As filed with the Securities and Exchange Commission on August 21, 2020
Registration No. 333-242283
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Amendment No. 2
to
Form F-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
XPeng Inc.
(Exact name of Registrant as specified in its charter)
Cayman Islands | 3711 | Not Applicable | ||
(State or Other Jurisdiction of Incorporation or Organization) |
(Primary Standard Industrial Classification Code Number) |
(I.R.S. Employer Identification Number) |
No. 8 Songgang Road, Changxing Street
Cencun, Tianhe District, Guangzhou
Guangdong 510640
Peoples Republic of China
+86-020-6680-6680
(Address and Telephone Number of Registrants Principal Executive Offices)
Cogency Global Inc.
122 East 42nd Street, 18th Floor
New York, N.Y. 10168
+1 (800) 221-0102
(Name, address and telephone number of agent for service)
Copies to: | ||||
Yi Gao, Esq. Simpson Thacher & Bartlett LLP c/o 35th Floor, ICBC Tower 3 Garden Road Central, Hong Kong +852-2514-7600 |
Kevin P. Kennedy, Esq. Simpson Thacher & Bartlett LLP 2475 Hanover Street Palo Alto, California 94304 (650) 251-5000 |
Benjamin Su, Esq. Daying Zhang, Esq. Latham & Watkins LLP 18th Floor, One Exchange Square 8 Connaught Place Central, Hong Kong +852-2912-2500 |
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) |
Amount to be Registered(2)(3) |
Proposed Maximum Offering Price per share(3) |
Proposed Maximum Aggregate Offering Price(2)(3) |
Amount of Registration Fee(4) |
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Class A ordinary shares, par value US$0.00001 per share |
195,500,000 | US$6.50 | US$1,270,750,000 | US$164,943.35 | ||||
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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. 333-248098). Each ADS represents two 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. |
(4) |
The Registrant previously paid US$12,980.00 of the total registration fee in connection with the initial filing of the Registration Statement on August 7, 2020. |
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 August 21, 2020.
85,000,000 American Depositary Shares
XPeng Inc.
Representing 170,000,000 Class A Ordinary Shares
This is an initial public offering of American depositary shares, or ADSs, representing Class A ordinary shares of XPeng Inc.
We are offering 85,000,000 ADSs. Each ADS represents two Class A ordinary shares, US$0.00001 par value per share. We anticipate the initial public offering price per ADS will be between US$11.00 and US$13.00.
Prior to this offering, there has been no public market for the ADSs or our shares. We have applied to list the ADSs on the New York Stock Exchange, or the NYSE, under the symbol XPEV.
We are an emerging growth company under applicable United States federal securities laws and are eligible for reduced public company reporting requirements.
See Risk Factors on page 16 to read about factors you should consider before buying the ADSs.
Neither the United States Securities and Exchange Commission nor any other regulatory body has approved or disapproved of these securities or passed upon the accuracy or adequacy of this prospectus. Any representation to the contrary is a criminal offense.
Per ADS | Total | |||||||
Initial public offering price |
US$ | 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 85,000,000 ADSs in this offering, the underwriters have a 30-day option to purchase up to an aggregate of 12,750,000 additional ADSs from us at the initial public offering price less the underwriting discounts and commissions.
Four of our existing shareholders, Alibaba, Coatue, Qatar Investment Authority and Xiaomi, and/or their affiliates have indicated interest in purchasing up to US$200 million, US$100 million, US$50 million and US$50 million, respectively, of the ADSs being offered in this offering at the initial public offering price and on the same terms as the other ADSs being offered. In addition, PRIMECAP Management Company and/or its affiliate have indicated interest in purchasing up to US$100 million of the ADSs being offered in this offering at the initial public offering price and on the same terms as the other ADSs being offered. Assuming an initial public offering price of US$12.00 per ADS, the midpoint of the estimated initial public offering price range shown on the front cover page of this prospectus, the number of ADSs to be purchased by these investors would be up to 41,666,667 ADSs, representing approximately 49.0% of the ADSs being offered in this offering. Because such indications of interest are not binding agreements or commitments to purchase, such investors could determine to purchase more, fewer, or no ADSs in this offering, and the underwriters could determine to sell more, fewer, or no ADSs to such investors. The underwriters will receive the same underwriting discounts and commissions on any of the ADSs purchased by such investors as they will from any other ADSs sold to the public in this offering.
Upon the completion of this offering, 801,554,400 Class A ordinary shares, 429,846,136 Class B ordinary shares and 178,618,464 Class C ordinary shares will be issued and outstanding. Holders of Class A ordinary shares, Class B ordinary shares and Class C 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 10 votes and each Class C ordinary share will be entitled to five votes. Each Class B ordinary share or Class C ordinary share will be convertible to one Class A ordinary share at any time by the holder thereof. Class A ordinary shares are not convertible into Class B ordinary shares or Class C ordinary shares under any circumstances. Mr. Xiaopeng He, our co-founder, chairman and chief executive officer, Mr. Heng Xia, our co-founder, director and president, and Mr. Tao He, our co-founder, director and senior vice president, will beneficially own in the aggregate all of our issued Class B ordinary shares representing in the aggregate 72.4% of the voting power of our total issued and outstanding shares immediately after the completion of this offering, assuming the underwriters do not exercise their option to purchase additional ADSs. Alibaba will beneficially own all of our issued Class C ordinary shares representing 14.9% of the voting power of our total issued and outstanding shares immediately after the completion of this offering, assuming the underwriters do not exercise their option to purchase additional ADSs.
The underwriters expect to deliver the ADSs against payment in New York, New York on , 2020.
Credit Suisse | J.P. Morgan |
BofA Securities |
ABCI | BOC International |
Futu |
Haitong International |
Tiger Brokers |
Prospectus dated , 2020
G3 (SUV)
P7 (Four-door Sports Sedan)
XPILOT: 360-degree Perception
Three-in-one Electric Drive System and Battery Pack
Zhaoqing Plant
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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 , 2020 (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 the 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 IHS Global Inc., an independent market research firm, to provide information regarding our industry and our market position in China. We refer to this report as the IHS Markit Report.
Mission
Driving Smart EV transformation with technology and data, shaping the mobility experience of the future.
Overview
We are one of Chinas leading smart electric vehicle, or Smart EV, companies. We design, develop, manufacture and market Smart EVs in China. Xpeng was founded in 2015 with a vision to bring Smart EVs to Chinese consumers through innovation in autonomous driving, smart connectivity and core vehicle systems. Today, we are a proven leader in the rapidly growing Smart EV market, producing popular and environmentally-friendly vehicles, namely an SUV (the G3) and a four-door sports sedan (the P7). Our Smart EVs offer attractive design and high performance, coupled with safety and reliability. According to the IHS Markit Report, the G3 was among the top-three best-selling electric SUVs in China in 2019. The P7 offers an NEDC range of up to 706 km (439 miles) on a single charge, which is the longest among EVs that are available in China, based on the MIIT NEV Catalogues.
Our Smart EVs appeal to the large and growing base of technology-savvy middle-class consumers in China. We primarily target the mid- to high-end segment in Chinas passenger vehicle market, with prices ranging from RMB150,000 to RMB300,000, for our Smart EVs. According to the IHS Markit Report, the mid- to high-end segment represented 30.6% of Chinas passenger vehicle market by sales volume in 2019 and had a higher EV penetration rate than other price segments. Consumers choose our products primarily because of attractive design, smart mobility experience, advanced technology and compelling value proposition. As of June 30, 2020, over 90% of purchasers of the G3 chose the versions with autonomous driving capabilities. As of the same date, approximately 50% of customers ordered the versions of the P7 that can support XPILOT 3.0, our upcoming advanced autonomous driving system.
In order to optimize our customers mobility experience, we have strategically chosen to focus on developing full-stack autonomous driving technology and in-car intelligent operating system, as well as core vehicle systems, including powertrain and the electrical and electronic architecture, or the E/E architecture, in-house. According to the IHS Markit Report, our XPILOT 3.0 is expected to offer the highest level of autonomous driving capabilities in commercially available passenger vehicles today. Through our proprietary software, core hardware and data technologies, we are able to develop and deploy innovative products rapidly and efficiently, which gives us an advantage over our competitors in China.
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We started production of the G3 in November 2018, and as of July 31, 2020, we had delivered 18,741 units of the G3 to customers. We started production of the P7 and began delivery in May 2020, and as of July 31, 2020, we had delivered 1,966 units of the P7 to customers. We plan to launch our third Smart EV, a sedan, in 2021. The table below sets forth certain features of the G3 and the P7.
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Model |
G3 (SUV) |
P7 (Sports Sedan) |
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Wheelbase (mm) |
2,625 | 2,998 | ||
NEDC range (km) |
460 / 520 |
562 / 586 / 670 / 706 |
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Battery capacity (kWh) |
57.5 / 66.7 | 70.8 / 80.9 | ||
0-100 km/h acceleration (s) |
8.6 | 4.4 / 6.8 / 6.9(1) | ||
Post-subsidy price (RMB) |
146,800 199,800 | 229,900 349,900(2) |
(1) |
The P7s four-wheel drive, rear-wheel drive super long range and rear-wheel drive long range configurations can accelerate from zero to 100 km per hour in 4.4, 6.8 and 6.9 seconds, respectively. |
(2) |
The price range is exclusive of the software of XPILOT 3.0. |
Our autonomous driving system and in-car intelligent operating system allow customers to enjoy a new smart mobility experience, and our Smart EVs can be upgraded through over-the-air, or OTA, firmware updates.
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XPILOT, our autonomous driving system, provides assisted driving and parking functions tailored for driving behavior and road conditions in China. Currently deployed on the G3 and the P7, XPILOT 2.5 offers adaptive cruise control, adaptive turning control, lane centering control, automated lane changing and automated parking. As of June 30, 2020, our adaptive cruise control function had been used for 25.1 million kilometers of driving cumulatively, and our lane centering control function had been used for 11.1 million kilometers of driving cumulatively. We plan to roll out XPILOT 3.0 by early 2021. XPILOT 3.0 will feature several new functions, including a navigation guided pilot for highway driving and advanced automated parking, in addition to the functions available in XPILOT 2.5. |
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Xmart OS, our in-car intelligent operating system, supports a smart cockpit that delivers a seamless, easy-to-use, and voice-controlled smart mobility experience. Xmart OS enables a broad range of smart connectivity functions, such as artificial intelligence, or AI, voice assistant, smart navigation and an app store. The in-car app store allows our customers to conveniently access third-party services and infotainment and allows us to develop our smart connectivity ecosystem and create value for all participants. |
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Our technological capabilities in software and hardware integration and E/E architecture enable us to effectively deliver OTA firmware updates. Through such updates, we are able to frequently upgrade our Smart EVs throughout the product lifecycle, and our customers can enjoy more functions and better user experience. |
We design, develop and engineer our core vehicle systems in-house, including the development of key technologies relating to powertrain and E/E architecture to deliver superior and reliable vehicle performance. For example, the P7 has achieved industry-leading driving range as a result of our comprehensive engineering efforts. We collaborated with a top-tier supplier to develop the P7s prismatic lithium NCM cells, which offer high energy density and low height. Furthermore, we integrated a braking system that offers advanced energy
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recovery capability, and the P7s low air drag and three-in-one electric drive system also contribute to its high energy efficiency. Our collaboration with a German engineering and design firm to develop the P7s chassis allows us to offer a superior driving experience in terms of performance, drivability and handling. As a result of our efforts in modular design across key aspects of Smart EVs, we have strategically established two Smart EV platforms. These platforms are scalable for both SUVs and sedans with different wheelbases within a wide range, which allows us to develop new models in a fast and cost-efficient manner.
We have an omni-channel sales model, which combines a data-driven and targeted online marketing strategy with a physical sales and service network. As of June 30, 2020, our physical sales and service network consisted of a total of 147 stores and service centers, which cover 52 major cities in China. A substantial majority of our stores are strategically located in shopping malls in tier-one and tier-two cities, as we believe such locations enable us to raise our brand awareness and attract customer traffic in a cost-efficient manner. In addition, we actively engage in data-driven and targeted online marketing through a variety of channels to further enhance our brand recognition and acquire customers.
Our manufacturing philosophy centers around quality, continuous improvement, flexibility and high operating efficiency. We take a lean production approach, with the aim of continuous optimization in operating efficiency and product quality. We produce the G3 through a contract manufacturing collaboration with Haima, which has over three decades of automotive manufacturing experience, at its plant in Zhengzhou, Henan province. The arrangement allows us to retain effective control of key manufacturing and procurement processes and product quality with minimal required capital outlay. In addition, we have built our own plant in Zhaoqing, Guangdong province. We started the production of the P7 at the plant in May 2020 and will also utilize the plant for future models. We are leveraging the manufacturing know-how and experience gained at the Haima plant to quickly ramp up the Zhaoqing plant. The Haima plant and the Zhaoqing plant have annual production capacity of up to 150,000 units and 100,000 units, respectively.
As of June 30, 2020, we had 3,676 employees in China and the United States. As of June 30, 2020, approximately 43% of our employees focused on research and development, of which 66%, 17% and 17% were dedicated to automotive design and engineering, autonomous driving and intelligent operating system, respectively.
Our Strengths
We believe the following strengths position us well to capitalize on the opportunities of a rapidly changing passenger vehicle market and the anticipated consumer demand for Smart EVs in China:
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we are a leading Smart EV company; |
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great to drive, great to be driven; |
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deep software, hardware and data technologies; |
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innovative software and content subscription model; |
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scalable and efficient platforms; and |
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the winning team for Smart EV. |
Our Strategies
We pursue the following strategies to accomplish our mission:
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continue to invest in and advance our technologies; |
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leverage common platforms to launch a new model every year; |
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build the leading Smart EV brand; |
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expand our sales and super charging network; |
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drive operating efficiency by optimizing production management; and |
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expand innovative subscription and value-added services. |
Our Challenges
Our business and successful execution of our strategies are subject to certain challenges, risks and uncertainties including:
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our limited operating history; |
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our ability to effectively manage our growth; |
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uncertainties relating to our research and development efforts; |
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our ability to offer a good mobility experience and meet customer expectations; |
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our ability to attain profitability and positive operating cash flows; |
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uncertainties relating to autonomous driving technologies; |
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our ability to compete in our industry; |
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changes to government subsidies, economic incentives and government policies relating to NEVs and domestically produced vehicles; and |
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the impact of the COVID-19 outbreak. |
In addition, we face risks and uncertainties related to the regulatory environment in China, including:
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further changes and interpretation of laws and regulations governing the EV market in the PRC; and |
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changes in the political and economic policies of the PRC government. |
Recent Developments
We delivered a total of 2,451 Smart EVs, including 1,641 units of the P7 and 810 units of the G3, to customers in July 2020.
In August 2020, we completed our Series C+ round financing. We issued an aggregate of 207,588,515 Series C preferred shares to 27 investors and received US$900.0 million of proceeds from the Series C+ round financing. See Description of Share CapitalHistory of Securities Issuances.
Our History and Corporate Structure
We began our operations in 2015 through Guangzhou Chengxing Zhidong Automotive Technology Co., Ltd., or Chengxing Zhidong, a PRC limited liability company. We undertook a reorganization, or the Reorganization, to facilitate our initial public offering in the United States. As part of the Reorganization, we incorporated XPeng Inc., an exempted company incorporated under the laws of Cayman Islands, in December 2018. Subsequently, XPeng Inc. established XPeng Limited, a limited liability company established in the British Virgin Islands. XPeng Limited then established XPeng (Hong Kong) Limited, a Hong Kong limited liability company, as its wholly owned subsidiary. XPeng (HK) Limited then established Guangdong Xiaopeng Motors Technology Co., Ltd., or Xiaopeng Motors, as a wholly foreign-owned enterprise in the PRC.
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As a transitional arrangement of the Reorganization, Xiaopeng Motors entered into a series of contractual agreements with Chengxing Zhidong and its shareholders in September 2019, pursuant to which Xiaopeng Motors exercised effective control over the operations of Chengxing Zhidong. In connection with the Reorganization, substantially all of the former shareholders of Chengxing Zhidong have exited from Chengxing Zhidong and obtained, by themselves or through their respective affiliates, shares of XPeng Inc. based on their respective shareholding in Chengxing Zhidong prior to the Reorganization. In May 2020, Xiaopeng Motors completed its purchase of 100% equity interest in Chengxing Zhidong. Consequently, Chengxing Zhidong became an indirect wholly owned subsidiary of XPeng Inc.
The following diagram illustrates our corporate structure as of the date of this prospectus. Certain entities that are immaterial to our results of operations, business and financial condition are omitted. Except as otherwise specified, equity interests depicted in this diagram are held as to 100%.
(1) |
We have the option to acquire the remaining 0.5% equity interest in Xiaopeng Technology from the current owner, and the owner has the right to require us to purchase such equity interest, in or before September 2022 at a purchase price equal to such owners initial investment plus an investment yield. |
(2) |
Includes (i) 36 subsidiaries that are wholly-owned by Chengxing Zhidong, (ii) three subsidiaries of which a majority equity interest is held by Chengxing Zhidong, and (iii) one subsidiary, of which a 50% equity interest is held by Chengxing Zhidong. Chengxing Zhidong and its subsidiaries are primarily involved in research and development, manufacturing and selling our Smart EVs and providing after-sales services. |
(3) |
Includes (i) eight subsidiaries that are wholly-owned by Guangdong Xiaopeng Automobile Industry Holdings Co., Ltd., or Xiaopeng Automobile, and (ii) one subsidiary, of which 73.8% equity interest is held by Xiaopeng Automobile. Xiaopeng Automobile and its subsidiaries are primarily involved in providing value-added services. |
(4) |
Heng Xia, our co-founder, director and president, and Tao He, our co-founder, director and senior vice president hold 80% and 20% equity interest, respectively, in Zhipeng IoV. Zhipeng IoV is primarily involved in operating our Xpeng mobile apps and providing value-added services. |
(5) |
Xiaopeng He, our co-founder, chairman and chief executive officer, and Heng Xia hold 80% and 20% equity interest, respectively, in Yidian Chuxing. Yidian Chuxing is primarily involved in providing ride-hailing services and operating the related mobile app. |
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Our Corporate Information
Our principal executive offices are located at No. 8 Songgang Road, Changxing Street, Cencun, Tianhe District, Guangzhou, Guangdong 510640, Peoples Republic of China. Our telephone number at this address is +86-020-6680-6680. Our registered office in the Cayman Islands is located at the offices of Harneys Fiduciary (Cayman) Limited, 4th Floor, Harbour Place, 103 South Church Street, P.O. Box 10240, Grand Cayman KY1-1002, Cayman Islands. Investors should submit any inquiries to the address and telephone number of our principal executive offices set forth above.
Our main website is www.xiaopeng.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 122 East 42nd Street, 18th Floor, New York, N.Y. 10168.
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, related to the assessment of the effectiveness 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. However, we have elected to opt out of this provision and, as a result, we will comply with new or revised accounting standards as required when they are adopted for public companies. This decision to opt out of the extended transition period under the JOBS Act is irrevocable.
We will remain an emerging growth company until the earliest of (i) the last day of our fiscal year during which we have total annual gross revenues of at least US$1.07 billion; (ii) the last day of our fiscal year following the fifth anniversary of the completion of this offering; (iii) the date on which we have, during the previous three year period, issued more than US$1.0 billion in non-convertible debt; or (iv) 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 the 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.
Implications of Being a Foreign Private Issuer and a Controlled Company
We are a foreign private issuer within the meaning of the rules under the Exchange Act and, as such, we are permitted to follow the corporate governance practices of our home country, the Cayman Islands, in lieu of the corporate governance standards of NYSE applicable to U.S. domestic companies. For example, we are not required to have a majority of the board consisting of independent directors nor have a compensation committee or a nominating and corporate governance committee consisting entirely of independent directors. We intend to continue to follow our home countrys corporate governance practices as long as we remain a foreign private issuer. As a result, you may not have the same protection afforded to shareholders of U.S. domestic companies that are subject to NYSE corporate governance requirements. As a foreign private issuer, we are also subject to reduced disclosure requirements and are exempt from certain provisions of the U.S. securities rules and regulations applicable to U.S. domestic issuers such as the rules regulating solicitation of proxies and certain insider reporting and short-swing profit rules.
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Upon the completion of this offering, we will be a controlled company as defined under the rules of NYSE, because Mr. Xiaopeng He, our co-founder, chairman and chief executive officer, will be able to exercise 58.9% of the aggregate voting power of our total issued and outstanding shares, assuming the underwriters do not exercise their option to purchase additional ADSs. Under the rules of NYSE, a controlled company may elect not to comply with certain corporate governance requirements. Currently, we do not plan to utilize the controlled company exemptions with respect to our corporate governance practice after we complete this offering.
Conventions That Apply to This Prospectus
Unless we indicate otherwise, references in this prospectus to:
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ADSs are to American depositary shares, each of which represents two Class A ordinary shares; |
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Alibaba are to Alibaba Group Holding Limited and its consolidated subsidiaries and affiliated consolidated entities; Taobao China Holding Limited, a wholly-owned subsidiary of Alibaba Group Holding Limited, is a principal shareholder of us; |
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average utilization rate of any function of our Smart EVs are to the number of Smart EVs whose drivers had used such function at least once during a period of time divided by the number of Smart EVs that had been driven at least once during such period; |
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C-NCAP are China New Car Assessment Program, which is a car safety assessment program run by the China Automotive Technology and Research Center; |
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CAGR are to compound annual growth rate; |
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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; |
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EV and electric vehicle are to battery electric passenger vehicle; |
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ICE are to internal combustion engine; |
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mid- to high-end segment are to the segment in Chinas passenger vehicle market with prices ranging from RMB150,000 to RMB300,000, not including any government subsidy; |
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MIIT NEV Catalogues are to the Catalogues of New Energy Vehicle Models Exempted from Vehicle Purchase Tax published by the Ministry of Industry and Information Technology of the PRC, or the MIIT, in the period from August 2014 to April 2020, which include relevant data of new energy vehicles registered with them; |
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NEDC are to New European Driving Cycle, which is designed to assess the emission levels of car engines and fuel economy in passenger vehicles; |
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NEV are to new energy vehicle; |
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OEM are to automotive original equipment manufacturer; |
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ordinary shares are to our Class A ordinary shares, US$0.00001 par value per share, Class B ordinary shares, US$0.00001 par value per share, and Class C ordinary shares, US$0.00001 par value per share; each Class A ordinary share is entitled to one vote; each Class B ordinary share is entitled to five votes prior to the completion of this offering, and will be entitled to 10 votes upon the completion of this offering pursuant to our seventh amended and restated memorandum and articles of association, which will become effective immediately prior to the completion of this offering; each Class C ordinary share will be entitled to five votes upon the completion of this offering pursuant to our seventh amended and restated memorandum and articles of association; |
7
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post-subsidy price are to the purchase price that takes into account the subsidies from Chinas central government as of June 30, 2020, which was RMB22,500 for each qualified purchase of the G3 by an individual, and ranged from RMB22,500 to RMB24,750 for each qualified purchase of the P7 by an individual; post-subsidy price does not take into account (i) additional cost related to certain premium features that customers may opt for or (ii) subsidies offered by certain local governments for EV purchases; |
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RMB or Renminbi are to the legal currency of China; |
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SUV are to sport utility vehicle; |
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tier-one cities are to Beijing, Shanghai, Guangzhou and Shenzhen; |
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tier-two cities are to Tianjin, Chongqing, Harbin, Changchun, Shenyang, Hohhot, Shijiazhuang, Urumchi, Lanzhou, Xining, Xian, Yinchuan, Zhengzhou, Jinan, Taiyuan, Hefei, Changsha, Wuhan, Nanjing, Chengdu, Guiyang, Kunming, Nanning, Lhasa, Hangzhou, Nanchang, Fuzhou, Haikou, Qingdao, Dalian, Ningbo and Xiamen; |
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US$, U.S. dollars, or dollars are to the legal currency of the United States; and |
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we, us, our company and our are to XPeng Inc. and its subsidiaries and consolidated variable interest entities, or VIEs, and their respective subsidiaries, as the context requires. |
Unless specifically indicated otherwise or unless the context otherwise requires, all information in this prospectus assumes that the underwriters will not exercise their option to purchase additional ADSs.
This prospectus contains translations between Renminbi and U.S. dollars for the convenience of the reader. The translations from Renminbi to U.S. dollars and from U.S. dollars to Renminbi in this prospectus were made at a rate of RMB7.0651 to US$1.00, the exchange rate set forth in the H.10 statistical release of the Federal Reserve Board on June 30, 2020. 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 August 14, 2020, the noon buying rate for Renminbi was RMB6.9501 to US$1.00.
8
The Offering
Price per ADS |
We currently estimate that the initial public offering price will be between US$11.00 and US$13.00 per ADS. |
ADSs Offered by Us |
85,000,000 ADSs |
ADSs Outstanding Immediately After This Offering |
85,000,000 ADSs (or 97,750,000 ADSs if the underwriters exercise in full the over-allotment option). |
Ordinary Shares Outstanding Immediately After This Offering |
801,554,400 Class A ordinary shares, 429,846,136 Class B ordinary shares and 178,618,464 Class C ordinary shares (or 827,054,400 Class A ordinary shares, 429,846,136 Class B ordinary shares and 178,618,464 Class C ordinary shares if the underwriters exercise in full the over-allotment option). |
The ADSs |
Each ADS represents two 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 all holders and beneficial owners of ADSs thereunder. |
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 and the depositary 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 |
Pursuant to our seventh amended and restated memorandum and articles of association, which will become effective immediately prior to the completion of this offering, our ordinary shares will be divided into Class A ordinary shares, Class B ordinary shares and Class C ordinary shares. In respect of all matters subject to a shareholders vote, each Class A ordinary share will be entitled to one vote, each |
9
Class B ordinary share will be entitled to 10 votes, and each Class C ordinary share will be entitled to five votes. Each Class B ordinary share or each Class C ordinary share will be convertible into one Class A ordinary share at any time by the holder thereof. Class A ordinary shares will not be convertible into Class B ordinary shares or Class C ordinary shares under any circumstances. Upon any transfer of Class B ordinary shares or Class C ordinary shares by a holder to any person or entity which is not an affiliate of such holder, such Class B ordinary shares or Class C 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 12,750,000 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$972.0 million from this offering, or approximately US$1,118.8 million if the underwriters exercise in full the over-allotment option, assuming an initial public offering price of US$12.00 per ADS, the mid-point of the estimated range of the initial public offering price, after deducting underwriting discounts, commissions and estimated offering expenses payable by us. |
We anticipate using the net proceeds of this offering for (i) research and development of our Smart EVs and technologies, (ii) selling and marketing and expansion of sales channels, and (iii) general corporate purposes. |
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. Any ADSs purchased by Alibaba, Coatue, Qatar Investment Authority, Xiaomi and/or their affiliates in this offering will not be subject to the foregoing lock-up restrictions. 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 the ADSs. You should carefully consider these risks before deciding to invest in the ADSs. |
Directed Share Program |
At our request, the underwriters have reserved up to 3.0% of the ADSs offered by this prospectus for sale, at the initial public offering |
10
price, to our directors, officers, employees and other individuals associated with us and members of their families. Any sales made through the directed share program will be made by Tiger Brokers (NZ) Limited. We do not know if these persons will choose to purchase all or any portion of these reserved ADSs, but any purchases they do make will reduce the number of ADSs available to the general public. Any reserved ADSs not so purchased will be offered by the underwriters to the general public on the same terms as the other ADSs. Certain participants may be subject to the lock-up agreements as described in UnderwritingDirected Share Program elsewhere in this prospectus. |
Indications of Interest |
Four of our existing shareholders, Alibaba, Coatue, Qatar Investment Authority and Xiaomi, and/or their affiliates, have indicated interest in purchasing up to US$200 million, US$100 million, US$50 million and US$50 million, respectively, of the ADSs being offered in this offering at the initial public offering price and on the same terms as the other ADSs being offered. In addition, PRIMECAP Management Company and/or its affiliate have indicated interest in purchasing up to US$100 million of the ADSs being offered in this offering at the initial public offering price and on the same terms as the other ADSs being offered. Assuming an initial public offering price of US$12.00 per ADS, the midpoint of the estimated initial public offering price range shown on the front cover page of this prospectus, the number of ADSs to be purchased by these investors would be up to 41,666,667 ADSs, representing approximately 49.0% of the ADSs being offered in this offering. Because such indications of interest are not binding agreements or commitments to purchase, such investors could determine to purchase more, fewer, or no ADSs in this offering, and the underwriters could determine to sell more, fewer, or no ADSs to such investors. The underwriters will receive the same underwriting discounts and commissions on any of the ADSs purchased by such investors as they will from any other ADSs sold to the public in this offering. |
Listing |
We have applied to list the 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. |
NYSE Trading Symbol |
XPEV |
Payment and settlement |
The underwriters expect to deliver the ADSs against payment on , 2020, 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 801,554,400 Class A ordinary shares, 429,846,136 Class B ordinary shares and 178,618,464 Class C ordinary shares, which is based upon (i) 107,051,240 Class A and 331,234,375 Class B ordinary shares outstanding prior
11
to this offering; (ii) the automatic conversion of 16,926,907 Series B preferred shares, 29,871,475 Series B-1 preferred shares, 7,033,275 Series B-2 preferred shares and 43,642,225 Series C preferred shares held by Simplicity Holding Limited into 97,473,882 Class B ordinary shares on a one-for-one-basis upon the completion of this offering; (iii) the automatic conversion of 1,137,879 Series B preferred shares held by Efficiency Investment Limited into 1,137,879 Class B ordinary shares on a one-for-one-basis upon the completion of this offering; (iv) the automatic conversion of 50,540,875 Series A preferred shares, 54,709,700 Series B preferred shares, 18,382,450 Series B-1 preferred shares, 5,394,850 Series B-2 preferred shares and 49,590,589 Series C preferred shares owned by Alibaba into 178,618,464 Class C ordinary shares on a one-for-one-basis upon the completion of this offering; (v) the automatic conversion of the remaining outstanding preferred shares into 524,503,160 Class A ordinary shares on a one-for-one-basis upon the completion of this offering; and (vi) 170,000,000 Class A ordinary shares issued in connection with this offering (assuming the underwriters do not exercise their option to purchase additional ADSs), but exclude:
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53,230,015 Class A ordinary shares issuable upon the settlement of outstanding restricted share units, or RSUs, under our share incentive plan; and |
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32,693,845 additional Class A ordinary shares reserved for future grants under our share incentive plan. |
12
SUMMARY CONSOLIDATED FINANCIAL DATA
The following summary consolidated statements of comprehensive loss data and summary consolidated statements of cash flows data for the years ended December 31, 2018 and 2019 and summary consolidated balance sheets data as of December 31, 2018 and 2019 have been derived from our audited consolidated financial statements included elsewhere in this prospectus. The following summary consolidated statements of comprehensive loss data and summary consolidated cash flows data for the six months ended June 30, 2019 and 2020 and summary consolidated balance sheets data (excluding pro forma as adjusted data) as of June 30, 2020 have been derived from our unaudited condensed consolidated financial statements included elsewhere in this prospectus. The unaudited condensed consolidated financial statements have been prepared on the same basis as our audited consolidated financial statements and include all adjustments, consisting only of normal and recurring adjustments, that we consider necessary for a fair statement of our financial position and results of operations for the periods presented.
Our consolidated financial statements are prepared and presented in accordance with generally accepted accounting principles in the United States, or U.S. GAAP. 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 Loss Data
Year Ended December 31, | Six Months Ended June 30, | |||||||||||||||||||||||
2018 | 2019 | 2019 | 2020 | |||||||||||||||||||||
RMB | RMB | US$ | RMB | RMB | US$ | |||||||||||||||||||
(in thousands, except for share and per share data) | ||||||||||||||||||||||||
Revenues |
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Vehicle sales |
4,153 | 2,171,231 | 307,318 | 1,197,499 | 913,269 | 129,265 | ||||||||||||||||||
Services and others |
5,553 | 149,988 | 21,229 | 33,993 | 89,581 | 12,679 | ||||||||||||||||||
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Total revenues |
9,706 | 2,321,219 | 328,547 | 1,231,492 | 1,002,850 | 141,944 | ||||||||||||||||||
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Cost of sales |
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Vehicle sales |
(8,220 | ) | (2,733,531 | ) | (386,906 | ) | (1,667,805 | ) | (963,136 | ) | (136,323 | ) | ||||||||||||
Services and others |
(3,847 | ) | (145,829 | ) | (20,641 | ) | (34,475 | ) | (75,830 | ) | (10,733 | ) | ||||||||||||
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Total cost of sales |
(12,067 | ) | (2,879,360 | ) | (407,547 | ) | (1,702,280 | ) | (1,038,966 | ) | (147,056 | ) | ||||||||||||
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Gross loss |
(2,361 | ) | (558,141 | ) | (79,000 | ) | (470,788 | ) | (36,116 | ) | (5,112 | ) | ||||||||||||
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Operating expenses |
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Research and development expenses |
(1,051,219 | ) | (2,070,158 | ) | (293,012 | ) | (983,198 | ) | (630,578 | ) | (89,253 | ) | ||||||||||||
Selling, general and administrative expenses |
(642,541 | ) | (1,164,569 | ) | (164,834 | ) | (484,058 | ) | (798,974 | ) | (113,087 | ) | ||||||||||||
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Total operating expenses |
(1,693,760 | ) | (3,234,727 | ) | (457,846 | ) | (1,467,256 | ) | (1,429,552 | ) | (202,340 | ) | ||||||||||||
Other income |
1,487 | 12,294 | 1,740 | 5,116 | 37,293 | 5,278 | ||||||||||||||||||
Loss from operations |
(1,694,634 | ) | (3,780,574 | ) | (535,106 | ) | (1,932,928 | ) | (1,428,375 | ) | (202,174 | ) | ||||||||||||
Interest income |
65,376 | 88,843 | 12,575 | 58,031 | 20,953 | 2,966 | ||||||||||||||||||
Interest expenses |
(5,822 | ) | (32,017 | ) | (4,532 | ) | (11,677 | ) | (15,954 | ) | (2,258 | ) | ||||||||||||
Fair value gain (loss) on derivative liabilities |
254,361 | 27,679 | 3,918 | (47,079 | ) | 618,442 | 87,535 | |||||||||||||||||
Other non-operating (loss) income, net |
(18,104 | ) | 4,397 | 622 | 15,324 | 9,131 | 1,292 | |||||||||||||||||
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13
Year Ended December 31, | Six Months Ended June 30, | |||||||||||||||||||||||
2018 | 2019 | 2019 | 2020 | |||||||||||||||||||||
RMB | RMB | US$ | RMB | RMB | US$ | |||||||||||||||||||
(in thousands, except for share and per share data) | ||||||||||||||||||||||||
Loss before income tax expenses |
(1,398,823 | ) | (3,691,672 | ) | (522,523 | ) | (1,918,329 | ) | (795,803 | ) | (112,639 | ) | ||||||||||||
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Income tax expenses |
| (1 | ) | | | | | |||||||||||||||||
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Net loss |
(1,398,823 | ) | (3,691,673 | ) | (522,523 | ) | (1,918,329 | ) | (795,803 | ) | (112,639 | ) | ||||||||||||
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Comprehensive loss attributable to ordinary shareholders of XPeng Inc. |
(2,257,844 | ) | (4,645,722 | ) | (657,560 | ) | (2,331,763 | ) | (2,091,939 | ) | (296,096 | ) | ||||||||||||
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Weighted average number of ordinary shares used in computing net loss per ordinary share |
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Basic and diluted |
330,176,070 | 349,450,580 | 349,450,580 | 349,414,050 | 362,747,375 | 362,747,375 | ||||||||||||||||||
Net loss per ordinary share attributable to ordinary shareholders |
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Basic and diluted |
(6.83 | ) | (13.29 | ) | (1.88 | ) | (6.60 | ) | (5.72 | ) | (0.81 | ) |
Summary Consolidated Balance Sheets Data
As of December 31, | As of June 30, | |||||||||||||||||||||||||||||||||||
2018 | 2019 | 2020 | ||||||||||||||||||||||||||||||||||
Actual | Actual | Actual | Pro Forma(1) | Pro Forma As Adjusted(2) | ||||||||||||||||||||||||||||||||
RMB | RMB | US$ | RMB | US$ | RMB | US$ | RMB | US$ | ||||||||||||||||||||||||||||
(in thousands, except for share data) | ||||||||||||||||||||||||||||||||||||
Balance Sheet Data: |
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Cash and cash equivalents |
1,626,878 | 1,946,931 | 275,570 | 1,061,209 | 150,204 | 1,061,209 | 150,204 | 14,199,959 | 2,022,169 | |||||||||||||||||||||||||||
Restricted cash |
4,647 | 460,812 | 65,224 | 834,099 | 118,059 | 834,099 | 118,059 | 834,099 | 118,059 | |||||||||||||||||||||||||||
Short-term deposits |
759,975 | | | | | | | | | |||||||||||||||||||||||||||
Short-term investments |
2,246,272 | 407,844 | 57,727 | 223,173 | 31,588 | 223,173 | 31,588 | 223,173 | 31,588 | |||||||||||||||||||||||||||
Prepayments and other current assets |
1,236,596 | 1,083,307 | 153,332 | 1,023,967 | 144,931 | 1,023,967 | 144,931 | 1,023,967 | 144,931 | |||||||||||||||||||||||||||
Property, plant and equipment, net |
863,357 | 3,229,952 | 457,170 | 3,218,922 | 455,609 | 3,218,922 | 455,609 | 3,218,922 | 455,609 | |||||||||||||||||||||||||||
Total assets |
7,673,188 | 9,251,365 | 1,309,449 | 9,324,869 | 1,319,847 | 9,324,869 | 1,319,847 | 22,463,619 | 3,191,812 | |||||||||||||||||||||||||||
Short-term borrowings |
200,000 | 419,950 | 59,440 | 277,465 | 39,273 | 277,465 | 39,273 | 277,465 | 39,273 | |||||||||||||||||||||||||||
Current portion of long-term borrowings |
| 60,000 | 8,492 | 60,000 | 8,492 | 60,000 | 8,492 | 60,000 | 8,492 | |||||||||||||||||||||||||||
Long-term borrowings |
1,000,000 | 1,690,000 | 239,204 | 1,689,980 | 239,201 | 1,689,980 | 239,201 | 1,689,980 | 239,201 | |||||||||||||||||||||||||||
Derivative liabilities |
637,015 | 897,091 | 126,978 | 389,430 | 55,120 | | | | | |||||||||||||||||||||||||||
Total liabilities |
2,878,940 | 6,388,317 | 904,211 | 6,650,810 | 941,359 | 6,261,380 | 886,239 | 6,261,380 | 886,239 | |||||||||||||||||||||||||||
Total mezzanine equity |
6,979,473 | 9,693,478 | 1,372,022 | 11,598,502 | 1,641,661 | | | | | |||||||||||||||||||||||||||
Total shareholders (deficit)
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(2,185,225 | ) | (6,830,430 | ) | (966,784 | ) | (8,924,443 | ) | (1,263,173 | ) | 3,063,489 | 433,608 | 16,202,239 | 2,305,573 | ||||||||||||||||||||||
Share capital |
21 | 21 | 3 | 21 | 3 | 63 | 9 | 78 | 11 | |||||||||||||||||||||||||||
Total shares outstanding |
349,414,050 | 362,747,375 | 362,747,375 | 362,747,375 | 362,747,375 | 931,506,945 | 931,506,945 | 1,410,019,000 | 1,410,019,000 |
14
(1) |
The consolidated balance sheets data as of June 30, 2020 are presented on a pro forma basis to reflect (i) the automatic conversion of 80,546,975 preferred shares outstanding as of June 30, 2020 into Class B ordinary shares on a one-for-one-basis upon the completion of this offering; (ii) the automatic conversion of 129,027,875 preferred shares outstanding as of June 30, 2020 into Class C ordinary shares on a one-for-one-basis upon the completion of this offering; and (iii) the automatic conversion of 384,570,020 remaining preferred shares outstanding (including the preferred shares issued upon the exercise of outstanding warrants) as of June 30, 2020 into Class A ordinary shares on a one-for-one-basis upon the completion of this offering. |
(2) |
The consolidated balance sheets data as of June 30, 2020 are presented on a pro forma as adjusted basis to reflect (i) the issuance of 207,588,515 Series C preferred shares in the third quarter of 2020; (ii) the issuance of 14,850,560 Class A ordinary shares upon the settlement of certain RSUs in August 2020; (iii) the issuance of 25,385,300 preferred shares upon the exercise of warrants in August 2020; (iv) the automatic conversion of 98,611,761 preferred shares outstanding as of the date hereof into Class B ordinary shares on a one-for-one-basis upon the completion of this offering; (v) the automatic conversion of 178,618,464 preferred shares outstanding as of the date hereof into Class C ordinary shares on a one-for-one-basis upon the completion of this offering; (vi) the automatic conversion of 524,503,160 remaining preferred shares outstanding as of the date hereof into Class A ordinary shares on a one-for-one-basis upon the completion of this offering; and (vii) 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$12.00 per ADS, the mid-point of the estimated public offering price range shown on the front cover of this prospectus, after deducting underwriting discounts, commissions and estimated offering expenses payable by us and assuming no exercise of the underwriters option to purchase additional ADSs. |
Summary Consolidated Statements of Cash Flows Data
Year Ended December 31, | Six Months Ended June 30, | |||||||||||||||||||||||
2018 | 2019 | 2019 | 2020 | |||||||||||||||||||||
RMB | RMB | US$ | RMB | RMB | US$ | |||||||||||||||||||
(in thousands) | ||||||||||||||||||||||||
Cash Flow Data: |
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Net cash used in operating activities |
(1,572,715 | ) | (3,562,765 | ) | (504,274 | ) | (1,574,894 | ) | (1,212,667 | ) | (171,643 | ) | ||||||||||||
Net cash (used in) provided by investing activities |
(3,630,324 | ) | 740,296 | 104,781 | 148,207 | (165,240 | ) | (23,389 | ) | |||||||||||||||
Net cash provided by financing activities |
6,734,200 | 3,593,562 | 508,635 | 1,906,800 | 868,329 | 122,904 | ||||||||||||||||||
Effects of exchange rate changes on cash, cash equivalents and restricted cash |
(14,782 | ) | 5,125 | 725 | (9,134 | ) | (2,857 | ) | (403 | ) | ||||||||||||||
Cash, cash equivalents and restricted cash at beginning of the year/period |
115,146 | 1,631,525 | 230,927 | 1,631,525 | 2,407,743 | 340,794 | ||||||||||||||||||
Cash, cash equivalents and restricted cash at end of the year/period |
1,631,525 | 2,407,743 | 340,794 | 2,102,504 | 1,895,308 | 268,263 |
15
An investment in the ADSs involves significant risks. You should carefully consider all the information in this prospectus, including the risks and uncertainties described below, before making an investment in the ADSs. Any of the following risks could have a material adverse effect on our business, financial condition and results of operations. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial may also materially and adversely affect our business, prospects, financial condition, results of operations, cash flows and ability to pay dividends. In any such case, the market price of the ADSs could decline, and you may lose all or part of your investment.
Risks Relating to Our Business and Industry
We have a limited operating history and face significant challenges as a new entrant into our industry.
We began our operations in 2015 and have a limited operating history. We have limited history in most aspects of our business operations, including designing, testing, manufacturing, marketing and selling our Smart EVs, as well as offering our services. We started production of our first mass-produced Smart EV, the G3, in November 2018. We recently constructed a manufacturing plant in Zhaoqing, Guangdong province, and the plant is the first manufacturing facility owned by us. We started production of our second mass-produced Smart EV, the P7, at the Zhaoqing plant in May 2020.
You should consider our business and prospects in light of the risks and challenges we face as a new entrant into our industry, including, among other things, with respect to our ability to:
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design and produce safe, reliable and quality vehicles on an ongoing basis; |
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build a well-recognized and respected brand; |
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expand our customer base; |
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properly price our products and services; |
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advance our technological capabilities in key areas, such as autonomous driving, intelligent operating system, electric powertrain and E/E architecture; |
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successfully market our Smart EVs and our services, including our advanced autonomous driving system and various value-added services, such as insurance agency service and automotive loan referral; |
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improve operating efficiency and economies of scale; |
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operate our manufacturing plant in a safe and cost-efficient manner; |
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attract, retain and motivate our employees; |
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anticipate and adapt to changing market conditions, including changes in consumer preferences and competitive landscape; and |
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navigate a complex and evolving regulatory environment. |
If we fail to address any or all of these risks and challenges, our business may be materially and adversely affected. Our Smart EVs are highly technical products that require ongoing maintenance and support. As a result, consumers will be less likely to purchase our Smart EVs now if they are not convinced that our business will succeed or that our operations will continue for many years. Similarly, suppliers and other third parties will be less likely to invest time and resources in developing business relationships with us if they are not convinced that our business will succeed.
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As we continue to grow, we may not be able to effectively manage our growth, which could negatively impact our brand and financial performance.
We have experienced significant growth in the past several years. We plan to further grow our business by, among other things, investing in technology, expanding our product portfolio, strengthening our brand recognition, expanding our sales and marketing network and service offerings. Our future operating results will depend to a large extent on our ability to manage our expansion and growth successfully.
Risks that we face in undertaking this expansion include, among others:
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managing a larger organization with a greater number of employees in different divisions; |
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controlling expenses and investments in anticipation of expanded operations; |
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establishing or expanding design, manufacturing, sales and service facilities; |
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implementing and enhancing administrative infrastructure, systems and processes; and |
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executing our strategies and business initiatives successfully. |
Any failure to manage our growth effectively could materially and adversely affect our business, prospects, results of operations and financial condition.
Our research and development efforts may not yield expected results.
Technological innovation is critical to our success, and we strategically develop most of key technologies in-house, such as autonomous driving, intelligent operating system, powertrain and E/E architecture. We have been investing heavily on our research and development efforts. In 2018, 2019 and six months ended June 30, 2020, our research and development expenses amounted to RMB1,051.2 million, RMB2,070.2 million (US$293.0 million) and RMB630.6 million (US$89.3 million), respectively. Our research and development expenses accounted for 89.2% and 62.9% of our total revenues for 2019 and the six months ended June 30, 2020, respectively. The EV industry is experiencing rapid technological changes, and we need to invest significant resources in research and development to lead technological advances in order to remain competitive in the market. Therefore, we expect that our research and development expenses will continue to be significant. Furthermore, research and development activities are inherently uncertain, and there can be no assurance that we will continue to achieve technological breakthroughs and successfully commercialize such breakthroughs. As a result, our significant expenditures on research and development may not generate corresponding benefits. If our research and development efforts fail to keep up with the latest technological developments, we would suffer a decline in our competitive position. For example, we believe autonomous driving is a key factor that differentiates our Smart EVs from competing products, and we have dedicated significant research and development efforts in this area. We plan to roll out XPILOT 3.0 by early 2021. One of the features of XPILOT 3.0 is a navigation guided pilot for highway driving. Any delay in the roll out of XPILOT 3.0 or other setbacks in our efforts to improve autonomous driving capabilities could materially and adversely affect our business, reputation, results of operations and prospects.
Besides our in-house expertise, we also rely on certain technologies of our suppliers to enhance the performance of our Smart EVs. In particular, we do not manufacture battery cells or semiconductors, which makes us dependent upon suppliers for the relevant technologies. As technologies change, we plan to upgrade our existing models and introduce new models in order to provide Smart EVs with the latest technologies, including battery cells and semiconductors, which could involve substantial costs and lower our return on investment for existing models. There can be no assurance that we will be able to equip our Smart EVs with the latest technologies. Even if we are able to keep pace with changes in technologies and develop new models, our prior models could become obsolete more quickly than expected, potentially reducing our return on investment.
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If our Smart EVs, including software systems, fail to offer a good mobility experience and meet customer expectations, our business, results of operations and reputation would be materially and adversely affected.
We tailor our Smart EVs for Chinas technology-savvy middle class consumers. Our Smart EVs offer smart technology functions, including autonomous driving and smart connectivity, to make the mobility experience more convenient. There can be no assurance that we will be able to continue to enhance such smart technology functions and make them more valuable to our customers. In the design process, we pay close attention to the preferences of our target customers. For example, our proprietary autonomous driving system is also customized for driving behavior and road conditions in China. However, there can be no assurance that we are able to accurately identify consumer preferences and effectively address such preferences in our Smart EVs design. Furthermore, the driving experience of a Smart EV is different from that of an ICE vehicle, and our customers may experience difficulties in adapting to the driving experience of a Smart EV. As consumer preferences are constantly evolving, we may fail to introduce desirable product features in a timely manner.
Our Smart EVs may contain defects in design or manufacturing that cause them not to perform as expected or that require repair, and certain features of our Smart EVs, such as XPILOT 3.0, may take longer than expected to become enabled. For example, the operation of our Smart EVs is highly dependent on our proprietary software, such as XPILOT and Xmart OS, which is inherently complex. These software systems may contain latent defects and errors or be subject to external attacks. Although we attempt to remedy any issues we observe in our Smart EVs as effectively and rapidly as possible, such efforts may not be timely or may not be to the satisfaction of our customers. Furthermore, while we have performed extensive internal testing on the Smart EVs we manufacture, we currently have a limited frame of reference by which to evaluate detailed long-term quality, reliability, durability and performance characteristics of our Smart EVs. We cannot assure you that our Smart EVs are free of defects, which may manifest over time. Product defects, delays or other failures of our products to perform as expected could damage our reputation and result in product recalls, product liability claims and/or significant warranty and other expenses, and could have a material adverse impact on our business, financial condition, operating results and prospects.
We have only recently started to generate revenues and have incurred significant losses and negative cash flows from operating activities, all of which may continue in the future.
We have only recently started to generate revenues and have not been profitable since our inception. The design, manufacture, sale and servicing of Smart EVs is a capital intensive business. We have been incurring losses from operations and had negative cash flows from operating activities since inception. We incurred net losses of RMB1,398.8 million, RMB3,691.7 million (US$522.5 million) and RMB795.8 million (US$112.6 million) for 2018, 2019 and the six months ended June 30, 2020, respectively. Net cash used in operating activities was RMB1,572.7 million, RMB3,562.8 million (US$504.3 million) and RMB1,212.7 million (US$171.6 million) for 2018, 2019 and the six months ended June 30, 2020, respectively. We have made significant up-front investments in research and development, our manufacturing facility in Zhaoqing, our sales and service network, as well as marketing and advertising, to rapidly develop and expand our business. We expect to continue to invest significantly in these areas to further expand our business, and there can be no assurance that we will successfully execute our business strategies. We may not generate sufficient revenues for a number of reasons, including lack of demand for our Smart EVs and services, increasing competition, challenging macro-economic environment due to the COVID-19 outbreak, as well as other risks discussed herein. Our ability to become profitable in the future will not only depend on our efforts to sell our Smart EVs and services but also to control our costs. If we are unable to adequately control the costs associated with our operations, we may continue to experience losses and negative cash flows from operating activities in the future.
We expect our existing cash and cash equivalents will be sufficient to meet our anticipated working capital requirements, including capital expenditures in the ordinary course of business for an extended period of time. However, we may need additional capital resources in the future if we experience changes in business condition or other unanticipated developments, or if we wish to pursue opportunities for investments, acquisitions, capital
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expenditures or similar actions. In addition, we have not recorded net income or positive cash flows from operating activities. As such, we may continue to rely on equity or debt financing to meet our working capital and capital expenditure requirements. If we were unable to obtain such financing in a timely manner or on terms that are acceptable, or at all, we may fail to implement our business plans or experience disruptions in our operating activities, and our business, financial condition and results of operations would be materially and adversely affected.
We may be subject to risks associated with autonomous driving technologies.
Through XPILOT 2.5, we have greatly enhanced the autonomous driving capabilities of our Smart EVs. To capitalize on our in-house research and development capabilities, we will continue to upgrade our autonomous driving technologies, and we plan to roll out XPILOT 3.0 by early 2021. Autonomous driving technologies are subject to risks and from time to time there have been accidents associated with such technologies. Although we attempt to remedy any issues we observe in our Smart EVs as effectively and rapidly as possible, such efforts may not be timely, may hamper production or may not be to the satisfaction of our customers. Moreover, autonomous driving technology is still evolving and is yet to achieve wide market acceptance. The safety of autonomous driving technologies depends in part on driver interaction, and drivers may not be accustomed to using such technologies. To the extent accidents associated with our autonomous driving systems occur, we could be subject to liability, government scrutiny and further regulation. Furthermore, accidents or defects caused by third parties autonomous driving technology may negatively affect public perception, or result in regulatory restrictions, with respect to autonomous driving technology.
Our autonomous driving technologies may be affected by regulatory restrictions. For example, our research and development activities on autonomous driving are subject to regulatory restrictions on surveying and mapping, as well as driverless road testing. Any tightening of regulatory restrictions could have a material adverse impact on our development of autonomous driving technology.
Chinas passenger vehicle market is highly competitive, and demand for EVs may be cyclical and volatile.
Chinas passenger vehicle market is large yet competitive, and we have strategically focused on offering Smart EVs for the mid- to high-end segment. We directly compete with other pure-play EV companies, especially those targeting the mid- to high-end segment. To a lesser extent, our Smart EVs also compete with NEVs and ICE vehicles in the mid- to high-end segment offered by traditional OEMs. We may also in the future face competition from new entrants that will increase the level of competition. Many of our current and potential competitors, particularly international competitors, have more financial, technical, manufacturing, marketing and other resources than we do, and may be able to devote significant resources to the design, development, manufacturing, distribution, promotion, sale and support of their products.
We expect competition in our industry to intensify in the future in light of increased demand and regulatory push for alternative fuel vehicles, continuing globalization and consolidation in the worldwide automotive industry. Factors affecting competition include, among others, product quality and features, innovation and development time, pricing, reliability, safety, energy efficiency, customer service and financing terms. Increased competition may lead to lower vehicle unit sales and increased inventory, which may result in downward price pressure and adversely affect our business, financial condition, operating results and prospects. There can be no assurance that we will be able to compete successfully. Our competitors may introduce new vehicles or services that surpass the quality or performance of our Smart EVs or services, which would adversely affect our competitive position in the market. They may also offer vehicles or services at more competitive prices, which would have an adverse impact on our sales and profitability. In addition, we may compete with state-own enterprises or companies that have received investments or other forms of support from state-owned enterprises or other government entities, and such competitors may therefore possess more resources than us.
In addition, volatility in the automobile industry may materially and adversely affect our business, prospects, operating results and financial condition. The sales volume of EVs in the mid- to high-end segment in
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China may not grow at the rate that we expect, or at all. Demand for EVs depends to a large extent on general, economic, political and social conditions in a given market and the introduction of new vehicles and technologies. As a new entrant to the EV market, we have less financial resources than more established OEMs to withstand changes in the market and disruptions in demand. Demand for our Smart EVs may also be affected by factors directly impacting automobile price or the cost of purchasing and operating automobiles, such as sales and financing incentives, prices of raw materials and components, cost of oil and gasoline and governmental regulations, including tariffs, import regulation and sales taxes. Volatility in demand may lead to lower vehicle unit sales and increased inventory, which may result in further downward price pressure and adversely affect our business, prospects, financial condition and operating results. These effects may have a more pronounced impact on our business given our relatively smaller scale and less financial resources as compared to many traditional OEMs.
The unavailability, reduction or elimination of government and economic incentives or government policies that are favorable for NEVs and domestically produced vehicles could materially and adversely affect our business, financial condition and results of operations.
Our business has benefited from government subsidies, economic incentives and government policies that support the growth of NEVs. For example, each qualified purchaser of our Smart EVs enjoys subsidies from Chinas central government and certain local governments. Furthermore, in certain cities, quotas that limit the purchase of ICE vehicles do not apply to EVs, thereby incentivizing customers to purchase EVs. In April 2020, the Ministry of Finance of the PRC, together with several other PRC government departments, issued the Announcement on Policies concerning the Exemption of New Energy Vehicles from Vehicle Purchase Tax, and the Circular on Improving the Fiscal Subsidy Policies for the Promotion and Application of New Energy Vehicles, or the 2020 Subsidy Circular, which extended certain subsidies and tax exemptions on EV purchases to the end of 2022. Chinas central government also provides certain local governments with funds and subsidies to support the roll out of a charging infrastructure. These policies are subject to certain limits as well as changes that are beyond our control, and we cannot assure you that future changes, if any, would be favorable to our business. For instance, according to the 2020 Subsidy Circular, in principle, the subsidies for NEV purchases from 2020 to 2022 will generally be lowered by 10%, 20% and 30%, respectively, based on the level of the previous year with limited exceptions in the area of public transport, and the total number of NEVs in China that will be entitled to such subsidies should be no more than two million each year. Furthermore, we have received subsidies from certain local governments. Any reduction or elimination of government subsidies and economic incentives because of policy changes, fiscal tightening or other factors may result in the diminished competitiveness of the EV industry generally or our Smart EVs in particular. Any of the foregoing could materially and adversely affect our business, financial condition and results of operations.
We may also face increased competition from foreign OEMs due to changes in government policies. For example, the tariff on imported passenger vehicles (other than those originating in the United States of America) was reduced to 15% starting from July 1, 2018. On June 23, 2020, the National Development and Reform Commission, or NDRC, and the Ministry of Commerce, or the MOFCOM, promulgated the Special Administrative Measures for Market Access of Foreign Investment, or the 2020 Negative List, effective on July 23, 2020, under which there is no limit on foreign ownership of NEV manufacturers. As a result, foreign EV competitors could build wholly-owned facilities in China without the need for a domestic joint venture partner. For example, Tesla has constructed the Tesla Giga Shanghai factory in Shanghai without a joint venture partner. These changes could increase our competition and reduce our pricing advantage.
The COVID-19 outbreak has adversely affected, and may continue to adversely affect, our results of operations.
During January 2020, a strain of coronavirus, also known as COVID-19, was reported to have surfaced in Wuhan, China. In an effort to halt the outbreak, the PRC government placed significant restrictions on travel within China and closed certain businesses, and governments outside of China have halted or sharply curtailed
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the movement of people, goods and services to and from China. Moreover, the COVID-19 outbreak has become a global pandemic and affected regions outside of China, such as Europe and North America. We are headquartered in Guangzhou, and we market and sell our Smart EVs to consumers in China. Our production facilities and most of our key suppliers are located in China, and some of our suppliers of automobile parts are located in North America. In addition, a significant portion of our research and development staff is based in the United States. If the COVID-19 outbreak continues for an extended period or worsens, it could materially and adversely impact our supply chain, technology development, sales and other aspects of our operations.
While we have resumed normal business operations, we have experienced certain disruptions in our operations as a result of the government imposed suspensions due to the COVID-19 outbreak in China. A substantial number of our offices and stores, as well as both of our manufacturing facilities, were closed for certain periods in February and March of 2020. As a result, our vehicle delivery decreased from 3,218 units in the fourth quarter of 2019 to 2,271 units in the first quarter of 2020. In particular, we delivered 1,055, 161 and 1,055 units of Smart EVs in January, February and March 2020, respectively, which were lower than our expectation before the COVID-19 outbreak. The sharp decrease in the number of deliveries in February 2020 was mainly due to the significant impact from COVID-19 outbreak in China and seasonal impact from the Chinese New Year holiday. In the second quarter of 2020, we delivered 3,228 units of Smart EVs. Furthermore, while the outbreak has not materially and adversely affected our supply chain as of the date hereof due to our advanced planning and effective supplier management, it has affected and may affect future delivery of components from certain suppliers that suspended production. For example, some of our suppliers were unable to deliver sufficient components to us due to the COVID-19 outbreak and we had to switch to alternative suppliers. We cannot assure you that these alternative suppliers and our other suppliers will not suspend their operation or become unable to provide sufficient components to us in the future if impact from the COVID-19 outbreak continues or worsens. The resumption of their normal manufacturing operations will depend on the status of various government regulations and the readiness of such suppliers and their currently inactive workforce. See also We are dependent on our suppliers, some of which are single-source suppliers. Suppliers may fail to deliver necessary components of our Smart EVs according to our schedule and at prices, quality levels and volumes acceptable to us. In addition, we incurred additional costs relating to the delivery of new Smart EVs to customers homes, mask donations to our customers, technology advancement for remote working arrangements and OTA firmware updates.
Concerns about the COVID-19 outbreak and its potential impact on the Chinese and global economy have created uncertainty about the overall demand for automobile products, which could have negative implications for the demand of our Smart EVs. At this point, we cannot accurately predict what effects these conditions would have on our business, which will depend on, among other factors, the ultimate geographic spread of the virus, the duration of the outbreak and the corresponding travel restrictions and business closures imposed by government authorities.
We depend on revenue generated from a limited number of vehicle models.
Our business initially depended substantially on the sales and success of the G3, which was our only mass-produced Smart EV in the market prior to May 2020. We started the production of our second mass-produced Smart EV, the P7, in May 2020. We plan to launch and start production of our third vehicle model, a smart electric sedan, in 2021. Historically, automobile customers have come to expect a variety of vehicle models offered in an OEMs fleet and new and improved vehicle models to be introduced frequently. In order to meet these expectations, we plan to launch a new model every year to enrich our product portfolio, as well as periodically introducing new versions of existing vehicle models. To the extent our product variety and cycles do not meet consumer expectations, or cannot be produced on our projected timelines and cost and volume targets, our future sales may be adversely affected. Given that for the foreseeable future our business will depend on a limited number of models, to the extent a particular model is not well-received by the market, our sales volume could be materially and adversely affected. This could have a material adverse effect on our business, prospects, financial condition and operating results.
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Our business and prospects depend significantly on our ability to build our Xpeng brand. We may not succeed in continuing to maintain and strengthen the Xpeng brand, and our brand and reputation could be harmed by negative publicity regarding our company, products or services.
Our business and prospects are heavily dependent on our ability to develop, maintain and strengthen the Xpeng brand. If we do not continue to develop, maintain and strengthen our brand, we may lose the opportunity to build a critical mass of customers. Promoting and positioning our brand will likely depend significantly on our ability to provide high quality Smart EVs and services, and we have limited experience in these areas. In addition, we expect that our ability to develop, maintain and strengthen the Xpeng brand will depend heavily on the success of our sales and marketing efforts. For example, we seek to enhance our brand recognition by locating a substantial majority of our stores, including direct stores and franchised stores, in shopping malls in tier-one and tier-two cities. We also advertise our Smart EVs through various online channels, including several social media platforms and e-commerce platforms. While we seek to optimize resource allocation through careful selection of sales and marketing channels, such efforts may not achieve the desired results. To promote our brand, we may be required to change our branding practices, which could result in substantially increased expenses, including the need to utilize traditional media and offline advertising. If we do not develop and maintain a strong brand, our business, prospects, financial condition and operating results will be materially and adversely impacted.
If incidents occur or are perceived to have occurred, whether or not such incidents are our fault, we could be subject to adverse publicity. In particular, given the popularity of social media in China, any negative publicity, whether true or not, could quickly proliferate and harm consumer perceptions and confidence in our brand. In addition, from time to time, our Smart EVs are evaluated and reviewed by third parties. Any negative reviews or reviews which compare us unfavorably to competitors could adversely affect consumer perception about our Smart EVs.
We are dependent upon our relationship with Haima for the manufacturing of the G3, and we may utilize the Haima plant to produce other models in the future.
In March 2017, we entered into a contract manufacturing arrangement with Haima Automobile Co., Ltd., or Haima, a China-based automotive manufacturer, for the manufacturing of our vehicles. The agreements relating to this arrangement will expire on December 31, 2021 and are renewable by mutual consent. Haima has over three decades of automotive manufacturing experience, and it has provided a plant in Zhengzhou for the manufacturing of the G3. We also have the option to utilize the Haima plant to produce other models in the future.
While we take comprehensive measures to ensure that Haima manufactures our Smart EVs in accordance with our standards, there can be no assurance that such measures will be effective. Collaboration with a third party for the manufacturing of vehicles is subject to risks with respect to operations over which we have limited control. We could experience delays to the extent Haima do not meet agreed upon timelines or experience capacity constraints as well as quality issues. There is risk of potential disputes with Haima, and we could be affected by adverse publicity related to Haima, whether or not such publicity is related to its collaboration with us. Our ability to successfully build our brand could also be adversely affected by perceptions about the quality of Haimas vehicles. In addition, although we are closely involved in each step of the supply chain and manufacturing process, given that we also rely on Haima to meet our quality standards, there can be no assurance that we will successfully maintain quality standards of the Smart EVs produced at the Haima plant.
We may be unable to enter into new agreements or extend existing agreements with Haima on terms and conditions acceptable to us and therefore may need to contract with other third parties or significantly add to our own production capacity. There can be no assurance that in such event we would be able to partner with other third parties or expand our own production capacity to meet our needs on acceptable terms or at all. The expense and time required to complete any transition and to assure that vehicles manufactured at facilities of new third-
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party partners comply with our quality standards and regulatory requirements may be greater than anticipated. Any of the foregoing could adversely affect our business, results of operations, financial condition and prospects.
Any problems or delays in ramping and maintaining operations of the Zhaoqing plant could negatively affect the production of our Smart EVs.
To exercise direct control over product quality and gain more flexibility in adjusting our manufacturing process and production capacity, we built our own plant in Zhaoqing, Guangdong province. The Zhaoqing plant is initially utilized for production of the P7 and will also be utilized for future models. Our future operation and prospects depend on the successful ramping and maintaining of operation in the Zhaoqing plant. In addition, we need to effectively control cost of production at the Zhaoqing plant. While we intend to utilize the manufacturing know-how accumulated through our collaboration with Haima, we do not have other direct experience in the production of Smart EVs. Given the size and complexity of this undertaking, it is possible that we may experience issue, delays or cost overruns in further expanding the production output at the Zhaoqing plant. If we experience any issues or delays in meeting our projected timelines, costs, capital efficiency and production capacity for our Zhaoqing plant, our business, prospects, operating results and financial condition could be adversely impacted.
We are dependent on our suppliers, some of which are single-source suppliers. Suppliers may fail to deliver necessary components of our Smart EVs according to our schedule and at prices, quality levels and volumes acceptable to us.
We procure components from both domestic suppliers and global suppliers, some of which are currently our single-source suppliers for certain components. We attempt to mitigate our supply chain risk by qualifying and obtaining components from multiple sources where practicable and maintaining safety stock for certain key components and components with lengthy procurement lead times. For example, some of our suppliers were unable to deliver sufficient components to us due to the COVID-19 outbreak and we had to switch to alternative suppliers. See The COVID-19 outbreak has adversely affected, and may continue to adversely affect, our results of operations. However, we may still experience component shortages for our production or the components may not meet our specifications or quality needs. Furthermore, qualifying alternative suppliers or developing our own replacements for certain highly customized components of our Smart EVs may be time consuming and costly. Any disruption in the supply of components, whether or not from a single-source supplier, could temporarily disrupt production of our Smart EVs until an alternative supplier is fully qualified by us or we are able to procure the relevant components in sufficient quantities from other existing suppliers. For example, we do not manufacture certain key hardware components for our autonomous driving system, such as semiconductors, millimeter-wave radars, ultrasonic sensors and cameras, and we import certain of such components from foreign countries. The loss of any supplier for any reason, including any export control measures adopted by any foreign country to limit the import of supplies into China, could lead to vehicle design changes, production delays and potential loss of access to important technologies, any of which could result in quality issues, delays and disruptions in deliveries, negative publicity and damage to our brand. In addition, our suppliers may fail to comply with applicable laws and regulations, or they may be involved in product liability claims or incidents of negative publicity. If any of these incidents occur, customers may also lose confidence in our Smart EVs that incorporate components from the relevant suppliers, and our reputation, business and results of operations could be adversely affected. Developments that we cannot presently anticipate, such as changes in business conditions or government policies, natural disasters or epidemics, could also affect our suppliers ability to deliver components to us in a timely manner.
Any significant increases in our production, such as the launch of a new model, has required and may in the future require us to procure additional components in a short amount of time. Our suppliers may not ultimately be able to sustainably and timely meet our cost, quality and volume needs, requiring us to replace them with other sources. While we believe that we will be able to secure additional or alternative sources of supply for most of our components in a relatively short time frame, there is no assurance that we will be able to do so or develop
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our own replacements for certain highly customized components. Additionally, we continuously negotiate with existing suppliers to obtain cost reductions and avoid unfavorable changes to terms, seek new and less expensive suppliers for certain parts, and attempt to redesign certain parts to make them less expensive to produce. If we are unsuccessful in our efforts to control and reduce supplier costs, our operating results will suffer.
Furthermore, as the scale of our vehicle production increases, we will need to accurately forecast, purchase, warehouse and transport components to the relevant manufacturing facilities and service stores and at much higher volumes. If we are unable to accurately match the timing and quantities of component purchases to our actual needs or successfully implement automation, inventory management and other systems to accommodate the increased complexity in our supply chain, we may incur unexpected production disruption, as well as storage, transportation and write-off costs, which could have a material adverse effect on our financial condition and operating results.
