties to the arbitration shall each pay an equal share of the costs and expenses of such arbitration, and each party shall separately pay for its counsel fees and expenses; provided, however, that the prevailing party or parties in any such arbitration shall be entitled to recover from the non-prevailing party or parties its or their reasonable costs and counsel fees and expenses. In addition to contract damages, the arbitration tribunal may award provisional and final equitable relief, including injunctions, specific performance and lost profits.
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8.13 Remedies .
(a) The Parties acknowledge that damages may not be an adequate remedy for losses incurred by reason of a breach of this Agreement. Each Party shall have the right to an injunction or other equitable relief enjoining any breach of this Agreement and enforcing specifically the terms and provisions hereof, and each Party hereby waives any and all defenses it may have on the ground of lack of jurisdiction or competence of the court to grant such an injunction or other equitable relief. The existence of this right will not preclude a Party from pursuing any other rights or remedies that it may have at law or in equity.
(b) The rights of each Party under this Agreement are cumulative and in addition to all other rights or remedies that such Party may otherwise have at law or in equity.
8.14 Expenses .
Each Party shall bear its own costs and expenses in connection with the preparation, negotiation, execution, delivery and performance of this Agreement and the other Series C Transaction Documents, including all fees and expenses of such Partys agents, representatives, financial and legal advisors and accountants; provided , that (a) if the Closing with respect to Didi occurs, or (b) if the Closing with respect to Didi does not occur due to (x) the breach of any provision of this Agreement by any Warrantor or Partnership, or (y) any of the conditions set forth in Section 6 not being fulfilled due to any reason attributable to any Warrantor or Partnership, the Company shall be responsible for all such expenses of Didi up to US$140,000 by transferring an amount equal to such expenses of Didi, in US$ in immediately available funds, to a bank account designated by Didi not less than five (5) Business Days prior to the proposed date of transfer.
8.15 Termination of this Agreement .
(a) The Agreement may be terminated prior to the Closing:
(i) with respect to any Investor, by mutual written agreement between such Investor and the Company;
(ii) with respect to any Investor, by such Investor by written notice to the Company, pursuant to Section 5.10;
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(iii) with respect to any Investor, by such Investor by written notice to the Company, if any Warrantor or Partnership is in material breach of any representation or warranty, covenant or agreement in this Agreement; provided , that such breach did not arise from a breach by such Investor of any provision of this Agreement;
(iv) with respect to any Investor, by the Company by written notice to such Investor, if such Investor is in material breach of any representation or warranty, covenant or agreement in this Agreement; provided , that such breach did not arise from a breach by any Warrantor or Partnership of any provision of this Agreement; or
(v) with respect to any Investor, by such Investor by written notice to the Company or by the Company by written notice to such Investor, if the Closing shall not have occurred on or prior to June 15, 2018; provided that (A) the termination right of the Company under this clause shall be conditional upon the fact that none of the Warrantors have materially breached their representations, warranties or covenants hereunder and the failure of the Closing is not due to any reasons attributable to any Warrantors; (ii) the termination rights of such Investor under this clause shall be conditional upon the fact that such Investor has not materially breached its representations, warranties or covenants under this Agreement and the failure of the Closing is not due to any reasons attributable to such Investor.
(b) If this Agreement is terminated pursuant to Section 8.15(a), it shall become void and of no further force and effect, except for the provisions of this Section 8.15(b) and Section 1, Section5.8, Section 8.1 to Section 8.9 and Section 8.11 to Section8.14; provided , that such termination shall be without prejudice to the rights of any Party in respect of a breach of this Agreement prior to such termination.
8.16 Investors Obligations Being Several . All obligations of each Investor under Section 5.8(e) and each other provision of this Agreement and under any other Series C Transaction Document shall be several and not joint.
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IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date first above written.
GROUP COMPANIES : | ||
Cango Inc. | ||
By: |
/s/ ZHANG Xiaojun |
|
Name: | ZHANG Xiaojun ( 张晓俊 ) | |
Title: | Director | |
Cango Group Limited | ||
By: |
/s/ ZHANG Xiaojun |
|
Name: | ZHANG Xiaojun ( 张晓俊 ) | |
Title: | Director | |
Shanghai Can go Investment and Management Consult ation Co., Ltd. ( 上海灿谷投资管理咨询服务有限公司 ) ( 公章 ) | ||
By: |
/s/ ZHANG Xiaojun |
|
Name: | ZHANG Xiaojun ( 张晓俊 ) | |
Title: | Legal Representative | |
Can Gu Long (Shanghai) Information Technology Consulting Services Co., Ltd. ( 灿谷隆 ( 上海 ) 信息科技咨询服务有限公司 ) ( 公章 ) | ||
By: |
/s/ ZHANG Xiaojun |
|
Name: | ZHANG Xiaojun ( 张晓俊 ) | |
Title: | Legal Representative |
[Signature Page to Series C Preferred Shares Purchase Agreement]
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date first above written.
Shanghai Can Gu Electronic Science and Technology Co., Ltd. ( 上海灿谷电子科技有限公司 ) ( 公章 ) | ||
By: |
/s/ LIN Jiayuan |
|
Name: | LIN Jiayuan | |
Title: | Legal Representative | |
Shanghai Can Gu Automobiles Sales and Services Co., Ltd. ( 上海灿谷汽车销售服务有限公司 ) ( 公章 ) | ||
By: |
/s/ LIN Jiayuan |
|
Name: | LIN Jiayuan | |
Title: | Legal Representative |
[Signature Page to Series C Preferred Shares Purchase Agreement]
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date first above written.
FOUNDERS : | ||
/s/ ZHANG Xiaojun |
||
ZHANG Xiaojun ( 张晓俊 ) | ||
/s/ LIN Jiayuan |
||
LIN Jiayuan ( 林佳元 ) | ||
FOUNDER HOLDING COMPANIES: | ||
Eagle Central Holding Limited | ||
By: |
/s/ ZHANG Xiaojun |
|
Name: | ZHANG Xiaojun ( 张晓俊 ) | |
Title: | Director | |
Medway Brilliant Holding Limited | ||
By: |
/s/ LIN Jiayuan |
|
Name: | LIN Jiayuan ( 林佳元 ) | |
Title: | Director |
[Signature Page to Series C Preferred Shares Purchase Agreement]
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date first above written.
PARTNERSHIPS : | ||
Huaiyuan L.P. |
By: |
/s/ XU Shouyan |
|
Name: | ||
Title: |
Minghuai L.P. |
By: |
/s/ YU Beibei |
|
Name: | ||
Title: |
Xiehuai L.P. | ||
By: |
/s/ LIN Jiayuan |
|
Name: | ||
Title: |
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date first above written.
THE INVESTOR | ||
DiDi Sunshine Investments L.P. | ||
By: its general partner, DiDi Sunshine GP Limited |
By: |
/s/ CHENG Wei |
|
Name: | CHENG Wei | |
Title: | Director |
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date first above written.
THE INVESTOR | ||
CHJ Technologies Inc. | ||
By: |
/s/ LI Xiang |
|
Name: | ||
Title: |
Exhibit 10.14
Equity Transfer Agreement
This equity transfer agreement (hereinafter referred to as the Agreement) was signed by the following parties in Shanghai, China on May 10, 2018:
1. | Ningbo Meishan Bonded Harbor Zone Xinxiang Investment Management L.P., formerly known as Beijing Chehejia Technology L.P., a limited partnership established and existing under the laws of China (hereinafter referred to as the Transferor) |
2. | Shanghai Cango Investment and Management Consultation Service Co., Ltd., a limited liability company established and existing under the laws of China (hereinafter referred to as the Transferee ) |
(The above parties are individually referred to as a party and collectively as parties).
Preamble
Whereas:
1. | Shanghai Autohome Financing Lease Co., Ltd. (hereinafter referred to as the Target Company) is a sino-foreign joint venture that is mainly engaged in financial leasing business with a registered capital of RMB300 million (300,000,000). |
2. | The Transferor is the existing shareholder of the Target Company and holds 25% of the equity interests corresponding to the registered capital of RMB75,000,000 of the Target Company (hereinafter referred to as the Underlying Equity). |
3. | The Transferor agrees to transfer the Underlying Equity held by it to the Transferee. According to the terms and conditions of the Agreement, the Transferee agrees to accept the transfer of the Underlying Equity held by the Transferor (hereinafter referred to as the Transaction). |
In order to successfully implement the above matters, the parties reached the Agreement on relevant issues so as to comply with it.
Chapter I Definition and Interpretation
1.1 | Definition |
For the purposes of the Agreement, unless the context requires a different meaning, the terms below shall have the following meanings (for ease of reading, the following terms are in alphabetical order of their initial pinyin ):
Warranties: any representations and warranties made by the Transferor and the Transferee under the Agreement;
Industrial and Commercial Bureau: the State Administration for Industry and Commerce of China or its authorized local agencies;
Delivery Date: the date on which the Transferee pays the transfer price of all equity interests to the Transferor according to the Agreement.
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Transaction: the transaction of equity transfer between the Transferor and the Transferee of the Agreement;
Completion of the Transaction: the completion of the equity transfer in accordance with the Agreement, on the basis of the payment of the transfer price of all equity interests by the Transferee to the Transferor;
Disclosure: the disclosure by the Transferor to the Transferee of all materials relating to or all facts and matters in connection with the Target Company and the transfer of the subject matter for the purpose of signing the Agreement with the Transferee;
Signing Date: the date on which the parties sign the Agreement;
Approval Authority: the administrative department responsible for approving the transaction under the Agreement in accordance with relevant investment regulations of China;
Loss: all losses, fees (including but not limited to legal fees and expert and consultant fees), payment, expenses, and expenditure incurred as a result of liabilities, litigations, legal procedures, claims for compensations, and claims of rights;
Taxes: any and all applicable taxes (including any VAT or business tax, stamp duty or other taxes, levies, taxation, charges, deductions, or withholdings of any nature and kind) imposed, levied, collected or assessed by any department anywhere);
Previous Equity Transfer: the transfer by Hong Kong Autohome Finance Co., Ltd. of 25% of the Target Companys equity interests held by it to Jielian Development Co., Ltd. in accordance with the equity transfer agreement signed by Hong Kong Autohome Finance Co., Ltd., Jielian Development Co., Ltd., the Transferee and Beijing Cheerbright Technologies Co., Ltd. on September 19th, 2017;
Debt: in respect of any person, any obligation to pay or repay (whether relating to interest, principal or otherwise) arising out of the borrowing of money or the assuming of obligations or responsibilities (whether present or future, real or contingent, primary debt or guarantee obligation);
Government Department: Chinese governments at central, provincial, and local levels, including all the ministries, commissions, offices, bureaus, and agencies at national, provincial, county and other administrative levels that have jurisdiction over a partys activities related to the matters described in the Agreement or any other agency that performs a regulatory function;
Transfer: the transfer of the Underlying Equity by the Transferor to the Transferee in accordance with the terms and conditions of the Agreement;
Assets: all properties and assets owned and used in the business by the Target Company.
1.2 | Interpretation and Miscellaneous |
1.2.1 Interpretation
In this Agreement, unless the context requires otherwise:
An authorization includes any authorization, approval, consent, resolution, license, filing, registration and exemption;
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Laws and/or regulations includes any constitutional provisions, laws, regulations, departmental rules, or other laws and regulations officially promulgated by the competent authority in accordance with the Legislative Law of China, or any regulations officially promulgated by the provincial government where the Target Company is located (including the interpretation and application of the above, for example, any legal documents adopted to replace, amend, supplement or unify the above);
China refers to the mainland of the Peoples Republic of China, and does not include Hong Kong, Macau, and Taiwan for the purposes of the Agreement.
1.2.2 Miscellaneous
Unless the context otherwise requires or otherwise specified in the terms of the Agreement:
(1) | The title of this Agreement is for reference only and does not affect the interpretation of the Agreement; |
(2) | Any reference to a clause or paragraph, unless the context requires otherwise, is to the corresponding clause and paragraph of the Agreement; |
(3) | Any reference to a document shall include amendments, supplements, substitutions, or updates to the document, but any changes, supplements, substitutions, or updates made to the document in violation of the Agreement are not included. |
(4) | Any reference to the parties of any document shall include the parties and any subsequent successors and permitted transferors; |
(5) | Unless otherwise specified, the time referred to in this Agreement is Beijing time; |
(6) | Unless the context otherwise requires, singular expressions shall have the plural meaning and vice versa. |
Chapter II Transaction Overview
2. | Equity Transfer |
2.1 Overview
In accordance with the terms and conditions described in the Agreement, the Transferor agrees to transfer the Underlying Equity held by it to the Transferee and the Transferee agrees to purchase the Underlying Equity held by the Transferor, including all current and future rights and interests ancillary to the Underlying Equity.
2.2 | Transfer Price |
The parties acknowledge that the transfer price of the Underlying Equity shall be RMB103,000,000, meaning the transfer price of the Underlying Equity to be paid by the Transferee to the Transferor is RMB103,000,000 (hereinafter referred to as Transfer Price). For the avoidance of doubt, it is stated here that the Transfer Price already includes all the income tax that the Transferor shall pay in connection with the transfer as required by law, which means, the Transferee is not obligated to make up for the difference between the transfer price actually received by the Transferor as a results of the Transferors payment of income tax in connection with the transfer as required by law and the transfer price agreed in the Agreement.
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Chapter III Transaction Measures
In order to successfully implement the transaction under the Agreement, the Transferor and the Transferee agree to follow the principles and contents as stipulated in the Agreement and the following conditions and procedures, and the Transferor and the Transferee shall actively assist in the timely submission of various materials, the signing of the relevant documents, and the joint implementation and completion of the following matters:
3. | Payment of Equity Transfer Price |
3.1 | Upon the signing of the Agreement and within 7 business days from the date on which all the prerequisites for delivery listed in Article 3.3 are fulfilled, the Transferee shall pay 50% of the Transfer Price (which is RMB51,500,000) to the designated account of Transferor. The date of payment by the Transferee in accordance with the provisions of this Article shall be the Date of First Payment. |
3.2 | The Transferee shall, within 7 business days from the date when the Target Company obtains the notice of the change of shareholders of the Target Company issued by the Industrial and Commercial Bureau (the Transferee shall do its utmost to cooperate with the above change of shareholders), pay the remaining Transfer Price (which is RMB51,500,000) to the designated account of the Transferor. |
3.3 | The Transferees payment of the Transfer Price to the Transferor pursuant to the provisions of Article 3.1 of the Agreement shall be based on the satisfaction or the exemption in writing by the Transferee of each of the following conditions (the Delivery Conditions): |
(a) | The Transferors representations and warranties in the Agreement shall be true, correct and complete in all respects on the date of signing of the Agreement and on the Date of First Payment, and shall have the same force and effect as if made on the Date of First Payment (except for the representations and warranties clearly stated to be made on a specific date only); the commitments and covenants contained in the Agreement that shall be fulfilled by the Transferor on or before the Date of First Payment have been fulfilled. |
(b) | Transaction Agreement. All relevant parties have duly signed all transaction agreements and delivered the original documents to the Transferee. |
(c) | No government department has formulated, issued, promulgated, implemented, or adopted any laws or government orders that would render the transactions contemplated in the Agreement unlawful or otherwise restrict or prohibit the transactions contemplated in the Agreement. |
(d) | No claims with respect to the Transferor or the Underlying Equity have been or may be filed, and such claims are intended to restrict the transactions contemplated in the Agreement, or cause significant changes to the terms of such transactions, or may render the completion of such transactions impossible or illegal, or may not be appropriate to proceed or may have a material adverse effect on the Transferee or the Underlying Equity. |
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(e) | The Target Company has made relevant resolutions at the shareholders meeting on approving the equity transfer (which shall contain the waiver of the preemptive rights by shareholders who are entitled) and the resolutions of the board of directors. The Transferor has obtained all the permission, supervision, approval or consent (if applicable) to sign and perform the Agreement and the equity transfer (including internal permission, approval or resolution procedures of the company), and the signing and performance of the transaction document will not result in the violation of any applicable laws, statutory organization documents and contractual documents to which they are parties by the Transferor. |
(f) | The Previous Equity Transfer has been completed, which means, Jielian Development Co., Ltd. has paid the transfer price of all equity interests to Hong Kong Autohome Finance Co., Ltd. in accordance with the stipulations of the previous equity transfer agreement. |
3.4 | Either party who fails to perform, or delays or is negligent in the performance of Article 3 (implementation of the transactions) in violation of the provisions of this Agreement shall be liable to the non-defaulting party for breach of contract. |
3.5 | The expenses incurred in handling the equity transfer and registration procedures required by Chinese laws shall be borne by the parties hereto in accordance with relevant laws and regulations. |
Chapter IV Representations and Warranties
4. | Either party represents and warrants to the other party that on the date of signing the Agreement: |
4.1 | According to the law where it is formed or established, the party is an independent legal entity which is legally established and validly existing and has completed related procedures; |
4.2 | The party has all the rights and authorizations for entering into this Agreement and performing the obligations hereunder, and has obtained the approval from relevant shareholders meetings and board meetings; |
4.3 | The party has granted its authorized representative the right to sign the Agreement; and |
4.4 | The signing of the Agreement and performance of the obligations hereunder by the party will not: (1) violate any provisions of its business license, establishment agreement, articles of association or similar organization documents; (2) violate any laws, regulations, rules or any government authorizations or approvals; and (3) result in substantial breach of contract under the contract to which it is a party (or to which it is subject). |
In addition to the above, with respect to the Underlying Equity, the Transferor hereby makes the following representations and warranties to the Transferee:
4.5 | There are neither pending litigations, legal procedures or requests by any third party, court, government agency or arbitral institution over the ownership of the Underlying Equity, nor any litigation, legal procedures or requests received in writing that will materially or adversely affect the ability of the Transferor to perform its obligations under this equity transfer. |
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4.6 | The Transferor shall complete tax returns on the proceeds of the equity transfer, and any risk or loss resulting from the failure of the Transferor to complete the tax return in a timely manner shall be borne by the Transferor. |
The representations and warranties made by the parties hereto before this article are continuous. Such representations and warranties will be deemed made repeatedly on the date of signing and before completion of the transaction and will not be invalid as a result of the completion of the transaction.