Increases in costs, disruption of supply or shortage of components and materials could have a material adverse impact on our business.
We incur significant costs related to procuring components and raw materials required to manufacture our Smart EVs. We may experience cost increases, supply interruption and/or shortages relating to components and raw materials, which could materially and adversely impact our business, prospects, financial condition and operating results. We use various components and raw materials in our business, such as steel, aluminum, as well as lithium battery cells. The prices for these materials fluctuate, and their available supply may be unstable, depending on market conditions and global demand for these materials, including as a result of increased production of EVs by our competitors, and could adversely affect our business and operating results.
For instance, we are exposed to multiple risks relating to lithium battery cells. These risks include:
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an increase in the cost, or decrease in the available supply, of materials used in the battery cells, such as lithium, nickel, cobalt and manganese; |
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disruption in the supply of battery cells due to quality issues or recalls by battery cell manufacturers; and |
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the inability or unwillingness of our current battery cell manufacturers to build or operate battery cell manufacturing plants to supply the numbers of lithium cells required to support the growth of the EV industry as demand for such battery cells increases. |
Our business is dependent on the continued supply of battery cells for the battery packs used in our Smart EVs. While we believe several sources of the battery cells are available for such battery packs, we have to date fully qualified only a very limited number of suppliers for the battery cells used in such battery packs and have very limited flexibility in changing battery cell suppliers. Any disruption in the supply of battery cells from such suppliers could disrupt production of our Smart EVs until such time as a different supplier is fully qualified. There can be no assurance that we would be able to successfully retain alternative suppliers on a timely basis, on acceptable terms or at all.
Furthermore, tariffs or shortages in petroleum and other economic conditions may result in significant increases in freight charges and material costs. In addition, a growth in popularity of EVs without a significant expansion in battery cell production capacity could result in shortages which would result in increased materials costs to us or impact our prospects. Substantial increases in the prices for our raw materials or components would increase our operating costs, and could reduce our margins if we cannot recoup the increased costs through increased vehicle prices. Any attempts to increase product prices in response to increased material costs could result in decrease in sales and therefore materially and adversely affect our brand, image, business, prospects and operating results.
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Any delays in the manufacturing and launch of the commercial production vehicles in our pipeline could have a material adverse effect on our business.
We started the production of our first mass-produced Smart EV, the G3, in November 2018 and our second mass-produced Smart EV, the P7, in May 2020. We plan to launch and start production of our third vehicle model, a smart electric sedan, in 2021. We plan to launch a new model every year to enrich our product portfolio and offer customers more selections. OEMs often experience delays in the design, manufacture and commercial release of new vehicle models. To the extent we need to delay the launch of our Smart EVs, our growth prospects could be adversely affected as we may fail to grow our market share. We also plan to periodically perform facelifts or refresh existing models, which could also be subject to delays. Furthermore, we rely on third-party suppliers for the provision and development of many of the key components used in our Smart EVs. To the extent our suppliers experience any delays in providing us with or developing necessary components or experience quality issues, we could experience delays in delivering on our timelines. Any delay in the manufacture and launch of our third model or future models, including in the ramp up of our Zhaoqing plant or due to any other factors, or in performing facelifts to existing models, could lead to customer dissatisfaction and materially and adversely affect our reputation, demand for our Smart EVs, results of operations and growth prospects.
We may not be able to expand our physical sales and service network cost-efficiently, and our franchise model is subject to a number of risks.
As of June 30, 2020, our physical sales and service network consisted of 44 direct stores and 103 franchised stores. We plan to further expand our physical sales and service network through a balanced combination of direct stores and franchised stores. This planned expansion may not have the desired effect of increasing sales and enhancing our brand recognition in a cost-efficient manner. We may need to invest significant capital and management resources to operate existing direct stores and open new ones, and there can be no assurance that we will be able to improve the operational efficiency of our direct stores.
While our franchise model enables us to pursue an asset-light expansion strategy, such model is also subject to a number of risks. We may not be able to identify, attract and retain a sufficient number of franchisees with the requisite experience and resources to operate franchised stores. Our franchisees are responsible for the day-to-day operation of their stores. Although we offer the same trainings and implement the same service standards for staff from both direct stores and franchised stores, we have limited control over how our franchisees businesses are run. If our franchisees fail to deliver high quality customer service and resolve customer complaints in a timely manner, or if any of their misconduct leads to damages to our brand image and reputation, our business could be adversely affected. In addition, our agreements with certain of our franchisees are non-exclusive. While they are required to only sell our Smart EVs in the Xpeng-branded franchised stores, they may operate other stores that sell vehicles of other brands. These franchisees may dedicate more resources to the stores outside of our sales network and may not be able to successfully implement our sales and marketing initiatives, which in turn may harm our business, prospects, financial condition and results of operation.
If we are unable to provide quality services, our business and reputation may be materially and adversely affected.
We aim to provide consumers with a good customer service experience, including providing our customers with access to a comprehensive suite of charging solutions, after-sales services and value-added services, as well as software subscriptions. Our services may fail to meet our customers expectations, which could adversely affect our business, reputation and results of operations. Furthermore, we plan to roll out a vehicle software subscription model, which may not achieve wide customer acceptance. We also plan to expand our subscription offerings to include other premium features in the future. If we fail to receive the expected number of orders for such subscriptions, our business, results of operations and financial condition would be materially and adversely affected.
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Offline after-sale services are primarily carried out by franchised service stores. We and our franchisees have limited experience in servicing our Smart EVs. Servicing EV is different from servicing ICE vehicles and requires specialized skills, including high voltage training and servicing techniques. There can be no assurance that our after-sale service arrangements will adequately address the service requirements of our customers to their satisfaction, or that we and our franchisees will have sufficient resources to meet these service requirements in a timely manner as the volume of vehicles we deliver increases. Moreover, we provide value-added services, including insurance agency service, automotive loan referral, finance lease, in-car payment and ride-hailing, and we may expand our value-added services in the future. However, we cannot assure you that we will be able to successfully monetize our value-added services. In addition, we are subject to certain risks relating to our ride hailing service. For example, the drivers may be involved in accidents or misconducts, which could result in personal injuries, property damage or other harms for passengers and third parties, as well as reputational damage and significant liabilities for us.
In addition, we seek to engage with our customers on an ongoing basis using online and offline channels. If we are unable to roll out and establish a broad service network covering both online and offline channels, consumer experience could be adversely affected, which in turn could materially and adversely affect our sales, results of operations and prospectus.
We may face challenges in providing charging solutions.
We have marketed our ability to provide our customers a convenient charging experience. We offer installation of home chargers for our customers. Customers may also charge through Xpeng-branded super charging stations and third-party charging piles. We plan to expand our charging network primarily by partnering with third parties. As of June 30, 2020, we offer a charging network that is connected to over 200,000 third-party charging piles across China. There can be no assurance that our partners will continue to expand their charging facilities, or that such partners will continue their cooperation on terms acceptable to us, or at all. As a result, we may need to invest significant capital to establish and operate more Xpeng-branded super charging stations and/or engage additional franchisees to operate such stations. In addition, the installation of home chargers is handled by third-party service providers, and their service may not meet our customers expectations. To the extent we or the relevant third parties are unable to meet customer expectations or experience difficulties in providing charging solutions, our reputation and business may be materially and adversely affected.
The range of our Smart EVs on a single charge declines over time which may negatively influence potential customers decisions whether to purchase our Smart EVs.
The range of our Smart EVs on a single charge declines principally as a function of usage, time and charging patterns as well as other factors. For example, a customers use of his or her Smart EV as well as the frequency with which the battery is charged can result in additional deterioration of the batterys ability to hold a charge. Battery deterioration and the related decrease in range may negatively influence potential customer decisions whether to purchase our Smart EVs, which may adversely affect our ability to market and sell our Smart EVs. There can be no assurance that we will be able to continue to improve cycle performance of our battery packs in the future.
Our business plans require a significant amount of capital. In addition, our future capital needs may require us to sell additional equity or debt securities that may dilute our shareholders or introduce covenants that may restrict our operations or our ability to pay dividends.
We will need significant capital to, among other things, conduct research and development, ramping up our production capacity and expand our sales and service network. As we ramp up our production capacity and operations, we may also require significant capital to maintain our property, plant and equipment and such costs may be greater than anticipated. We expect that our level of capital expenditures will be significantly affected by user demand for our Smart EVs and services. Given we have a limited operating history, we have limited
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historical data on the demand for our Smart EVs and services. As a result, our future capital requirements may be uncertain and actual capital requirements may be different from those we currently anticipate. We plan to seek equity or debt financing to finance a portion of our capital expenditures. Such financing might not be available to us in a timely manner or on terms that are acceptable, or at all.
Our ability to obtain the necessary financing to carry out our business plan is subject to a number of factors, including general market conditions and investor acceptance of our business plan. These factors may make the timing, amount, terms and conditions of such financing unattractive or unavailable to us. In particular, recent disruptions in the financial markets and volatile economic conditions could affect our ability to raise capital. If we are unable to raise sufficient funds, we will have to significantly reduce our spending or delay or cancel our planned activities. In addition, our future capital needs and other business reasons could require us to sell additional equity or debt securities or obtain a credit facility. The sale of additional equity or equity-linked securities could dilute our shareholders. We may also raise equity financing through one or more of our operating subsidiaries in the PRC. As a result, our net loss or net income would be partially attributable to the investors of such operating subsidiaries, which would affect net loss or net income attributable to shareholders of XPeng Inc. The incurrence of indebtedness would result in increased debt service obligations. Any financial or other restrictive covenants would restrict our operations or our ability to pay dividends to our shareholders.
Our industry is rapidly evolving and may be subject to unforeseen changes. Developments in alternative technologies or improvements in the ICE may materially and adversely affect the demand for our Smart EVs.
We operate in Chinas EV market, which is rapidly evolving and may not develop as we anticipate. The regulatory framework governing the industry is currently uncertain and may remain uncertain for the foreseeable future. As our industry and our business develop, we may need to modify our business model or change our products and services. These changes may not achieve expected results, which could have a material adverse effect on our results of operations and prospects.
Developments in alternative technologies, such as advanced diesel, ethanol, fuel cells or compressed natural gas, or improvements in the fuel economy of the internal combustion engine, may materially and adversely affect our business and prospects in ways we do not currently anticipate. In addition, a sustained depression of petroleum price could make the ownership of ICE vehicles more attractive to consumers. Any failure by us to successfully react to changes in alternative technologies and market conditions could materially harm our competitive position and growth prospects.
Our future growth is dependent upon consumers willingness to adopt EVs and specifically our Smart EVs.
The demand for our Smart EVs and services will highly depend upon the adoption by consumers of NEVs in general and EVs in particular. The market for NEVs is still rapidly evolving, characterized by rapidly changing technologies, prices and the competitive landscape, evolving government regulation and industry standards and changing consumer demands and behaviors.
Other factors that may influence the adoption of NEVs, and specifically EVs, include:
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perceptions about EV quality, safety, design, performance and cost, especially if adverse events or accidents occur that are linked to the quality or safety of EVs, whether or not such vehicles are produced by us or other OEMs; |
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perceptions about vehicle safety in general, in particular safety issues that may be attributed to the use of advanced technologies, such as autonomous driving and lithium battery cells; |
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the limited range over which EVs may be driven on a single battery charge and the speed at which batteries can be charged; |
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the decline of an EVs range resulting from deterioration over time in the batterys ability to hold a charge; |
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the availability of other types of NEVs, including plug-in hybrid electric vehicles; |
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improvements in the fuel economy of the internal combustion engine; |
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the availability of after-sales service for EVs; |
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the environmental consciousness of consumers; |
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access to charging stations, standardization of EV charging systems and consumers perceptions about convenience and cost for charging an EV; |
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the availability of tax and other governmental incentives to purchase and operate EVs or future regulation requiring increased use of nonpolluting vehicles; |
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perceptions about and the actual cost of alternative fuel; and |
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macroeconomic factors. |
Any of the factors described above may cause current or potential customers not to purchase our Smart EVs and use our services. If the market for EVs does not develop as we expect or develops more slowly than we expect, our business, prospects, financial condition and operating results will be affected.
Our financial results may vary significantly from period to period due to the seasonality of our business and fluctuations in our operating costs.
Our operating results may vary significantly from period to period due to many factors, including seasonal factors that may have an effect on the demand for our Smart EVs. Demand for new cars typically decline over the winter season and during the Chinese New Year holiday, while sales are generally higher in September and October. Our limited operating history makes it difficult for us to judge the exact nature or extent of the seasonality of our business. We may record significant increase in revenues when we commence mass delivery of a new product to fulfill customer orders accumulated in prior periods, but we may not be able to maintain our revenue at similar levels in subsequent periods. Also, any health pandemic or epidemics such as the COVID-19 outbreak and natural disasters such as unusually severe weather conditions in some markets may impact demand for, and our ability to manufacture and deliver, our Smart EVs. Our operating results could also suffer if we do not achieve revenue consistent with our expectations for this seasonal demand because many of our expenses are based on anticipated levels of annual revenue.
We also expect our period-to-period operating results to vary based on our operating costs, which we anticipate will increase significantly in future periods as we, among other things, design and develop new models, develop new technological capabilities, ramp up our manufacturing facilities and expand our physical sales network, as well as expanding our general and administrative functions to support our growing operations. We may incur substantial research and development and/or selling expenses when we develop and/or promote a new product in a given period without generating any revenue from such product until we start delivery of such products to customers in future periods. As a result of these factors, we believe that period-to-period comparisons of our operating results are not necessarily meaningful and that these comparisons may not be indicative of future performance. Moreover, our operating results may not meet expectations of equity research analysts or investors. If this occurs, the trading price of our ADSs could fall substantially either suddenly or over time.
If we fail to effectively manage the credit risks related to our finance lease program, our business may be adversely affected.
We cooperate with banks and connect them with customers who seek automotive financing solutions. We believe the availability of financing options is important to our customers. If affordable automotive financing solutions are not available for our customers, we may not be able to grow our sales. To complement the banks services, we also offer finance leases to our customers through a wholly-owned subsidiary, and we record the
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relevant finance leases on our balance sheet. As of June 30, 2020, the amount of finance lease receivables was RMB167.0 million (US$23.6 million). As we continue to grow our business, we may increase the amount of finance leases we offer. We may not be able to obtain adequate funding for our finance lease program. We may also fail to effectively manage the credit risks related to our finance lease program, which would materially and adversely affect our business, results of operations and financial condition. In addition, if we do not successfully monitor and comply with applicable national and/or local financial regulations and consumer protection laws governing finance lease transactions, we may become subject to enforcement actions or penalties, which would adversely affect our business.
Any cyber-attacks, unauthorized access or control of our Smart EVs systems could result in loss of confidence in us and our Smart EVs and harm our business.
Our Smart EVs contain complex information technology systems to support smart technology functions and to accept and install periodic OTA firmware updates. We have designed, implemented and tested security measures intended to prevent unauthorized access to our information technology networks and our Smart EVs technology systems. However, hackers may attempt to gain unauthorized access to modify, alter and use such networks and systems. We encourage reporting of potential vulnerabilities in the security of our Smart EVs, and we aim to remedy any reported and verified vulnerability. However, there can be no assurance that vulnerabilities will not be exploited in the future before they can be identified, or that our remediation efforts are or will be successful. Any cyber-attacks, unauthorized access, disruption, damage or control of our information technology networks or our Smart EVs systems or any loss or leakage of data or information stored in our systems could result in legal claims or proceedings. In addition, regardless of their veracity, reports of cyber-attacks to our information technology networks or our Smart EVs systems or data, as well as other factors that may result in the perception that our information technology networks or our Smart EVs systems or data are vulnerable to hacking, could negatively affect our brand and harm our business, prospects, financial condition and results of operation.
Actual or alleged failure to comply with data privacy and protection laws and regulations could damage our reputation, and discourage consumers from purchasing our Smart EVs.
We are subject to various data privacy and protection laws and regulations in China, including, without limitation, the PRC Cyber Security Law. Pursuant to these laws and regulations, a service provider is required to obtain a users consent to collect the users personal information. See RegulationsRegulation Related to Internet Security and Privacy Protection.
We have adopted strict information security policies, and we use a variety of technologies to protect the data with which we are entrusted. We mainly collect and store data relating to the usage of our Smart EVs, the autonomous driving system and intelligent operating system, as well as data collected through our sales and services channels. To the extent we collect customer information, we obtain prior consent from our customers in accordance with applicable laws and regulations. We de-sensitize customer data by removing personally identifiable information, when such information is not relevant to our business. We then analyze such information to improve our technologies, products and services. We use a variety of technologies to protect the data with which we are entrusted. For further information, see BusinessData Privacy and Security.
Nevertheless, collection, use and transmission of customer data may subject us to legislative and regulatory burdens in China and other jurisdictions, which could, among other things, require notification of data breach, restrict our use of such information and hinder our ability to acquire new customers or serve existing customers. If we were found to be in violation of customers rights to data privacy, we could face administrative investigation, disciplinary actions, civil claims and reputational damage. We may incur significant expenses to comply with laws and regulations relating to data privacy, data security and consumer protection, as well as relevant industry standards and contractual obligations. If third parties improperly obtain and use the personal information of our customers, we may be required to expend significant resources to resolve such problems.
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In addition, the interpretation and application of personal information protection laws and regulations and standards are still uncertain and evolving. We cannot assure you that relevant governmental authorities will not interpret or implement the laws or regulations in ways that negatively affect us. We may also become subject to additional or new laws and regulations regarding the protection of personal information or privacy-related matters in connection with our methods for data collection and storage. In addition to the regulatory requirements, consumer attitudes towards data privacy are also evolving, and consumer concerns about the extent to which their data is collected by us may adversely affect our ability to gain access to data and improve our technologies, products and services. Furthermore, the integrity of our data protection measures could be compromised by system failures, security breaches or cyber-attacks. If we are unable to comply with the applicable laws and regulations or effectively address data privacy and protection concerns, such actual or alleged failure could damage our reputation, discourage consumers from purchasing our Smart EVs and subject us to significant legal liabilities.
Interruption or failure of our information technology and communications systems could impact our ability to effectively provide our services.
We enable our customers to access a variety of features and services through our mobile apps. In addition, certain of Smart EVs features depend to a certain extent on connectivity to our information technology systems. As such, the availability and effectiveness of our services depend on the continued operation of our information technology and communications systems. Our systems are vulnerable to damage or interruption from, among others, fire, terrorist attacks, natural disasters, power loss, telecommunications failures, computer viruses or other attempts to harm our systems. Our data centers are also subject to break-ins, sabotage, and intentional acts of vandalism, and to potential disruptions. Some of our systems are not fully redundant, and our disaster recovery planning cannot account for all eventualities. Any problems at our data centers could result in lengthy interruptions in our service. In addition, our products and services are highly technical and complex and may contain errors or vulnerabilities, which could result in interruptions in our services or the failure of our systems.
Our business depends substantially on the continuing efforts of our executive officers, key employees and qualified personnel, and our operations may be severely disrupted if we lose their services.
Our success depends substantially on the continued efforts of our executive officers and key employees. If one or more of our executive officers or key employees were unable or unwilling to continue their services with us, we might not be able to replace them easily, in a timely manner, or at all. As we build our brand and become more well-known, the risk that competitors or other companies may poach our talent increases. Our industry is characterized by high demand and intense competition for talent and therefore we cannot assure you that we will be able to attract or retain qualified staff or other highly skilled employees. In addition, because our Smart EVs are based on a different technology platform than traditional ICE vehicles, individuals with sufficient training in Smart EVs may not be available to hire, and we will need to expend significant time and expense training the employees we hire. We also require sufficient talent in areas such as software development. Furthermore, as our company is relatively young, our ability to train and integrate new employees into our operations may not meet the growing demands of our business, which may materially and adversely affect our ability to grow our business and our results of operations.
If any of our executive officers and key employees terminates his or her services with us, our business may be severely disrupted, our financial condition and results of operations may be materially and adversely affected and we may incur additional expenses to recruit, train and retain qualified personnel. We have not obtained any key person insurance on our key personnel. If any of our executive officers or key employees joins a competitor or forms a competing company, we may lose customers, know-how and key professionals and staff members. Each of our executive officers and key employees has entered into an employment agreement and a non-compete agreement with us. However, if any dispute arises between our executive officers or key employees and us, the non-competition provisions contained in their non-compete agreements may not be enforceable, especially in China, where these executive officers reside, on the ground that we have not provided adequate compensation to them for their non-competition obligations, which is required under relevant PRC laws.
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Misconduct by our employees during and before their employment with us could expose us to potentially significant legal liabilities, reputational harm and/or other damages to our business.
Many of our employees play critical roles in ensuring the safety and reliability of our products and services and/or our compliance with relevant laws and regulations. Certain of our employees have access to sensitive information and/or proprietary technologies and know-how. While we have adopted codes of conduct for all of our employees and implemented detailed policies and procedures relating to intellectual property, proprietary information and trade secrets, we cannot assure you that our employees will always abide by these codes, policies and procedures nor that the precautions we take to detect and prevent employee misconduct will always be effective. If any of our employees engage in any misconduct, illegal or suspicious activities, including but not limited to, misappropriation or leakage of sensitive client information or proprietary information, we and such employees could be subject to legal claims and liabilities and our reputation and business could be adversely affected as a result.
In addition, while we have screening procedures during the recruitment process, we cannot assure you that we will be able to uncover misconduct of job applicants that occurred before we offered them employment, or that we will not be affected by legal proceedings against our existing or former employees as a result of their actual or alleged misconduct. For example, one former employee of ours was arrested and then charged in July 2018 with stealing trade secrets from his previous employer, Apple. Although the alleged theft occurred before he was employed by us, we were subpoenaed by the grand jury to produce certain documents. Another employee of ours was sued by Tesla in March 2019 for misappropriation of trade secrets while he was employed by Tesla. We cooperated with Tesla and provided various documents and information relating to the employee to Tesla upon their request. However, we had to file a motion to quash Teslas further discovery requests that we believe are unreasonable. While the court denied many of Teslas requests, it has directed us to produce certain materials, including our source code and source code logs, for confidential inspection subject to the protective order in this case. While we have put in place various safeguards to address the risk of unauthorized third-party information being introduced into our systems or used in our operations, and based on internal investigation, we are confident that neither of these two employees introduced or used any external confidential information in our systems or business operations, we had to spend significant amount of time and efforts to handle these matters and answer related inquiries. Moreover, although we are not a defendant in either of these cases, discovery in these cases is still ongoing, and we could be further involved in these or other related proceedings that may arise in the future, or be forced to defend against any allegations arising out of these cases or other allegations in the future, even when the allegations are not justified. Any negative publicity surrounding these cases, especially in the event that any of these employees is found to have committed any wrongdoing, could negatively affect our reputation and may have an adverse impact on our business.
We may become subject to product liability claims, which could harm our financial condition and liquidity if we are not able to successfully defend against such claims.
If we become liable for product liability claims, our business, operating results and financial condition may be harmed. The automotive industry experiences significant product liability claims and we face inherent risk of exposure to claims in the event our Smart EVs do not meet applicable standards or requirements, resulting in property damage, personal injury or death. Our risks in this area are particularly pronounced given we have limited experience of offering Smart EVs. Although we implement full-cycle quality control, covering design, procurement, production, sales and after-sales services, we cannot assure you that our quality control measures will be as effective as we expect. Any failure in any of our quality control steps would cause a defect in our Smart EVs, and in turn, could harm our customers. A successful product liability claim against us could require us to pay a substantial monetary award. Moreover, a product liability claim could generate substantial negative publicity about our Smart EVs and business and inhibit or prevent commercialization of our future Smart EVs, which would have material adverse effect on our brand, business, prospects, financial condition and results of operations.
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In China, vehicles must meet or exceed all mandated safety standards. Rigorous testing and the use of approved materials and equipment are among the requirements for achieving such standards. Vehicles must pass various tests and undergo a certification process and be affixed with China Compulsory Certification, or CCC, before receiving delivery from the factory, being sold, or being used in any commercial activity, and such certification is also subject to periodic renewal. Although our G3 and P7 have received CCC certifications, we cannot assure you that each of our future Smart EV models will be able to receive such certifications. Furthermore, the government carries out the supervision and scheduled and unscheduled inspection of certified vehicles on a regular basis. In the event that our certification fails to be renewed upon expiry, a certified vehicle has a defect resulting in quality or safety accidents, or consistent failure of certified vehicles to comply with certification requirements is discovered during follow-up inspections, the CCC may be suspended or even revoked. With effect from the date of revocation or during suspension of the CCC, any vehicle that fails to satisfy the requirements for certification may not continue to be delivered, sold or used in any commercial activity. Failure of any of our Smart EV models to satisfy motor vehicle standards would have a material adverse effect on our business, prospects, financial condition and results of operations.
We may choose to or be compelled to undertake product recalls or take other similar actions, which could adversely affect our brand image, business and results of operations.
If our Smart EVs are subject to recalls in the future, we may be subject to adverse publicity, damage to our brand and liability for costs. In the future, we may at various times, voluntarily or involuntarily, initiate a recall if any of our Smart EVs, including any systems or parts sourced from our suppliers, prove to be defective or noncompliant with applicable laws and regulations. Such recalls, whether voluntary or involuntary or caused by systems or components engineered or manufactured by us or our suppliers, could involve significant expense and could adversely affect our brand image, business and results of operations.
Our Smart EVs make use of lithium cells, and lithium cells may catch fire or vent smoke and flame on rare occasions.
Our Smart EVs battery packs make use of lithium cells. On rare occasions, lithium cells can rapidly release the energy they contain by venting smoke and flames in a manner that can ignite nearby materials as well as other lithium cells. While our batteries are built with robust safety features and strong thermal management capabilities, there can be no assurance that our batteries will always function safely. If any safety accident occurs to any of our Smart EVs battery pack, we could be subject to lawsuits, product recalls or redesign efforts, all of which would be time consuming and expensive. Also, negative public perceptions regarding the suitability of lithium cells for automotive applications or any future incident involving lithium cells, such as a vehicle fire, even if such incident does not involve our Smart EVs, could seriously harm customers confidence in our Smart EVs.
If our vehicle owners customize our Smart EVs or change the charging infrastructure with aftermarket products, the vehicle may not operate properly.
Automobile enthusiasts may seek to hack our Smart EVs to modify their performance which could compromise vehicle safety systems. Also, customers may customize our Smart EVs with after-market parts that can compromise driver safety. We do not test, nor do we endorse, such changes. In addition, the use of improper external cabling or unsafe charging outlets can expose our customers to injury from high voltage electricity. Such unauthorized modifications could reduce the safety of our Smart EVs and any injuries resulting from such modifications could result in adverse publicity, which would negatively affect our brand and harm our business, prospects, financial condition and results of operations.
We may need to defend ourselves against patent or trademark infringement claims, which may be time-consuming and would cause us to incur substantial costs.
Companies, organizations or individuals, including our competitors, may hold or obtain patents, trademarks or other proprietary rights that would prevent, limit or interfere with our ability to make, use, develop, sell or
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market our Smart EVs, which could make it more difficult for us to operate our business. From time to time, we may receive communications from holders of patents, copyrights or trademarks regarding their proprietary rights. Companies holding patents, copyrights, trademarks or other intellectual property rights may bring suits alleging infringement of such rights by us or our employees or otherwise assert their rights and urge us to take licenses. Any such intellectual property infringement claim could result in costly litigation and divert our managements attention and resources.
If we or our employees are determined to have infringed upon a third partys intellectual property rights, we may be required to do one or more of the following:
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cease offering Smart EVs or services that incorporate or use the challenged intellectual property; |
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pay substantial damages; |
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seek a license from the holder of the infringed intellectual property right, which license may not be available on reasonable terms or at all; |
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redesign our Smart EVs or relevant services which would incur significant cost; or |
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establish and maintain alternative branding for our Smart EVs and services. |
In the event of a successful claim of infringement against us and our failure or inability to obtain a license to the infringed technology or other intellectual property right, our business, prospects, financial condition and results of operation could be materially and adversely affected. In addition, any litigation or claims, whether or not valid, could result in substantial costs, negative publicity and diversion of resources and management attention.
We may not be able to prevent others from unauthorized use of our intellectual property, which could harm our business and competitive position.
We rely on a combination of patents, trademarks, copyrights, trade secrets and confidentiality agreements to protect our proprietary rights. As of June 30, 2020, we had 450 patents (including 52 invention patents), 1,047 pending patent applications, 451 registered trademarks and 86 pending trademark applications in China and certain other jurisdictions, which we have invested significant resources to develop. We rely on trademark and patent law, trade secret protection and confidentiality and license agreements with our employees and others to protect our intellectual proprietary rights. In addition, any unauthorized use of our intellectual property by third parties may adversely affect our current and future revenues and our reputation.
There can be no assurance that our application for the registration with competent government authorities of trademarks and other intellectual property rights related to our current or future business will be approved, or our intellectual property rights will not be challenged by third parties or found by the relevant governmental or judicial authority to be invalid or unenforceable. From time to time, we may encounter difficulties registering our trademarks or other intellectual properties or have disputes with third parties regarding our trademarks or other intellectual properties. If the relevant trademarks or other intellectual properties could not be registered, we may fail to prevent others from using such intellectual properties, and our business, financial condition and results of operations may be materially and adversely affected.
Implementation and enforcement of PRC intellectual property-related laws have historically been deficient and ineffective. Accordingly, protection of intellectual property rights in China may not be as effective as in the United States or other developed countries. Furthermore, policing unauthorized use of proprietary technology is difficult and expensive. Despite our efforts to protect our proprietary rights, third parties may attempt to copy or otherwise obtain and use our intellectual property or seek court declarations that they do not infringe upon our intellectual property rights. Monitoring unauthorized use of our intellectual property is difficult and costly, and we cannot assure you that the steps we have taken or will take will prevent misappropriation of our intellectual property. From time to time, we may have to resort to litigation to enforce our intellectual property rights, which could result in substantial costs and diversion of our resources.
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In addition, as our patents may expire and may not be extended and our patent rights may be contested, circumvented, invalidated or limited in scope, our patent rights may not protect us effectively. In particular, we may not be able to prevent others from developing or exploiting competing technologies, which could have a material and adverse effect on our business operations, financial condition and results of operations.
The use of certain premises may be disrupted if the land-use-purpose statutory provisions are strictly enforced by competent government authorities.
We lease a number of properties for our stores, service centers, offices and self-operated charging stations across China. Certain leased properties are not used in accordance with the designated purposes of such properties. For example, some stores or offices are currently located on lands designated for industrial usage instead of commercial usage. Under the PRC legal regime regarding the land use right, land shall be used strictly in line with the approved usage of the land. Any change as contemplated to the usages of land shall go through relevant land alteration registration procedures. If any state-owned land is illegally used beyond the approved usage, the land administrative departments of the PRC governments at and above the county level may retrieve the land and impose a fine. As such, our usage of such leased properties may subject the landlords to retrieval of land or removal of the buildings by the PRC government authorities and therefore we may need to move our stores, offices or charging stations somewhere else and additional relocation costs will be incurred.
In addition, certain leased properties had been mortgaged by the landlords to third parties before entering into lease agreements with us, and certain lessors of our leased properties failed to provide the building ownership certificates or other evidence demonstrating their rights to lease such properties. If the mortgagees of the leased properties exercise their mortgage right or the lessors do not actually have the rights to lease the relevant properties to us, we will not be able to continue our leases on the said properties and therefore we may need to relocate the relevant functions somewhere else and additional relocation costs will be incurred.
Our insurance coverage strategy may not be adequate to protect us from all business risks.
We have limited liability insurance coverage for our products and business operations. A successful liability claim against us due to injuries suffered by our customers could materially and adversely affect our financial condition, results of operations and reputation. In addition, we do not have any business disruption insurance. Any business disruption event could result in substantial cost to us and diversion of our resources.
We may not be able to maintain and enhance our strategic relationships with our strategic partners.
Strategic business relationships will be an important factor in the growth and success of our business. Xiaomi, a leading technology company, is one of our strategic investors, and we co-develop digital car keys. We have also formed strategic partnerships with several key suppliers, such as Bosch, Brembo and CATL. If we were unable to maintain and enhance our strategic relationship with any of such partners, our business, financial condition and results of operations would be materially and adversely affected.
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 enhance our competitive position. 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:
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difficulties in assimilating and integrating the operations, personnel, systems, data, technologies, products and services of the acquired business; |
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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; |
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difficulties in retaining, training, motivating and integrating key personnel; |
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diversion of managements time and resources from our normal daily operations and potential disruptions to our ongoing businesses; |
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strain on our liquidity and capital resources; |
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difficulties in executing intended business plans and achieving synergies from such strategic investments or acquisitions; |
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difficulties in maintaining uniform standards, controls, procedures and policies within the overall organization; |
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difficulties in retaining relationships with existing suppliers and other partners of the acquired business; |
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risks of entering markets in which we have limited or no prior experience; |
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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; |
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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; |
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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 |
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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.
Certain of our operating subsidiaries may be required to obtain additional licenses or permits or make additional filings or registrations.
In order to operate our business, we need to obtain a series of licenses, permits and approvals, make filings or complete registrations according to relevant PRC laws and regulations. However, given the significant amount of discretion held by local PRC authorities in interpreting, implementing and enforcing relevant rules and regulations, as well as other factors beyond our control, we cannot guarantee you that we have obtained or will be able to obtain and maintain all requisite licenses, permits, filings and registrations.
For example, PRC governments impose sanctions for engaging in value-added telecommunication services, or the VATS, without having obtained the VATS licenses for relevant categories. These sanctions include corrective orders and warnings from the PRC communication administration authority, fines and confiscation of illegal gains and, in the case of significant infringements, the websites and mobile apps may be ordered to cease
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operation. We have obtained two VATS licenses for Internet content provider, each held by Zhipeng IoV and Yidian Chuxing, respectively. Given that the interpretation of such regulations and PRC regulatory authorities enforcement of such regulations in the context of VATS industry are evolving and remain uncertain, it is unclear whether we are required to obtain other VAT licenses. If we are not able to comply with all applicable legal requirements, we may be subject to fines, confiscation of the gains derived from our non-compliant operations or suspension of our non-compliant operations, any of which may materially and adversely affect our business, financial condition and results of operations.
Certain of our operating subsidiaries that are providing repair and maintenance services have not made the automobile maintenance and management filing with competent government authorities. We may be ordered by the competent government authorities to rectify such non-compliance and may also be subject to fines. In addition, one of our operating subsidiaries that is engaged in the cash settlement activities in relation to our franchised charging stations may be deemed as providing payment services and thus be required to obtain the payment business license. If we were deemed as providing payment services without obtaining the payment business license, we may be ordered by the Peoples Bank of China, or the PBOC, or its local branch to cease the activities related to cash settlement.
In addition, due to the uncertainties regarding the interpretation of the laws and regulations related to online transmission business of audio and visual programs and PRC regulatory authorities enforcement of such laws and regulations, we may be required to obtain a License for Online Transmission of Audio and Visual Programs, as we allow users of our Xpeng mobile app to upload and share audio and video content on the mobile app from time to time. If the government authorities determine that the audio and video uploading feature on our Xpeng mobile app should be subject to this license requirement, we may be required to obtain necessary license and may even be subject to penalties, fines, legal sanctions and/or an order to remove such feature. As of the date of this prospectus, we have not received any notice of warning or been subject to penalties or other disciplinary action from the relevant government authorities regarding the lack of a License for Online Transmission of Audio and Visual Programs.
We may from time to time be subject to claims, disputes, lawsuits and other legal and administrative proceedings.
We are currently not party to any material legal or administrative proceedings. However, in light of the nature of our business, we and our management are susceptible to potential claims or disputes. We and certain of our management have been, and may from time to time in the future be, subject to or involved in various claims, disputes, lawsuits and other legal and administrative proceedings. Lawsuits and litigations may cause us to incur defense costs, utilize a significant portion of our resources and divert managements attention from our day-to-day operations, any of which could harm our business. Claims arising out of actual or alleged violations of law, breach of contract or torts could be asserted against us by customers, business partners, suppliers, competitors, employees or governmental entities in investigations and legal proceedings. In particular, according to the PRC Social Insurance Law and the Administrative Measures on Housing Fund, employers are required, together with their employees or separately, to pay the social insurance premiums and housing funds for their employees. Employers that fail to make adequate social insurance and housing fund contributions may be subject to fines and legal sanctions. If the relevant PRC authorities determine that we shall make supplemental contributions, that we are not in compliance with labor laws and regulations, or that we are subject to fines or other legal sanctions, such as order of timely rectification, and our business, financial condition and results of operation may be adversely affected.
We are subject to various environmental and safety laws and regulations that could impose substantial costs upon us and cause delays in building our manufacturing facilities.
We are subject to multiple environmental and safety laws and regulations related to the manufacture of our Smart EVs, including the use of hazardous materials in the manufacturing process and the operation of our
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manufacturing plant. Such laws and regulations govern the use, storage, discharge and disposal of hazardous materials during the manufacturing process. We are responsible for obtaining and/or periodically renewing the waste disposal permits and other relevant permits for our Zhaoqing plant. There is no assurance that we will be able to obtain or renew such permits in a timely manner.
In addition, from time to time, the government of the PRC issues new regulations, which may require additional actions on our part to comply. If the Zhaoqing plant or any of our other future constructions fails to comply with applicable regulations or maintain the relevant permits, we could be subject to substantial liability for clean-up efforts, personal injury or fines or be forced to close or temporarily cease the operations of the Zhaoqing plant or other relevant constructions, any of which could have a material adverse effect on our business, prospects, financial condition and results of operation. Our business could also be materially and adversely affected if the Haima plant fails to comply with applicable environmental and safety laws and regulations.
If we fail to maintain an effective system of internal control over financial reporting, we may be unable to accurately report our financial results or prevent fraud, and investor confidence in our company and the market price of our ADSs may be adversely affected.
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. 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 connection with the preparation and external audit of our consolidated financial statements as of and for the years ended December 31, 2018 and 2019, we and PricewaterhouseCoopers Zhong Tian LLP, an independent registered public accounting firm, identified one material weakness in our internal control over financial reporting as of December 31, 2019, in accordance with the standards established by the Public Company Accounting Oversight Board of the United States.
The material weakness identified relates to the lack of sufficient financial reporting and accounting personnel with appropriate knowledge of U.S. GAAP, in particular, to (i) develop comprehensive U.S. GAAP accounting policies and financial reporting procedures to address complex U.S. GAAP technical accounting issues and (ii) prepare and review our consolidated financial statements and related disclosures in accordance with U.S. GAAP and financial reporting requirements set forth by the SEC. We have implemented and are continuing to implement a number of measures to address the material weakness that has 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 reporting. Commencing with our fiscal year ending December 31, 2021, 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
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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.
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.
If we upgrade our manufacturing equipment more quickly than expected, we may have to shorten the useful lives of any equipment to be retired as a result of any such update, and the resulting acceleration in our depreciation could negatively affect our financial results.
We have invested and expect to continue to invest significantly in what we believe is state of the art tooling, machinery and other manufacturing equipment in our manufacturing facilities, and we depreciate the cost of such equipment over their expected useful lives. However, manufacturing technology may evolve rapidly, and we may decide to update our manufacturing process with cutting-edge equipment more quickly than expected. Moreover, as our engineering and manufacturing expertise and efficiency increase, we may be able to manufacture our Smart EVs using less of our installed equipment. The useful life of any equipment that would be retired early as a result would be shortened, causing the depreciation on such equipment to be accelerated, and to the extent we own such equipment, our results of operations could be negatively impacted.
Our warranty reserves may be insufficient to cover future warranty claims which could adversely affect our financial performance.
We offer competitive warranty terms. To retail customers who purchased the G3, we offer (i) a four-year or 100,000-kilometer warranty and (ii) an eight-year or 150,000-kilometer warranty for critical components, such as battery pack, motors and VCU. To retail customers who purchased the P7, we offer (i) a five-year or 120,000-kilometer warranty and (ii) an eight-year or 160,000-kilometer warranty for critical components, such as battery pack, motors and VCU. With respect to each vehicle model, we also offer a two-year or 50,000-kilometer warranty covering vehicle repair, replacement and refund, in the event of certain product malfunctions specified in the applicable regulation. We accrue a warranty reserve for the Smart EVs sold by us, which includes our best estimate of the projected costs to repair or replace items under warranties and recalls when identified. We have limited experience with warranty claims regarding our Smart EVs or with estimating warranty reserves. As of June 30, 2020, we had warranty reserves in respect of our Smart EVs of RMB48.0 million (US$6.8 million). We cannot assure you that such reserves will be sufficient to cover future claims. We could, in the future, become subject to a significant and unexpected warranty claims, resulting in significant expenses, which would in turn materially and adversely affect our business, prospects, financial condition and results of operation.
We face risks associated with the international sale of our Smart EVs, and if we are unable to effectively manage these risks, our business, financial condition and results of operations may be materially and adversely affected.
While we have historically sold all of our Smart EVs in China, we are exploring opportunities to expand into international markets. For example, we began to accept customer orders for our G3 from an European country through a local dealer in June 2020 and expect delivery to begin on a trial basis in that country before the end of 2020. We may also test sales into other international markets. While we expect China will continue to be
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our primary market, the marketing and sale of our Smart EVs to international markets may increase in the future, which will expose us to a number of risks, including, but not limited, to:
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fluctuations in foreign currency exchange rates; |
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increased costs associated with maintaining the ability to understand the local markets and develop and maintain effective marketing and distributing presence in various countries; |
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providing customer service and support in these markets; |
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difficulty with staffing and managing overseas operations; |
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failure to develop appropriate risk management and internal control structures tailored to overseas operations; |
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difficulty and cost relating to compliance with different commercial and legal requirements of the overseas markets in which we offer or plan to offer our products and services including charging and other electric infrastructures; |
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failure to obtain or maintain permits for our products or services in these markets; |
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different safety concerns and measures needed to address accident related risks in different countries and regions; |
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inability to obtain, maintain or enforce intellectual property rights; |
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unanticipated changes in prevailing economic conditions and regulatory requirements; and |
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trade barriers such as export requirements, tariffs, taxes and other restrictions and expenses. |
Our expansion into international markets will require us to respond timely and effectively to rapid changes in market conditions in the relevant countries. Our success in international expansion depends, in part, on our ability to succeed in different legal, regulatory, economic, environmental, social and political conditions which we have little control over. We may not be able to develop and implement policies and strategies that will be effective in each location where we do business. A change in one or more of the factors described above may have a material adverse effect on our business, financial condition and results of operations.
We have not recognized any share-based compensation expense in the past but will recognize a substantial amount of share-based compensation expense upon the completion of this offering, which will have a significant impact on our results of operations.
In 2015, our subsidiary, Chengxing Zhidong, adopted a share incentive plan, pursuant to which options were granted to certain employees of Chengxing Zhidong. In June 2020, XPeng Inc. adopted a share incentive plan, or the Plan, to replace the share incentive plan adopted by Chengxing Zhidong, and we issued RSUs to replace the options granted to certain employees of Chengxing Zhidong. As of the date of this prospectus, 96,274,295 RSUs were granted and outstanding, and shares underlying 43,044,280 of such RSUs have been issued to XPeng Fortune Holdings Limited, which has been established for our share incentive plan. We are required to recognize compensation expense for an equity award over the period in which the recipient is required to provide service in exchange for the equity award. Because the vesting of the RSUs (including the RSUs issued to replace the options granted under the share incentive plan of Chengxing Zhidong) will be contingent upon the completion of an initial public offering or change in control, we have not recognized, and do not expect to recognize, share-based compensation expense relating to such equity awards prior to the completion of this offering. Upon the completion of this offering, we expect to begin to recognize a significant amount of share-based compensation expense. As of June 30, 2020, the total unrecognized share-based compensation expense amounted to RMB584.4 million (US$82.7 million), out of which RMB210.3 million (US$29.8 million) was related to RSUs for which the service condition had been met and is expected to be recognized upon the completion of this offering. Moreover, if additional RSUs or other share incentives are granted to our employees, directors or consultants in the future, we will incur additional share-based compensation expense and our results of operations will be further adversely affected.
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Any financial or economic crisis, or perceived threat of such a crisis, including a significant decrease in consumer confidence, may materially and adversely affect our business, prospects, financial condition and results of operation.
The global macroeconomic environment is facing challenges. 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 United States. There have been concerns over the downturn in economic output caused by the COVID-19 outbreak. It is unclear whether these challenges will be contained and what effects they each may have. Economic conditions in China are sensitive to global economic conditions. Recently there have been signs that the rate of Chinas economic growth is declining, and Chinas economy contracted in the first quarter of 2020 as a result of the COVID-19 outbreak. Any prolonged slowdown in Chinas economic development might lead to tighter credit markets, increased market volatility, sudden drops in business and consumer confidence and dramatic changes in business and consumer behaviors.
Sales of our Smart EVs depend in part on discretionary consumer spending and are even more exposed to adverse changes in general economic conditions. In response to their perceived uncertainty in economic conditions, consumers might delay, reduce or cancel purchases of our Smart EVs and our results of operations may be materially and adversely affected.
We could be adversely affected by political tensions between the United States and China.
In March 2018, U.S. President Donald J. Trump announced the imposition of tariffs on steel and aluminum entering the United States and in June 2018 announced further tariffs targeting goods imported from China. Subsequently both China and the U.S. have each imposed tariffs that have adversely affected trade between the two countries. In October 2019, U.S. President Donald J. Trump announced that China and the United States had reached a tentative agreement for the first phase of a trade deal, under which China has agreed to buy up to US$50.0 billion of American products and services, while the United States has agreed to suspend new tariffs. Such agreement was signed in January 2020. Although we do not currently export any of our Smart EVs to the United States, it is not yet clear what impact these tariff negotiations may have or what further actions the governments may take, and tariffs could potentially impact our raw material prices.
Political tensions between the United States and China have escalated due to, among other things, the COVID-19 outbreak, the PRC National Peoples Congress passage of Hong Kong national security legislation, sanctions imposed by the U.S. Department of Treasury on certain officials of the Hong Kong Special Administrative Region and the central government of the PRC and the executive orders issued by U.S. President Donald J. Trump in August 2020 that prohibit certain transactions with ByteDance Ltd., Tencent Holdings Ltd. and the respective subsidiaries of such companies. Rising political tensions could reduce levels of trades, investments, technological exchanges and other economic activities between the two major economies, which would have a material adverse effect on global economic conditions and the stability of global financial markets. Any of these factors could have a material adverse effect on our business, prospects, financial condition and results of operations. Furthermore, there have been recent media reports on deliberations within the U.S. government regarding potentially limiting or restricting China-based companies from accessing U.S. capital markets. If any such deliberations were to materialize, the resulting legislation may have a material and adverse impact on the stock performance of China-based issuers listed in the United States. It is unclear if this proposed legislation would be enacted.
A substantial part of our research and development on autonomous driving is conducted in the United States, and we are required to comply with the U.S. laws and regulations on export controls, including the U.S. Department of Commerces Export Administration Regulations. Currently, such laws and regulations do not restrict our ability to offer our U.S.-origin software to customers in China. However, we may be affected by future changes in U.S. export control laws and regulations. If we were unable to transfer our U.S.-origin software to China, source U.S.-origin software and components from third parties or otherwise access U.S. technology as a
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result of such regulatory changes, our business, results of operations and financial condition would be materially and adversely affected.
We face risks related to natural disasters, health epidemics and other outbreaks, which could significantly disrupt our operations.
Our business could be adversely affected by the effects of epidemics. In recent years, there have been outbreaks of epidemics in China and globally. If any of our employees are identified as a possible source of spreading COVID-19, H1N1 flu, avian flu or another epidemic, we may be required to quarantine employees that are suspected of being infected, as well as others that have come into contact with those employees. We may also be required to disinfect our affected premises, which could cause a temporary suspension of certain business operations. A recurrence of an outbreak of COVID-19, H1N1 flu, avian flu or another epidemic could restrict the level of economic activities generally and/or slow down or disrupt our business activities, which could in turn adversely affect our results of operations.
We are also vulnerable to natural disasters and other calamities. Although we have servers that are hosted in an offsite location, our backup system does not capture data on a real-time basis and we may be unable to recover certain data in the event of a server failure. We cannot assure you that any backup systems will be adequate to protect us from the effects of fire, floods, typhoons, earthquakes, power loss, telecommunications failures, break-ins, war, riots, terrorist attacks or similar events. Any of the foregoing events may give rise to interruptions, breakdowns, system failures, technology platform 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 services to our customers.
Risks Relating to Our Corporate Structure
If the PRC government deems that the contractual arrangements in relation to our consolidated VIEs 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.
The current industry entry clearance requirements governing the foreign investment activities in the PRC are set out in two categories, namely the Encouraged Industry Catalog for Foreign Investment (2019 version), as promulgated by the NDRC and the MOFCOM and taking effect on July 30, 2019, and the 2020 Negative List. Industries not listed in these two catalogs are generally deemed permitted for foreign investments unless specifically restricted by other PRC laws. According to the 2020 Negative List and other applicable laws and regulations, the industry of value-added telecommunications services (other than the services of electronic commerce, multiparty conferencing within the PRC, information storage and forwarding, and call center) generally falls into the restricted category with very limited exceptions in certain pilot demonstration zones.
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 PRC subsidiaries are foreign-invested enterprises, or FIEs. To comply with PRC laws and regulations, we operate our businesses related to the value-added telecommunications services through our consolidated VIEs, as defined below, that hold the required ICP license and other related licenses. Our subsidiary, Guangzhou Xiaopeng Zhihui Chuxing Technology Co., Ltd., or Xiaopeng Chuxing, has entered into a series of contractual arrangements with Guangzhou Yidian Zhihui Chuxing Technology Co., Ltd., or Yidian Chuxing, and its shareholders. In addition, our subsidiary, Guangzhou Xiaopeng Motors Technology Co., Ltd., or Xiaopeng Technology, has entered into a series of contractual arrangements with Guangzhou Zhipeng IoV Technology Co., Ltd., or Zhipeng IoV, and its shareholders. Yidian Chuxing and Zhipeng IoV are collectively referred to as our consolidated VIEs. For a detailed description of these contractual arrangements, see Our History and Corporate StructureContractual Arrangements with Consolidated VIEs and Their Shareholders.
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We believe that our corporate structure and contractual arrangements comply with the current applicable PRC laws and regulations. Our PRC legal counsel, based on its understanding of the relevant laws and regulations, is of the opinion that each of the contracts among (i) Xiaopeng Chuxing, Yidian Chuxing and Yidian Chuxings shareholders and (ii) Xiaopeng Technology, Zhipeng IoV and Zhipeng IoVs 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 PRC Foreign Investment Law and its implementing rules, the Telecommunications Regulations and the relevant regulatory measures concerning the telecommunications industry and other industries we are or will be engaged in, there can be no assurance that the PRC government authorities, including the Ministry of Commerce, or the MOFCOM, or the MIIT, or other competent authorities 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 VIEs 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:
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revoking our relevant business and operating licenses; |
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levying fines on us; |
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confiscating any of our income that they deem to be obtained through illegal operations; |
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shutting down our relevant services; |
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discontinuing or restricting our operations in China; |
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imposing conditions or requirements with which we may not be able to comply; |
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requiring us to change our corporate structure and contractual arrangements; |
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restricting or prohibiting our use of the proceeds from overseas offering to finance our PRC consolidated VIEs business and operations; and |
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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 Uncertainties exist with respect to the interpretation and implementation of the newly enacted PRC Foreign Investment Law and its implementing rules and how they may impact our business, financial condition and results of operations. 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 VIEs or our right to receive their economic benefits, we would no longer be able to consolidate the financial results of such VIEs in our consolidated financial statements. However, we do not believe that such actions would result in the liquidation or dissolution of our company, our subsidiaries in China or our consolidated VIEs or their subsidiaries. See Our History and Corporate StructureContractual Arrangements with Consolidated VIEs and Their Shareholders.
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Our contractual arrangements with our consolidated VIEs may result in adverse tax consequences to us.
We could face material and adverse tax consequences if the PRC tax authorities determine that our contractual arrangements with our consolidated VIEs were not made on an arms length basis and adjust our income and expenses for PRC tax purposes by requiring a transfer pricing adjustment. A transfer pricing adjustment could adversely affect us by (i) increasing the tax liabilities of our consolidated VIEs without reducing the tax liability of our subsidiaries, which could further result in late payment fees and other penalties to our consolidated VIEs for underpaid taxes; or (ii) limiting the ability of our consolidated VIEs to obtain or maintain preferential tax treatments and other financial incentives.
We rely on contractual arrangements with our consolidated VIEs and their shareholders to operate our mobile apps, 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 VIEs and their shareholders to operate our mobile apps, which is important to our ability to offer a convenient customer experience. For a description of these contractual arrangements, see Our History and Corporate StructureContractual Arrangements with Consolidated VIEs and Their Shareholders. These contractual arrangements may not be as effective as direct ownership in providing us with control over our consolidated VIEs. If our consolidated VIEs or their shareholders fail to perform their respective obligations under these contractual arrangements, our recourse to the assets held by our consolidated VIEs 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 VIEs, including such equity interest, may be put under court custody. As a consequence, we cannot be certain that the equity interest will be disposed pursuant to the contractual arrangement or ownership by the record holder of the equity interest.
If any of our VIEs or their shareholders fail to perform their obligations under the contractual arrangements, we may have to incur substantial costs and expend additional resources to enforce such arrangements, and rely on legal remedies under PRC laws, including contractual remedies, which may not be sufficient or effective. 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. However, the legal framework and system in China, in particularly those relating to arbitration proceedings, are not as developed as in some other jurisdictions, such as the United States. As a result, uncertainties in the PRC legal system could limit our ability to enforce these contractual arrangements. Meanwhile, there are very few precedents and little formal guidance as to how contractual arrangements in the context of a variable interest entity should be interpreted or enforced under PRC law. 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, parties cannot appeal the arbitration results in courts, and 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 the 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 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 VIEs, 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.
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The shareholders of our consolidated VIEs may have potential conflicts of interest with us, which may materially and adversely affect our business and financial condition.
In connection with our operations in China, we rely on the shareholders of our consolidated VIEs to abide by the obligations under such contractual arrangements. The interests of these shareholders in their individual capacities as the shareholders of our consolidated VIEs may differ from the interests of our company as a whole, as what is in the best interests of our consolidated VIEs, including matters such as whether to distribute dividends or to make other distributions to fund our offshore requirement, may not be in the best interests of our company. There can be no assurance that when conflicts of interest arise, any or all of these individuals will act in the best interests of our company or those conflicts of interest will be resolved in our favor. In addition, these individuals may breach or cause our consolidated VIEs and their 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 VIEs 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 call option agreements to cause them to transfer all of their equity ownership in our consolidated VIEs 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 VIEs as provided under the power of attorney agreements, directly appoint new directors of our consolidated VIEs. We rely on the shareholders of our consolidated VIEs 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 VIEs, we would have to rely on legal proceedings, which could result in disruption of our business and subject us to substantial uncertainty as to the outcome of any such legal proceedings.
Our corporate actions will be substantially controlled by certain 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.
Our seventh amended and restated memorandum and articles of association will provide that in respect of all matters subject to a shareholders vote, each Class A ordinary share is entitled to one vote, each Class B ordinary share is entitled to 10 votes and each Class C ordinary share is entitled to five votes. Mr. Xiaopeng He, our co-founder, chairman and chief executive officer, Mr. Heng Xia, our co-founder, director and president, and Mr. Tao He, our co-founder, director and senior vice president, will beneficially own all the Class B ordinary shares issued and outstanding, representing 72.4% of the voting power of our total issued and outstanding shares immediately after the completion of this offering, assuming the underwriters do not exercise their option to purchase additional ADSs. Alibaba will beneficially own all of our issued Class C ordinary shares representing 14.9% of the voting power of our total issued and outstanding shares immediately after the completion of this offering, assuming the underwriters do not exercise their option to purchase additional ADSs. Furthermore, Alibaba has indicated interest in purchasing up to US$200 million of the ADSs in this offering at the initial public offering price and on the same terms as the other ADSs being offered. If Alibaba were to be allocated such amount in full, assuming an initial public offering price of US$12.00 per ADS, the mid-point of the estimated initial public offering price range shown on the front cover page of this prospectus, Alibabas voting power would be approximately 0.6% greater upon completion of this offering. In addition, pursuant to our seventh amended and restated memorandum and articles of association, Taobao China Holding Limited, a wholly-owned subsidiary of Alibaba, will be entitled to designate one director to our board and remove such director, provided,
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however, in the event that Taobao China Holding Limited, together with its affiliates, ceases to hold at least 10% of our issued and outstanding shares, such director designation right will be terminated. As a result, Mr. Xiaopeng He, Mr. Heng Xia, Mr. Tao He and Alibaba will 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:
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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; |
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our disposition of substantially all of our assets; and |
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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.
The triple-class structure of our share capital may render the ADSs ineligible for inclusion in certain stock market indices, and thus adversely affect the market price and liquidity of the ADSs.
In July 2017, FTSE Russell and Standard & Poors announced that they would cease to allow most newly public companies utilizing dual or multi-class capital structures to be included in their indices. Affected indices include the Russell 2000 and the S&P 500, S&P MidCap 400 and S&P SmallCap 600, which together make up the S&P Composite 1500. Under the announced policies, our triple-class capital structure would make the ADSs ineligible for inclusion in any of these indices, and as a result, mutual funds, exchange-traded funds and other investment vehicles that attempt to passively track these indices will not be investing in the ADSs. These policies are still relatively new and it is yet unclear what effect, if any, they have had and will have on the valuations of publicly traded companies excluded from the indices, but it is possible that they may depress these valuations compared to those of other similar companies that are included and may adversely affect the liquidity of the shares of such companies. As such, the exclusion of the ADSs from these indices could result in a less active trading market for the ADSs and adversely affect their trading price.
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 such as the leases and sales 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, or the SAMR. We generally execute legal documents by affixing chops or seals, rather than having the designated legal representatives sign the documents. The chops of our subsidiaries and consolidated VIEs are generally held by the relevant entities so that documents can be executed locally. Although we usually utilize chops to execute contracts, the registered legal representatives of our subsidiaries and consolidated VIEs 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
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subsidiaries and consolidated VIEs, the procedures may not be sufficient to prevent all instances of abuse or negligence. There is a risk that our key employees or designated legal representatives could abuse their authority, for example, by binding our subsidiaries and consolidated VIEs with contracts against our interests, as we would be obligated to honor these contracts if the other contracting party acts in good faith in reliance on the apparent authority of our chops or signatures of our legal representatives. If any designated legal representative obtains control of the chop in an effort to obtain control over the relevant entity, we would need to have a shareholder or board resolution to designate a new legal representative and to take legal action to seek the return of the chop, apply for a new chop with the relevant authorities, or otherwise seek legal remedies for the legal 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.
Uncertainties exist with respect to the interpretation and implementation of the newly enacted PRC Foreign Investment Law and its implementing rules and how they may impact our business, financial condition and results of operations.
The VIE structure through contractual arrangements has been adopted by many PRC-based companies, including us, to obtain necessary licenses and permits in the industries that are currently subject to foreign investment restrictions in China. The MOFCOM published a discussion draft of the proposed PRC Foreign Investment Law in January 2015, or the 2015 Draft FIL, according to which, variable interest entities that are controlled via contractual arrangements would also be deemed as foreign-invested entities, if they are ultimately controlled by foreign investors. In March 2019, the PRC National Peoples Congress promulgated the PRC Foreign Investment Law, and in December 2019, the State Council promulgated the Implementing Rules of PRC Foreign Investment Law, or the Implementing Rules, to further clarify and elaborate the relevant provisions of the PRC Foreign Investment Law. The PRC Foreign Investment Law and the Implementing Rules both became effective from January 1, 2020 and replaced the major previous laws and regulations governing foreign investments in the PRC. Pursuant to the PRC Foreign Investment Law, foreign investments refer to investment activities conducted by foreign investors (including foreign natural persons, foreign enterprises or other foreign organizations) directly or indirectly in the PRC, which include any of the following circumstances: (i) foreign investors setting up foreign-invested enterprises in the PRC solely or jointly with other investors, (ii) foreign investors obtaining shares, equity interests, property portions or other similar rights and interests of enterprises within the PRC, (iii) foreign investors investing in new projects in the PRC solely or jointly with other investors, and (iv) investment in other methods as specified in laws, administrative regulations, or as stipulated by the State Council. The PRC Foreign Investment Law and the Implementing Rules do not introduce the concept of control in determining whether a company would be considered as a foreign-invested enterprise, nor do they explicitly provide whether the VIE structure would be deemed as a method of foreign investment. However, the PRC Foreign Investment Law has a catch-all provision that includes into the definition of foreign investments made by foreign investors in China in other methods as specified in laws, administrative regulations, or as stipulated by the State Council, and as the PRC Foreign Investment Law and the Implementing Rules are newly adopted and relevant government authorities may promulgate more laws, regulations or rules on the interpretation and implementation of the PRC Foreign Investment Law, the possibility cannot be ruled out that the concept of control as stated in the 2015 Draft FIL may be embodied in, or the VIE structure adopted by us may be deemed as a method of foreign investment by, any of such future laws, regulations and rules. If our consolidated VIE was deemed as a foreign-invested enterprise under any of such future laws, regulations and rules, and any of the businesses that we operate would be in any negative list for foreign investment and therefore be subject to any foreign investment restrictions or prohibitions, further actions required to be taken by us under such laws, regulations and rules may materially and adversely affect our business, financial condition and results of operations. Furthermore, if future laws, administrative regulations or provisions mandate further actions to be taken by companies with respect to existing contractual arrangements, we may face substantial uncertainties as to whether we can complete such actions in a timely manner, or at all. Failure to take timely and
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appropriate measures to cope with any of these or similar regulatory compliance challenges could materially and adversely affect our current corporate structure, business, financial condition and results of operations.
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.
Our operations are mainly conducted in the PRC, and all of our revenue has historically been 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 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.
Our operations are mainly conducted in the PRC, and are governed by PRC laws, rules and regulations. Our PRC subsidiaries and consolidated VIEs 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.
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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.
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 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. According to Article 177 of the PRC Securities Law which became effective in March 2020, no overseas securities regulator is allowed to directly conduct investigation or evidence collection activities within the territory of the PRC. Accordingly, without the consent of the competent PRC securities regulators and relevant authorities, no organization or individual may provide the documents and materials relating to securities business activities to overseas parties. 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. On May 24, 2013, PCAOB announced that it had entered into a Memorandum of Understanding on Enforcement Cooperation with the CSRC and the Ministry of Finance, which establishes a cooperative framework between the parties for the production and exchange of audit documents relevant to investigations in the United States and China. PCAOB continues to be in discussions with the CSRC and the Ministry of Finance to permit joint inspections in the PRC of audit firms that are registered with PCAOB and audit Chinese companies that trade on U.S. exchanges. On December 7, 2018, the SEC and the PCAOB issued a joint statement highlighting continued challenges faced by the U.S. regulators in their oversight of financial statement audits of U.S.-listed companies with significant operations in China. The joint statement reflects the U.S. regulators heightened interest in this issue. In a statement issued on December 9, 2019, the SEC reiterated concerns over the inability of the PCAOB to conduct inspections of the audit firm work papers with respect to U.S.-listed companies that have operations in China, and emphasized the importance of audit quality in emerging markets, such as China. On April 21, 2020, the SEC and the PCAOB issued a new joint statement, reminding the investors that in investing in companies that are based in or have substantial operations in many emerging markets, including China, there is substantially greater risk that disclosures will be incomplete or misleading, and there is also a greater risk of fraud. In the event of investor harm, there is substantially less ability to bring and enforce SEC, DOJ and other U.S. regulatory actions, in comparison to U.S. domestic companies, and the joint statement reinforced past SEC and PCAOB statements on matters including the difficulty to inspect audit work papers in China and its potential harm to investors. However, it remains unclear what further actions the SEC and PCAOB will take to address the concerns. On June 4, 2020, the U.S. President issued a memorandum ordering the Presidents Working Group on Financial Markets to submit a report to the President within 60 days of the memorandum that includes recommendations for actions that can be taken by the executive branch and by the SEC or PCAOB on Chinese companies listed on the U.S. stock exchanges and their audit firms, in an effort to protect investors in the U.S.
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. 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.
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As part of a continued regulatory focus in the United States on access to audit and other information currently protected by national law, in particular Chinas, in June 2019, a bipartisan group of lawmakers introduced bills in both houses of the U.S. Congress, which if passed, would require the SEC to maintain a list of issuers for which PCAOB is not able to inspect or investigate an auditor report issued by a foreign public accounting firm. The proposed Ensuring Quality Information and Transparency for Abroad-Based Listings on our Exchanges (EQUITABLE) Act prescribes increased disclosure requirements for these issuers and, beginning in 2025, the delisting from U.S. national securities exchanges such as NYSE and NASDAQ of issuers included on the SECs list for three consecutive years. Furthermore, on May 20, 2020, the U.S. senate passed the Holding Foreign Companies Accountable Act, or the Kennedy Bill, which includes requirements similar to those in the EQUITABLE Act for the SEC to identify issuers whose audit reports are prepared by auditors that the PCAOB is unable to inspect or investigate because of restrictions imposed by non-U.S. authorities. The Kennedy Bill would also require public companies on this SEC list to certify that they are not owned or controlled by a foreign government and make certain additional disclosures on foreign ownership and control of such issuers in their SEC filings. If passed by the U.S. House of Representatives and signed by the U.S. President, the Kennedy Bill would amend the Sarbanes-Oxley Act of 2002 to require the SEC to prohibit securities of any U.S. listed companies from being traded on any of the U.S. national securities exchanges, such as NYSE and NASDAQ, or in the U.S. over-the-counter markets, if the auditor of the U.S. listed companies financial statements is not subject to PCAOB inspections for three consecutive years after the law becomes effective. In August 2020, the Presidents Working Group on Financial Markets, or the PWG, released the Report on Protecting United States Investors from Significant Risks from Chinese Companies. The PWG recommends that the SEC take steps to implement the recommendations outlined in the report. In particular, to address companies from non-cooperating jurisdictions, or NCJs, such as China, that do not provide the PCAOB with sufficient access to fulfill its statutory mandate the PWG recommends enhanced listing standards on U.S. securities exchanges. This would require, as a condition to initial and continued exchange listing, PCAOB access to work papers of the principal audit firm for the audit of the listed company. Companies unable to satisfy this standard as a result of governmental restrictions on access to audit work papers and practices in NCJs may satisfy this standard by providing a co-audit from an audit firm with comparable resources and experience where the PCAOB determines it has sufficient access to audit work papers and practices to conduct an appropriate inspection of the co-audit firm. To reduce market disruption, the new listing standards could provide for a transition period until January 1, 2022 for currently listed companies. The other recommendations in the report include, among other things, requiring enhanced and prominent issuer disclosures of the risks of investing in certain NCJs such as China.
Enactment of any of such legislation or other efforts to increase the U.S. regulatory access to audit information could cause investor uncertainty for affected issuers, including us, and the market price of the ADSs could be adversely affected. In addition, enactment of these legislations may result in prohibitions on the trading of our ADSs on the NYSE, if our auditors fail to meet the PCAOB inspection requirement in time. It is unclear if and when any of the proposed legislation will be enacted.
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, the State Administration of Taxation, the State Administration for Industry and Commerce, currently known as the SAMR, 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
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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 our wholly-owned PRC subsidiaries were incorporated as FIEs 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. 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 the 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 anti-monopoly authority under the State Council when the threshold 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 and amended in September 2018, 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 RegulationsM&A Rules and Overseas Listings.
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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. 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.
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 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 before they obtain the incentive shares or exercise the share options. Our directors, executive officers and other employees who are PRC residents and who have been granted options may follow SAFE Circular 37 to apply for the foreign exchange registration before our company becomes an overseas listed company. After our company becomes an overseas listed company upon completion of this offering, we and our directors, executive officers and other employees who are
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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. 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, 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 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 distribution in the form of dividends as of December 31, 2019. 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.
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 substantial and overall management and control over the production and operations, personnel, accounting 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, which was most recently amended on December 29, 2017. 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
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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 the 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 the 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 the ADSs or Class A ordinary shares by such investors, are deemed as income derived from sources within the PRC and thus are subject to PRC tax, the value of your investment in the 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, without limitation: 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
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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, or SAT Circular 37, which became effective on December 1, 2017 and was most recently amended on June 15, 2018. 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 publications, or to establish that our company should not be taxed under these publications, 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 capital account, which includes foreign direct investment and loans, including loans we may secure from our PRC subsidiaries. Currently, our PRC subsidiaries 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 the ADSs, and may limit our ability to obtain foreign currency through debt or equity financing for our onshore subsidiaries.
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 or additional capital contributions to our PRC subsidiaries.
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 subsidiaries, which are treated as foreign-invested enterprises under PRC laws, through loans or capital contributions. However, loans by us to our PRC subsidiaries to finance their activities cannot exceed statutory limits and must be registered with the local counterpart of SAFE and
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capital contributions to our PRC subsidiaries are subject to the requirement of making necessary registration with competent 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. 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 subsidiaries, which may adversely affect our liquidity and our ability to fund and expand our business in the PRC.