Chapter V Debt Obligations
5. | Debt Obligations Principle |
5.1 | The Transferee acknowledges that as of the date of signing the Agreement, all liabilities (including contingent liabilities) of the Target Company shall be borne by the Transferee and other shareholders of the Target Company on the basis of the equity and registered capital of the Target Company held at the time of completion of the transaction. The Transferor shall no longer bear any debt of the Target Company. |
5.2 | From the date of signing the Agreement to the Delivery Date, any new debts of the Target Company shall not relate to the Transferor. For the avoidance of doubt, if such new debts occur due to reasons attributable to the Transferor, they shall be entirely borne by the Transferor and not relate to the Transferee and the Target Company. |
Chapter VI Termination
6. | Termination |
This Agreement shall be terminated under the following circumstances:
6.1 | The parties hereto agree in writing to terminate this Agreement. |
6.2 | This Agreement is terminated due to force majeure events. Force Majeure Event means any incident beyond the reasonable control of any party of the transferor or the transferee (affected party), including but not limited to strikes, riots, wars, terrorist acts, epidemics or plagues (including atypical pneumonia or bird flu), laws, regulations, rules, policies, orders or notices issued or executed by any government agency after the date of this Agreement, fire, flood, earthquake and other natural events. If a force majeure event lasts for more than 60 days from the date of its occurrence, and there is a material adverse effect on the performance of this Agreement, the parties may agree in writing to terminate this Agreement through negotiation. |
6.3 | After the signing of this Agreement, if this Agreement cannot be performed, or the purpose of this Agreement cannot be achieved due to the reasons of the state policy or the newly enacted laws and regulations, this Agreement shall be automatically terminated from the date when either party sends the written notice of termination. |
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6.4 | Once this Agreement is cancelled, except as otherwise agreed between the parties for the time being, the parties hereto shall return the consideration obtained under this Agreement from the other party on the principle of fairness, reasonableness and good faith so as to restore the status at the time of signing this Agreement. |
Chapter VII Breach of Contract and Compensation
7.1 | Liability for Breach of Contract |
7.1.1 | If any party hereto violates or fails to perform any of the provisions or obligations of this Agreement, such party shall bear the liability for compensation as stipulated in clause 7.2.1 of this Agreement. |
7.1.2 | After the defaulting party bears the liability for compensation to the other party, the other party shall not be deemed to have waived its rights and powers, nor shall it damage, affect or limit all rights and powers entitled to such party according to this Agreement and relevant laws and regulations. |
7.2 | Compensation |
7.2.1 | Notwithstanding any other provision of this Agreement, upon the request of the observing party, the defaulting party shall compensate the observing party and protect the observing party against all direct losses to the observing party arising from the following: |
(1) | Any circumstance in which the defaulting party breaches any warranty. |
(2) | Any circumstance in which the defaulting party breaches any of the promises or provisions in this Agreement or is negligent in performing any of the obligations under this Agreement. |
Chapter VIII Miscellaneous Clauses
8.1 | Confidentiality |
(1) | Without the prior written consent of the other party (the approval is not unreasonably retained or delayed), no party shall make or issue, nor shall any other parties, on behalf of such party, make or issue any announcement or notice on the existence of this Agreement, other terms of this transaction or the proposed transactions under this Agreement; nonetheless, such restrictions shall not apply to any announcement or notice requested by the law or any government authority; nevertheless, the party obliged to make the announcement or give notice shall consult with the other party within a reasonable and feasible scope before performing such obligations. |
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(2) | Subject to the provisions of the preceding paragraph, the parties acknowledge that the transactions described in this Agreement are confidential in nature and shall not be disclosed unless required by law. No party shall make any public disclosure of the specific clauses of this Agreement (except as required by the law governing either party, provided that the form and content of any such disclosure shall be agreed upon by both parties in advance). Nonetheless, the foregoing restrictions shall not apply to the disclosure of the specific clauses of this Agreement or the transactions described in this Agreement to the consultants (law, finance or other), agents or borrowers of any party related to this Agreement. |
8.2 | Costs and Taxes |
Either party shall bear all costs and taxes (if applicable, including but not limited to agency fees, audit fees, legal fees, income taxes and stamp duties) incurred by itself in the preparation, negotiation and conclusion of this Agreement and the transaction.
8.3 | General Provisions |
(1) | Modifications to this Agreement shall be made in writing and signed by the representatives of the parties; otherwise, such modifications shall be invalid. |
(2) | The rights and remedies of the Transferee under this Agreement are cumulative and do not exclude rights or remedies endowed by law. |
(3) | Failure to exercise or delay the exercise of certain right or remedy endowed by this Agreement or the law does not damage or constitute a waiver of such right or remedy, nor does it damage or constitute a waiver of any other rights or remedies. |
(4) | Except for fulfilled obligations and unless otherwise agreed in this Agreement, the obligations in this Agreement shall remain in effect after the transaction is completed. |
(5) | Any party gives grace or extension for any breach of contract or delay in performance to the other party shall not be regarded as a waiver of rights and powers of such party, nor shall it damage, affect or limit all rights and powers entitled by this Agreement and related laws and regulations. |
(6) | If any provisions of this Agreement are identified to be illegal, invalid or non-executable in accordance with the PRC laws, the invalidation, non-effectiveness, and non-execution of any invalid clauses of this Agreement shall not affect or impair the validity, effectiveness and enforceability of any other clauses. Nevertheless, the parties hereto should also cease to perform the invalid, non-effective, and unenforceable clauses, and to the extent of its original intent, the parties shall conduct negotiation in good faith to amend it to the extent that such specific facts and circumstances are executable. |
8.4 | Notice |
(1) | Any notice or other communication (Notice) under this Agreement or in connection with this Agreement shall be written in Chinese in writing and sent by hand, famous express or via e-mail to the address/e-mail address of the receipt in Item ③ hereunder. |
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(2) | Unless there is evidence to prove that the notices have been received earlier, the notice shall be deemed to be served on the following date in the following manner: |
① | If the notice is delivered by hand, it shall be deemed to be served to the address mentioned in Item ③ hereunder; |
② | If the notice is delivered by famous express, it shall be deemed to be served within two working days after posting; and |
③ | The address and email address of the parties are as follows: |
Parties concerned |
Address |
E-mail address |
Designated recipient |
|||
Transferor |
6F, Contact Building, Beijing | [REDACTED] | Xu Dian | |||
Transferee |
10F, Tower 3, YOUYOU Century Plaza, No. 428, Yanggao South Road, Pudong New Area, Shanghai | [REDACTED] | Ye Yun |
8.5 | Applicable Law and Dispute Resolution |
This Agreement applies to the PRC laws. Any dispute arising from this Agreement or in connection to this Agreement shall be rendered to the Beijing Arbitration Commission, that is Beijing International Arbitration Center, for arbitration in accordance with its arbitration rules. The arbitral award is final and binding on the parties.
8.6 | Effectiveness and Duration of the Agreement |
This Agreement shall become effective after being signed by the authorized representatives of the parties and stamped with the contract seal.
8.7 | Agreement Text |
This Agreement is made in five counterparts. Each party and the Target Company hold one copy. The remaining copies are for review and filing purposes. Remaining copies (if any), shall be kept by the Target Company. Each copy has the same legal effect. Each Agreement signed and delivered is an original copy of the Agreement.
(No text below)
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(No text on this page. It is the signing page of the Equity Transfer Agreement)
Transferor:
Ningbo Meishan Bonded Harbor Zone Xinxiang Investment Management L.P.
Authorized representative: Li Xiang
Signature: |
/s/ Li Xiang |
|
[Seal] |
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(No text on this page. It is the signing page of the Equity Transfer Agreement)
Transferee:
Shanghai Cango Investment and Management Consultation Service Co., Ltd.
Authorized representative: Zhang Xiaojun
Signature: |
/s/ Zhang Xiaojun |
|
[Seal] |
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Exhibit 10.16
CANGO INC.
SHARE INCENTIVE PLAN 2018
CANGO INC.
SHARE INCENTIVE PLAN 2018
Cango Inc., a Cayman Islands exempt company with limited liability (the Company ), sets forth herein the terms of its Share Incentive Plan 2018 (the Plan ) as follows:
1. | PURPOSE |
The purpose of the Plan is to promote the success and enhance the value of the Company by linking the personal interests of the members of the Board, Employees and Consultants to those of the Companys shareholders and by providing such individuals with an incentive for outstanding performance to generate superior returns to the Companys shareholders. The Plan is further intended to provide flexibility to the Company in its ability to motivate, attract and retain the services of members of the Board, Employees, and Consultants upon whose judgment, interest and special efforts the successful conduct of the Companys operation is largely dependent.
2. | DEFINITIONS |
Wherever the following terms are used in the Plan, they shall have the meanings specified below, unless the context clearly indicates otherwise. The singular pronoun shall include the plural where the context so indicates.
2.1 Additional Shares has the meaning set forth in Section 3.1.
2.2 Administrators has the meaning set forth in Section 11.
2.3 Applicable Laws means the legal requirements relating to the Plan and the Awards under applicable corporate, securities, tax, foreign exchange and other laws, rules, regulations and government orders, and the rules of any applicable stock exchange or national market system of any applicable jurisdictions.
2.4 Award means Option, Restricted Share, Restricted Share Unit, or any other type of awards granted to a Participant pursuant to the Plan.
2.5 Award Agreement means any written agreement, contract, or other instrument or document evidencing an Award, including the Share Option Grant Agreement, the Restricted Shares Award Agreement, the Restricted Share Units Award Agreement and other written agreement, contract, or other instrument or document entered into or issued by the Company.
2.6 Board means the board of directors of the Company.
2.7 Code means the Internal Revenue Code of 1986 of the United States, as amended.
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2.8 Consultant means any consultant or adviser if: (a) the consultant or adviser renders bona fide services to a Service Recipient; (b) the services rendered by the consultant or adviser are not in connection with the offer or sale of securities in a capital-raising transaction and do not directly or indirectly promote or maintain a market for the Companys securities; and (c) the consultant or adviser is a natural person who has contracted directly with the Service Recipient to render such services.
2.9 Corporate Transaction , unless otherwise defined in an Award Agreement, means any of the following transactions, provided , however , that the Administrators shall determine under (d) and (e) whether multiple transactions are related, and their determination shall be final, binding and conclusive:
(a) an amalgamation, arrangement or consolidation or scheme of arrangement (i) in which the Company is not the surviving entity, except for a transaction the principal purpose of which is to change the jurisdiction in which the Company is incorporated or (ii) following which the holders of the voting securities of the Company do not continue to hold more than fifty percent (50%) of the combined voting power of the voting securities of the surviving entity;
(b) the sale, transfer or other disposition of all or substantially all of the assets of the Company;
(c) the complete liquidation or dissolution of the Company;
(d) any reverse takeover or series of related transactions culminating in a reverse takeover (including, without limitation, a tender offer followed by a reverse takeover) in which the Company is the surviving entity but (A) the Companys equity securities outstanding immediately prior to such takeover are converted or exchanged by virtue of the takeover into other property, whether in the form of securities, cash or otherwise, or (B) in which securities possessing more than fifty percent (50%) of the total combined voting power of the Companys outstanding securities are transferred to a person or persons different from those who held such securities immediately prior to such takeover or the initial transaction culminating in such takeover, but excluding any such transaction or series of related transactions that the Administrators determine shall not be a Corporate Transaction;
(e) acquisition in a single or a series of related transactions by any person or related group of persons (other than the Company or by a Company-sponsored employee benefit plan) of beneficial ownership (within the meaning of Rule 13d-3 of the Exchange Act) of securities possessing more than fifty percent (50%) of the total combined voting power of the Companys outstanding securities but excluding any such transaction or a series of related transactions that the Administrators determine shall not be a Corporate Transaction;
(f) the individuals who, as of the Effective Date, are members of the Board (the Incumbent Board ), cease for any reason to constitute at least fifty percent (50%) of the Board; provided that, if the election, or nomination for election by the Companys shareholders, of any new member of the Board is approved by the Incumbent Board pursuant to the Shareholders Agreement and the M&AA, such new member of the Board shall be considered as a member of the Incumbent Board; or
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(g) the restructuring of the Company, any Parent and Subsidiary for the purpose of (i) conducting an A-share public offering in the PRC and listing on any national stock exchange in the PRC or (ii) listing on the National Equities Exchange and Quotations of the PRC, in each case in accordance with the resolutions passed by the shareholders and directors of the Company in accordance with the M&AA.
2.10 Disability , unless otherwise defined in an Award Agreement, has the same meaning as the term of permanent and total disability as defined in Section 22(e)(3) of the Code.
2.11 Effective Date has the meaning set forth in Section 12.1.
2.12 Employee means any person, including an officer or a member of the Board or a member of the board of any Parent or Subsidiary of the Company or any Related Entity, who is in the employment of a Service Recipient, subject to the control and direction of the Service Recipient as to both the work to be performed and the manner and method of performance. The payment of a directors fee by a Service Recipient shall not be sufficient to constitute employment by the Service Recipient.
2.13 Exchange Act means the Securities Exchange Act of 1934 of the United States, as amended.
2.14 Expiration Date means the tenth (10th) anniversary of the Effective Date.
2.15 Fair Market Value means, as of any date, the value of Shares determined as follows:
(a) If the Shares are listed on one or more established stock exchanges or national market systems, including, without limitation, the New York Stock Exchange and the Nasdaq Stock Market, its Fair Market Value shall be the closing sales price for such Shares (or the closing bid, if no sales were reported) as quoted on the principal exchange or system on which the Shares are listed (as determined by the Administrators) on the date of determination (or, if no closing sales price or closing bid was reported on that date, as applicable, on the last trading date such closing sales price or closing bid was reported), as reported in The Wall Street Journal or such other source as the Administrators deem reliable;
(b) If the Shares are regularly quoted on an automated quotation system (including the OTC Bulletin Board) or by a recognized securities dealer, its Fair Market Value shall be the closing sales price for such Shares as quoted on such system or by such securities dealer on the date of determination, but if selling prices are not reported, the Fair Market Value of a Share shall be the mean between the high bid and low asked prices for the Shares on the date of determination (or, if no such prices were reported on that date, on the last date such prices were reported), as reported in The Wall Street Journal or such other source as the Administrators deem reliable; or
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(c) In the absence of an established market for the Shares of the type described in (a) and (b), above, the Fair Market Value thereof shall be determined by the Administrators in good faith and in their discretion.
2.16 Incentive Share Option means an Option that is intended to meet the requirements of Section 422 of the Code or any successor provision thereto.
2.17 Independent Director means (i) before the Shares are listed on a stock exchange, a member of the Board who is a Non-Employee Director; and (ii) after the Shares are listed on a stock exchange, a member of the Board who meets the independence standards under the applicable corporate governance rules of the stock exchange.
2.18 Initial Shares has the meaning set forth in Section 3.1.
2.19 IPO has the meaning ascribed to it in the Shareholders Agreement.
2.20 M&AA means the amended and restated memorandum of association of the Company and the amended and restated articles of association of the Company, each adopted by a special resolution of the Company on March 23, 2018 (as amended from time to time pursuant to the terms thereof).
2.21 Non-Employee Director means a member of the Board who qualifies as a Non-Employee Director as defined in Rule 16b-3(b)(3) of the Exchange Act, or any successor definition adopted by the Board.
2.22 Non-Qualified Share Option means an Option that is not intended to be an Incentive Share Option.
2.23 Option means a right granted to a Participant pursuant to Section 5 of the Plan to purchase a specified number of Shares at a specified price during specified time periods. An Option may be either an Incentive Share Option or a Non-Qualified Share Option.
2.24 Participant means a person who, as a member of the Board, Consultant or Employee, has been granted an Award pursuant to the Plan.
2.25 Parent means a parent corporation under Section 424(e) of the Code.
2.26 Plan means this Cango Inc. Share Incentive Plan 2018, as amended from time to time pursuant to the terms hereof.
2.27 Related Entity means any business, corporation, partnership, limited liability company or other entity in which the Company, a Parent or Subsidiary of the Company holds a substantial ownership interest, directly or indirectly, but which is not a Subsidiary and which the Administrators designate as a Related Entity for purposes of the Plan.
2.28 Restricted Share means a Share awarded to a Participant pursuant to Section 6 that is subject to certain restrictions and may be subject to risk of forfeiture.
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2.29 Restricted Shares Award Agreement means an agreement entered into by and between the Company and a Participant evidencing a grant of an award of Restricted Shares to the Participant by the Company.
2.30 Restricted Share Unit means the right granted to a Participant pursuant to Section 7 to receive a Share at a future date.
2.31 Restricted Share Units Award Agreement means an agreement entered into by and between the Company and a Participant evidencing a grant of an award of Restricted Share Units to the Participant by the Company.
2.32 Securities Act means the Securities Act of 1933 of the United States, as amended.
2.33 Service shall have the meaning ascribed to it in Award Agreement.
2.34 Service Recipient means the Company, any Parent or Subsidiary of the Company and any Related Entity to which a Participant provides services as an Employee.
2.35 Share means ordinary shares, par value US$0.0001 per share, of the Company, and such other securities of the Company that may be substituted for Shares pursuant to Section 10. When referenced in the context of listings on a stock exchange or quotations on an automated quotation system, Shares may also refer to American Depositary Shares or other securities representing the ordinary shares.
2.36 Share Option Grant Agreement means an agreement entered into by and between the Company and a Participant evidencing a grant of Options to the Participant by the Company.
2.37 Shareholders Agreement means the shareholders agreement of the Company, entered into on March 23, 2018 (as amended from time to time pursuant to the terms thereof).
2.38 Subsidiary means any corporation or other entity of which a majority of the outstanding voting shares or voting power is beneficially owned, directly or indirectly, by the Company. For purposes of this Plan, Subsidiary shall also include any consolidated variable interest entity of the Company.
2.39 Trading Date means the closing of the first sale to the general public of the Shares pursuant to a registration statement filed with and declared effective by the U.S. Securities and Exchange Commission under the Securities Act.
2.40 Vesting Commencement Date has the meaning ascribed to it in Section 5.1(c).
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3. | SHARES SUBJECT TO THE PLAN |
3.1 | Number of Shares. |
(a) Subject to the provisions of Sections 10 and 3.1(b), the maximum aggregate number of Shares which may be issued pursuant to all Awards shall initially be equal to 27,845,526 Shares, or such other number of Shares as provided in the Shareholders Agreement, and duly approved by the Board in accordance with the Shareholders Agreement (the Initial Shares ). Once the Initial Shares are all issued to Participants, new Shares can be reserved for issuance of Awards under the Plan in accordance with the requirements as provided in the Shareholders Agreements or otherwise determined by the Board (the Additional Shares ).
(b) To the extent that an Award terminates, expires or lapses for any reason, any Shares subject to the Award shall again be available for the grant of an Award pursuant to the Plan. To the extent permitted by Applicable Laws, Shares issued in assumption of, or in substitution for, any outstanding awards of any entity acquired in any form or combination by the Company or any Parent or Subsidiary of the Company shall not be counted against Shares available for grant pursuant to the Plan. Shares delivered by the Participant or withheld by the Company upon the exercise of any Award under the Plan, in payment of the exercise price thereof or tax withholding thereon, may again be optioned, granted or awarded hereunder. If any Restricted Shares are forfeited by the Participant or repurchased by the Company, such Shares may again be optioned, granted or awarded hereunder. Notwithstanding the foregoing and, subject to adjustment as provided in Section 10.1, the maximum number of Shares that may be issued upon the exercise of Incentive Share Options will equal the aggregate Share number stated in Section 3.1(a), plus, to the extent allowable under Section 422 of the Code and the Treasury Regulations promulgated thereunder, any Shares that become available for issuance under the Plan pursuant to Section 3.1(b).
3.2 | Share Distributed. |
Any Shares distributed pursuant to an Award may consist, in whole or in part, of authorized and unissued Shares or Shares purchased on the open market. Additionally, in the discretion of the Administrators, American Depository Shares in an amount equal to the number of Shares which otherwise would be distributed pursuant to an Award may be distributed in lieu of Shares in settlement of any Award. If the number of Shares represented by an American Depository Share is other than on a one-to-one basis, the limitations of Section 3.1 shall be adjusted to reflect the distribution of American Depository Shares in lieu of Shares.
4. | ELEGIBILITY AND PARTICIPATION |
4.1 | Eligibility. |
Persons eligible to participate in this Plan include Employees, Consultants, and all members of the Board, as determined by the Administrators.
4.2 | Participation. |
Subject to the provisions of the Plan, the Administrators may, from time to time, select from among all eligible individuals, those to whom Awards shall be granted and shall determine the nature and amount of each Award. No individual shall have any automatic right to be granted an Award pursuant to this Plan.
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4.3 | Jurisdictions. |
In order to assure the viability of Awards granted to Participants employed in various jurisdictions, the Administrators may provide for such special terms as they may consider necessary or appropriate to accommodate differences in local law, tax policy, or custom applicable in the jurisdiction in which the Participant resides or is employed. Moreover, subject to the approval requirements as provided in Section 11.1, the Administrators may approve and implement such supplements to, or amendments, restatements or alternative versions of, the Plan as they may consider necessary or appropriate for such purposes without thereby affecting the terms of the Plan as in effect for any other purpose. No such supplements, amendments, restatements or alternative versions shall increase the share limitations contained in Section 3.1 of the Plan unless otherwise approved by the Board. Notwithstanding the foregoing, the Administrators may not take any actions hereunder, and no Awards shall be granted, that would violate any Applicable Laws.
5. | OPTIONS |
5.1 | General. |
No other types of Awards than Options can be granted with respect to the Initial Shares. This limitation on types of Awards to be granted is not applicable to the Additional Shares reserved pursuant to Section 3.1 above. The Administrators are authorized to grant Options to Participants on the following terms and conditions:
(a) Exercise Price . The exercise price per Share subject to an Option granted with respect to the Initial Shares shall be determined by the Administrators and as approved by the Board. For any Option granted with respect to the Additional Shares, the exercise price per Share subject to such Option shall be determined by the Administrators and set forth in the Award Agreement which, unless otherwise determined by the Administrators, may be a fixed or variable price determined by reference to the Fair Market Value of the Shares over which such Award is granted; provided , that no Option may be granted to a recipient subject to U.S. Federal income tax with an exercise price per Share which is less than the Fair Market Value of such Shares on the date of grant (or date of adjustment pursuant to the following sentence), without compliance with Section 409A of the Code, or the Participants consent; provided , further, that Nonstatutory Stock Options may be granted with an exercise price lower than that set forth herein if such Option is granted pursuant to an assumption or substitution for an option granted by another company, whether in connection with an acquisition of such other company or otherwise; provided , further, that the exercise price per Share shall not in any circumstances be less than the par value of the Share. The exercise price per Share subject to an Option may be amended or adjusted in the absolute discretion of the Administrators, provided , that such adjustment does not result in a materially adverse impact to the Participant; provided , further, that the exercise price per Share may not in any circumstances be reduced to less than the par value of the Share. For the avoidance of doubt, to the extent not prohibited by Applicable Laws, a downward adjustment of the exercise prices of Options mentioned in the preceding sentence shall be effective without the approval of the Board or the Companys shareholders or the approval of the affected Participants.
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(b) Time and Conditions of Grant . An Option can be granted at any time regardless of whether an IPO occurs. Despite the aforesaid, the Options granted with respect to the Initial Shares under this Plan shall be granted to Participants in four (4) installments. The first installment may be granted within one (1) month after the date hereof, provided that the number of Options for such installment can only be granted to acquire up to 20% of the Initial Shares. The second, the third and the forth installments shall occur respectively within four (4) months after the end of the year 2018, 2019 and 2020, with the number of Options being granted to acquire up to 20%, 30% and 30% of the Initial Shares, respectively. Each of the Administrators shall be granted an Option or Options to acquire up to 30% of the relevant number of the Shares in each of the aforesaid four (4) installments. For the other individuals who are eligible to participate in the Plan, the Administrators shall have the right to determine the number of individuals eligible to participate in the Plan and the relevant number of the Shares to be granted to such other eligible individuals in their sole discretion. The Administrators shall have the right to determine in their sole discretion the conditions and standards for the grant of Options which are to be set forth in the Award Agreement or to be separately announced by the Administrators from time to time.
(c) Vesting Schedule . No Options granted with respect to the Initial Shares under this Plan are exercisable prior to one (1) year after the date of grant. Upon expiration of such one (1)-year term (such date, the Vesting Commencement Date ), the relevant Option to acquire the Initial Shares may be vested with respect to 50% of the Shares subject to such Option on the first (1st) anniversary following the Vesting Commencement Date. Such Option may be vested with respect to the rest 50% of the Shares subject to such Option in two (2) equal installments (25% each) on the second (2nd) and third (3rd) anniversary following the Vesting Commencement Date. The Administrators shall also have discretion to determine conditions, if any, that must be satisfied before all or part of an Option may be vested.
(d) Time and Conditions of Exercise . Subject to Sections 5.1(c) and (i), the Administrators shall determine the time or times at which an Option may be exercised in whole or in part; provided that the term of any Option granted under the Plan shall not exceed ten (10) years, except as provided in Section 13.1. For the avoidance of doubt, any Option granted to a recipient subject to U.S. Federal income tax shall not be exercisable past the 10th anniversary of the grant date. The Administrators shall also have discretion to determine conditions, if any, that must be satisfied before all or part of an Option may be exercised.
(e) Exercise Procedure . An Option that is exercisable may be exercised by the Participants delivery to the Company of a written notice of exercise on any business day, at the Companys principal office, in the form specified by the Company. Such notice of exercise shall specify the number of Shares with respect to which the Option is being exercised and shall be accompanied by payment in full of the exercise price of the Shares for which the Option is being exercised.
(f) Payment . To the extent permissible under the Applicable Laws, the Administrators shall determine the methods by which the exercise price of an Option may be paid, the form of payment, including, without limitation, (i) cash or check denominated in U.S. dollars, (ii) cash or check denominated in Renminbi, (iii) cash or check denominated in any other local currency as approved by the Administrators, (iv) if the Administrators had so authorized on the grant of any particular Option hereunder (and subject such conditions, if any, as the Administrators may deem necessary to avoid adverse accounting effects to the Company), that number of Shares having a Fair Market Value on the date of delivery equal to the aggregate exercise price of the Option or exercised portion thereof, (v) after the Trading Date the delivery of a notice that the Participant has placed a market sell order with a broker with respect to Shares then issuable upon exercise of the Option, and that the broker has been directed to pay a sufficient portion of the net proceeds of the sale to the Company in satisfaction of the Option exercise price; provided that payment of such proceeds is then made to the Company upon settlement of such sale, (vi) other property acceptable to the Administrators with a Fair Market Value equal to the exercise price, or (vii) any combination of the foregoing. Payment of any exercise price may also be made through cashless exercise at the election of the Administrators.
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(g) Share Option Grant Agreement . Each grant of an Option shall be evidenced by a Share Option Grant Agreement. The Share Option Grant Agreement shall include such additional provisions as may be specified by the Administrators.
(h) Forfeiture . Except as otherwise determined by the Administrators at the time of the grant of the Award or thereafter, upon termination of employment or service for whatever reasons, Options that at that time have not been vested shall be forfeited in accordance with the Award Agreement; provided , however , that the Administrators may (a) provide in any Award Agreement that forfeiture conditions relating to Options will be waived in whole or in part in the event of terminations resulting from specified causes, and (b) in other cases waive in whole or in part forfeiture conditions relating to Options.
(i) Termination of Employment/Service and Right to Exercise . In case the Participants employment or service is terminated as a result of:
(i) his or her retirement, death or disability as provided under the Applicable Laws, the relevant Options that at that time have become vested but have not been exercised may be exercisable by the Participant or the executors or administrators of the Participants estate or by any person who has acquired such Options directly from the Participant by beneficiary designation, bequest or inheritance, as the case may be, within six (6) months after the date of termination. With respect to such other Options that have been exercised, the relevant Shares subject to such Options shall remain at the sole disposal of the Participant or the said executors, administrators or the person indicated under the preceding sentence, as the case may be;
(ii) his or her unilateral termination, non-renewal of the relevant employment contract, layoff or liquidation of the relevant Service Recipient, the relevant Options that at that time have become vested but have not been exercised shall be exercised by the Participant within two (2) months after the date of termination, otherwise such Options shall be forfeited immediately by the Administrators. With respect to such other Options that have been exercised, the relevant Shares subject to such Options shall remain at the sole disposal of the Participant; and
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(iii) his or her own violation of the Applicable Laws or a material breach of the relevant employment contract, the relevant Options that have not been exercised shall be forfeited and expire immediately upon the termination. With respect to those Options that have been exercised, the Company shall have the right to forfeit the relevant Options and repurchase the relevant Shares upon the exercise of relevant Options for consideration of the relevant exercise price or the Fair Market Value of each Share (whichever is lower), if the Company has incurred material losses or damages as a result of the Participants faults.
5.2 | Incentive Share Options. |
Incentive Share Options may be granted to Employees of the Company, a Parent or Subsidiary of the Company. Incentive Share Options may not be granted to Employees of a Related Entity or to Independent Directors or Consultants. The terms of any Incentive Share Options granted pursuant to the Plan, in addition to the requirements of Section 5.1, must comply with the following additional provisions of this Section 5.2:
(a) Expiration of Option . An Incentive Share Option may not be exercised to any extent by anyone after the first to occur of the following events:
(i) Ten (10) years from the date it is granted, unless an earlier time is set in the Award Agreement; and
(ii) Three (3) months after the Participants termination of employment as an Employee (unless otherwise expressly provided in this Plan or the Award Agreement or determined by the Administrators).
(b) Transfer Restriction . The Participant shall give the Company prompt notice of any disposition of Shares acquired by exercise of an Incentive Share Option within (i) two (2) years from the date of grant of such Incentive Share Option or (ii) one (1) year after the transfer of such Shares to the Participant.
(c) Expiration of Incentive Share Options . No Award of an Incentive Share Option may be made pursuant to this Plan after the Expiration Date.
(d) Right to Exercise . During a Participants lifetime, an Incentive Share Option may be exercised only by the Participant.
6. | RESTRICTED SHARES |
6.1 | Grant of Restricted Shares. |
The Administrators, at any time and from time to time, may grant or sell Restricted Shares to Participants as the Administrators shall determine. The Administrators shall determine the number of Restricted Shares to be granted or sold to a Participant. Despite the aforesaid, Restricted Shares can only be granted or sold with respect to the Additional Shares.
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6.2 | Restricted Shares Award Agreement. |
Each award of Restricted Shares shall be evidenced by a Restricted Shares Award Agreement, which shall specify the period of restriction, the number of Restricted Shares granted or sold, grant or purchase price, and such other terms and conditions as the Administrators shall determine.