On October 23, 2019, SAFE promulgated the Circular of the State Administration of Foreign Exchange on Further Promoting the Facilitation of Cross-border Trade and Investment, or SAFE Circular 28, which permits non-investment foreign-invested enterprises to use their capital funds to make equity investments in China, with genuine investment projects and in compliance with effective foreign investment restrictions and other applicable laws. However, as the SAFE Circular 28 was newly issued, there are still substantial uncertainties as to its interpretation and implementations in practice.
In light of the various requirements imposed by PRC regulations on loans to, and direct investment in, PRC entities by offshore holding companies, we cannot assure you that we will be able to complete the necessary government registrations or obtain the necessary government approvals on a timely basis, if at all, with respect to future loans or future capital contributions by us to our PRC subsidiaries. As a result, uncertainties exist as to our ability to provide prompt financial support to our PRC 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, 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
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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.
Most of our revenue and 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 ability of U.S. authorities to bring actions for violations of U.S. securities law and regulations against us, our directors, executive officers or the expert named in this prospectus may be limited. Therefore, you may not be afforded the same protection as provided to investors in U.S. domestic companies.
The SEC, the U.S. Department of Justice, or the DOJ, and other U.S. authorities often have substantial difficulties in bringing and enforcing actions against non-U.S. companies such as us, and non-U.S. persons, such as our directors and executive officers in China. Due to jurisdictional limitations, matters of comity and various other factors, the SEC, the DOJ and other U.S. authorities may be limited in their ability to pursue bad actors, including in instances of fraud, in emerging markets such as China. We conduct our operations mainly in China and our assets are mainly located in China. In addition, a majority of our directors and executive officers reside within China. There are significant legal and other obstacles for U.S. authorities to obtain information needed for investigations or litigation against us or our directors, executive officers or other gatekeepers in case we or any of these individuals engage in fraud or other wrongdoing. In addition, local authorities in China may be constrained in their ability to assist U.S. authorities and overseas investors in connection with legal proceedings. As a result, if we, our directors, executive officers or other gatekeepers commit any securities law violation, fraud or other financial misconduct, the U.S. authorities may not be able to conduct effective investigations or bring and enforce actions against us, our directors, executive officers or other gatekeepers. Therefore, you may not be able to enjoy the same protection provided by various U.S. authorities as it is provided to investors in U.S. domestic companies.
You may experience difficulties in effecting service of legal process, enforcing foreign judgments or bringing original actions in China, based on United States or other foreign laws, against us, our directors, executive officers or the expert named in this prospectus. Therefore, you may not be able to enjoy the protection of such laws in an effective manner.
We conduct our operations mainly in China, and our assets are mainly located in China. In addition, a majority of our directors and executive officers reside within China. As a result, it may not be possible to effect service of process within the United States or elsewhere outside China upon us, our directors and executive officers, including with respect to matters arising under U.S. federal securities laws or applicable state securities laws. Even if you obtain a judgment against us, our directors, executive officers or the expert named in this prospectus in a U.S. court or other court outside China, you may not be able to enforce such judgment against us or them in China. China does not have treaties providing for the reciprocal recognition and enforcement of judgments of courts in the United States, the United Kingdom, Japan or most other western countries. Therefore,
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recognition and enforcement in China of judgments of a court in any of these jurisdictions may be difficult or impossible. In addition, you may not be able to bring original actions in China based on the U.S. or other foreign laws against us, our directors, executive officers or the expert named in this prospectus. As a result, shareholder claims that are common in the U.S., including class actions based on securities law and fraud claims, are difficult or impossible to pursue as a matter of law and practicality in China. For example, in China, there are significant legal and other obstacles to obtaining information needed for shareholder investigations or litigation outside China or otherwise with respect to foreign entities. Although the local authorities in China may establish a regulatory cooperation mechanism with the securities regulatory authorities of another country or region to implement cross-border supervision and administration, such regulatory cooperation with the securities regulatory authorities in the Unities States have not been efficient in the absence of mutual and practical cooperation mechanism. According to Article 177 of the PRC Securities Law which became effective in March 2020, no overseas securities regulator is allowed to directly conduct investigation or evidence collection activities within the territory of the PRC. Accordingly, without the consent of the competent PRC securities regulators and relevant authorities, no organization or individual may provide the documents and materials relating to securities business activities to overseas parties. While detailed interpretation of or implementation rules under Article 177 of the PRC Securities Law is not yet available, the inability for an overseas securities regulator to directly conduct investigation or evidence collection activities within China may further increase difficulties faced by investors in protecting your interests. Therefore, you may not be able to effectively enjoy the protection offered by the U.S. laws and regulations that are intended to protect public investors.
Additional remedial measures could be imposed on certain PRC-based accounting firms, including our independent registered public accounting firm, in administrative proceedings instituted by the SEC, as a result of which our financial statements may be determined to not be in compliance with the requirements of the Exchange Act, if at all.
In December 2012, the SEC brought administrative proceedings against the PRC-based big four accounting firms, including our independent registered public accounting firm, alleging that they had violated U.S. securities laws by failing to provide audit work papers and other documents related to certain other PRC-based companies under investigation by the SEC. On January 22, 2014, an initial administrative law decision was issued, censuring and suspending these accounting firms from practicing before the SEC for a period of six months. The decision was neither final nor legally effective until reviewed and approved by the SEC, and on February 12, 2014, the PRC-based accounting firms appealed to the SEC against this decision. In February 2015, each of the four PRC-based accounting firms agreed to a censure and to pay a fine to the SEC to settle the dispute and avoid suspension of their ability to practice before the SEC. The settlement required the firms to follow detailed procedures to seek to provide the SEC with access to such firms audit documents via the CSRC. If the firms did not follow these procedures or if there is a failure in the process between the SEC and the CSRC, the SEC could impose penalties such as suspensions, or it could restart the administrative proceedings. Under the terms of the settlement, the underlying proceeding against the four PRC-based accounting firms was deemed dismissed with prejudice four years after entry of the settlement. The four-year mark occurred on February 6, 2019. While we cannot predict if the SEC will further challenge the four PRC-based accounting firms compliance with U.S. law in connection with U.S. regulatory requests for audit work papers or if the results of such challenge would result in the SEC imposing penalties such as suspensions.
In the event that the PRC-based big four accounting firms become subject to additional legal challenges by the SEC or PCAOB, 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 the ADSs may be adversely affected.
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
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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 the ADSs from the NYSE or deregistration from the SEC, or both, which would substantially reduce or effectively terminate the trading of the ADSs in the U.S.
Risks Relating to This Offering
There has been no public market for our shares or the ADSs prior to this offering, and you may not be able to resell the 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 have applied for approval of the ADSs representing Class A ordinary shares for listing 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 the ADSs does not develop after this offering, the market price and liquidity of the ADSs will be materially and adversely affected.
Negotiations with the underwriters will determine the initial public offering price for the 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 the ADSs will develop or that the market price of the ADSs will not decline below the initial public offering price.
Participation in this offering by certain of our existing shareholders would reduce the available public float for our ADSs. In addition, participation in this offering by certain investor may further reduce the liquidity of our ADSs.
Certain existing shareholders and/or their affiliates have indicated their interest in purchasing for an aggregate of up to US$400 million of the ADSs being offered in this offering, including (i) up to US$200 million by Alibaba, (ii) up to US$100 million by Coatue, (iii) up to US$50 million by Qatar Investment Authority and (iv) up to US$50 million by Xiaomi. Assuming an initial public offering price of US$12.00 per ADS, the midpoint of the estimated initial public offering price range shown on the front cover page of this prospectus, the number of ADSs to be purchased by these shareholders would be up to 33,333,333 ADSs, representing approximately 39.2% of the ADSs being offered in this offering. Such subscriptions may reduce the available public float for the ADSs, which may consequently reduce the liquidity of the ADSs relative to what it would have been had these ADSs been subscribed by the public. In addition, PRIMECAP Management Company and/or its affiliate have indicated interest in purchasing up to US$100 million of the ADSs being offered in this offering. Assuming an initial public offering price of US$12.00 per ADS, the midpoint of the estimated initial public offering price range shown on the front cover page of this prospectus, the number of ADSs to be purchased by PRIMECAP Management Company would be up to 8,333,333 ADSs, representing approximately 9.8% of the ADSs being offered in this offering. If it is allocated all or a portion of the ADSs in which it has indicated interest in this offering and purchases any such ADSs, such purchase may further reduce the liquidity of our ADSs.
The trading price of the ADSs may be volatile, which could result in substantial losses to you.
The trading prices of the 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, may affect the attitudes of investors toward Chinese companies listed in the U.S., which consequently may impact the trading performance of the ADSs, regardless of our actual operating performance. In addition, any negative news
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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, 2015 and the first quarter of 2020. In particular, concerns about the economic impact of the coronavirus outbreak have triggered significant price fluctuations in the U.S. stock market. All these fluctuations and incidents may have a material and adverse effect on the trading price of the ADSs.
In addition to the above factors, the price and trading volume of the ADSs may be highly volatile due to multiple factors, including the following:
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regulatory developments affecting us or our industry; |
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announcements of studies and reports relating to the quality of our product offerings or those of our competitors; |
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changes in the economic performance or market valuations of other providers of electric vehicles; |
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actual or anticipated fluctuations in our quarterly results of operations and changes or revisions of our expected results; |
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changes in financial estimates by securities research analysts; |
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conditions in the EV market in China; |
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announcements by us or our competitors of new product and service offerings, acquisitions, strategic relationships, joint ventures, capital raisings or capital commitments; |
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additions to or departures of our senior management; |
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fluctuations of exchange rates between the Renminbi and the U.S. dollar; |
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release or expiry of lock-up or other transfer restrictions on our issued shares or ADSs; and |
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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 the ADSs and trading volume could decline.
The trading market for the 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 the ADSs or publishes inaccurate or unfavorable research about our business, the market price for the 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 the 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$8.86 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$3.14, as of June 30, 2020, after giving effect to this offering, and the assumed initial public offering price of US$12.00 per ADS. In addition, you will experience further dilution to the extent that our Class A ordinary shares are issued upon the vesting of the
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RSUs under our share incentive plan. 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 the 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 the 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 the ADSs will likely depend entirely upon any future price appreciation of the ADSs. There is no guarantee that the 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 the ADSs and you may even lose your entire investment in the ADSs.
Substantial future sales or perceived potential sales of the ADSs in the public market could cause the price of the ADSs to decline.
Sales of the ADSs in the public market after this offering, or the perception that these sales could occur, could cause the market price of the ADSs to decline significantly. Upon completion of this offering, we will have 801,554,400 Class A ordinary shares, 429,846,136 Class B ordinary shares and 178,618,464 Class C ordinary shares outstanding, including 170,000,000 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. We, our directors, executive officers, and existing shareholders have agreed not to sell any Class A ordinary shares or ADSs for 180 days after the date of this prospectus without the prior written consent of the underwriters, subject to certain exceptions. All ADSs representing our Class A ordinary shares sold in this offering are expected to 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 above, 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 the 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 ADSs representing these registered shares in the public market could cause the price of the ADSs to decline significantly.
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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 seventh amended and restated memorandum and articles of association, the minimum notice period required to convene a general meeting will be seven 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 materials 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 (including any such action or proceeding that may arise under the Securities Act or Ex-change Act) 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 will be deemed to have agreed to be bound by the deposit agreement as amended, unless such amendment is found to be invalid under any applicable laws, including the federal securities law. See Description of American Depositary Shares for more information.
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 distribution 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 the ADSs has agreed to pay to you the cash dividends or other distributions it or the custodian
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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.
As a company with less than US$1.07 billion in net revenues for our last financial 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 and permission to delay adopting new or revised accounting standards until such time as those standards apply to private companies. 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.
In the past, shareholders of a public company often brought securities class action suits against companies following periods of instability in the market price of those companies securities. If we were involved in a class 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.
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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 seventh 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 the ADSs, at a premium.
We have adopted the seventh amended and restated memorandum and 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 the 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 seventh 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 10 votes in respect of all matters subject to a shareholders vote.
Our seventh amended and restated articles of association provide that the courts of the Cayman Islands and the U.S. federal courts will be the exclusive forums for substantially all disputes between us and our shareholders, which could limit our shareholders ability to obtain a favorable judicial forum for complaints against us or our directors, officers or employees.
Our seventh amended and restated articles of association that will become effective immediately prior to the completion of this offering provide that, unless otherwise agreed by us, (i) the federal courts of the United States shall have exclusive jurisdiction to hear, settle and/or determine any dispute, controversy or claim arising under the provisions of the Securities Act or the Exchange Act, which are referred to as the US Actions; and (ii) save for such US Actions, the courts of the Cayman Islands shall have exclusive jurisdiction to hear, settle and/or determine any dispute, controversy or claim whether arising out of or in connection with our articles of association or otherwise, including without limitation:
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any derivative action or proceeding brought on behalf of our company, |
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any action asserting a claim of breach of a fiduciary duty owed by any of our director, officer or other employee to our company or our shareholders, |
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any action asserting a claim under any provision of the Companies Law (Revised) of the Cayman Islands or our articles of association, or |
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any action asserting a claim against our company which if brought in the United States would be a claim arising under the internal affairs doctrine (as such concept is recognized under the laws of the United State). |
These exclusive-forum provisions may increase a shareholders cost and limit the shareholders ability to bring a claim in a judicial forum that it finds favorable for disputes with us or our directors, officers or other
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employees, which may discourage lawsuits against us and our directors, officers and other employees. Any person or entity purchasing or otherwise acquiring any of our shares or other security, such as the ADSs, whether by transfer, sale, operation of law or otherwise, shall be deemed to have notice of and have irrevocably agreed and consented to these provisions. There is uncertainty as to whether a court would enforce such provisions, and the enforceability of similar choice of forum provisions in other companies charter documents has been challenged in legal proceedings. It is possible that a court could find this type of provisions to be inapplicable or unenforceable, and if a court were to find this provision in our seventh amended and restated articles of association to be inapplicable or unenforceable in an action, we may incur additional costs associated with resolving the dispute in other jurisdictions, which could have adverse effect on our business and financial performance.
ADS holders may not be entitled to a jury trial with respect to claims arising under the deposit agreement, which could result in less favorable outcomes to the plaintiff(s) in any such action.
The deposit agreement governing our ADSs provides that, to the extent permitted by law, holders of our ADSs waive the right to a jury trial of any claim they may have against us or the depositary arising out of or relating to the ADSs or the deposit agreement, including any claim under U.S. federal securities laws. However, you will not be deemed, by agreeing to the terms of the deposit agreement, to have waived our or the depositarys compliance with U.S. federal securities laws and the rules and regulations promulgated thereunder. In fact, you cannot waive our or the depositarys compliance with U.S. federal securities laws and the rules and regulations promulgated thereunder.
If we or the depositary oppose a jury trial demand based on the above-mentioned jury trial waiver, the court will determine whether the waiver is enforceable in the facts and circumstances of that case in accordance with applicable case law. The deposit agreement governing our ADSs provides that, (i) the deposit agreement and the ADSs will be interpreted in accordance with the laws of the State of New York, and (ii) as an owner of ADSs, you irrevocably agree that any legal action arising out of the deposit agreement and the ADSs involving us or the depositary may only be instituted in a state or federal court in the city of New York. While to our knowledge, the enforceability of a jury trial waiver under the federal securities laws has not been finally adjudicated by a federal court, we believe that a jury trial waiver provision is generally enforceable under the laws of the State of New York by a federal or state court in the City of New York. In determining whether to enforce a jury trial waiver provision, New York courts will consider whether the visibility of the jury trial waiver provision within the agreement is sufficiently prominent such that a party has knowingly waived any right to trial by jury. We believe that this is the case with respect to the deposit agreement and the ADSs. In addition, New York courts will not enforce a jury trial waiver provision in order to bar a viable setoff or counterclaim sounding in fraud or one which is based upon a creditors negligence in failing to liquidate collateral upon a guarantors demand, or in the case of an intentional tort claim, none of which we believe are applicable in the case of the deposit agreement or the ADSs. If you or any other holder or beneficial owner of ADSs brings a claim against us or the depositary in connection with matters arising under the deposit agreement or the ADSs, including claims under federal securities laws, you or such other holder or beneficial owner may not be entitled to a jury trial with respect to such claims, which may have the effect of limiting and discouraging lawsuits against us and / or the depositary. If a lawsuit is brought against us and / or the depositary under the deposit agreement, it may be heard only by a judge or justice of the applicable trial court, which would be conducted according to different civil procedures and may result in different outcomes than a trial by jury would have had, including results that could be less favorable to the plaintiff(s) in any such action, depending on, among other things, the nature of the claims, the judge or justice hearing such claims and the venue of the hearing.
Moreover, as the jury trial waiver relates to claims arising out of or relating to the ADSs or the deposit agreement, we believe that, as a matter of construction of the clause, the waiver would likely to continue to apply to ADS holders who withdraw the Class A ordinary shares from the ADS facility with respect to claims arising before the cancellation of the ADSs and the withdrawal of the Class A ordinary shares, and the waiver would most likely not apply to ADS holders who subsequently withdraw the Class A ordinary shares represented by
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ADSs from the ADS facility with respect to claims arising after the withdrawal. However, to our knowledge, there has been no case law on the applicability of the jury trial waiver to ADS holders who withdraw the Class A ordinary shares represented by the ADSs from the ADS facility.
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 seventh 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
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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.
We will be a controlled company as defined under the NYSE Listed Company Manual. As a result, we will qualify for, and may rely on, exemptions from certain corporate governance requirements that would otherwise provide protection to shareholders of other companies.
Upon the completion of this offering, we will be a controlled company as defined under NYSE Listed Company Manual, because Mr. Xiaopeng He, our co-founder, chairman and chief executive officer, will be able to exercise 58.9% of the aggregate voting power of our total issued and outstanding shares, assuming the underwriters do not exercise their option to purchase additional ADSs. For so long as we remain a controlled company, we may rely on exemptions from certain corporate governance rules, including (i) the requirement that a majority of the board of directors consist of independent directors, (ii) the requirement that the compensation of our officers be determined or recommended to our board of directors by a compensation committee that is comprised solely of independent directors, and (iii) the requirement that director nominees be selected or recommended to the board of directors by a majority of independent directors or a nominating committee comprised solely of independent directors. Currently, we do not plan to utilize the exemptions available for controlled companies after we complete this offering, but will rely on the exemption available for foreign private issuers to follow our home country governance practices instead. See 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. If we cease to be a foreign private issuer or if we cannot rely on the home country governance practice exemption for any reason, we may decide to invoke the exemptions available for a controlled company as long as we remain a controlled company. As a result, you will not have the same protection afforded to shareholders of companies that are subject to all the NYSE corporate governance requirements.
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, 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. However, we have elected to opt out of this provision and, as a result, we will comply with new or revised accounting standards as required when they are adopted for public companies. This decision to opt out of the extended transition period under the JOBS Act is irrevocable.
If we are a passive foreign investment company for United States federal income tax purposes for any taxable year, United States holders of our ADSs or Class A ordinary shares could be subject to adverse United States federal income tax consequences.
A non-United States corporation will be a passive foreign investment company, or PFIC, for United States federal income tax purposes for any taxable year if either (i) at least 75% of its gross income for such year is passive income or (ii) at least 50% of the value of its assets (based on an average of the quarterly values of the assets) during such year is attributable to assets that produce or are held for the production of passive income. A separate determination must be made after the close of each taxable year as to whether a non-United States
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corporation is a PFIC for that year. 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 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.
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. The composition of our assets and income may be affected by how, and how quickly, we use our liquid assets and the cash raised in this offering. Because we have valued our goodwill based on the expected 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 VIEs for United States federal income tax purposes. For United States federal income tax purposes, we consider ourselves to own the equity of our consolidated VIEs. If it is determined, contrary to our view, that we do not own the equity of our consolidated VIEs 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. Moreover, the application of the 75% gross income test described above is not entirely clear when a company has a gross loss from sales (sales less cost of goods sold), although we believe that even if we have such a gross loss from sales, we will not be a PFIC if the gross loss from sales exceeds our other income and we would not otherwise be a PFIC under the 50% asset test for the relevant taxable year. There can be no assurance, however, that the Internal Revenue Service will not take a contrary position.
If we are a PFIC for any taxable year during which a United States person holds ADSs or Class A ordinary shares, certain adverse United States federal income tax consequences could apply to such United States person. See TaxationCertain United States Federal Income Tax ConsiderationsPassive Foreign Investment Company.
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 have applied for listing of the 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.
Among other things, 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; (iii) have a minimum of three members on the audit committee; (iv) obtain shareholders approval for issuance of securities in certain situations; or (v) have regularly scheduled executive sessions with only independent directors each year.
We intend to rely on the first four 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 Overview 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:
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our goal and strategies; |
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our expansion plans; |
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our future business development, financial condition and results of operations; |
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expected changes in our revenues, costs or expenditures; |
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the trends in, and size of, Chinas EV market; |
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our expectations regarding demand for, and market acceptance of, our products and services; |
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our expectations regarding our relationships with customers, contract manufacturer, suppliers, third-party service providers, strategic partners and other stakeholders; |
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competition in our industry; |
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our expectation regarding the use of proceeds from this offering; |
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PRC laws, regulations, and policies relating to the EV market; and |
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general economic and business conditions. |
This prospectus also contains market data relating to the EV market 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 IHS Global Inc., including a report which we commissioned IHS Global Inc. 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 EV market 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 the 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
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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$972.0 million, or approximately US$1,118.8 million 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 public offering price of US$12.00 per ADS (the mid-point of the estimated initial 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$12.00 per ADS would increase (decrease) the net proceeds to us from this offering by US$81.6 million, 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:
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50% of the net proceeds (approximately US$486.0 million) for research and development of our Smart EVs and technologies; |
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30% of the net proceeds (approximately US$291.6 million) for selling and marketing and expansion of sales channels; and |
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20% of the net proceeds (approximately US$194.4 million) for general corporate purposes, including working capital needs. |
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 subsidiaries only through loans or capital contributions and to our consolidated VIEs only through loans. Subject to satisfaction of applicable government registration and approval requirements, we may extend inter-company loans to our PRC subsidiaries or make additional capital contributions to our PRC subsidiaries to fund their 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 or additional capital contributions to our PRC subsidiaries.
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Since inception, we have not declared or paid any dividends on our shares. We do not have any present plan to declare or pay any dividends on our ordinary shares or ADSs in the foreseeable future. We intend to retain most, if not all, of our available funds and any future earnings to operate and expand our business.
Any other future determination to pay dividends will be made at the discretion of our board of directors. In addition, our shareholders may by ordinary resolution declare a dividend, but no dividend may exceed the amount recommended by our board of directors. In either case, all dividends are subject to certain restrictions under Cayman Islands law, namely that our company may only pay dividends out of profits or share premium, and provided always that in no circumstances may a dividend be paid if this would result in our company being unable to pay its debts as they fall due in the ordinary course of business. Even if we decide to pay dividends, the form, frequency and amount 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 on our ordinary shares, we will pay those dividends which are payable in respect of the Class A ordinary shares underlying the ADSs to the depositary, as the registered holder of such Class A ordinary shares, and the depositary then will pay such amounts to the ADS holders in proportion to the Class A ordinary shares underlying the ADSs held by such ADS holders, subject to the terms of the deposit agreement, net of 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 a holding company incorporated in the Cayman Islands. In order for us to distribute any dividends to our shareholders, we may rely on dividends distributed by our PRC subsidiaries for our cash requirements. PRC regulations may restrict the ability of our PRC subsidiaries to pay dividends to us. For example, 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. See Risk FactorsRisks Relating to Doing Business in ChinaWe 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.
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The following table sets forth our cash and cash equivalents, short-term borrowings, current portion of long-term borrowings and capitalization as of June 30, 2020 presented on:
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an actual basis; |
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a pro forma basis to give effect to (i) the automatic conversion of 80,546,975 preferred shares outstanding as of June 30, 2020 into Class B ordinary shares on a one-for-one-basis upon the completion of this offering; (ii) the automatic conversion of 129,027,875 preferred shares outstanding as of June 30, 2020 into Class C ordinary shares on a one-for-one-basis upon the completion of this offering; and (iii) the automatic conversion of 384,570,020 remaining preferred shares outstanding (including the preferred shares issued upon the exercise of outstanding warrants) as of June 30, 2020 into Class A ordinary shares on a one-for-one-basis upon the completion of this offering; and |
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a pro forma as adjusted basis to give effect to (i) the issuance of 207,588,515 Series C preferred shares in the third quarter of 2020; (ii) the issuance of 14,850,560 Class A ordinary shares upon the settlement of certain RSUs in August 2020; (iii) the issuance of 25,385,300 preferred shares upon the exercise of warrants in August 2020; (iv) the automatic conversion of 98,611,761 preferred shares outstanding as of the date hereof into Class B ordinary shares on a one-for-one-basis upon the completion of this offering; (v) the automatic conversion of 178,618,464 preferred shares outstanding as of the date hereof into Class C ordinary shares on a one-for-one-basis upon the completion of this offering; (vi) the automatic conversion of 524,503,160 remaining preferred shares outstanding as of the date hereof into Class A ordinary shares on a one-for-one-basis upon the completion of this offering; and (vii) 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$12.00 per ADS, the mid-point of the estimated public offering price range shown on the front cover of this prospectus, after deducting underwriting discounts, commissions and estimated offering expenses payable by us and assuming no exercise of the underwriters option to purchase additional ADSs. |
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The pro forma and pro forma as adjusted information below is illustrative only and our capitalization following the closing of this offering is subject to adjustment based on the initial public offering price of the ADSs and other terms of this offering determined at pricing. You should read this table in conjunction with Managements Discussion and Analysis of Financial Condition and Results of Operations and our consolidated financial statements and related notes included elsewhere in this prospectus.
As of June 30, 2020 | ||||||||||||||||||||||||
Actual | Pro Forma | Pro Forma as Adjusted(1) | ||||||||||||||||||||||
RMB | US$ | RMB | US$ | RMB | US$ | |||||||||||||||||||
(in thousands, except share and per share data) | ||||||||||||||||||||||||
Cash and cash equivalents |
1,061,209 | 150,204 | 1,061,209 | 150,204 | 14,199,959 | 2,022,169 | ||||||||||||||||||
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Short-term borrowings |
277,465 | 39,273 | 277,465 | 39,273 | 277,465 | 39,273 | ||||||||||||||||||
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Current portion of long-term borrowings |
60,000 | 8,492 | 60,000 | 8,492 | 60,000 | 8,492 | ||||||||||||||||||
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Long-term borrowings, less current portion |
1,689,980 | 239,201 | 1,689,980 | 239,201 | 1,689,980 | 239,201 | ||||||||||||||||||
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Convertible redeemable preferred shares, US$0.00001 par value per share, 757,200,350 shares authorized, 594,144,870 shares issued and outstanding, actual; no shares authorized, issued or outstanding, pro forma and pro forma as adjusted |
11,598,502 | 1,641,661 | | | | | ||||||||||||||||||
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Shareholders (deficit) equity: |
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Class A ordinary shares, US$0.00001 par value per share, 3,492,799,650 shares authorized, 82,505,470 shares issued and 31,513,000 shares outstanding, actual; 8,850,000,000 shares authorized, and 416,083,020 shares outstanding, pro forma; and 8,850,000,000 shares authorized, and 740,866,720 shares outstanding, pro forma as adjusted |
2 | | 29 | 4 | 44 | 6 | ||||||||||||||||||
Class B ordinary shares, US$0.00001 par value per share, 750,000,000 shares authorized, 331,234,375 shares issued and outstanding, actual; 750,000,000 shares authorized, and 411,781,350 shares issued and outstanding, pro forma; and 750,000,000 shares authorized, and 429,846,136 shares issued and outstanding, pro forma as adjusted |
19 | 3 | 25 | 4 | 25 | 4 | ||||||||||||||||||
Class C ordinary shares, US$0.00001 par value per share, no shares authorized, issued and outstanding, actual; 400,000,000 shares authorized and 129,027,875 shares issued and outstanding, pro forma; 400,000,000 shares authorized and 178,618,464 shares issued and outstanding, pro forma as adjusted |
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| 9 | 1 | 9 | 1 | ||||||||||||||||
Additional paid-in capital |
| | 11,987,890 | 1,696,775 | 25,500,872 | 3,621,709 | ||||||||||||||||||
Accumulated deficit |
(8,903,117 | ) | (1,260,154 | ) | (8,903,117 | ) | (1,260,154 | ) | (9,277,364 | ) | (1,313,125 | ) | ||||||||||||
Accumulated other comprehensive loss |
(21,347 | ) | (3,022 | ) | (21,347 | ) | (3,022 | ) | (21,347 | ) | (3,022 | ) | ||||||||||||
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Total shareholders (deficit) equity |
(8,924,443 | ) | (1,263,173 | ) | 3,063,489 | 433,608 | 16,202,239 | 2,305,573 | ||||||||||||||||
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Total capitalization(2) |
4,364,039 | 617,689 | 4,753,469 | 672,809 | 17,892,219 | 2,544,774 | ||||||||||||||||||
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(1) |
Each $1.00 increase or decrease in the assumed initial public offering price of US$12.00 per ADS, which is the midpoint of the price range set forth on the cover page of this prospectus, would increase or decrease, as applicable, the amount of each of our pro forma as adjusted cash and cash equivalents, additional paid-in capital, total stockholders (deficit) equity and total capitalization by approximately US$81.6 million, assuming that the number of ADSs offered by us, as set forth on the cover page of this prospectus, remains the same and after deducting estimated underwriting discounts and commissions payable by us. Similarly, each increase or decrease of 1.0 million ADSs offered by us would increase or decrease, as applicable, the amount of each of our pro forma as adjusted cash and cash equivalents, additional paid-in capital, total stockholders (deficit) equity and total capitalization by approximately US$11.5 million, assuming the assumed initial public offering price remains the same and after deducting estimated underwriting discounts and commissions payable by us. |
(2) |
Total capitalization equals the sum of long-term borrowings less current portion, mezzanine equity (convertible redeemable preferred shares) and shareholders (deficit) equity. |
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If the underwriters exercise their option to purchase additional shares in full, each of our pro forma as adjusted cash and cash equivalents, additional paid-in capital, total stockholders (deficit) equity, total capitalization and pro forma as adjusted shares of Class A ordinary shares outstanding as of June 30, 2020 would be US$2,169 million, US$3,769 million, US$2,452 million, US$2,692 million and 766,366,720 Class A ordinary shares, respectively.
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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 issued ordinary shares and holders of our preferred shares which will automatically convert into our ordinary shares upon the completion of this offering.
Our net tangible book value as of June 30, 2020 was approximately US$291.6 million, or US$0.80 per ordinary share as of that date, and US$1.60 per ADS. Net tangible book value represents the amount of our total consolidated assets, less the amount of our intangible assets, goodwill and total consolidated liabilities. Dilution is determined by subtracting net tangible book value per ordinary share, after giving effect to (i) the issuance of 207,588,515 Series C preferred shares in the third quarter of 2020; (ii) the issuance of 14,850,560 Class A ordinary shares upon the settlement of certain RSUs in August 2020; (iii) the issuance of 25,385,300 preferred shares upon the exercise of warrants in August 2020; (iv) the automatic conversion of 98,611,761 preferred shares outstanding as of the date hereof into Class B ordinary shares on a one-for-one-basis upon the completion of this offering; (v) the automatic conversion of 178,618,464 preferred shares outstanding as of the date hereof into Class C ordinary shares on a one-for-one-basis upon the completion of this offering; (vi) the automatic conversion of 524,503,160 remaining preferred shares outstanding as of the date hereof into Class A ordinary shares on a one-for-one-basis upon the completion of this offering; (vii) the portion of outstanding RSUs and restricted shares under our share incentive plan that will become vested upon the completion of this offering; and (viii) the issuance and sale by us of shares represented by ADSs in this offering at an assumed initial public offering price of US$12.00 per ADS (the mid-point 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. As Class A ordinary shares, Class B ordinary shares and Class C ordinary shares are entitled to the same rights, except for voting and conversion rights, the dilution is presented based on all issued and outstanding ordinary shares, including Class A ordinary shares, Class B ordinary shares and Class C ordinary shares.
Without taking into account any other changes in net tangible book value after June 30, 2020, other than to give effect to (i) the issuance of 207,588,515 Series C preferred shares in the third quarter of 2020; (ii) the issuance of 14,850,560 Class A ordinary shares upon the settlement of certain RSUs in August 2020; (iii) the issuance of 25,385,300 preferred shares upon the exercise of warrants in August 2020; (iv) the automatic conversion of 98,611,761 preferred shares outstanding as of the date hereof into Class B ordinary shares on a one-for-one-basis upon the completion of this offering; (v) the automatic conversion of 178,618,464 preferred shares outstanding as of the date hereof into Class C ordinary shares on a one-for-one-basis upon the completion of this offering; (vi) the automatic conversion of 524,503,160 remaining preferred shares outstanding as of the date hereof into Class A ordinary shares on a one-for-one-basis upon the completion of this offering; (vii) the portion of outstanding RSUs and restricted shares under our share incentive plan that will become vested upon the completion of this offering; and (viii) the issuance and sale by us of 170,000,000 Class A ordinary shares in the form of ADSs in this offering at an assumed initial public offering price of US$12.00 per ADS (the mid-point 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 June 30, 2020 would have been US$2,218.7 million, or US$1.57 per issued ordinary share and US$3.14 per ADS. This represents an immediate increase in net tangible book value of US$1.21 per ordinary share and US$2.42 per ADS to the existing shareholders and an immediate dilution in net tangible book value of US$4.43 per ordinary share and US$8.86 per ADS to investors purchasing ADSs in this offering.
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The following table illustrates such dilution:
Per
Ordinary Share |
Per ADS | |||||||
Assumed initial public offering price |
US$ | 6.00 | US$ | 12.00 | ||||
Actual net tangible book value as of June 30, 2020 |
US$ | 0.80 | US$ | 1.60 | ||||
Pro forma net tangible book value after giving effect to the automatic conversion of all of our preferred shares outstanding as of June 30, 2020 into ordinary shares |
US$ | 0.36 | US$ | 0.72 | ||||
Pro forma as adjusted net tangible book value after giving effect to (i) the issuance of 207,588,515 Series C preferred shares in the third quarter of 2020, (ii) the issuance of 14,850,560 Class A ordinary shares upon the settlement of certain RSUs in August 2020, (iii) the issuance of 25,385,300 preferred shares upon the exercise of warrants in August 2020, (iv) the automatic conversion of 98,611,761 preferred shares outstanding as of the date hereof into Class B ordinary shares on a one-for-one-basis upon the completion of this offering, (v) the automatic conversion of 178,618,464 preferred shares outstanding as of the date hereof into Class C ordinary shares on a one-for-one-basis upon the completion of this offering, (vi) the automatic conversion of 524,503,160 remaining preferred shares outstanding as of the date hereof into Class A ordinary shares on a one-for-one-basis upon the completion of this offering, (vii) the portion of outstanding RSUs and restricted shares under our share incentive plan that will become vested upon the completion of this offering, and (viii) this offering |
US$ | 1.57 | US$ | 3.14 | ||||
Dilution in net tangible book value to new investors in the offering |
US$ | 4.43 | US$ | 8.86 |
The following table summarizes, on a pro forma as adjusted basis as of June 30, 2020, the differences between existing shareholders, including holders of our preferred shares, and the new investors with respect to the number of ordinary shares (in the form of ADSs or shares) purchased from us, the total consideration paid and the average price per 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.
Ordinary Shares Total |
Total
Consideration |
Average
Price per Ordinary Share Equivalent |
Average
Price per ADS Equivalent |
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Number | Percent |
Amount
(in thousands) |
Percent | |||||||||||||||||||||
Existing shareholders |
1,243,343,172 | 88.0 | % | US$ | 2,407,362 | 70.2 | % | US$ | 1.94 | US$ | 3.88 | |||||||||||||
New investors |
170,000,000 | 12.0 | % | US$ | 1,020,000 | 29.8 | % | US$ | 6.00 | US$ | 12.00 | |||||||||||||
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Total |
1,413,343,172 | 100.0 | % | US$ | 3,427,362 | 100.0 | % | |||||||||||||||||
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A US$1.00 increase (decrease) in the assumed public offering price of US$12.00 per ADS (the mid-point of the estimated initial public offering price range shown on the front cover page of this prospectus) would increase (decrease) our pro forma as adjusted net tangible book value after giving effect to the offering by US$81.6 million, the pro forma as adjusted net tangible book value per ordinary share and per ADS after giving effect to this offering by US$0.06 per ordinary share and US$0.12 per ADS and the dilution in pro forma as adjusted net tangible book value per ordinary share and per ADS to new investors in this offering by US$0.44 per ordinary share and US$0.88 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 estimated offering expenses payable by us.
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 the ADSs and other terms of this offering determined at pricing.
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The discussion and tables above take into consideration the automatic conversions of all of our outstanding preferred shares immediately upon the completion of this offering, ordinary shares issued subsequent to June 30, 2020 and the portion of outstanding RSUs and restricted shares granted under our share incentive plan that will become vested upon the completion of this offering. They do not take into consideration (i) the portion of outstanding RSUs granted under our share incentive plan which are subject to further service condition and will not automatically become vested upon the completion of this offering and (ii) RSUs that may be granted in the future. As of the date of this prospectus, there are (i) 49,905,843 Class A ordinary shares issuable pursuant to outstanding granted RSUs which will vest after completion of this offering, (ii) 32,693,845 Class A ordinary shares available for future issuance for future grants under our equity incentive plan. If any of these RSUs are vested or granted, there will be further dilution to new investors.
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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.
Our operations are mainly conducted in the PRC, and our assets are mainly 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.
Harney Westwood & Riegels, 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.
Harney Westwood & Riegels 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. Harney Westwood & Riegels 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, Harney Westwood & Riegels 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 rendered or on principles of reciprocity between jurisdictions. As there exists no treaty or other form of written arrangement 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 our operations in 2015 through Chengxing Zhidong, a PRC limited liability company. We undertook a reorganization, or the Reorganization, to facilitate our initial public offering in the United States. As part of the Reorganization, we incorporated XPeng Inc., an exempted company incorporated under the laws of Cayman Islands, in December 2018. Subsequently, XPeng Inc. established XPeng Limited, a limited liability company established in the British Virgin Islands. XPeng Limited then established XPeng (Hong Kong) Limited, a Hong Kong limited liability company, as its wholly owned subsidiary. XPeng (HK) Limited then established Xiaopeng Motors, as a wholly foreign-owned enterprise in the PRC.
As a transitional arrangement of the Reorganization, Xiaopeng Motors entered into a series of contractual agreements with Chengxing Zhidong and its shareholders in September 2019, pursuant to which Xiaopeng Motors exercised effective control over the operations of Chengxing Zhidong. In connection with the Reorganization, substantially all of the former shareholders of Chengxing Zhidong have exited from Chengxing Zhidong and obtained, by themselves or through their respective affiliates, shares of XPeng Inc. based on their respective shareholding in Chengxing Zhidong prior to the Reorganization. In May 2020, Xiaopeng Motors completed its purchase of 100% equity interest in Chengxing Zhidong. Consequently, Chengxing Zhidong became an indirect wholly owned subsidiary of XPeng Inc.
Our Corporate Structure
The following diagram illustrates our corporate structure as of the date of this prospectus. Certain entities that are immaterial to our results of operations, business and financial condition are omitted. Except as otherwise specified, equity interests depicted in this diagram are held as to 100%.
(1) |
We have the option to acquire the remaining 0.5% equity interest in Xiaopeng Technology from the current owner, and the owner has the right to require us to purchase such equity interest, in or before September 2022 at a purchase price equal to such owners initial investment plus an investment yield. |
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(2) |
Includes (i) 36 subsidiaries that are wholly-owned by Chengxing Zhidong, (ii) three subsidiaries of which a majority equity interest is held by Chengxing Zhidong, and (iii) one subsidiary, of which a 50% equity interest is held by Chengxing Zhidong. Chengxing Zhidong and its subsidiaries are primarily involved in research and development, manufacturing and selling our Smart EVs and providing after-sales services. |
(3) |
Includes (i) eight subsidiaries that are wholly-owned by Xiaopeng Automobile, and (ii) one subsidiary, of which 73.8% equity interest is held by Xiaopeng Automobile. Xiaopeng Automobile and its subsidiaries are primarily involved in providing value-added services. |
(4) |
Heng Xia and Tao He hold 80% and 20% equity interest, respectively, in Zhipeng IoV. Zhipeng IoV is primarily involved in operating our Xpeng mobile apps and providing value-added services. |
(5) |
Xiaopeng He and Heng Xia respectively hold 80% and 20% equity interest, respectively, in Yidian Chuxing. Yidian Chuxing is primarily involved in providing ride-hailing services and operating the related mobile app. |
Contractual Arrangements with the VIEs and Their Shareholders
To comply with PRC laws and regulations, we operate our mobile apps through our consolidated VIEs that hold the required ICP and related licenses. Our subsidiary, Xiaopeng Chuxing, has entered into a series of contractual arrangements with our consolidated VIE, Yidian Chuxing, and its shareholders. In addition, our subsidiary, Xiaopeng Technology, has entered into a series of contractual arrangements with our consolidated VIE, Zhipeng IoV, and its shareholders. We effectively control our consolidated VIEs through these contractual arrangements, as described in more detail below, which collectively enables us to:
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exercise effective control over our consolidated VIEs and their subsidiaries; |
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receive substantially all the economic benefits of our consolidated VIEs; and |
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have an exclusive option to purchase all or part of the equity interests in all or part of the assets of or inject registered capital into our consolidated VIEs when and to the extent permitted by PRC law. |
As a result of these contractual arrangements, we are the primary beneficiary of our consolidated VIEs and their 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:
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the ownership structures of Xiaopeng Technology, Xiaopeng Chuxing and our consolidated VIEs 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 |
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the contractual arrangements among Xiaopeng Technology, Xiaopeng Chuxing, our consolidated VIEs and their 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. |
However, there are substantial uncertainties regarding the interpretation and application of current or future PRC laws and regulations related to the contractual arrangements. 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 StructureWe rely on contractual arrangements with our consolidated VIEs and their shareholders to operate our mobile apps, which may not be as effective as direct ownership in providing operational control and otherwise have a material adverse effect as to our business.
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The following is a summary of the currently effective contractual arrangements by and among (i) Xiaopeng Technology, Zhipeng IoV and its shareholders, and (ii) Xiaopeng Chuxing, Yidian Chuxing and its shareholders.
Contractual Arrangements with Zhipeng IoV and its shareholders
Agreements that provide us with effective control over Zhipeng IoV and its subsidiaries
Equity Interest Pledge Agreement. Pursuant to the equity interest pledge agreement, each shareholder of Zhipeng IoV, has pledged all of such shareholders equity interest in Zhipeng IoV as a security interest, as applicable, to respectively guarantee Zhipeng IoV and its shareholders performance of their obligations under the relevant contractual arrangement, which include the exclusive service agreement, exclusive option agreement, power of attorney and loan agreement. If Zhipeng IoV or any of its shareholders breaches their contractual obligations under these agreements, Xiaopeng Technology, as pledgee, will be entitled to certain rights regarding the pledged equity interests. In the event of such breaches, upon giving written notice to Zhipeng IoVs shareholders, Xiaopeng Technology to the extent permitted by PRC laws may exercise the right to enforce the pledge, which is being paid in priority with the equity interest of Zhipeng IoV from the proceeds from auction or sale of the equity interest. Each of the shareholders of Zhipeng IoV 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 Xiaopeng Technology. Zhipeng IoVs shareholders may receive dividends distributed on the equity interest only with prior consent of Xiaopeng Technology. 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, whichever is later.
Power of Attorney. Pursuant to the power of attorney, each shareholder of Zhipeng IoV has irrevocably authorized Xiaopeng Technology to exercise the following rights relating to all equity interests held by such shareholder in Zhipeng IoV 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 Zhipeng IoV according to Zhipeng IoVs articles of association, including without limitation to: (i) exercising all the shareholders voting rights, including but not limited designating and appointing the directors and other senior management members of Zhipeng IoV; (ii) other shareholders voting rights such shareholder is entitled to according to Zhipeng IoVs articles of association, as amended; and (iii) equity transfer (according to the exclusive option agreement), asset transfer, capital reduction and capital increase of Zhipeng IoV.
Loan Agreement. Pursuant to the loan agreement, the Xiaopeng Technology should provide the shareholders of Zhipeng IoV with a loan in the aggregate amount of RMB10.0 million to fund business activities as permitted by Xiaopeng Technology. The shareholders agree that the proceeds from the transfer of the equity interest of the shareholders in Zhipeng IoV, pursuant to the exercise of the right to acquire such equity interest by Xiaopeng Technology under the exclusive option agreement, may be used by the shareholders to repay the loan to the extent permitted under PRC law. The loan agreement will remain effective until the earlier of (i) 20 years after the execution date of the loan agreement, (ii) the expiry date of Xiaopeng Technologys licensed operating period; and (iii) the expiry date of Zhipeng IoVs licensed operating period. During the term of loan agreement, Xiaopeng Technology has the right, at its sole and absolute discretion, to accelerate maturity of loan at any time.
Agreement that allow us to receive economic benefits from Zhipeng IoV and its subsidiaries
Exclusive Service Agreement. Under the exclusive service agreement, Zhipeng IoV appoints Xiaopeng Technology as its exclusive services provider to provide Zhipeng IoV with services related to Zhipeng IoVs business during the term of the exclusive service agreement. In consideration of the services provided by Xiaopeng Technology, Zhipeng IoV shall pay Xiaopeng Technology annual fees, which should be mutually agreed by both parties and can be adjusted according to Xiaopeng Technologys suggestion to the extent permitted by PRC law. Unless terminated in accordance with the provisions of the exclusive service agreement or terminated in writing by Xiaopeng Technology, the exclusive service agreement shall remain effective for 20 years from May 28, 2018, and can be automatically renewed for one year every sequent year.
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Agreements that provides us with the option to purchase the equity interest in Zhipeng IoV
Exclusive Option Agreement. Pursuant to the exclusive option agreement, Zhipeng IoV and each of Zhipeng IoVs shareholders have irrevocably granted Xiaopeng Technology an irrevocable and exclusive right to purchase, or designate one or more entities or persons to purchase the equity interests in Zhipeng IoV then held by its shareholders, and the assets of Zhipeng IoV, once or at multiple times at any time in part or in whole at Xiaopeng Technologys sole and absolute discretion to the extent permitted by PRC law. The purchase price for the equity interests in Zhipeng IoV shall equal to the amount of relevant registered capital contributed by the shareholders in Zhipeng IoV while the purchase price for the assets of Zhipeng IoV shall equal to the net book value of such assets, and if such amount in each case is lower than the minimum price permitted by PRC law, the minimum price permitted by PRC law shall be the purchase price. This agreement will remain effective until all equity interests of Zhipeng IoV held by its shareholders and all of Zhipeng IoVs assets have been transferred or assigned to Xiaopeng Technology or its designated entities or persons.
Contractual Arrangements with Yidian Chuxing and its shareholders
Agreements that provide us with effective control over Yidian Chuxing and its subsidiaries
Equity Interest Pledge Agreement. Pursuant to the equity interest pledge agreement, each shareholder of Yidian Chuxing, has pledged all of such shareholders equity interest in Yidian Chuxing as a security interest, as applicable, to respectively guarantee Yidian Chuxing and its shareholders performance of their obligations under the relevant contractual arrangement, which include the exclusive service agreement, exclusive option agreement, power of attorney and loan agreement. If Yidian Chuxing or any of its shareholders breaches their contractual obligations under these agreements, Xiaopeng Chuxing, as pledgee, will be entitled to certain rights regarding the pledged equity interests. In the event of such breaches, upon giving written notice to Yidian Chuxings shareholders, Xiaopeng Chuxing to the extent permitted by PRC laws may exercise the right to enforce the pledge, which is being paid in priority with the equity interest of Yidian Chuxing from the proceeds from auction or sale of the equity interest. Each of the shareholders of Yidian Chuxing 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 Xiaopeng Chuxing. Yidian Chuxings shareholders may receive dividends distributed on the equity interest only with prior consent of Xiaopeng Chuxing. The equity interest pledge agreements remain effective until all obligations under the relevant contractual agreements have been fully performed or all secured indebtedness have been fully paid, whichever is later.
Power of Attorney. Pursuant to the power of attorney, each shareholder of Yidian Chuxing has irrevocably authorized Xiaopeng Chuxing to exercise the following rights relating to all equity interests held by such shareholder in Yidian Chuxing 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 Yidian Chuxing according to Yidian Chuxings articles of association, including without limitation to: (i) exercising all the shareholders voting rights, including but not limited designating and appointing the directors and other senior management members of Yidian Chuxing; (ii) other shareholders voting rights such shareholder is entitled to according to Yidian Chuxings articles of association, as amended; and (iii) equity transfer (according to the exclusive option agreement), asset transfer, capital reduction and capital increase of Yidian Chuxing.
Loan Agreement. Pursuant to the loan agreement, the Xiaopeng Chuxing should provide the shareholders of Yidian Chuxing with a loan in the aggregate amount of RMB10.0 million to fund business activities as permitted by Xiaopeng Chuxing. The shareholders agree that the proceeds from the transfer of the equity interest of the shareholders in Yidian Chuxing, pursuant to the exercise of the right to acquire such equity interest by Xiaopeng Chuxing under the exclusive option agreement, may be used by the shareholders to repay the loan to the extent permitted under PRC law. The loan agreement will remain effective until the earlier of (i) 20 years after the execution date of the loan agreement, (ii) the expiry date of Xiaopeng Chuxings licensed operating period; and (iii) the expiry date of Yidian Chuxings licensed operating period. During the term of loan agreement, Xiaopeng Chuxing has the right, at its sole and absolute discretion, to accelerate maturity of loan at any time.
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Agreement that allow us to receive economic benefits from Yidian Chuxing and its subsidiaries
Exclusive Service Agreement. Under the exclusive service agreement, Yidian Chuxing appoints Xiaopeng Chuxing as its exclusive services provider to provide Yidian Chuxing with services related to Yidian Chuxings business during the term of the exclusive service agreement. In consideration of the services provided by Xiaopeng Chuxing, Yidian Chuxing shall pay Xiaopeng Chuxing annual fees, which should be mutually agreed by both parties and can be adjusted according to Xiaopeng Chuxings suggestion to the extent permitted by PRC law. Unless terminated in accordance with the provisions of the exclusive service agreement or terminated in writing by Xiaopeng Chuxing, the exclusive service agreement shall remain effective for 20 years, starting from May 28, 2018, and can be automatically renewed for one year every sequent year.
Agreements that provides us with the option to purchase the equity interest in Yidian Chuxing
Exclusive Option Agreement. Pursuant to the exclusive option agreement, Yidian Chuxing and each of Yidian Chuxings shareholders have irrevocably granted Xiaopeng Chuxing an irrevocable and exclusive right to purchase, or designate one or more entities or persons to purchase the equity interests in Yidian Chuxing then held by its shareholders, and the assets of Yidian Chuxing, once or at multiple times at any time in part or in whole at Xiaopeng Chuxings sole and absolute discretion to the extent permitted by PRC law. The purchase price for the equity interests shall equal to the amount of the relevant registered capital contributed by the shareholders in Yidian Chuxing while the purchase price for the assets of Yidian Chuxing shall equal to the net book value of such assets, and if such amount in each case is lower than the minimum price permitted by PRC law, the minimum price permitted by PRC law shall be the purchase price. This agreement will remain effective until all equity interests of Yidian Chuxing held by its shareholders and all of Yidian Chuxings assets have been transferred or assigned to Xiaopeng Chuxing or its designated entities or persons.
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SELECTED CONSOLIDATED FINANCIAL DATA
The following selected consolidated statements of comprehensive loss data and selected consolidated statements of cash flows data for the years ended December 31, 2018 and 2019 and selected consolidated balance sheets data as of December 31, 2018 and 2019 have been derived from our audited consolidated financial statements included elsewhere in this prospectus. The following selected consolidated statements of comprehensive loss data and selected consolidated cash flows data for the six months ended June 30, 2019 and 2020 and selected consolidated balance sheets data (excluding pro forma as adjusted data) as of June 30, 2020 have been derived from our unaudited condensed consolidated financial statements included else-where in this prospectus. The unaudited condensed consolidated financial statements have been prepared on the same basis as our audited consolidated financial statements and include all adjustments, consisting only of normal and recurring adjustments, that we consider necessary for a fair statement of our financial position and results of operations for the periods presented.
Our consolidated financial statements are prepared and presented in accordance with U.S. GAAP. 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 Loss Data
Year Ended December 31, | Six Months Ended June 30, | |||||||||||||||||||||||
2018 | 2019 | 2019 | 2020 | |||||||||||||||||||||
RMB | RMB | US$ | RMB | RMB | US$ | |||||||||||||||||||
(in thousands, except for share and per share data) | ||||||||||||||||||||||||
Revenues |
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Vehicle sales |
4,153 | 2,171,231 | 307,318 | 1,197,499 | 913,269 | 129,265 | ||||||||||||||||||
Services and others |
5,553 | 149,988 | 21,229 | 33,993 | 89,581 | 12,679 | ||||||||||||||||||
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Total revenues |
9,706 | 2,321,219 | 328,547 | 1,231,492 | 1,002,850 | 141,944 | ||||||||||||||||||
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Cost of sales |
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Vehicle sales |
(8,220 | ) | (2,733,531 | ) | (386,906 | ) | (1,667,805 | ) | (963,136 | ) | (136,323 | ) | ||||||||||||
Services and others |
(3,847 | ) | (145,829 | ) | (20,641 | ) | (34,475 | ) | (75,830 | ) | (10,733 | ) | ||||||||||||
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Total cost of sales |
(12,067 | ) | (2,879,360 | ) | (407,547 | ) | (1,702,280 | ) | (1,038,966 | ) | (147,056 | ) | ||||||||||||
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Gross loss |
(2,361 | ) | (558,141 | ) | (79,000 | ) | (470,788 | ) | (36,116 | ) | (5,112 | ) | ||||||||||||
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Operating expenses |
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Research and development expenses |
(1,051,219 | ) | (2,070,158 | ) | (293,012 | ) | (983,198 | ) | (630,578 | ) | (89,253 | ) | ||||||||||||
Selling, general and administrative expenses |
(642,541 | ) | (1,164,569 | ) | (164,834 | ) | (484,058 | ) | (798,974 | ) | (113,087 | ) | ||||||||||||
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Total operating expenses |
(1,693,760 | ) | (3,234,727 | ) | (457,846 | ) | (1,467,256 | ) | (1,429,552 | ) | (202,340 | ) | ||||||||||||
Other income |
1,487 | 12,294 | 1,740 | 5,116 | 37,293 | 5,278 | ||||||||||||||||||
Loss from operations |
(1,694,634 | ) | (3,780,574 | ) | (535,106 | ) | (1,932,928 | ) | (1,428,375 | ) | (202,174 | ) | ||||||||||||
Interest income |
65,376 | 88,843 | 12,575 | 58,031 | 20,953 | 2,966 | ||||||||||||||||||
Interest expenses |
(5,822 | ) | (32,017 | ) | (4,532 | ) | (11,677 | ) | (15,954 | ) | (2,258 | ) | ||||||||||||
Fair value gain (loss) on derivative liabilities |
254,361 | 27,679 | 3,918 | (47,079 | ) | 618,442 | 87,535 | |||||||||||||||||
Other non-operating (loss) income, net |
(18,104 | ) | 4,397 | 622 | 15,324 | 9,131 | 1,292 | |||||||||||||||||
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Loss before income tax expenses |
(1,398,823 | ) | (3,691,672 | ) | (522,523 | ) | (1,918,329 | ) | (795,803 | ) | (112,639 | ) | ||||||||||||
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Income tax expenses |
| (1 | ) | | | | | |||||||||||||||||
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Net loss |
(1,398,823 | ) | (3,691,673 | ) | (522,523 | ) | (1,918,329 | ) | (795,803 | ) | (112,639 | ) | ||||||||||||
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Year Ended December 31, | Six Months Ended June 30, | |||||||||||||||||||||||
2018 | 2019 | 2019 | 2020 | |||||||||||||||||||||
RMB | RMB | US$ | RMB | RMB | US$ | |||||||||||||||||||
(in thousands, except for share and per share data) | ||||||||||||||||||||||||
Comprehensive loss attributable to ordinary shareholders of XPeng Inc. |
(2,257,844 | ) | (4,645,722 | ) | (657,560 | ) | (2,331,763 | ) | (2,091,939 | ) | (296,096 | ) | ||||||||||||
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Weighted average number of ordinary shares used in computing net loss per ordinary share |
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Basic and diluted |
330,176,070 | 349,450,580 | 349,450,580 | 349,414,050 | 362,747,375 | 362,747,375 | ||||||||||||||||||
Net loss per ordinary share attributable to ordinary shareholders |
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Basic and diluted |
(6.83 | ) | (13.29 | ) | (1.88 | ) | (6.60 | ) | (5.72 | ) | (0.81 | ) |
Selected Consolidated Balance Sheets Data
As of December 31, | As of June 30, | |||||||||||||||||||||||||||||||||||
2018 | 2019 | 2020 | ||||||||||||||||||||||||||||||||||
Actual | Actual | Actual | Pro Forma(1) | Pro Forma As Adjusted(2) | ||||||||||||||||||||||||||||||||
RMB | RMB | US$ | RMB | US$ | RMB | US$ | RMB | US$ | ||||||||||||||||||||||||||||
(in thousands, except for share data) | ||||||||||||||||||||||||||||||||||||
Balance Sheets Data: |
||||||||||||||||||||||||||||||||||||
Cash and cash equivalents |
1,626,878 | 1,946,931 | 275,570 | 1,061,209 | 150,204 | 1,061,209 | 150,204 | 14,199,959 | 2,022,169 | |||||||||||||||||||||||||||
Restricted cash |
4,647 | 460,812 | 65,224 | 834,099 | 118,059 | 834,099 | 118,059 | 834,099 | 118,059 | |||||||||||||||||||||||||||
Short-term deposits |
759,975 | | | | | | | | | |||||||||||||||||||||||||||
Short-term investments |
2,246,272 | 407,844 | 57,727 | 223,173 | 31,588 | 223,173 | 31,588 | 223,173 | 31,588 | |||||||||||||||||||||||||||
Prepayments and other current assets |
1,236,596 | 1,083,307 | 153,332 | 1,023,967 | 144,931 | 1,023,967 | 144,931 | 1,023,967 | 144,931 | |||||||||||||||||||||||||||
Property, plant and equipment, net |
863,357 | 3,229,952 | 457,170 | 3,218,922 | 455,609 | 3,218,922 | 455,609 | 3,218,922 | 455,609 | |||||||||||||||||||||||||||
Total assets |
7,673,188 | 9,251,365 | 1,309,449 | 9,324,869 | 1,319,847 | 9,324,869 | 1,319,847 | 22,463,619 | 3,191,812 | |||||||||||||||||||||||||||
Short-term borrowings |
200,000 | 419,950 | 59,440 | 277,465 | 39,273 | 277,465 | 39,273 | 277,465 | 39,273 | |||||||||||||||||||||||||||
Current portion of long-term borrowings |
| 60,000 | 8,492 | 60,000 | 8,492 | 60,000 | 8,492 | 60,000 | 8,492 | |||||||||||||||||||||||||||
Long-term borrowings |
1,000,000 | 1,690,000 | 239,204 | 1,689,980 | 239,201 | 1,689,980 | 239,201 | 1,689,980 | 239,201 | |||||||||||||||||||||||||||
Derivative liabilities |
637,015 | 897,091 | 126,978 | 389,430 | 55,120 | | | | | |||||||||||||||||||||||||||
Total liabilities |
2,878,940 | 6,388,317 | 904,211 | 6,650,810 | 941,359 | 6,261,380 | 886,239 | 6,261,380 | 886,239 | |||||||||||||||||||||||||||
Total mezzanine equity |
6,979,473 | 9,693,478 | 1,372,022 | 11,598,502 | 1,641,661 | | | | | |||||||||||||||||||||||||||
Total shareholders (deficit) equity |
(2,185,225 | ) | (6,830,430 | ) | (966,784 | ) | (8,924,443 | ) | (1,263,173 | ) | 3,063,489 | 433,608 | 16,202,239 | 2,305,573 | ||||||||||||||||||||||
Share capital |
21 | 21 | 3 | 21 | 3 | 63 | 9 | 78 | 11 | |||||||||||||||||||||||||||
Total shares outstanding |
349,414,050 | 362,747,375 | 362,747,375 | 362,747,375 | 362,747,375 | 931,506,945 | 931,506,945 | 1,410,019,000 | 1,410,019,000 |
(1) |
The consolidated balance sheets data as of June 30, 2020 are presented on a pro forma basis to reflect (i) the automatic conversion of 80,546,975 preferred shares outstanding as of June 30, 2020 into Class B ordinary shares on a one-for-one-basis upon the completion of this offering; and (ii) the automatic conversion of 129,027,875 preferred shares outstanding as of June 30, 2020 into Class C ordinary shares on a one-for-one-basis upon the completion of this offering; (iii) the automatic conversion of 384,570,020 remaining preferred shares outstanding (including the preferred shares issued upon the exercise of outstanding warrants) as of June 30, 2020 into Class A ordinary shares on a one-for-one-basis upon the completion of this offering. |
(2) |
The consolidated balance sheets data as of June 30, 2020 are presented on a pro forma as adjusted basis to reflect (i) the issuance of 207,588,515 Series C preferred shares in the third quarter of 2020; (ii) the issuance of 14,850,560 Class A ordinary shares upon the settlement of certain RSUs in August 2020; (iii) the issuance of 25,385,300 preferred shares upon the exercise of warrants in August 2020; (iv) the automatic conversion of 98,611,761 preferred shares outstanding as of the date hereof into Class B ordinary shares on a one-for-one-basis upon the completion of this offering; (v) the automatic conversion of 178,618,464 preferred shares outstanding as of the date hereof into Class C ordinary shares on a one-for-one-basis upon the completion of this offering; (vi) the automatic conversion of 524,503,160 remaining preferred shares outstanding as of the date hereof into Class A ordinary shares on a one-for-one-basis upon the completion of this offering; and (vii) the issuance and sale of the Class A ordinary shares in the form of ADSs offered hereby at an |
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assumed initial public offering price of US$12.00 per ADS, the mid-point of the estimated public offering price range shown on the front cover of this prospectus, after deducting underwriting discounts, commissions and estimated offering expenses payable by us and assuming no exercise of the underwriters option to purchase additional ADSs. |
Selected Consolidated Statements of Cash Flows Data
Year Ended December 31, | Six Months Ended June 30, | |||||||||||||||||||||||
2018 | 2019 | 2019 | 2020 | |||||||||||||||||||||
RMB | RMB | US$ | RMB | RMB | US$ | |||||||||||||||||||
(in thousands) | ||||||||||||||||||||||||
Cash Flow Data: |
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Net cash used in operating activities |
(1,572,715 | ) | (3,562,765 | ) | (504,274 | ) | (1,574,894 | ) | (1,212,667 | ) | (171,643 | ) | ||||||||||||
Net cash (used in) provided by investing activities |
(3,630,324 | ) | 740,296 | 104,781 | 148,207 | (165,240 | ) | (23,389 | ) | |||||||||||||||
Net cash provided by financing activities |
6,734,200 | 3,593,562 | 508,635 | 1,906,800 | 868,329 | 122,904 | ||||||||||||||||||
Effects of exchange rate changes on cash, cash equivalents and restricted cash |
(14,782 | ) | 5,125 | 725 | (9,134 | ) | (2,857 | ) | (403 | ) | ||||||||||||||
Cash, cash equivalents and restricted cash at beginning of the year/period |
115,146 | 1,631,525 | 230,927 | 1,631,525 | 2,407,743 | 340,794 | ||||||||||||||||||
Cash, cash equivalents and restricted cash at end of the year/period |
1,631,525 | 2,407,743 | 340,794 | 2,102,504 | 1,895,308 | 268,263 |
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MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
You should read the following discussion and analysis of our financial condition and results of operations in conjunction with the section entitled Selected Consolidated Financial Data and our consolidated financial statements and the related notes included elsewhere in this prospectus. This discussion contains forward-looking statements that involve risks and uncertainties. Our actual results and the timing of selected events could differ materially from those anticipated in these forward-looking statements as a result of various factors, including those set forth under Risk Factors and elsewhere in this prospectus. See Special Note Regarding Forward-Looking Statements and Industry Data.
Overview
We are one of Chinas leading Smart EV companies. We design, develop, manufacture and market Smart EVs in China. Xpeng was founded in 2015 with a vision to bring Smart EVs to Chinese consumers through innovation in autonomous driving, smart connectivity and core vehicle systems. Today, we are a proven leader in the rapidly growing Smart EV market, producing popular and environmentally-friendly vehicles, namely an SUV (the G3) and a four-door sports sedan (the P7).
In order to optimize our customers mobility experience, we have strategically chosen to focus on developing full-stack autonomous driving technology and in-car intelligent operating system, as well as core vehicle systems, including powertrain and the electrical and electronic architecture, or the E/E architecture, in-house. Through our proprietary software, core hardware and data technologies, we are able to develop and deploy innovative products rapidly and efficiently, which gives us an advantage over our competitors in China.
We started production of the G3 in November 2018, and as of July 31, 2020, we had delivered 18,741 units of the G3 to customers. We started production of the P7 and began delivery in May 2020, and as of July 31, 2020, we had delivered 1,966 units of the P7 to customers. We plan to launch our third Smart EV, a sedan, in 2021. According to the IHS Markit Report, the G3 was among the top-three best-selling electric SUVs in China in 2019.
We have an omni-channel sales model, which combines a data-driven and targeted online marketing strategy with a physical sales and service network. As of June 30, 2020, our physical sales and service network consisted of a total of 147 stores and service centers, which cover 52 major cities in China.
Our manufacturing philosophy centers around quality, continuous improvement, flexibility and high operating efficiency. We produce the G3 through a contract manufacturing collaboration with Haima, which has over three decades of automotive manufacturing experience, at its plant in Zhengzhou, Henan province. In addition, we have built our own plant in Zhaoqing, Guangdong province. We started the production of the P7 at the plant in May 2020 and will also utilize the plant for future models. The Haima plant and the Zhaoqing plant have annual production capacity of up to 150,000 units and 100,000 units, respectively.
Our Business Model
We offer an innovative mobility experience through our Smart EVs, software and services. Vehicle sales is the primary source of our revenues. We have launched two Smart EV models, and we plan to launch a new model each year to expand our product portfolio and customer base.
We aim to diversify our revenue streams and monetization opportunities by offering a variety of software and services, such as advanced autonomous driving software and content subscriptions, in relation to our Smart EVs. Such software and services allow us to achieve full-lifecycle customer engagement, maximize customer lifetime value, drive word-of-mouth referrals and improve margins. We have already generated revenues from several service offerings. Furthermore, we build a smart connectivity ecosystem through our in-car app store, which allows our customers to conveniently access services and content offered by our business partners.
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General Factors Affecting Our Results of Operations
The demand for our Smart EVs is affected by the following general factors:
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Chinas macroeconomic conditions and the growth of Chinas overall passenger vehicle market, especially the mid- to high-end segment; |
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Penetration rate of EVs in Chinas passenger vehicle market, which is in turn affected by, among other things, (i) functionality and performance of EVs, (ii) total cost of ownership of EVs and (iii) availability of charging network; |
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Development, and customer acceptance and demand, of smart technology functions, such as autonomous driving and smart connectivity; and |
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Government policies and regulations for EVs and smart technology functions, such as subsidies for EV purchases and government grants for EV manufacturers. |
Changes in any of these general industry conditions could affect our business and result of operations.
Specific Factors Affecting Our Results of Operations
Besides the general factors affecting Chinas Smart EV market, our business and results of operations are also affected by company specific factors, including the following major factors:
Our ability to attract new customers and grow our customer base
We design our Smart EVs to satisfy the needs and preferences of Chinas technology-savvy middle class consumers. We strive to enhance brand recognition among our target customers by consistently delivering smart and upgradable EVs as well as a superior customer experience. Enhanced customer satisfaction will help to drive word-of-mouth referrals, which will reduce our customer acquisition costs. Our ability to attract new customers also depends on the scale and efficiency of our sales network, which includes direct stores, franchised stores and various online marketing channels. We seek to attract new customers cost-efficiently by, among other things, locating a substantial majority of our stores in shopping malls in tier-one and tier-two cities, adopting an asset-light franchise model and engaging in online precision marketing. As we continue to develop and launch new EV models, invest in our brand and expand our sales and service network, we expect to attract more customers and grow our revenues.