6.3 | Restrictions. |
Restricted Shares shall be subject to such restrictions on transferability and other restrictions as the Administrators may impose (including, without limitation, limitations on the right to vote Restricted Shares or the right to receive dividends on the Restricted Share). These restrictions may lapse separately or in combination at such times, pursuant to such circumstances, in such installments, or otherwise, as the Administrators determine at the time of the grant of the Award or thereafter.
6.4 | Forfeiture/Repurchase. |
Except as otherwise determined by the Administrators at the time of the grant of the Award or thereafter, upon termination of employment or service during the applicable restriction period, Restricted Shares that are at that time subject to restrictions shall be forfeited or repurchased in accordance with the Award Agreement; provided , however , that the Administrators may (a) provide in any Restricted Shares Award Agreement that restrictions or forfeiture and repurchase conditions relating to Restricted Shares will be waived in whole or in part in the event of terminations resulting from specified causes, and (b) in other cases waive in whole or in part restrictions or forfeiture and repurchase conditions relating to Restricted Shares.
6.5 | Certificates for Restricted Shares. |
Restricted Shares granted pursuant to the Plan may be evidenced in such manner as the Administrators shall determine. If certificates representing Restricted Shares are registered in the name of the Participant, certificates must bear an appropriate legend referring to the terms, conditions and restrictions applicable to such Restricted Shares, and the Company may, at its discretion, retain physical possession of the certificate until such time as all applicable restrictions lapse.
6.6 | Removal of Restrictions. |
Unless the Administrators determine otherwise, Restricted Shares shall be held by the Company as escrow agent until the restrictions on such Restricted Shares have lapsed. Except as otherwise provided in this Section 6, Restricted Shares granted under the Plan shall be released from escrow as soon as practicable after the last day of the period of restriction. The Administrators, in their discretion, may accelerate the time at which any restrictions shall lapse or be removed. After the restrictions have lapsed, the Participant shall be entitled to have any legend or legends under Section 6.5 removed from his or her Share certificate, and the Shares shall be freely transferable by the Participant, subject to the Shareholders Agreement, the M&AA, and applicable legal restrictions. The Administrators, in their discretion, may establish procedures regarding the release of Shares from escrow and the removal of legends, as necessary or appropriate to minimize administrative burdens on the Company.
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7. | RESTRICTED SHARE UNITS |
7.1 | Grant of Restricted Share Units. |
The Administrators, at any time and from time to time, may grant Restricted Share Units to Participants as the Administrators shall determine. The Administrators shall determine the number of Restricted Share Units to be granted to each Participant. Despite the aforesaid, Restricted Share Units can only be granted with respect to the Additional Shares.
7.2 | Restricted Share Units Award Agreement. |
Each award of Restricted Share Units shall be evidenced by a Restricted Share Units Award Agreement, which shall specify any vesting conditions, the number of Restricted Share Units granted, and such other terms and conditions as the Administrators shall determine.
7.3 | Performance Objectives and Other Terms. |
The Administrators, in their discretion, may set performance objectives or other vesting criteria which, depending on the extent to which they are met, will determine the number or value of Restricted Share Units that will be paid out to the Participants.
7.4 | Form and Timing of Payment of Restricted Share Units. |
At the time of grant, the Administrators shall specify the date or dates the Restricted Share Units shall become fully vested and non-forfeitable. Upon vesting, the Administrators, in their sole discretion, may pay Restricted Share Units in the form of cash, in Shares or in a combination thereof.
7.5 | Forfeiture/Repurchase. |
Except as otherwise determined by the Administrators at the time of the grant of the Award or thereafter, upon termination of employment or service during the applicable restriction period, Restricted Share Units that are at that time unvested shall be forfeited or repurchased in accordance with the Award Agreement; provided , however , the Administrators may (a) provide in any Restricted Share Units Award Agreement that restrictions or forfeiture and repurchase conditions relating to Restricted Share Units will be waived in whole or in part in the event of terminations resulting from specified causes, and (b) in other cases waive in whole or in part restrictions or forfeiture and repurchase conditions relating to Restricted Share Units.
8. | OTHER TYPE OF AWARDS |
The Administrators, at any time and from time to time, may grant other types of Awards to Participants as the Administrators shall determine, including, without limitation, share appreciation rights, dividend equivalents, share payments and deferred shares. Despite the aforesaid, such other types of Awards can only be granted with respect to the Additional Shares.
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9. | PROVISIONS APPLICABLE TO AWARDS |
9.1 | Award Agreement. |
Awards under the Plan shall be evidenced by Award Agreements that set forth the terms, conditions and limitations for each Award, which may include the term of an Award, the provisions applicable in the event the Participants employment or service terminates, and the Companys authority to unilaterally or bilaterally amend, modify, suspend, cancel or rescind an Award.
9.2 | Limits on Transfer. |
Unless with prior written consent of the Administrators, no right or interest of a Participant in any Award may be pledged, encumbered, or hypothecated to or in favor of any party other than the Company, a Parent, a Subsidiary or a Related Entity, or shall be subject to any lien, obligation, or liability of such Participant to any other party other than the Company, a Parent, a Subsidiary or a Related Entity. Except as otherwise provided by the Administrators, no right or interest of a Participant in any Award shall be assigned, transferred or otherwise disposed of by such Participant other than by will or the laws of descent and distribution. The Administrators by express provision in the Award or an amendment thereto may permit an Award (other than an Incentive Share Option) to be transferred to, exercised by and paid to certain persons or entities related to the Participant, including, without limitation, members of the Participants family, charitable institutions, or trusts or other entities whose beneficiaries or beneficial owners are members of the Participants family and/or charitable institutions, or to such other persons or entities as may be expressly approved by the Administrators, pursuant to such conditions and procedures as the Administrators may establish. Any permitted transfer shall be subject to the condition that the Administrators receive evidence satisfactory to them that the transfer is being made for estate and/or tax planning purposes (or to a blind trust in connection with the Participants termination of employment or service with the Company, a Parent, a Subsidiary or a Related Entity to assume a position with a governmental, charitable, educational or similar non-profit institution) and on a basis consistent with the Companys lawful issue of securities.
9.3 | Beneficiaries. |
Notwithstanding Section 9.2, a Participant may, in the manner determined by the Administrators, designate a beneficiary to exercise the rights of the Participant and to receive any distribution with respect to any Award upon the Participants death. A beneficiary, legal guardian, legal representative, or other person claiming any rights pursuant to the Plan is subject to all terms and conditions of the Plan and any Award Agreement applicable to the Participant, except to the extent the Plan and Award Agreement otherwise provide, and to any additional restrictions deemed necessary or appropriate by the Administrators. If the Participant is married and resides in a community property state, a designation of a person other than the Participants spouse as his or her beneficiary with respect to more than 50% of the Participants interest in the Award shall not be effective without the prior written consent of the Participants spouse. If no beneficiary has been designated or survives the Participant, payment shall be made to the person entitled thereto pursuant to the Participants will or the laws of descent and distribution. Subject to the foregoing, a beneficiary designation may be changed or revoked by a Participant at any time provided that the change or revocation is filed with the Administrators.
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9.4 | Share Certificates. |
Notwithstanding anything herein to the contrary, the Company shall not be required to issue or deliver any certificates evidencing the Shares pursuant to the exercise of any Award, unless and until the Administrators have determined, with advice of counsel, that the issuance and delivery of such certificates is in compliance with all Applicable Laws, the provisions of the Shareholders Agreement and the M&AA. All Share certificates delivered pursuant to the Plan are subject to any stop-transfer orders and other restrictions as the Administrators deem necessary or advisable to comply with all Applicable Laws, the provisions of the Shareholders Agreement and the M&AA. The Administrators may place legends on any Share certificate to reference restrictions applicable to the Shares. In addition to the terms and conditions provided herein, the Administrators may require that a Participant make such reasonable covenants, agreements and representations as the Administrators, in their discretion, deem advisable in order to comply with any such Applicable Laws, the provisions of the Shareholders Agreement and the M&AA. The Administrators shall have the right to require any Participant to comply with any timing or other restrictions with respect to the settlement or exercise of any Award, including a window-period limitation, as may be imposed in the discretion of the Administrators.
9.5 | Paperless Administration. |
Subject to Applicable Laws, the Administrators may make Awards, provide applicable disclosure and procedures for exercise of Awards by an internet website or interactive voice response system for the paperless administration of Awards.
9.6 | Foreign Currency. |
A Participant may be required to provide evidence that any currency used to pay the exercise price of any Award were acquired and taken out of the jurisdiction in which the Participant resides in accordance with Applicable Laws, including foreign exchange control laws and regulations. In the event the exercise price for an Award is paid in Renminbi or other foreign currency, as permitted by the Administrators, the amount payable will be determined by conversion from U.S. dollars at the official rate promulgated by the Peoples Bank of China for Renminbi, or for jurisdictions other than the Peoples Republic of China, the exchange rate as selected by the Administrators on the date of exercise.
10. | CHANGES IN CAPITAL STRUCTURE |
10.1 | Adjustments. |
In the event of any share dividend, share split, combination or exchange of Shares, amalgamation, arrangement or consolidation, spin-off, recapitalization or other distribution (other than normal cash dividends) of Company assets to its shareholders, or any other change affecting the Shares or the price of a Share, the Administrators shall make such proportionate adjustments, if any, to reflect such change with respect to (a) the aggregate number and type of shares that may be issued under the Plan (including, without limitation, adjustments of the limitations in Section 3.1); (b) the terms and conditions of any outstanding Awards (including, without limitation, any applicable performance targets or criteria with respect thereto); and (c) the number of shares covered by an Award or exercise price per share for any outstanding Awards under the Plan; provided, however, that the Administrators will make such adjustments to an Award required by Section 25102(o) of the California Corporations Code to the extent the Company is relying upon the exemption afforded thereby with respect to the Award.
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10.2 | Corporate Transactions. |
Except as may otherwise be provided in any Award Agreement or any other written agreement entered into by and between the Company and a Participant, if the Administrators anticipate the occurrence, or upon the occurrence, of a Corporate Transaction, the Administrators may provide for the following measures in its discretion without the consent of a Participant: (i) any and all Awards outstanding hereunder to terminate at a specific time in the future and shall give each Participant the right to exercise the vested portion of such Awards during a period of time as the Administrators shall determine, (ii) the purchase of any Award for an amount of cash equal to the amount that could have been attained by the Participant upon the exercise of such Award (and, for the avoidance of doubt, if as of such date the Administrators determine in good faith that no amount would have been attained by the Participant upon the exercise of such Award, then such Award may be terminated by the Administrators without payment), (iii) the replacement of such Award with other rights or property selected by the Administrators or the assumption of or substitution of such Award by the successor or surviving corporation, or a Parent or Subsidiary thereof, with appropriate adjustments as to the number and kind of Shares and prices, (iv) payment of Award in cash based on the value of Shares on the date of the Corporate Transaction through the date when such Award would otherwise be vested or have been paid in accordance with its original terms, if necessary to comply with Section 409A of the Code, or (v) any combination of the foregoing. In taking any of the actions permitted under this Section 10.2, the Administrators will not be obligated to treat all Awards, all Awards held by a Participant, or all Awards of the same type, similarly.
10.3 | Outstanding Awards Other Changes. |
In the event of any other change in the capitalization of the Company or corporate change other than those specifically referred to in this Section 10, the Administrators may, in their absolute discretion, make such adjustments in the number and class of shares subject to Awards outstanding on the date such change occurs and in the per share grant or exercise price of each Award as the Administrators may consider appropriate to prevent dilution or enlargement of rights; provided, however, that the Administrators will make such adjustments to an Award required by Section 25102(o) of the California Corporations Code to the extent the Company is relying upon the exemption afforded thereby with respect to the Award.
10.4 | Acceleration upon IPO. |
In the event of the occurrence of an IPO, the Administrators may at their discretion accelerate the vesting and/or cause the immediate exercise of the relevant Options. For the avoidance of doubt, for the purpose of this Section 10.4, accelerate the vesting and/or cause the immediate exercise means acceleration of (a) the vesting of Options granted under the Plan, (b) the exercise of the Options granted under the Plan, and (c) the combination of (a) and (b), such that outstanding unvested Options would both vest and be exercised.
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10.5 | No Other Rights. |
Except as expressly provided in the Plan, no Participant shall have any rights by reason of any subdivision or consolidation of Shares of any class, the payment of any dividend, any increase or decrease in the number of shares of any class or any dissolution, liquidation, merger, or consolidation of the Company or any other corporation. Except as expressly provided in the Plan or pursuant to action of the Administrators under the Plan, no issuance by the Company of shares of any class, or securities convertible into shares of any class, shall affect, and no adjustment by reason thereof shall be made with respect to, the number of shares subject to an Award or the grant or exercise price of any Award.
11. | ADMINISTRATION |
11.1 | Administrators. |
The Plan shall be jointly administered by the ZHANG Xiaojun ( 张晓俊 ) and LIN Jiayuan ( 林佳元 ) (collectively, the Administrators ) in accordance with this Plan, the Shareholders Agreement and the M&AA. For the avoidance of doubt and notwithstanding anything to the contrary in the Plan, the adoption, amendment, general implementation or termination of the Plan and any determinations regarding the grant or issuance of Awards pursuant to the Plan shall require the approval of the Board pursuant to the Shareholders Agreement.
11.2 | Action by the Administrators. |
The Administrators are entitled to, in good faith, rely or act upon any report or other information furnished to them by any officer or other employee of the Company, any Parent or Subsidiary or Related Entity, the Companys independent certified public accountants, or any executive compensation consultant or other professional retained by the Company to assist in the administration of the Plan.
11.3 | Authority of the Administrators. |
Subject to any other provisions in the Plan, the Shareholders Agreement and the M&AA, the Administrators jointly have the exclusive power, authority and discretion to:
(a) Prescribe, interpret and revise the relevant performance criteria for grant of an Award;
(b) Designate Participants to receive Awards;
(c) Determine the type or types of Awards to be granted to each Participant;
(d) Determine the number of Awards to be granted and the number of Shares to which an Award will relate;
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(e) Determine the terms and conditions of any Award granted pursuant to the Plan, including, without limitation, the date of grant, the exercise price, grant price, or purchase price, any restrictions or limitations on the Award, any schedule for lapse of forfeiture restrictions or restrictions on the exercisability of an Award, and accelerations or waivers thereof, any provisions related to non-competition and recapture of gain on an Award, based in each case on such considerations as the Administrators determine;
(f) Determine whether, to what extent, and pursuant to what circumstances an Award may be settled in, or the exercise price of an Award may be paid in, cash, Shares, other Awards or other property, or an Award may be canceled, forfeited or surrendered;
(g) Revise or terminate the provisions of the Plan pursuant to the actual circumstances of the Company and its development plans, and submit the proposed revisions or termination for the approval of the Board;
(h) Prescribe, amend and adjust the form of each Award Agreement, which need not be identical for each Participant;
(i) Decide all other matters that must be determined in connection with an Award;
(j) Establish, adopt or revise any rules and regulations as they may deem necessary or advisable to administer the Plan;
(k) Interpret the terms of, and any matter arising pursuant to, the Plan or any Award Agreement; and
(l) Make all other decisions and determinations that may be required pursuant to the Plan or as the Administrators deem necessary or advisable to administer the Plan.
11.4 | Decisions Binding. |
The Administrators interpretation of the Plan, any Awards granted pursuant to the Plan, any Award Agreement and all decisions and determinations by the Administrators with respect to the Plan are final, binding and conclusive on all parties, except those matters that require due approval of the Board as provided in Section 11.1 above.
12. | EFFECTIVE AND EXPIRATION DATE |
12.1 | Effective Date. |
The Plan is effective as of the date it is adopted and duly approved by the Board pursuant to the Shareholders Agreement.
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12.2 | Replacement of Previous Arrangements. |
The Plan, the specific implementation rules as duly approved by the Board (if any) and all Awards Agreement shall constitute the entire document in relation to the Companys share incentive arrangements, and shall replace any and all previous share incentive arrangements of the Company, any Parent and any Subsidiary in its entirety, and such arrangements shall cease to be effective upon the Effective Date.
12.3 | Expiration Date. |
The Plan will expire on, and no Award may be granted pursuant to the Plan after, the Expiration Date. Any Awards that are outstanding on the Expiration Date shall remain in force according to the terms of the Plan and the applicable Award Agreement.
13. | AMENDMENT, MODIFICATION, AND TERMINATION |
13.1 | Amendment, Modification and Termination. |
At any time and from time to time, the Administrators may terminate, amend or modify the Plan; provided , however , to the extent necessary to comply with Applicable Laws, the Shareholders Agreement and the M&AA, the Company shall obtain the Board approval of any Plan amendment in such a manner and to such a degree as required.
13.2 | Awards Previously Granted. |
Except with respect to amendments made pursuant to Section 14.15, no termination, amendment or modification of the Plan shall adversely affect in any material way any Award previously granted pursuant to the Plan without the prior written consent of the Participant.
14. | GENERAL PROVISIONS |
14.1 | No Rights to Awards. |
No Participant, employee or other person shall have any claim to be granted any Award pursuant to the Plan, and neither the Company nor the Administrators are obligated to treat Participants, employees and other persons uniformly.
14.2 | No Shareholders Rights. |
No Award gives the Participant any of the rights of a Shareholder of the Company unless and until Shares are in fact issued to such person in connection with such Award.
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14.3 | Taxes. |
No Shares shall be delivered under the Plan to any Participant until such Participant has made arrangements acceptable to the Administrators for the satisfaction of any income and employment tax withholding obligations under Applicable Laws. The Company or any Subsidiary shall have the authority and the right to deduct or withhold, or require a Participant to remit to the Company, an amount sufficient to satisfy all applicable taxes (including the Participants payroll tax obligations) required or permitted by Applicable Laws to be withheld with respect to any taxable event concerning a Participant arising as a result of this Plan. The Administrators may in their discretion and in satisfaction of the foregoing requirement allow a Participant to elect to have the Company withhold Shares otherwise issuable under an Award (or allow the return of Shares) having a Fair Market Value equal to the sums required to be withheld. Notwithstanding any other provision of the Plan, the number of Shares which may be withheld with respect to the issuance, vesting, exercise or payment of any Award (or which may be repurchased from the Participant of such Award after such Shares were acquired by the Participant from the Company) in order to satisfy any income and payroll tax liabilities applicable to the Participant with respect to the issuance, vesting, exercise or payment of the Award shall, unless specifically approved by the Administrators, be limited to the number of Shares which have a Fair Market Value on the date of withholding or repurchase equal to the aggregate amount of such liabilities based on the minimum statutory withholding rates for the applicable income and payroll tax purposes that are applicable to such supplemental taxable income.
14.4 | No Right to Employment or Services. |
Nothing in the Plan or any Award Agreement shall interfere with or limit in any way the right of the Service Recipient to terminate any Participants employment or services at any time, nor confer upon any Participant any right to continue in the employment or services of any Service Recipient.
14.5 | Unfunded Status of Awards. |
The Plan is intended to be an unfunded plan for incentive compensation. With respect to any payments not yet made to a Participant pursuant to an Award, nothing contained in the Plan or any Award Agreement shall give the Participant any rights that are greater than those of a general creditor of the Company or any Parent, Subsidiary or Related Entity.
14.6 | Indemnification. |
To the extent allowable pursuant to Applicable Laws, the Administrators shall be indemnified and held harmless by the Company from any loss, cost, liability or expense that may be imposed upon or reasonably incurred by them in connection with or resulting from any claim, action, suit, or proceeding to which they may be a party or in which they may be involved by reason of any action or failure to act pursuant to the Plan and against and from any and all amounts paid by them in satisfaction of judgment in such action, suit, or proceeding against them; provided that they give the Company an opportunity, at its own expense, to handle and defend the same before they undertake to handle and defend it on their own behalf. The foregoing right of indemnification shall not be exclusive of any other rights of indemnification to which the Administrators may be entitled pursuant to the Shareholders Agreement and the M&AA, as a matter of law, or otherwise, or any power that the Company may have to indemnify them or hold them harmless.
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14.7 | Relationship to other Benefits. |
No payment pursuant to the Plan shall be taken into account in determining any benefits pursuant to any pension, retirement, savings, profit sharing, group insurance, welfare or other benefit plan of the Company or any Parent, Subsidiary or Related Entity except to the extent otherwise expressly provided in writing in such other plan or an agreement thereunder.
14.8 | Expenses. |
The expenses of administering the Plan shall be borne by the Company and its Subsidiaries.
14.9 | Titles and Headings. |
The titles and headings of the Sections in the Plan are for convenience of reference only and, in the event of any conflict, the text of the Plan, rather than such titles or headings, shall control.
14.10 | Fractional Shares. |
No fractional Shares shall be issued and the Administrators shall determine, in their discretion, whether cash shall be given in lieu of fractional Shares or whether such fractional Shares shall be eliminated by rounding up or down as appropriate.
14.11 | Limitations Applicable to Section 16 Persons. |
Notwithstanding any other provision of the Plan, the Plan, and any Award granted or awarded to any Participant who is then subject to Section 16 of the Exchange Act, shall be subject to any additional limitations set forth in any applicable exemptive rule under Section 16 of the Exchange Act (including any amendment to Rule 16b-3 of the Exchange Act) that are requirements for the application of such exemptive rule. To the extent permitted by the Applicable Laws, the Plan and Awards granted or awarded hereunder shall be deemed amended to the extent necessary to conform to such applicable exemptive rule.
14.12 | Government and Other Regulations. |
The obligation of the Company to make payment of awards in Shares or otherwise shall be subject to all Applicable Laws, and to such approvals by government agencies as may be required. The Company shall be under no obligation to register any of the Shares paid pursuant to the Plan under the Securities Act or any other similar law in any applicable jurisdiction. If the Shares paid pursuant to the Plan may in certain circumstances be exempt from registration pursuant to the Securities Act or other Applicable Laws, the Company may restrict the transfer of such Shares in such manner as it deems advisable to ensure the availability of any such exemption.
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14.13 | Governing Law. |
The Plan and all Award Agreements shall be construed in accordance with and governed by the laws of the Cayman Islands.
14.14 | Sections 409A and 457A. |
To the extent that the Administrators determine that any Award granted under the Plan is or may become subject to Section 409A of the Code, the Award Agreement evidencing such Award shall incorporate the terms and conditions required by Section 409A of the Code. To the extent applicable, the Plan and the Award Agreements shall be interpreted in accordance with Section 409A of the Code and the U.S. Department of Treasury regulations and other interpretative guidance issued thereunder, including without limitation, any such regulation or other guidance that may be issued after the Effective Date. Notwithstanding any provision of the Plan to the contrary, in the event that following the Effective Date the Administrators determine that any Award may be subject to Section 409A of the Code and related Department of Treasury guidance (including such Department of Treasury guidance as may be issued after the Effective Date), the Administrators may adopt such amendments to the Plan and the applicable Award agreement or adopt other policies and procedures (including amendments, policies and procedures with retroactive effect), or take any other actions, that the Administrators determine are necessary or appropriate to (a) exempt the Award from Section 409A of the Code and Section 457A of the Code and/or preserve the intended tax treatment of the benefits provided with respect to the Award, or (b) comply with the requirements of Section 409A of the Code and related U.S. Department of Treasury guidance.
14.15 | Appendices. |
Subject to the approval requirements as provided in Section 11.1 above, the Administrators may approve such supplements, amendments or appendices to the Plan as they may consider necessary or appropriate for purposes of compliance with Applicable Laws or otherwise and such supplements, amendments or appendices shall be considered a part of the Plan; provided , however , that no such supplements shall increase the share limitation contained in Section 3.1 of the Plan without the due approval of the Board.
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Exhibit 21.1
LIST OF SUBSIDIARIES AND CONSOLIDATED VARIABLE INTEREST ENTITY OF
CANGO INC.
Subsidiaries |
Jurisdiction of Incorporation |
|
Cango Group Limited | Hong Kong | |
Cangolong (Shanghai) Information Technology Consultation Service Co., Ltd. * 灿谷隆(上海)信息科技咨询服务有限公司 | PRC | |
Express Group Development Limited | Hong Kong | |
Consolidated Variable Interest Entity (VIE) |
Jurisdiction of Incorporation |
|
Shanghai Cango Investment Management Consultation Service Co., Ltd. 上海灿谷投资管理咨询服务有限公司 | PRC | |
Subsidiaries of the Consolidated VIE |
Jurisdiction of Incorporation |
|
Shanghai Wangjin Financial Information Service Co., Ltd.* 上海网金金融信息服务有限公司 | PRC | |
Shanghai Huixie Automotive Service Co., Ltd.* 上海汇协汽车服务有限公司 | PRC | |
Shanghai Cango Electronic Technology Co., Ltd.* 上海灿谷电子科技有限公司 | PRC | |
Shanghai Cango Automobile Sales Co., Ltd.* 上海灿谷汽车销售服务有限公司 | PRC | |
Guangzhou Cango Automotive Information Consultation Service Co., Ltd.* 广州灿谷汽车信息咨询服务有限公司 | PRC | |
Tianjin Changtong Automotive Leasing Co., Ltd.* 天津昌通汽车租赁有限公司 | PRC | |
Shenyang Cango Automotive Information Consultation Co., Ltd.* 沈阳灿谷汽车信息咨询有限公司 | PRC | |
Jiangsu Tongyuan Automotive Consultation Service Co., Ltd.* 江苏通元汽车咨询服务有限公司 | PRC | |
Nanjing Canyuan Automotive Service Co., Ltd.* 南京灿元汽车服务有限公司 | PRC | |
Hubei Huaitai Automotive Consultation Service Co., Ltd.* 湖北省怀泰汽车咨询服务有限公司 | PRC | |
Sichuan Xintongda Automotive Service Co., Ltd.* 四川鑫通达汽车服务有限公司 | PRC | |
Chengdu Cango Automotive Service Co., Ltd.* 成都灿谷汽车服务有限公司 | PRC | |
Xian Cango Automotive Consultation Service Co., Ltd.* 西安灿谷汽车咨询服务有限公司 | PRC | |
Shijiazhuang Cango Automotive Leasing Co., Ltd.* 石家庄灿谷汽车租赁有限公司 | PRC | |
Shanxi Huirui Automotive Consultation Service Co., Ltd.* 山西汇瑞汽车咨询服务有限公司 | PRC | |
Henan Cango Automotive Service Co., Ltd.* 河南灿谷汽车服务有限公司 | PRC | |
Heilongjiang Cango Automotive Information Consultation Co., Ltd.* 黑龙江灿谷汽车信息咨询有限公司 | PRC | |
Shandong Huaitong Automotive Consultation Service Co., Ltd.* 山东怀通汽车咨询服务有限公司 | PRC | |
Hefei Cango Automotive Service Co., Ltd.* 合肥灿谷汽车服务有限公司 | PRC | |
Fujian Changhui Automotive Service Co., Ltd.* 福建昌汇汽车服务有限公司 | PRC | |
Changsha Cango Automotive Service Co., Ltd.* 长沙灿谷汽车服务有限公司 | PRC | |
Guangxi Canyuan Automotive Consultation Service Co., Ltd.* 广西灿源汽车咨询服务有限公司 | PRC | |
Guangxi Nanning Cango Automotive Consultation Service Co., Ltd.* 广西南宁灿谷汽车咨询服务有限公司 | PRC | |
Jiangxi Cango Automotive Consultation Service Co., Ltd.* 江西灿谷汽车咨询服务有限公司 | PRC | |
Guizhou Cango Automotive Service Co., Ltd.* 贵州灿谷汽车服务有限公司 | PRC | |
Kunming Cango Automotive Information Consultation Service Co., Ltd.* 昆明灿谷汽车信息咨询服务有限公司 | PRC | |
Beijing Cango Automotive Consultation Service Co., Ltd.* 北京灿谷汽车咨询服务有限公司 | PRC | |
Shanghai Wangtian Investment Co., Ltd.* 上海网天投资有限公司 | PRC | |
Jilin Cango Automotive Information Consultation Co., Ltd.* 吉林灿谷汽车信息咨询有限公司 | PRC | |
Nei Mongol Cango Automotive Service Co., Ltd.* 内蒙古灿谷汽车服务有限公司 | PRC | |
Gansu Cango Automotive Information Consultation Co., Ltd.* 甘肃灿谷汽车信息咨询有限公司 | PRC |
* | The English name of this subsidiary, consolidated VIE or subsidiary of consolidated VIE, as applicable, has been translated from its Chinese name. |
Exhibit 23.1
Consent of Independent Registered Public Accounting Firm
We consent to the reference to our firm under the caption Experts and to the use of our report dated May 4, 2018 (except for Note 26, as to which the date is June 22, 2018), in the Registration Statement (Form F-1) and related Prospectus of Cango Inc. dated June 22, 2018.
/s/ Ernst & Young Hua Ming LLP
Shanghai, the Peoples Republic of China
June 22, 2018
Exhibit 23.2
Consent of Independent Auditors
We consent to the reference to our firm under the caption Experts and to the use of our report dated May 4, 2018, (except for Note 13, as to which the date is June 22, 2018), with respect to the consolidated financial statements of Shanghai Autohome Financing Lease Co., Ltd. included in the Registration Statement (Form F-1) and related Prospectus of Cango Inc. dated June 22, 2018.
/s/ Ernst & Young Hua Ming LLP
Shanghai, the Peoples Republic of China
June 22, 2018
Exhibit 23.6
CONSENT OF OLIVER WYMAN CONSULTING (SHANGHAI) LIMITED
Oliver Wyman Consulting (Shanghai) Limited hereby consents to (i) references to our name, (ii) inclusion of information and data contained in our report entitled China Auto Transaction and Service Platform Market Overview and Perspectives (together with any subsequent amendments made by us thereto, the Report) and (iii) citation of the Report, in each case, in this Registration Statement on Form F-1 (and in all subsequent amendments) in connection with the proposed initial public offering of Cango Inc. (the Company), in the prospectus contained therein, and in any other future filings or correspondence with the U.S. Securities and Exchange Commission (the SEC). We further hereby consent to the filing of this letter as an exhibit to such Registration Statement and any amendments thereto with the SEC.
/s/ Cliff Sheng |
Name: Cliff Sheng |
Title: Partner |
Oliver Wyman Consulting (Shanghai) Limited |
Room 3708-10 |
The Center |
989 Changle Road |
Xuhui District |
Shanghai |
June 22, 2018
Exhibit 23.7
Cango Inc.
10A, Building 3, Youyou Century Plaza
428 South Yanggao Road
Pudong New Area, Shanghai 200127
Peoples Republic of China
June 22, 2018
Ladies and Gentlemen:
Pursuant to Rule 438 promulgated under the Securities Act of 1933, as amended, I hereby consent to be named in the Registration Statement on Form F-1 (the Registration Statement) of Cango Inc. (the Company), and any amendments thereto, as a person about to become a director of the Company and agree that following the effectiveness of the Registration Statement and commencing at the time the Securities and Exchange Commission declares the registration statement on Form 8-A under Section 12(b) of the Securities Exchange Act of 1934, as amended, effective, I will serve as a member of the board of directors of the Company.
[ Signature page to follow ]
Sincerely yours, |
/s/ Chi Ming Lee |
Name: Chi Ming Lee |
Exhibit 23.8
Cango Inc.
10A, Building 3, Youyou Century Plaza
428 South Yanggao Road
Pudong New Area, Shanghai 200127
Peoples Republic of China
June 22, 2018
Ladies and Gentlemen:
Pursuant to Rule 438 promulgated under the Securities Act of 1933, as amended, I hereby consent to be named in the Registration Statement on Form F-1 (the Registration Statement) of Cango Inc. (the Company), and any amendments thereto, as a person about to become a director of the Company and agree that following the effectiveness of the Registration Statement and commencing at the time the Securities and Exchange Commission declares the registration statement on Form 8-A under Section 12(b) of the Securities Exchange Act of 1934, as amended, effective, I will serve as a member of the board of directors of the Company.
[ Signature page to follow ]
Sincerely yours, |
/s/ Dongsheng Zhou |
Name: Dongsheng Zhou |
Exhibit 99.1
CODE OF BUSINESS CONDUCT AND ETHICS
OF CANGO INC.
INTRODUCTION
Cango Inc., its consolidated subsidiaries and consolidated Variable Interest Entities (collectively the Company ) are committed to conducting their business in accordance with all applicable laws and the highest standards of business ethics. This Code of Business Conduct and Ethics (the Code ) contains general guidelines for conducting the business of the Company. In general, employees should strive to comply with the law and conduct business honestly, fairly and in the best interests of the Company. To the extent this Code requires a higher standard than required by commercial practice or applicable laws, we adhere to these higher standards.