Competitiveness and continued expansion of our Smart EV portfolio
Our ability to periodically introduce new Smart EV models will be an important contributor to our future growth. We have launched two Smart EVs, the G3 and P7, and we plan to introduce a new model every year to expand our product portfolio and customer base. We expect our revenue growth to be driven in part by the continued expansion of our vehicle portfolio.
We differentiate our Smart EVs based on a number of core attributes, which are attractive design, high performance, smart technology functions and proven safety and reliability. Customer acceptance of our Smart EVs also depends on our ability to maintain competitive pricing. We primarily target our Smart EVs to the mid- to high-end segment in Chinas passenger vehicle market. With autonomous driving, smart connectivity and high performance, our Smart EVs offer compelling value proposition in the mid- to high-end segment.
Investment in technology and talents
We develop most of our key technologies in-house to achieve a rapid pace of innovation and tailor our product offerings for Chinese customers. Such technologies encompass both software, including software for
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XPILOT and Xmart OS, and core vehicle systems, including powertrain and E/E architecture. Accordingly, we dedicate significant resources towards research and development, and our research and development staff accounted for approximately 43% of our total employees as of June 30, 2020. We will continue to recruit and retain talented software developers and engineers to grow our strength in the key technologies. We expect our strategic focus on innovations will further differentiate our Smart EVs as well as software and service offerings, which will in turn enhance our competitiveness.
Offering of smart software
We aim to diversify our revenue streams and monetization opportunities by offering advanced software systems. We plan to roll out the software for XPILOT 3.0 by early 2021. The success of our software offerings will depend on our abilities to develop advanced software and seamlessly integrate it with our Smart EVs hardware. We expect smart software sales to improve our gross margins.
Improvement of operating efficiency
We aim to improve operating efficiency in every aspect of our business, such as product development, supply chain, manufacturing, sales and marketing, as well as service offerings. We strategically established two Smart EV platforms that are scalable for both SUVs and sedans with different wheelbases within a wide range, which allows us to develop new models in a fast and cost-efficient manner. Our supply chain affects our cost of sales and gross margin, and we expect to reduce bill-of-material cost, as we ramp up production volume and achieve economies of scale. We also focus on the efficiency in the manufacturing process, including our operations at the Zhaoqing plant. As we expand our product portfolio and grow our revenues, we expect our expenses as a percentage of our revenues to decrease.
Components of Results of Operations
Revenues
The following table sets forth a breakdown of our revenues, each expressed in the absolute amount and as a percentage of our total revenues, for the periods indicated:
Year Ended December 31, | Six Months Ended June 30, | |||||||||||||||||||||||||||||||||||||||
2018 | 2019 | 2019 | 2020 | |||||||||||||||||||||||||||||||||||||
RMB | % | RMB | US$ | % | RMB | % | RMB | US$ | % | |||||||||||||||||||||||||||||||
(in thousands, except percentages) | ||||||||||||||||||||||||||||||||||||||||
Revenues |
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Vehicle sales |
4,153 | 42.8 | 2,171,231 | 307,318 | 93.5 | 1,197,499 | 97.2 | 913,269 | 129,265 | 91.1 | ||||||||||||||||||||||||||||||
Services and others |
5,553 | 57.2 | 149,988 | 21,229 | 6.5 | 33,993 | 2.8 | 89,581 | 12,679 | 8.9 | ||||||||||||||||||||||||||||||
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Total |
9,706 | 100.0 | 2,321,219 | 328,547 | 100.0 | 1,231,492 | 100.0 | 1,002,850 | 141,944 | 100.0 | ||||||||||||||||||||||||||||||
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We began generating revenues from vehicle sales in the fourth quarter of 2018, when we began delivering our Smart EVs. We generate revenues from (i) vehicle sales, which represent sales of our Smart EVs, and (ii) services and others, primarily including ride-hailing service, finance lease, supercharging service and maintenance service. In 2019, substantially all of financing for our customers vehicle purchases were provided by the banks that we cooperate with.
The overall contract price under a sales contract is allocated to each distinct performance obligation based on the relative estimated standalone selling price. For example, the revenue for sales of the Smart EV and home charger is recognized when the control of the Smart EV is transferred to the customer and the home charger is installed at customers designated location. For the extended lifetime warranty, we recognize the revenue over time based on a straight-line method initially, and will continue monitoring the cost pattern periodically and adjust the revenue recognition pattern to reflect the actual cost pattern as it becomes available.
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We plan to further monetize through smart software offering and content subscriptions. For example, we plan to roll out the software for XPILOT 3.0 by early 2021. A customer can purchase XPILOT 3.0 by either making a lump sum payment or paying annual installments for a three-year period.
Cost of sales
The following table sets forth a breakdown of our cost of sales, expressed as an absolute amount and as a percentage of our total revenues, for the periods indicated:
Year Ended December 31, | Six Months Ended June 30, | |||||||||||||||||||||||||||||||||||||||
2018 | 2019 | 2019 | 2020 | |||||||||||||||||||||||||||||||||||||
RMB | % | RMB | US$ | % | RMB | % | RMB | US$ | % | |||||||||||||||||||||||||||||||
(in thousands, except percentages) | ||||||||||||||||||||||||||||||||||||||||
Cost of sales |
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Vehicle sales |
8,220 | 84.7 | 2,733,531 | 386,906 | 117.8 | 1,667,805 | 135.4 | 963,136 | 136,323 | 96.0 | ||||||||||||||||||||||||||||||
Services and others |
3,847 | 39.6 | 145,829 | 20,641 | 6.3 | 34,475 | 2.8 | 75,830 | 10,733 | 7.6 | ||||||||||||||||||||||||||||||
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Total |
12,067 | 124.3 | 2,879,360 | 407,547 | 124.1 | 1,702,280 | 138.2 | 1,038,966 | 147,056 | 103.6 | ||||||||||||||||||||||||||||||
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Cost of vehicle sales primarily includes direct parts, material, processing fee, labor cost and manufacturing overhead, including depreciation of assets associated with production, and reserves for estimated warranty expenses. Cost of services and others primarily includes cost of direct part, material, depreciation of associated assets used for providing the services and installment costs.
Research and development expenses
Our research and development expenses primarily consist of (i) employee compensation, representing salaries, benefits and bonuses for our research and development personnel, (ii) design and development expenses, which primarily include fees payable to third-party suppliers for designing molds, (iii) materials and supplies expenses in relation to testing materials, and (iv) certain other expenses.
Our research and development expenses are mainly driven by the number of our research and development personnel, as well as the stage and scale of our vehicle development and the development of our key software and hardware technologies. We dedicate significant resources towards research and development, and our research and development staff accounted for approximately 43% of our total employees as of June 30, 2020.
Selling, general and administrative expenses
The following table sets forth a breakdown of our selling, general and administrative expenses, expressed as an absolute amount and as a percentage of total selling, general and administrative expenses, for the periods indicated:
Year Ended December 31, | Six Months Ended June 30, | |||||||||||||||||||||||||||||||||||||||
2018 | 2019 |
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2019 | 2020 | |||||||||||||||||||||||||||||||||||
RMB | % | RMB | US$ | % | RMB | % | RMB | US$ | % | |||||||||||||||||||||||||||||||
(in thousands, except percentages) | ||||||||||||||||||||||||||||||||||||||||
Selling, general and administrative expenses |
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Selling expenses |
317,109 | 49.4 | 668,602 | 94,634 | 57.4 | 257,732 | 53.2 | 513,292 | 72,652 | 64.2 | ||||||||||||||||||||||||||||||
General and administrative expenses |
325,432 | 50.6 | 495,967 | 70,200 | 42.6 | 226,326 | 46.8 | 285,682 | 40,435 | 35.8 | ||||||||||||||||||||||||||||||
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Total |
642,541 | 100.0 | 1,164,569 | 164,834 | 100.0 | 484,058 | 100.0 | 798,974 | 113,087 | 100.0 | ||||||||||||||||||||||||||||||
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Our selling expenses primarily consist of (i) employee compensation, including salaries, benefits and bonuses for our sales and marketing staff, (ii) marketing, promotional and advertising expenses, (iii) lease expenses for direct stores, and (iv) certain other expenses, including commissions to franchised stores. Our general and administrative expenses primarily consist of (i) employee compensation, including salaries, benefits and bonuses for our general corporate staff, (ii) professional service fees, and (iii) certain other expenses.
Our selling, general and administrative expenses are mainly driven by the number of our sales, marketing, general corporate personnel, marketing and promotion activities and the expansion of our sales and service network.
Other income
Our other income primarily consists of government subsidies that are not contingent upon our further actions or performance.
Interest income
Our interest income primarily consists of interest earned on cash deposits in banks.
Interest expenses
Our interest expenses primarily consist of interest expenses with respect to our bank borrowings.
Fair value gain (loss) on derivative liabilities
Fair value gain or loss on derivative liabilities consists of net gain or loss from the change in the fair value of derivative liabilities.
Other non-operating (loss) income, net
Other non-operating loss and income, net primarily consist of exchange gains or losses we incur based on movements between the U.S. dollar and the Renminbi.
Taxation
Cayman Islands
We are incorporated in the Cayman Islands as an exempted company with limited liability under the Companies Law of the Cayman Islands and accordingly, are exempted from Cayman Islands income tax. As such, we are not subject to tax on either income or capital gain. In addition, no Cayman Islands withholding tax is imposed upon any payments of dividends by our subsidiaries to us.
Hong Kong
Under the current Hong Kong Inland Revenue Ordinance, our Hong Kong subsidiaries are subject to 16.5% Hong Kong profit tax on their taxable income generated from operations in Hong Kong. Additionally, payments of dividends by our Hong Kong subsidiaries to us are not subject to any Hong Kong withholding tax.
PRC
The PRC Enterprise Income Tax Law, or the EIT Law, which became effective on January 1, 2008, applies a uniform enterprise income tax rate of 25% to both FIEs and domestic enterprises. Certified high and new
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technology enterprises, or HNTEs, are entitled to a favorable statutory tax rate of 15%, subject to renewal every three years. During the three-year period, an HNTE must conduct a self-review each year to ensure it meets the HNTE criteria and is eligible for the 15% preferential tax rate for the given year. If an HNTE fails to meet the criteria for being an HNTE in any year, the enterprise cannot enjoy the 15% preferential tax rate in the given year, and must instead use the uniform enterprise income tax rate of 25%.
Guangzhou Xiaopeng Motors Technology Co., Ltd., one of our subsidiaries, qualified as an HNTE in December 2019, and it is entitled to enjoy the beneficial tax rate of 15% for the years 2019 through 2021.
Under the EIT Law, dividends generated after January 1, 2008 and payable by an FIE in the PRC to its foreign investors who are non-resident enterprises are subject to a 10% withholding tax, unless any such foreign investors jurisdiction of incorporation has a tax treaty with the PRC that provides for a different withholding arrangement. The Cayman Islands, where the Company was incorporated, does not have a tax treaty with the PRC. In accordance with the accounting guidance, all undistributed earnings are presumed to be transferred to the parent company and are subject to the withholding taxes. All FIEs are subject to the withholding tax from January 1, 2008. The presumption may be overcome if we have sufficient evidence to demonstrate that the undistributed dividends will be re-invested and the remittance of the dividends will be postponed indefinitely. We did not record any dividend withholding tax, as we have no retained earnings for any of the years presented.
The EIT Law also provides that an enterprise established under the laws of a foreign country or region but whose de facto management body is located in the PRC be treated as a resident enterprise and consequently be subject to the PRC income tax at the rate of 25% for its global income. The EIT Law defines the location of the de facto management body as the place where the exercising, in substance, of the overall management and control of the production and business operation, personnel, accounting, properties and others of a non-PRC company is located. Based on a review of surrounding facts and circumstances, we do not believe that it is likely that our operations outside of the PRC will be considered a resident enterprise for PRC tax purposes. However, due to limited guidance and implementation history of the EIT Law, there is uncertainty as to the application of the EIT Law. 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 EIT Law, it would be subject to enterprise income tax on its worldwide income at a uniform enterprise income tax rate of 25%.
According to a policy promulgated by the State Tax Bureau of the PRC and effective from 2008 onwards, enterprises engaged in research and development activities are entitled to claim an additional tax deduction amounting to 50% of its research and development expenses in determining its tax assessable profits for the year. The additional tax deduction amount of the research and development expenses has been increased from 50% to 75%, effective from 2018 to 2020, according to a new tax incentives policy promulgated by the State Tax Bureau of the PRC in September 2018.
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Results of Operations
The following tables set forth a summary of our consolidated results of operations, in absolute amount for the periods presented and as a percentage of our revenues for 2019 and the six months ended June 30, 2019 and 2020. 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, | Six Months Ended June 30, | |||||||||||||||||||||||||||||||||||
2018 | 2019 | 2019 | 2020 | |||||||||||||||||||||||||||||||||
RMB | RMB | US$ | % | RMB | % | RMB | US$ | % | ||||||||||||||||||||||||||||
(in thousands, except percentages) | ||||||||||||||||||||||||||||||||||||
Revenues |
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Vehicle sales |
4,153 | 2,171,231 | 307,318 | 93.5 | 1,197,499 | 97.2 | 913,269 | 129,265 | 91.1 | |||||||||||||||||||||||||||
Services and others |
5,553 | 149,988 | 21,229 | 6.5 | 33,993 | 2.8 | 89,581 | 12,679 | 8.9 | |||||||||||||||||||||||||||
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Total revenues |
9,706 | 2,321,219 | 328,547 | 100.0 | 1,231,492 | 100.0 | 1,002,850 | 141,944 | 100.0 | |||||||||||||||||||||||||||
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Cost of sales |
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Vehicle sales |
(8,220 | ) | (2,733,531 | ) | (386,906 | ) | (117.8 | ) | (1,667,805 | ) | (135.4 | ) | (963,136 | ) | (136,323 | ) | (96.0 | ) | ||||||||||||||||||
Services and others |
(3,847 | ) | (145,829 | ) | (20,641 | ) | (6.3 | ) | (34,475 | ) | (2.8 | ) | (75,830 | ) | (10,733 | ) | (7.6 | ) | ||||||||||||||||||
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Total cost of sales |
(12,067 | ) | (2,879,360 | ) | (407,547 | ) | (124.1 | ) | (1,702,280 | ) | (138.2 | ) | (1,038,966 | ) | (147,056 | ) | (103.6 | ) | ||||||||||||||||||
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Gross loss |
(2,361 | ) | (558,141 | ) | (79,000 | ) | (24.1 | ) | (470,788 | ) | (38.2 | ) | (36,116 | ) | (5,112 | ) | (3.6 | ) | ||||||||||||||||||
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Operating expenses |
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Research and development expenses |
(1,051,219 | ) | (2,070,158 | ) | (293,012 | ) | (89.2 | ) | (983,198 | ) | (79.8 | ) | (630,578 | ) | (89,253 | ) | (62.9 | ) | ||||||||||||||||||
Selling, general and administrative expenses |
(642,541 | ) | (1,164,569 | ) | (164,834 | ) | (50.2 | ) | (484,058 | ) | (39.3 | ) | (798,974 | ) | (113,087 | ) | (79.7 | ) | ||||||||||||||||||
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Total operating expenses |
(1,693,760 | ) | (3,234,727 | ) | (457,846 | ) | (139.4 | ) | (1,467,256 | ) | (119.1 | ) | (1,429,552 | ) | (202,340 | ) | (142.6 | ) | ||||||||||||||||||
Other income |
1,487 | 12,294 | 1,740 | 0.5 | 5,116 | 0.4 | 37,293 | 5,278 | 3.7 | |||||||||||||||||||||||||||
Loss from operations |
(1,694,634 | ) | (3,780,574 | ) | (535,106 | ) | (162.9 | ) | (1,932,928 | ) | (157.0 | ) | (1,428,375 | ) | (202,174 | ) | (142.4 | ) | ||||||||||||||||||
Interest income |
65,376 | 88,843 | 12,575 | 3.8 | 58,031 | 4.7 | 20,953 | 2,966 | 2.1 | |||||||||||||||||||||||||||
Interest expenses |
(5,822 | ) | (32,017 | ) | (4,532 | ) | (1.4 | ) | (11,677 | ) | (0.9 | ) | (15,954 | ) | (2,258 | ) | (1.6 | ) | ||||||||||||||||||
Fair value gain (loss) on derivative liabilities |
254,361 | 27,679 | 3,918 | 1.2 | (47,079 | ) | (3.8 | ) | 618,442 | 87,535 | 61.7 | |||||||||||||||||||||||||
Other non-operating (loss) income, net |
(18,104 | ) | 4,397 |
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0.2 | 15,324 | 1.2 | 9,131 | 1,292 | 0.9 | ||||||||||||||||||||||||
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Loss before income tax expenses |
(1,398,823 | ) | (3,691,672 | ) | (522,523 | ) | (159.1 | ) | (1,918,329 | ) | (155.8 | ) | (795,803 | ) | (112,639 | ) | (79.3 | ) | ||||||||||||||||||
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Income tax expenses |
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Net loss |
(1,398,823 | ) | (3,691,673 | ) | (522,523 | ) | (159.1 | ) | (1,918,329 | ) | (155.8 | ) | (795,803 | ) | (112,639 | ) | (79.3 | ) | ||||||||||||||||||
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Six months ended June 30, 2020 compared to six months ended June 30, 2019
Revenues. We recorded revenues of RMB1,231.5 million and RMB1,002.9 million (US$141.9 million) for the six months ended June 30, 2019 and 2020, respectively.
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Revenues from vehicle sales were RMB913.3 million (US$129.3 million) for the six months ended June 30, 2020, as compared to RMB1,197.5 million for same period in 2019. We delivered 5,499 units of Smart EVs in the six months ended June 30, 2020, as compared to 7,165 units for the same period in 2019. We delivered more Smart EVs in the first half of 2019 than the same period in 2020 mainly because (i) we commenced mass deliveries of the G3 in the first half of 2019 and fulfilled orders accumulated in 2018 and the first quarter of 2019 during the period, and (ii) our deliveries in the first half of 2020 were negatively affected by COVID-19 outbreak in China. For further information, see Risk FactorsRisks Relating to Our Business and IndustryThe COVID-19 outbreak has adversely affected, and may continue to adversely affect, our results of operations. While our revenues from vehicle sales were primarily related to the deliveries of the G3 in the historical periods, we commenced deliveries of the P7 in May 2020 and expect the P7 deliveries to become one of the major revenue contributors in future periods.
Revenues from services and others increased by 163.5% from RMB34.0 million for the six months ended June 30, 2019 to RMB89.6 million (US$12.7 million) for the same period in 2020, primarily due to (i) the increase in revenues from after-sales services and supercharging service, which was associated with the increase in the accumulated number of Smart EVs we delivered, and (ii) an increase in revenues from ride-hailing service, which commenced in the second quarter of 2019.
Cost of sales. We recorded cost of sales of RMB1,702.3 million and RMB1,039.0 million (US$147.1 million) for the six months ended June 20, 2019 and 2020, respectively. Cost of sales from vehicle sales decreased by 42.3% from RMB1,667.8 million for the six months ended June 30, 2019 to RMB963.1 million (US$136.3 million) for the same period in 2020 primarily due to (i) the decrease in the number of Smart EVs delivered as described above, and (ii) a decrease in raw material and component costs as a result of our increased economy of scale, stronger bargaining power with suppliers and declines in the market prices of certain raw materials and components. Cost of sales from services and others increased by 119.7% from RMB34.5 million for the six months ended June 30, 2019 to RMB75.8 million (US$10.7 million) for the same period in 2020, which was largely in line with the increase in our revenues from services and others, partially offset by cost savings resulting from our increased economy of scale.
Gross loss. As a result of the foregoing, our gross loss decreased significantly from RMB470.8 million for the six months ended June 30, 2019 to RMB36.1 million (US$5.1 million) for the same period in 2020.
Research and development expenses. Our research and development expenses decreased by 35.9% from RMB983.2 million for the six months ended June 30, 2019 to RMB630.6 million (US$89.3 million) for the same period in 2020, primarily because we incurred significant amounts of design and development expenses and cost of materials and supplies relating to the development of the P7, our Edward platform and a new version of the G3 in the first half of 2019.
Selling, general and administrative expenses. Our selling, general and administrative expenses increased by 65.0% from RMB484.1 million for the six months ended June 30, 2019 to RMB799.0 million (US$113.1 million) for the same period of 2020. Our selling expenses increased by 99.2% from RMB257.7 million for the six months ended June 30, 2019 to RMB513.3 million (US$72.7 million) for the same period in 2020, primarily due to (i) a significant increase in marketing, promotional and advertising expenses for our Smart EVs, especially in connection with the launch of the P7, and (ii) the expansion of our sales network that resulted in increased compensation cost for sales staff and increased commission to our franchised stores. Our general and administrative expenses increased by 26.2% from RMB226.3 million for the six months ended June 30, 2019 to RMB285.7 million (US$40.4 million) for the same period in 2020, primarily due to an increase in office expenses, such as rent and IT service fee.
Other income. We recorded other income of RMB37.3 million (US$5.3 million) for the six months ended June 30, 2020, as compared to RMB5.1 million for the same period in 2019, primarily due to an increase in the government subsidies we received.
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Loss from operations. As a result of the foregoing, we incurred a loss from operations of RMB1,428.4 million (US$202.2 million) for the six months ended June 30, 2020, as compared to a loss from operations of RMB1,932.9 million for the same period in 2019.
Interest income. We recorded interest income of RMB21.0 million (US$3.0 million) for the six months ended June 30, 2020, as compared to RMB58.0 million for the same period in 2019, primarily due to (i) lower cash balances deposited with banks and lower interest rates in the first half of 2020, and (ii) a decrease in the short-term investments we held in the first half of 2020.
Interest expenses. We recorded interest expenses of RMB16.0 million (US$2.3 million) for the six months ended June 30, 2020, as compared to RMB11.7 million for the same period in 2019, primarily due to an increase in our total borrowings.
Fair value (loss) gain on derivative liabilities. We recorded fair value gain on derivative liabilities of RMB618.4 million (US$87.5 million) for the six months ended June 30, 2020, compared with a fair value loss on derivative liabilities of RMB47.1 million for the six months ended June 30, 2019, primarily due to the change in fair value of the redemption rights of our preferred shares.
Other non-operating income, net. We recorded other non-operating income of RMB15.3 million and RMB9.1 million (US$1.3 million) for the six months ended June 30, 2019 and 2020, respectively, primarily because certain of our assets are denominated in U.S. dollar, and the RMB depreciated against the U.S. dollar in the six months ended June 30, 2019 and 2020.
Net loss. As a result of the foregoing, we incurred a net loss of RMB795.8 million (US$112.6 million) for the six months ended June 30, 2020, as compared to a net loss of RMB1,918.3 million for the same period in 2019.
Year ended December 31, 2019 compared to year ended December 31, 2018
Revenues. We recorded revenues of RMB9.7 million and RMB2,321.2 million (US$328.5 million) in 2018 and 2019, respectively. We began to deliver our Smart EVs in the fourth quarter of 2018, and we increased vehicle sales and service offerings in 2019. We recorded revenues from vehicle sales of RMB2,171.2 million (US$307.3 million) in 2019, as compared to RMB4.2 million in 2018. All revenues from vehicle sales in 2018 and 2019 is related to the sale of the G3. We delivered 29 and 12,728 units of the G3 to customers in 2018 and 2019, respectively. We recorded revenues from services and others of RMB150.0 million (US$21.2 million) in 2019, as compared to RMB5.6 million in 2018.
Cost of sales. We recorded cost of sales of RMB12.1 million and RMB2,879.4 million (US$407.5 million) in 2018 and 2019, respectively. Our cost of sales increased in 2019, as we increased vehicle sales in 2019. We recorded cost of sales from vehicle sales of RMB2,733.5 million (US$386.9 million) in 2019, as compared to RMB8.2 million in 2018. We recorded cost of sales from services and others of RMB145.8 million (US$20.6 million) in 2019, as compared to RMB3.8 million in 2018.
Research and development expenses. Our research and development expenses increased by 96.9% from RMB1,051.2 million in 2018 to RMB2,070.2 million (US$293.0 million) in 2019, primarily due to (i) an increase in employee compensation as a result of an expansion of our research and development staff, and (ii) an increase in our spending on the development of Smart EV platforms and new EV models.
Selling, general and administrative expenses. Our selling, general and administrative expenses increased by 81.3% from RMB642.5 million in 2018 to RMB1,164.6 million (US$164.8 million) in 2019, due to (i) a 110.8% increase in selling expenses from RMB317.1 million in 2018 to RMB668.6 million (US$94.6 million) in 2019, which was primarily due to an expansion of our sales and marketing staff, an increase in marketing, promotional
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and advertising expenses and an increase in lease expenses due to an increase in the number of direct stores, and (ii) a 52.4% increase in general and administrative expenses from RMB325.4 million in 2018 to RMB496.0 million (US$70.2 million) in 2019, which was primarily due to an expansion of our general corporate staff.
Other income. We recorded other income of RMB12.3 million (US$1.7 million) in 2019, as compared to RMB1.5 million in 2018, primarily due to an increase in the government subsidies we received.
Loss from operations. As a result of the foregoing, we incurred a loss from operations of RMB3,780.6 million (US$535.1 million) in 2019, as compared to a loss from operations of RMB1,694.6 million in 2018.
Interest income. We recorded interest income of RMB88.8 million (US$12.6 million) in 2019, as compared to RMB65.4 million in 2018, primarily due to higher cash balances deposited with banks in 2019.
Interest expenses. We recorded interest expenses of RMB32.0 million (US$4.5 million) in 2019, as compared to RMB5.8 million in 2018, primarily due to an increase in our total borrowings.
Fair value gain on derivative liabilities. We recorded fair value gain on derivative liabilities of RMB27.7 million (US$3.9 million) in 2019, and a fair value gain on derivative liabilities of RMB254.4 million in 2018, primarily due to the change in fair value of the redemption rights of our preferred shares.
Other non-operating (loss) income. We recorded other non-operating income of RMB4.4 million (US$0.6 million) in 2019, primarily because certain of our assets are denominated in U.S. dollar, and RMB depreciated against the U.S. dollar in 2019. We recorded other non-operating loss of RMB18.1 million in 2018, primarily due to appreciation of RMB against the U.S. dollar in 2018.
Net loss. As a result of the foregoing, we incurred a net loss of RMB3,691.7 million (US$522.5 million) in 2019, as compared to a net loss of RMB1,398.8 million in 2018.
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Selected Quarterly Results of Operations
The following table sets forth our consolidated quarterly results of operations for the periods indicated. You should read the following table in conjunction with our consolidated financial statements and related notes included elsewhere in this prospectus. We have prepared consolidated quarterly financial information on the same basis as our audited consolidated financial statements. The consolidated quarterly financial information includes all adjustments, consisting only of normal and recurring adjustments, that we consider necessary for a fair statement of our operating results for the quarters presented.
For the three months ended | ||||||||||||||||||||||||
March 31,
2019 |
June 30,
2019 |
September 30,
2019 |
December 31,
2019 |
March 31,
2020 |
June 30,
2020 |
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(RMB in thousands) | ||||||||||||||||||||||||
Revenues |
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Vehicle sales |
83,790 | 1,113,709 | 398,775 | 574,957 | 372,151 | 541,118 | ||||||||||||||||||
Services and others |
4,344 | 29,649 | 50,942 | 65,053 | 39,918 | 49,663 | ||||||||||||||||||
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Total revenues |
88,134 | 1,143,358 | 449,717 | 640,010 | 412,069 | 590,781 | ||||||||||||||||||
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Cost of sales |
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Vehicle sales |
(129,126 | ) | (1,538,679 | ) | (441,728 | ) | (623,998 | ) | (391,736 | ) | (571,400 | ) | ||||||||||||
Services and others |
(3,049 | ) | (31,426 | ) | (53,293 | ) | (58,061 | ) | (40,206 | ) | (35,624 | ) | ||||||||||||
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Total cost of sales |
(132,175 | ) | (1,570,105 | ) | (495,021 | ) | (682,059 | ) | (431,942 | ) | (607,024 | ) | ||||||||||||
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Gross loss |
(44,041 | ) | (426,747 | ) | (45,304 | ) | (42,049 | ) | (19,873 | ) | (16,243 | ) | ||||||||||||
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Operating expenses |
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Research and development expenses |
(474,222 | ) | (508,976 | ) | (435,002 | ) | (651,958 | ) | (310,782 | ) | (319,796 | ) | ||||||||||||
Selling, general and administrative expenses |
(196,850 | ) | (287,208 | ) | (286,049 | ) | (394,462 | ) | (321,825 | ) | (477,149 | ) | ||||||||||||
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Total operating expenses |
(671,072 | ) | (796,184 | ) | (721,051 | ) | (1,046,420 | ) | (632,607 | ) | (796,945 | ) | ||||||||||||
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Other income |
4,823 | 293 | 4,808 | 2,370 | 3,197 | 34,096 | ||||||||||||||||||
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Loss from operations |
(710,290 | ) | (1,222,638 | ) | (761,547 | ) | (1,086,099 | ) | (649,283 | ) | (779,092 | ) | ||||||||||||
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Interest income |
31,787 | 26,244 | 22,575 | 8,237 | 10,658 | 10,295 | ||||||||||||||||||
Interest expenses |
(5,025 | ) | (6,652 | ) | (10,468 | ) | (9,872 | ) | (8,278 | ) | (7,676 | ) | ||||||||||||
Fair value gain (loss) on derivative liabilities |
5,306 | (52,385 | ) | (25,364 | ) | 100,122 | (4,968 | ) | 623,410 | |||||||||||||||
Other non-operating income (loss), net |
7,136 | 8,188 | (1,472 | ) | (9,455 | ) | 2,110 | 7,021 | ||||||||||||||||
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Loss before income tax expenses |
(671,086 | ) | (1,247,243 | ) | (776,276 | ) | (997,067 | ) | (649,761 | ) | (146,042 | ) | ||||||||||||
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Income tax expenses |
| | | (1 | ) | | | |||||||||||||||||
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Net loss |
(671,086 | ) | (1,247,243 | ) | (776,276 | ) | (997,068 | ) | (649,761 | ) | (146,042 | ) | ||||||||||||
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Our revenue trends are a reflection of purchase patterns by car buyers. Demand for new cars is generally higher in September and October, while it typically declines over winter season and during the Chinese New Year holiday. In addition, we record higher increase in revenues when we commence mass deliveries of a new product to fulfill customer orders accumulated in prior periods, but we may not be able to maintain our revenues at similar levels in subsequent periods. For example, the G3 deliveries increased sharply in the second quarter of 2019 because we commenced mass deliveries of the G3 to customers in the quarter and fulfilled most of the orders accumulated in 2018 and the first quarter of 2019. Our revenues for the first quarter of 2020 was negatively affected by a decrease in vehicle deliveries compared to the fourth quarter of 2019, and such decrease
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was mainly due to the significant impact from COVID-19 outbreak in China and seasonal impact from the Chinese New Year holiday.
We significantly narrowed our gross loss over the periods presented. The decrease in gross loss was primarily due to a decrease in raw material and component costs as well as production cost, which was driven by supply chain optimization, stronger bargaining power with suppliers and economies of scale following volume ramp-up. Our research and development expenses in the first two quarters of 2020 were lower compared to the quarters of 2019, as the research and development efforts relating to the P7 and the Edward platform was substantially completed by end of 2019. Our selling, general and administrative expenses generally increased over the periods presented, which was primarily driven by (i) increases in marketing, promotional and advertising expenses for our Smart EVs, especially in connection with the launch of the P7, and (ii) the expansion of our sales network.
Liquidity and Capital Resources
Our primary sources of liquidity have been through issuance of preferred shares and bank borrowings, which have historically been sufficient to meet our working capital and capital expenditure requirements. As of December 31, 2018 and 2019 and June 30, 2020, we had cash and cash equivalent of RMB1,626.9 million, RMB1,946.9 million (US$275.6 million) and RMB1,061.2 million (US$150.2 million), respectively. As of December 31, 2018 and 2019 and June 30, 2020, we had restricted cash of RMB4.6 million, RMB460.8 million (US$65.2 million) and RMB834.1 million (US$118.1 million), respectively. Our restricted cash primarily represents bank deposits for letter of credit, bank acceptance bill and bank notes. As of December 31, 2019 and June 30, 2020, our restricted cash also included bank deposits of RMB35.0 million (US$5.0 million) and RMB35.0 million (US$5.0 million) that were restricted due to a supplier dispute. As of December 31, 2018 and 2019 and June 30, 2020, we had short-term deposits and short-term investments of RMB3,006.2 million, RMB407.8 million (US$57.7 million) and RMB223.2 million (US$31.6 million), respectively.
Since July 1, 2020, we received cash proceeds of US$900.0 million from our Series C+ round financing. See Description of Share CapitalHistory of Securities Issuances.
In May 2017, we obtained a facility of up to RMB1,600.0 million for the construction of our Zhaoqing plant from a state-owned company in Zhaoqing. As of June 30, 2020, the aggregate drawdown amount was RMB1,600.0 million (US$226.5 million). The annual interest rate is 4.90%, and we receive subsidies from the local government for interest expenses incurred associated with this facility. RMB500 million, RMB500 million and RMB600 million of the borrowings will mature in six years, seven years and eight years, respectively, from the commencement of production of the Zhaoqing plant.
In July 2019 and November 2019, we entered into two loan agreements with a bank in the PRC. The principal amount under each agreement is RMB75.0 million (US$10.6 million). Each agreement provides for a fixed interest rate of 4.99% per annum and a term of three years. We are obligated to repay in six installments under each agreement.
As of June 30, 2020, we had short-term borrowings from five banks of RMB277.5 million (US$39.3 million) in aggregate.
We believe that our existing cash and cash equivalents will be sufficient to meet our anticipated working capital requirements, including capital expenditures in the ordinary course of business for an extended period of time. We may, however, need additional cash resources in the future if we experience changes in business condition or other developments, or if we find and wish to pursue opportunities for investments, acquisitions, capital expenditures or similar actions. If we determine that our cash requirements exceed the amount of cash and cash equivalents we have on hand at the time, we may seek to issue equity or debt securities or obtain credit facilities. The issuance and sale of additional equity would result in further dilution to our shareholders. The
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incurrence of indebtedness would result in increased fixed obligations and could result in operating covenants that would restrict our operations. We cannot assure you that financing will be available in amounts or on terms acceptable to us, if at all.
The following table sets forth a summary of our cash flows for the periods presented:
Year Ended December 31, | Six Months Ended June 30, | |||||||||||||||||||||||
2018 | 2019 | 2019 | 2020 | |||||||||||||||||||||
RMB | RMB | US$ | RMB | RMB | US$ | |||||||||||||||||||
(in thousands) | ||||||||||||||||||||||||
Summary Consolidated Cash Flow Data: |
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Net cash used in operating activities |
(1,572,715 | ) | (3,562,765 | ) | (504,274 | ) | (1,574,894 | ) | (1,212,667 | ) | (171,643 | ) | ||||||||||||
Net cash (used in) provided by investing activities |
(3,630,324 | ) | 740,296 | 104,781 | 148,207 | (165,240 | ) | (23,389 | ) | |||||||||||||||
Net cash provided by financing activities |
6,734,200 | 3,593,562 | 508,635 | 1,906,800 | 868,329 | 122,904 | ||||||||||||||||||
Cash, cash equivalents and restricted cash at beginning of the year/period |
115,146 | 1,631,525 | 230,927 | 1,631,525 | 2,407,743 | 340,794 | ||||||||||||||||||
Cash, cash equivalents and restricted cash at end of the year/period |
1,631,525 | 2,407,743 | 340,794 | 2,102,504 | 1,895,308 | 268,263 |
Operating Activities
Net cash used in operating activities was RMB1,212.7 million (US$171.6 million) for the six months ended June 30, 2020, primarily due to net loss of RMB795.8 million (US$112.6 million), adjusted to add back depreciation of property, plant and equipment of RMB104.0 million (US$14.7 million), amortization of right-of-use assets of RMB49.3 million (US$7.0 million), inventory write-downs of RMB16.0 million (US$2.3 million), and impairment of property, plant and equipment of RMB8.5 million (US$1.2 million). The amount was further adjusted by changes in itemized balances of operating assets and liabilities that have a negative effect on cash flow, including primarily (i) an increase in inventory of RMB335.9 million (US$47.6 million) as we commenced mass deliveries of the P7 in May 2020, (ii) an increase in prepayments and other current assets of RMB213.4 million (US$30.2 million) in relation to prepayments to third party suppliers for certain key materials for the production of the P7, and (iii) an increase in accounts receivable of RMB155.0 million (US$21.9 million) in relation to the government subsidies that we are entitled to receive, as well as certain changes in itemized balances of operating assets and liabilities that have a positive effect on cash flow, including primarily an increase in accounts and notes payable of RMB629.7 million (US$89.1 million) in relation to the grace period we enjoyed for the payments payable to certain third-party suppliers, and an increase in accruals and other liabilities of RMB113.3 million (US$16.0 million) primarily in relation to advances from customers for the P7 orders.
Net cash used in operating activities was RMB3,562.8 million (US$504.3 million) in 2019, primarily due to net loss of RMB3,691.7 million (US$522.5 million), adjusted to add back depreciation of property, plant and equipment of RMB125.5 million (US$17.8 million), inventory write-downs of RMB109.5 million (US$15.5 million), amortization of right-of-use assets of RMB88.2 million (US$12.5 million) and impairment of property, plant and equipment of RMB79.2 million (US$11.2 million). The amount was further adjusted by changes in itemized balances of operating assets and liabilities that have a negative effect on cash flow, including primarily (i) an increase in accounts receivable of RMB504.6 million (US$71.4 million) in relation to the government subsidies that we are entitled to receive, (ii) an increase in prepayments and other current assets of RMB418.1 million (US$59.2 million) in relation to prepayments to third party suppliers for certain key materials, as well as certain changes in itemized balances of operating assets and liabilities that have a positive effect on
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cash flow, including primarily (i) an increase in accounts and notes payable of RMB739.1 million (US$104.6 million) in relation to the grace period we enjoyed for the payments payable to third party suppliers, and (ii) an increase in accruals and other liabilities of RMB520.5 million (US$73.7 million) primarily in relation to our research and development projects.
Net cash used in operating activities was RMB1,572.7 million in 2018, primarily due to net loss of RMB1,398.8 million, adjusted to add back depreciation of property, plant and equipment of RMB53.5 million, amortization of right-of-use assets of RMB34.5 million, loss of disposal of property, plant and equipment of RMB30.3 million and foreign exchange losses of RMB11.8 million. The amount was further adjusted by changes in itemized balances of operating assets and liabilities that have a negative effect on cash flow, including primarily an increase in prepayments and other current assets of RMB277.7 million in relation to prepayments to third-party suppliers for certain key materials, as well as certain changes in itemized balances of operating assets and liabilities that have a positive effect on cash flow, including primarily an increase in accruals and other liabilities of RMB324.8 million primarily due to an increase in employee compensation payable.
Investing Activities
Net cash used in investing activities for the six months ended June 30, 2020 was RMB165.2 million (US$23.4 million), which was primarily attributable to (i) purchase of property, plant and equipment of RMB314.4 million (US$44.5 million), and (ii) purchase of intangible assets of RMB208.7 million (US$29.5 million), partially offset by maturities of short-term investments of RMB193.1 million (US$27.3 million).
Net cash provided by investing activities in 2019 was RMB740.3 million (US$104.8 million), which was primarily attributable to (i) maturities of short-term investments of RMB1,905.2 million (US$269.7 million), and (ii) maturities of term deposits of RMB760.0 million (US$107.6 million), partially offset by (i) purchase of property, plant and equipment of RMB1,831.6 million (US$259.2 million), and (ii) prepayment for acquisition of assets of RMB100.0 million (US$14.2 million) in relation to a corporate acquisition.
Net cash used in investing activities in 2018 was RMB3,630.3 million, which was primarily attributable to (i) placement of short-term investments of RMB1,863.4 million, (ii) purchase of property, plant and equipment of RMB770.3 million, and (iii) placement of term deposits of RMB760.0 million.
Financing Activities
Net cash provided by financing activities for the six months ended June 30, 2020 was RMB868.3 million (US$122.9 million), which was primarily attributable to proceeds from issuance of convertible redeemable preferred shares of RMB1,010.8 million (US$143.1 million).
Net cash provided by financing activities in 2019 was RMB3,593.6 million (US$508.6 million), which was primarily attributable to (i) proceeds from issuance of convertible redeemable preferred shares of RMB2,678.6 million (US$379.1 million) and (ii) proceeds from borrowings of RMB1,620.0 million (US$229.3 million), partially offset by repayment of borrowings of RMB748.1 million (US$105.9 million).
Net cash provided by financing activities in 2018 was RMB6,734.2 million, which was primarily attributable to (i) proceeds from issuance of convertible redeemable preferred shares of RMB5,854.2 million and (ii) proceeds from borrowings of RMB1,200.0 million, partially offset by repayment of borrowings of RMB320.0 million.
Capital Expenditures
We made capital expenditures of RMB1,009.4 million, RMB2,008.4 million (US$284.3 million) and RMB523.0 million (US$74.0 million) in 2018, 2019 and the six months ended June 30, 2020, respectively. In
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these periods, our capital expenditures were used primarily for the construction of our Zhaoqing plant. In March 2020, we entered into an agreement to acquire a company that holds a manufacturing license for a total cash consideration of approximately RMB500.0 million. Going forward, we expect to make capital expenditures primarily on equipment for production and for product development.
Commitments
The following table set forth our indebtedness and contractual obligations as of June 30, 2020:
Payment due by period | ||||||||||||||||||||||||
Total |
Less than
1 year |
1 3 years | 3 5 years |
More than
5 years |
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RMB | US$ | RMB | ||||||||||||||||||||||
(in thousands) | ||||||||||||||||||||||||
Short-term and long-term borrowings |
2,027,445 | 286,966 | 337,465 | 89,980 | | 1,600,000 | ||||||||||||||||||
Operating lease liabilities |
479,676 | 67,894 | 105,894 | 176,787 | 89,840 | 107,155 | ||||||||||||||||||
Purchase commitments for property, plant and equipment |
84,262 | 11,927 | 84,262 | | | | ||||||||||||||||||
Interest on borrowings |
568,712 | 80,496 | 90,515 | 159,831 | 156,800 | 161,566 | ||||||||||||||||||
Purchase commitments for raw materials |
346,869 | 49,096 | 205,623 | 122,523 | 18,723 | | ||||||||||||||||||
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Total |
3,506,964 | 496,379 | 823,759 | 549,121 | 265,363 | 1,868,721 | ||||||||||||||||||
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Off-Balance Sheet Arrangements
We have not entered into any off-balance sheet financial guarantees or other off-balance sheet commitments to guarantee the payment obligations of any third parties. We have not entered into any derivative contracts that are indexed to our shares and classified as shareholders equity or that are not reflected in our consolidated financial statements. Furthermore, we do not have any retained or contingent interest in assets transferred to an unconsolidated entity that serves as credit, liquidity or market risk support to such entity. We do not have any variable interest in any unconsolidated entity that provides financing, liquidity, market risk or credit support to us or engages in leasing, hedging or product development services with us.
Holding Company Structure
We began our operations in 2015 through Chengxing Zhidong. We undertook the Reorganization to facilitate our initial public offering in the United States. As part of the Reorganization, we incorporated XPeng Inc., our holding company in December 2018. As a transitional arrangement of the Reorganization, Xiaopeng Motors, our wholly owned subsidiary, entered into a series of contractual agreements with Chengxing Zhidong and its shareholders in September 2019, pursuant to which Xiaopeng Motors exercised effective control over the operations of Chengxing Zhidong. In May 2020, Xiaopeng Motors completed its purchase of 100% equity interest in Chengxing Zhidong. Consequently, Chengxing Zhidong became an indirect wholly owned subsidiary of XPeng Inc.
XPeng Inc., our holding company, has no material operations of its own. We conduct our operations primarily through our subsidiaries, consolidated VIEs and their subsidiaries in China. As a result, XPeng Inc.s ability to pay dividends depends upon dividends paid by our PRC subsidiaries. If our existing PRC subsidiaries 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 subsidiaries in China are permitted to pay dividends to us only out of their retained earnings, if any, as determined in accordance with PRC accounting standards and regulations. Under PRC law, each of our subsidiaries, our consolidated VIEs and their 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 subsidiaries in China may allocate a
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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 VIEs and their subsidiaries may allocate a portion of their 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 subsidiaries have 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 2017, 2018 and 2019 were increases of 1.6%, 2.1% and 2.9%, 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
The Company uses Renminbi (RMB) as its reporting currency. Most of our revenues and expenses are denominated in Renminbi. The functional currency of our company and subsidiaries in the United States and Hong Kong is the U.S. dollar. The functional currency of our subsidiaries in the PRC, the VIE and the VIEs subsidiaries is the Renminbi. 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 consolidated statements of comprehensive loss. We had a foreign exchange loss of RMB11.8 million for fiscal year ended in 2018, a foreign exchange gain of RMB8.4 million (US$1.2 million) in 2019, and a foreign exchange gain of RMB11.5 million (US$1.6 million) for six months ended June 30, 2020.
We do not believe that we currently have any significant direct foreign exchange risk and have not used any derivative financial instruments to hedge exposure to such risk. Although in general our exposure to foreign exchange risks should be limited, the value of your investment in our ADSs will be affected by the exchange rate between U.S. dollar and RMB because the value of our business is effectively denominated in Renminbi, while our ADSs will be traded in U.S. dollars.
The conversion of Renminbi into foreign currencies, including U.S. dollars, is based on rates set by the PBOC. The 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. This depreciation halted in 2017, and the Renminbi appreciated approximately 7% against the U.S. dollar during this one-year period. Starting from the beginning of 2019, the Renminbi has depreciated significantly against the U.S. dollar again. In early August 2019, the PBOC set the Renminbis daily reference rate at RMB7.0039 to US$1.00, the first time that the exchange rate of Renminbi to U.S. dollar exceeded 7.0 since 2008. With the development of the foreign exchange market and progress towards interest rate
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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 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 amounts available to us.
We estimate that we will receive net proceeds of approximately US$972.0 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$12.00 per ADS, the midpoint of the estimated initial public offering price range shown on the cover page of this prospectus. 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 RMB7.0651 for US$1.00 as of June 30, 2020 to a rate of RMB7.7716 to US$1.00, would result in an increase of RMB686.7 million in our net proceeds from this offering. Conversely, a 10% depreciation of the U.S. dollar against the RMB, from the exchange rate of RMB7.0651 for US$1.00 as of June 30, 2020 to a rate of RMB6.3586 to US$1.00 would result in a decrease of RMB686.7 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 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.
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Revenue Recognition
Revenue is recognized when or as the control of the goods or services is transferred upon delivery to customers. Depending on the terms of the contract and the laws that apply to the contract, control of the goods and services may be transferred over time or at a point in time. Control of the goods and services is transferred over time if our performance:
|
provides all of the benefits received and consumed simultaneously by the customer; |
|
creates and enhances an asset that the customer controls as we perform; or |
|
does not create an asset with an alternative use to us and we have an enforceable right to payment for performance completed to date. |
If control of the goods and services transfers over time, revenue is recognized over the period of the contract by reference to the progress towards complete satisfaction of that performance obligation. Otherwise, revenue is recognized at a point in time when the customer obtains control of the goods and services.
Contracts with customers may include multiple performance obligations. For such arrangements, we allocate overall contract price to each distinct performance obligation based on its relative standalone selling price in accordance with ASC 606. We generally determine standalone-selling prices for each individual distinct performance obligation identified based on the prices charged to customers. If the standalone selling price is not directly observable, it is estimated using expected cost plus a margin or adjusted market assessment approach, depending on the availability of observable information, the data utilized, and considering the our pricing policies and practices in making pricing decisions. Assumptions and estimations have been made in estimating the relative selling price of each distinct performance obligation, and changes in judgments on these assumptions and estimates may affect the revenue recognition. The discount provided in the contract are allocated by us to all performance obligations as conditions under ASC 606-10-32-37 are not met.
Vehicle Sales
We generate revenue from sales of our Smart EVs, together with a number of embedded products and services through a contract. We identify the customers who purchase the Smart EVs as our customers. There are multiple distinct performance obligations explicitly stated in a series of contracts including sales of vehicle, free charging within four years or 100,000 kilometers, extended lifetime warranty, option between home charger and charging card, and vehicle internet connection service which are accounted for in accordance with ASC 606. The standard warranty provided by us is accounted for in accordance with ASC 460, Guarantees, and the estimated costs are recorded as a liability when we transfer the control of vehicle to a customer.
Car buyers in the PRC are entitled to government subsidies when they purchase EVs. For efficiency purpose and better customer service, we or Zhengzhou Haima Automobile Co., Ltd. applies for and collects such government subsidies on behalf of the customers. Accordingly, customers only pay the amount after deducting government subsidies. We determined that the government subsidies should be considered as part of the transaction price because the subsidy is granted to the buyer of the EVs and the buyer remains liable for such amount in the event the subsidies were not received by us.
The overall contract price is allocated to each distinct performance obligation based on the relative estimated standalone selling price. The revenue for sales of the Smart EVs and home chargers is recognized at a point in time when the control of the Smart EV is transferred to the customer and the home charger is installed at customers designated location. For vehicle internet connection service, we recognize the revenue using a straight-line method. For the extended lifetime warranty, given limited operating history and lack of historical data, we decide to recognize the revenue over time based on a straight-line method initially, and will continue monitoring the cost pattern periodically and adjust the revenue recognition pattern to reflect the actual cost pattern as it becomes available. For the free charging within four years or 100,000 kilometers and charging card
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to be consumed to exchange for charging services, we consider a measure of progress based on usage (rather than a time-based method) best reflects the performance as its typically a promise to deliver the underlying service rather than a promise to stand ready.
Initial refundable deposits for intention orders and non-refundable deposits for vehicle reservations received from customers prior to vehicle purchase agreements signed are recognized as advances from customers (accruals and other liabilities). When vehicle purchase agreements are signed, the consideration for the vehicle and all embedded services must be paid in advance, which means the payments received are prior to the transfer of goods or services by us, we record a contract liability (deferred revenue) for the allocated amount regarding to those unperformed obligations. At the same time, advances from customers are classified as contract liability (deferred revenue) as part of the consideration.
Other services
We provide variable other services to customers, including services embedded in a sales contract, supercharging service, maintenance service, ride-hailing service and vehicle leasing service.
Services embedded in a sales contract may include free charging within four years or 100,000 kilometers, extended lifetime warranty, option between home charger and charging card and vehicle internet connection services. Other services also include supercharging service and maintenance service. These services are recognized under ASC 606.
We provide ride-hailing services with smart commuting solutions to customers by using our self-owned G3s and hiring and training drivers employed by third party agents via service agreement. We believe we act as a principle in the ride-hailing service as we control a specified good or service before it is transferred to the customers. The revenue for ride-hailing service is recognized overtime in a period when the ride-hailing service is consumed under ASC 606.
Revenue from vehicle leasing service to customers under operating lease and finance lease are recognized under ASC 842.
Practical expedients and exemptions
We follow the guidance on immaterial promises when identifying performance obligations in the vehicle sales contracts and concludes that lifetime roadside assistance, traffic ticket inquiry service, courtesy car service, on-site troubleshooting and parts replacement service, are not performance obligations considering these services are value-added services to enhance customer experience rather than critical items for vehicle driving and forecasted that usage of these five services will be very limited. We also perform an estimation on the stand-alone fair value of each promise applying a cost plus margin approach and concludes that the standalone fair value of foresaid services are insignificant individually and in aggregate, representing less than 1% of vehicle gross selling price and aggregate fair value of each individual promise.
Considering the qualitative assessment and the result of the quantitative estimate, we concluded not to assess whether promises are performance obligation if they are immaterial in the context of the contract and the relative stand-alone fair value individually and in aggregate is less than 1% of the contract price, namely the lifetime roadside assistance, traffic ticket inquiry service, courtesy car service, on-site troubleshooting and parts replacement service. Related costs are then accrued instead.
Customer Upgrade Program
In the third quarter of 2019, due to the upgrade of the latest vehicle model, G3 2020, we voluntarily offered all owners of G3 2019 model the options to either receive loyalty points, valid for five years since the grant date,
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which can be redeemed for goods or services, or obtain an enhanced trade-in right, which is valid for 120 days, contingent on a future purchase starting from the 34th month of the original purchase date but only if they purchase a new vehicle from us. The owners of G3 2019 model had to choose one of the two options within 30 days after receiving the notice. Anyone who did not make the choice before the date was deemed abandoning the options. At the time the offers were made, we still had unfulfilled performance obligations for services to the owners of G3 2019 model associated with their original purchase. We considered this offering is to improve the satisfaction of the owners of G3 2019 model but was not the result of any defects or resolving past claims regarding the G3 2019 model.
As both options provide a material right (a significant discount on future goods or services) for no consideration to existing customers with unfulfilled performance obligations, we consider this arrangement to be a modification of the existing contracts with customers. Further, as the customers did not pay for the additional rights, the contract modification is accounted for as the termination of the original contract and commencement of a new contract, which will be accounted for prospectively. The material right from the loyalty points or the trade-in right shall be considered in the reallocation of the remaining consideration from the original contracts among the promised goods or services not yet transferred at the date of the contract modification. This reallocation is based on the relative stand-alone selling prices of these various goods and services.
For the material right from loyalty points, we estimated the probability of points redemption when determining the stand-alone selling price. Since the fact that most merchandise can be redeemed without requiring a significant amount of points compared with the amount of points provided to customers, we believe it is reasonable to assume all points will be redeemed and no forfeiture is estimated currently. The amount allocated to the points as a separate performance obligation is recorded as a contract liability (deferred revenue) and revenue will be recognized when future goods or services are transferred. We will continue to monitor forfeiture rate data and will apply and update the estimated forfeiture rate at each reporting period. The estimated inventory cost associated with the material right from loyalty points amounted to RMB17.2 million, subject to adjustment for forfeiture rate, will be recognized as cost of sales, depending on the nature of the goods or services redeemed, upon the redemption.
According to the terms of the trade-in program, owners of G3 2019 who elected the trade-in right have the option to trade in their G3 2019 at a fixed predetermined percentage of its original G3 2019 purchase price (the guaranteed trade-in value) starting from the 34th month of the original purchase date but only if they purchase a new vehicle from us. Such trade-in right is valid for 120 days. That is, if the owner of a G3 2019 does not purchase a new vehicle within that 120-day period, the trade-in right expires. The guaranteed trade-in value will be deducted from the retail selling price of the new vehicle purchase. The customer cannot exercise the trade-in right on a stand-alone basis solely as a function of their original purchase of the G3 2019 and this program, and therefore, we do not believe the substance of the program is a repurchase feature that provides the customer with a unilateral right of return. Rather, the trade-in right and purchase of a new vehicle are linked as part of a single transaction to provide a loyalty discount to existing customers. We believe the guaranteed trade-in value will be greater than the expected market value of the G3 2019 at the time the trade-in rights become exercisable, and therefore, the excess value is essentially a sales discount on the new vehicle purchase. For the trade-in right, we estimated the potential forfeiture rate based on the market expectation of the possibility of the future buying and applied the forfeiture rate when determining the stand-alone selling price at the date of the contract modification. The amount allocated to the trade-in right as a separate performance obligation is recorded as a contract liability (deferred revenue) and revenue will be recognized when the trade-in right is exercised and a new vehicle is purchased. We will continue to reassess the reasonableness of the forfeiture rate applied in the subsequent reporting periods. The estimated inventory provision cost of the trade-in right, taking into the forfeiture rate consideration, amounted to RMB67.1 million, will be recognized as cost of sales upon we repurchase the original model.
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Share-Based Compensation
We grant RSUs, restricted shares and share options, or collectively, Share-based Awards, to eligible employees and accounts for share-based compensation in accordance with ASC 718, CompensationStock Compensation. Share-based awards are measured at the grant date fair value of the awards and recognized as expenses using graded vesting method, net of estimated forfeitures, if any, over the requisite service period. For awards with performance conditions, we would recognize compensation cost if and when we conclude that it is probable that the performance condition will be achieved.
The fair value of the RSUs and restricted shares were assessed using the income approach/discounted cash flow method, with a discount for lack of marketability given that the shares underlying the awards were not publicly traded at the time of grant. This assessment requires complex and subjective judgments regarding our projected financial and operating results, our unique business risks, the liquidity of our ordinary shares and our operating history and prospects at the time the grants were made. The fair value of share options is estimated on the grant or offering date using the Binomial option-pricing model. The assumptions used in share-based compensation expense recognition represent managements best estimates, but these estimates involve inherent uncertainties and application of management judgment. If factors change or different assumptions are used, the share-based compensation expenses could be materially different for any period.
Moreover, the estimates of fair value of the awards are not intended to predict actual future events or the value that ultimately will be realized by grantees who receive Share-based Awards, and subsequent events are not indicative of the reasonableness of the original estimates of fair value made by us for accounting purposes.
Share options granted to employees
Since 2015, Chengxing Zhidong has granted options to certain directors, executive officers and employees. The options granted are exercisable only upon the completion of an initial public offering or change in control.
Share options granted to employees includes both service condition and performance condition. Employees are required to provide continued service through the satisfaction of the occurrence of change of control or an initial public offering, or collectively, the Liquidity Event, to retain the award since no share option would be vested prior to the occurrence of the Liquidity Event even though the service condition has been satisfied. Given the vesting of the share options granted is contingent upon the occurrence of the Liquidity Event, there is no share-based compensation expense to be recognized until the date of consummation of Liquidity Event.
The fair value of each share options granted was estimated on the date of each grant using the Binomial option-pricing model with the assumptions (or ranges thereof) in the following table:
Year Ended December 31, |
Six Months Ended
June 30, |
|||||||||||
2018 | 2019 | 2019 | ||||||||||
Expected term (years) |
7 | 7 | 7 | |||||||||
Exercise price (RMB) |
0.0004 | 0.0004 | 0.0004 | |||||||||
Fair value of the ordinary shares on the date of option grant (RMB) |
2.51 ~ 8.08 | 8.36 ~ 8.60 | 8.36 ~ 8.53 | |||||||||
Risk-free interest rate |
3.03% ~ 3.68% | 2.66% ~ 3.31% | 3.10% ~ 3.31% | |||||||||
Expected dividend yield |
0.00% | 0.00% | 0.00% | |||||||||
Expected volatility |
34.28% ~ 34.39% | 33.32% ~ 33.56% | 33.35% ~ 33.56% |
Valuations of our ordinary shares were determined in accordance with the guidelines outlined in the American Institute of Certified Public Accountants Practice Aid, Valuation of Privately-Held Company Equity Securities Issued as Compensation, and with the assistance of an independent valuation firm from time to time. The assumptions we use in the valuation model are based on future expectations combined with management
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judgment, with inputs of numerous objective and subjective factors, to determine the fair value of our ordinary shares, including the following factors:
|
our operating and financial performance; |
|
current business conditions and projections; |
|
our stage of development; |
|
the prices, rights, preferences and privileges of our convertible preferred shares relative to our ordinary shares; |
|
the likelihood of occurrence of liquidity event and redemption event; |
|
any adjustment necessary to recognize a lack of marketability for our ordinary shares; and |
|
the market performance of industry peers. |
In order to determine the fair value of our ordinary shares underlying each share-based award grant, we first determined our business entity value and then allocated the business entity value to each element of our capital structure (convertible redeemable preferred shares and ordinary shares) using an option pricing method. In our case, three scenarios were assumed, namely: (i) the liquidation scenario, in which the option pricing method was adopted to allocate the value between convertible preferred shares and ordinary shares, and (ii) the redemption scenario, in which the option pricing method was adopted to allocate the value between convertible preferred shares and ordinary shares, and (iii) the mandatory conversion scenario, in which equity value was allocated to convertible preferred shares and ordinary shares on an as-if converted basis. Increasing probability was assigned to the mandatory conversion scenario during 2018 and 2019 in light of preparations for our initial public offering.
In determining the fair value of our business entity value, we applied the income approach/discounted cash flow, analysis based on our projected cash flow using managements best estimate as of the valuation date. The determination of the fair value of our ordinary shares requires complex and subjective judgments to be made regarding our projected financial and operating results, our unique business risks, the liquidity of our shares and our operating history and prospects at the time of valuation.
Assumptions and estimates will not be necessary to determine the fair value of our ordinary shares upon the listing of our ADSs on the NYSE.
Restricted share units granted to employees
RSUs granted to employees includes both service condition and performance condition. Employees are required to provide continued service through the satisfaction of the occurrence of Liquidity Event to retain the award since no RSU would be vested prior to the occurrence of the Liquidity Event even though the service condition has been satisfied. We also granted RSUs in 2020 with only performance condition and the RSUs would be vested upon the occurrence of Liquidity Event. Given the vesting of these two types of RSUs granted is contingent upon the occurrence of the Liquidity Event, there is no share-based compensation expense to be recognized until the date of consummation of Liquidity Event.
Restricted shares granted to two co-founders
In the years ended December 31, 2018 and 2019, two co-founders have agreed that their founders shares would be subject to requisite service conditions that shall vest in a certain period. The restricted shares require future requisite service and it does not contain a market or performance condition that must be satisfied before the grant date. Accordingly, no share-based compensation expenses would be recognized prior to the grant date but would be recognized based on the fair value of the shares at the grant date over the requisite service period.
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A change in any of the terms or conditions of restricted shares granted to two co-founders is accounted for as a modification of the awards. The cumulative amount of share-based compensation expenses that would be recognized is the original grant-date fair value of the award plus any incremental fair value resulting from the modification. We calculate incremental compensation expense of a modification as the excess of the fair value of the modified awards over the fair value of the original awards immediately before its terms are modified at the modification date. For vested restricted shares, we recognize incremental compensation cost in the period when the modification occurs. For restricted shares not being fully vested, we recognize the sum of the incremental compensation expense and the remaining unrecognized compensation expense for the original awards over the remaining requisite service period after modification.
As of December 31, 2019, all the restricted shares of two co-founders have been vested. No restricted shares vested for the six months ended June 30, 2020.
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, 2018 and 2019, we and our independent registered public accounting firm identified one material weakness in our internal control over financial reporting as of December 31, 2018 and 2019. 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 the lack of sufficient financial reporting and accounting personnel with appropriate knowledge of U.S. GAAP, in particular, to (i) develop comprehensive U.S. GAAP accounting policies and financial reporting procedures to address complex U.S. GAAP technical accounting issues and (ii) prepare and review our consolidated financial statements and related disclosures in accordance with U.S. GAAP and financial reporting requirements set forth by the SEC. 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. 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, 2019, we have started adopting measures to improve our internal control over financial reporting, including, among others: (i) hiring additional competent and qualified accounting and reporting personnel with appropriate knowledge and experience of U.S. GAAP and SEC financial reporting requirements, (ii) establishing an ongoing program to provide sufficient and additional appropriate training to our accounting staff, especially trainings related to U.S. GAAP and SEC financial reporting requirements, (iii) developing a set of accounting policies and procedures, which document the current U.S. GAAP accounting policies and technical accounting guidance and are tailored to our business, and (iv) implementing internal controls over financial reporting to ensure accounting policies and procedures are operating effectively.
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 an effective system of internal control over financial reporting, we may be unable to accurately report our financial results or prevent fraud, and investor confidence in our company and the market price of our ADSs may be adversely affected.
As a company with less than US$1.07 billion 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
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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. However, we have elected to opt out of this provision and, as a result, we will comply with new or revised accounting standards as required when they are adopted for public companies. This decision to opt out of the extended transition period under the JOBS Act is irrevocable.
Recent Accounting Pronouncements
Please refer to Note 3 to our consolidated financial statements included elsewhere in this prospectus.
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Chinas Electric Vehicle Market and Key Trends
China is the largest EV market in the world
China is the largest passenger vehicle market in the world, as measured by sales volume in 2019, according to the IHS Markit Report. Driven by growing disposable income, increasing urbanization and investment in transportation infrastructure, sales volume of passenger vehicles in China reached 21.1 million units in 2019, and is expected to increase to 25.9 million units in 2025.
China is also the largest EV market in the world, with 0.9 million sales volume in 2019. Chinas EV market represented 45.1% of the global EV sales volume and was over 3.5 times the size of the EV market in the United States, according to IHS Markit Report. Chinas EV sales volume is expected to grow at a CAGR of 29.4% from 2019 to 2025, reaching 4.2 million units in 2025.
The mid- to high-end segment is the largest segment in Chinas EV market
The passenger vehicle market in China can be categorized by price range into five segments, namely (i) entry-level segment with prices under RMB80,000, (ii) mass segment with prices between RMB80,000 and RMB150,000, (iii) mid- to high-end segment with prices between RMB150,000 and RMB300,000, (iv) premium segment with prices between RMB300,000 and RMB500,000, and (v) luxury segment with prices above RMB500,000. The mid- to high-end segment is expected to grow from 6.5 million units in 2019 to 10.8 million units in 2025, and to become the largest segment in Chinas passenger vehicle market.
In Chinas EV market, the mid- to high-end segment is the largest, accounting for 47.2% of sales volume in 2019. This segment is expected to remain the largest and reach 1.8 million units in 2025. The chart below shows sales volume of Chinas passenger vehicles and EVs by price segment from 2019 to 2025:
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Source: IHS Markit Report
Note: Price ranges presented in this chart do not include any government subsidy.
Major Factors Driving Electrification
According to the IHS Markit Report, the EV sales volume in China is forecasted to increase from 0.9 million units in 2019 to 4.2 million units in 2025, which will be larger than the EV sales volume in the United States and Europe combined. The penetration rate of EVs in Chinas passenger vehicle market is expected to exceed 10% by 2023. We believe a 10% penetration rate represents an inflection point for the EV industry. The following chart illustrates the sales volume and penetration rate of EVs in China from 2019 to 2025:
Source: IHS Markit Report
Declining battery price driving down costs of EVs
Battery costs have decreased considerably, driven by rapid improvement in economies of scale for global battery production and advancements in battery technology. According to the IHS Markit Report, the average price of lithium battery cells was US$131 per kWh in 2019, and is expected to further decrease at a compound annual rate of nearly 10% for the next three years.
When consumers decide between an ICE vehicle and an EV, they consider not only the initial purchase cost, but also the total cost of ownership, or TCO, which also includes running costs and residual value. According to the IHS Markit Report, the TCO parity between EV and ICE has already been reached in various vehicle segments in China.
Favorable policy tailwinds for NEVs
Chinas favorable government policies are important drivers of the NEV market. NEVs comprise three types of vehicles: EVs, PHEVs and hydrogen fuel cell vehicles. On March 31, 2020, Chinas State Council announced the extension of certain subsidies and tax exemptions on EV purchases, which will remain effective through 2022 to support the development of the EV industry. Chinas MIIT targets to raise the penetration rate of NEVs to 25% of Chinas passenger vehicle market by 2025. Apart from purchase subsidies, the government has adopted a NEV credit scheme that incentivizes OEMs to increase the production and sale of NEVs.
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Tightening vehicle emission regulations and car plate restrictions on ICE vehicles
Tightening vehicle emission regulations and car plate restrictions limit the growth of the number of ICE vehicles on the road and accelerate NEV adoption. Chinas phase VI emission standard, one of the strictest in the world, was rolled out in July 2019 in major provinces and cities and will be applied nationwide in July 2020. In addition, several cities have imposed car plate restrictions on ICE vehicles. As such restriction does not apply to EVs in most of these cities, consumers are therefore incentivized to choose EVs over ICE vehicles.
Rapidly expanding charging infrastructure and increasing driving range of EVs
The Chinese government promotes the development of EV charging networks as a national policy with set targets, funding supports and mandatory standards. Local governments provide incentives for the installation and operation of charging infrastructure. Charging infrastructure is one of the core initiatives of a New Infrastructure campaign launched in 2020, which will boost sustainable EV market growth.
Many businesses in the private sector, including vehicle manufacturers, energy companies and technology companies, also contribute to the expansion of charging infrastructure. As a result, the private charging ratio, which represents the ratio between the usage of private charging piles and the usage of state-owned charging piles, has been growing in the past few years.
Apart from the availability of charging infrastructure, the ongoing improvement of EV driving range driven by increasing battery energy density also encourages EV purchases.
Chinas Consumers Embracing Advanced In-vehicle Technologies
According to a consumer survey conducted by IHS Markit in 2019, or the IHS Markit Survey, Chinese consumers embrace new in-vehicle technologies, such as connectivity, OTA updates and autonomous driving, more readily than consumers in other major regions globally. In-vehicle technology functions have become one of the most important factors when Chinese consumers make vehicle purchase decisions. According to the IHS Markit Survey, 45.7% of car buyers in China regard in-vehicle technologies as a key purchasing factor, which is ranked only after safety, vehicle specifications and fuel economy.
Autonomous driving to redefine driving experience
Autonomous driving technology is rapidly developing and entering the mainstream market. The technology brings freedom to drivers and transforms their driving experience. Autonomous driving system requires a comprehensive suite of hardware, including radars, cameras and processors, as well as software, including perception algorithms, high-definition map and connectivity solutions.
SAE International, a global standard developing organization for transport industries, defines driving automation in six levels, with Level 5 being completely autonomous with no human intervention needed and Level 0 having no autonomous system control. Level 2 autonomous driving system provides steering, braking and acceleration support to a driver, but the driver must constantly supervise these functions to maintain safety. Level 3 autonomous driving system allows hands-free driving under certain conditions, but requires full driver attention.
According to the IHS Markit Report, the penetration rate of Level 2 and above autonomous driving systems in Chinas passenger vehicle market has grown from 3.0% in 2018 to 8.0% in 2019 and is expected to reach 34.5% by 2025. Level 3 capability represents the highest level of autonomous driving capabilities in commercially available passenger vehicles today. While several companies are developing Level 3 and Level 4 systems, few have been able to deploy such systems commercially in the market to date. The following chart
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illustrates the penetration rate of autonomous driving systems at each of Level 2 to Level 4 in China from 2019 to 2025:
Source: IHS Markit Report
Autonomous driving technology requires significant testing before commercialization. Test vehicles are driven for millions of kilometers to generate large data sets, which are evaluated by specialized engineers and machine learning models to improve the autonomous driving technology. In China, local road and traffic conditions are different from other major markets, and autonomous driving systems require extensive local data accumulation to reflect the unique road conditions.
Connectivity and OTA are increasingly popular
In-vehicle connectivity features and AI assistants have become more prevalent in recent years. Connected infotainment systems are evolving towards a more personalized and content-rich lifestyle experience, and AI assistants are capable of conversational interactions, further enhancing the in-car experience. According to the IHS Markit Report, the penetration of in-vehicle AI assistants is forecasted to grow significantly in China in the next few years.
OTA is another important aspect of in-vehicle technologies. OTA provides a convenient and cost-efficient method of remotely upgrading vehicle software systems. It allows the car owners to continuously enjoy more functions and better user experience throughout the vehicle lifecycle. It is especially challenging for automotive companies to deploy OTA firmware updates due to the complexity in system integration and design. Such updates require strong capabilities in software and hardware integration and E/E architecture.
Chinese government targets for smart vehicles
The Chinese government has set out the long-term plan for smart and connected vehicles, which is to increase the penetration of such vehicles to 30% of total vehicle sales in China by 2025. Specific strategic goals include (i) achieving mass production of conditional autonomous vehicles and commercializing high-level autonomous vehicles for specific environments and (ii) achieving significant development in smart cities and intelligent transportation systems.
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Competitive Landscape of Chinas Smart EV Market
Xpengs P7 and G3 specifications in comparison to competing models
IHS Markit compared Xpengs P7 to its competing models in both EV and ICE markets, including upcoming models. Among the vehicle models set forth below, the P7 is superior in terms of NEDC range, autonomous driving capabilities, and smart connectivity features. The following table sets forth technology features and other specifications of selected comparable EVs and ICE vehicles:
Xpeng P7 |
Tesla Model 3 |
BYD Han |
Mercedes-
|
BMW iX3 |
Audi A4 |
|||||||
MSRP(1) (RMB 000) |
255 372 | 292 420 | 263 303 | 580 623 | 540+ | 306 470 | ||||||
Overall Specifications |
||||||||||||
Propulsion type |
EV | EV | EV | EV | EV | ICE | ||||||
Wheelbase (mm) |
2,998 | 2,875 | 2,920 | 2,873 | 2,864 | 2,824 | ||||||
Max torque (N·m) |
390 655 | 404 660 | 330 680 | 730 | 600 | 270 500 | ||||||
NEDC range(2) (km) |
562 706 | 445 668 | 506 605 | 408 415 | 495 | 695 934 | ||||||
Average energy consumption rate(3) (kWh/100 km) |
14.4 | 16.3 | 14.5 | 20.0 | 17.0 | 69.4 | ||||||
Connectivity |
||||||||||||
Video streaming, gaming and other entertainment |
Yes | Yes | Yes | No | No | No | ||||||
AI assistant enabling voice controls of in-car functions |
Yes | Yes | Yes | Yes | Yes | Yes | ||||||
Autonomous Driving Functions |
||||||||||||
Adaptive cruise control(4) |
Standard | Standard | Available | Available | Available | Available | ||||||
Lane centering control(4) |
Standard | Standard | Available | Available | Available | Available | ||||||
Enhanced automated parking assist(4) |
Available |
Available |
Available |
Available |
Available | Available | ||||||
Traffic sign recognition(4) |
Standard | Standard | Available | Available | Available | Available | ||||||
OTA |
||||||||||||
OTA capability |
Firmware | Firmware | Firmware | Infotainment only | Infotainment only | Infotainment only |
Source: IHS Markit Report
(1) |
Manufacturer Suggested Retail Price, or MSRP, presented in this table does not include any government subsidy. |
(2) |
For ICE vehicles, NEDC standard is not applicable and it instead refers to the driving range on a single tank of gasoline. |
(3) |
For ICE vehicles, average liters per 100 km were converted to average kWh per 100 km, using a conversion of 9.7 kWh per liter gasoline. |
(4) |
A standard feature comes with all vehicle versions, whereas an available feature comes in some versions and not on others. |
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IHS Markit compared Xpengs G3 to its competing models in both EV and ICE markets. The G3 offers a variety of connectivity and autonomous driving features commonly found on higher-priced vehicles. These features come with a competitive driving range and EV performance characteristics for the mid- to high-end segment it falls under.
Xpeng G3 |
Audi
|
BYD
|
Toyota C-
|
Toyota
|
||||||
MSRP(1) (RMB 000) |
169 222 | 236 246 | 202 270 | 251 272 | 146 177 | |||||
Overall Specifications |
||||||||||
Propulsion type |
EV | EV | EV | EV | ICE | |||||
Wheelbase (mm) |
2,625 | 2,628 | 2,712 | 2,640 | 2,640 | |||||
Max torque (N·m) |
300 | 290 | 280 | 300 | 203 | |||||
NEDC range(2) (km) |
460 520 | 265 | 405 502 | 400 | 877 | |||||
Average energy consumption rate(3) (kWh/100 km) |
14.1 | 13.9 | 15.0 | 13.1 | 55.3 | |||||
Connectivity |
||||||||||
Video streaming, gaming and other entertainment |
Yes | No | Yes | No | No | |||||
AI assistant enabling voice controls of in-car functions |
Yes | No | Yes | No | No | |||||
Autonomous Driving Functions |
||||||||||
Adaptive cruise control(4) |
Available | Available | Available | Available | Available | |||||
Lane centering control(4) |
Available | Available | Available | N/A |
N/A |
|||||
Enhanced automated parking assist(4) |
Available | Available |
N/A |
N/A |
N/A |
|||||
Traffic sign recognition(4) |
Available | Available | Available |
N/A |
N/A |
|||||
OTA |
||||||||||
OTA capability |
Firmware | Infotainment only | Firmware | N/A | N/A |
Source: IHS Markit Report
(1) |
MSRP presented in this table do not include any government subsidy. |
(2) |
For ICE vehicles, NEDC standard is not applicable and it instead refers to the driving range on a single tank of gasoline. |
(3) |
For ICE vehicles, average liters per 100 km were converted to average kWh per 100 km, using a conversion of 9.7 kWh per liter gasoline. |
(4) |
A standard feature comes with all vehicle versions, whereas an available feature comes in some versions and not on others. |
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Mission
Driving Smart EV transformation with technology and data, shaping the mobility experience of the future.
Overview
We are one of Chinas leading Smart EV companies. We design, develop, manufacture and market Smart EVs in China. Xpeng was founded in 2015 with a vision to bring Smart EVs to Chinese consumers through innovation in autonomous driving, smart connectivity and core vehicle systems. Today, we are a proven leader in the rapidly growing Smart EV market, producing popular and environmentally-friendly vehicles, namely an SUV (the G3) and a four-door sports sedan (the P7). Our Smart EVs offer attractive design and high performance, coupled with safety and reliability. According to the IHS Markit Report, the G3 was among the top-three best-selling electric SUVs in China in 2019. The P7 offers an NEDC range of up to 706 km (439 miles) on a single charge, which is the longest among EVs that are available in China, based on the MIIT NEV Catalogues.
Our Smart EVs appeal to the large and growing base of technology-savvy middle-class consumers in China. We primarily target the mid- to high-end segment in Chinas passenger vehicle market, with prices ranging from RMB150,000 to RMB300,000, for our Smart EVs. According to the IHS Markit Report, the mid- to high-end segment represented 30.6% of Chinas passenger vehicle market by sales volume in 2019 and had a higher EV penetration rate than other price segments. Consumers choose our products primarily because of attractive design, smart mobility experience, advanced technology and compelling value proposition. As of June 30, 2020, over 90% of purchasers of the G3 chose the versions with autonomous driving capabilities. As of the same date, approximately 50% of customers ordered the versions of the P7 that can support XPILOT 3.0, our upcoming advanced autonomous driving system.
In order to optimize our customers mobility experience, we have strategically chosen to focus on developing full-stack autonomous driving technology and in-car intelligent operating system, as well as core vehicle systems, including powertrain and the E/E architecture in-house. According to the IHS Markit Report, our XPILOT 3.0 is expected to offer the highest level of autonomous driving capabilities in commercially available passenger vehicles today. Through our proprietary software, core hardware and data technologies, we are able to develop and deploy innovative products rapidly and efficiently, which gives us an advantage over our competitors in China.
We started production of the G3 in November 2018, and as of July 31, 2020, we had delivered 18,741 units of the G3 to customers. We started production of the P7 and began delivery in May 2020, and as of July 31, 2020, we had delivered 1,966 units of the P7 to customers. We plan to launch our third Smart EV, a sedan, in 2021. The table below sets forth certain features of the G3 and the P7.
|
|
|||
Model |
G3 (SUV) |
P7 (Sports Sedan) |
||
Wheelbase (mm) |
2,625 | 2,998 | ||
NEDC range (km) |
460 / 520 |
562 / 586 / 670 / 706 |
||
Battery capacity (kWh) |
57.5 / 66.7 | 70.8 / 80.9 | ||
0-100 km/h acceleration (s) |
8.6 | 4.4 / 6.8 / 6.9(1) | ||
Post-subsidy price (RMB) |
146,800 199,800 | 229,900 349,900(2) |
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(1) |
The P7s four-wheel drive, rear-wheel drive super long range and rear-wheel drive long range configurations can accelerate from zero to 100 km per hour in 4.4, 6.8 and 6.9 seconds, respectively. |
(2) |
The price range is exclusive of the software of XPILOT 3.0. |
Our autonomous driving system and in-car intelligent operating system allow customers to enjoy a new smart mobility experience, and our Smart EVs can be upgraded through OTA firmware updates.
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XPILOT, our autonomous driving system, provides assisted driving and parking functions tailored for driving behavior and road conditions in China. Currently deployed on the G3 and the P7, XPILOT 2.5 offers adaptive cruise control, adaptive turning control, lane centering control, automated lane changing and automated parking. As of June 30, 2020, our adaptive cruise control function had been used for 25.1 million kilometers of driving cumulatively, and our lane centering control function had been used for 11.1 million kilometers of driving cumulatively. We plan to roll out XPILOT 3.0 by early 2021. XPILOT 3.0 will feature several new functions, including a navigation guided pilot for highway driving and advanced automated parking, in addition to the functions available in XPILOT 2.5. |
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Xmart OS, our in-car intelligent operating system, supports a smart cockpit that delivers a seamless, easy-to-use, and voice-controlled smart mobility experience. Xmart OS enables a broad range of smart connectivity functions, such as AI voice assistant, smart navigation and an app store. The in-car app store allows our customers to conveniently access third-party services and infotainment and allows us to develop our smart connectivity ecosystem and create value for all participants. |
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Our technological capabilities in software and hardware integration and E/E architecture enable us to effectively deliver OTA firmware updates. Through such updates, we are able to frequently upgrade our Smart EVs throughout the product lifecycle, and our customers can enjoy more functions and better user experience. |
We design, develop and engineer our core vehicle systems in-house, including the development of key technologies relating to powertrain and E/E architecture to deliver superior and reliable vehicle performance. For example, the P7 has achieved industry-leading driving range as a result of our comprehensive engineering efforts. We collaborated with a top-tier supplier to develop the P7s prismatic lithium NCM cells, which offer high energy density and low height. Furthermore, we integrated a braking system that offers advanced energy recovery capability, and the P7s low air drag and three-in-one electric drive system also contribute to its high energy efficiency. Our collaboration with a German engineering and design firm to develop the P7s chassis allows us to offer a superior driving experience in terms of performance, drivability and handling. As a result of our efforts in modular design across key aspects of Smart EVs, we have strategically established two Smart EV platforms. These platforms are scalable for both SUVs and sedans with different wheelbases within a wide range, which allows us to develop new models in a fast and cost-efficient manner.
We have an omni-channel sales model, which combines a data-driven and targeted online marketing strategy with a physical sales and service network. As of June 30, 2020, our physical sales and service network consisted of a total of 147 stores and service centers, which cover 52 major cities in China. A substantial majority of our stores are strategically located in shopping malls in tier-one and tier-two cities, as we believe such locations enable us to raise our brand awareness and attract customer traffic in a cost-efficient manner. In addition, we actively engage in data-driven and targeted online marketing through a variety of channels to further enhance our brand recognition and acquire customers.
Our manufacturing philosophy centers around quality, continuous improvement, flexibility and high operating efficiency. We take a lean production approach, with the aim of continuous optimization in operating efficiency and product quality. We produce our G3 through a contract manufacturing collaboration with Haima, which has over three decades of automotive manufacturing experience, at its plant in Zhengzhou, Henan province. The arrangement allows us to retain effective control of key manufacturing and procurement processes
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and product quality with minimal required capital outlay. In addition, we have built our own plant in Zhaoqing, Guangdong province. We started the production of the P7 at the plant in May 2020 and will also utilize the plant for future models. We are leveraging the manufacturing know-how and experience gained at the Haima plant to quickly ramp up the Zhaoqing plant. The Haima plant and the Zhaoqing plant have annual production capacity of up to 150,000 units and 100,000 units, respectively.
As of June 30, 2020, we had 3,676 employees in China and the United States. As of the same date, approximately 43% of our employees focused on research and development, of which 66%, 17% and 17% were dedicated to automotive design and engineering, autonomous driving and intelligent operating system, respectively.
Our Market Opportunity
China is the largest passenger vehicle market globally, with sales reaching 21.1 million units in 2019, according to the IHS Markit Report. The mid- to high-end segment, with prices ranging from RMB150,000 to RMB300,000, is expected to grow from 6.5 million units in 2019 to 10.8 million units in 2025, and to become the largest segment in Chinas passenger vehicle market.
The penetration rate of EVs in Chinas passenger vehicle market was 4.2% in 2019. Chinas EV market had reached 893.7 thousand units of sales in 2019 and is expected to grow at a CAGR of 29.4% in the period from 2019 to 2025 to reach 4.2 million units in 2025, representing 16.2% of Chinas passenger vehicle market, according to the IHS Markit Report. The increase of EV penetration in Chinas passenger vehicle market is driven by (i) enhanced functionality and performance; (ii) decreasing total cost of ownership benefiting from declining battery cost; (iii) favorable government support including the NEV credit scheme, tax exemptions and preferential access to license plates in tier-one and tier-two cities; and (iv) improving charging infrastructure. According to the IHS Markit Report, the mid- to high-end segment, accounting for 47.2% of Chinas EV market by sales volume in 2019, was the largest segment in that year. According to the same source, this segment is expected to remain the largest and reach 1.8 million units in 2025.
In-vehicle technology functions are among the most important factors to Chinese consumers when they make vehicle purchase decisions. According to a consumer survey conducted by IHS Markit in 2019, Chinese consumers embraced new technologies more readily than consumers from other major markets. In addition, the Chinese government is implementing policies to support the development of smart vehicles and has announced a plan to achieve a penetration rate of 30% for smart and connected vehicles among total vehicle sales by 2025.
Our Competitive Strengths
We believe the following strengths position us well to capitalize on the opportunities of a rapidly changing passenger vehicle market and the anticipated consumer demand for Smart EVs in China.
We are a leading Smart EV company
We are a leader in the rapidly growing Smart EV market, bringing popular Smart EVs to Chinese consumers through innovation in autonomous driving, smart connectivity and core vehicle systems. We take a fundamentally different approach to our technology innovation, as compared to traditional automotive companies. We have chosen to develop autonomous driving and intelligent connectivity operating system technologies as well as core vehicle systems, including powertrain and the E/E architecture in-house. As a result, we have been able to offer competitive products and continuously deliver smarter and upgradable functions to better serve our customers. We believe that our approach enables us to develop and deploy our technologies more rapidly and efficiently and gives us an advantage over our competitors in China.
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Great to drive, great to be driven
Great to drive. Our Smart EVs offer impressive performance, attractive design, and a fun driving experience. For example, the P7 offers an NEDC range of up to 706 km (439 miles) on a single charge, which is the longest among EVs that are available in China, based on the MIIT NEV Catalogues. The P7 offers fast acceleration, superior handling and high energy efficiency. Our in-house engineering know-how and close collaboration with several business partners enable the P7 to achieve high technical targets in various areas, such as safety, range, vehicle dynamics, as well as noise, vibration and harshness. Furthermore, the P7s AI voice assistant enables communication between our customers and Smart EVs to occur in natural and continuous dialogues, providing customers a voice-based and hassle-free mobility experience. Our AI voice assistant was used approximately nine times per day on average in 2019.
Great to be driven. We strive to offer our customers more freedom while driving and deliver a comfortable and safe mobility experience. Such experience is measured by the level at which our customers can be driven by our autonomous driving system. As of June 30, 2020, our adaptive cruise control function had been used for 25.1 million kilometers of driving cumulatively, and our lane centering control function had been used for 11.1 million kilometers of driving cumulatively. We plan to roll out a navigation guided pilot for highway driving by early 2021. This navigation guided pilot will be capable of autonomously changing lanes, overtaking other vehicles, recognizing traffic signs, as well as adjusting speed, thereby freeing customers hands while driving on highways. In addition, our autonomous driving system is developed and tailored to driving behavior and road conditions in China. For example, our automated parking function is capable of addressing parking challenges in Chinese cities where spaces are often small and have irregular layouts.
Deep software, hardware and data technologies
We design and develop our own software, core hardware and data technologies, which we regard as our core competency. We believe that we are currently the only China-based automotive company to have developed full-stack proprietary software for commercialization of autonomous driving. Our proprietary algorithms encompass (i) localization and high definition map fusion, (ii) camera based perception and sensor fusion with multiple sensors and (iii) behavior planning, motion planning and control. According to the IHS Markit Report, XPILOT 3.0 is expected to offer the highest level of autonomous driving capabilities in commercially available passenger vehicles today. We train and continually improve our deep-learning autonomous driving algorithms based on field data. As of June 30, 2020, our autonomous driving data set contained around 2.9 million annotated pictures. We have developed natural language processing and natural language understanding capabilities based on deep-learning neural networks, and our AI voice assistant can identify keywords, categorize text and understand semantics. Furthermore, we design powertrain and E/E architecture in-house, all of which are critical to the safety, reliability and high performance of our Smart EVs. We believe that our vertically integrated in-house developed software and hardware enable us to achieve greater speed of innovation and offer better customer experience.
Our customer engagement and product enhancement does not end with product delivery, as we continuously upgrade our customers vehicles with new features through OTA firmware updates across the product lifecycle. Since the rollout of our G3 in December 2018, we have completed ten major OTA firmware updates with over 50 new features added to our vehicles. We believe our holistic OTA capability provides our customers differentiated and better experiences than those offered by our competitors in China.
Innovative software and content subscription model
Our innovative subscription model gives our customers better control over what features they want and when they want them, and a choice to pay for the features over time. We offer XPILOT 3.0 software and future updates as a separate subscription service to our customers. As of June 30, 2020, approximately 50% of customers ordered the versions of the P7 that can support XPILOT 3.0. With strong software development
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capability and focus on customer experience, we believe we will be able to offer more innovative subscription-based software services to our customers. We plan to expand our subscription service to include other premium features in the future. For example, we have identified strong customer demand for in-car music, as our customers listened to approximately two hours of online music per day on the wheel in 2019. We offered a premium music subscription via OTA firmware update in June 2020, which provides a high fidelity music experience supported by the premium audio system and ambient lighting in our Smart EVs.
Scalable and efficient platforms
We strategically established two Smart EV platforms, which we named David and Edward. These two scalable platforms enable us to develop vehicles with wheelbase ranging from 2,600 millimeters to 3,100 millimeters. Each Smart EV platform allows us to efficiently design and manufacture a variety of models, as we utilize common components across different models on the same platform. Through economies of scale, our platform approach is expected to reduce our bill-of-material cost and research and development expenses. For example, we expect our upcoming third model, which is based on the same platform as the G3, or the David platform, to share approximately 70% of components with the G3 in terms of value. Furthermore, we expect the development cost for the third model to be significantly lower than that of the G3 due to our platform approach. Leveraging these two Smart EV platforms, we are able to develop new models in a fast and cost-efficient manner.
The winning team for Smart EV
Our founders and senior management team have deep expertise in the technology and automotive industries. The combination of technology and automotive DNA equips us with an innovative mindset, and we take a non-conventional approach to our products and technologies that bring differentiated experience and superior product quality to our customers. We put strong emphasis on research and development to enhance our products with cutting-edge technologies. As of June 30, 2020, approximately 43% of our employees focused on research and development, of which 66%, 17% and 17% were dedicated to automotive design and engineering, autonomous driving and intelligent operating system, respectively.
Our Strategies
We pursue the following strategies to accomplish our mission:
Continue to invest in and advance our technologies
To further differentiate our products, we intend to advance our proprietary technologies in autonomous driving, intelligent operating system as well as core vehicle systems. We aim to continue to improve the capability of our XPILOT autonomous driving system in order to increase the level of assistance in driving and parking to our customers. We plan to roll out a navigation guided pilot for highway driving by early 2021, and the function will free customers hands while driving on highways. In addition, we plan to enable our navigation guided pilot for urban driving. We plan to upgrade our Xmart OS with more powerful capabilities in natural language processing, natural language understanding and intelligent recommendation. We also plan to design our next generation powertrain and E/E architecture to improve vehicle performance, as well as energy and cost-efficiency.
Leverage common platforms to launch a new model every year
We intend to expand our product offering by launching one Smart EV model each year to broaden our addressable market and capture additional demand for Smart EVs. We intend to build new models on our two Smart EV platforms. We have also adopted a platform approach for our software systems, which include XPILOT and Xmart OS, and we deploy such systems across our entire product line. Our platform approach will
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enable us to optimize efficiency in product development, supply chain and manufacturing. Currently, we plan to launch our third Smart EV model, a sedan built on our David platform with a longer wheelbase than the G3, by the end of 2021. The new model will offer a spacious interior and feature our hallmark autonomous driving and smart connectivity functions, powered by XPILOT and Xmart OS, respectively. Complementing our existing Smart EV portfolio, the new model is designed for a broad customer base.
Build the leading Smart EV brand
We intend to continue to build our brand image that exemplifies smartness, quality and performance. The development of our technologies has always been centered on providing our customers a great-to-drive and great-to-be-driven experience. We intend to maintain the quality of our products during the entire design, manufacturing and testing process. We strive to deliver smart, high-performing and upgradable EVs.
Expand our sales and super charging network
We intend to broaden our sales and service network to better engage and serve our customers. We plan to strengthen the presence of physical stores in tier-one and tier-two cities, which we believe have the highest demand for Smart EVs. We aim to strengthen our online presence through strategic collaborations with major online platforms in China. Through data-driven targeted online marketing, product differentiation and asset-light franchise model, we plan to continue to improve the efficiency of our sales and marketing efforts. We also plan to strategically expand the network of our Xpeng-branded super charging stations. Our initial focus will be on tier-one and tier-two cities where our customers are concentrated. We believe an extensive Xpeng-branded super charging network will enhance our brand recognition and provide differentiated user experience to our customers.
Drive operating efficiency by optimizing production management
We plan to maximize operating efficiency by adopting a lean production approach. We will continue our just-in-time production approach and manufacture our Smart EVs based on customer orders. Such flexible approach will enable us to minimize our inventory. We strive to streamline and optimize each individual step along the process in order to reduce rework and scrap costs. We also endeavor to digitalize our manufacturing process with industrial IoT technology to maximize operating efficiency. We will continue to implement a holistic and rigorous quality assurance process, which will enable us to maintain high product quality and reduce warranty expenses.
Expand innovative subscription and value-added services
We aim to promote software and services through a subscription model to further enhance customer loyalty and expand revenue streams. Our customers will have the option to make a lump sum payment or pay by installments. We plan to broaden our smart connectivity ecosystem and make more value-added services and content available to our customers. We will continue to introduce more software and content offerings and generate recurring revenues through subscription services.
Products
We design, develop, manufacture and market Smart EVs, and we develop full-stack autonomous driving software system in-house. Our Smart EVs are priced in the mid- to high-end segment, which represented 30.6% of Chinas passenger vehicle market by sales volume in 2019 and had a higher EV penetration rate than other price segments, according to the IHS Markit Report. Our Smart EVs offer customers a great-to-drive and great-to-be-driven experience, as well as compelling value proposition. We design our Smart EVs to satisfy the needs and preferences of Chinas technology-savvy middle class consumers. Our products include Smart EVs and advanced autonomous driving software system.
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G3
Our first mass-produced Smart EV, the G3, is an SUV. According to the IHS Markit Report, the G3 was among the top-three best-selling electric SUVs in China in 2019. The G3 has a post-subsidy price ranging from RMB146,800 to RMB199,800. We started to deliver the G3 in December 2018. As of June 30, 2020, the G3 had been driven for an estimated total of 282 million kilometers.
Since its launch, we have upgraded the G3 to improve its performance. The table below sets forth certain technical features of the configurations of the G3 we offered as of June 30, 2020.
Configuration |
Standard Range |
Long Range |
||
Wheelbase (mm) | 2,625 | |||
NEDC range (km) | 460 | 520 | ||
Battery capacity (kWh) | 57.5 | 66.5 | ||
Battery energy density (Wh/kg) | 170 | 180 | ||
Energy consumption rate (kWh/100 km) | 14.1 | |||
0-100 km/h acceleration (s) | 8.6 | |||
Maximum torque (Nm) | 300 | |||
Maximum motor power (kW) | 145 | |||
Autonomous driving capabilities | XPILOT 2.5 | |||
Adaptive cruise control, adaptive turning control, lane centering control and automated lane changing |
||||
Automated parking |
||||
Active safety features, such as forward collision warning, automatic emergency braking and blind spot monitoring |
||||
Operating system | Xmart OS | |||
AI voice assistant |
||||
Smart navigation |
||||
In-car app store |
||||
OTA firmware update | Upgradable electronic control units, or ECUs |
The G3 meets five-star C-NCAP safety standards, which cover occupant safety, pedestrian safety and active safety. The G3 received the highest score among all NEV models with C-NCAP test results released in 2019. The G3s body utilizes high-strength steel and effectively enhances passengers safety in the event of a collision. In the China Insurance Automotive Safety Index published in January 2020, which was based on crash test results, the G3 received the highest rating in multiple key areas, reflecting a high safety level comparable to several premium ICE models.
Our smart technology functions make the G3 a compelling product for the mid- to high-end segment. As of June 30, 2020, over 90% of customers who purchased the G3 chose the versions with autonomous driving capabilities. All versions of the G3 feature Xmart OS, which enables a broad range of smart connectivity functions such as AI voice assistant, smart navigation and in-car app store.
P7
Our second mass-produced Smart EV, the P7, is a four-door sports sedan. As our flagship model, the P7 is expected to reinforce our positioning as a leading Smart EV brand. The P7 has a post-subsidy price ranging from RMB229,900 to RMB349,900. We initiated the development of the P7 at the end of 2017 and began accepting orders for the P7 in April 2020. We started the production of the P7 and began delivery in May 2020.
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The table below sets forth certain technical features of the various configurations of the P7 we offered as of June 30, 2020. In particular, the P7 offers an NEDC range of up to 706 km (439 miles) on a single charge, which is the longest among EVs that are available in China, based on the MIIT NEV Catalogues.
Configuration |
4WD(1) |
RWD(2) Long Range |
RWD(2) Super-long Range |
|||||
Wheelbase (mm) | 2,998 | |||||||
NEDC range (km) | 562 | 586 | 670 | 706 | ||||
Battery capacity (kWh) | 80.9 | 70.8 | 80.9 | 80.9 | ||||
Battery energy density (Wh/kg) | 170 | 161 | 170 | 170 | ||||
Energy consumption rate (kWh/100 km) | 16.3 | 13.2 | 13.6 | 12.5 | ||||
0-100 km/h acceleration (s) | 4.4 | 6.9 | 6.8 | |||||
Maximum torque (Nm) | 655 | 390 | ||||||
Maximum motor power (kW) | 316 (dual-motor) | 196 (single-motor) | ||||||
Braking distance at 100 km/h (m) | < 35 | |||||||
Autonomous driving capabilities | XPILOT 3.0(3) | |||||||
Navigation guided pilot for highway driving |
||||||||
Adaptive cruise control, adaptive turning control, lane centering control and automated lane changing |
||||||||
Advanced automated parking, which memorizes the locations and layouts of frequently used parking lots and enables autonomous driving within such parking lots, followed by automated parking |
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Active safety features, such as forward collision warning, automatic emergency braking and blind spot monitoring |
||||||||
Operating system | Xmart OS | |||||||
AI voice assistant, capable of supporting natural and continuous dialogues |
||||||||
Smart navigation |
||||||||
In-car app store, Alipay and the mini-programs on the Alipay platform |
||||||||
OTA firmware update | Almost all of the ECUs are upgradable |
(1) |
Refers to four-wheel drive. |
(2) |
Refers to rear-wheel drive. |
(3) |
We initially deploy XPILOT 2.5 on the P7. We plan to roll out XPILOT 3.0 by early 2021. The premium version of each configuration of the P7 is equipped with the hardware that can support XPILOT 3.0. |
The P7 offers fast acceleration, superior handling and high energy efficiency. Our in-house engineering know-how and close collaboration with several business partners enable the P7 to achieve high technical targets in various areas, such as safety, range, vehicle dynamics, as well as noise, vibration and harshness. We developed the premium EV-specific chassis by cooperating with a German engineering and design firm. We developed the dynamic torque distribution system in-house and integrated the continuous damping control system to deliver a premium ride experience. In addition, we collaborated with a top-tier supplier to develop the P7s prismatic lithium NCM cells, which offer high energy density and low height. The battery pack is customized to a height of just 110 millimeters, which allows us to give the vehicle a low height profile and a sporty and stylish appearance. Furthermore, the battery pack demonstrates durable cycle performance and retains over 90% of its initial capacity after approximately 160,000 kilometers of mileage. Other factors also contribute to the P7s long range. For example, we integrate a braking system that offers advanced energy recovery capability. With an aerodynamic coefficient of 0.236 cd, the P7s low air drag also contributes to its high energy efficiency. Designed in-house, the P7s three-in-one electric drive system is both powerful and light-weighted, as reflected by its electric motors
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high power density of 2.0 kW/kg. The P7s long range resonates with customers, and as of June 30, 2020, over 50% of customers ordered the super-long range configuration of the P7.
With a comprehensive suite of safety features, the P7 is designed to meet five-star C-NCAP safety standards. The P7s car body is made of high-strength steel and aluminum, which effectively absorbs impact forces in the event of a collision. The P7 is equipped with our self-designed battery pack that has been tested rigorously and offers robust safety features, such as water-and-dust resistance capabilities that reach IP68, the highest standard in the industry.
The standard and premium versions of the P7 offer autonomous driving features powered by XPILOT 2.5. We plan to roll out XPILOT 3.0 by early 2021, and customers who own the premium version of the P7 can subscribe for the new system and deploy it on their vehicles through OTA firmware updates. According to the IHS Markit Report, XPILOT 3.0 is expected to offer the highest level of autonomous driving capabilities in commercially available passenger vehicles today. As of June 30, 2020, approximately 50% of customers ordered the versions of the P7 that can support XPILOT 3.0.
All versions of the P7 feature Xmart OS, which enables a broad range of smart connectivity functions such as AI voice assistant, smart navigation and in-car app store. The P7s AI voice assistant is capable of supporting natural and continuous dialogues without having to be activated repeatedly, and while it responds, a person can interrupt to give a new voice instruction. In addition, we have deployed Alipay on the P7, which allows our customers to conveniently pay for transactions on in-car apps.
Future Smart EV Roadmap
We plan to launch a new model every year to expand our product portfolio and customer base. Currently, we plan to launch our third Smart EV model, a sedan built on our David platform with a longer wheelbase than the G3, by the end of 2021. The new model will offer a spacious interior and feature our hallmark autonomous driving and smart connectivity functions, powered by XPILOT and Xmart OS, respectively. Complementing our existing Smart EV portfolio, the new model is designed for a broad customer base.
Advanced Autonomous Driving Software
We plan to roll out the software of our advanced autonomous driving system, XPILOT 3.0, by early 2021. A customer can purchase XPILOT 3.0 by either making a lump sum payment of RMB20,000 at the time of vehicle purchase or paying RMB12,000 each year for a three-year period.
Vehicle Deliveries
The following table sets forth our vehicle deliveries to customer data for the periods indicated:
For the three months ended |
For the
month ended |
|||||||||||||||||||||||||||
March 31,
2019 |
June 30,
2019 |
September 30,
2019 |
December 31,
2019 |
March 31,
2020 |
June 30,
2020 |
July 31,
2020 |
||||||||||||||||||||||
G3 |
442 | 6,723 | 2,345 | 3,218 | 2,271 | 2,903 | 810 | |||||||||||||||||||||
P7 |
| | | | | 325 | 1,641 | |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
Total |
442 | 6,723 | 2,345 | 3,218 | 2,271 | 3,228 | 2,451 | |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
We started to deliver the G3 in December 2018. The G3 deliveries increased sharply in the second quarter of 2019 because we commenced mass deliveries of the G3 to customers in the quarter and fulfilled most of the orders accumulated in 2018 and the first quarter of 2019. The G3 deliveries decreased from the fourth quarter of 2019 to the first quarter of 2020 mainly due to the significant impact from COVID-19 outbreak in China and seasonal impact from the Chinese New Year holiday. We started to deliver the P7 in May 2020.
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Our Technologies
We develop most of our key technologies in-house to achieve a rapid pace of innovation and tailor our product offerings for Chinese consumers. Such technologies encompass both software, including XPILOT and Xmart OS, and core vehicle systems, including the E/E architecture and powertrain. By developing our proprietary software and hardware technologies, we are able to retain better control over the performance and experience of our Smart EVs and have the flexibility to continuously upgrade them.
The diagram below illustrates certain key technology stacks, including XPILOT, Xmart OS, the E/E architecture and the powertrain.
Our Autonomous Driving SystemXPILOT
XPILOT, our proprietary autonomous driving system, is customized for driving behavior and road conditions in China. Since inception, we have dedicated significant research and development efforts in autonomous driving technology, which we believe is a key element for the Smart EV experience. We believe that we are currently the only China-based automotive company to have developed full-stack proprietary software for commercialization of autonomous driving. Such capabilities enable us to continuously improve XPILOT and achieve fast system iterations.
We have developed XPILOT 2.5, which is currently deployed on the G3 and the P7. Its key capabilities include adaptive cruise control, adaptive turning control, lane centering control, automated lane changing and automated parking. Such capabilities resonate strongly with our customers. As of June 30, 2020, our adaptive cruise control function had been used for 25.1 million kilometers of driving cumulatively, and our lane centering control function had been used for 11.1 million kilometers of driving cumulatively. In June 2020, the average utilization rate of our adaptive cruise control function was 66%, and the average utilization rate of our lane centering control function was 43%. In the second quarter of 2020, our customers used automated parking for over 230 thousand times, among which approximately 80% were successfully completed without human intervention. In particular, in June 2020, the average utilization rate of our automated parking function was 46%. XPILOT 2.5 also enables a variety of active safety features, such as forward collision warning, automatic emergency braking and blind spot monitoring, to reduce the risk of traffic accidents.
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We plan to roll out XPILOT 3.0 by early 2021. The XPILOT 3.0 system will feature navigation guided pilot for highway driving and advanced automated parking, in addition to the functions available in XPILOT 2.5, thereby significantly enhancing the level at which our customers can be driven by our Smart EVs.
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The navigation guided pilot will free customers hands while driving on highways. The navigation guided pilot will be capable of autonomously changing lanes, overtaking other vehicles, recognizing traffic signs and construction signs, as well as adjusting speed. It will also enable a vehicle to autonomously enter and exit a highway system, as well as switching from one highway to another. |
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XPILOT 3.0s advanced automated parking function memorizes the locations and layouts of the parking lots that a driver frequently uses. Based on such information, the function enables the autonomous driving of a vehicle from the entrance of a parking lot to a memorized parking space, followed by the automated parking of the vehicle into such space. |
Leveraging our full-stack research and development capabilities, we are able to tailor our autonomous driving system to road conditions in China, which is a key factor that differentiates our Smart EVs. We continuously explore new autonomous driving capabilities, and we plan to enable our navigation guided pilot for urban driving in the future.
Our proprietary algorithms encompass the following:
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Localization and high definition map fusion. Our high precision localization capability is based on the fusion of (i) positioning sensors, including real time kinematic (RTK)-enabled dual frequency GPS receiver and high-precision inertial measurement unit (IMU), which in combination offer meter-level global positioning accuracy in all conditions with XPILOT proprietary localization algorithms, and (ii) Amap high definition map, which further enhances the positioning accuracy to decimeter-level with rich geometry and semantic features from the high definition map to enhance autonomous driving capabilities. |
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Perception algorithm and sensor fusion. XPILOT utilizes deep learning neural network and is capable of complex computer vision tasks, including recognizing a wide range of objects in various driving scenarios. We train our algorithms through field data. For example, we aim to complete approximately one million kilometers of test driving through our test fleet before deploying XPILOT 3.0. After the testing process, we continuously train our algorithms by using field data collected from vehicles on the road. Meanwhile, all camera perception outputs are fused with radar signals to generate a 360-degree view of the surroundings of the vehicle. |
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Behavior planning, motion planning and control. Through the development of XPILOT 2.5, we have built a strong capability of motion planning and control in house. To navigate the vehicle safely and smoothly under different driving conditions, XPILOT depends on behavior planning algorithm to understand the semantics of the current environment and make the decision on the vehicle behavior, such as to follow the lead vehicle, to change lane and surpass the slow lead vehicle, or to nudge towards the left side of the lane to show intention to initialize a lane change. Over the past year, we have built up algorithm development and comprehensive simulation capability for behavior planning. |
Our research and development efforts benefit from our closed-loop data capability, which offers us valuable data based on usage of autonomous driving system. In particular, we collect sensor data relating to instances when a driver has to take control over the vehicle from XPILOT. By analyzing such data, we are able to improve the autonomous driving capabilities of our Smart EVs faster than the OEMs that rely on third-party autonomous driving solutions.
Our autonomous driving capabilities are supported by computing platforms supplied by world-leading technology companies. For example, XPILOT 3.0 is powered by NVIDIA DRIVE AGX Xavier platform, featuring one of the most advanced and fastest processors designed for autonomous driving in commercial production. As part of our self-designed E/E architecture, the in-car Ethernet enables high-bandwidth and real-time communication to support autonomous driving capabilities.
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While several global OEMs have also invested significant resources into autonomous driving, we believe their products are not sufficiently localized for the Chinese market. On the other hand, XPILOT is designed to address Chinas specific road conditions, including unique lane arrangements and traffic lights, non-standard trucks on highways, bicycles and motorbikes on urban streets, as well as different types of construction signs and traffic signs. In addition, our automated parking function is capable of addressing parking challenges in Chinese cities where spaces are often small and have irregular layouts. We believe our localized approach enables XPILOT to better serve Chinese customers, compared to autonomous driving solutions offered by global OEMs and tier-one suppliers.
Our In-car Intelligent Operating SystemXmart OS
Xmart OS, our in-car intelligent operating system, supports a smart cockpit that delivers a seamless, easy-to-use, and voice-controlled smart mobility experience. Xmart OS enables a broad range of smart connectivity functions, such as AI voice assistant, smart navigation and an app store, which are also supported by high-speed connectivity that we offer to our customers.
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AI voice assistant. Our AI voice assistant is capable of supporting natural and continuous dialogues without having to be activated repeatedly, and while it responds, a person can interrupt to give a new voice instruction. We have developed natural language processing and natural language understanding capabilities based on deep-learning neural networks, which can identify keywords, categorize text and understand semantics. In addition, the AI voice assistant can focus on instructions from one person without being distracted by the voice from others in the vehicle, based on our deep-learning neural network technology, which can dynamically reduce semantic noises in the vehicle. As a result, interactions between the AI voice assistant and our customers have become more natural. Leveraging our full-duplex concurrent voice streaming technology, our AI voice assistant currently can receive and execute as many as 10 requests in only 25 seconds. In June 2020, the average utilization rate of our AI voice assistant was over 99%. |
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Smart navigation. Instead of taking the approach commonly adopted by other OEMs, which is to source navigation systems from third parties, our self-development approach enables us to offer a navigation system that delivers a superior customer experience and improve the system rapidly. We have built a highly customized navigation system based on Alibabas Amap engine, and we have adopted Amaps high definition map for our advanced autonomous driving system. As a result of our self-development approach, we achieve better coordination between the autonomous driving system and the navigation system. Furthermore, we are able to conveniently integrate points of interest, such as charging stations, parking lots and restaurants with our navigation system. In the second quarter of 2020, around half of our customers chose to use our in-car smart navigation to guide their journeys every day. In June 2020, the average utilization rate of our in-car smart navigation function was 96%. |
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Ecosystem for third-party apps and service. Leveraging our in-car app store, we have built a broader ecosystem to better serve our customers. The in-car app store offers a wide selection of apps, including those relating to music, audio books, games and video, thereby making the in-car experience more enjoyable. The in-car app store is open to third-party apps and expandable. To build our smart connectivity ecosystem, we have also opened certain vehicle hardware functions to third-party apps. For example, a karaoke app has been integrated with the P7s ambient lighting and audio system. In addition, we have deployed Alipay on the P7, which allows our customers to conveniently pay for transactions on in-car apps. |
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Digital car keys. We have developed two types of digital car keys to enhance customer convenience. First, our Xpeng mobile app offers a car key function by utilizing Bluetooth. Through the Xpeng mobile app, a customer can conveniently authorize another person to access his or her Smart EV. Second, through our cooperation with Xiaomi, we have enabled car key functions on the Xiaomi devices equipped with near-field communication, or NFC, capabilities, including smart phones and smart watches. Based on the digital car key, our Smart EV automatically switches to a drivers personalized setting, including those relating to seat position and entertainment. |
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Intelligent recommendations. Xmart OS makes intelligent recommendations that are based on customer behavior, customer preferences, vehicle conditions, traffic conditions or other relevant factors. Many of the recommendations are developed through big data analytics. For example, Xmart OS may recommend nearby parking lots and charging stations, alternative routes to avoid traffic congestions or turning on autonomous driving under suitable conditions. |
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Remote control. Our Xpeng mobile app also offers various remote control capabilities, such as (i) remotely activating the sentry mode to monitor security risks and (ii) remotely turning on air conditioning before entering the vehicle. |
OTA Firmware Updates
Our technological capabilities in software and hardware integration and E/E architecture enable us to effectively deliver OTA firmware updates. We are differentiated from traditional OEMs, which typically can only provide updates through offline dealerships. Our OTA capability allows us to frequently upgrade our Smart EVs throughout the product lifecycle, and allows our customers to enjoy more functions and better user experience. A customer can conveniently schedule the time for an OTA update through our Xpeng mobile app. By bringing our latest technologies to our customers, OTA updates extend our customer engagement beyond vehicle delivery and help us further enhance customer loyalty.
We seek to make as many functions OTA upgradable as practicable. Many of the ECUs on the G3 and almost all of the ECUs on the P7 can be updated through OTA. Since the roll out of G3, we have completed ten major OTA firmware updates with over 50 new features added to the model. For example, the OTA update in September 2019 covered nine ECUs, including vehicle control unit and battery management system. We also added lane centering control to XPILOT 2.5 through OTA firmware updates. Our OTA capability also allows us to introduce new value-added service offerings.
Closed-Loop Data
Our in-house developed autonomous driving system and intelligent operating system enable us to collect field data from our Smart EVs. We focus on customer experience and strive to continuously improve the features on our Smart EVs. Our closed-loop data capability is designed to improve our software by analyzing field data, and we then deploy new technologies to our vehicles through OTA firmware updates.
As the number of our Smart EVs increases on the road, we will gain more insights as to the customer experience with XPILOT and Xmart OS by analyzing field data. With respect to XPILOT, we collect sensor data relating to instances when a driver has to take control over the vehicle from the system. With respect to Xmart OS, we gain insights as to customer preference to provide a better customer experience. For example, we continuously improve the ability of Xmart OS to make intelligent recommendations, which may relate to navigation, safe driving, charging options, infotainment or other aspects of the in-car experience.
Powertrain
Powertrain plays a critical role in our ability to deliver safe and high-performance EVs at competitive prices. Leveraging our superior in-house research and development capabilities, we are able to differentiate our Smart EVs in key powertrain features, such as battery safety, range, noise, drivability and digitization. The powertrains ECUs are amenable to OTA firmware updates, which enables us to improve the powertrains functions and customer experience after delivery. Our Smart EVs powertrain consists of the battery system, electric drive system, high voltage system and vehicle control unit, or VCU.
Battery System
Our Smart EVs battery system utilizes high-energy density battery cells, which are packed into modules and fastened to a high-strength aluminum frame. Through our research and development efforts, we seek to
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enhance the energy density of the battery pack and reduce its cost, while also maintaining its safety, reliability and longevity. In addition, we believe the flexibility of our battery system will enable us to leverage technological advancements of battery cells.
We utilize lithium NCM cells for our batteries. In particular, we collaborated with a top-tier supplier to develop the P7s prismatic lithium NCM cells, which offer high energy density and low height. We also focus on the safety and longevity of battery cells in the development process, and battery cells have been subject to extensive testing. The protection offered by the battery pack and the safety functions of the battery management system also contribute to the safe operation of battery cells.
The G3s battery pack is designed in-house and produced either by a contract manufacturer or in-house. We both design and produce the P7s battery pack in house, which allows us to improve product quality and reduce cost. We apply sophisticated techniques to make the battery pack both strong and well-sealed. The battery pack has water-and-dust resistance capabilities that reach IP68, the highest standard in the industry, as it can be immersed underwater at one-meter depth for 48 hours without leakage. The structure and materials used in the battery pack are optimized for thermal management and thermal conduction. In addition, we fill non-combustible materials among battery cells, and we optimize the placement of the high-voltage electrical circuit within the battery to enhance electric safety in the event of a collision. The rigor of our stress tests for battery system exceeds industry standards, and our stress tests cover such areas as shaking, compression, thermal disorder, water-tightness and electric insulation. As a testament to the safety of batteries, the G3 had been driven for an estimated total of 282 million kilometers as of June 30, 2020.
Our battery management system, or BMS, is designed in-house to optimize battery performance. It monitors the status of each battery cell in real time and ensures the safe functioning of the battery system through comprehensive troubleshooting mechanisms. Our BMS accurately calculates the remaining battery capacity, and the accuracy of such calculation is essential to the batterys safety and longevity, as well as a customers driving experience. In addition, our BMS has strong thermal management capabilities. It intelligently monitors changes in battery temperature and activates the relevant cooling or heating mechanisms to keep the battery within the optimal temperature range. To ensure the batterys longevity, our BMS keeps the temperature difference among battery cells within five degrees Celsius, thereby maintaining uniform performance within the battery system.
Our batteries are capable of rapid charging, which offers our customers a convenient experience. For example, the P7s battery pack can be charged from 30% to 80% of its battery capacity in less than 30 minutes. Furthermore, the P7s battery pack demonstrates durable cycle performance and retains over 90% of its initial capacity after approximately 160,000 kilometers of mileage.
Electric Drive System
The electric drive system uses the electricity supplied by the battery to deliver the power that drives an EV, and mainly consists of an electric motor, a motor control unit and a fixed gear transmission. We have designed a three-in-one electric drive system for the P7, which combines the three main components into one integrated platform. Compared with the traditional decentralized electric drive layout, our three-in-one electric drive system has a more compact structure that weighs less and achieves higher power efficiency.
We have designed high-performance electric motors for our Smart EVs. For example, the P7 features permanent-magnet synchronous motors. The P7s rear motor offers a maximum power of 196 kw, and the rear-motor electric drive system has a high power density of 2.0 kW/kg. To differentiate our Smart EVs, we have developed our own electromagnetic solution, and our supplier optimizes electric motors based on our solution. As a result, our P7s electric motors achieve industry-leading noise reduction capability.
As a result of our strong system integration capabilities, we are able to optimize the drivability of our Smart EVs. Our OTA capability will allow us to introduce new driving modes for our Smart EVs. In addition, we have
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digitized the electric driving system, and we are able to remotely diagnose and resolve certain problems in the system.
High-Voltage System
Our high-voltage system is designed in-house and manufactured by suppliers based on our specifications for each component. Our high-voltage system is reliable, safe and cost-efficient. The high-voltage system mainly contains an on-board charging system, a DC-to-DC converter and high-voltage wiring. The on-board charge converts alternating current supplied by a charging source to direct current for battery charging. The DC-to-DC converter converts high-voltage direct current supplied by the battery pack to low-voltage direct current for the E/E architecture.
VCU
The VCU coordinates the powertrains other subsystems, including the battery system, the electric drive system and the high-voltage system. The VCU receives instructions and information from the driver and certain systems of the vehicle, including the autonomous driving system, the chassis and the braking system, and controls the powertrains operation. By monitoring and coordinating the status of the powertrains subsystems, the VCU allows the powertrain to function efficiently as an integrated system.
We design both the software and certain hardware of the VCU in-house to continuously improve its functions. Our VCU offers a variety of driving modes to satisfy different driving needs and achieves good drivability through precise calibration. In the P7s four-wheel drive configuration, the VCU intelligently controls the torque based on the driving mode, vehicle acceleration and other relevant factors to offer a tailored driving and handling experience. The VCU also enhances the vehicles energy efficiency by, among other things, optimizing energy recycle and torque distribution.
Electrical and Electronic Architecture
We design the E/E architecture for our Smart EVs to enable seamless integration of software and hardware and rapid technology innovations. The E/E architecture is connected to a central gateway module, with ECUs performing specific functions in different parts of the vehicle. The E/E architecture in our Smart EVs mainly supports the following the functions.
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In-car communications and data transmission. Our E/E architecture features Ethernet that offers 100 megabits per second bandwidth for in-car communications and supports data transmission with the cloud. In contrast, a traditional ICE vehicle is typically not equipped with Ethernet. |
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Autonomous driving. The in-car Ethernet enables high bandwidth communication to support autonomous driving capabilities, including instantly transmitting high volume of data from sensors, such as 360-degree panoramic cameras. |
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Smart cockpit. With enhanced computing power, our smart cockpit features, among other things, games, videos and 3D visual effects. |
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Connectivity capabilities. Our Smart EVs offer data transmission and uploading capabilities through the 4G network. In addition, digital car keys are enabled by NFC or Bluetooth. |
Vehicle Design and Engineering
We have strong in-house capabilities in vehicle design and engineering, covering the entire product development process from conception to completion. Our vehicle design and engineering team has deep technical expertise in the design and development of vehicles body, interior and exterior, as well as chassis, thermal management, electrical engineering, embedded system and vehicle integration.
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We have a robust vehicle development process, including corporate technical standards, product development process and quality assurance process, to ensure high quality standards, as well as cost and time efficiency. We implement a strict verification process to ensure that our Smart EVs meet the designed specifications at each of the component level, system level and vehicle level. Before launching a model, we test its durability through a mileage accumulation fleet. We also utilize computer-aided engineering simulations to optimize our product design, which have enabled us to reduce our Smart EVs vibration and noise. We have labs and testing sites that allow our engineers to design, analyze and validate our vehicles at all levels.
Leveraging our strong design and engineering capabilities, we have developed two models, the G3 and P7, based on two highly flexible Smart EV platforms, David and Edward, respectively. The David platform has been designed for vehicles with wheelbases ranging from 2,600 millimeters to 2,800 millimeters, and the Edward platform has been designed for vehicles with wheelbases ranging from 2,800 millimeters to 3,100 millimeters.
Illustrations of the David platform and the Edward platform are set forth below.
We plan to launch new models based on the two Smart EV platforms over the near term. Specifically, our third model will be a sedan based on the David platform and our fourth model will be an SUV based on the Edward platform. With the two platforms, we plan to expand our product portfolio with offerings that meet different customer preferences within the mid- to high-end segment of Chinas passenger vehicle market. By leveraging this dual-platform strategy, we expect to enjoy high cost-efficiency in research and development and accelerated speed in launching new products with proven reliability. We also expect our platform approach to enhance manufacturing efficiency and achieve economies of scale, as models based on the same platform may share a significant number of common components. For example, we expect our third model to share approximately 70% of components with G3 in terms of value.
Sales and Marketing
We have an omni-channel sales model, which combines a data-driven and targeted online marketing strategy with a physical sales and service network. We seek to cost-efficiently expand our customer reach and grow sales, while delivering a consistent brand image, customer experience and price across all channels. Customers are increasingly associating smartness, quality and performance with our brand. According to surveys we conducted with our customers, top reasons why customers chose our products include smart mobility experience, advanced technology and compelling value proposition, among others.
As of June 30, 2020, our physical sales and service network consisted of a total of 147 stores and service centers, covering 52 major cities in China. Of these 147 locations, (i) 100 were stores, including 40 direct stores and 60 franchised stores, and (ii) 47 service centers, including four direct service centers and 43 franchised service centers.
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We strategically locate a substantial majority of our stores in shopping malls in tier-one and tier-two cities, as we believe such locations enable us to raise our brand awareness and attract customer traffic in a cost-efficient manner. Furthermore, the stores carry no inventory, which reduces the amount of capital required for operating such stores. We started to establish our direct stores in the end of 2018. To accelerate the expansion of our physical sales and service network, we started to roll out franchised stores in June 2019, and we opened a total of 79 franchised stores in 2019. Our service centers serve as delivery and after-sales service centers, where customers can pick up the EVs they ordered and access after-sales services. To offer a good delivery and service experience, service centers are typically situated at locations that offer large floor areas and convenient transportation options.
We deliver a consistent brand image, customer experience and price across direct stores and franchised stores. For example, our trainings for sales staff and specifications for store design are consistent across direct stores and franchised stores. We pay franchisees commissions based on their sales volumes and customer satisfaction. We centrally plan our marketing activities and implement them consistently across all stores. Our asset-light franchise model allows us to expand our sales and service network rapidly.
We actively engage in data-driven and targeted online marketing through a variety of channels to further enhance our brand recognition and acquire customers. We mainly utilize (i) our own Xpeng website and mobile app, (ii) our official accounts on online social media platforms, such as Weibo, Wechat, Kuaishou and Douyin, (iii) advertising placements on online portal, such as general news portals and auto news portals, and (iv) our online stores on e-commerce platforms, such as Tmall. As of June 30, 2020, we had an aggregate of more than 2.0 million followers on social media and e-commerce platforms. We are able to precisely and efficiently allocate online leads acquisition based on our own real-time order conversion data. In the first half of 2020, over 50% of our orders were converted from leads generated through our online channels.
Comprehensive Services
We offer our customers a comprehensive suite of charging solutions and after-sales services, as well as various value-added services. These services offer our customers a convenient experience and enable full lifecycle engagement with our customers, which in turn improves their loyalty.
Charging Solutions
We aim to offer our customers a convenient charging experience by giving them access to a wide and expanding charging network in a cost-efficient manner. Our customers can choose to charge their EVs by home chargers, Xpeng-branded super charging stations or third-party charging piles. Our cooperation with third parties allows us to expand our charging network rapidly and cost-efficiently.
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Home charging. We offer installation of home chargers for our customers. As of June 30, 2020, over 60% of our customers had installed our home chargers. |
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Xpeng-branded super charging stations. As of June 30, 2020, there were 114 Xpeng-branded super charging stations, of which 61 were operated by us, and 53 were operated by franchisees. On average, each Xpeng-branded super charging station has about seven superchargers, which has a peak power output of 120kW. Xpeng-branded super charging stations are available 24/7. We are one of few EV companies that have established their own charging networks in China, and we will continue to strategically expand the network of our Xpeng-branded super charging stations in tier-one and tier-two cities to better serve our customers. We believe the Xpeng-branded super charging stations allow us to enhance our brand recognition and provide differentiated user experience to our customers. |
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Third-party charging piles. As of June 30, 2020, we offer a charging network that is connected to over 200,000 third-party charging piles across the country, including those operated by large-scale service providers, such as TELD. We plan to expand the charging network available to our customers primarily by partnering with third parties. |
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Both our in-car navigation system and mobile app can assist our customers to find the nearest available charging pile. Customers can use our Xpeng mobile app to pay for charging at both Xpeng-branded super charging stations and third-party charging piles.
After-Sales Services and Warranty
We provide efficient after-sales services both offline and online. Offline services are available at our service centers and cover repairs and maintenance for our Smart EVs. We also provide online after-sales services, which is enabled by our cloud capabilities and high-speed connectivity of our Smart EVs. Our system is able to monitor vehicle performance status in real time, remotely diagnose certain vehicle malfunctions and potential issues and recommend solutions to prevent problems. Certain software-related issues can be resolved remotely through OTA updates. In 2019, approximately 60% of after-sales service requests were addressed by our remote helpdesk. In addition, we have developed an intelligent remote diagnosis system, which detects potential system error before it occurs to ensure vehicle safety.
We offer competitive warranty terms. To retail customers who purchased the G3, we offer (i) a four-year or 100,000-kilometer warranty and (ii) an eight-year or 150,000-kilometer warranty for critical components, such as battery pack, motors and VCU. To retail customers who purchased the P7, we offer (i) a five-year or 120,000-kilometer warranty and (ii) an eight-year or 160,000-kilometer warranty for critical components, such as battery pack, motors and VCU. With respect to each vehicle model, we also offer a two-year or 50,000-kilometer warranty covering vehicle repair, replacement and refund, in the event of certain product malfunctions specified in the applicable regulation.
Other Services
We also offer the following services.
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Insurance agency service. We assist our customers to obtain automotive insurances from insurance companies. To offer a convenient experience, we leverage the sentry mode function to help customers submit photos of accidents when making insurance claims. |
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Automotive loan referral and finance lease. We cooperate with banks and connect them with customers who seek automotive financing solutions. To complement the banks services, we also offer finance leases to our customers through a wholly-owned subsidiary, and we record the relevant finance leases on our balance sheet. In 2019 and the first half of 2020, substantially all of financing for our customers vehicle purchases were provided by the banks that we cooperate with. |
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In-car payment. We have deployed Alipay on the P7, enabling customers to conveniently make transactions on in-car apps. In addition, our customers will be able to set up automatic payment for tolls and parking fees through the in-car Alipay app in the future. |
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Ride-hailing service. To enhance our brand recognition and allow more people to experience our Smart EVs, we have deployed a small number of our Smart EVs to offer ride-hailing service in Guangzhou on a trial basis. We have no current plan to scale up our ride-hailing service. |
Manufacturing
Our manufacturing philosophy centers around quality, continuous improvement, flexibility and high operating efficiency. We take a lean production approach, with the aim of continuous optimization in operating efficiency and product quality.
We strategically adopt a two-pronged manufacturing approach to balance among capital efficiency, speed-to-market and manufacturing flexibility. We produce the G3 through a contract manufacturing collaboration with Haima Automobile Co., Ltd, or Haima, in Zhengzhou, Henan province, which allows us to
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retain effective control over the supply chain, manufacturing process and quality control with minimal initial capital expenditure. We built our own plant in Zhaoqing, Guangdong province, which we initially utilize for the production of the P7 and will also utilize for future models. We have effectively transferred our manufacturing expertise accumulated in the Haima plant to our Zhaoqing plant, while achieving more flexibility and direct control over the manufacturing process.
Zhaoqing Plant
The Zhaoqing plant currently occupies a parcel of land of over 600,000 square meters and has a construction area of over 227,000 square meters. The plant has a designed annual production capacity of 100,000 units. We have completed the requisite registration and obtained the key regulatory approvals for the production of the P7 at the plant by May 2020. We have completed the major portion of capital expenditure required for the Zhaoqing plant by the end of 2019. We are eligible to apply for additional land use rights in Zhaoqing, which offers the potential to further expand the plants production capacity.
Our Zhaoqing plant is an eco-friendly, digitalized and intelligent manufacturing facility, which is able to produce multiple models concurrently based on customer orders. The Zhaoqing plant houses five major manufacturing processes, which are highly automated and include stamping, welding, painting and assembling and battery packing. We utilize an advanced manufacturing execution system, or MES, that coordinates a large number of robots and automated guided vehicles, or AGVs, to manage our production processes based on customer orders. In our quality control process, we utilize advanced technological systems, such as a testing system for the VCU and an intelligent calibration system for autonomous driving sensors, to ensure the quality of our Smart EVs.
By establishing our own plant, we are able to exercise direct control over product quality and gain more flexibility in adjusting our manufacturing process and production capacity. The same management team oversees the Zhaoqing plant and the Haima plant, which enables us to seamlessly transfer the experience we gained at the Haima plant to the Zhaoqing plant.
Haima Plant
In March 2017, we entered into a contract manufacturing arrangement with Haima, a China-based automotive manufacturer with its shares publicly listed on the Shenzhen Stock Exchange. Haima has over three decades of automotive manufacturing experience, and it has provided a plant in Zhengzhou for the manufacturing of the G3. The Haima plant currently has an annual production capacity of up to 150,000 units.
Our collaboration with Haima has enabled us to achieve rapid speed to market and scalability with minimal capital outlay at the early stage of our business. While Haima is in charge of the day-to-day operations of the plant, we retain effective control over the supply chain, the manufacturing process, testing and quality control. We take comprehensive measures to ensure that our Smart EVs are manufactured in accordance with our standards. We have dedicated production management and quality control teams on site to monitor the manufacturing process and perform quality control procedures.
We have entered into collaboration agreements with Haima with initial terms that will expire on December 31, 2021, and such agreements are renewable by mutual consent. Pursuant to the agreements, we pay Haima manufacturing and technology service fees on a monthly basis based on the number of vehicles ordered, with no minimal requirement on the production volume.
Supply Chain
We procure components from both domestic suppliers and global suppliers. To improve cost efficiency and control supply chain risk, we seek to localize our supply chain to the extent practicable. A majority of our components are purchased in China, and a significant portion of our suppliers are global companies with manufacturing facilities in China.
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We have formed strategic partnerships with several key suppliers, such as Bosch, Brembo and CATL. Such strategic partnerships offer us advantages in pricing as well as access to new technologies. We have co-developed cutting-edge technology solutions with certain suppliers, and such collaboration demonstrates the suppliers confidence in our research and development capabilities and prospects. For example, we collaborated with CATL to develop the P7s prismatic lithium NCM cells, which offer high energy density and low height. In our procurement process, we choose suppliers based on a variety of factors, such as technological expertise, product quality, manufacturing capacity, price and market reputation.
Quality Control
We implement full-cycle quality control, covering design, procurement, production, sales and after-sales services. Our quality assurance measures help us maintain our high standards for products and services. Before we launch a new model, we subject the prototypes to rigorous testing to identify and address weaknesses. We tested our new model under a variety of environmental conditions, such as mountains, deserts and snow fields. We evaluate our suppliers to ensure that their processes and systems are capable of delivering the components that meet our technical specifications.
Our development and production process is supported by a rigorous validation and quality assurance program. We subject each vehicle design to a series of testing and validation to ensure the designs reliability and performance.
We rely on a holistic quality control process, which combines with our MES and quality management system, or QMS, to ensure that we achieve the highest quality standard for each vehicle. We utilize advanced intelligent inspection methods, such as exterior inspection, battery inspection, autonomous driving system testing and sensor calibration, to conduct quality checks.
Our holistic and rigorous quality assurance process also allows us to deliver consistent and high quality services to our customers. Through our smart vehicle diagnosis and management platform, our Smart EVs can perform automated diagnosis on key components and generate corresponding alerts, thereby allowing us to provide immediate and highly efficient support to our customers. Our QMS, integrated with the after-sales services system, enables us to deploy quick and timely rectifications. Through OTA firmware updates, we can remotely update the ECUs and continuously improve our customers driving experience.
Data Privacy and Security
We are committed to complying with data privacy laws and protecting the security of customer data. We mainly collect and store data relating to the usage of the autonomous driving system and the intelligent operating system, as well as data collected through our sales and services channels. Such information is collected with prior consent from our customers in accordance with applicable laws and regulations. Our data usage and privacy policy, which is provided to every customer, describes our data practices. Specifically, we undertake to manage and use the data collected from customers in accordance with applicable laws and make reasonable efforts to prevent the unauthorized use, loss, or leak of customer data and will not disclose sensitive customer data to any third party without customers approval except under legal requirement or certain circumstances specified in the customer consent. We strictly limit and monitor employee access to customer data. We provide data privacy training to these employees and require them to report any information security breach.
We use a variety of technologies to protect the data with which we are entrusted. For example, we segregate our internal databases and operating systems from our external-facing services and intercept unauthorized access. We de-sensitize customer data by removing personally identifiable information, when such information is not relevant to our business. We also store customer data in encrypted format. In addition, we encrypt our data transmission, especially customer data transmission, using sophisticated security protocols and algorithms to ensure confidentiality. We back up our customer data and operating data on a regular basis in separate
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back-up systems to minimize the risk of customer data loss or leakage. In addition, we use third-party cybersecurity company to conduct regular penetration test to identify weaknesses in our system and evaluate its security. Whenever an issue is discovered, we take prompt actions to upgrade our system and mitigate any potential problems that may undermine the security of our system. We believe our policies and practice with respect to data privacy and security are in compliance with applicable laws and with prevalent industry practice.
Competition
We have strategically focused on offering Smart EVs for the mid- to high-end segment of Chinas passenger vehicle market. We directly compete with other pure-play EV companies, especially those targeting the mid- to high-end segment. To a lesser extent, our Smart EVs also compete with ICE vehicles in the mid- to high-end segment offered by traditional OEMs. Furthermore, traditional OEMs that have strong brand recognition, substantial financial resources, sophisticated engineering capabilities and established sales channels may shift their focus towards the EV market in the future. We believe that our competitive advantage over existing and potential competitors lies in our innovative product offerings localized for Chinese consumers, ability to offer a great-to-drive and great-to-be-driven experience, deep software, hardware and data technologies, innovative software and content subscription model, scalable and efficient platforms and winning team for Smart EV.
Intellectual Property
We have developed a number of proprietary systems and technologies, and our success depends on our ability to protect our core technology and intellectual property. We utilize a combination of patents, trademarks, copyrights, trade secrets and confidentiality policies to protect our proprietary rights. As of June 30, 2020, we had 450 patents (including 52 invention patents), 1,047 pending patent applications, 451 registered trademarks and 86 pending trademark applications in China and certain other jurisdictions. As of June 30, 2020, we also had 83 registered software copyrights and 106 registered domain names, including www.xiaopeng.com.
Employees
As of December 31, 2018 and 2019 and June 30, 2020, we had a total of 2,593, 3,715 and 3,676 employees, respectively. The following table sets forth a breakdown of our employees categorized by function as of June 30, 2020.
Function |
Number of Employees | Percentage | ||||||
Research and development |
1,569 | 42.7 | % | |||||
Sales and marketing |
1,151 | 31.3 | % | |||||
Manufacturing |
617 | 16.8 | % | |||||
General and administration |
77 | 2.1 | % | |||||
Operation |
262 | 7.1 | % | |||||
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Total |
3,676 | 100.0 | % | |||||
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As of June 30, 2020, 3,585 of our employees were based in mainland China or Hong Kong, and 91 of our employees were based in the United States. Substantially all of the employees based in the United States are research and development staff dedicated to autonomous driving technology.
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 been able to attract and retain talented personnel and maintain a stable core management team.
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
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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. Historically, we have offered and sold units of the G3 and the P7 to employees at discounts and delivered a small number to employees prior to mass deliveries. 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
We own land use rights with respect to a parcel of land of over 600,000 square meters in Zhaoqing, Guangdong Province, and such land use rights expire in 2067. We have constructed our Zhaoqing plant on this parcel of land, and the plant has a construction area of over 227,000 square meters. We also own land use rights with respect to a parcel of land of over 63,853 square meters in Guangzhou, Guangdong Province, and such land use rights expire in 2070. We plan to construct a trial production facility on this parcel of land.