This Code applies to all of the directors, officers, employees and advisors of the Company, whether they work for the Company on a full-time, part-time, consultative, or temporary basis. We refer to these persons as our employees . We also refer to our Chairman, Chief Executive Officer, Chief Financial Officer, our other executives and any other persons who perform similar functions for the Company as executive officers .
It is the Companys policy that any employee who violates this Code will be subject to discipline, which may include termination of employment. If your conduct as an employee of the Company does not comply with the law or with this Code, there may be serious, adverse consequences for both you and the Company.
Seeking Help and Information
This Code is not intended to be a comprehensive rulebook and cannot address every situation that you may face. If you feel uncomfortable about a situation or know of or suspect a violation of this Code, seek help. We encourage you to contact your supervisor first. If you do not feel comfortable contacting your supervisor, contact the compliance officer (the Compliance Officer ) of the Company, who shall be a person appointed by the Board of Directors of the Company (the Board ). If you have any questions regarding the Code or would like to report any violation of the Code, please call or e-mail the Compliance Officer. Any questions or violations of the Code involving an executive officer should be directed or reported to any of the independent director on our Board or the members of the appropriate committee of our Board, and any such questions or violations will be reviewed directly by the Board or the appropriate committee of the Board.
Reporting Violations of the Code
Employees have a duty to report any known or suspected violation of this Code, including any violation of laws, rules, regulations or policies that apply to the Company. Reporting a known or suspected violation of this Code will not be considered an act of disloyalty, but an effort to safeguard the reputation and integrity of the Company and its employees.
All questions and reports of known or suspected violations of this Code will be treated with sensitivity and discretion. The Compliance Officer, the Board or the appropriate committee of the Board and the Company will protect your confidentiality to the greatest extent consistent with the law and the Companys need to investigate your concern.
Policy Against Retaliation
The Company prohibits retaliation against an employee who, in good faith, seeks help or reports known or suspected violations. An employee inflicting reprisal or retaliation against another employee for reporting a known or suspected violation may be subject to disciplinary actions, including termination of employment.
Waivers of the Code
Waivers of this Code may be made only by the Board or the appropriate committee of the Board and will be promptly disclosed to the public as required by law or the rules of the New York Stock Exchange. Waivers of this Code will be granted on a case-by-case basis and only in extraordinary circumstances.
COMPLIANCE WITH LAWS, REGULATIONS AND POLICIES
Employees have an obligation to comply with all laws, rules and regulations applicable to the Companys operations. These include, without limitation, laws covering bribery and kickbacks, copyrights, trademarks and trade secrets, information privacy, insider trading, illegal political contributions, antitrust prohibitions, foreign corrupt practices, offering or receiving gratuities, environmental hazards, employment discrimination or harassment, occupational health and safety, false or misleading financial information or misuse of corporate assets. It is your responsibility to understand and comply with the laws, regulations and policies that are relevant to your position. If any doubt exists about whether a course of action is lawful, you should seek advice from your supervisor or the Compliance Officer.
Failure to comply with applicable laws and regulations can result in civil and criminal liability against you and the Company, as well as disciplinary action by the Company against you, including termination of employment. You should contact the Compliance Officer if you have any questions about the laws, regulations and policies that may apply to you.
The Foreign Corrupt Practices Act
The U.S. Foreign Corrupt Practices Act (the FCPA ) prohibits the Company and its employees and agents from offering, promising or giving, directly or indirectly, money or any other item of value to win or retain business or to influence any act or decision of any governmental official (including employees of any state-owned or state-controlled entities), political party, candidate for political office or official of a public international organization. This prohibition also extends to payments to a sales representative or agent if there is reason to believe that the payment will be used indirectly for a prohibited payment to foreign officials. Violation of the FCPA by employees and agents is a crime that can subject the Company (including any U.S. citizen or green card-holding employees) to severe fines and criminal penalties. Any violations shall result in appropriate disciplinary action by the Company, including termination of employment.
Health and Safety
The Company is committed not only to complying with all relevant health and safety laws, but also to conducting business in a manner that protects the safety of its employees. Employees are required to comply with all applicable health and safety laws, regulations and policies relevant to their jobs. If you have any concerns about unsafe conditions or tasks that present a risk of injury to you, please report these concerns immediately to your supervisor or the Human Resources Department.
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Employment Practices
The Company pursues fair employment practices in every aspect of its business. The following is intended to be a summary of our employment policies and procedures. Copies of our detailed policies are available from the Human Resources Department. Employees must comply with all applicable labor and employment laws, including anti-discrimination laws and laws related to freedom of association, privacy and collective bargaining. It is your responsibility to understand and comply with the laws, regulations and policies that are relevant to your job. Failure to comply with labor and employment laws can result in civil and criminal liability against you and the Company as well as disciplinary action by the Company against you, including termination of employment. You should contact the Compliance Officer or the Human Resources Department if you have any questions about the laws, regulations and policies that apply to you.
CONFLICTS OF INTEREST
A conflict of interest occurs when an employees private interest interferes, or appears to interfere, in any way with the interests of the Company as a whole. You should actively avoid any private interest that may influence your ability to act in the interests of the Company or that may make it difficult to perform your work objectively and effectively.
It is difficult to list all of the ways in which a conflict of interest may arise. However, in general, the following may create conflicts of interest:
| Outside Employment. No employee may be concurrently employed by, serve as a director of, trustee for or provide any services not in his or her capacity as an employee to any entity, whether for-profit or non-profit, that is a material customer, financial institution, service provider, supplier or competitor of the Company or any entity whose interests would reasonably be expected to conflict with the Company. |
| Financial Interests. No employee should have a significant financial interest (ownership or otherwise) in any company that is a material customer, financial institution, service provider, supplier or competitor of the Company or any entity whose interests would reasonably be expected to conflict with the Company. A significant financial interest means (i) ownership of greater than 1% of the equity of a material customer, financial institution, service provider, supplier or competitor or (ii) an investment in a material customer, financial institution, service provider, supplier or competitor that represents more than 5% of the total assets of the employee. |
| Loans or Other Financial Transactions. No employee may obtain loans or guarantees of personal obligations from, or enter into any other personal financial transaction with, any company that is a material customer, financial institution, service provider, supplier or competitor of the Company. This guideline does not prohibit arms length transactions with recognized online financial services providers, banks or other financial institutions. |
| Family Situations. The actions of family members outside the workplace may also give rise to conflicts of interest because they may influence an employees objectivity in making decisions on behalf of the Company. If a member of an employees family is interested in doing business with the Company, the criteria as to whether to enter into or continue the business relationship, and the terms and conditions of the relationship, must be no less favorable to the Company compared with those that would apply to a non-relative seeking to do business with the Company under similar circumstances. |
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Employees should report any situation involving family members that could reasonably be expected to give rise to a conflict of interest to their supervisor or the Compliance Officer. For purposes of this Code, family members or members of your family include your spouse, brothers, sisters and parents, in-laws and children.
For purposes of this Code, a company is a material customer if the company has made payments to the Company in the past year in excess of US$100,000 or 10% of the customers gross revenues, whichever is greater. A company is material financial institution if the company has funded more than 10% of the aggregate principal amount of the financing transactions facilitated by the Company in the past year. A company is a material service provider or supplier if the company has received payments from the Company in the past year in excess of US$100,000 or 10% of the service provider or suppliers gross revenues, whichever is greater. A company is a material competitor if the company competes in the Companys line of business and has annual gross revenues from such line of business in excess of US$500,000. If you are uncertain whether a particular company is a material customer, financial institution, service provider, supplier or competitor, please contact the Compliance Officer for assistance.
Disclosure of Conflicts of Interest
The Company requires that employees fully disclose any situations that could reasonably be expected to give rise to a conflict of interest. If you suspect that you have a conflict of interest, or something that others could reasonably perceive as a conflict of interest, you must report it immediately to the Compliance Officer. Conflicts of interest may only be waived by the Board or the appropriate committee of the Board and will be promptly disclosed to the public to the extent required by law.
CORPORATE OPPORTUNITIES
As an employee of the Company, you have an obligation to advance the Companys interests when the opportunity to do so arises. If you discover or are presented with a business opportunity that is in the Companys line of business through the use of corporate property or corporate information or because of your position at the Company, you should first present the business opportunity to the Company before pursuing the opportunity in your individual capacity. Employees may not use corporate property or corporate information or their positions with the Company in any way that may deprive the Company of any benefit or subject it to any harm.
You should disclose to your supervisor the terms and conditions of each business opportunity covered by this Code that you wish to pursue. Your supervisor will contact the Compliance Officer and the appropriate management personnel to determine whether the Company wishes to pursue the business opportunity. Once the Company grants you permission, you may pursue the business opportunity on the same terms and conditions as those originally offered to the Company and to the extent that it is consistent with other ethical guidelines set forth in the Code.
CORPORATE ASSETS AND CONFIDENTIAL INFORMATION
Employees have a duty to protect the Companys assets and ensure their efficient use for legitimate business purposes only. Theft, carelessness and waste have a direct impact on the Companys profitability. The Companys files, computers, networks, software, phone system and other business resources are provided for business use only and they are the exclusive property of the Company. The use of the Companys funds or assets, whether or not for personal gain, for any unlawful or improper purpose is prohibited. All inventions, creative works, computer software, and technical or trade secrets developed by an employee in the course of performing the employees duties or primarily through the use of the Companys materials and technical resources while working at the Company, shall be property of the Company.
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To ensure the protection and proper use of the Companys assets, employees should exercise reasonable care to prevent theft, damage or misuse of Company property. In the event of actual or suspected theft, damage or misuse of Companys property, employees should report such activities directly to a supervisor.
Employees should be aware that Companys property includes all data and communications transmitted or received by, or contained in, the Companys electronic or telephonic systems. The Companys property also includes all written communications. Employees and other users of the Companys property should have no expectation of privacy with respect to these communications and data. To the extent permitted by law, the Company has the ability, and reserves the right, to monitor all electronic and telephonic communications. These communications may also be subject to disclosure to law enforcement or government officials.
Safeguarding Confidential Information and Intellectual Property
Employees have access to a variety of confidential information while employed by the Company. Confidential information includes all non-public information that might be of use to competitors, or, if disclosed, harmful to the Company or its customers, financial institutions, service providers or suppliers. Every employee has a duty to respect and safeguard the confidentiality of the Companys information and the information of our customer, financial institution, service provider and supplier, except when disclosure is authorized by the Company or legally mandated. An employees obligation to protect confidential information continues after he or she leaves the Company. Unauthorized disclosure of confidential information could cause competitive harm to the Company, its customers, financial institutions, service providers or suppliers and could result in legal liability to you and the Company.
Employees also have a duty to protect the Companys intellectual property and other business assets. The intellectual property, business systems and the security of the Company property are critical to the Company.
Any questions or concerns regarding whether disclosure of the Companys information is legally mandated should be promptly directed to the Compliance Officer.
Care must be taken to safeguard and protect confidential information and Company property. Accordingly, the following measures should be adhered to:
| The Companys employees should prevent the inadvertent disclosure of confidential information during or after working hours. For example, documents or electronic devices containing confidential information should be stored in a secure location. Also, review of confidential documents or discussion of confidential subjects in public places (e.g., airplanes, trains, taxis, and buses) should be conducted so as to prevent disclosure to unauthorized persons. |
| Within the Companys offices, confidential matters should not be discussed within hearing range of visitors or others not working on such matters. |
| Confidential matters should not be discussed with other employees not working on such matters or with friends or relatives including those living in the same household as an employee. |
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| Employees should only access, use and disclose the confidential information to the extent that it is necessary for performing their duties. They should only disclose confidential information to other employees or business partners to the extent that it is necessary for such employees or business partners to perform their duties on behalf of the Company. |
COMPETITION AND FAIR DEALING
Employees are obligated to deal fairly with fellow employees and with the Companys customers, financial institutions, service providers, suppliers and competitors. Employees should not take unfair advantage of anyone through manipulation, concealment, abuse of privileged information, misrepresentation or any other unfair practice.
Relationships with Customers
Our business success depends on fostering long-term customer relationships. The Company is committed to dealing with customers fairly, honestly and with integrity. Specifically, you should adhere to the following guidelines:
| Information we supply to customers should be accurate and complete to the best of our knowledge. Employees should not deliberately misrepresent information to customers. |
| Information we obtain from customers should be treated with strict confidence and can only be shared with other parties after receiving consents from the relevant customers or pursuant to applicable laws or regulations. |
Relationships with Financial Institutions
The Company is committed to dealing with financial institutions fairly, honestly and with integrity. Employees should not deliberately misrepresent information to financial institutions.
Relationships with Service Providers and Suppliers
The Company deals fairly and honestly with its service providers and suppliers. This means that our relationships with service providers and suppliers are based on price, quality, service and reputation, among other factors. Employees dealing with service providers or suppliers should carefully guard their objectivity. Specifically, no employee should accept or solicit any personal benefit from a service provider or supplier or potential service provider or supplier that might compromise, or appear to compromise, their objective assessment of the service providers services and prices or suppliers products and prices. Employees can give or accept promotional items of nominal value or moderately scaled entertainment within the limits of responsible and customary business practice. Please see Gifts and Entertainment below for additional guidelines in this area.
Relationships with Competitors
The Company is committed to free and open competition in the marketplace. Employees should avoid actions that would be contrary to laws governing competitive practices in the marketplace, including antitrust laws. Such actions include misappropriation or misuse of a competitors confidential information or making false statements about the competitors business and business practices.
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GIFTS AND ENTERTAINMENT
The giving and receiving of gifts is a common business practice. Appropriate business gifts and entertainment are welcome courtesies designed to foster relationships with business partners. However, gifts and entertainment should not compromise, or appear to compromise, your ability to make unbiased business decisions.
It is your responsibility to use good judgment in this area. As a general rule, you may exchange gifts with customers, financial institutions, service providers or suppliers only if such gifts would not be viewed as an inducement or reward for any particular business decision. All gifts and entertainment expenses should be properly accounted for on expense reports. The following specific examples may be helpful:
| Meals and Entertainment. You may occasionally accept or give meals, refreshments or other entertainment if: |
| The items are a reasonable value; |
| The purpose of the meeting or attendance at the event is related to the Companys business; and |
| The expenses would be paid by the Company as a reasonable business expense if not paid for by another party. |
| Advertising and Promotional Materials. You may occasionally accept or give advertising or promotional materials of nominal value. |
| Personal Gifts. You may accept or give personal gifts of reasonable value that are related to recognized special occasions such as a graduation, promotion, new job, wedding, retirement or a holiday. A gift is also acceptable if it is based on a family or personal relationship and unrelated to the business involved between the individuals. |
| Gifts Rewarding Accomplishments. You may accept a gift from a civic, charitable or religious organization specifically related to your accomplishments. |
You must be particularly careful that gifts and entertainment are not construed as bribes, kickbacks or other improper payments. See The Foreign Corrupt Practices Act above for a more detailed discussion of our policies regarding giving or receiving gifts related to business transactions.
You should make every effort to refuse or return a gift that is beyond these permissible guidelines. If it would be inappropriate to refuse a gift or you are unable to return a gift, you should promptly report the gift to your supervisor. Your supervisor will bring the gift to the attention of the Compliance Officer, who may require you to donate the gift to an appropriate community organization. If you have any questions about whether it is permissible to accept a gift or something else of value, contact your supervisor or the Compliance Officer for additional guidance.
COMPANY RECORDS
Accurate and reliable records are crucial to our business. Our records are the basis of our earnings statements, financial reports and other disclosures to the public and guide our business decision-making and strategic planning. Company records include booking information, payroll, timecards, travel and expense reports, e-mails, accounting and financial data, measurement and performance records, electronic data files and all other records maintained in the ordinary course of our business.
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All Company records must be complete, accurate and reliable in all material respects. Undisclosed or unrecorded funds, payments or receipts are inconsistent with our business practices and are prohibited. You are responsible for understanding and complying with our record-keeping policy.
ACCURACY OF FINANCIAL REPORTS AND OTHER PUBLIC COMMUNICATIONS
As a public company we are subject to various securities laws, regulations and reporting obligations. These laws, regulations and obligations and our policies require the disclosure of accurate and complete information regarding the Companys business, financial condition and results of operations. Inaccurate, incomplete or untimely reporting will not be tolerated and can severely damage the Company and result in legal liability.