We also maintain a number of leased properties. Our corporate headquarters is located in Guangzhou, Guangdong Province, where we lease 70,949 square meters of properties primarily for corporate administration, research and development, trial production and testing. We also lease properties of 5,352 square meters in Beijing and Shanghai, as well as 30,088 square feet in Silicon Valley and San Diego in the United States, primarily for research and development and sales and marketing. These leases have terms ranging from two to ten years. In addition, we lease a number of facilities for our direct stores, self-operated charging stations and logistics centers across China.
We intend to add new facilities or expand our existing facilities as we scale up our business operation. We believe that suitable additional or alternative space will be available in the future on commercially reasonable terms to accommodate our foreseeable future expansion.
Insurance
We maintain property insurance, fire insurance, public liability insurance, employers liability insurance and drivers liability insurance. Pursuant to PRC regulations, we provide social insurance including pension insurance, unemployment insurance, work-related injury insurance and medical insurance for our employees based in China. We also purchase additional commercial health insurance to increase insurance coverage of our employees. We do not maintain business interruption insurance or key-man insurance. We believe that our insurance coverage is in line with the industry and adequate to cover our key assets, facilities and liabilities.
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.
Regulation Related to Foreign Investment
The establishment, operation and management of companies in China are mainly governed by the PRC Company Law, as most recently amended in 2018, which applies to both PRC domestic companies and foreign-invested companies. On March 15, 2019, the National Peoples Congress approved the Foreign Investment Law, and on December 26, 2019, the State Council promulgated the Implementing Rules of the Foreign Investment Law, or the Implementing Rules, to further clarify and elaborate the relevant provisions of the Foreign Investment Law. The Foreign Investment Law and the Implementing Rules both took effect on January 1, 2020 and replaced three previous major laws on foreign investments in China, namely, the Sino-foreign Equity Joint Venture Law, the Sino-foreign Cooperative Joint Venture Law and the Wholly Foreign-owned Enterprise Law, together with their respective implementing rules. Pursuant to the Foreign Investment Law, foreign investments refer to investment activities conducted by foreign investors (including foreign natural persons, foreign enterprises or other foreign organizations) directly or indirectly in the PRC, which include any of the following circumstances: (i) foreign investors setting up foreign-invested enterprises in the PRC solely or jointly with other investors, (ii) foreign investors obtaining shares, equity interests, property portions or other similar rights and interests of enterprises within the PRC, (iii) foreign investors investing in new projects in the PRC solely or jointly with other investors, and (iv) investment in other methods as specified in laws, administrative regulations, or as stipulated by the State Council. The Implementing Rules introduce a see-through principle and further provide that foreign-invested enterprises that invest in the PRC shall also be governed by the Foreign Investment Law and the Implementing Rules.
The Foreign Investment Law and the Implementing Rules provide that a system of pre-entry national treatment and negative list shall be applied for the administration of foreign investment, where pre-entry national treatment means that the treatment given to foreign investors and their investments at market entry stage is no less favorable than that given to domestic investors and their investments, and negative list means the special administrative measures for foreign investments entry to specific fields or industries. Foreign investments beyond the negative list will be granted national treatment. Foreign investors shall not invest in the prohibited fields as specified in the negative list, and foreign investors who invest in the restricted fields shall comply with certain special requirements on shareholding and senior management personnel, etc. In the meantime, relevant competent government departments will formulate a catalogue of the specific industries, fields and regions in which foreign investors are encouraged and guided to invest according to the national economic and social development needs. The current industry entry clearance requirements governing investment activities in the PRC by foreign investors are set out in two categories, namely The Special Management Measures for the Entry of Foreign Investment (Negative List) (2020 version), or the 2020 Negative List, as promulgated on June 23, 2020 by the National Development and Reform Commission, or the NDRC, and the Ministry of Commerce, or the MOFCOM, and taking effect on July 23, 2020, and the Encouraged Industry Catalogue for Foreign Investment (2019 version), as promulgated by the NDRC and the MOFCOM on June 30, 2019 and taking effect on July 30, 2019. Industries not listed in these two catalogues are generally deemed permitted for foreign investment unless specifically restricted by other PRC laws.
According to the Implementing Rules, the registration of foreign-invested enterprises shall be handled by the State Administration for Market Regulation, or the SAMR, or its authorized local counterparts. Where a foreign investor invests in an industry or field subject to licensing in accordance with laws, the relevant competent government department responsible for granting such license shall review the license application of the foreign investor in accordance with the same conditions and procedures applicable to PRC domestic investors unless it is stipulated otherwise by the laws and administrative regulations, and the competent government department shall not impose discriminatory requirements on the foreign investor in terms of licensing conditions, application materials, reviewing steps and deadlines, etc.
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Pursuant to the Foreign Investment Law and the Implementing Rules, and the Information Reporting Measures for Foreign Investment jointly promulgated by the MOFCOM and the SAMR, which took effect on January 1, 2020, a foreign investment information reporting system has been established and foreign investors or foreign-invested enterprises shall report investment information to competent commerce departments of the government through the enterprise registration system and the national enterprise credit information publicity system, and the administration for market regulation shall forward the above investment information to the competent commerce departments in a timely manner.
Regulation Related to Manufacturing New Energy Passenger Vehicles
Under the PRC laws, a newly-established manufacturer of new energy passenger vehicles shall first complete the filings with the competent local counterpart of the NDRC, and thereafter obtain the entry approvals from the Ministry of Industry and Information Technology, or the MIIT, for itself and the new energy passenger vehicles to be manufactured by them.
On June 2, 2015, the NDRC and the MIIT promulgated the Administrative Measures for Newly-established Manufacturers of Pure Electric Passenger Vehicles, or Circular 27, which took effect on July 10, 2015. According to Circular 27, a newly-established manufacturer for pure electric passenger vehicles shall satisfy specific requirements including, among others, having complete vehicle research and development capabilities, power systems and other necessary technologies, and shall obtain the NDRC approval with respect to the project investments in manufacturing the pure electric passenger vehicles. According to the Administrative Measures for Investment in Automobile Industry, which was subsequently promulgated by the NDRC on December 10, 2018 and took effect on January 10, 2019, the projects in relation to newly-established manufacturer for pure electric passenger vehicles shall be filed with the competent provincial counterpart of the NDRC, which supersedes the requirement of obtaining the approval from the NDRC under Circular 27.
In addition, according to the Administrative Measures for the Entry of Manufacturers of New Energy Passenger Vehicles and the Products promulgated by the MIIT on January 6, 2017, which took effect on July 1, 2017, or Circular 39, the MIIT is responsible for the national-wide administration of new energy vehicles and their manufacturers. The manufacturers shall apply to the MIIT for the entry approval to become a qualified manufacturer in China and shall further apply to the MIIT for the entry approval for the new energy passenger vehicles before commencing the manufacturing and sale of the new energy passenger vehicles in China. Both of the new energy passenger vehicles and their manufacturers will be listed in the Announcement of the Vehicle Manufacturers and Products issued by the MIIT from time to time, or the Manufacturers and Products Announcement, if they have obtained the entry approval from the MIIT.
Furthermore, to obtain the entry approvals from the MIIT, the manufacturers shall meet certain requirements, including, among others, having obtained the approvals or completed the filings with the NDRC in relation to the project investments in manufacturing the electric vehicles, having capabilities in the design, development and manufacture of automotive products, ensuring product consistency, providing after-sales service and product safety assurance, and the new energy vehicles shall meet the technical criteria contained in Circular 39 and other safety and technical requirements specified by the MIIT and pass the inspections conducted by the relevant state-recognized testing institutions. Any manufacturer manufacturing the new energy vehicles without obtaining the entry approval or selling new energy vehicles not listed in the Manufacturers and Products Announcement may be subject to penalties including fines, forfeiture of illegally manufactured and sold vehicles and spare parts and revocation of its business licenses.
Regulation Related to Compulsory Product Certification
According to the Administrative Regulations on Compulsory Product Certification as promulgated by the General Administration of Quality Supervision, Inspection and Quarantine, or the QSIQ, which was merged into the SAMR afterwards, on July 3, 2009 and became effective on September 1, 2009 and the List of the First Batch
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of Products Subject to Compulsory Product Certification as promulgated by the QSIQ in association with the State Certification and Accreditation Administration Committee, or the CAA on December 3, 2001, and became effective on the same day, QSIQ are responsible for the quality certification of automobiles. Automobiles and the relevant accessories must not be sold, exported or used in operating activities until they are certified by certification authorities designated by CAA as qualified products and granted certification marks.
Regulation Related to Government Subsidies and Exemption of Vehicle Purchase Tax for Purchasing New Energy Vehicles
On April 22, 2015, the Ministry of Finance, or the MOF, the Ministry of Science and Technology, or the MOST, the MIIT and the NDRC jointly promulgated the Circular on Financial Subsidies on the Promotion and Application of New Energy Vehicles from 2016 to 2020, or the NEV Financial Subsidies Circular, which took effect on the same day. The NEV Financial Subsidies Circular provides that those who purchase new energy vehicles specified in the Catalogue of Recommended New Energy Vehicle Models for Promotion and Application issued by the MIIT, or the Recommended NEV Catalogue, may enjoy government subsidies. A purchaser may purchase a new energy vehicle from a manufacturer by paying the price deducted by the subsidy amount, and the manufacturer may obtain the subsidy amount from the PRC central government after such new energy vehicle is sold to the purchaser. Our products, the G3 and the P7, are eligible for such subsidies. Furthermore, a preliminary phase-out schedule for the provision of subsidies during the period from 2016 to 2020 contained in NEV Financial Subsidies Circular specifies that the subsidy amount per vehicle, or subsidy criteria, for the year 2017 to 2018 will be reduced by 20% compared to that of the year 2016, and the subsidy criteria for the year 2019 to 2020 will be reduced by 40% compared to that of the year 2016.
On December 29, 2016, the MOF, the MOST, the MIIT and NDRC jointly promulgated the Circular on Adjusting the Subsidy Policies on Promotion and Application of New Energy Vehicles, or the Circular on Adjusting the NEV Subsidy Policies, which became effect on January 1, 2017, to enhance the technical requirements and adjust the subsidy criteria of qualified new energy vehicles in the Recommended NEV Catalogue. The Circular on Adjusting the NEV Subsidy Policies caps the subsidy amount from the local governments at 50% of the subsidy amount from the central government, and further specifies that national and local subsidies for purchasers purchasing new energy vehicles (except for fuel cell vehicles) from 2019 to 2020 will be reduced by 20% as compared to the then-existing subsidy standards. The MOF, the MOST, the MIIT and the NDRC promulgated a series of circulars in 2018 and 2019 to further adjust the technical requirements and subsidy criteria of new energy vehicles eligible for government subsidies.
On April 23, 2020, the MOF, the MOST, the MIIT and the NDRC jointly issued the Circular on Improving Subsidy Policies on Promotion and Application of New Energy Vehicles, which took effect on the same day, or the 2020 NEV Financial Subsidies Circular, which extends the implementation period of financial subsidy policy for new energy vehicles to the end of 2022. The 2020 NEV Financial Subsidies Circular further specifies that the subsidy criteria for new energy vehicles during the period from year 2020 to 2022 will generally be reduced by 10%, 20% and 30% compared to the subsidy standard of the previous year respectively, and the number of vehicles eligible for the subsidies will not exceed approximately two million each year.
On December 26, 2017, the MOF, the State Administration of Taxation, or the SAT, the MIIT and the MOST jointly issued the Announcement on Exemption of Vehicle Purchase Tax for New Energy Vehicle, or the Announcement on Exemption of Vehicle Purchase Tax, pursuant to which, from January 1, 2018 to December 31, 2020, the vehicle purchase tax is not imposed on purchases of qualified new energy vehicles listed in the Catalogue of New Energy Vehicle Models Exempted from Vehicle Purchase Tax jointly issued by MIIT and the SAT. On April 16, 2020, the MOF, the SAT and the MIIT further promulgated the Announcement on Relevant Policies for the Exemption of Vehicle Purchase Tax for New Energy Vehicles, which will take effect on January 1, 2021, and will further extend the exemption period for the vehicle purchase tax of new energy vehicles to December 31, 2022.
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Regulation Related to Electric Vehicle Charging Infrastructure
Pursuant to the Guiding Opinions of the General Office of the State Council on Accelerating the Promotion and Application of the New Energy Vehicles which took effect on July 14, 2014, the Guiding Opinions of the General Office of the State Council on Accelerating the Construction of Charging Infrastructure of the Electric Vehicle which took effect on September 29, 2015 and the Guidance on the Development of Electric Vehicle Charging Infrastructure (2015-2020) which took effect on October 9, 2015, the PRC government encourages the construction and development of charging infrastructure for electric vehicles, such as charging stations and battery swap stations, and requires relevant local authorities to adopt simplified construction approval procedures and expedite the approval process. In particular, only newly-built centralized charging and battery replacement power stations with independent land occupation are required to obtain the construction approvals and permits from the relevant authorities. Government guidance price should be implemented in managing the rate of the charging service fees before the year 2020. Furthermore, the Circular on Accelerating the Development of Electric Vehicle Charging Infrastructure in Residential Areas jointly promulgated by the NDRC, the National Energy Administration, the MIIT and the Ministry of Housing and Urban-Rural Development on July 25, 2016 provides that charging infrastructures in residential areas should be covered by product liability insurance policies and charging safety liability insurance policies, and operators of electric vehicle charging and battery swap infrastructure facilities are required to be covered under safety liability insurance policies.
In addition, various local governmental authorities have implemented measures to encourage the construction and development of the electric vehicle charging infrastructure. For instance, on April 3, 2020, the Municipal Bureau of Industry and Information Technology of Guangzhou promulgated the Circular on Measures of Promoting Automobile Production and Consumption of Guangzhou, which took effect on the same day and will remain effective until December 31, 2020, aiming, among other things, to promote the construction of ancillary facilities of the new energy vehicles, including the charging facilities in areas such as public carparks and industry parks.
On January 11, 2016, the MOF, the MOST, the MIIT, the NDRC and the National Energy Administration jointly promulgated the Circular on Incentive Policies on the Charging Infrastructure of New Energy Vehicles and Strengthening the Promotion and Application of New Energy Vehicles during the 13th Five-year Plan Period, pursuant to which, the central finance department is expected to provide certain local governments with funds and subsidies for their construction and operation of charging facilities and charging infrastructures as well as their extensive promotion and application of new energy vehicles from the year 2016 to 2020. In addition, various local governmental authorities have formulated and implemented financial support policies to provide appropriate subsidies for charging facilities construction projects.
Regulation Related to Automobile Sales and Consumer Rights Protection
Pursuant to the Product Quality Law of the PRC promulgated on February 22, 1993 and most recently amended on December 29, 2018, a manufacturer is prohibited from producing or selling products that do not meet applicable standards and requirements for safeguarding human health and ensuring human and property safety. Products must be free from unreasonable dangers threatening human and property safety. Where a defective product causes physical injury to a person or property damage, the aggrieved party may make a claim for compensation from the producer or the seller of the product. Producers and sellers of non-compliant products may be ordered to cease the production or sale of the products and may be subject to confiscation of the products and fines. Earnings from sales in contravention of such standards or requirements may also be confiscated, and in severe cases, the violators business license may be revoked. On October 22, 2012, the State Council issued Regulations on the Administration of Recall of Defective Automobile Products, or the Recall Regulations, which was amended on March 2, 2019. According to the Recall Regulations, manufacturers shall recall all defective automobiles in accordance with requirements contained therein, otherwise, the product quality supervision department of the State Council shall order manufacturers to recall accordingly.
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According to the Administrative Measures on Automobile Sales promulgated by the MOFCOM on April 5, 2017, which took effect on July 1, 2017, automobile suppliers and dealers shall sell automobiles, spare parts and other related products that are in compliance with relevant provisions and standards of the state, and the dealers shall, in an appropriate manner, expressly indicate the prices of automobiles, spare parts and other related products as well as the rates of charges for various services on their business premises, and shall not sell products at higher prices or charge other fees without express indication. Automobile suppliers and dealers are required to file the basic information through the information management system for the national automobile circulation operated by the competent commerce department of the State Council within 90 days after the receipt of a business license. Where there is any change to the filed information, automobile suppliers and dealers must update such information within 30 days upon such change.
Furthermore, the Consumer Rights and Interests Protection Law, as promulgated on October 31, 1993 and most recently amended in 2013 by the Standing Committee of the National Peoples Congress of China, or the SCNPC, imposes stringent requirements and obligations on business operators. Failure to comply with the consumer protection requirements could subject the business operators to administrative penalties including warning, confiscation of illegal income, imposition of fines, an order to cease business operations, revocation of business licenses, as well as potential civil or criminal liabilities.
Regulation Related to Value-added Telecommunications Services
Among all of the applicable laws and regulations, the PRC Telecommunications Regulations, or the Telecom Regulations, promulgated by the PRC State Council in September 25, 2000 and most recently amended on February 6, 2016, 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 value-added telecommunications services, or VATS. VATS are defined as telecommunications and information services provided through public networks. A telecom catalogue was issued as an attachment to the Telecom Regulations to categorize telecommunications services as either basic or value-added, which was most recently updated in June 2019.
The Administrative Measures on Telecommunications Business Operating Licenses promulgated by the MIIT in 2009 and most recently amended in July 2017, 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 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.
In addition, pursuant to the Administrative Measures on Internet Information Services promulgated by the State Council in 2000 and amended in 2011, internet information services refer to the provision of information through the internet to online users, and are divided into commercial internet information services and non-commercial internet information services. A provider of commercial internet information service must obtain the VATS License for internet information service. If the operator provides internet information on a non-commercial basis, it only needs to file the relevant information with the provincial Communication Administration.
According to the 2020 Negative List and other related laws and regulations, industries such as VATS (other than the services of electronic commerce, multiparty conferencing within the PRC, information storage and forwarding, and call center) are generally restricted to foreign investment with very limited exceptions in certain pilot demonstration zones. According to the Administrative Regulations on Foreign-Invested Telecommunications Enterprises, as most recently amended in February 2016, foreign-invested value-added telecommunications enterprises must be in the form of a sino-foreign equity joint venture. The regulations limit
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the ultimate capital contribution percentage by foreign investor(s) in a foreign-invested value-added telecommunications enterprise to 50% or less other than certain exceptions 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 industry.
In 2006, the predecessor to the MIIT issued the Circular of the Ministry of Information Industry on Strengthening the Administration of Foreign Investment in Value-added Telecommunications Business, according to which a foreign investor in the telecommunications service industry of China must establish a foreign-invested enterprise and apply for a telecommunications business operation license. This circular further requires that: (i) PRC domestic telecommunications business enterprises must not lease, transfer or sell a telecommunications business operation license to a foreign investor through any form of transaction or provide resources, offices and working places, facilities or other assistance to support the illegal telecommunications service 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) value-added telecommunications enterprises 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 circular or 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.
Regulation Related to Online Taxi Booking Services
On July 27, 2016, the Ministry of Transport, the MIIT, the Ministry of Public Security, the MOFCOM, the SAMR, the QSIQ, and the Cyberspace Administration of China jointly promulgated the Administrative Measures for the Business of Online Taxi Booking Services, or the Online Taxi Booking Services Measures, which took effect on November 1, 2016 and was most recently amended on December 28, 2019, to regulate the business activities of online taxi booking services, and ensure safety of the passengers. According to the Online Taxi Booking Services Measures, before carrying out online taxi booking services, an enterprise serving as the online taxi booking service platform shall obtain the permit for online taxi booking business from the competent local taxi administrative department, complete the record-filing of internet information services with the competent provincial traffic administrative department, and complete the filings with the authority designated by the public security department of the provincial government of the place where the operator of the online taxi booking service platform is located, within 30 days after its network is officially connected. Vehicles used for the online taxi booking services shall install satellite positioning and emergency alarming devices and fulfill the criteria of safe operations, and the competent taxi administrative departments will issue a transportation permit for vehicles used for online taxi booking services that satisfy the prescribed conditions and such vehicles will be registered as vehicles for pre-booked passenger transport. In addition, drivers engaging in the online taxi booking services shall satisfy the requirement of driving experience, no criminal offence or violent crime record to obtain his license for online taxi booking services. Furthermore, various local governmental authorities have promulgated implementing rules to stipulate the requirements for online taxi booking service platforms, vehicles and drivers. For instance, on November 28, 2016, the Peoples Government of Guangzhou promulgated the Administrative Measures for the Business Operation of Online Taxi Booking Services of Guangzhou, taking effect on the same day and most recently amended on November 14, 2019, which reiterates that an enterprise serving as the online taxi booking platform shall fulfill the requirements stipulated in the Online Taxi Booking Services Measures and obtain the permit for operating online taxi booking business from the municipal traffic administrative department in Guangzhou.
Regulation Related to Insurance Agency Business
According to the Administrative Measures for Insurance Licenses promulgated by the China Banking and Insurance Regulatory Commission, or the CBIRC, in June 2007 and the PRC Insurance Law promulgated by the
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SCNPC, in June 1995 and most recently amended in April 2015, an insurance agent is an entity or individual that has been authorized by an insurer to carry out the insurance business on its behalf within the scope of authorization and receives commission in return from the insurer. Insurance agencies can be divided into full-time insurance agencies and concurrent business insurance agencies, both of them shall obtain an insurance agency business operation license before it engages in insurance agency business.
While the examination and approval by the CBIRC or its local counterparts of the qualification of insurance sales practitioners have been canceled by the PRC Insurance Law amended in 2015, according to the Measures on the Supervision and Administration of Insurance Sales Practitioners promulgated by the CBIRC on January 6, 2013 and effective from July 1, 2013, insurance agency companies are obligated to issue the Practice Certificate of Insurance Sales Practitioner to each of its sales practitioners. Also, pursuant to the Notice on the Regulation of Practitioners in Insurance Intermediaries promulgated by the CBIRC on August 3, 2015, insurance agency companies shall complete the practicing registration for its sales practitioners in the insurance intermediary regulatory information system of the CBIRC for insurance intermediaries including insurance agency companies. An insurance agency company may not entrust a sales practitioner without the issued Practice Certificate of Insurance Salesperson to carry out insurance sales, and any violation will subject an insurance agency company to penalties including without limitation warning, fines, confiscation of illegal gains and order of rectification.
Furthermore, on April 2, 2019, the CBIRC promulgated the Circular on Issuing the 2019 Plan for the Rectification of Chaos in the Insurance Intermediary Market, or the Rectification Plan, aiming to curb the chaos of violations of laws and regulations in the insurance intermediary market. The Rectification Plan mainly provides three key tasks: (i) to ascertain insurance companies responsibility for management and control of various intermediary channels; (ii) to carefully investigate business compliance of insurance intermediaries; and (iii) to strengthen the rectification of insurance business of the third-party online platforms in cooperation with insurance institutions. Insurance intermediaries, like the insurance agency companies, shall strengthen the internal control management, prevent business risks, and the concurrent-business insurance agents shall rectify the chaos of collecting or soliciting benefits not stipulated in the insurance contract from the insurance company or its staff.
Regulation Related to Financing Lease
The Administrative Measures of Supervision on Financing Lease Enterprises, or the Administrative Measures on Financing Lease, was formulated by the MOFCOM and took effect on October 1, 2013. According to the Administrative Measures on Financing Lease, 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. Financing lease enterprises shall use lease properties, 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. Without approval of the relevant government authorities, financing lease enterprises shall not engage in inter-bank borrowing. Financing lease enterprises must not carry out illegal fund-raising activities under the name of a financing lease company. According to the Administrative Measures on Financing Lease, 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.
In addition, the Administrative Measures on Financing Lease also contain regulatory provisions specifically focusing on sale-leaseback transactions. The subject matter of a sale-leaseback transaction shall be properties that
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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 authorities, 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 the value of 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.
In April 2018, the MOFCOM transferred the duties to make rules on the operation and supervision of financing lease companies to the CBIRC.
Furthermore, the PRC Contract Law promulgated by the National Peoples Congress effective on 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. The PRC Contract Law further provides that the lessor and the lessee may agree on the ownership of the leased property upon expiry of the lease term. If the ownership of the leased property is not or is not clearly agreed between the parties and cannot be determined pursuant to the PRC Contract Law, the leased property shall be owned by the lessor.
Regulation Related to Internet Security and Privacy Protection
PRC governmental 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 Decision in Relation to Protection of Internet Security enacted by the SCNPC on December 28, 2000 and amended on August 27, 2009, provides that, among other things, the following activities conducted through the Internet are subject to criminal punishment: (i) gaining improper entry into a computer or system of strategic importance; (ii) intentionally inventing and spreading destructive programs such as computer viruses to attack the computer system and the communications network, thus damaging the computer system and the communications networks; (iii) in violation of State regulations, discontinuing the computer network or the communications service without authorization; (iv) leaking state secrets; (v) spreading false commercial information; or (vi) infringing intellectual property rights through internet, etc.
On November 7, 2016, the SCNPC promulgated the Cybersecurity Law, which came into effect on June 1, 2017 and applies to the construction, operation, maintenance and use of networks as well as the supervision and administration of cybersecurity in China. The Cybersecurity Law defines networks as systems that are composed of computers or other information terminals and relevant facilities used for the purpose of collecting, storing, transmitting, exchanging and processing information in accordance with certain rules and procedures. Network operators, who are broadly defined as owners and administrators of networks and network service providers, are subject to various security protection-related obligations, including: (i) complying with security protection obligations in accordance with tiered cybersecurity systems protection requirements, which include formulating internal security management rules and manual, appointing cybersecurity responsible personnel, adopting technical measures to prevent computer viruses and cybersecurity endangering activities, adopting technical measures to monitor and record network operation status and cybersecurity events, taking measures to classify, backup and encrypt important data; (ii) formulating cybersecurity emergency response plans, timely handling security risks, initiating emergency response plans, taking appropriate remedial measures and reporting to regulatory authorities; and (iii) providing technical assistance and support for public security and national security authorities for protection of national security and criminal investigations in accordance with the law. Network service providers who do not comply with the Cybersecurity Law may be subject to fines, suspension of their businesses, shutdown of their websites, and revocation of their business licenses.
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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 a 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.
Furthermore, on November 28, 2019, the Secretary Bureau of the Cyberspace Administration of China, the General Office of the MIIT, the General Office of the Ministry of Public Security and the General Office of the SAMR jointly issued the Notice on the Measures for Determining the Illegal Collection and Use of Personal Information through Mobile Applications, which aims to provide reference for supervision and administration departments and provide guidance for mobile applications operators self-examination and self-correction and social supervision by netizens, and further elaborates the forms of behavior constituting illegal collection and use of the personal information through mobile applications including: (i) failing to publish the rules on the collection and use of personal information; (ii) failing to explicitly explain the purposes, methods and scope of the collection and use of personal information; (iii) collecting and using personal information without the users consent; (iv) collecting personal information unrelated to the services they provide and beyond the necessary principle; (v) providing personal information to others without the users consent; (vi) failing to provide the function of deleting or correcting the personal information according to the laws or failing to publish information such as ways of filing complaints and reports.
Regulation Related to Intellectual Property
Patent
Patents in the PRC are principally protected under the PRC Patent Law, which was initially promulgated by the SCNPC in 1984 and was most recently amended in 2008. A patent is valid for twenty years in the case of an invention and ten years in the case of utility models and designs.
Copyright
Copyrights in the PRC, including software copyrights, is principally protected under the PRC Copyright Law, which took effect in 1991 and was most recently amended in 2010 and other related rules and regulations. Under the PRC Copyright Law, the term of protection for software copyrights is 50 years. The Regulation on the Protection of the Right to Communicate Works to the Public over Information Networks, as most recently amended on January 30, 2013, provides specific rules on fair use, statutory license, and a safe harbor for use of copyrights and copyright management technology and specifies the liabilities of various entities for violations, including copyright holders, libraries and Internet service providers.
Trademark
Registered trademarks are protected under the PRC Trademark Law, which was adopted by the SCNPC in 1982 and most recently amended in 2019, as well as the Implementation Regulations of the PRC Trademark Law adopted by the State Council in 2002 and most recently amended in 2014 and other related rules and regulations. 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 and the term may be renewed for another ten-year period upon request by the trademark owner.
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Domain Name
Domain names are protected under the Administrative Measures on Internet Domain Names promulgated by the MIIT on August 24, 2017 and effective since November 1, 2017. Domain name registrations are handled through domain name service agencies established under the relevant regulations, and applicants become domain name holders upon successful registration.
Regulation Related to Employment, Social Insurance and Housing Fund
Pursuant to the PRC Labor Law, which was promulgated in 1994 and most recently amended in 2018, and the PRC Labor Contract Law, which was promulgated on June 29, 2007 and amended on December 28, 2012, employers must execute written labor contracts with full-time employees. All employers must comply with local minimum wage standards. Violations of the PRC Labor Contract Law and the PRC Labor Law may result in the imposition of fines and other administrative and criminal liability in the case of serious violations.
In addition, according to the PRC Social Insurance Law implemented on July 1, 2011 and most recently amended on December 29, 2018 and the Regulations on the Administration of Housing Funds, which was promulgated by the State Council in 1999 and most recently amended in 2019, employers in China must provide employees with welfare schemes covering pension insurance, unemployment insurance, maternity insurance, work-related injury insurance, and medical insurance and housing funds.
Regulation Related to Foreign Exchange and Dividend Distribution
Regulation on Foreign Currency Exchange
The principal regulations governing foreign currency exchange in China are the Foreign Exchange Administration Regulations, as most recently amended in 2008. Under 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 the State Administration of Foreign Exchange, or 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 2012, SAFE promulgated the Circular of Further Improving and Adjusting Foreign Exchange Administration Policies on Foreign Direct Investment, or Circular 59, which substantially amends and simplifies the previous foreign exchange procedure. Pursuant to Circular 59, the opening and deposit 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 2013, SAFE promulgated the Notice on Promulgation of the Provisions on Foreign Exchange Control on Direct Investments in China by Foreign Investors and Supporting Documents, which specified 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. In February 2015, SAFE promulgated the Notice on Further Simplifying and Improving the Administration of the Foreign Exchange Concerning Direct Investment, or SAFE Notice 13. 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, conduct the registration and perform statistical monitoring and reporting responsibilities.
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In March 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 allows all foreign-invested enterprises established in the PRC to settle their foreign exchange capital on a discretionary basis according to the actual needs of their business operation, provides the procedures for foreign invested companies to use RMB converted from foreign currency-denominated capital for equity investments and removes certain other restrictions under previous rules and regulations. However, Circular 19 continues to prohibit foreign-invested enterprises from, among other things, using RMB funds converted from their foreign exchange capital for expenditure beyond their 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. 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 may be used to extend loans to related parties or repay inter-company loans (including advances by third parties). However, there are substantial uncertainties with respect to Circular 16s interpretation and implementation in practice.
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 profits from domestic entities to offshore entities, including (i) banks must check whether the transaction is genuine by reviewing board resolutions regarding profit distribution, original copies of tax filing records and audited financial statements and stamp with the outward remittance sum and date on the original copies of tax filing records, and (ii) domestic entities must retain income to account for previous years losses before remitting any profits. Moreover, pursuant to Circular 3, domestic entities must explain in detail the sources of capital and how the capital will be used, and provide board resolutions, contracts and other proof as a part of the registration procedure for outbound investment.
On October 23, 2019, SAFE issued Circular of the State Administration of Foreign Exchange on Further Promoting the Facilitation of Cross-border Trade and Investment, or the Circular 28, which took effect on the same day. Circular 28 allows non-investment foreign-invested enterprises to use their capital funds to make equity investments in China, with genuine investment projects and in compliance with effective foreign investment restrictions and other applicable laws. However, as the Circular 28 was newly issued, there are still substantial uncertainties as to its interpretation and implementations in practice.
Regulation on Dividend Distribution
The principal regulations governing dividends distributions by companies include the PRC Company Law, the Foreign Invested Enterprise Law and its implementing rules. Under these laws and regulations, both domestic companies and foreign-invested companies in the PRC are required to set aside as general reserves at least 10% of their after-tax profit, until the cumulative amount of their reserves reaches 50% of their registered capital unless the laws and regulations regarding foreign investment provide otherwise. PRC companies are 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.
Regulation on Foreign Exchange Registration of Overseas Investment by PRC Residents
In 2014, SAFE issued the SAFE Circular on Relevant Issues Relating to Domestic Residents Investment and Financing and Roundtrip Investment through Special Purpose Vehicles, or SAFE Circular 37. SAFE Circular 37 regulates foreign exchange matters in relation to the use of special purpose vehicles by PRC residents or entities to seek offshore investment and financing or conduct round trip investment in China. Under SAFE Circular 37, a special purpose vehicle refers to an offshore entity established or controlled, directly or
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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 special purpose vehicles, namely, establishing foreign-invested enterprises to obtain ownership, control rights and management rights. SAFE Circular 37 provides that, before making a contribution into a special purpose vehicle, PRC residents or entities are required to complete foreign exchange registration with SAFE or its local branch.
In 2015, the SAFE Notice 13 amended SAFE Circular 37 by 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 special purpose vehicles but had not registered as required before the implementation of the SAFE Circular 37 must register their ownership interests or control in the special purpose vehicles with qualified banks. An amendment to the registration is required if there is a material change with respect to the special purpose vehicle 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 misrepresentations or failing to disclose the control 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.
Regulation Related to Stock Incentive Plans
In February 2012, SAFE promulgated the Notice on Foreign Exchange Administration of PRC Residents Participating in Share Incentive Plans of Offshore Listed Companies, or the Stock Option Rules, replacing the previous rules issued by SAFE in March 2007. Under the Stock Option Rules and other relevant rules and regulations, domestic individuals, which means the PRC residents and non-PRC citizens residing in China for a continuous period of not less than one year, subject to a few exceptions, who participate in a stock incentive plan in an overseas publicly-listed company are required to register with SAFE or its local branches and complete certain other procedures. Participants of a stock incentive plan who are PRC residents must retain a qualified PRC agent, which could be a PRC subsidiary of the overseas publicly-listed company or another qualified institution selected by the PRC subsidiary, to conduct the SAFE registration and other procedures with respect to the stock incentive plan on behalf of its participants. The participants must also retain an overseas entrusted institution to handle matters in connection with their exercise of stock options, the purchase and sale of corresponding stocks or interests and fund transfers. In addition, the PRC agent is required to amend the SAFE registration with respect to the stock incentive plan if there is any material change to the stock incentive plan, the PRC agent or the overseas entrusted institution or other material changes. The PRC agents must, on behalf of the PRC residents who have the right to exercise the employee share options, apply to SAFE or its local branches for an annual quota for the payment of foreign currencies in connection with the PRC residents exercise of the employee share options. The foreign exchange proceeds received by the PRC residents from the sale of shares under the stock incentive plans granted and dividends distributed by the overseas listed companies must be remitted into the bank accounts in the PRC opened by the PRC agents before distribution to such PRC residents. In addition, SAFE Circular 37 provides that PRC residents who participate in a share incentive plan of an overseas unlisted special purpose company may register with SAFE or its local branches before exercising rights.
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Regulation Related to Tax
Enterprise Income Tax
Under the Enterprise Income Tax Law of the PRC, or the EIT Law, which became effective on January 1, 2008 and was most recently amended on December 29, 2018, and its implementing rules, enterprises are classified as resident enterprises and non-resident enterprises. PRC resident enterprises typically pay an enterprise income tax at the rate of 25% while non-PRC resident enterprises without any branches in the PRC should pay an enterprise income tax in connection with their income from the PRC at the tax rate of 10%. An enterprise established outside of the PRC with its de facto management body located within the PRC is considered a resident enterprise, meaning that it can be treated in a manner similar to a PRC domestic enterprise for enterprise income tax purposes. The implementing rules of the EIT Law define a de facto management body as a managing body that in practice exercises substantial and overall management and control over the production and operations, personnel, accounting, and properties of the enterprise. Enterprises qualified as High and New Technology Enterprises are entitled to a 15% enterprise income tax rate rather than the 25% uniform statutory tax rate.
The EIT Law and its implementation rules provide that an income tax rate of 10% should normally be applicable to dividends payable to investors that are non-resident enterprises, and gains derived by such investors, which (a) do not have an establishment or place of business in the PRC or (b) have an establishment or place of business in the PRC, but the relevant income is not effectively connected with the establishment or place of business to the extent such dividends and gains are derived from sources within the PRC. Such income tax on the dividends may be reduced pursuant to a tax treaty between China and other jurisdictions. Pursuant to the Arrangement between the Mainland of China and the Hong Kong Special Administrative Region for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with respect to Taxes on Income, or the Double Tax Avoidance Arrangement, and other applicable PRC laws, if a Hong Kong resident enterprise is determined by the competent PRC tax authority to have satisfied the relevant conditions and requirements under such Double Tax Avoidance Arrangement and other applicable laws, the 10% withholding tax on the dividends the Hong Kong resident enterprise receives from a PRC resident enterprise may be reduced to 5% upon receiving approval from the in-charge tax authority. However, based on the Notice on Certain Issues with Respect to the Enforcement of Dividend Provisions in Tax Treaties issued on February 20, 2009 by the SAT, if the relevant PRC tax authorities determine, in their discretion, that a company benefits from such reduced income tax rate due to a structure or arrangement that is primarily tax-driven, such PRC tax authorities may adjust the preferential tax treatment; and based on the Announcement on Relevant Issues Concerning the Beneficial Owners in Tax Treaties issued on February 3, 2018 by the SAT and effective from April 1, 2018, comprehensive analysis based on the stipulated factor therein and actual circumstances shall be adopted when recognizing the beneficial owner and agents and designated wire beneficiaries are specifically excluded from being recognized as beneficial owners.
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 stipulated 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 purchases can be offset against such output VAT.
The MOF and the SAT promulgated the Pilot Plan for Imposition of Value-Added Tax to Replace Business Tax in November 2011, and promulgated the Notice on Fully Promoting the Pilot Plan for Replacing Business
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Tax by Value-Added Tax in March 2016, which provides that VAT is generally imposed in lieu of business tax in the modern service industries on a nationwide basis. VAT of a rate of 6% applies to revenue derived from the provision of some modern services. Certain small taxpayers under PRC law are subject to reduced value-added tax at a rate of 3%. 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.
On April 4, 2018, the MOF and the SAT issued the Notice on Adjustment of VAT Rates, which took effect on May 1, 2018 and provides that the taxable goods previously subject to VAT rates of 17% and 11% respectively are subject to lower VAT rates of 16% and 10% respectively starting from May 1, 2018. Furthermore, according to the Announcement on Relevant Policies for Deepening Value-added Tax Reform jointly promulgated by the MOF, the SAT and the General Administration of Customs, which became effective on April 1, 2019, the taxable goods previously subject to VAT rates of 16% and 10% respectively become subject to lower VAT rates of 13% and 9% respectively starting from April 1, 2019.
M&A Rules and Overseas Listings
On August 8, 2006, six PRC regulatory agencies, including the China Securities Regulatory Commission, or the CSRC, adopted the Regulations on Mergers 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. Foreign investors shall comply with the M&A Rules when they purchase equity interests of a domestic company or subscribe the increased capital of a domestic company, and thus changing the nature of the domestic company into a foreign-invested enterprise; or when the foreign investors establish a foreign-invested enterprise in the PRC, purchase the assets of a domestic company and operate the assets; or when the foreign investors purchase the asset of a domestic company, establish a foreign-invested enterprise by injecting such assets and operate the assets. The M&A Rules purport, among other things, to require offshore special purpose vehicles formed for overseas listing purposes through acquisitions of PRC domestic companies and controlled by PRC companies or individuals, to obtain the approval of the CSRC prior to publicly listing their securities on an overseas stock exchange.
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Directors and Executive Officers
The following table sets forth certain information relating to our directors and executive officers upon the completion of this offering.
Name |
Age |
Position/Title |
||
Xiaopeng He |
42 | Co-founder, Chairman and Chief Executive Officer | ||
Heng Xia |
36 | Co-founder, Director and President | ||
Hongdi Brian Gu |
47 | Vice Chairman and President | ||
Tao He |
34 | Co-founder, Director and Senior Vice President | ||
Yongfu Yu |
44 | Director | ||
Qin Liu |
47 | Independent Director | ||
Ji-Xun Foo |
52 |
Independent Director | ||
Fei Yang |
62 | Independent Director | ||
Donghao Yang |
48 | Independent Director Appointee* | ||
Qinghong Liao |
45 | Chief Human Resources Officer and Vice President of Sales and Services | ||
Hsuehching Lu |
56 | Vice President of Finance and Accounting | ||
Xinzhou Wu |
44 | Vice President of Autonomous Driving | ||
Yu Ji |
40 | Vice President of Internet | ||
Jihan Xu |
69 | Vice President of Automotive Research and Development | ||
Ping Jiang |
64 | Vice President of Manufacturing | ||
Minghui Liu |
52 | Vice President of Powertrain |
* |
Has accepted an independent director appointment, which will be effective upon the SECs declaration of effectiveness of the registration statement on Form F-1, of which this prospectus is a part. |
Xiaopeng He is our co-founder and has served as our chairman and chief executive officer since August 2017. Prior to joining our company, Mr. He served at Alibaba Group, a public company listed on the NYSE (symbol: BABA) and the HKEx (stock code: 9988), from June 2014 to August 2017, including serving as the president of Alibaba mobile business group, chairman of Alibaba Games and president of Tudou.com. In 2004, Mr. He co-founded UCWeb Inc., and served as the president of production from 2004 to 2014. In June 2014, UCWeb Inc. was acquired by Alibaba Group. Mr. He received his bachelors degree in computer science from South China University of Technology in 1999.
Heng Xia is our co-founder and has served as our director and president since January 2015. Prior to founding our company, Mr. Xia worked at the research and development center of Guangzhou Automobile Group Co., Ltd., or GAC, a China-based automotive manufacturing company listed on the HKEx (stock code: 2238) from 2008 to 2015, where he was responsible for the development of control systems for NEVs and smart vehicles. Mr. Xia received his masters degree in mechanical engineering and bachelors degree in automotive engineering from Tsinghua University in 2008 and 2006, respectively.
Hongdi Brian Gu has served as our vice chairman and president since March 2018. Prior to joining our company, Dr. Gu worked at J.P. Morgan Chase from 2004 to 2018 and served as the managing director and chairman of J.P. Morgan Chase Asia Pacific Investment Bank. Dr. Gu received a Ph.D. in biochemistry from the University of Washington in 1997, a masters degree in business administration from Yale University in 1999, and a bachelors degree in chemistry from the University of Oregon in 1993.
Tao He is our co-founder and has served as our director and senior vice president since January 2015. Prior to founding our company, Mr. He worked at the research and development center of GAC from 2011 to 2015, where he built an autonomous driving team, and he was responsible for the development of new energy control
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systems and involved in the development of GACs first model of NEV. Mr. He received his masters and bachelors degrees in automotive engineering from Tsinghua University in 2010 and 2008, respectively.
Yongfu Yu has served as our director since September 2019. Mr. Yu is a member of Alibaba Partnership since December 2015 and currently serves as the chairman of eWTP Tech-innovation Fund and the chairman of Amap. Prior to his current positions, Mr. Yu served as the chairman of Alibaba Pictures and the chairman and the chief executive officer of Alibaba Digital Media & Entertainment Group, the president of Amap, the president of Alibaba Mobile Internet Division, the president of Alimama and the president of UCWeb Inc. after he joined Alibaba Group in June 2014. Mr. Yu also served as an independent director and a member of the audit committee of Xunlei Limited, a company listed on the NASDAQ, from June 2014 to March 2017. From 2006 to June 2014, he was the chairman and the chief executive officer of UCWeb Inc. before it became a wholly-owned subsidiary of Alibaba Group. From 2001 to 2006, he was a vice president and associate with Legend Capital. Mr. Yu received his bachelors degree in business administration from Nankai University in 1999.
Qin Liu has served as our director since February 2018 and was determined by the board of directors to be an independent director in August 2020. Mr. Liu has served as managing director of Morningside Venture Capital Limited, or MVCL, since June 2007 and Evolution Capital Management Limited, or ECML, since August 2018. MVCL and ECML provide advisory service to various funds and Mr. Liu has served as a director in both public and non-public portfolio companies of such funds. Prior to that, Mr. Liu served in various roles, including as a business development director for investment at Morningside IT Management Services (Shanghai) Co., Ltd. Mr. Liu has served as a director of JOYY Inc., a China-based technology company listed on the NASDAQ (symbol: YY), since 2008. Mr. Liu has served as a director of Xiaomi Corporation, a technology company listed on the HKEx (stock code: 1810), since 2010. Mr. Liu received his masters degree in business administration from China Europe International Business School in April 2000, and his bachelors degree in industrial electrical automation from University of Science and Technology Beijing in July 1993.
Ji-Xun Foo has served as our director since January 2018 and was determined by the board of directors to be an independent director in August 2020. Mr. Foo also currently serves as a managing partner at GGV Capital, a venture capital firm. From 2000 to 2005, Mr. Foo was a director at Draper Fisher Jurvetson ePlanet Ventures L.P., a venture capital fund. From 1996 to 2000, Mr. Foo served as a manager of the Finance and Investment Division of the National Science and Technology Board of Singapore. From 1993 to 1996, Mr. Foo served as the leader of a research and development project at Hewlett Packard, an information technology company. Mr. Foo received his master of science degree in management of technology in 1997 and his bachelors degree in engineering in 1993 from National University of Singapore.
Fei Yang has served as our director since April 2018 and was determined by the board of directors to be an independent director in August 2020. Mr. Yang also currently serves as a partner of IDG Capital, an investment and asset management firm. Mr. Yang has worked at IDG Capital since 1997 and had experience in finance, capital operations, mergers and acquisitions. From 1994 to 1997, Mr. Yang served as a director of the Initial Public Offering Division of the China Securities Regulatory Commission Guangdong Bureau. From 1989 to 1994, Mr. Yang served as a director of the Department of Foreign Trade and Economic Cooperation of Guangdong Province, where he specialized in economic research. From 1984 to 1986, Mr. Yang worked at Jinan Municipal Environmental Protection Bureau. From 1982 to 1984, Mr. Yang worked at Shandong Academy of Agricultural Sciences as a researcher. Mr. Yang received his masters degree in environmental geography and his bachelors degree in geography from Sun Yat-sen University in 1989 and 1982, respectively.
Donghao Yang will serve as our independent director upon the effectiveness of our registration statement on Form F-1, of which this prospectus is a part. Mr. Yang has served as the chief financial officer of Vipshop Holdings Ltd., a public company listed on the NYSE (symbol: VIPS), since 2011. From 2010 to 2011, Mr. Yang served as the chief finance officer of Synutra International Inc., a public company listed on the NASDAQ (symbol: SYUT). From 2007 to 2010, Mr. Yang served as the chief financial officer of Greater China of Tyson Foods, Inc., a public company listed on the NYSE (symbol: TSN). From 2003 to 2007, Mr. Yang served as a
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finance director of Asia Pacific of Valmont Industries, Inc., a public company listed on the NYSE (symbol: VMI). From 1999 to 2001, Mr. Yang served as a director of China Minmetals Brazil Holding Ltd. Mr. Yang received his masters degree in business administration from Harvard Business School in 2003, and his bachelors degree in economics from Nankai University in 1993.
Qinghong Liao has served as our chief human resources officer and vice president of sales and services since May 2018. Prior to joining our company, he served in various roles, including senior vice president, the human resources president and the president of smart hardware, at Qihoo 360 Technology Co. Ltd., a China-based internet security company listed on Shanghai Stock Exchange (stock code: 601360) from 2016 to 2018. From 1998 to 2016, Mr. Liao served in various roles, including software engineer, vice president of software research and development management department and president of software human resources department, at Huawei Technologies Co., Ltd. Mr. Liao received his bachelors degree in computer science and computer application technology from Northwestern Polytechnic University in 1997.
Hsuehching Lu has served as our vice president of finance and accounting since June 2019. Prior to joining our company, he was the financial director of Zhengzhou Yutong Bus Co. Ltd., a China-based company listed on the Shanghai Stock Exchange (stock code: 600066) from 2016 to 2019. From April 2016 to September 2016, Mr. Lu served as the chief financial officer of Greater China of Ford Motor Company. From 2010 to 2016, Mr. Lu served as the chief financial officer and the controller and head of project management department of Jiangling Motors Co., Ltd., a China-based company listed on the Shenzhen Stock Exchange (stock code: 000550). From 2006 to 2010, Mr. Lu served as the operating finance director of ChangAn Ford Mazda Automobile Co., Ltd. From 1989 to 2006, Mr. Lu served in various roles, primarily including controller of technology operations, controller relating to accounting, tax, legal and after-sales business, and associate of planning department, at Ford Lio Ho Motor Company, Ltd., an automotive manufacturing company in Taiwan. Mr. Lu received his executive master of business administration degree from National Central University in Taiwan in 2002 and his bachelors degree in business administration from Chung Yuan Christian University in Taiwan in 1986.
Xinzhou Wu has served as our vice president of autonomous driving since December 2018. Prior to joining our company, he was a senior director of engineering and the head of the autonomous driving/ADAS team at Qualcomm Inc. He joined Qualcomm Inc. in 2006 and has taken many leadership roles in various research and development projects during his tenure at Qualcomm Inc., and is well recognized for his many contributions in autonomous driving, precise localization and mapping, vehicle-to-everything (v2x), communications and wireless networking in industrial and academic society. From 2005 to 2006, Dr. Wu served as a member of research team of Flarion Technologies Inc., a wireless technology company bought by Qualcomm Inc. in 2006. Dr. Wu received a Ph.D. in electric engineering from University of Illinois at Urbana-Champaign in 2004, a masters degree in electric engineering from University of Illinois at Urbana-Champaign in 2000 and a bachelors degree in electric engineering from Tsinghua University in 1998.
Yu Ji has served as our vice president of internet and the head of our customer service and operation center since January 2016. Prior to joining our company, he was the chief executive officer of Shanghai Youzhu Information Technology Co., Ltd., a China-based technology company from 2015 to 2016. From 2010 to 2015, Mr. Ji served as innovative product director of UCWeb Inc. From 2004 to 2010, Mr. Ji served as the director of the wireless technology laboratory of Tencent Holdings Ltd., a technology company listed on the HKEx (stock code: 700). From 2002 to 2004, Mr. Ji served as a research and development manager of Wuhan Zondy Information Engineering Co., Limited. Mr. Ji received his bachelors degree in hydraulic and hydroelectric engineering from Huazhong University of Science and Technology in 2002.
Jihan Xu has served as our vice president of automotive research and development since June 2017. Prior to joining our company, he was a vice president of NIO Inc. (US Center), a China-based EV company listed on the NYSE (symbol: NIO), from 2016 to 2017. From 2014 to 2016, Dr. Xu served as vice president of Fisker Automotive, a maker of luxury hybrid electric vehicles. From 2009 to 2014, Dr. Xu served as the chief engineer
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of the Research and Development Center of GAC. From 2008 to 2009, Dr. Xu served as the chief engineer of AVL List GmbH (US Campus), an Austria-based company that provides the development, simulation and testing of powertrain systems. From 2007 to 2008, Dr. Xu served as the director of Hong Kong Automotive Parts and Accessory Systems Research and Development Centre. From 1996 to 2007, Dr. Xu served in various roles, including manager and technical expert in the electric powertrain department at Ford Motor Company. From 1994 to 1996, Dr. Xu served as a senior controls engineer of the brake system department of the Continental AG based in the United States. From 1993 to 1994, Dr. Xu served as a project manager of the System Research Laboratory, a U.S. company. From 1992 to 1993, Dr. Xu served as a project manager of Netrologic, Inc., a U.S. company focused on developing AI algorithm and software. Dr. Xu received his Ph.D. and masters degree in automation from Swiss Federal Institute of Technology in Zurich in 1989 and his bachelors degree in control engineering from Huazhong University of Science and Technology in 1982.
Ping Jiang has served as our vice president of manufacturing since May 2019. Prior to joining our company, he was a vice president of NIO Inc. from 2016 to 2019. From 2013 to 2016, Mr. Jiang served as a vice president of GAC. From 2010 to 2013, Mr. Jiang serviced as an executive vice president of GAC Fiat Chrysler Automobiles Co., Ltd. From 2007 to 2010, Mr. Jiang served as a deputy general manager of GAC. From 2001 to 2007, Mr. Jiang served as a deputy general manager at Guangzhou Honda Automobile Co., Ltd. From 2000 to 2001, Mr. Jiang served as a vice chairman and general manager at GAC Component Co., Ltd. From 1986 to 2000, Mr. Jiang served in various roles, including product engineer, procurement manager and deputy general manager, at Guangzhou Peugeot Sales Company. Mr. Jiang received his master of business administration degree under a joint degree program from Jilin University of Technology and Coventry University in 2000, his masters degree in internal combustion engine from Hunan University in 1985, and his bachelors degree in internal combustion engine from Hunan University in 1982.
Minghui Liu has served as our vice president of powertrain since August 2017. Prior to joining our company, he worked at China FAW Group Co., Ltd., a China-based automotive manufacturing company from 1992 to 2017. He became a vice president of the technology research institute of China FAW Group Co., Ltd. in 2016. Dr. Liu received a Ph.D. in automotive engineering from Jilin University in 2005, a masters degree in automotive design and manufacturing and a bachelors degree in automotive from Jilin University of Technology in 1992 and 1989, respectively.
Board of Directors
Our board of directors will consist of nine 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
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person would exercise in comparable circumstances. In fulfilling their duty of care to us, our directors must ensure compliance with our memorandum and articles of association, as amended and restated from time to time. 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:
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conducting and managing the business of our company; |
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representing our company in contracts and deals; |
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appointing attorneys for our company; |
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select senior management such as managing directors and executive directors; |
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providing employee benefits and pension; |
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managing our companys finance and bank accounts; |
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exercising the borrowing powers of our company and mortgaging the property of our company; and |
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exercising any other powers conferred by the shareholders meetings or under our memorandum and articles of association, as amended and restated from time to time. |
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 seventh amended and restated memorandum and articles of association. 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 dated June 28, 2020, as supplemented on August 5, 2020, and our sixth amended and restated memorandum and articles of association dated August 5, 2020, we have granted (i) each of Taobao China Holding Limited, the Morningside entities (as defined under Principal Shareholders), IDG entities and GGV entities the right to designate and remove one director on our board of directors and (ii) the shareholders who hold a majority of the voting power of all shares held by Simplicity Holding Limited, Efficiency Investment Limited and Quality Enterprises Limited the right to designate and remove four directors on our board of directors. The board designation rights pursuant to the shareholders agreement and the sixth amended and restated memorandum and articles of association described above are expected to be terminated immediately prior to the completion of this offering.
Pursuant to our seventh amended and restated memorandum and articles of association, which will become effective immediately prior to the completion of this offering, Taobao China Holding Limited, a wholly-owned subsidiary of Alibaba, will be entitled to designate one director to our board and remove such director, provided, however, in the event that Taobao China Holding Limited, together with its affiliates, ceases to hold at least 10% of our issued and outstanding shares, such director designation right will be terminated.
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.
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Audit Committee
Our audit committee will initially consist of Mr. Donghao Yang, Mr. Qin Liu and Mr. Ji-Xun Foo. Mr. Donghao Yang will be the chairperson of our audit committee. Mr. Donghao Yang satisfy the criteria of an audit committee financial expert as set forth under the applicable rules of the SEC. Each of Mr. Donghao Yang, Mr. Qin Liu and Mr. Ji-Xun Foo 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.
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:
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selecting the independent auditor; |
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pre-approving auditing and non-auditing services permitted to be performed by the independent auditor; |
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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; |
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setting clear hiring policies for employees and former employees of the independent auditors; |
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reviewing with the independent auditor any audit problems or difficulties and managements response; |
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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; |
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reviewing and discussing with management and the independent auditors major issues regarding accounting principles and financial statement presentations; |
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reviewing reports prepared by management or the independent auditors relating to significant financial reporting issues and judgments; |
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discussing earnings press releases with management, as well as financial information and earnings guidance provided to analysts and rating agencies; |
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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; |
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discussing policies with respect to risk assessment and risk management with management, internal auditors and the independent auditor; |
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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; |
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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; |
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annually reviewing and reassessing the adequacy of our audit committee charter; |
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such other matters that are specifically delegated to our audit committee by our board of directors from time to time; |
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meeting separately, periodically, with management, internal auditors and the independent auditor; and |
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reporting regularly to the full board of directors. |
Compensation Committee
Our compensation committee will initially consist of Mr. Xiaopeng He, Mr. Qin Liu and Mr. Ji-Xun Foo. Mr. Xiaopeng He will be the chairperson of our compensation committee. Each of Mr. Qin Liu and Mr. Ji-Xun Foo 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:
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reviewing, evaluating and, if necessary, revising our overall compensation policies; |
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reviewing and evaluating the performance of our directors and senior officers and determining the compensation of our senior officers; |
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reviewing and approving our senior officers employment agreements with us; |
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setting performance targets for our senior officers with respect to our incentivecompensation plan and equity-based compensation plans; and |
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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. |
Nominating and Corporate Governance Committee
Our nominating and corporate governance committee will initially consist of Mr. Xiaopeng He, Mr. Qin Liu and Mr. Ji-Xun Foo. Mr. Xiaopeng He will be the chairperson of our nominating and corporate governance committee. Each of Mr. Qin Liu and Mr. Ji-Xun Foo 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:
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selecting and recommending to the board nominees for election by the shareholders or appointment by the board; |
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reviewing annually with the board the current composition of the board with regards to characteristics such as independence, knowledge, skills, experience and diversity; |
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making recommendations on the frequency and structure of board meetings and monitoring the functioning of the committees of the board; and |
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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 2019, we paid aggregate cash compensation of RMB33.5 million (US$4.7 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 are required by law to make
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contributions equal to certain percentages of each employees salary for his or her pension insurance, medical insurance, unemployment insurance and other statutory benefits and a housing provident fund. 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, our executive officers are typically 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, or serious breach of duty of loyalty to us. We may also terminate an executive officers employment without cause pursuant to applicable law of the jurisdiction where the executive officer is based. Executive officers typically may resign at any time with a 30-day advance written notice.
Executive officers have agreed to hold, both during and after the termination or expiry of his or her employment agreement, in strict confidence and not to use, except as required in the performance of his or her duties in connection with the employment or pursuant to applicable law, any of our confidential information or trade secrets, any confidential information or trade secrets of our business partners, or the confidential or proprietary information of any third party received by us and for which we have confidential obligations.
In addition, executive officers have agreed to be bound by non-competition and non-solicitation restrictions during the term of his or her employment and for a period of time following the last date of employment. Specifically, executive officers have agreed not to (i) represent himself or herself as being in any way, connected with or interested in our business; (ii) be engaged in, or concerned directly or indirectly in any capacity, in any business concern which is in competition with our business; (iii) contact and influence our suppliers, customers or other third parties who have business relationships with us; or (iv) 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 12 months preceding such termination.
We have entered 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
In June 2020, XPeng Inc. adopted a share incentive plan, which was amended and restated in August 2020, or the Plan, which allows us to grant options, restricted shares, RSUs and other equity awards to our employees, directors and consultants. The maximum number of ordinary shares that may be subject to equity awards pursuant to the Plan, or the share reserve, was initially set at 161,462,100. If the share reserve falls below 4% of our total outstanding shares on the last day of a calendar year, the share reserve shall automatically be increased to 4% of our total outstanding shares on the January 1 immediately thereafter. We issued RSUs under the Plan to replace the options granted under the share incentive plan of Chengxing Zhidong. Therefore, the share incentive plan of Chengxing Zhidong was terminated.
Administration
Upon the completion of this offering, the Plan will be administered by the compensation committee. The administrator will determine the terms and conditions of each equity award.
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Change in Control
In the event of a change in control, the administrators may accelerate the vesting, purchase of equity awards from holders and provide for the assumption, conversion or replacement of equity awards.
Term
Unless terminated earlier, the Plan will continue in effect for a term of ten years from the date of its adoption.
Award Agreements
Equity awards granted under the Plan are evidenced by award agreements that set forth the terms, conditions and limitations for each award, which must be consistent with the Plan.
Vesting Schedule
The vesting schedule of each equity award granted under the Plan will be set forth in the award agreement for such equity award.
Amendment and Termination
The Plan may at any time be amended or terminated with the approval of the board.
RSU Grants
As of the date of this prospectus, 96,274,295 RSUs were granted and outstanding, and shares underlying 43,044,280 of such RSUs have been issued to XPeng Fortune Holdings Limited, which has been established for our share incentive plan. The vesting of these RSUs are contingent upon the completion of an initial public offering or change in control. The table below summarizes the outstanding RSUs granted to our directors and executive officers:
Name |
Position |
Ordinary Shares
Underlying RSUs |
Grant Date | |||||||
Heng Xia |
Co-founder, Director and President | * | June 2020 | |||||||
Hongdi Brian Gu |
Vice Chairman and President | * | June 2020 | |||||||
Tao He |
Co-founder, Director and Senior Vice President | * | June 2020 | |||||||
Qinghong Liao |
Chief Human Resource Officer and Vice President of Sales and Services | * | June 2020 | |||||||
Hsuehching Lu |
Vice President of Finance and Accounting | * | June 2020 | |||||||
Xinzhou Wu |
Vice President of Autonomous Driving | * | June 2020 | |||||||
Yu Ji |
Vice President of Internet | * | June 2020 | |||||||
Jihan Xu |
Vice President of Automotive Research and Development | * | June 2020 | |||||||
Ping Jiang |
Vice President of Manufacturing | * | June 2020 | |||||||
Minghui Liu |
Vice President of Powertrain | * | June 2020 |
* |
Less than 1% of our total outstanding shares on an as-converted basis. |
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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:
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each of our directors and executive officers; and |
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each person known to us to beneficially own 5.0% or more of our Class A 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. However, these shares are not included in the computation of the percentage ownership of any other person.
Success Sharing Development Holding Limited, or Success Sharing, was initially established to hold ordinary shares (i) for employees who are eligible to receive equity awards and (ii) on behalf of certain directors and members of the management. In June 2020, we completed a restructuring of Success Sharing by repurchasing and cancelling 137,202,575 Class A ordinary shares held by Success Sharing at par value and then issuing an aggregate of 54,403,400 ordinary shares to certain directors and members of the management, which is equivalent to the number of ordinary shares held by Success Sharing on behalf of such individuals. As part of the restructuring of Success Sharing, we also issued an aggregate of 33,349,070 Class A ordinary shares to XPeng Fortune Holdings Limited, which is established for our share incentive plan.
The total number of ordinary shares outstanding as of the date of this prospectus is 1,240,019,000, assuming automatic conversion of all outstanding preferred shares into ordinary shares on a one-for-one-basis.
The total number of ordinary shares outstanding after completion of this offering will be 1,410,019,000, comprising 801,554,400 Class A ordinary shares, 429,846,136 Class B ordinary shares and 178,618,464 Class C ordinary shares, which is based upon (i) 107,051,240 Class A and 331,234,375 Class B ordinary shares outstanding prior to this offering; (ii) the automatic conversion of 16,926,907 Series B preferred shares, 29,871,475 Series B-1 preferred shares, 7,033,275 Series B-2 preferred shares and 43,642,225 Series C preferred shares held by Simplicity Holding Limited into 97,473,882 Class B ordinary shares on a one-for-one-basis upon the completion of this offering; (iii) the automatic conversion of 1,137,879 Series B preferred shares held by Efficiency Investment Limited into 1,137,879 Class B ordinary shares on a one-for-one-basis upon the completion of this offering; (iv) the automatic conversion of 50,540,875 Series A preferred shares, 54,709,700 Series B preferred shares, 18,382,450 Series B-1 preferred shares, 5,394,850 Series B-2 preferred shares and 49,590,589 Series C preferred shares owned by Alibaba into 178,618,464 Class C ordinary shares on a one-for-one-basis upon the completion of this offering; (v) the automatic conversion of the remaining outstanding preferred shares into 524,503,160 Class A ordinary shares on a one-for-one-basis upon the completion of this offering; and (vi) 170,000,000 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) 53,230,015 Class A ordinary shares issuable upon the settlement of outstanding RSUs and (ii) 32,693,845 additional Class A ordinary shares reserved for future grants under our share incentive plan.
Alibaba, one of our principal shareholders which beneficially owned 14.4% of our total ordinary shares outstanding on an as-converted basis prior to this offering, has indicated interest in purchasing up to US$200 million of the ADSs being offered in this offering at the initial public offering price and on the same terms as the other ADSs being offered. Because this indication of interest is not a binding agreement or commitment to purchase, Alibaba could determine to purchase more, fewer, or no ADSs in this offering, and the underwriters could determine to sell more, fewer, or no ADSs to Alibaba. Accordingly, the figures in the table below do not
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reflect the possible purchase of ADSs in this offering by Alibaba. The number of ADSs available for sale to the general public will be reduced to the extent that Alibaba purchases the ADSs. If Alibaba were to be allocated such amount in full, assuming an initial public offering price of US$12.00 per ADS, the mid-point of the estimated initial public offering price range shown on the front cover page of this prospectus, its voting power would be approximately 0.6% greater upon completion of this offering.