Employees should be on guard for, and promptly report, any possibility of inaccurate or incomplete financial reporting. Particular attention should be paid to financial results that seem inconsistent with the performance of the underlying business, transactions that do not seem to have an obvious business purpose and requests to circumvent ordinary review and approval procedures. Employees with information relating to questionable accounting or auditing matters may also confidentially, or anonymously, submit the information in writing to the Companys audit committee of the Board.
It is essential that the Companys financial records, including all filings with the Securities and Exchange Commission ( SEC ), be accurate and timely. Accordingly, in addition to adhering to the conflict of interest policy and other policies and guidelines in this Code, the executive officers and other principal financial officers must take special care to exhibit integrity at all times and to instill this value within their organizations. In particular, these senior officers must ensure that they abide by all public disclosure requirements by providing full, fair, accurate, timely and understandable disclosures, and that they comply with all other applicable laws and regulations. The executive officers and other principal financial officers must also understand and strictly comply with generally accepted accounting principles in the U.S. and all standards, laws and regulations for accounting and financial reporting of transactions, estimates and forecasts.
In addition, U.S. federal securities laws require the Company to maintain proper internal books and records and to devise and maintain an adequate system of internal accounting controls. The SEC has supplemented the statutory requirements by adopting rules that prohibit (1) any person from falsifying records or accounts subject to the above requirements and (2) officers or directors from making any materially false, misleading or incomplete statement to an accountant in connection with an audit or any filing with the SEC. These provisions reflect the SECs intent to discourage officers, directors and other persons with access to the Companys books and records from taking action that might result in the communication of materially misleading financial information to the investing public.
Employees are prohibited from directly or indirectly taking any action to coerce, manipulate, mislead or fraudulently influence the Companys independent auditors for the purpose of rendering the financial statements of the Company materially misleading. Prohibited actions include, but are not limited to, those actions taken to coerce, manipulate, mislead or inappropriately influence an auditor to:
| issue or reissue a report on the Companys financial statements that is not warranted in the circumstances (due to material violations of U.S. GAAP, generally accepted auditing standards or other professional or regulatory standards); |
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| not perform audit, review or other procedures required by generally accepted auditing standards or other professional standards; |
| withdraw an issued report; or |
| not communicate matters to the Companys audit committee of the Board. |
PROHIBITION OF INSIDER TRADING
The Company has an insider trading policy, which may be obtained from the Compliance Officer. The following is a summary of some of the general principles relevant to insider trading, and should be read in conjunction with the aforementioned specific policy.
Employees are prohibited from trading in shares or other securities of the Company while in possession of material, nonpublic information about the Company. Prohibition on insider trading applies to members of the employees family and anyone else sharing the home of the employees. Therefore, employees must use discretion when discussing work with friends or family members as well as other employees. In addition, employees are prohibited from recommending, tipping or suggesting that anyone else buy or sell shares or other securities of the Company on the basis of material, nonpublic information. Employees who obtain material nonpublic information about another company in the course of their employment are prohibited from trading in shares or securities of the other company while in possession of such information or tipping others to trade on the basis of such information. Violation of insider trading laws can result in severe fines and criminal penalties, as well as disciplinary action by the Company, including termination of employment.
Information is non-public if it has not been made generally available to the public by means of a press release or other means of widespread distribution. Information is material if a reasonable investor would consider it important in a decision to buy, hold or sell stock or other securities. As a rule of thumb, any information that would affect the value of stock or other securities should be considered material. Examples of information that is generally considered material include:
| Financial results or forecasts, or any information that indicates the Companys financial results may exceed or fall short of forecasts or expectations; |
| Important new products or services; |
| Pending or contemplated acquisitions or dispositions, including mergers, tender offers or joint venture proposals; |
| Possible management changes or changes of control; |
| Pending or contemplated public or private sales of debt or equity securities; |
| Engagement or loss of a significant business partner or contract; |
| Significant write-offs; |
| Initiation or settlement of significant litigation; and |
| Changes in the Companys auditors or a notification from its auditors that the Company may no longer rely on the auditors report. |
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The laws against insider trading are specific and complex. Any questions about information you may possess or about any dealings you have had in the Companys securities should be promptly brought to the attention of the Compliance Officer.
PUBLIC COMMUNICATIONS AND PREVENTION OF SELECTIVE DISCLOSURE
The Company places a high value on its credibility and reputation in the community. What is written or said about the Company in the news media and investment community directly impacts our reputation, positively or negatively. Our policy is to provide timely, accurate and complete information in response to public requests (e.g., media, analysts), consistent with our obligations to maintain the confidentiality of competitive and proprietary information and to prevent selective disclosure of market-sensitive financial data. To ensure compliance with this policy, all news media or other public requests for information regarding the Company should be directed to the Companys Investor Relations Department. The Investor Relations Department will work with you and the appropriate personnel to evaluate and coordinate a response to the request.
Prevention of Selective Disclosure
Preventing selective disclosure is necessary to comply with U.S. securities laws and to preserve the reputation and integrity of the Company as well as that of all persons affiliated with it. Selective disclosure occurs when any person provides potentially market-moving information to selected persons before the news is available to the investing public generally. Selective disclosure is a crime under U.S. law and the penalties for violating the law are severe.
The following guidelines have been established to avoid improper selective disclosure. Every employee is required to follow these procedures:
| All contact by the Company with investment analysts, the press and/or members of the media shall be made through the chairman, the chief executive officer, chief financial officer or persons designated by them (collectively, the Media Contacts). |
| Other than the Media Contacts, no officer, director or employee shall provide any potentially market-moving information regarding the Company or its business to any investment analyst or member of the press or media. |
| All inquiries from persons such as industry analysts or members of the media about the Company or its business should be directed to a Media Contact. All presentations to the investment community regarding the Company will be made by us under the direction of a Media Contact. |
| Other than the Media Contacts, any employee who is asked a question regarding the Company or its business by a member of the press or media shall respond with No comment and forward the inquiry to a Media Contact. |
These procedures do not apply to the routine process of making previously released information regarding the Company available upon inquiries made by investors, investment analysts and members of the media.
Please contact the Compliance Officer if you have any questions about the scope or application of the Companys policies regarding selective disclosure.
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ENVIRONMENT
Employees should strive to conserve resources and reduce waste and emissions through recycling and other conservation measures. You have a responsibility to promptly report any known or suspected violations of environmental laws or any events that may result in a discharge or emission of hazardous materials.
HARASSMENT AND DISCRIMINATION
The Company is committed to providing equal opportunity and fair treatment to all individuals on the basis of merit, without discrimination because of race, color, religion, national origin, sex (including pregnancy), sexual orientation, age, disability, veteran status or any other characteristic protected by law. The Company prohibits harassment in any form, whether physical or verbal and whether committed by supervisors, non-supervisory personnel or non-employees. Harassment may include, but is not limited to, offensive sexual flirtations, unwanted sexual advances or propositions, verbal abuse, sexually or racially degrading words, or the display of sexually suggestive objects or pictures.
If you have any complaints about discrimination or harassment, report such conduct to your supervisor or the Human Resources Department. All complaints will be treated with sensitivity and discretion. Your supervisor, the Human Resources Department and the Company will protect your confidentiality to the extent possible, consistent with the law and the Companys need to investigate your concern. Where our investigation uncovers harassment or discrimination, we will take prompt corrective action, which may include disciplinary action against the perpetrator such as termination of employment. The Company strictly prohibits retaliation against an employee who files a complaint in good faith.
Any manager who has reason to believe that an employee has been the victim of harassment or discrimination or who receives a report of alleged harassment or discrimination is required to report it to the Human Resources Department immediately.
CONCLUSION
This Code of Business Conduct and Ethics contains general guidelines for conducting the business of the Company consistent with the highest standards of business ethics. If you have any questions about these guidelines, please contact your supervisor or the Compliance Officer. We expect all employees to adhere to these standards.
This Code of Business Conduct and Ethics, as applied to the Companys executive officers, shall be our code of ethics within the meaning of Section 406 of the Sarbanes-Oxley Act of 2002 and the rules promulgated thereunder.
This Code and the matters contained herein are neither a contract of employment nor a guarantee of continuing Company policy. We reserve the right to amend, supplement or discontinue this Code and the matters addressed herein, without prior notice, at any time.
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Exhibit 99.2
Cango Inc.
10A, Building 3, Youyou Century Plaza
428 South Yanggao Road
Pudong New Area, Shanghai 200127
Peoples Republic of China
March 23, 2018
VIA EDGAR
Division of Corporation Finance
U.S. Securities and Exchange Commission
100 F Street, N.E.
Washington, D.C. 20549
Re: | Cango Inc. |
Confidential Submission of the Draft Registration Statement on Form F-1
Representation under Item 8.A.4 of Form 20-F
Ladies and Gentlemen:
The undersigned, Cango Inc., an exempted company incorporated under the laws of the Cayman Islands with limited liability (the Company), is submitting this letter via EDGAR to the Securities and Exchange Commission (the Commission) in connection with the Companys confidential submission on the date hereof of its draft registration statement on Form F-1 (the Draft Registration Statement) relating to a proposed initial public offering and listing in the United States of the Companys ordinary shares to be represented by American depositary shares.
The Company has included in the Draft Registration Statement its audited consolidated financial statements, prepared in accordance with accounting principles generally accepted in the United States of America, as of December 31, 2016 and for the year ended December 31, 2016 and unaudited interim consolidated financial statements as of September 30, 2017 and for each of the nine-month periods ended September 30, 2016 and 2017.
In a separate letter submitted to the Office of Chief Accountant of the Division of Corporation Finance of the Commission on March 15, 2018, the Company respectfully requested that the Commission waive the requirement of Item 8.A.4 of Form 20-F (the Waiver Request), which states that in the case of a companys initial public offering, the registration statement on Form F-1 must contain audited financial statements of a date not older than 12 months from the date of the filing (the 12-Month Requirement).
In connection with the Waiver Request, the Company represents to the Commission that:
1. | The Company is not currently a public reporting company in any jurisdiction. |
2. | The Company is not required by any jurisdiction outside the United States to prepare consolidated financial statements audited under any generally accepted auditing standards for any interim period. |
3. | Full compliance with Item 8.A.4 of Form 20-F at present is impracticable and involves undue hardship for the Company. |
4. | The Company does not anticipate that its audited financial statements for the year ended December 31, 2017 will be available until April 2018. |
5. | In no event will the Company seek effectiveness of its registration statement on Form F-1 if its audited financial statements are older than 15 months at the time of the Companys initial public offering. |
The Company is submitting this letter as an exhibit to the Draft Registration Statement pursuant to Instruction 2 to Item 8.A.4 of Form 20-F.
Very truly yours,
Cango Inc.
/s/ Yongyi Zhang
By: Yongyi Zhang
Title: Chief Financial Officer and Director
Exhibit 99.3
F ANGDA P ARTNERS
北京 Beijing· 上海 Shanghai· 广州 Guangzhou· 深圳 Shenzhen· 香港 Hong Kong
http://www.fangdalaw.com
中国上海市石门一路 288 号
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电子邮件 E-mail: email@fangdalaw.com
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兴业太古汇香港兴业中心二座 24 楼
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电 话 Tel.: 86-21-2208-1166
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邮政编码: 200041 |
传 真 Fax: 86-21-5298-5599 |
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24/F, HKRI Centre Two, HKRI Taikoo Hui 288 Shi Men Yi Road |
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Shanghai 200041, PRC |
To: Cango Inc.
June [*], 2018
Re: Legal Opinion
Dear Sirs,
We are lawyers qualified in the Peoples Republic of China (the PRC , which, for the purpose of this opinion, does not include the Hong Kong Special Administrative Region, the Macau Special Administrative Region and Taiwan) and, as such, are qualified to issue this opinion on PRC Laws (as defined below).
We are acting as PRC legal counsel to Cango Inc. (the Company ), solely in connection with (A) the Companys registration statement on Form F-1, including all amendments or supplements thereto (the Registration Statement ), filed by the Company with the U.S. Securities and Exchange Commission under the U.S. Securities Act of 1933, as amended, relating to the initial public offering (the Offering ) by the Company of a certain number of the Companys American depositary shares (the ADSs ), each representing a certain number of ordinary shares of par value US$0.0001 per share of the Company, and (B) the proposed issuance and sale of the Companys ADSs and the proposed listing and trading of the Companys ADSs on the [New York Stock Exchange/NASDAQ].
As used in this opinion, (A) PRC Authorities means any national, provincial or local governmental, regulatory or administrative authority, agency or commission in the PRC, or any court, tribunal or any other judicial or arbitral body in the PRC; (B) PRC Laws means all laws, rules, regulations, statutes, orders, decrees, notices, circulars, judicial interpretations and other legislations of the PRC effective and available to the public as of the date hereof; (C) Governmental Authorizations means all approvals, consents, waivers, sanctions, certificates, authorizations, filings, registrations, exemptions, permissions, annual inspections, qualifications, permits and licenses required by any PRC Authorities pursuant to any PRC Laws; (D) PRC Subsidiary means Can Gu Long (Shanghai) Information Technology Consulting Services Co., Ltd., a wholly-foreign owned enterprise incorporated under PRC Laws; and (E) Variable Interest Entit y means Shanghai Cango Investment and Management Consultation Service Co., Ltd., a variable interest entity incorporated in the PRC; and (F) M&A Rules means the Regulations on Mergers and Acquisitions of Domestic Enterprises by Foreign Investors, which was issued by six PRC regulatory agencies, namely, the Ministry of Commerce, the State-owned Assets Supervision and Administration Commission, the State Administration for Taxation, the State Administration for Industry and Commerce, the China Securities Regulatory Commission (the CSRC ) and the State Administration for Foreign Exchange, on August 8, 2006 and became effective on September 8, 2006, as amended by the Ministry of Commerce on June 22, 2009.
In so acting, we have examined the originals or copies, certified or otherwise identified to our satisfaction, provided to us by the Company, the PRC Subsidiary and the Variable Interest Entity, and such other documents, corporate records, certificates, Governmental Authorizations and other instruments as we have deemed necessary or advisable for the purpose of rendering this opinion, including, without limitation, originals or copies of the agreements listed in Appendix A hereof (the VIE Agreements ) and the certificates issued by the PRC Authorities and officers of the Company (collectively, the Documents ).
In reviewing the Documents and for the purpose of this opinion, we have assumed:
(1) | the genuineness of all the signatures, seals and chops; |
(2) | the authenticity of the Documents submitted to us as originals and the conformity with the originals of the Documents provided to us as copies and the authenticity of such originals; |
(3) | the truthfulness, accuracy, completeness and fairness of all factual statements contained in the Documents; |
(4) | that the Documents have not been revoked, amended, varied or supplemented except as otherwise indicated in such Documents; |
(5) | that all information (including factual statements) provided to us by the Company, the PRC Subsidiary and the Variable Interest Entity in response to our enquiries for the purpose of this opinion is true, accurate, complete and not misleading, and that the Company, the PRC Subsidiary and the Variable Interest Entity have not withheld anything that, if disclosed to us, would reasonably cause us to alter this opinion in whole or in part; |
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(6) | that all parties other than the PRC Subsidiary, and the Variable Interest Entity have the requisite power and authority to enter into, execute, deliver and perform the Documents to which they are parties; |
(7) | that all parties other than the PRC Subsidiary and the Variable Interest Entity have duly executed, delivered and performed the Documents to which they are parties, and all parties will duly perform their obligations under the Documents to which they are parties; |
(8) | that all Governmental Authorizations and other official statement or documentation were obtained from competent PRC Authorities by lawful means; and |
(9) | that all the Documents are legal, valid, binding and enforceable under all such laws as govern or relate to them, other than PRC Laws. |
I. | Opinions |
Based on the foregoing and subject to the disclosures contained in the Registration Statement and the qualifications set out below, we are of the opinion that, as of the date hereof, so far as PRC Laws are concerned:
(a) | Based on our understanding of PRC Laws (i) the ownership structure of the PRC Subsidiary and the Variable Interest Entity, both currently and immediately after giving effect to the Offering, does not and will not violate applicable PRC Laws; and (ii) each of the VIE Agreements is valid, binding and enforceable in accordance with its terms and applicable PRC Laws, and, both currently and immediately after giving effect to the Offering, does not and will not violate applicable PRC Laws, except that the pledges in respect of Shanghai Cangos equity interests would not be deemed validly created until they are registered with the local administration of industry and commerce. However, there are substantial uncertainties regarding the interpretation and application of PRC Laws and future PRC laws and regulations, and there can be no assurance that the PRC Authorities will not take a view that is contrary to or otherwise different from our opinion stated above. |
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(b) | The M&A Rules, among other things, purport to require that an offshore special purpose vehicle controlled directly or indirectly by PRC companies or individuals and formed for purposes of overseas listing of securities through acquisitions of PRC domestic companies or assets obtain the approval of the CSRC prior to the listing and trading of such special purpose vehicles securities on an overseas stock exchange. The CSRC has not issued any definitive rules or interpretations concerning whether offerings such as the Offering are subject to the CSRC approval procedures under the M&A Rules. Based on our understanding of PRC Laws (including the M&A Rules), a prior approval from the CSRC is not required under the M&A Rules for the Offering because (i) our PRC Subsidiary was incorporated as a foreign-invested enterprise by means of foreign direct investments rather than by merger with or acquisition of any PRC domestic companies as defined under the M&A Rules; and (ii) there is no statutory provision that clearly classifies the contractual arrangement among the PRC Subsidiary and Variable Interest Entity and its shareholders under the VIE Agreements as transactions regulated by the M&A Rules. However, uncertainties still exist as to how the M&A Rules will be interpreted and implemented and our opinion stated above is subject to any new laws, rules and regulations or detailed interpretations and implementations in any form relating to the M&A Rules. |
(c) | The statements set forth in the Registration Statement under the heading Taxation Peoples Republic of China Taxation, to the extent that the discussion states legal conclusions under PRC tax laws and regulations, subject to the qualifications therein, constitute our opinion on such matters. |
II. | Qualifications |
This opinion is subject to the following qualifications:
(a) | This opinion is, in so far as it relates to the validity and enforceability of a contract, subject to (i) any applicable bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium or similar laws affecting creditors rights generally, (ii) possible judicial or administrative actions or any PRC Laws affecting creditors rights, (iii) certain equitable, legal or statutory principles affecting the validity and enforceability of contractual rights generally under concepts of public interest, interests of the State, national security, reasonableness, good faith and fair dealing, and applicable statutes of limitation; (iv) any circumstance in connection with formulation, execution or implementation of any legal documents that would be deemed materially mistaken, clearly unconscionable, fraudulent, coercionary at the conclusions thereof; and (v) judicial discretion with respect to the availability of indemnifications, remedies or defenses, the calculation of damages, the entitlement to attorneys fees and other costs, and the waiver of immunity from jurisdiction of any court or from legal process. |
(b) | This opinion is subject to the discretion of any competent PRC legislative, administrative or judicial bodies in exercising their authority in the PRC. |
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(c) | This opinion relates only to PRC Laws and there is no assurance that any of such PRC Laws will not be changed, amended or replaced in the immediate future or in the longer term with or without retrospective effect. We express no opinion as to any laws other than PRC Laws. |
(d) | This opinion is intended to be used in the context which is specially referred to herein and each section should be considered as a whole and no part should be extracted and referred to independently. |
This opinion is delivered solely for the purpose of and in connection with the Registration Statement submitted to the U.S. Securities and Exchange Commission on the date of this opinion and may not be used for any other purpose without our prior written consent.
We hereby consent to the use of this opinion in, and the filing hereof as an exhibit to, the Registration Statement, and to the use of our firms name under the captions Risk Factors, Enforcement of Civil Liabilities, Our History and Corporate Structure and Legal Matters in the Registration Statement. In giving such consent, we do not thereby admit that we come within the category of persons whose consent is required under Section 7 of the U.S. Securities Act of 1933, as amended, or the regulations promulgated thereunder.
Yours sincerely,
Fangda Partners
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Appendix A List of VIE Agreements
1. | Exclusive Business Cooperation Agreement entered into by Can Gu Long (Shanghai) Information Technology Consulting Services Co., Ltd. and Shanghai Cango Investment and Management Consultation Co., Ltd. dated as of March 23, 2018; |
2. | Exclusive Option Agreement entered into by Can Gu Long (Shanghai) Information Technology Consulting Services Co., Ltd., Shanghai Wang Jin Investment Management Co., Ltd., Shanghai Cango Investment and Management Consultation Service Co., Ltd. and Zhang Xiaojun dated as of March 23, 2018; |
3. | Exclusive Option Agreement entered into by Can Gu Long (Shanghai) Information Technology Consulting Services Co., Ltd., Shanghai Cango Investment and Management Consultation Service Co., Ltd. and Lin Jiayuan dated as of March 23, 2018; |
4. | Exclusive Option Agreement entered into by Can Gu Long (Shanghai) Information Technology Consulting Services Co., Ltd., Shanghai Xie Huai Investment Management Partnership (L.P.) and Shanghai Cango Investment and Management Consultation Service Co., Ltd. dated as of March 23, 2018; |
5. | Exclusive Option Agreement entered into by Can Gu Long (Shanghai) Information Technology Consulting Services Co., Ltd., Shanghai Huai Yuan Investment Management Partnership (L.P.) and Shanghai Cango Investment and Management Consultation Service Co., Ltd. dated as of March 23, 2018; |
6. | Exclusive Option Agreement entered into by Can Gu Long (Shanghai) Information Technology Consulting Services Co., Ltd., Shanghai Ming Huai Investment Management Partnership (L.P.) and Shanghai Cango Investment and Management Consultation Service Co., Ltd. dated as of March 23, 2018; |
7. | Exclusive Option Agreement entered into by Can Gu Long (Shanghai) Information Technology Consulting Services Co., Ltd., Chun Hua Qiu Shi (Tianjin) Equity Investment Partnership (L.P.) and Shanghai Cango Investment and Management Consultation Service Co., Ltd. dated as of March 23, 2018; |
8. | Exclusive Option Agreement entered into by Can Gu Long (Shanghai) Information Technology Consulting Services Co., Ltd., PV Chivalry Limited and Shanghai Cango Investment and Management Consultation Service Co. dated as of March 23, 2018; |
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9. | Exclusive Option Agreement entered into by Can Gu Long (Shanghai) Information Technology Consulting Services Co., Ltd., Warburg Pincus Financial Global Ltd and Shanghai Cango Investment and Management Consultation Service Co., Ltd. dated as of March 23, 2018; |
10. | Exclusive Option Agreement entered into by Can Gu Long (Shanghai) Information Technology Consulting Services Co., Ltd., Taikang Life Insurance Co., Ltd. and Shanghai Cango Investment and Management Consultation Service Co., Ltd. dated as of March 23, 2018; |
11. | Exclusive Option Agreement entered into by Can Gu Long (Shanghai) Information Technology Consulting Services Co., Ltd., Shandong State-Controlled Taikang Industry Development Fund I, L.P. and Shanghai Cango Investment and Management Consultation Service Co., Ltd. dated as of March 23, 2018; |
12. | Exclusive Option Agreement entered into by Can Gu Long (Shanghai) Information Technology Consulting Services Co., Ltd., Tencent Mobility Limited and Shanghai Cango Investment and Management Consultation Service Co., Ltd. dated as of March 23, 2018; |
13. | Exclusive Option Agreement entered into by Can Gu Long (Shanghai) Information Technology Consulting Services Co., Ltd., Links Advance Holdings Limited and Shanghai Cango Investment and Management Consultation Service Co., Ltd. dated as of March 23, 2018; |
14. | Exclusive Option Agreement entered into by Can Gu Long (Shanghai) Information Technology Consulting Services Co., Ltd., Haitong International Investment Holdings Limited and Shanghai Cango Investment and Management Consultation Service Co., Ltd. dated as of March 23, 2018; |
15. | Exclusive Option Agreement entered into by Can Gu Long (Shanghai) Information Technology Consulting Services Co., Ltd., Harbourside 1712 Limited and Shanghai Cango Investment and Management Consultation Service Co., Ltd. dated as of March 23, 2018; |
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16. | Exclusive Option Agreement entered into by Can Gu Long (Shanghai) Information Technology Consulting Services Co., Ltd., Beijing Tai He Ding Cheng Investment Consulting Co., Ltd. and Shanghai Cango Investment and Management Consultation Service Co., Ltd. dated as of March 23, 2018; |
17. | Exclusive Option Agreement entered into by Can Gu Long (Shanghai) Information Technology Consulting Services Co., Ltd., Boyu (Shanghai) Equity Investment III, L.P. and Shanghai Cango Investment and Management Consultation Service Co., Ltd. dated as of March 23, 2018; |
18. | Exclusive Option Agreement entered into by Can Gu Long (Shanghai) Information Technology Consulting Services Co., Ltd., We Financial Technology Co., Ltd. and Shanghai Cango Investment and Management Consultation Service Co., Ltd. dated as of March 23, 2018; |
19. | Equity Interest Pledge Agreement entered into by Can Gu Long (Shanghai) Information Technology Consulting Services Co., Ltd., Shanghai Wang Jin Investment Management Co., Ltd., Shanghai Cango Investment and Management Consultation Co., Ltd. and Zhang Xiaojun dated as of March 23, 2018; |
20. | Equity Interest Pledge Agreement entered into by Can Gu Long (Shanghai) Information Technology Consulting Services Co., Ltd., Lin Jiayuan and Shanghai Cango Investment and Management Consultation Co., Ltd. dated as of March 23, 2018; |
21. | Equity Interest Pledge Agreement entered into by Can Gu Long (Shanghai) Information Technology Consulting Services Co., Ltd., Shanghai Xie Huai Investment Management Partnership (L.P.) and Shanghai Cango Investment and Management Consultation Co., Ltd. dated as of March 23, 2018; |
22. | Equity Interest Pledge Agreement entered into by Can Gu Long (Shanghai) Information Technology Consulting Services Co., Ltd., Shanghai Huai Yuan Investment Management Partnership (L.P.) and Shanghai Cango Investment and Management Consultation Co., Ltd. dated as of March 23, 2018; |
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23. | Equity Interest Pledge Agreement entered into by Can Gu Long (Shanghai) Information Technology Consulting Services Co., Ltd., Shanghai Ming Huai Investment Management Partnership (L.P.) and Shanghai Cango Investment and Management Consultation Co., Ltd. dated as of March 23, 2018; |
24. | Equity Interest Pledge Agreement entered into by Can Gu Long (Shanghai) Information Technology Consulting Services Co., Ltd., Chun Hua Qiu Shi (Tianjin) Equity Investment Partnership (L.P.) and Shanghai Cango Investment and Management Consultation Co., Ltd. dated as of March 23, 2018; |
25. | Equity Interest Pledge Agreement entered into by Can Gu Long (Shanghai) Information Technology Consulting Services Co., Ltd., PV Chivalry Limited and Shanghai Cango Investment and Management Consultation Co., Ltd. dated as of March 23, 2018; |
26. | Equity Interest Pledge Agreement entered into by Can Gu Long (Shanghai) Information Technology Consulting Services Co., Ltd., Warburg Pincus Financial Global Ltd and Shanghai Cango Investment and Management Consultation Co., Ltd. dated as of March 23, 2018; |
27. | Equity Interest Pledge Agreement entered into by Can Gu Long (Shanghai) Information Technology Consulting Services Co., Ltd., Shandong State-Controlled Taikang Industry Development Fund I, L.P. and Shanghai Cango Investment and Management Consultation Co., Ltd. dated as of June 21, 2018; |
28. | Equity Interest Pledge Agreement entered into by Can Gu Long (Shanghai) Information Technology Consulting Services Co., Ltd., Tencent Mobility Limited and Shanghai Cango Investment and Management Consultation Co., Ltd. dated as of March 23, 2018; |
29. | Equity Interest Pledge Agreement entered into by Can Gu Long (Shanghai) Information Technology Consulting Services Co., Ltd., Links Advance Holdings Limited and Shanghai Cango Investment and Management Consultation Co., Ltd. dated as of March 23, 2018; |
30. | Equity Interest Pledge Agreement entered into by Can Gu Long (Shanghai) Information Technology Consulting Services Co., Ltd., Haitong International Investment Holdings Limited and Shanghai Cango Investment and Management Consultation Co., Ltd. dated as of March 23, 2018; |
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31. | Equity Interest Pledge Agreement entered into by Can Gu Long (Shanghai) Information Technology Consulting Services Co., Ltd., Harbourside 1712 Limited and Shanghai Cango Investment and Management Consultation Co., Ltd. dated as of March 23, 2018; |
32. | Equity Interest Pledge Agreement entered into by Can Gu Long (Shanghai) Information Technology Consulting Services Co., Ltd., Beijing Tai He Ding Cheng Investment Consulting Co., Ltd. and Shanghai Cango Investment and Management Consultation Co., Ltd. dated as of March 23, 2018; |
33. | Equity Interest Pledge Agreement entered into by Can Gu Long (Shanghai) Information Technology Consulting Services Co., Ltd., Boyu (Shanghai) Equity Investment III, L.P. and Shanghai Cango Investment and Management Consultation Co., Ltd. dated as of March 23, 2018; |
34. | Equity Interest Pledge Agreement entered into by Can Gu Long (Shanghai) Information Technology Consulting Services Co., Ltd., We Financial Technology Co., Ltd. and Shanghai Cango Investment and Management Consultation Co., Ltd. dated as of March 23, 2018; |
35. | Power of Attorney entered into by Can Gu Long (Shanghai) Information Technology Consulting Services Co., Ltd. and Shanghai Wang Jin Investment Management Co., Ltd. dated as of March 23, 2018; |
36. | Power of Attorney entered into by Can Gu Long (Shanghai) Information Technology Consulting Services Co., Ltd. and Lin Jiayuan dated as of March 23, 2018; |
37. | Power of Attorney entered into by Can Gu Long (Shanghai) Information Technology Consulting Services Co., Ltd. and Shanghai Xie Huai Investment Management Partnership (L.P.) dated as of March 23, 2018; |
38. | Power of Attorney entered into by Can Gu Long (Shanghai) Information Technology Consulting Services Co., Ltd. and Shanghai Huai Yuan Investment Management Partnership (L.P.) dated as of March 23, 2018; |
39. | Power of Attorney entered into by Can Gu Long (Shanghai) Information Technology Consulting Services Co., Ltd. and Shanghai Ming Huai Investment Management Partnership (L.P.) dated as of March 23, 2018; |
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40. | Power of Attorney entered into by Can Gu Long (Shanghai) Information Technology Consulting Services Co., Ltd. and Chun Hua Qiu Shi (Tianjin) Equity Investment Partnership (L.P.) dated as of March 23, 2018; |
41. | Power of Attorney entered into by Can Gu Long (Shanghai) Information Technology Consulting Services Co., Ltd. and PV Chivalry Limited dated as of March 23, 2018; |
42. | Power of Attorney entered into by Can Gu Long (Shanghai) Information Technology Consulting Services Co., Ltd. and Warburg Pincus Financial Global Ltd dated as of March 23, 2018; |
43. | Power of Attorney entered into by Can Gu Long (Shanghai) Information Technology Consulting Services Co., Ltd. and Taikang Life Insurance Co., Ltd. dated as of March 23, 2018; |
44. | Power of Attorney entered into by Can Gu Long (Shanghai) Information Technology Consulting Services Co., Ltd. and Shandong State-Controlled Taikang Industry Development Fund I, L.P. dated as of March 23, 2018; |
45. | Power of Attorney entered into by Can Gu Long (Shanghai) Information Technology Consulting Services Co., Ltd. and Tencent Mobility Limited dated as of March 23, 2018; |
46. | Power of Attorney entered into by Can Gu Long (Shanghai) Information Technology Consulting Services Co., Ltd. and Links Advance Holdings Limited dated as of March 23, 2018; |
47. | Power of Attorney entered into by Can Gu Long (Shanghai) Information Technology Consulting Services Co., Ltd. and Haitong International Investment Holdings Limited dated as of March 23, 2018; |
48. | Power of Attorney entered into by Can Gu Long (Shanghai) Information Technology Consulting Services Co., Ltd. and Harbourside 1712 Limited dated as of March 23, 2018; |
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49. | Power of Attorney entered into by Can Gu Long (Shanghai) Information Technology Consulting Services Co., Ltd. and Beijing Tai He Ding Cheng Investment Consulting Co., Ltd. dated as of March 23, 2018; |
50. | Power of Attorney entered into by Can Gu Long (Shanghai) Information Technology Consulting Services Co., Ltd. and Boyu (Shanghai) Equity Investment III, L.P. dated as of March 23, 2018; |
51. | Power of Attorney entered into by Can Gu Long (Shanghai) Information Technology Consulting Services Co., Ltd. and We Financial Technology Co., Ltd. dated as of March 23, 2018. |
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