Ordinary Shares
Beneficially Owned Prior to This Offering |
Ordinary Shares Beneficially Owned
Immediately After This Offering |
|||||||||||||||||||||||||||||||
Number | % |
Number
of Class A ordinary shares |
% of total
Class A ordinary shares |
Number
of Class B ordinary shares |
Number
of Class C ordinary shares |
% of total
ordinary shares |
% of
voting power |
|||||||||||||||||||||||||
Directors and Executive Officers**: |
||||||||||||||||||||||||||||||||
Xiaopeng He(1) |
391,752,537 | 31.6 | 43,044,280 | 5.4 | 348,708,257 | | 27.8 | 58.9 | ||||||||||||||||||||||||
Heng Xia(2) |
61,150,459 | 4.9 | 12,580 | * | 61,137,879 | | 4.3 | 10.2 | ||||||||||||||||||||||||
Hongdi Brian Gu(3) |
34,750,038 | 2.8 | 34,750,038 | 4.3 | | | 2.5 | * | ||||||||||||||||||||||||
Tao He(4) |
20,012,580 | 1.6 | 12,580 | * | 20,000,000 | | 1.4 | 3.3 | ||||||||||||||||||||||||
Yongfu Yu |
| | | | | | | | ||||||||||||||||||||||||
Qin Liu |
| | | | | | | | ||||||||||||||||||||||||
Ji-Xun Foo |
| | | | | | | | ||||||||||||||||||||||||
Fei Yang |
| | | | | | | | ||||||||||||||||||||||||
Donghao Yang |
| | | | | | | | ||||||||||||||||||||||||
Qinghong Liao |
* | * | 1,153,830 | * | | | * | * | ||||||||||||||||||||||||
Hsuehching Lu |
* | * | 71,850 | * | | | * | * | ||||||||||||||||||||||||
Xinzhou Wu |
* | * | 308,400 | * | | | * | * | ||||||||||||||||||||||||
Yu Ji |
* | * | 4,985,230 | * | | | * | * | ||||||||||||||||||||||||
Jihan Xu |
* | * | 2,960,189 | * | | | * | * | ||||||||||||||||||||||||
Ping Jiang |
* | * | 68,400 | * | | | * | * | ||||||||||||||||||||||||
Minghui Liu |
* | * | 320,100 | * | | | * | * | ||||||||||||||||||||||||
All Directors and Executive Officers as a Group |
517,533,613 | 41.4 | 87,687,477 | 10.8 | 429,846,136 | | 36.4 | 73.1 | ||||||||||||||||||||||||
Principal Shareholders: |
||||||||||||||||||||||||||||||||
Simplicity and Respect entities(5) |
348,708,257 | 28.1 | | | 348,708,257 | | 24.7 | 58.2 | ||||||||||||||||||||||||
Alibaba(6) |
178,618,464 | 14.4 | | | | 178,618,464 | 12.7 | 14.9 | ||||||||||||||||||||||||
IDG entities(7) |
77,350,175 | 6.2 | 77,350,175 | 9.7 | | | 5.5 | 1.3 | ||||||||||||||||||||||||
Efficiency Investment Limited(2) |
61,137,879 | 4.9 | | | 61,137,879 | | 4.3 | 10.2 | ||||||||||||||||||||||||
Morningside entities(8) |
51,876,700 | 4.2 | 51,876,700 | 6.5 | | | 3.7 | * | ||||||||||||||||||||||||
GGV entities(9) |
47,009,082 | 3.8 | 47,009,082 | 5.9 | | | 3.3 | * | ||||||||||||||||||||||||
Shanghai Cheyou Enterprise Management Partnership (Limited Partnership)(10) |
43,320,750 | 3.5 | 43,320,750 | 5.4 | | | 3.1 | * | ||||||||||||||||||||||||
Primavera entities(11) |
39,884,150 | 3.2 | 39,884,150 | 5.0 | | | 2.8 | * |
* |
Less than 1% of our total outstanding shares on an as-converted basis. |
** |
The business address for our directors and executive officers is No. 8 Songgang Road, Changxing Street, Cencun, Tianhe District, Guangzhou, Guangdong 510640, Peoples Republic of China. |
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For each person and group included in this column, percentage ownership is calculated by dividing the number of ordinary shares beneficially owned by such person or group, including shares that such person or group has the right to acquire within 60 days after the date of this prospectus, by the sum of (i) the total number of ordinary shares issued and outstanding as of the date of this prospectus, and (ii) the number of ordinary shares that such person or group has the right to acquire beneficial ownership within 60 days after the date of this prospectus. |
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For each person and group included in this column, percentage of voting power is calculated by dividing the voting power beneficially owned by such person or group by the voting power of all of our Class A, Class B and Class C ordinary shares as a single class. In respect of matters requiring a shareholder vote, each Class A ordinary share will be entitled to one vote, each Class B ordinary share will be entitled to 10 votes and each Class C ordinary shares will be entitled to five votes upon the completion of this offering. Each Class B ordinary share or Class C ordinary share will be convertible into one Class A ordinary share at any time by the holder thereof. Class A ordinary shares will not be convertible into Class B ordinary shares or Class C ordinary shares under any circumstances. |
(1) |
Represents (i) 230,234,375 Class B ordinary shares held by Simplicity Holding Limited, (ii) 97,473,882 Class B ordinary shares, including 16,926,907 Class B ordinary shares issuable upon conversion of 16,926,907 Series B preferred shares, 29,871,475 Class B ordinary shares issuable upon conversion of 29,871,475 Series B-1 preferred shares, 7,033,275 Class B ordinary shares issuable upon conversion of 7,033,275 Series B-2 preferred shares and 43,642,225 Class B ordinary shares issuable upon conversion of 43,642,225 Series C preferred shares held by Simplicity Holding Limited, (iii) 21,000,000 Class B ordinary shares held by Respect Holding Limited, and (iv) 43,044,280 Class A ordinary shares held by XPeng Fortune Holdings Limited. Simplicity Holding Limited and Respect Holding Limited are further described in footnote 5 below. XPeng Fortune Holdings Limited is a limited company incorporated under the laws of the British Virgin Islands with its registered office at Trident Chambers, P.O. Box 146, Road Town, Tortola, British Virgin Islands. Mr. Xiaopeng He is entrusted with the voting power and dispositive power over the shares held by XPeng Fortune Holdings Limited, and is deemed to be the beneficial owner of the shares held by XPeng Fortune Holdings Limited. |
(2) |
Represents (i) 60,000,000 Class B ordinary shares held by Efficiency Investment Limited, (ii) 1,137,879 Class B ordinary shares issuable upon conversion of 1,137,879 Series B preferred shares held by Efficiency Investment Limited, and (iii) 12,580 Class A ordinary shares that Mr. Xia has the right to receive upon the settlement of his RSUs within 60 days after the date of this prospectus. Efficiency Investment Limited is a limited liability company incorporated under the laws of the British Virgin Islands with its registered office at the office of Vistra Corporate Services Centre, Wickhams Cay II, Road Town, Tortola, VG 1110, British Virgin Islands. Efficiency Investment Limited is wholly owned by Mr. Heng Xia, who is deemed to be the beneficial owner of the shares held by Efficiency Investment Limited. |
(3) |
Represents (i) 1,896,465 Class A ordinary shares issuable upon conversion of 1,896,465 Series B preferred shares and 318,363 Class A ordinary shares issuable upon conversion of 318,363 Series C preferred shares held by Hongdi Brian Gu, (ii) 32,493,960 Class A ordinary shares held by Quack Holding Limited, and (iii) 41,250 Class A ordinary shares that Mr. Gu has the right to receive upon the settlement of his RSUs within 60 days after the date of this prospectus. Quack Holding Limited is a limited liability company incorporated under the laws of the British Virgin Islands with its registered office at Craigmuir Chambers, Road Town, Tortola VG 1110, British Virgin Islands. Quack Holding Limited is wholly owned by Hongdi Brian Gu, who is deemed to be the beneficial owner of the shares held by Quack Holding Limited. |
(4) |
Represents (i) 20,000,000 Class B ordinary shares held by Quality Enterprises Limited, and (ii) 12,580 Class A ordinary shares that Mr. He has the right to receive upon the settlement of his RSUs within 60 days after the date of this prospectus. Quality Enterprise Limited is a limited liability company incorporated under the laws of the British Virgin Islands with its registered office at the office of Vistra Corporate Services Centre, Wickhams Cay II, Road Town, Tortola, VG 1110, British Virgin Islands. Quality Enterprises Limited is wholly owned by Tao He, who is deemed to be the beneficial owner of the shares held by Quality Enterprises Limited. |
(5) |
Represents (i) 230,234,375 Class B ordinary shares held by Simplicity Holding Limited, (ii) 97,473,882 Class B ordinary shares, including 16,926,907 Class B ordinary shares issuable upon conversion of 16,926,907 Series B preferred shares, 29,871,475 Class B ordinary shares issuable upon conversion of 29,871,475 Series B-1 preferred shares, 7,033,275 Class B ordinary shares issuable upon conversion of 7,033,275 Series B-2 preferred shares and 43,642,225 Class B ordinary shares issuable upon conversion of 43,642,225 Series C preferred shares held by Simplicity Holding Limited, and (iii) 21,000,000 Class B ordinary shares held by Respect Holding Limited. Simplicity Holding Limited is a limited liability company incorporated under the laws of the British Virgin Islands with its registered office at the office of Vistra Corporate Services Centre, Wickhams Cay II, Road Town, Tortola, VG 1110, British Virgin Islands. Simplicity Holding Limited is wholly owned by Xiaopeng He, who is deemed to be the beneficial owner of the shares held by Simplicity Holding Limited. Respect Holding Limited is a limited liability company incorporated under the laws of the British Virgin Islands with its registered office at the office of Vistra Corporate Services Centre, Wickhams Cay II, Road Town, Tortola VG 1110, British Virgin Islands. Respect Holding Limited is wholly owned by Mr. Xiaopeng He, who is deemed to be the beneficial owner of the shares held by Respect Holding Limited. Simplicity Holding Limited and Respect Holding Limited are collectively referred to as Simplicity and Respect entities. |
(6) |
Represents 178,618,464 Class C ordinary shares, including 50,540,875 Class C ordinary shares issuable upon conversion of 50,540,875 Series A preferred shares, 54,709,700 Class C ordinary shares issuable upon conversion of 54,709,700 Series B preferred shares, 18,382,450 Class C ordinary shares issuable upon conversion of 18,382,450 Series B-1 preferred shares, 5,394,850 Class C ordinary shares issuable upon conversion of 5,394,850 Series B-2 preferred shares and 49,590,589 Class C ordinary shares issuable upon conversion of 49,590,589 Series C preferred shares held by Taobao China Holding Limited, a limited liability company incorporated under the laws of the Hong Kong with its registered office at 26/F. Tower One, Time Square, 1 Matheson Street, Causeway Bay, Hong Kong. Taobao China Holding Limited is a wholly-owned subsidiary of Alibaba Group Holding Limited, which is deemed to be the beneficial owner of the shares held by Taobao China Holding Limited. Alibaba Group Holding Limited is a public company listed on the New York Stock Exchange and Hong Kong Stock Exchange. |
(7) |
Represents 77,350,175 Class A ordinary shares, including 14,739,650 Class A ordinary shares issuable upon conversion of 14,739,650 Series A-1 preferred shares, 36,473,100 Class A ordinary shares issuable upon conversion of 36,473,100 Series B preferred shares and 26,137,425 Class A ordinary shares issuable upon conversion of 26,137,425 Series C preferred shares held by Pacific Rays Limited. Pacific Rays Limited is a limited liability company incorporated under the laws of the British Virgin Islands with its registered office at the office of Vistra Corporate Services Centre, Wickhams Cay II, Road Town, Tortola VG 1110, British Virgin Islands. Pacific Rays Limited is wholly owned by Shanghai Keji Enterprise Management Partnership (LLP). Shanghai Keji Enterprise Management Partnership (LLP) is |
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controlled by Tianjin Hexie Qingyu Investment Management Partnership (LLP), its general partner. Tianjin Hexie Qingyu Investment Management Partnership (LLP) is controlled by Xizang Qingyu Venture Capital Management Co., Ltd., its general partner. Xizang Qingyu Venture Capital Management Co., Ltd. is wholly owned by four individuals, including Kuiguang Niu, Dongliang Lin, Fei Yang and Jingbo Wang, who have the voting power and dispositive power over the shares held by Pacific Rays Limited. Tianjin Ruifeng Xinchuang Investment Management Partnership (Limited Partnership), a limited partnership controlled by Kuiguang Niu, Dongliang Lin, Fei Yang and Jingbo Wang, previously held two warrants to purchase 3,501,425 Series A-2 preferred shares and 21,883,875 Series B preferred shares. Pacific Rays Limited and Tianjin Ruifeng Xinchuang Investment Management Partnership (Limited Partnership) are referred to as the IDG entities. In July and August 2020, Tianjin Ruifeng Xinchuang Investment Management Partnership (Limited Partnership) sold its warrants to Dazzling Mount Holdings Limited, Simplicity Holding Limited, Efficiency Investment Limited and Hongdi Brian Gu according to separate agreements negotiated and agreed between and among these parties. The share ownership percentage of the IDG entities decreased from 9.0% to 6.2% as a result of such sale of warrants and additional share issuances by us. |
(8) |
Represents 51,876,700 Class A ordinary shares, including (i) 14,639,425 Class A ordinary shares issuable upon conversion of 14,639,425 Series A-1 preferred shares, 3,377,400 Class A ordinary shares issuable upon conversion of 3,377,400 Series B preferred shares and 12,556,625 Class A ordinary shares issuable upon conversion of 12,556,625 Series B-1 preferred shares held by Morningside TMT Holding IV Limited, (ii) 7,287,250 Class A ordinary shares issuable upon conversion of 7,287,250 Series B-1 preferred shares held by Morningside Special IV Hong Kong Limited, (iii) 346,050 Class A ordinary shares issuable upon conversion of 346,050 Series C preferred shares held by Evolution Fund I Co- investment, L.P., (iv) 2,306,975 Class A ordinary shares issuable upon conversion of 2,306,975 Series C preferred shares held by Evolution Special Opportunity Fund I, L.P., and (v) 3,932,550 Class A ordinary shares issuable upon conversion of 3,932,550 Series A-1 preferred shares, 999,350 Class A ordinary shares issuable upon conversion of 999,350 Series B preferred shares, 5,432,025 Class A ordinary shares issuable upon conversion of 5,432,025 Series B-1 preferred shares and 999,050 Class A ordinary shares issuable upon conversion of 999,050 Series B-2 preferred shares held by CX TMT Holding IV Limited. Morningside TMT Holding IV Limited is a limited liability company incorporated under the laws of Hong Kong with its registered office at the Unit 402, 4th Floor, Fairmont House, No. 8 Cotton Tree Drive, Admiralty, Hong Kong. Morningside TMT Holding IV Limited is wholly-owned by Morningside China TMT Fund IV, L.P., or Morningside Fund IV, and Morningside China TMT Fund IV Co-Investment, L.P., or Morningside Fund IV Co-Investment. Morningside Fund IV and Morningside Fund IV Co-Investment are controlled by Morningside China TMT GP IV, L.P., their general partner, which, in turn, is controlled by TMT General Partner Ltd. its general partner. Morningside Special IV Hong Kong Limited is a limited company incorporated under the laws of Hong Kong with its registered office at the Unit 402, 4th Floor, Fairmont House, No. 8 Cotton Tree Drive, Admiralty, Hong Kong. Morningside Special IV Hong Kong Limited is wholly owned by Morningside China TMT Special Opportunity Fund II, L.P., or Morningside Sidecar II, and Morningside Fund IV Co-Investment. Morningside Sidecar II is controlled by Morningside China TMT GP IV, L.P., its general partner, which, in turn, is controlled by TMT General Partner Ltd. its general partner. TMT General Partner Ltd. is controlled by its board consisting of five individuals, including Jianming Shi, Qin Liu, Gerald Lokchung Chan, Maria K. Lam and Makim Wai On Andrew Ma, who have the voting and dispositive powers over the shares held by Morningside TMT Holding IV Limited and Morningside Special IV Hong Kong Limited. Evolution Special Opportunity Fund I, L.P., is a limited partnership established under the laws of the Cayman Islands with its registered office at the office of Estera Trust (Cayman) Limited, 75 Fort Street, PO Box 1350, Grand Cayman KY1-1108, Cayman Islands. Evolution Fund I Co-investment, L.P. is a limited partnership established under the laws of the Cayman Islands with its registered office at the office of Estera Trust (Cayman) Limited, 75 Fort Street, PO Box 1350, Grand Cayman KY1-1108, Cayman Islands. Evolution Special Opportunity Fund I, L.P. and Evolution Fund I Co-investment, L.P. are controlled by MSVC GP Limited, their general partner. MSVC GP Limited is controlled by its board consisting of three individuals, including Qin Liu, Wai Shan Wong and Riyaz Hussain Nooruddin, who have the voting and dispositive powers over the shares held by Evolution Special Opportunity Fund I, L.P. and Evolution Fund I Co-investment, L.P. CX TMT Holding IV Limited is a limited liability company incorporated under the laws of the British Virgin Islands with its registered office at the office of Trinity Chambers, PO Box 4301, Road Town, Tortola, British Virgin Islands. CX TMT Holding IV Limited is owned by Shanghai Chenxi Venture Capital Center (Limited Partnership), which is controlled by Shanghai Xingpan Investment Management Consulting Co., Ltd., its general partner. Shanghai Xingpan Investment Management Consulting Co., Ltd. is controlled by its investment committee consisting of three individuals, including Qin Liu, Jianming Shi and Yu Cheng who have the voting and dispositive powers over the shares held by CX TMT Holding IV Limited. Morningside TMT Holding IV Limited, Morningside Special IV Hong Kong Limited, Evolution Special Opportunity Fund I, L.P., Evolution Fund I Co-investment, L.P. and CX TMT Holding IV Limited are collectively referred to as the Morningside entities. |
(9) |
Represents 47,009,082 Class A ordinary shares, including (i) 18,571,950 Class A ordinary shares issuable upon conversion of 18,571,950 Series A-1 preferred shares, 4,376,775 Class A ordinary shares issuable upon conversion of 4,376,775 Series B preferred shares, 7,148,750 Class A ordinary shares issuable upon conversion of 7,148,750 Series B-1 preferred shares, 1,776,075 Class A ordinary shares issuable upon conversion of 1,776,075 Series B-2 preferred shares and 3,183,625 Class A ordinary shares issuable upon conversion of 3,183,625 Series C preferred shares held by GGV (Xpeng) Limited, and (ii) 8,935,900 Class A ordinary shares issuable upon conversion of 8,935,900 Series B-1 preferred shares, 2,220,100 Class A ordinary shares issuable upon conversion of 2,220,100 Series B-2 preferred shares and 795,907 Class A ordinary shares issuable upon conversion of 795,907 Series C preferred shares held by Shanghai Yuanxin Enterprise Management Partnership (Limited Partnership). GGV (Xpeng) Limited is a limited liability company incorporated under the laws of Hong Kong with its registered office at 402 Jardine House, 1 Connaught Place Central, Hong Kong. GGV (Xpeng) Limited is wholly-owned by GGV Capital VI L.P., GGV Capital VI Plus L.P. and GGV Capital VI Entrepreneurs Fund L.P. GGV Capital VI L.P., GGV Capital VI Plus L.P. and GGV Capital VI Entrepreneurs Fund L.P. are controlled by five individuals, including Ji-Xun Foo, Jenny Hongwei Lee, Jeffrey Gordon Richards, Glenn Brian Solomon and Hans Tung, who have the shared voting and investment control over the shares held by GGV (Xpeng) Limited. Shanghai Yuanxin Enterprise Management Partnership (Limited Partnership) is a limited partnership established under the laws of the PRC with its registered office at Unit 205 West, Level 2, 707 |
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Zhangyang Road, China (Shanghai) Pilot Free Trade Zone, P.R.C. Shanghai Yuanxin Enterprise Management Partnership (Limited Partnership) is controlled by Ningbo Jiyuan Investment Management Co., Ltd., its general partner. Ningbo Jiyuan Investment Management Co., Ltd. is controlled by its investment committee consisting of three individuals, including Ji-Xun Foo, Jenny Hongwei Lee and Bingdong Xu, who have the shared voting and investment control over the shares held by Shanghai Yuanxin Enterprise Management Partnership (Limited Partnership). |
(10) |
Represents 43,320,750 Class A ordinary shares, including 15,753,000 Class A ordinary shares and 27,567,750 Class A ordinary shares issuable upon conversion of 27,567,750 Series A preferred shares held by Shanghai Cheyou Enterprise Management Partnership (Limited Partnership), a limited partnership incorporated under the laws of the PRC with its registered office at Room 205, West Zone, 2nd Floor, No. 707 Zhangyang Road, China (Shanghai) Pilot Free Trade Zone. Shanghai Cheyou Enterprise Management Partnership (Limited Partnership) is controlled by Rizhao Centurium Equity Investment Management Center (Limited Partnership), its general partner. Rizhao Centurium Equity Investment Management Center (Limited Partnership) is ultimately controlled by Hui Li, who is deemed to be the beneficial owner of the shares held by Shanghai Cheyou Enterprise Management Partnership (Limited Partnership). |
(11) |
Represents 39,884,150 Class A ordinary shares, including (i) 3,888,600 Class A ordinary shares issuable upon conversion of 3,888,600 Series B-1 preferred shares and 614,800 Class A ordinary shares issuable upon conversion of 614,800 Series B-2 preferred shares held by Yincheng Investment Limited, (ii) 21,387,275 Class A ordinary shares issuable upon conversion of 21,387,275 Series B-1 preferred shares and 3,381,375 Class A ordinary shares issuable upon conversion of 3,381,375 Series B-2 preferred shares held by Xenon Investment Limited, and (iii) 10,612,100 Class A ordinary shares issuable upon conversion of 10,612,100 Series C preferred shares held by PV Xenon Investment II Limited. Yincheng Investment Limited is a limited liability company incorporated under the laws of the British Virgin Islands with its registered office at Wickhams Cay II, Road Town Tortola, VG1110, British Virgin Islands. Yincheng Investment Limited is wholly-owned by Chunhua Xingkang (Tianjin) Investment Center (Limited Partnership) and Chunhua Xingan (Tianjin) Investment Center (Limited Partnership). Both Chunhua Xingkang (Tianjin) Investment Center (Limited Partnership) and Chunhua Xingan (Tianjin) Investment Center (Limited Partnership) are controlled by Qiushi (Tianjin) Equity Investment Management Partnership (Limited Partnership), their general partner. Qiushi (Tianjin) Equity Investment Management Partnership (Limited Partnership) is wholly-owned by Chunhua Qiushi (Tianjin) Equity Investment Management Co., Ltd., which is controlled by Xueqing Wang, who have the voting power and dispositive power over the shares held by Yincheng Investment Limited. Xenon Investment Limited is a limited liability company incorporated under the laws of the British Virgin Islands with its registered office at Wickhams Cay II, Road Town Tortola, VG1110, British Virgin Islands. Xenon Investment Limited is wholly-owned by Primavera Capital Fund III L.P. Primavera Capital Fund III L.P. is controlled by Primavera Capital GP III Ltd., its general partner. Primavera Capital GP III Ltd. is controlled by its board consisting of three individuals, including Zuliu Hu, Richard Alvah Ruffer Jr. and Leon Dwayne Rhule, who have the voting power and dispositive power over the shares held by Xenon Investment Limited. PV Xenon Investment II Limited is a limited liability company incorporated under the laws of the British Virgin Islands with its registered office at Wickhams Cay II, Road Town Tortola, VG1110, British Virgin Islands. PV Xenon Investment II Limited is wholly-owned by Primavera Capital Fund III L.P. Primavera Capital Fund III L.P. is controlled by Primavera Capital GP III Ltd., its general partner. Primavera Capital GP III Ltd. is controlled by its board consisting of three individuals, including Zuliu Hu, Richard Alvah Ruffer Jr. and Leon Dwayne Rhule, who have the voting power and dispositive power over the shares held by PV Xenon Investment II Limited. Xenon Investment Limited, Yincheng Investment Limited and PV Xenon Investment II Limited are collectively referred to as the Primavera entities. |
As of the date of this prospectus, a total of 265,300 Series C preferred shares, which will be converted into our ordinary shares on a one-for-one basis upon completion of this offering, are held by one record holder in the United States, representing less than 1% of our total outstanding shares on an as-converted basis. 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.
Historical Changes in Our Shareholding
See Description of Share CapitalHistory of Securities Issuances for historical changes in our shareholding.
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Private Placements
See Description of Share CapitalHistory of Securities Issuances.
Shareholders Agreement
See Description of Share CapitalRegistration Rights.
Employment Agreements and Indemnification Agreements
See ManagementEmployment Agreements and Indemnification Agreements.
Share Incentive Plan
See ManagementShare Incentive Plan.
Transaction with Xiaopeng He
As of December 31, 2018 and 2019, amount due from Mr. Xiaopeng He, our co-founder, chairman and chief executive officer, was RMB20.4 million and RMB20.4 million (US$2.9 million), respectively, in relation to the deposit and prepayment paid on behalf of Mr. He relating to a property lease. Mr. He paid off the outstanding amount in May 2020. As of June 30, 2020, we did not record any amount due from Mr. He.
In February and March 2020, we received loans from Mr. He with principal amounts of US$150.0 million and maturity of six months, and such loans have been repaid subsequently. As of June 30, 2020, we recorded amount due to Mr. He of RMB5.5 million (US$0.8 million) in relation to a land Mr. He leased to us.
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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 5,000,000,000 shares, including (i) 3,443,671,015 Class A ordinary shares of par value US$0.00001 each, (ii) 750,000,000 Class B ordinary shares of par value US$0.00001 each, (iii) 78,108,625 Series A preferred shares of par value US$0.00001 each, (iv) 67,802,375 Series A-1 preferred shares of par value US$0.00001 each, (v) 11,671,400 Series A-2 preferred shares of par value US$0.00001 each, (vi) 160,481,700 Series B preferred shares with par value of US$0.00001 each, (vii) 137,868,350 Series B-1 preferred shares of par value US$0.00001 each, (viii) 35,965,675 Series B-2 preferred shares of par value US$0.00001 each, and (ix) 314,430,860 Series C preferred shares with par value of US$0.00001 each.
As of the date of this prospectus, there were 1,240,019,000 shares issued and outstanding, including (i) 107,051,240 Class A ordinary shares of par value US$0.00001 each, (ii) 331,234,375 Class B ordinary shares of par value US$0.00001 each, (iii) 78,108,625 Series A preferred shares of par value US$0.00001 each, (iv) 67,802,375 Series A-1 preferred shares of par value US$0.00001 each, (v) 11,671,400 Series A-2 preferred shares of par value US$ 0.00001 each, (vi) 160,481,700 Series B preferred shares with par value of US$0.00001 each, (vii) 133,272,750 Series B-1 preferred shares of par value US$0.00001 each, (viii) 35,965,675 Series B-2 preferred shares of par value US$ 0.00001 each, and (ix) 314,430,860 Series C preferred shares with par value of US$0.00001 each.
Upon the closing of this offering, we will have 801,554,400 Class A ordinary shares, 429,846,136 Class B ordinary shares and 178,618,464 Class C ordinary shares issued and outstanding (or 827,054,400 Class A ordinary shares, 429,846,136 Class B ordinary shares and 178,618,464 Class C ordinary shares if the underwriters exercise in full the over-allotment option), excluding Class A ordinary shares issuable upon the vesting of outstanding RSUs under our share incentive plan and Class A ordinary shares reserved for future issuance under our share incentive plan. All of our 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$100,000 divided into 8,850,000,000 Class A ordinary shares, 750,000,000 Class B ordinary shares and 400,000,000 Class C ordinary shares with a par value of US$0.00001 each.
Our seventh amended and restated memorandum and articles of association will become effective upon completion of this offering. The following are summaries of material provisions of our seventh amended and restated memorandum and articles of association and the Companies Law insofar as they relate to the material terms of our ordinary shares.
Ordinary Shares
General
Holders of Class A ordinary shares, Class B ordinary shares and Class C ordinary shares have the same rights except for voting and conversion rights. All of our issued 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 vote 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 seventh amended and restated memorandum and articles of association provide that dividends may
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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, Class B ordinary shares and Class C ordinary shares will be entitled to the same amount of dividends, if declared.
Voting Rights
In respect of all matters upon which the ordinary shares are entitled to vote, each Class A ordinary share is entitled to one vote, each Class B ordinary share is entitled to 10 votes, and each Class C ordinary share is entitled to five votes. Voting at any meeting of shareholders is by show of hands unless a poll is demanded. A poll may be demanded by the chairman of such meeting or any one or more shareholders who together hold not less than 10% of the nominal value of the total issued voting shares of our company present in person or by proxy.
An ordinary resolution to be passed by the shareholders requires the affirmative vote of a simple majority of votes attached to the ordinary shares cast in a general meeting, while a special resolution requires the affirmative vote of no less than two-thirds of votes cast attached to the ordinary shares. A special resolution will be required for important matters such as a change of name or making changes to our seventh amended and restated memorandum and articles of association.
Conversion
Each Class B ordinary share or Class C 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 or Class C ordinary shares under any circumstances. Upon any transfer of Class B ordinary shares or Class C ordinary shares by a holder to any person or entity which is not an affiliate of such holder, such Class B ordinary shares or Class C 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 seventh amended and restated memorandum and 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:
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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; |
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the instrument of transfer is in respect of only one class of ordinary shares; |
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the instrument of transfer is properly stamped, if required; |
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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 |
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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. |
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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 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. The ordinary shares that have been called upon and remain unpaid are subject to forfeiture.
Redemption of Ordinary Shares
Subject to the provisions of the Companies Law and other applicable law, we may issue shares on terms that are subject to redemption, at our option or at the option of the holders, on such terms and in such manner, including out of capital, as may be determined by the board of directors.
Variations of Rights of Shares
If at any time, our share capital is divided into different classes of shares, the rights attached to any class of shares may, subject to the provisions of the Companies Law, be varied with the sanction of an ordinary resolution passed at a general meeting of the holders of the shares of that class. Consequently, the rights of any class of shares cannot be detrimentally altered without a simple majority of the vote of all of the shares in that class. The rights conferred upon the holders of the 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 with such shares.
General Meetings of Shareholders
Shareholders meetings may be convened by a majority of our board of directors. Advance notice of at least ten clear business days is required for the convening of our annual general shareholders meeting and any other general meeting of our shareholders. A quorum required for a meeting of shareholders consists of the holders of not less than one-third of the aggregate voting power of all of the ordinary shares present in person or by proxy.
Inspection of Books and Records
Holders of our ordinary shares will have a general right under Cayman Islands law to inspect or obtain copies of our list of shareholders or our corporate records. See Where You Can Find More Information.
Changes in Capital
We may from time to time by ordinary resolution:
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increase our share capital by such sum as the resolution shall prescribe and with such rights, priorities and privileges annexed thereto, as we in general meeting may determine; |
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consolidate and divide all or any of our share capital into shares of a larger amount than our existing shares; |
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by subdivision of its existing shares or any of them divide the whole or any part of our share capital into shares of smaller amount than is fixed by our seventh amended and restated memorandum and articles of association; or |
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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. |
We may by special resolution reduce our share capital or any capital redemption reserve fund 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:
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an exempted company does not have to file an annual return of its shareholders with the Registrar of Companies of the Cayman Islands; |
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an exempted companys register of members is not open to inspection; |
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an exempted company does not have to hold an annual general meeting; |
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an exempted company may issue no par value shares; |
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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); |
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an exempted company may register by way of continuation in another jurisdiction and be deregistered in the Cayman Islands; |
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an exempted company may register as a limited duration company; and |
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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. As our ADSs will be listed on NYSE, we will also be subject to the rules of NYSE, but we intend to follow home country practice for certain corporate governance practices in lieu of NYSE corporate governance listing standards. See Risk FactorsRisks Relating to This OfferingAs 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.
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.
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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.
A merger between a Cayman parent company and its Cayman subsidiary or subsidiaries does not require authorization by a resolution of shareholders of that Cayman subsidiary if a copy of the plan of merger is given to every member of that Cayman subsidiary to be merged unless that member agrees otherwise. For this purpose a subsidiary is a company of which whose issued shares that together represent at least ninety percent (90%) of the votes at a general meeting 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 shareholder of a Cayman constituent company who dissents from the merger or consolidation is entitled to payment of the fair value of his shares upon dissenting to a merger or consolidation, provided that the dissenting shareholder complies strictly with the procedures set out in the Cayman Companies Law. 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 by way of schemes of arrangement, 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 three-fourths in value of each such class of shareholders or creditors, as the case may be, that are present and voting either in person or by proxy at a meeting, or meetings, convened for that purpose. The convening of the meetings and subsequently the arrangement must be sanctioned by the Grand Court of the Cayman Islands. While a dissenting shareholder has the right to express to the court the view that the transaction ought not to be approved, the court can be expected to approve the arrangement if it determines that:
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the statutory provisions as to the required majority vote have been met; |
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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; |
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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 |
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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.
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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:
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a company acts or proposes to act illegally or ultra vires; |
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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 |
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those who control the company are perpetrating a fraud on the minority. |
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 seventh amended and restated memorandum and articles of association permit indemnification of officers and directors for losses, damages, costs 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 seventh 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 seventh 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 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.
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In general, actions of a director are presumed to have been made on an informed basis, in good faith and in the honest belief that the action taken was in the best interests of the corporation. However, this presumption may be rebutted by evidence of a breach of one of the fiduciary duties. Should such evidence be presented concerning a transaction by a director, a director must prove the procedural fairness of the transaction, and that the transaction was of fair value to the corporation.
As a matter of Cayman 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. Cayman Islands law and our seventh amended and restated articles of association provide that shareholders may approve corporate matters by way of a 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 seventh 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. There are no prohibitions in relation to cumulative voting under Cayman Islands law, but our seventh 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 issued shares entitled to vote, unless the certificate of incorporation provides otherwise. Under our seventh amended and restated articles of association, directors may be removed by ordinary resolution.
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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, the directors of the company are required to comply with fiduciary duties which they owe to the company under Cayman Islands law, including the duty to ensure that, in their opinion, 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 of the Cayman Islands and our seventh amended and restated articles of association, our company may be dissolved, liquidated or wound up by the vote of holders of two-thirds of our shares voting at a meeting or the unanimous written resolution of all shareholders.
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 seventh 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 seventh amended and restated memorandum and articles of association may only be amended by special resolution or the unanimous written resolution of all shareholders.
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Rights of Non-Resident or Foreign Shareholders
There are no limitations imposed by our seventh 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 addition, there are no provisions in our seventh 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 the inception of Chengxing Zhidong. 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.
In connection with the Reorganization, the shareholders of Chengxing Zhidong obtained shares or warrants to purchase shares of XPeng Inc. in proportion to the shares they held in Chengxing Zhidong. As we effected a share split on March 30, 2020, in which each one of the previously issued ordinary shares and preferred shares was split into 25 ordinary shares and preferred shares, respectively, the following share numbers have given effect to such share split.
Ordinary Shares
We were incorporated in the Cayman Islands as an exempted limited liability company on December 27, 2018. We issued (i) 25 ordinary shares to the Vistra (Cayman) Limited, which was transferred on the same day to Simplicity Holding Limited at par value, (ii) 230,234,350 ordinary shares to Simplicity Holding Limited for a consideration of US$51,596,941.03, (iii) 60,000,000 ordinary shares to Efficiency Investment Limited for a consideration of US$391,446.89, (iv) 20,000,000 ordinary shares to Quality Enterprises Limited for a consideration of US$130,588.79, (v) 137,202,575 ordinary shares to Success Sharing for a consideration of US$522,168.80, and (vi) 583,575 ordinary shares to XPD Holdings Limited for a consideration of US$789,639.92.
On August 8, 2019, we issued (i) 230,234,350 ordinary shares to Simplicity Holding Limited, (ii) 59,999,975 ordinary shares to Efficiency Investment Limited, (iii) 19,999,975 ordinary shares to Quality Enterprises Limited, (iv) 137,202,550 ordinary shares to Success Sharing, and (v) 583,550 ordinary shares to XPD Holdings Limited.
On June 28, 2020, in connection with the restructuring of Success Sharing, we issued (i) 17,643,400 Class A ordinary shares to Quack Holding Limited at par value, (ii) 15,760,000 Class A ordinary shares to Like Minded Enterprise Limited at par value, (iii) 33,349,070 Class A ordinary shares to Xpeng Fortune Holdings Limited at par value, and (iv) 21,000,000 Class B ordinary shares to Respect Holding Limited at par value.
Preferred Shares and Warrants
On September 12, 2019, we issued 50,540,875 Series A preferred shares to Taobao China Holding Limited for a consideration of US$46,586,904.24.
On the same day, we issued a total of 46,477,050 Series A-1 preferred shares, of which (i) 18,571,950 Series A-1 preferred shares were issued to GGV (Xpeng) Limited for a consideration of US$19,090,909,
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(ii) 14,639,425 Series A-1 preferred shares were issued to Morningside TMT Holding IV Limited for a consideration of US$15,048,485, (iii) 10,317,750 Series A-1 preferred shares were issued to Matrix Partners China IV Hong Kong Limited for a consideration of US$10,606,051, and (iv) 2,947,925 Series A-1 preferred shares were issued to Shunwei Top Venture Limited for a consideration of US$3,030,303.03.
On the same day, we issued a total of 79,970,975 Series B preferred shares, of which (i) 54,709,700 Series B preferred shares were issued to Taobao China Holding Limited for a consideration of US$117,787,479.98, (ii) 4,376,775 Series B preferred shares were issued to GGV (Xpeng) Limited for a consideration of US$9,375,000, (iii) 3,377,400 Series B preferred shares were issued to Morningside TMT Holding IV Limited for a consideration of US$7,234,375, (iv) 2,917,850 Series B preferred shares were issued to Matrix Partners China IV Hong Kong Limited for a consideration of US$6,249,990, and (v) 14,589,250 Series B preferred shares were issued to Markarian Investments Limited for a consideration of US$31,250,000.
On the same day, we issued a total of 109,041,950 Series B-1 preferred shares, of which (i) 29,871,475 Series B-1 preferred shares were issued to Simplicity Holding Limited for a consideration of US$94,487,730.81, (ii) 7,148,750 Series B-1 preferred shares were issued to GGV (Xpeng) Limited for a consideration of US$22,595,040.30, (iii) 12,556,625 Series B-1 preferred shares were issued to Morningside TMT Holding IV Limited for a consideration of US$39,645,090.61, (iv) 7,287,250 Series B-1 preferred shares were issued to Morningside Special IV Hong Kong Limited for a consideration of US$23,182,070.70, (v) 2,297,800 Series B-1 preferred shares were issued to Matrix Partners China IV Hong Kong Limited for a consideration of US$7,285,332.53, (vi) 21,387,275 Series B-1 preferred shares were issued to Xenon Investment Limited for a consideration of US$67,550,819.37, (vii) 2,297,800 Series B-1 preferred shares were issued to Sino EV Limited for a consideration of US$7,257,526.05, (viii) 2,665,450 Series B-1 preferred shares were issued to Magical Star Project Company Limited for a consideration of US$8,554,319.93, (ix) 1,571,700 Series B-1 preferred shares were issued to Proficient Development Project Company Limited for a consideration of US$5,044,098.99, (x) 358,450 Series B-1 preferred shares were issued to CK Investment Holdings Limited for a consideration of US$1,156,005.01, (xi) 2,297,800 Series B-1 preferred shares were issued to HH XP (HK) Holdings Limited for a consideration of US$7,285,337.53, (xii) 919,125 Series B-1 preferred shares were issued to Robert S Bao for a consideration of US$2,914,135.01, and (xiii) 18,382,450 Series B-1 preferred shares were issued to Taobao China Holding Limited for a consideration of US$57,965,973.97.
On the same day, we issued a total of 26,137,425 Series B-2 preferred shares, of which (i) 7,033,275 Series B-2 preferred shares were issued to Simplicity Holding Limited for a consideration of US$25,584,370.19, (ii) 1,776,075 Series B-2 preferred shares were issued to GGV (Xpeng) Limited for a consideration of US$6,455,725.91, (iii) 3,381,375 Series B-2 preferred shares were issued to Xenon Investment Limited for a consideration of US$12,281,967.23, (iv) 1,298,750 Series B-2 preferred shares were issued to KTB China Synergy Fund for a consideration of US$4,710,964, (v) 2,697,425 Series B-2 preferred shares were issued to KTB AI Limited Partnership for a consideration of US$10,049,577.92, (vi) 559,475 Series B-2 preferred shares were issued to Sino EV Limited for a consideration of US$2,032,107.30, (vii) 783,250 Series B-2 preferred shares were issued to Luminous Ace Limited for a consideration of US$2,885,000, (viii) 1,214,850 Series B-2 preferred shares were issued to Truly Magnetic Project Company Limited for a consideration of US$4,483,643.55, (ix) 1,998,100 Series B-2 preferred shares were issued to HH XP (HK) Holdings Limited for a consideration of US$7,285,337.53, and (x) 5,394,850 Series B-2 preferred shares were issued to Taobao China Holding Limited for a consideration of US$19,563,516.22.
On the same day, we issued warrants to several investors, most of whom have exercised their warrants on April 24, 2020, as further described below. On May 22, 2020, a warrant held by Zhaoqing Hightech Zone Construction Investment Development Co., Ltd. was cancelled, as further described below. In addition, two warrants held by Tianjin Ruifeng Xinchuang Investment Management Partnership (Limited Partnership) were transferred to Dazzling Mount Holdings Limited, Simplicity Holding Limited, Efficiency Investment Limited and Hongdi Brian Gu, and these parties exercised the warrants in August 2020, as described below.
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On December 2, 2019, we issued a total of 79,590,650 Series C preferred shares, of which (i) 10,612,100 Series C preferred shares were issued to PV Xenon Investment II Limited for a consideration of US$40,000,000, (ii) 13,265,100 Series C preferred shares were issued to Fast Pace Limited for a consideration of US$50,000,000, (iii) 43,642,225 Series C preferred shares were issued to Simplicity Holding Limited for a consideration of US$164,500,000, (iv) 3,183,625 Series C preferred shares were issued to GGV (Xpeng) Limited for a consideration of US$12,000,000, (v) 1,326,500 Series C preferred shares were issued to Matrix Partners China IV Hong Kong Limited for a consideration of US$5,000,000, (vi) 397,950 Series C preferred shares were issued to Shunwei Top Venture Limited for a consideration of US$1,500,000, (vii) 2,653,025 Series C preferred shares were issued to Golden Eagle (Asia) Investment Limited for a consideration of US$10,000,000, (viii) 1,326,500 Series C preferred shares were issued to Duowan Entertainment Corp. for a consideration of US$5,000,000, (ix) 2,306,975 Series C preferred shares were issued to Evolution Special Opportunity Fund I, L.P. for a consideration of US$8,695,652, (x) 346,050 Series C preferred shares were issued to Evolution Fund I Co- investment, L.P. for a consideration of US$1,304,348, (xi) 265,300 Series C preferred shares were issued to Bryan White for a consideration of US$1,000,000, and (xii) 265,300 Series C preferred shares were issued to Markarian Investments Limited for a consideration of US$1,000,000.
On April 10, 2020, we issued 26,137,425 Series C preferred shares to Pacific Rays Limited for a consideration of US$98,519,394.25.
On May 11, 2020, we issued 795,907 Series C preferred shares to Shanghai Yuanxin Enterprise Management Partnership (Limited Partnership) for a consideration of US$3,000,000.
Considerations from (i) Pacific Rays Limited for the Series C preferred shares and (ii) Shanghai Yuanxin Enterprise Management Partnership (Limited Partnership) for the Series C preferred shares were initially paid to Chengxing Zhidong in the form of interest-free loans denominated in RMB. After the relevant shareholder completes the regulatory registrations for overseas investment, Chengxing Zhidong will repay the loan, and the shareholder will pay the equivalent amount to XPeng Inc. in U.S. dollars.
On April 24, 2020, certain warrant holders purchased our shares pursuant to the warrants issued on September 12, 2019, including (i) Shanghai Cheyou Enterprise Management Partnership (Limited Partnership) purchased 15,753,000 Class A ordinary shares and 27,567,750 Series A preferred shares for a consideration of US$25,531,932.02, (ii) Shanghai Yuanxin Enterprise Management Partnership (Limited Partnership) purchased 8,935,900 Series B-1 preferred shares and 2,220,100 Series B-2 preferred shares for a consideration of US$36,034,997.19, (iii) CX TMT Holding IV Limited purchased 3,932,550 Series A-1 preferred shares, 999,350 Series B preferred shares, 5,432,025 Series B-1 preferred shares and 999,050 Series B-2 preferred shares for a consideration of US$27,032,426.33, (iv) Pacific Rays Limited purchased 14,739,650 Series A-1 preferred shares and 36,473,100 Series B preferred shares for a consideration of US$95,379,531.89, (v) Zhuhai Guangkong Zhongying Industrial Investment Fund Partnership (Limited Partnership) purchased 2,653,125 Series A-1 preferred shares for a consideration of US$ 2,848,416.76, (vi) Shanghai Jihe Enterprise Management Consulting Partnership (Limited Partnership) purchased 2,917,850 Series A-2 preferred shares, 729,450 Series B preferred shares, 919,125 Series B-1 preferred shares and 3,996,200 Series B-2 preferred shares for a consideration of US$22,830,179.38, (vii) Shanghai Guangyi Investment Management Center (Limited Partnership) purchased 2,334,275 Series A-2 preferred shares for a consideration of US$ 3,162,255.32, (viii) Speed Up Holdings Limited purchased 2,334,275 Series A-2 preferred shares and 459,550 Series B-1 preferred shares for a consideration of US$4,602,990.67, (ix) Shanghai Huiyu Enterprise Management Partnership (Limited Partnership) purchased 7,294,625 Series B preferred shares for a consideration of US$ 15,914,950.50, (x) XP Management Limited purchased 13,130,325 Series B preferred shares for a consideration of US$28,611,848.48, (xi) Yincheng Investment Limited purchased 3,888,600 Series B-1 preferred shares and 614,800 Series B-2 preferred shares for a consideration of US$14,418,155.34, and (xii) Ningbo Dingpeng Equity Investment Partnership (Limited Partnership) purchased 4,595,600 Series B-1 preferred shares and 1,998,100 Series B-2 preferred shares for a consideration of US$21,659,089.41.
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On May 22, 2020, a warrant to purchase 4,595,600 Series B-1 preferred shares issued to Zhaoqing High-tech Zone Construction Investment Development Co., Ltd. was cancelled.
On May 26, 2020, we issued 318,363 Series C preferred shares to Hongdi Brian Gu for a consideration of US$1,200,000.
On July 22, 2020, we issued a total of 76,115,787 Series C preferred shares, of which (i) 20,758,851 Series C preferred shares were issued to Aspex Master Fund for a consideration of US$90,000,000, (ii) 20,758,851 Series C preferred shares were issued to Coatue PE Asia 33 LLC for a consideration of US$90,000,000, (iii) 16,145,773 Series C preferred shares were issued to Hillhouse Capital through HH XP (HK) Holdings Limited for a consideration of US$70,000,000, (iv) 16,145,773 Series C preferred shares were issued to Sequoia Capital China through SCC Growth VI Holdco E, Ltd. for a consideration of US$70,000,000, and (v) 2,306,539 Series C preferred shares were issued to Hel Ved Master Fund for a consideration of US$10,000,000.
On July 24, 2020, we issued a total of 35,751,359 Series C preferred shares, of which (i) 4,613,078 Series C preferred shares were issued to Matrix Partners China IV Hong Kong Limited for a consideration of US$20,000,000, (ii) 3,010,034 Series C preferred shares were issued to Anatole Partners Master Fund, L.P. for a consideration of US$13,050,000, (iii) 449,775 Series C preferred shares were issued to Anatole Partners Enhanced Master Fund, L.P. for a consideration of US$1,950,000, (iv) 3,459,809 Series C preferred shares were issued to Tairen Alpha Fund Limited for a consideration of US$15,000,000, (v) 3,459,809 Series C preferred shares were issued to 3W Global Fund for a consideration of US$15,000,000, (vi) 3,459,809 Series C preferred shares were issued to ZWC XP Investments Limited for a consideration of US$15,000,000, (vii) 2,306,539 Series C preferred shares were issued to CloudAlpha Master Fund for a consideration of US$10,000,000, (viii) 2,306,539 Series C preferred shares were issued to Summer Rocket Holdings Limited for a consideration of US$10,000,000, (ix) 2,306,539 Series C preferred shares were issued to Grand Horizon Plus Investment Limited for a consideration of US$10,000,000, (x) 2,306,539 Series C preferred shares were issued to Azure Kingfisher Limited for a consideration of US$10,000,000, (xi) 1,153,270 Series C preferred shares were issued to Pine Summit International Limited for a consideration of US$5,000,000, (xii) 1,153,270 Series C preferred shares were issued to Neumann Capital for a consideration of US$5,000,000, (xiii) 461,308 Series C preferred shares were issued to Shengyu Ventures Limited for a consideration of US$2,000,000, (xiv) 461,308 Series C preferred shares were issued to Luminous Time Limited for a consideration of US$2,000,000, (xv) 461,308 Series C preferred shares were issued to Cheung Shun Ching for a consideration of US$2,000,000, (xvi) 461,308 Series C preferred shares were issued to Celestial Dragon Holdings Limited for a consideration of US$2,000,000, (xvii) 230,654 Series C preferred shares were issued to Robert S Bao for a consideration of US$1,000,000, (xviii) 230,654 Series C preferred shares were issued to Ampere Partners Holding Limited for a consideration of US$1,000,000, and (xix) 3,459,809 Series C preferred shares were issued to Credit Suisse AG, Singapore Branch for a consideration of US$15,000,000.
On July 29, 2020, we issued 23,065,390 Series C preferred shares to Qatar Investment Authority through Al-Rayyan Holding LLC for a consideration of US$100,000,000.
On August 6, 2020, we issued a total of 72,655,979 Series C preferred shares, of which (i) 49,590,589 Series C preferred shares were issued to Taobao China Holding Limited for a consideration of US$215,000,000, and (ii) 23,065,390 Series C preferred shares were issued to Mubadala Investment Company through Aerospace Holding Company LLC for a consideration of US$100,000,000.
On the same day, we issued 14,850,560 Class A ordinary shares to Quack Holding Limited, which is wholly owned by Hongdi Brian Gu at par value pursuant to the RSUs granted to Hongdi Brian Gu. In addition, we issued 9,695,210 Class A ordinary shares to XPeng Fortune Holdings Limited, which is established for our share incentive plan, at par value.
On the same day, certain warrant holders purchased our shares pursuant to the warrants issued on September 12, 2019, including (i) Dazzling Mount Holdings Limited purchased 3,501,425 Series A-2 preferred
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shares and 1,922,624 Series B preferred shares for a consideration of US$8,059,249.8, (ii) Simplicity Holding Limited purchased 16,926,907 Series B preferred shares for a consideration of US$33,183,603.35, (iii) Efficiency Investment Limited purchased 1,137,879 Series B preferred shares for a consideration of US$2,230,703.89, and (iv) Hongdi Brian Gu purchased 1,896,465 Series B preferred shares for a consideration of US$3,717,839.82.
Shareholders Agreement
We entered into an amended and restated shareholders agreement dated June 28, 2020, as supplemented on August 5, 2020, with our shareholders, which consist of holders of our ordinary shares, Series A preferred shares, Series A-1 preferred shares, Series A-2 preferred shares, Series B preferred shares, Series B-1 preferred shares, Series B-2 preferred shares and Series C preferred shares. The shareholders agreement provides for certain special rights, including right of first refusal, co-sale rights, preemptive rights and contain provisions governing the board of directors. These special rights will automatically terminate upon the completion of this offering.
Registration Rights
On August 20, 2020, we entered into a registration right agreement with our shareholders, under which 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.
Required Registration Rights
At any time or from time to time after the date that is six months after the closing of this offering, holders holding 25% or more of the registrable securities have the right to request 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 to the public of such registrable securities is no less than $5,000,000. We, however, are not obligated to effect a required registration if we have already effected two required registrations, unless less than 50% of the registrable securities sought to be included in the required registration were sold.
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 (i) an employee share option plan, (ii) corporate reorganization or transaction under Rule 145 of the Securities Act, (iii) 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, or (iv) a registration in which the only shares being registered are those issuable upon conversion of debt securities, then we must offer each holder of the registrable securities the opportunity to include their shares in the registration statement.
Form F-3 Registration Rights
When eligible for use of form F-3, holders of the registrable securities have the right to request in writing that we file a registration statement on Form F-3. Registration pursuant to Form F-3 registration rights will not be deemed to be a required registration. We, however, are not obligated to effect a registration on Form F-3 if (i) the aggregate price of the registrable securities requested to be sold pursuant to such registration is, in the good faith judgment of our board of directors, expected to be less than $5,000,000, or (ii) we have already effected two such registrations within any twelve-month period preceding the date of the registration request.
Expenses of Registration
We will pay all expenses incurred in connection with any required registration, piggyback registration or Form F-3 registration, including, among others, registration and filing fees, compliance fees, listing fees, printing
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expenses, fees and disbursements of counsel and independent public accountants of our company, fees and disbursements of the underwriters, but excluding underwriting discounts and commissions and share transfer taxes. We will not, however, be required to pay for any expenses of any registration proceeding begun pursuant to required registration rights, if the registration request is subsequently withdrawn at the request of the holders of a majority of the registrable securities requested to be registered, subject to certain exceptions.
Termination of Registration Rights
The registration rights discussed above shall terminate (i) five years after this offering, or (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 three-month period.
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DESCRIPTION OF AMERICAN DEPOSITARY SHARES
Citibank, N.A. has agreed to act as the depositary 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. ADSs may be represented by certificates that are commonly known as American Depositary Receipts or ADRs. The depositary 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 Hon Hai Road, Kwun Tong, Kowloon, Hong Kong.
We have appointed Citibank as depositary pursuant to a deposit agreement. A copy of the deposit agreement is on file with the SEC under cover of a Registration Statement on Form F-6. You may obtain a copy of the deposit agreement from the SECs Public Reference Room at 100 F Street, N.E., Washington, D.C. 20549 and from the SECs website (www.sec.gov). Please refer to Registration Number 333-248098 when retrieving such copy.
We are providing you with a summary description of the material terms of the ADSs and of your material rights as an owner of ADSs. Please remember that summaries by their nature lack the precision of the information summarized and that the rights and obligations of an owner of ADSs will be determined by reference to the terms of the deposit agreement and not by this summary. We urge you to review the deposit agreement in its entirety. The portions of this summary description that are italicized describe matters that may be relevant to the ownership of ADSs but that may not be contained in the deposit agreement.
Each ADS represents the right to receive, and to exercise the beneficial ownership interests in, two Class A ordinary shares that are on deposit with the depositary 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 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 may agree to change the ADS-to-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 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, 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, 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, and the depositary (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. As an ADS holder you appoint the depositary 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, 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 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 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 cancellation of your ADSs and become a direct shareholder.
The manner in which you own the ADSs (e.g., in a brokerage account vs. as registered holder, or as holder of certificated vs. uncertificated ADSs) may affect your rights and obligations, and the manner in which, and extent to which, the depositarys 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 in your name reflecting the registration of uncertificated ADSs directly on the books of the depositary (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. Under the direct registration system, ownership of ADSs is evidenced by periodic statements issued by the depositary to the holders of the ADSs. The direct registration system includes automated transfers between the depositary 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 or the custodian shall, to the maximum extent permitted by applicable law, vest in the depositary 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 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 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.
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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 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 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 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 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 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 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 and we will assist the depositary in determining whether it is lawful and reasonably practicable to distribute rights to subscribe for additional ADSs to holders.
The depositary 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 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 will not distribute the rights to you if:
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We do not timely request that the rights be distributed to you or we request that the rights not be distributed to you; or |
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We fail to deliver satisfactory documents to the depositary; or |
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It is not reasonably practicable to distribute the rights. |
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The depositary 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 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 and will indicate whether we wish the elective distribution to be made available to you. In such case, we will assist the depositary in determining whether such distribution is lawful and reasonably practicable.
The depositary 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 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 in advance and will indicate whether we wish such distribution to be made to you. If so, we will assist the depositary 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 all of the documentation contemplated in the deposit agreement, the depositary 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 may sell all or a portion of the property received.
The depositary will not distribute the property to you and will sell the property if:
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We do not request that the property be distributed to you or if we request that the property not be distributed to you; or |
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We do not deliver satisfactory documents to the depositary; or |
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The depositary 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 in advance. If it is practicable and if we provide all of the documentation contemplated in the deposit agreement, the depositary will provide notice of the redemption to the holders.
The custodian will be instructed to surrender the shares being redeemed against payment of the applicable redemption price. The depositary will convert into U.S. dollars upon the terms of the deposit agreement the
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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. 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 may determine.
Changes Affecting Class A ordinary shares
The Class A ordinary shares held on deposit for your ADSs may change from time to time. For example, there may be a change in nominal or par value, split-up, cancellation, consolidation or any other reclassification of such Class A ordinary shares or a recapitalization, reorganization, merger, consolidation or sale of assets of the Company.
If any such change were to occur, your ADSs would, to the extent permitted by law and the deposit agreement, represent the right to receive the property received or exchanged in respect of the Class A ordinary shares held on deposit. The depositary 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 may not lawfully distribute such property to you, the depositary 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 the offering, the Class A ordinary shares being offered pursuant to the prospectus will be deposited by us with the custodian. Upon receipt of confirmation of such deposit, the depositary will issue ADSs to the underwriters named in the prospectus.
After the closing of the offer, the depositary may create ADSs on your behalf if you or your broker deposit Class A ordinary shares with the custodian. The depositary 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 the Cayman Islands legal considerations applicable at the time of deposit.
The issuance of ADSs may be delayed until the depositary 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 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. As such, you will be deemed to represent and warrant that:
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The Class A ordinary shares are duly authorized, validly issued, fully paid, non-assessable and legally obtained. |
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All preemptive (and similar) rights, if any, with respect to such Class A ordinary shares have been validly waived or exercised. |
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You are duly authorized to deposit the Class A ordinary shares. |
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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). |
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The Class A ordinary shares presented for deposit have not been stripped of any rights or entitlements. |
If any of the representations or warranties are incorrect in any way, we and the depositary may, at your cost and expense, take any and all actions necessary to correct the consequences of the misrepresentations.
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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 and also must:
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ensure that the surrendered ADR is properly endorsed or otherwise in proper form for transfer; |
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provide such proof of identity and genuineness of signatures as the depositary deems appropriate; |
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provide any transfer stamps required by the State of New York or the United States; and |
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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 with your request to have them combined or split up, and you must pay all applicable fees, charges and expenses payable by ADR holders, pursuant to the terms of the deposit agreement, upon a combination or split up of ADRs.
Withdrawal of Class A ordinary shares Upon Cancellation of ADSs
As a holder, you will be entitled to present your ADSs to the depositary for cancellation 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 the fees for cancellation of ADSs and any charges and taxes payable upon the transfer of the Class A ordinary shares. You assume the risk for delivery of all funds and securities upon withdrawal. Once canceled, the ADSs will not have any rights under the deposit agreement.
If you hold ADSs registered in your name, the depositary may ask you to provide proof of identity and genuineness of any signature and such other documents as the depositary 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 receives satisfactory evidence of compliance with all applicable laws and regulations. Please keep in mind that the depositary will only accept ADSs for cancellation that represent a whole number of securities on deposit.
You will have the right to withdraw the securities represented by your ADSs at any time except for:
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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. |
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Obligations to pay fees, taxes and similar charges. |
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Restrictions imposed because of laws or regulations applicable to ADSs or the withdrawal of securities on deposit. |
The deposit agreement may not be modified to impair your right to withdraw the securities represented by your ADSs except to comply with mandatory provisions of law.
Voting Rights
As a holder, you generally have the right under the deposit agreement to instruct the depositary 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.
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At our request, the depositary will distribute to you any notice of shareholders meeting received from us together with information explaining how to instruct the depositary to exercise the voting rights of the securities represented by ADSs. In lieu of distributing such materials, the depositary may distribute to holders of ADSs instructions on how to retrieve such materials upon request.
If the depositary 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 as follows:
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In the event of voting by show of hands, the depositary will vote (or cause the custodian to vote) all Class A ordinary shares held on deposit at that time in accordance with the voting instructions received from a majority of holders of ADSs who provide timely voting instructions. |
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In the event of voting by poll, the depositary will vote (or cause the Custodian to vote) the Class A ordinary shares held on deposit in accordance with the voting instructions received from the holders of ADSs. |
Securities for which no voting instructions have been received will not be voted (except (a) as set forth above in the case voting is by show of hands, (b) in the event of voting by poll, holders of ADSs in respect of which no timely voting instructions have been received shall be deemed to have instructed the depositary to give a discretionary proxy to a person designated by us to vote the common shares represented by such holders ADSs; provided, however, that no such discretionary proxy shall be given with respect to any matter to be voted upon as to which we inform the depositary that (i) we do not wish such proxy to be given, (ii) substantial opposition exists, or (iii) the rights of holders of common shares may be adversely affected, and (c) as otherwise contemplated in the deposit agreement). Please note that the ability of the depositary 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 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:
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Fees |
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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-Shares 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 | |
Cancellation of ADSs (e.g., a cancellation of ADSs for delivery of deposited property, upon a change in the ADS(s)-to-Shares ratio, or for any other reason) |
Up to U.S. 5¢ per ADS cancelled | |
Distribution of cash dividends or other cash distributions (e.g., upon 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 |
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Service |
Fees |
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Registration of ADS transfers (e.g., upon a registration of the transfer of registered ownership of ADSs, upon a transfer of ADSs into DTC and vice versa, or for any other reason) |
Up to U.S. 5¢ per ADS (or fraction thereof) transferred | |
Conversion of ADSs of one series for ADSs of another series (e.g., upon conversion of Partial Entitlement ADSs for Full Entitlement ADSs, or upon conversion of Restricted ADSs (each as defined in the Deposit Agreement) into freely transferable ADSs, and vice versa). |
Up to U.S. 5¢ per ADS (or fraction thereof) converted |
As an ADS holder you will also be responsible to pay certain charges such as:
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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 or any nominees upon the making of deposits and withdrawals, respectively; |
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certain cable, telex and facsimile transmission and delivery expenses; |
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the fees, expenses, spreads, taxes and other charges of the depositary and/or service providers (which may be a division, branch or affiliate of the depositary) in the conversion of foreign currency; |
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the reasonable and customary out-of-pocket expenses incurred by the depositary in connection with compliance with exchange control regulations and other regulatory requirements applicable to Class A ordinary shares, ADSs and ADRs; and |
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the fees, charges, costs and expenses incurred by the depositary, the custodian, or any nominee in connection with the ADR program. |
ADS fees and charges for (i) the issuance of ADSs, and (ii) the cancellation 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 cancelled (in the case of ADS cancellations). In the case of ADSs issued by the depositary into DTC, the ADS issuance and cancellation fees and charges may be deducted from distributions made through DTC, and may be charged to the DTC participant(s) receiving the ADSs being issued or the DTC participant(s) holding the ADSs being cancelled, as the case may be, on behalf of the beneficial owner(s) and will be charged by the DTC participant(s) to the account of the applicable beneficial owner(s) in accordance with the procedures and practices of the DTC participants as in effect at the time. ADS fees and charges in respect of distributions and the ADS service fee are charged to the holders as of the applicable ADS record date. In the case of distributions of cash, the amount of the applicable ADS fees and charges is deducted from the funds being distributed. In the case of (i) distributions other than cash and (ii) the ADS service fee, holders as of the ADS record date will be invoiced for the amount of the ADS fees and charges and such ADS fees and charges may be deducted from distributions made to holders of ADSs. For ADSs held through DTC, the ADS fees and charges for distributions other than cash and the ADS service fee may be deducted from distributions made through DTC, and may be charged to the DTC participants in accordance with the procedures and practices prescribed by DTC and the DTC participants in turn charge the amount of such ADS fees and charges to the beneficial owners for whom they hold ADSs. In the case of (i) registration of ADS transfers, the ADS transfer fee will be payable by the ADS Holder whose ADSs are being transferred or by the person to whom the ADSs are transferred, and (ii) conversion of ADSs of one series for ADSs of another series, the ADS conversion fee will be payable by the Holder whose ADSs are converted or by the person to whom the converted ADSs are delivered.
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In the event of refusal to pay the depositary fees, the depositary may, under the terms of the deposit agreement, refuse the requested service until payment is received or may set off the amount of the depositary fees from any distribution to be made to the ADS holder. 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. You will receive prior notice of such changes. The depositary 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 agree from time to time.
Amendments and Termination
We may agree with the depositary to modify the deposit agreement at any time without your consent. We undertake to give holders 30 days prior notice of any modifications that would materially prejudice any of their substantial rights under the deposit agreement. We will not consider to be materially prejudicial to your substantial rights any modifications or supplements that are reasonably necessary for the ADSs to be registered under the Securities Act or to be eligible for book-entry settlement, in each case without imposing or increasing the fees and charges you are required to pay. In addition, we may not be able to provide you with prior notice of any modifications or supplements that are required to accommodate compliance with applicable provisions of law.
You will be bound by the modifications to the deposit agreement if you continue to hold your ADSs after the modifications to the deposit agreement become effective. The deposit agreement cannot be amended to prevent you from withdrawing the Class A ordinary shares represented by your ADSs (except as permitted by law).
We have the right to direct the depositary to terminate the deposit agreement. Similarly, the depositary may in certain circumstances on its own initiative terminate the deposit agreement. In either case, the depositary 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 will continue to collect distributions received (but will not distribute any such property until you request the cancellation of your ADSs) and may sell the securities held on deposit. After the sale, the depositary 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 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 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. 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 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 will maintain in New York facilities to record and process the issuance, cancellation, combination, split-up and transfer of ADSs. These facilities may be closed from time to time, to the extent not prohibited by law.
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Limitations on Obligations and Liabilities
The deposit agreement limits our obligations and the depositarys obligations to you. Please note the following:
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We and the depositary are obligated only to take the actions specifically stated in the deposit agreement without negligence or bad faith. |
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The depositary 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. |
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The depositary 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. |
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We and the depositary 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 disclaim any liability if we or the depositary are prevented or forbidden from or subject to any civil or criminal penalty or restraint on account of, or delayed in, doing or performing any act or thing required by the terms of the deposit agreement, by reason of any provision, present or future of any law or regulation, or by reason of present or future provision of any provision of our Articles of Association, or any provision of or governing the securities on deposit, or by reason of any act of God or war or other circumstances beyond our control. |
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We and the depositary disclaim any liability by reason of any exercise of, or failure to exercise, any discretion provided for in the deposit agreement or in our Articles of Association or in any provisions of or governing the securities on deposit. |
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We and the depositary further disclaim any liability for any action or inaction in reliance on the advice or information received from legal counsel, accountants, any person presenting 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. |
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We and the depositary 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. |
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We and the depositary 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. |
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We and the depositary also disclaim liability for any consequential or punitive damages for any breach of the terms of the deposit agreement. |
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No disclaimer of any Securities Act liability is intended by any provision of the deposit agreement. |
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Nothing in the deposit agreement gives rise to a partnership or joint venture, or establishes a fiduciary relationship, among us, the depositary and you as ADS holder. |
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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. |
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As the above limitations relate to our obligations and the depositarys obligations to you under the deposit agreement, we believe that, as a matter of construction of the clause, such limitations would likely to continue to apply to ADS holders who withdraw the Class A ordinary shares from the ADS facility with respect to obligations or liabilities incurred under the deposit agreement before the cancellation of the ADSs and the withdrawal of the Class A ordinary shares, and such limitations would most likely not apply to ADS holders who withdraw the Class A ordinary shares from the ADS facility with respect to obligations or liabilities incurred after the cancellation of the ADSs and the withdrawal of the Class A ordinary shares and not under the deposit agreement.
In any event, you will not be deemed, by agreeing to the terms of the deposit agreement, to have waived our or the depositarys compliance with U.S. federal securities laws and the rules and regulations promulgated thereunder. In fact, you cannot waive our or the depositarys compliance with U.S. federal securities laws and the rules and regulations promulgated thereunder.
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 and the custodian may deduct from any distribution the taxes and governmental charges payable by holders and may sell any and all property on deposit to pay the taxes and governmental charges payable by holders. You will be liable for any deficiency if the sale proceeds do not cover the taxes that are due.
The depositary 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 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 and to the custodian proof of taxpayer status and residence and such other information as the depositary and the custodian may require to fulfill legal obligations. You are required to indemnify us, the depositary and the custodian for any claims with respect to taxes based on any tax benefit obtained for you.
Foreign Currency Conversion
The depositary 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 may take the following actions in its discretion:
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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. |
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Distribute the foreign currency to holders for whom the distribution is lawful and practical. |
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Hold the foreign currency (without liability for interest) for the applicable holders. |
Governing Law/Waiver of Jury Trial
The deposit agreement, the ADRs and the ADSs 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) are governed by the laws of the Cayman Islands.
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As an owner of ADSs, you irrevocably agree that any legal action arising out of the Deposit Agreement, the ADSs or the ADRs, involving the Company or the Depositary, may only be instituted in a state or federal court in the city of New York.
AS A PARTY TO THE DEPOSIT AGREEMENT, YOU IRREVOCABLY WAIVE, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, 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.
The deposit agreement provides that, to the extent permitted by law, ADS holders waive the right to a jury trial of any claim they may have against us or the depositary arising out of or relating to the ADSs or the deposit agreement, including any claim under U.S. federal securities laws. If we or the depositary opposed a jury trial demand based on the waiver, the court would determine whether the waiver was enforceable in the facts and circumstances of that case in accordance with applicable case law. However, you will not be deemed, by agreeing to the terms of the deposit agreement, to have waived our or the depositarys compliance with U.S. federal securities laws and the rules and regulations promulgated thereunder.
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SHARES ELIGIBLE FOR FUTURE SALE
Upon closing of this offering, we will have 85,000,000 ADSs outstanding representing approximately 12.1% of our ordinary shares (or 97,750,000 ADS outstanding representing approximately 13.6% of our ordinary shares if the underwriters exercise in full the over-allotment option).
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 issued 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 the 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 ADSs in the public market could adversely affect prevailing market prices of the ADSs. Prior to this offering, there has been no public market for our Class A ordinary shares or the ADSs, and while we will make an application to list 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, or ADSs representing the ordinary shares, or any securities convertible into or exchangeable or exercisable for our ordinary shares, or ADSs representing the ordinary shares, for a period of 180 days after the date this prospectus becomes effective. Any ADSs purchased by Alibaba, Coatue, Qatar Investment Authority, Xiaomi and/or their affiliates in this offering will not be subject to the foregoing lock-up restrictions. 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 issued shares) may sell within any three-month period a number of restricted securities that does not exceed the greater of the following:
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1% of the number of our ordinary shares then outstanding, in the form of ADSs or otherwise, which will equal approximately 14,100,190 ordinary shares immediately after this offering; and |
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the average weekly trading volume of the 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.
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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 the ADSs and Class A ordinary shares. 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 the 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 the ADSs and Class A ordinary shares. Stamp duties 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 that are applicable to any payments made to or by the Company. There are no exchange control regulations or currency restrictions in the Cayman Islands.
Peoples Republic of China Taxation
In February 2017, the National Peoples Congress of China enacted the modified Enterprise Income Tax Law, which became effective on February 24, 2017. The modified 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 production and operations, personnel, accounting and assets of an enterprise. While we do not currently 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 number of unfavorable PRC tax consequences could follow. One example is a 10% withholding tax would be imposed on dividends we pay to our non-PRC enterprise shareholders and with respect to gains derived by our non-PRC enterprise shareholders from transferring our shares or ADSs. Furthermore, dividends payable to individual investors who are non-PRC residents and any gain realized on the transfer of ADSs or ordinary shares by such investors may be subject to PRC tax at a current rate of 20%. Any PRC tax liability may be subject to reduction or exemption set forth in applicable tax treaties or under applicable tax arrangements between jurisdictions. 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.
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.
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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:
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an individual citizen or resident of the United States; |
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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; |
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an estate the income of which is subject to United States federal income taxation regardless of its source; or |
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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, or 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:
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a dealer in securities or currencies; |
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a financial institution; |
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a regulated investment company; |
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a real estate investment trust; |
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an insurance company; |
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a tax-exempt organization; |
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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; |
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a trader in securities that has elected the mark-to-market method of accounting for your securities; |
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a person liable for alternative minimum tax; |
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a person who owns or is deemed to own 10% or more of our stock by vote or value; |
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a partnership or other pass-through entity for United States federal income tax purposes; |
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a person required to accelerate the recognition of any item of gross income with respect to our ADSs or Class A ordinary shares as a result of such income being recognized on an applicable financial statement; or |
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a person whose functional currency is not the United States dollar. |
If an entity or other arrangement 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
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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.
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 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 TaxationPeoples 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 have applied for listing 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 Class A ordinary shares that are not represented by ADSs currently meet the conditions required for these reduced tax rates. There also can be no assurance that our ADSs will continue to be readily tradable on an established securities market in later years. 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
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requirement during which they are not protected from the risk of loss or that elect to treat the dividend income as investment income pursuant to Section 163(d)(4) of the Code will not be eligible for the reduced rates of taxation regardless of our status as a qualified foreign corporation. In addition, the rate reduction will not apply to dividends if the recipient of a dividend is obligated to make related payments with respect to positions in substantially similar or related property. This disallowance applies even if the minimum holding period has been met. You should consult your 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, or 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:
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at least 75% of our gross income is passive income, or |
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at least 50% of the value (generally 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, 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 VIEs for United States federal income tax purposes. For United States federal income tax purposes, we consider ourselves to own the equity of our consolidated VIEs. If it is determined, contrary to our view, that we do not own the equity of our consolidated VIEs 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. In addition, the application of the 75% gross income test described above is not entirely clear when a company has a gross loss from sales (sales less cost of goods sold), although we believe that even if we have such a gross loss from sales, we will not be a PFIC if the gross loss from sales exceeds our other income and we would not otherwise be a PFIC under the 50% asset test for the relevant taxable year. There can be no assurance, however, that the Internal Revenue Service will not take a contrary position.
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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. The composition of our assets and income may be affected by how, and how quickly, we use our liquid assets and the cash raised in this offering. Because we have valued our goodwill based on the expected 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 respect to any excess distribution received and any gain realized from a sale or other disposition, including a pledge and a deemed sale discussed in the following paragraph, 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:
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the excess distribution or gain will be allocated ratably over your holding period for the ADSs or Class A ordinary shares, |
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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 |
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the amount allocated to each other year will be subject to tax at the highest tax rate in effect for individuals or corporations, as applicable, 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 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 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, and any gain will be treated as ordinary income. If you make a
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mark-to-market election, any distributions that we make would generally be subject to the tax rules discussed above under Taxation of Dividends, except that the lower rate applicable to dividends received from a qualified foreign corporation (discussed above) would not apply if we are a PFIC in the taxable year in which the dividend is paid or in the preceding taxable year.
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 is not available to you because we do not intend to prepare or provide you with the tax information necessary to permit you to make this election.
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, exchange or other disposition 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 PRC tax is imposed on any gain (for instance, because we are treated as a PRC resident enterprise for PRC tax purposes or the PRC treats the sale, exchange or other disposition as an indirect transfer of PRC taxable assets), 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 distributions 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.
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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 are offering the ADSs described in this prospectus through a number of underwriters. Credit Suisse Securities (USA) LLC, J.P. Morgan Securities LLC and BofA Securities, Inc. are acting as joint book-running managers of the offering and as representatives of the underwriters. We have entered into an underwriting agreement with the underwriters. Subject to the terms and conditions of the underwriting agreement, we have agreed to sell to the underwriters, and each underwriter has severally agreed to purchase, at the public offering price less the underwriting discounts and commissions set forth on the cover page of this prospectus, the number of ADSs listed next to its name in the following table:
Name |
Number
of ADSs |
|||
Credit Suisse Securities (USA) LLC |
||||
J.P. Morgan Securities LLC |
||||
BofA Securities, Inc. |
||||
ABCI Securities Company Limited |
||||
BOCI Asia Limited |
||||
Futu Inc. |
||||
Haitong International Securities Company Limited |
||||
Tiger Brokers (NZ) Limited |
||||
|
|
|||
Total |
||||
|
|
The underwriters are committed to purchase all the ADSs offered by us if they purchase any ADSs. The underwriting agreement also provides that if an underwriter defaults, the purchase commitments of non-defaulting underwriters may also be increased or the offering may be terminated.
Four of our existing shareholders, Alibaba, Coatue, Qatar Investment Authority and Xiaomi, and/or their affiliates have indicated interest in purchasing up to US$200 million, US$100 million, US$50 million and US$50 million, respectively, of the ADSs being offered in this offering at the initial public offering price and on the same terms as the other ADSs being offered. In addition, PRIMECAP Management Company and/or its affiliate have indicated interest in purchasing up to US$100 million of the ADSs being offered in this offering at the initial public offering price and on the same terms as the other ADSs being offered. Assuming an initial public offering price of US$12.00 per ADS, the midpoint of the estimated initial public offering price range shown on the front cover page of this prospectus, the number of ADSs to be purchased by these investors would be up to 41,666,667 ADSs, representing approximately 49.0% of the ADSs being offered in this offering. Because such indications of interest are not binding agreements or commitments to purchase, such investors could determine to purchase more, fewer, or no ADSs in this offering, and the underwriters could determine to sell more, fewer, or no ADSs to such investors. The underwriters will receive the same underwriting discounts and commissions on any of the ADSs purchased by such investors as they will from any other ADSs sold to the public in this offering.
The underwriters propose to offer the ADSs directly to the public at the initial public offering price set forth on the cover page of this prospectus and to certain dealers at that price less a concession not in excess of US$ per ADS. Any such dealers may resell ADSs to certain other brokers or dealers at a discount of up to US$ per ADS from the initial public offering price. After the initial offering of the ADSs to the public, if all of the ADSs are not sold at the initial public offering price, the underwriters may change the offering price and the other selling terms. Sales of any ADSs made outside of the United States may be made by affiliates of the underwriters.
The underwriters have an option to buy up to 12,750,000 additional ADSs from us to cover sales of ADSs by the underwriters which exceed the ADSs specified in the table above. The underwriters have 30 days from the date of this prospectus to exercise this option to purchase additional ADSs. If any ADSs are purchased with this option to purchase additional ADSs, the underwriters will purchase ADSs in approximately the same proportion as shown in the table above. If any additional ADSs are purchased, the underwriters will offer the additional ADSs on the same terms as those on which the ADSs are being offered.
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The underwriting fee is equal to the public offering price per ADS less the amount paid by the underwriters to us per ADS. The underwriting fee is US$ per ADS. The following table shows the per ADS and total underwriting discounts and commissions to be paid to the underwriters assuming both no exercise and full exercise of the underwriters option to purchase additional ADSs.
Without option to
purchase additional ADSs exercise |
With full option to
purchase additional ADSs exercise |
|||||||
Per ADS |
US$ | US$ | ||||||
Total |
US$ | US$ |
We estimate that the total expenses of this offering, including registration, filing and listing fees, printing fees and legal and accounting expenses, but excluding the underwriting discounts and commissions, will be approximately US$ .
Credit Suisse AG, Singapore Branch, an affiliate of Credit Suisse Securities (USA) LLC, one of the underwriters, subscribed for 3,459,809 Series C preferred shares for an aggregate consideration of US$15,000,000 in July 2020. Such shares, and any Class A ordinary shares issued upon conversion thereof, are deemed to be underwriting compensation pursuant to FINRA Rule 5110 and will be subject to the lock-up restrictions required by FINRA Rule 5110(g), and thus may not be sold or otherwise disposed of (including by means of any hedging or other arrangement that would result in the effective economic disposition by Credit Suisse AG, Singapore Branch) for a period of 180 days following the effective date or commencement of sales of the offering, except as otherwise permitted by FINRA Rule 5110(g)(2).
A prospectus in electronic format may be made available on the web sites maintained by one or more underwriters, or selling group members, if any, participating in the offering. The underwriters may agree to allocate a number of ADSs to underwriters and selling group members for sale to their online brokerage account holders. Internet distributions will be allocated by the representatives to underwriters and selling group members that may make Internet distributions on the same basis as other allocations.
Some of the underwriters are expected to make offers and sales both inside and outside the United States through their respective selling agents. Any offers or sales in the United States will be conducted by broker-dealers registered with the SEC. ABCI Securities Company Limited is not a broker-dealer registered with the SEC and it may not make sales in the United States or to U.S. persons. ABCI Securities Company Limited has agreed that it does not intend to, and will not, offer or sell any of our ADSs in the United States or to U.S. persons in connection with this offering. BOCI Asia Limited is not a broker-dealer registered with the SEC and it may not make sales in the United States or to U.S. persons. BOCI Asia Limited has agreed that it does not intend to, and will not, offer or sell any of our ADSs in the United States or to U.S. persons in connection with this offering. Haitong International Securities Company Limited is not a broker-dealer registered with the SEC. It will offer the ADSs in the United States through its SEC-registered broker-dealer affiliate in the United States, Haitong International Securities (USA) Inc. Tiger Brokers (NZ) Limited is not a broker-dealer registered with the SEC and, to the extent that its conduct may be deemed to involve participation in offers or sales of ADSs in the United States, those offers or sales will be made through one or more SEC-registered broker-dealers in compliance with applicable laws and regulations.
We have agreed that we will not (i) offer, pledge, issue, 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, or submit to, or file with, the Securities and Exchange Commission a registration statement under the Securities Act relating to, any of our ordinary shares or ADSs or securities convertible into or exercisable or exchangeable for any of our ordinary shares or ADSs, or publicly disclose the intention to undertake any of the foregoing, or (ii) enter into any swap or other arrangement that transfers all or a portion of the economic consequences of the ownership of any ordinary shares, ADSs or any such other securities, or establish or increase a put equivalent position or liquidate or decrease a call equivalent position in any ordinary shares, ADSs or any such other securities, or publicly disclose the intention to make any such agreement or transaction (regardless of whether any of the transactions described in (i) or (ii) above are to be
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settled by the delivery of ordinary shares, ADSs or such other securities, in cash or otherwise), in each case without the prior written consent of the representatives for a period of 180 days after the date of this prospectus, other than the ADSs to be sold in this offering.
The restrictions on our actions, as described above, do not apply to certain transactions, including (i) the issuance of ordinary shares, ADSs or securities convertible into or exercisable for our ordinary shares or ADSs pursuant to the conversion or exchange of convertible or exchangeable securities or the exercise of warrants or options (including net exercise) or the settlement of RSUs (including net settlement), in each case outstanding on the date of the underwriting agreement and described in this prospectus; (ii) grants of share options, share awards, restricted shares, RSUs, or other equity awards and the issuance of our ordinary shares, ADSs or securities convertible into or exercisable or exchangeable for our ordinary shares or ADSs (whether upon the exercise of share options or otherwise) to our employees, officers, directors, advisors, or consultants pursuant to the terms of an equity compensation plan in effect as of the closing of this offering and described in this prospectus; (iii) the facilitation of the establishment of a trading plan on behalf of a our shareholders, officers or directors pursuant to Rule 10b5-1 under the Exchange Act for the transfer of our ordinary shares or ADSs, provided that such plan does not provide for the transfer of ordinary shares, ADSs or such other securities during the 180-day period and that no public announcement or filing under the Exchange Act is required of or voluntarily made regarding the establishment of such plan; or (iv) our filing of any registration statement on Form S-8 relating to securities granted or to be granted pursuant to any plan in effect on the date of the underwriting agreement and described in this prospectus or any assumed benefit plan pursuant to an acquisition or similar strategic transaction.
Our directors, officers, and existing shareholders, or collectively, the lock-up parties have entered into lock up agreements with the underwriters prior to the commencement of this offering pursuant to which each lock-up party, with limited exceptions, for a period of 180 days after the date of this prospectus, or the restricted period, may not (and may not cause any of their controlled affiliates to), without the prior written consent of the representatives, (1) offer, pledge, sell, contract to sell, sell any option, sell any 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 of our ordinary shares or ADSs or any securities convertible into or exercisable or exchangeable for our ordinary shares or ADSs owned, or which may be deemed to be beneficially owned, by such lock-up parties in accordance with the rules and regulations of the SEC, and any ordinary shares, ADSs or such other securities which may be issued upon exercise of a share option or warrant, or collectively, the lock-up securities, (2) enter into any hedging, swap or other agreement or transaction that transfers, in whole or in part, any of the economic consequences of ownership of the lock-up securities, whether any such transaction described in clause (1) or (2) above is to be settled by delivery of lock-up securities, in cash or otherwise, (3) make any demand for, or exercise any right with respect to, the registration of any lock-up securities, or (4) publicly disclose the intention to do any of the foregoing. Such persons or entities have further acknowledged that these undertakings preclude them from engaging in any hedging or other transactions or arrangements (including, without limitation, any short sale or the purchase or sale of, or entry into, any put or call option, or combination thereof, forward, swap or any other derivative transaction or instrument, however described or defined) designed or intended, or which could reasonably be expected to lead to or result in, a sale or disposition or transfer (by any person or entity, whether or not a signatory to such agreement) of any economic consequences of ownership, in whole or in part, directly or indirectly, of any lock-up securities, whether any such transaction or arrangement (or instrument provided for thereunder) would be settled by delivery of lock-up securities, in cash or otherwise.
The restrictions described in the immediately preceding paragraph and contained in the lock-up agreements between the underwriters and the lock-up parties do not apply, subject in certain cases to various conditions, to certain transactions, including (a) transfers of lock-up securities: (i) as bona fide gifts, or for bona fide estate planning purposes, (ii) by will or intestacy, (iii) to any trust for the direct or indirect benefit of the lock-up party or any immediate family member, (iv) to a partnership, limited liability company or other entity of which the lock-up party and its immediate family members are the legal and beneficial owner of all of the outstanding equity securities or similar interests, (v) to a nominee or custodian of a person or entity to whom a disposition or transfer would be permissible under clauses (i) through (iv), or (vi) in the case of a corporation, partnership, limited liability company,
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trust or other business entity, (A) to another corporation, partnership, limited liability company, trust or other business entity that is an affiliate (as defined in Rule 405 promulgated under the Securities Act) of the lock-up party, or to any investment fund or other entity controlling, controlled by, managing or managed by or under common control with the lock-up party or its affiliates or (B) as part of a distribution to partners, members or shareholders of the lock-up party; provided that in the case of any transfer pursuant to clauses (i) through (vi), each transferee shall be subject to restrictions similar to those in the immediately preceding paragraph, and no public announcement or filing under the Exchange Act shall be required or voluntarily made in connection with such transfer; (b) transfers of lock-up securities (i) by operation of law, (ii) to us from an employee upon death, disability or termination of employment of such employee, (iii) as part of a sale of lock-up securities acquired in open market transactions after the completion of this offering, provided that no public announcement or filing under the Exchange Act shall be required or voluntarily made in connection with such sale, (iv) to us in connection with the vesting, settlement or exercise of restricted share units, options, warrants or other rights to purchase our ordinary shares or ADSs (including net or cashless exercise), including for the payment of exercise price and tax and remittance payments, or (v) pursuant to a bona fide third-party tender offer, merger, consolidation or other similar transaction approved by our board of directors and made to all shareholders involving a change in control, provided that if such transaction is not completed, all such lock-up securities would remain subject to the restrictions in the immediately preceding paragraph; (c) exercise of the options, settlement of RSUs or other equity awards, or the exercise of warrants granted pursuant to plans described in this prospectus, provided that any lock-up securities received upon such exercise, vesting or settlement would be subject to restrictions similar to those in the immediately preceding paragraph; (d) the conversion of outstanding preferred shares, warrants to acquire preferred shares, or convertible securities into our ordinary shares or ADSs or warrants to acquire our ordinary shares or ADSs, provided that any ordinary shares or ADSs or warrant received upon such conversion would be subject to restrictions similar to those in the immediately preceding paragraph; and (e) the establishment by lock-up parties of trading plans under Rule 10b5-1 under the Exchange Act, provided that such plan does not provide for the transfer of lock-up securities during the restricted period and that no filing by any person under the Exchange Act or other public announcement shall be required or made voluntarily in connection with such plan.
Any ADSs purchased by Alibaba, Coatue, Qatar Investment Authority, Xiaomi and/or their affiliates in this offering will not be subject to the foregoing lock-up restrictions.
The representatives, in their sole discretion, may release the securities subject to any of the lock-up agreements with the underwriters described above, in whole or in part at any time.
Record holders of our securities are typically the parties to the lock-up agreements with the underwriters referred to above, while holders of beneficial interests in our shares who are not also record holders in respect of such shares are not typically subject to any such agreements or other similar restrictions. Accordingly, we believe that certain holders of beneficial interests who are not record holders and are not bound by lock-up agreements could enter into transactions with respect to those beneficial interests that negatively impact the price of our ADSs. In addition, a shareholder who is not subject to a lock-up agreement with the underwriters may be able to sell, short sell, transfer, hedge, pledge, lend or otherwise dispose of or attempt to sell short sell, transfer, hedge, pledge, lend or otherwise dispose of, their equity interests at any time after the closing of this offering. We have agreed to instruct Citibank, N.A., as depositary, not to accept any deposit of any ordinary shares or issue any ADSs for 180 days after the date of this prospectus (other than in connection with this offering), unless we instruct the depositary otherwise with the prior written consent of the representatives on behalf of the underwriters.
We have agreed to indemnify the underwriters against certain liabilities, including liabilities under the Securities Act of 1933.
We have applied to have our ADSs approved for listing on NYSE under the symbol XPEV.
In connection with this offering, the underwriters may engage in stabilizing transactions, which involves making bids for, purchasing and selling ADSs in the open market for the purpose of preventing or retarding a decline in the market price of the ADSs while this offering is in progress. These stabilizing transactions may
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include making short sales of ADSs, which involves the sale by the underwriters of a greater number of ADSs than they are required to purchase in this offering, and purchasing ADSs on the open market to cover positions created by short sales. Short sales may be covered shorts, which are short positions in an amount not greater than the underwriters option to purchase additional ADSs referred to above, or may be naked shorts, which are short positions in excess of that amount. The underwriters may close out any covered short position either by exercising their option to purchase additional ADSs, in whole or in part, or by purchasing ADSs in the open market. In making this determination, the underwriters will consider, among other things, the price of ADSs available for purchase in the open market compared to the price at which the underwriters may purchase ADSs through the option to purchase additional ADSs. 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 that could adversely affect investors who purchase in this offering. To the extent that the underwriters create a naked short position, they will purchase ADSs in the open market to cover the position.
The underwriters have advised us that, pursuant to Regulation M of the Securities Act of 1933, they may also engage in other activities that stabilize, maintain or otherwise affect the price of the ADSs, including the imposition of penalty bids. This means that if the representatives of the underwriters purchase ADSs in the open market in stabilizing transactions or to cover short sales, the representatives can require the underwriters that sold those ADSs as part of this offering to repay the underwriting discount received by them.
These activities may have the effect of raising or maintaining the market price of the ADSs or preventing or retarding a decline in the market price of the ADSs, and, as a result, the price of the ADSs may be higher than the price that otherwise might exist in the open market. If the underwriters commence these activities, they may discontinue them at any time. The underwriters may carry out these transactions on the NYSE, in the over-the-counter market or otherwise.
Prior to this offering, there has been no public market for our ADSs. The initial public offering price will be determined by negotiations between us and the representatives of the underwriters. In determining the initial public offering price, we and the representatives of the underwriters expect to consider a number of factors including:
|
the information set forth in this prospectus and otherwise available to the representatives; |
|
our prospects and the history and prospects for the industry in which we compete; |
|
an assessment of our management; |
|
our prospects for future earnings; |
|
the general condition of the securities markets at the time of this offering; |
|
the recent market prices of, and demand for, publicly traded securities of generally comparable companies; and |
|
other factors deemed relevant by the underwriters and us. |
Neither we nor the underwriters can assure investors that an active trading market will develop for our ADSs, or that the ADSs will trade in the public market at or above the initial public offering price.
Other than in the United States, no action has been taken by us or the underwriters that would permit a public offering of the securities offered by this prospectus in any jurisdiction where action for that purpose is required. The securities offered by this prospectus may not be offered or sold, directly or indirectly, nor may this prospectus or any other offering material or advertisements in connection with the offer and sale of any such securities be distributed or published in any jurisdiction, except under circumstances that will result in compliance with the applicable rules and regulations of that jurisdiction. Persons into whose possession this prospectus comes are advised to inform themselves about and to observe any restrictions relating to the offering and the distribution of this prospectus. This prospectus does not constitute an offer to sell or a solicitation of an offer to buy any securities offered by this prospectus in any jurisdiction in which such an offer or a solicitation is unlawful.
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Certain of the underwriters and their affiliates have provided in the past to us and our affiliates and may provide from time to time in the future certain commercial banking, financial advisory, investment banking and other services for us and such affiliates in the ordinary course of their business, for which they have received and may continue to receive customary fees and commissions. In addition, from time to time, certain of the underwriters and their affiliates may effect transactions for their own account or the account of customers, and hold on behalf of themselves or their customers, long or short positions in our debt or equity securities or loans, and may do so in the future.
Directed Share Program
At our request, the underwriters have reserved up to 3.0% of the ADSs offered by this prospectus (assuming exercise in full by the underwriters of their option to purchase additional ADSs) for sale, at the initial public offering price, to our directors, officers, employees and other individuals associated with us and members of their families. Any sales made through the directed share program will be made by Tiger Brokers (NZ) Limited. We do not know if these persons will choose to purchase all or any portion of these reserved ADSs, but any purchases they do make will reduce the number of ADSs available to the general public. Any reserved ADSs not so purchased will be offered by the underwriters to the general public on the same terms as the other ADSs offered by this prospectus. Any ADSs sold in the directed share program to our directors, executive officers or shareholders who have entered into lock-up agreements described above shall be subject to the provisions of such lock-up agreements.
Selling Restrictions
No action may be taken in any jurisdiction other than the United States that would permit a public offering of the ADSs or the possession, circulation or distribution of this prospectus in any jurisdiction where action for that purpose is required. Accordingly, the ADSs may not be offered or sold, directly or indirectly, and neither the prospectus nor any other offering material or advertisements in connection with the ADSs may be distributed or published in or from any country or jurisdiction except under circumstances that will result in compliance with any applicable laws, rules and regulations of any such country or jurisdiction.
Australia
This document:
|
does not constitute a disclosure document or a prospectus under Chapter 6D.2 of the Corporations Act 2001 (Cth), or the Corporations Act; |
|
has not been, and will not be, lodged with the Australian Securities and Investments Commission, or ASIC, as a disclosure document for the purposes of the Corporations Act and does not purport to include the information required of a disclosure document for the purposes of the Corporations Act; and |
|
may only be provided in Australia to select investors who are able to demonstrate that they fall within one or more of the categories of investors, available under section 708 of the Corporations Act, or Exempt Investors. |
The ADSs may not be directly or indirectly offered for subscription or purchased or sold, and no invitations to subscribe for or buy the ADSs may be issued, and no draft or definitive offering memorandum, advertisement or other offering material relating to any ADSs may be distributed in Australia, except where disclosure to investors is not required under Chapter 6D of the Corporations Act or is otherwise in compliance with all applicable Australian laws and regulations. By submitting an application for the ADSs, you represent and warrant to us that you are an Exempt Investor.
As any offer of ADSs under this document will be made without disclosure in Australia under Chapter 6D.2 of the Corporations Act, the offer of those securities for resale in Australia within 12 months may, under section
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707 of the Corporations Act, require disclosure to investors under Chapter 6D.2 if none of the exemptions in section 708 applies to that resale. By applying for the ADSs you undertake to us that you will not, for a period of 12 months from the date of issue of the ADSs, offer, transfer, assign or otherwise alienate those ADSs to investors in Australia except in circumstances where disclosure to investors is not required under Chapter 6D.2 of the Corporations Act or where a compliant disclosure document is prepared and lodged with ASIC.
Canada
The ADSs 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 ADSs 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 (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 does not constitute an invitation or offer to the public in the Cayman Islands of the ADSs, whether by way of sale or subscription. The underwriters have not offered or sold, and will not offer or sell, directly or indirectly, any ADSs in the Cayman Islands.
Dubai International Finance Center, or DIFC
This document relates to an Exempt Offer in accordance with the Markets Rules 2012 of the Dubai Financial Services Authority, or DFSA. This document is intended for distribution only to persons of a type specified in the Markets Rules 2012 of the DFSA. It must not be delivered to, or relied on by, any other person. The DFSA has no responsibility for reviewing or verifying any documents in connection with Exempt Offers. The DFSA has not approved this prospectus supplement nor taken steps to verify the information set forth herein and has no responsibility for this document. The securities to which this document relates may be illiquid and/or subject to restrictions on their resale. Prospective purchasers of the securities offered should conduct their own due diligence on the securities. If you do not understand the contents of this document you should consult an authorized financial advisor.
In relation to its use in the DIFC, this document is strictly private and confidential and is being distributed to a limited number of investors and must not be provided to any person other than the original recipient, and may not be reproduced or used for any other purpose. The interests in the securities may not be offered or sold directly or indirectly to the public in the DIFC.
European Economic Area and the United Kingdom
In relation to each Member State of the European Economic Area and the United Kingdom, or each a Relevant State, no ADSs have been offered or will be offered pursuant to this offering to the public in that
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Relevant State prior to the publication of a prospectus in relation to the ADSs which has been approved by the competent authority in that Relevant State or, where appropriate, approved in another Relevant State and notified to the competent authority in that Relevant State, all in accordance with the Prospectus Regulation, except that offers of ADSs may be made to the public in that Relevant State at any time under the following exemptions under the Prospectus Regulation:
(a) |
to any legal entity which is a qualified investor as defined under the Prospectus Regulation; |
(b) |
to fewer than 150 natural or legal persons (other than qualified investors as defined under the Prospectus Regulation), subject to obtaining the prior consent of the underwriters; or |
(c) |
in any other circumstances falling within Article 1(4) of the Prospectus Regulation, |
provided that no such offer of ADSs shall require us or any underwriter to publish a prospectus pursuant to Article 3 of the Prospectus Regulation or supplement a prospectus pursuant to Article 23 of the Prospectus Regulation and each person who initially acquires any ADSs or to whom any offer is made will be deemed to have represented, acknowledged and agreed to and with each of the underwriters and us that it is a qualified investor within the meaning of Article 2(e) of the Prospectus Regulation. In the case of any ADSs being offered to a financial intermediary as that term is used in the Prospectus Regulation, each such financial intermediary will be deemed to have represented, acknowledged and agreed that the ADSs acquired by it in the offer have not been acquired on a non-discretionary basis on behalf of, nor have they been acquired with a view to their offer or resale to, persons in circumstances which may give rise to an offer of any ADSs to the public other than their offer or resale in a Relevant State to qualified investors as so defined or in circumstances in which the prior consent of the representatives has been obtained to each such proposed offer or resale.
For the purposes of this provision, the expression an offer to the public in relation to ADSs in any Relevant 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 or subscribe for any ADSs, and the expression Prospectus Regulation means Regulation (EU) 2017/1129.
Hong Kong
The ADSs have not been offered or sold and will not be offered or sold in Hong Kong, by means of any document, other than (a) to professional investors as defined in the Securities and Futures Ordinance (Cap. 571 of the Laws of Hong Kong), or the SFO, of Hong Kong and any rules made thereunder; or (b) in other circumstances which do not result in the document being a prospectus as defined in the Companies (Winding Up and Miscellaneous Provisions) Ordinance (Cap. 32) of Hong Kong), or the CO, or which do not constitute an offer to the public within the meaning of the CO. No advertisement, invitation or document relating to the ADSs has been or may be issued or has been or may be in the possession of any person for the purposes of issue, 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 of Hong Kong (except if permitted to do so under the securities 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 as defined in the SFO and any rules made thereunder.
Israel
This document does not constitute a prospectus under the Israeli Securities Law, 5728-1968, and has not been filed with or approved by the Israel Securities Authority. In Israel, this prospectus may be distributed only to, and is directed only at, investors listed in the first addendum, or the Addendum, to the Israeli Securities Law, consisting primarily of joint investment in trust funds; provident funds; insurance companies; banks, portfolio managers, investment advisors, members of the Tel Aviv Stock Exchange Ltd., underwriters, each purchasing for their own account; venture capital funds; entities with equity in excess of NIS 50 million and qualified individuals, each as defined in the Addendum (as it may be amended from time to time), collectively referred to
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as qualified investors. Qualified investors shall be required to submit written confirmation that they fall within the scope of the Addendum.
Japan
The ADSs have not been and will not be registered pursuant to Article 4, Paragraph 1 of the Financial Instruments and Exchange Act. Accordingly, none of the ADSs nor any interest therein may be offered or sold, directly or indirectly, 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 resale, directly or indirectly, in Japan or to or for the benefit of a resident of Japan, except pursuant to an exemption from the registration requirements of, and otherwise in compliance with, the Financial Instruments and Exchange Act and any other applicable laws, regulations and ministerial guidelines of Japan in effect at the relevant time.
Kingdom of Saudi Arabia
This document may not be distributed in the Kingdom of Saudi Arabia except to such persons as are permitted under the Offers of Securities Regulations as issued by the board of the Saudi Arabian Capital Market Authority, or CMA, pursuant to resolution number 2-11-2004 dated October 4, 2004 as amended by resolution number 1-28-2008, as amended, or the CMA Regulations. The CMA does not make any representation as to the accuracy or completeness of this document and expressly disclaims any liability whatsoever for any loss arising from, or incurred in reliance upon, any part of this document. 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 document, you should consult an authorized financial adviser.
Korea
The ADSs have not been and will not be registered under the Financial Investments Services and Capital Markets Act of Korea and the decrees and regulations thereunder, or the FSCMA, and the ADSs have been and will be offered in Korea as a private placement under the FSCMA. None of the ADSs may be offered, sold or delivered directly or indirectly, or offered or sold to any person for re-offering 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 FSCMA and the Foreign Exchange Transaction Law of Korea and the decrees and regulations thereunder, or the FETL. The ADSs have not been listed on any of securities exchanges in the world including, without limitation, the Korea Exchange in Korea. Furthermore, the purchaser of the ADSs shall comply with all applicable regulatory requirements (including but not limited to requirements under the FETL) in connection with the purchase of the ADSs. By the purchase of the ADSs, the relevant holder thereof will be deemed to represent and warrant that if it is in Korea or is a resident of Korea, it purchased the ADSs pursuant to the applicable laws and regulations of Korea.
Kuwait
Unless all necessary approvals from the Kuwait Ministry of Commerce and Industry required by Law No. 31/1990 Regulating the Negotiation of Securities 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
No prospectus or other offering material or document in connection with the offer and sale of the ADSs has been or will be registered with the Securities Commission of Malaysia, or Commission, for the Commissions
212
approval pursuant to the Capital Markets and Services Act 2007. 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 Malaysia other than (i) a closed end fund approved by the Commission; (ii) a holder of a Capital Markets Services Licence; (iii) a person who acquires the ADSs, as principal, if the offer is on terms that the ADSs may only be acquired at a consideration of not less than RM250,000 (or its equivalent in foreign currencies) for each transaction; (iv) an individual whose total net personal assets or total net joint assets with his or her spouse exceeds RM3 million (or its equivalent in foreign currencies), excluding the value of the primary residence of the individual; (v) an individual who has a gross annual income exceeding RM300,000 (or its equivalent in foreign currencies) per annum in the preceding twelve months; (vi) an individual who, jointly with his or her spouse, has a gross annual income of RM400,000 (or its equivalent in foreign currencies), per annum in the preceding twelve months; (vii) a corporation with total net assets exceeding RM10 million (or its equivalent in a foreign currencies) based on the last audited accounts; (viii) a partnership with total net assets exceeding RM10 million (or its equivalent in foreign currencies); (ix) a bank licensee or insurance licensee as defined in the Labuan Financial Services and Securities Act 2010; (x) an Islamic bank licensee or takaful licensee as defined in the Labuan Financial Services and Securities Act 2010; and (xi) any other person as may be specified by the Commission; provided that, in the each of the preceding categories (i) to (xi), the distribution of the ADSs is made by a holder of a Capital Markets Services Licence who carries on the business of dealing in securities. The distribution in Malaysia of this prospectus is subject to Malaysian laws. This prospectus does not constitute and may not be used for the purpose of public offering or an issue, offer for subscription or purchase, invitation to subscribe for or purchase any securities requiring the registration of a prospectus with the Commission under the Capital Markets and Services Act 2007.
Mexico
None of the ADSs or the ordinary shares have been or will be registered with the National Securities Registry (Registro Nacional de Valores) maintained by the Mexican National Banking and Securities Commission (Comision Nacional Bancaria y de Valores), or CNBV, of Mexico and, as a result, may not be offered or sold publicly in Mexico. The ADSs and the ordinary shares may only be sold to Mexican institutional and qualified investors, pursuant to the private placement exemption set forth in the Mexican Securities Market Law (Ley del Mercado de Valores). As required under the Mexican Securities Market Law, the company will give notice to the CNBV of the offering of the securities under the terms set forth herein. Such notice will be submitted to the CNBV to comply with the Mexican Securities Market Law, and for informational purposes only. The delivery to, and receipt by, the CNBV of such notice does not certify the solvency of the company, the investment quality of the securities, or that the information contained in this prospectus or in any prospectus supplement. The company has prepared this prospectus and is solely responsible for its content, and the CNBV has not reviewed or authorized such content.
Peoples Republic of China
This prospectus will not be circulated or distributed in the PRC and the ADSs will not be offered or sold, and will not be offered or sold to any person for re-offering or resale directly or indirectly to any residents of the PRC except pursuant to any applicable laws and regulations of the PRC. Neither this prospectus nor any advertisement or other offering material may be distributed or published in the PRC, except under circumstances that will result in compliance with applicable laws and regulations.
Singapore
This prospectus has not been registered as a prospectus with the Monetary Authority of Singapore. Accordingly, the underwriters have not offered or sold any ADSs or caused the ADSs to be made the subject of an invitation for subscription or purchase and will not offer or sell any ADSs or cause the ADSs to be made the subject of an invitation for subscription or purchase, and has not circulated or distributed, nor will it circulate or
213
distribute, this prospectus or any other document or material in connection with the offer or sale, or invitation for subscription or purchase, of the ADSs, whether directly or indirectly, to any person in Singapore other than:
(a) |
to an institutional investor (as defined in Section 4A of the Securities and Futures Act (Chapter 289) of Singapore, as modified or amended from time to time, or the SFA) pursuant to Section 274 of the SFA; |
(b) |
to a relevant person (as defined in Section 275(2) of the SFA) pursuant to Section 275(1) of the SFA, or any person pursuant to Section 275(1A) of the SFA, and in accordance with the conditions specified in Section 275 of the SFA; or |
(c) |
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) |
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 |
(b) |
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 or securities-based derivatives contracts (each term as defined in Section 2(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:
(i) |
to an institutional investor or to a relevant person, or to any person arising from an offer referred to in Section 275(1A) or Section 276(4)(i)(B) of the SFA; |
(ii) |
where no consideration is or will be given for the transfer; |
(iii) |
where the transfer is by operation of law; |
(iv) |
as specified in Section 276(7) of the SFA; or |
as specified in Regulation 37A of the Securities and Futures (Offers of Investments) (Securities and Securities-based Derivatives Contracts) Regulations 2018.
State of Qatar
The ADSs described in this prospectus have not been, and will not be, offered, sold or delivered, at any time, directly or indirectly in the State of Qatar in a manner that would constitute a public offering. This prospectus has not been, and will not be, registered with or approved by the Qatar Financial Markets Authority or Qatar Central Bank and may not be publicly distributed. This prospectus is intended for the original recipient only and must not be provided to any other person. It is not for general circulation in the State of Qatar and may not be reproduced or used for any other purpose.
Switzerland
The ADSs may not be publicly offered in Switzerland and will not be listed on the SIX Swiss Exchange, or SIX, or on any other stock exchange or regulated trading facility in Switzerland. This document does not constitute a prospectus within the meaning of, and has been prepared without regard to the disclosure standards for issuance prospectuses under art. 652a or art. 1156 of the Swiss Code of Obligations or the disclosure standards for listing prospectuses under art. 27 ff. of the SIX Listing Rules or the listing rules of any other stock exchange or regulated trading facility in Switzerland. Neither this document nor any other offering or marketing material relating to the ADSs or the offering may be publicly distributed or otherwise made publicly available in Switzerland.
214
Neither this document nor any other offering or marketing material relating to the offering, the Company, the ADSs have been or will be filed with or approved by any Swiss regulatory authority. In particular, this document will not be filed with, and the offer of ADSs will not be supervised by, the Swiss Financial Market Supervisory Authority FINMA (FINMA), and the offer of ADSs has not been and will not be authorized under the Swiss Federal Act on Collective Investment Schemes, or CISA. The investor protection afforded to acquirers of interests in collective investment schemes under the CISA does not extend to acquirers of ADSs.
Taiwan
The ADSs have not been and will not be registered with the Financial Supervisory Commission of Taiwan pursuant to relevant securities laws and regulations and may not be sold, issued or offered within Taiwan through a public offering or in circumstances which constitutes an offer within the meaning of the Securities and Exchange Act of Taiwan that requires a registration or approval of the Financial Supervisory Commission of Taiwan. No person or entity in Taiwan has been authorized to offer, sell, give advice regarding or otherwise intermediate the offering and sale of the ADSs in Taiwan.
United Arab Emirates
The ADSs have not been, and are not being, publicly offered, sold, promoted or advertised in the United Arab Emirates (including the Dubai International Financial Centre) other than in compliance with the laws of the United Arab Emirates (and the Dubai International Financial Centre) governing the issue, offering and sale of securities. Further, this prospectus does not constitute a public offer of securities in the United Arab Emirates (including the Dubai International Financial Centre) and is not intended to be a public offer. This prospectus has not been approved by or filed with the Central Bank of the United Arab Emirates, the Securities and Commodities Authority or the Dubai Financial Services Authority.
United Kingdom
In addition, in the United Kingdom, this document is being distributed only to, and is directed only at, and any offer subsequently made may only be directed at persons who are qualified investors (as defined in the Prospectus Regulation) (i) who have professional experience in matters relating to investments falling within Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005, as amended, or the Order, and/or (ii) who are high net worth companies (or persons to whom it may otherwise be lawfully communicated) falling within Article 49(2)(a) to (d) of the Order, or collectively, the relevant persons, or otherwise in circumstances which have not resulted and will not result in an offer to the public of the ADSs in the United Kingdom within the meaning of the Financial Services and Markets Act 2000.
Any person in the United Kingdom that is not a relevant person should not act or rely on the information included in this document or use it as basis for taking any action. In the United Kingdom, any investment or investment activity that this document relates to may be made or taken exclusively by relevant persons.
215
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, NYSE listing fee and the Financial Industry Regulatory Authority filing fee, all amounts are estimates.
SEC registration fee |
US$ | 164,943 | ||
NYSE listing fee |
295,000 | |||
Financial Industry Regulatory Authority filing fee |
191,113 | |||
Printing and engraving expenses |
250,000 | |||
Legal fees and expenses |
3,000,000 | |||
Accounting fees and expenses |
1,296,000 | |||
Miscellaneous |
2,037,944 | |||
|
|
|||
Total |
US$ | 7,235,000 | ||
|
|
216
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 Latham & Watkins LLP with respect to certain legal matters as to United States federal securities and New York state law. 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 Harney Westwood & Riegels. Certain legal matters as to PRC law will be passed upon for us by Fangda Partners and for the underwriters by JunHe LLP. Simpson Thacher & Bartlett LLP and Harney Westwood & Riegels may rely upon Fangda Partners with respect to matters governed by PRC law. Latham & Watkins LLP may rely upon JunHe LLP with respect to matters governed by PRC law.
The financial statements as of December 31, 2019 and 2018, and for each of the two years in the period ended December 31, 2019 included in this prospectus have been so included in reliance on the report of PricewaterhouseCoopers Zhong Tian LLP, an independent registered public accounting firm, given on the authority of said firm as experts in auditing and accounting.
The registered business address of PricewaterhouseCoopers Zhong Tian LLP is 6/F DBS Bank Tower, 1318, Lu Jia Zui Ring Road, Pudong New Area, Shanghai, the Peoples Republic of China.
217
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 has been 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 the 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, if we so request, will mail to all record holders of ADSs the information contained in any notice of a shareholders meeting received by the depositary from us.
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INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Contents | Page | |||
F-2 | ||||
Consolidated Financial Statements: |
||||
Consolidated Balance Sheets as of December 31, 2018 and 2019 |
F-3 | |||
Consolidated Statements of Comprehensive Loss for the Years Ended December 31, 2018 and 2019 |
F-7 | |||
F-9 | ||||
Consolidated Statements of Cash Flows for the Years Ended December 31, 2018 and 2019 |
F-11 | |||
F-12 | ||||
Unaudited Condensed Consolidated Financial Statements: |
||||
Unaudited Condensed Consolidated Balance Sheets as of December 31, 2019 and June 30, 2020 |
F-71 | |||
F-75 | ||||
F-77 | ||||
F-78 | ||||
Notes to the Unaudited Condensed Consolidated Financial Statements |
F-79 |
F-1
Report of Independent Registered Public Accounting Firm
To the Board of Directors and Shareholders of XPeng Inc.
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of XPeng Inc. and its subsidiaries (the Company) as of December 31, 2019 and 2018, and the related consolidated statements of comprehensive loss, of changes in shareholders deficit and of cash flows for the years then ended, including 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 as of December 31, 2019 and 2018, and the results of its operations and its cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America.
Basis for Opinion
These consolidated financial statements are the responsibility of the Companys management. Our responsibility is to express an opinion on the Companys consolidated 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 of these consolidated financial statements 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 consolidated financial statements are free of material misstatement, whether due to error or fraud.
Our audits included performing procedures to assess the risks of material misstatement of the consolidated 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 consolidated 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 consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.
/s/ PricewaterhouseCoopers Zhong Tian LLP
Guangzhou, the Peoples Republic of China
June 2, 2020
We have served as the Companys auditor since 2019.
F-2
CONSOLIDATED BALANCE SHEETS AS OF DECEMBER 31, 2018 AND 2019
(All amounts in thousands, except for share and per share data)
As of December 31, | ||||||||||||||
Note | 2018 | 2019 | 2019 | |||||||||||
RMB | RMB | US$ | ||||||||||||
Note 2(e) | ||||||||||||||
ASSETS |
||||||||||||||
Current assets |
||||||||||||||
Cash and cash equivalents |
2(g) | 1,626,878 | 1,946,931 | 275,570 | ||||||||||
Restricted cash |
2(h) | 4,647 | 460,812 | 65,224 | ||||||||||
Short-term deposits |
2(i) | 759,975 | | | ||||||||||
Short-term investments |
2(j) | 2,246,272 | 407,844 | 57,727 | ||||||||||
Accounts receivable, net |
2(k) | 38,393 | 539,199 | 76,319 | ||||||||||
Current portion of finance lease receivables, net |
15(b) | | 45,836 | 6,488 | ||||||||||
Inventory |
6 | 169,326 | 454,116 | 64,276 | ||||||||||
Amounts due from related parties |
24 | 26,956 | 22,605 | 3,200 | ||||||||||
Prepayments and other current assets |
7 | 1,236,596 | 1,083,307 | 153,332 | ||||||||||
|
|
|
|
|
|
|||||||||
Total current assets |
6,109,043 | 4,960,650 | 702,136 | |||||||||||
|
|
|
|
|
|
|||||||||
Non-current assets |
||||||||||||||
Property, plant and equipment, net |
8 | 863,357 | 3,229,952 | 457,170 | ||||||||||
Right-of-use assets |
15(a) | 342,123 | 440,097 | 62,292 | ||||||||||
Intangible assets, net |
9 | 48,853 | 117,932 | 16,692 | ||||||||||
Land use rights, net |
10 | 260,580 | 255,257 | 36,129 | ||||||||||
Finance lease receivables, net |
15(b) | | 109,965 | 15,565 | ||||||||||
Other non-current assets |
11 | 49,232 | 137,512 | 19,465 | ||||||||||
|
|
|
|
|
|
|||||||||
Total non-current assets |
1,564,145 | 4,290,715 | 607,313 | |||||||||||
|
|
|
|
|
|
|||||||||
Total assets |
7,673,188 | 9,251,365 | 1,309,449 | |||||||||||
|
|
|
|
|
|
F-3
CONSOLIDATED BALANCE SHEETS AS OF DECEMBER 31, 2018 AND 2019 (CONTINUED)
(All amounts in thousands, except for share and per share data)
As of December 31, | ||||||||||||||
Note | 2018 | 2019 | 2019 | |||||||||||
RMB | RMB | US$ | ||||||||||||
Note 2(e) | ||||||||||||||
LIABILITIES |
||||||||||||||
Current liabilities |
||||||||||||||
Short-term borrowings |
13 | 200,000 | 419,950 | 59,440 | ||||||||||
Accounts and notes payable |
214,893 | 953,946 | 135,022 | |||||||||||
Amounts due to a related party |
24 | | 678 | 96 | ||||||||||
Current portion of lease liabilities |
15(a) | 83,582 | 90,740 | 12,843 | ||||||||||
Current portion of deferred revenue |
17 | 1,565 | 16,382 | 2,319 | ||||||||||
Current portion of long-term borrowings |
13 | - | 60,000 | 8,492 | ||||||||||
Accruals and other liabilities |
12 | 472,946 | 1,755,995 | 248,546 | ||||||||||
|
|
|
|
|
|
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Total current liabilities |
972,986 | 3,297,691 | 466,758 | |||||||||||
|
|
|
|
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|
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Non-current liabilities |
||||||||||||||
Long-term borrowings |
13 | 1,000,000 | 1,690,000 | 239,204 | ||||||||||
Lease liabilities |
15(a) | 267,356 | 361,404 | 51,153 | ||||||||||
Deferred revenue |
17 | 801 | 69,116 | 9,783 | ||||||||||
Derivative liabilities |
19 | 637,015 | 897,091 | 126,978 | ||||||||||
Other non-current liabilities |
14 | 782 | 73,015 | 10,335 | ||||||||||
|
|
|
|
|
|
|||||||||
Total non-current liabilities |
1,905,954 | 3,090,626 | 437,453 | |||||||||||
|
|
|
|
|
|
|||||||||
Total liabilities |
2,878,940 | 6,388,317 | 904,211 | |||||||||||
|
|
|
|
|
|
|||||||||
Commitments and contingencies |
25 |
F-4
CONSOLIDATED BALANCE SHEETS AS OF DECEMBER 31, 2018 AND 2019 (CONTINUED)
(All amounts in thousands, except for share and per share data)
As of December 31, | ||||||||||||||
Note | 2018 | 2019 | 2019 | |||||||||||
RMB | RMB | US$ | ||||||||||||
Note 2(e) | ||||||||||||||
MEZZANINE EQUITY |
||||||||||||||
Series A convertible redeemable preferred shares (Series A Preferred Shares) (US$0.00001 par value; 78,108,625 shares authorized, and 78,108,625 shares issued and outstanding as of December 31, 2018 and 2019; redemption value of RMB549,146 and RMB615,044 as of December 31, 2018 and 2019, respectively) |
19 | 532,353 | 597,559 | 84,579 | ||||||||||
Series A-1 convertible redeemable preferred shares (Series A-1 Preferred Shares) (US$0.00001 par value; 67,802,375 shares authorized, and 67,802,375 shares issued and outstanding as of December 31, 2018 and 2019; redemption value of RMB514,401 and RMB576,129 as of December 31, 2018 and 2019, respectively) |
19 | 498,581 | 559,654 | 79,214 | ||||||||||
Series A-2 convertible redeemable preferred shares (Series A-2 Preferred Shares) (US$0.00001 par value; 11,671,400 shares authorized, and 11,671,400 shares issued and outstanding as of December 31, 2018 and 2019; redemption value of RMB111,825 and RMB125,244 as of December 31, 2018 and 2019, respectively) |
19 | 108,002 | 121,257 | 17,163 | ||||||||||
Series B convertible redeemable preferred shares (Series B Preferred Shares) (US$0.00001 par value; 160,481,700 shares authorized, and 160,481,700 shares issued and outstanding as of December 31, 2018 and 2019; redemption value of RMB2,399,821 and RMB2,687,801 as of December 31, 2018 and 2019, respectively) |
19 | 2,274,403 | 2,562,098 | 362,641 | ||||||||||
Series B-1 convertible redeemable preferred shares (Series B-1 Preferred Shares) (US$0.00001 par value; 137,868,350 shares authorized, and 133,272,750 shares issued and outstanding as of December 31, 2018 and 2019; redemption value of RMB3,040,143 and RMB3,404,960 as of December 31, 2018 and 2019, respectively) |
19 | 2,685,499 | 3,080,443 | 436,008 | ||||||||||
Series B-2 convertible redeemable preferred shares (Series B-2 Preferred Shares) (US$0.00001 par value; 35,965,675 shares authorized, 38,163,575 and 35,965,675 shares issued and outstanding as of December 31, 2018 and 2019; redemption value of RMB1,001,152 and RMB1,056,715 as of December 31, 2018 and 2019, respectively) |
19 | 880,635 | 952,068 | 134,756 | ||||||||||
Series C convertible redeemable preferred shares (Series C Preferred Shares) (US$0.00001 par value; 265,302,225 shares authorized, nil and 79,590,650 shares issued and outstanding as of December 31, 2018 and 2019; redemption value of nil and RMB2,111,790 as of December 31, 2018 and 2019, respectively) |
19 | | 1,820,399 | 257,661 | ||||||||||
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|
|
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Total mezzanine equity |
6,979,473 | 9,693,478 | 1,372,022 | |||||||||||
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|
|
|
|
|
F-5
CONSOLIDATED BALANCE SHEETS AS OF DECEMBER 31, 2018 AND 2019 (CONTINUED)
(All amounts in thousands, except for share and per share data)
As of December 31, | ||||||||||||||
Note | 2018 | 2019 | 2019 | |||||||||||
RMB | RMB | US$ | ||||||||||||
Note 2(e) | ||||||||||||||
SHAREHOLDERS (DEFICIT) EQUITY |
||||||||||||||
Ordinary shares (US$0.00001 par value; 4,242,799,650 shares and nil shares authorized, 463,189,950 shares and nil shares issued, 349,414,050 and nil shares outstanding as of December 31, 2018 and 2019, respectively) |
20 | 21 | | | ||||||||||
Class A Ordinary shares (US$0.00001 par value; nil and 3,492,799,650 shares authorized, nil and 131,955,575 shares issued, nil and 31,513,000 outstanding as of December 31, 2018 and 2019, respectively) |
20 | | 2 | | ||||||||||
Class B Ordinary shares (US$0.00001 par value, nil and 750,000,000 shares authorized, nil and 331,234,375 shares issued and outstanding as of December 31, 2018 and 2019, respectively) |
20 | | 19 | 3 | ||||||||||
Additional paid-in capital |
| | | |||||||||||
Accumulated deficit |
(2,182,266 | ) | (6,824,503 | ) | (965,946 | ) | ||||||||
Accumulated other comprehensive loss |
(2,980 | ) | (5,948 | ) | (841 | ) | ||||||||
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|
|
|
|
|
|||||||||
Total shareholders (deficit) equity |
(2,185,225 | ) | (6,830,430 | ) | (966,784 | ) | ||||||||
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|
|
|
|
|||||||||
Total liabilities, mezzanine equity and shareholders (deficit) equity |
7,673,188 | 9,251,365 | 1,309,449 | |||||||||||
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|
|
|
The accompanying notes are an integral part of these consolidated financial statements.
F-6
CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
FOR THE YEARS ENDED DECEMBER 31, 2018 AND 2019
(All amounts in thousands, except for share and per share data)
Year Ended December 31, | ||||||||||||||
Note | 2018 | 2019 | 2019 | |||||||||||
RMB | RMB | US$ | ||||||||||||
Note 2(e) | ||||||||||||||
Revenues |
||||||||||||||
Vehicle sales |
16 | 4,153 | 2,171,231 | 307,318 | ||||||||||
Services and others |
16 | 5,553 | 149,988 | 21,229 | ||||||||||
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|
|
|
|
|||||||||
Total revenues |
9,706 | 2,321,219 | 328,547 | |||||||||||
|
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|
|
|
|||||||||
Cost of sales |
||||||||||||||
Vehicle sales |
(8,220 | ) | (2,733,531 | ) | (386,906 | ) | ||||||||
Services and others |
(3,847 | ) | (145,829 | ) | (20,641 | ) | ||||||||
|
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|
|
|
|
|||||||||
Total cost of sales |
(12,067 | ) | (2,879,360 | ) | (407,547 | ) | ||||||||
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|
|
|
|||||||||
Gross loss |
(2,361 | ) | (558,141 | ) | (79,000 | ) | ||||||||
|
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|
|
|||||||||
Operating expenses(1) |
||||||||||||||
Research and development expenses |
2(t) | (1,051,219 | ) | (2,070,158 | ) | (293,012 | ) | |||||||
Selling, general and administrative expenses |
2(u) | (642,541 | ) | (1,164,569 | ) | (164,834 | ) | |||||||
|
|
|
|
|
|
|||||||||
Total operating expenses |
(1,693,760 | ) | (3,234,727 | ) | (457,846 | ) | ||||||||
|
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|
|
|
|
|||||||||
Other income |
1,487 | 12,294 | 1,740 | |||||||||||
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|
|
|
|||||||||
Loss from operations |
(1,694,634 | ) | (3,780,574 | ) | (535,106 | ) | ||||||||
|
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|
|
|
|
|||||||||
Interest income |
65,376 | 88,843 | 12,575 | |||||||||||
Interest expenses |
(5,822 | ) | (32,017 | ) | (4,532 | ) | ||||||||
Fair value gain on derivative liabilities |
254,361 | 27,679 | 3,918 | |||||||||||
Other non-operating (loss) income, net |
(18,104 | ) | 4,397 | 622 | ||||||||||
|
|
|
|
|
|
|||||||||
Loss before income tax expenses |
(1,398,823 | ) | (3,691,672 | ) | (522,523 | ) | ||||||||
|
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|
|
|
|||||||||
Income tax expenses |
22(a) | | (1 | ) | | |||||||||
|
|
|
|
|
|
|||||||||
Net loss |
(1,398,823 | ) | (3,691,673 | ) | (522,523 | ) | ||||||||
|
|
|
|
|
|
|||||||||
Accretion on Preferred Shares to redemption value |
(705,329 | ) | (961,050 | ) | (136,028 | ) | ||||||||
Deemed dividend due to extinguishment of Preferred Shares |
(43,136 | ) | | | ||||||||||
Deemed dividend due to modification of Preferred Shares |
(41,485 | ) | | | ||||||||||
Deemed dividend due to reclassification from mezzanine equity to ordinary shares upon extinguishment of Redeemable Shares |
(66,091 | ) | | | ||||||||||
Deemed contribution from repurchase of Preferred Shares |
| 9,969 | 1,411 | |||||||||||
|
|
|
|
|
|
|||||||||
Net loss attributable to ordinary shareholders of XPeng Inc. |
(2,254,864 | ) | (4,642,754 | ) | (657,140 | ) | ||||||||
|
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|
|
|
|
F-7
CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
FOR THE YEARS ENDED DECEMBER 31, 2018 AND 2019 (CONTINUED)
(All amounts in thousands, except for share and per share data)
Year Ended December 31, | ||||||||||||||||
Note | 2018 | 2019 | 2019 | |||||||||||||
RMB | RMB | US$ | ||||||||||||||
Note 2(e) | ||||||||||||||||
Net loss |
(1,398,823 | ) | (3,691,673 | ) | (522,523 | ) | ||||||||||
Other comprehensive loss |
||||||||||||||||
Foreign currency translation adjustment, net of nil tax |
(2,980 | ) | (2,968 | ) | (420 | ) | ||||||||||
|
|
|
|
|
|
|||||||||||
Total comprehensive loss attributable to XPeng Inc. |
(1,401,803 | ) | (3,694,641 | ) | (522,943 | ) | ||||||||||
|
|
|
|
|
|
|||||||||||
Accretion on Preferred Shares to redemption value |
(705,329 | ) | (961,050 | ) | (136,028 | ) | ||||||||||
Deemed dividend due to extinguishment of Preferred Shares |
(43,136 | ) | | | ||||||||||||
Deemed dividend due to modification of Preferred Shares |
(41,485 | ) | | | ||||||||||||
Deemed dividend due to reclassification from mezzanine equity to ordinary shares upon extinguishment of Redeemable Shares |
(66,091 | ) | | | ||||||||||||
Deemed contribution from repurchase of Preferred Shares |
| 9,969 | 1,411 | |||||||||||||
|
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|
|
|
|
|||||||||||
Comprehensive loss attributable to ordinary shareholders of XPeng Inc. |
(2,257,844 | ) | (4,645,722 | ) | (657,560 | ) | ||||||||||
|
|
|
|
|
|
|||||||||||
Weighted average number of ordinary shares used in computing net loss per ordinary share |
||||||||||||||||
Basic and diluted |
23 | 330,176,070 | 349,450,580 | 349,450,580 | ||||||||||||
Net loss per ordinary share attributable to ordinary shareholders |
||||||||||||||||
Basic and diluted |
23 | (6.83) | (13.29) | (1.88) |
(1) Share-based compensation was allocated in operating expenses as follows:
Year Ended December 31, | ||||||||||||||||
Note | 2018 | 2019 | 2019 | |||||||||||||
RMB | RMB | US$ | ||||||||||||||
Note 2(e) | ||||||||||||||||
Selling, general and administrative expenses |
1,630 | 517 | 73 |
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, 2018 AND 2019
(All amounts in thousands, except for share and per share data)
Ordinary shares |
Treasury Shares |
Additional
Paid-in Capital |
Accumulated
Other Comprehensive Loss |
Accumulated
Deficit |
Total
Shareholders Deficit |
|||||||||||||||||||||||||||||||
Note | Shares | Par Value | Shares | Par Value | ||||||||||||||||||||||||||||||||
Balance as of December 31, 2017 |
400,061,875 | 26 | (103,240,000 | ) | (7 | ) | 363,789 | | (403,608 | ) | (39,800 | ) | ||||||||||||||||||||||||
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|
|||||||||||||||||||||
Share-based compensation |
21 | | | 26,666,675 | 1,630 | | | 1,630 | ||||||||||||||||||||||||||||
Issuance of ordinary shares |
20 | 37,202,575 | 2 | (37,202,575 | ) | (2 | ) | | | | | |||||||||||||||||||||||||
Accretion on convertible redeemable Preferred Shares to redemption value |
19 | | | | | (325,494 | ) | | (379,835 | ) | (705,329 | ) | ||||||||||||||||||||||||
Deemed dividend due to extinguishment of Preferred
|
| | | | (43,136 | ) | | | (43,136 | ) | ||||||||||||||||||||||||||
Deemed dividend due to modification of Preferred Shares |
| | | | (41,485 | ) | | | (41,485 | ) | ||||||||||||||||||||||||||
Reclassification from mezzanine equity to ordinary shares upon extinguishment of Redeemable Shares |
20 | 25,925,500 | 2 | | | 44,696 | | | 44,698 | |||||||||||||||||||||||||||
Foreign currency translation adjustment |
| | | | | (2,980 | ) | | (2,980 | ) | ||||||||||||||||||||||||||
Net loss |
| | | | | | (1,398,823 | ) | (1,398,823 | ) | ||||||||||||||||||||||||||
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|||||||||||||||||||||
Balance as of December 31, 2018 |
463,189,950 | 30 | (113,775,900 | ) | (9 | ) | | (2,980 | ) | (2,182,266 | ) | (2,185,225 | ) | |||||||||||||||||||||||
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|
F-9
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS DEFICIT
FOR THE YEARS ENDED DECEMBER 31, 2018 AND 2019 (CONTINUED)
(All amounts in thousands, except for share and per share data)
Ordinary shares |
Treasury Shares |
Additional
Paid-in Capital |
Accumulated
Other Comprehensive Loss |
Accumulated
Deficit |
Total
Shareholders Deficit |
|||||||||||||||||||||||||||||||
Note | Shares | Par Value | Shares | Par Value | ||||||||||||||||||||||||||||||||
Balance as of December 31, 2018 |
463,189,950 | 30 | (113,775,900 | ) | (9 | ) | | (2,980 | ) | (2,182,266 | ) | (2,185,225 | ) | |||||||||||||||||||||||
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|||||||||||||||||||||
Share-based compensation |
21 | | | 13,333,325 | 517 | | | 517 | ||||||||||||||||||||||||||||
Accretion on convertible redeemable Preferred Shares to redemption value |
19 | | | | | (10,486 | ) | | (950,564 | ) | (961,050 | ) | ||||||||||||||||||||||||
Deemed contribution from repurchase of Preferred Shares |
| | | | 9,969 | | | 9,969 | ||||||||||||||||||||||||||||
Foreign currency translation adjustment |
| | | | | (2,968 | ) | | (2,968 | ) | ||||||||||||||||||||||||||
Net loss |
| | | | | | (3,691,673 | ) | (3,691,673 | ) | ||||||||||||||||||||||||||
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Balance as of December 31, 2019 |
463,189,950 | 30 | (100,442,575 | ) | (9 | ) | | (5,948 | ) | (6,824,503 | ) | (6,830,430 | ) | |||||||||||||||||||||||
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The accompanying notes are an integral part of these consolidated financial statement.
F-10
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 2018 AND 2019
(All amounts in thousands, except for share and per share data)
Year Ended December 31, | ||||||||||||||||
Note | 2018 | 2019 | 2019 | |||||||||||||
RMB | RMB | US$ | ||||||||||||||
Note 2(e) | ||||||||||||||||
Cash flows from operating activities |
||||||||||||||||
Net loss |
(1,398,823 | ) | (3,691,673 | ) | (522,523 | ) | ||||||||||
Adjustments to reconcile net loss to net cash used in operating activities: |
||||||||||||||||
Depreciation of property, plant and equipment |
8 | 53,527 | 125,453 | 17,757 | ||||||||||||
Amortization of intangible assets |
9 | 3,546 | 7,681 | 1,087 | ||||||||||||
Amortization of right-of-use assets |
34,500 | 88,208 | 12,485 | |||||||||||||
Amortization of land use right |
10 | 4,058 | 5,323 | 753 | ||||||||||||
Foreign exchange losses (gains) |
11,807 | (8,363 | ) | (1,184 | ) | |||||||||||
Loss of disposal of property, plant and equipment |
30,275 | 1,191 | 169 | |||||||||||||
Share-based compensation |
21(b) | 1,630 | 517 | 73 | ||||||||||||
Impairment of property, plant and equipment |
8 | | 79,185 | 11,208 | ||||||||||||
Impairment of accounts receivable |
2(k) | | 3,812 | 540 | ||||||||||||
Impairment of finance lease receivables |
2(ab),15(b) | | 833 | 118 | ||||||||||||
Inventory write-downs |
2(1),6 | | 109,505 | 15,499 | ||||||||||||
Interest income |
2(j) | (55,885 | ) | (66,782 | ) | (9,452 | ) | |||||||||
Fair value gain on derivative liabilities |
(254,361 | ) | (27,679 | ) | (3,918 | ) | ||||||||||
Changes in operating assets and liabilities: |
||||||||||||||||
Accounts receivable |
(35,390 | ) | (504,618 | ) | (71,424 | ) | ||||||||||
Inventory |
6 | (137,877 | ) | (394,295 | ) | (55,809 | ) | |||||||||
Amounts due from related parties |
24 | (26,956 | ) | 4,351 | 616 | |||||||||||
Prepayments and other current assets |
(277,651 | ) | (418,103 | ) | (59,179 | ) | ||||||||||
Other non-current assets |
(24,737 | ) | (5,616 | ) | (795 | ) | ||||||||||
Accounts and notes payable |
176,817 | 739,053 | 104,606 | |||||||||||||
Deferred revenue |
17 | 2,366 | 83,132 | 11,767 | ||||||||||||
Lease liabilities |
(4,376 | ) | (84,626 | ) | (11,978 | ) | ||||||||||
Accruals and other liabilities |
324,815 | 520,547 | 73,679 | |||||||||||||
Other non-current liabilities |
14 | | 26,155 | 3,705 | ||||||||||||
Finance lease receivables |
| (156,634 | ) | (22,170 | ) | |||||||||||
Amount due to a related party |
24 | | 678 | 96 | ||||||||||||
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|
|||||||||||
Net cash used in operating activities |
(1,572,715 | ) | (3,562,765 | ) | (504,274 | ) | ||||||||||
|
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|
|||||||||||
Cash flows from investing activities |
||||||||||||||||
Placement of term deposits |
2(i) | (759,975 | ) | | | |||||||||||
Maturities of term deposits |
2(i) | | 759,975 | 107,567 | ||||||||||||
(Placement) maturities of short-term investments |
2(j) | (1,863,447 | ) | 1,905,210 | 269,665 | |||||||||||
Purchase of property, plant and equipment |
(770,339 | ) | (1,831,593 | ) | (259,245 | ) | ||||||||||
Receipt of government subsidy related to assets |
2,007 | 83,201 | 11,776 | |||||||||||||
Purchase of intangible assets |
(47,479 | ) | (76,760 | ) | (10,865 | ) | ||||||||||
Purchase of land use right |
(191,580 | ) | | | ||||||||||||
Disposal of property, plant and equipment |
489 | 263 | 37 | |||||||||||||
Prepayment for acquisition of assets |
| (100,000 | ) | (14,154 | ) | |||||||||||
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|
|||||||||||
Net cash (used in) provided by investing activities |
(3,630,324 | ) | 740,296 | 104,781 | ||||||||||||
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|
|||||||||||
Cash flows from financing activities |
||||||||||||||||
Proceeds from issuance of convertible redeemable Preferred Shares |
5,854,200 | 2,678,612 | 379,133 | |||||||||||||
Proceeds from borrowings |
13 | 1,200,000 | 1,620,000 | 229,296 | ||||||||||||
Repayment of borrowings |
13 | (320,000 | ) | (748,060 | ) | (105,881 | ) | |||||||||
Repurchase of Preferred Shares |
| (55,000 | ) | (7,785 | ) | |||||||||||
Proceeds from noncontrolling interests |
12 | | 98,010 | 13,872 | ||||||||||||
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|||||||||||
Net cash provided by financing activities |
6,734,200 | 3,593,562 | 508,635 | |||||||||||||
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|
|||||||||||
Effects of exchange rate changes on cash, cash equivalents and restricted cash |
(14,782 | ) | 5,125 | 725 | ||||||||||||
Net increase in cash, cash equivalents and restricted cash |
1,516,379 | 776,218 | 109,867 | |||||||||||||
Cash, cash equivalents and restricted cash at beginning of the year |
115,146 | 1,631,525 | 230,927 | |||||||||||||
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|
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Cash, cash equivalents and restricted cash at end of the year |
1,631,525 | 2,407,743 | 340,794 | |||||||||||||
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|
|||||||||||
Supplemental disclosure of cash flows information |
||||||||||||||||
Cash paid for interest, net of amounts capitalized |
(29,697 | ) | (26,406 | ) | (3,738 | ) | ||||||||||
Acquisition of property, plant and equipment included in liabilities |
69,360 | 762,151 | 107,875 |
The accompanying notes are an integral part of these consolidated financial statements.
F-11
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(All amount in thousands, except for share and per share data, unless otherwise stated)
1. Organization and Nature of Operations
(a) Principal activities
XPeng Inc. (XPeng or the Company) was incorporated under the laws of the Cayman Islands in December 27, 2018, as an exempted company with limited liability. The Company, its subsidiaries and consolidated variable interest entity (VIE) and VIEs subsidiaries (VIEs, also refer to VIE and its subsidiaries as a whole, where appropriate) are collectively referred to as the Group.
The Group designs and develops smart electric vehicles. It delivered its first model of smart electric vehicles, G3, commercially in December 2018. The Group manufactures G3 through strategic collaboration with a third-party vehicles manufacturer. As of December 31, 2018 and 2019, its primary operations are conducted in the Peoples Republic of China (PRC).
(b) History of the Group and Reorganization
The Group commenced its operation through Guangzhou Chengxing Zhidong Automotive Technology Co., Ltd. (Chengxing) since 2015, Chengxing was founded by Mr. Heng Xia, Mr. Tao He and Mr. Xiaopeng He (collectively the Founders), and subsequently obtained financing from various third party investors (collectively Third Party Investors) from 2016 through 2018.
In preparation for its initial public offering (IPO), the Group completed a reorganization (the Reorganization) in September 2019, which involved the following steps:
|
On December 27, 2018, the Company was established under the laws of the Cayman Islands as an exempted company with limited liability. |
|
On January 7, 2019, XPeng Limited was incorporated in British Virgin Islands as a wholly owned subsidiary of the Company. |
|
On February 21, 2019, XPeng (HK) Limited was incorporated in Hong Kong as a wholly owned subsidiary of XPeng Limited. |
|
On June 21, 2019, Guangdong Xiaopeng Motors Technology Co., Ltd. (WFOE) was established as a wholly owned subsidiary of XPeng (HK) Limited in the PRC. |
|
On September 2019, the Company issued 17,897,478 ordinary shares, 2,021,635 Series A Preferred Shares, 1,859,082 Series A-1 Preferred Shares, 23,343 Series A-2 Preferred Shares, 3,198,839 Series B Preferred Shares, 4,361,678 Series B-1 Preferred Shares, 1,045,497 Series B-2 Preferred Shares, 3,183,626 Series C Preferred Shares and 7,612,147 warrants in aggregate, to the existing shareholders of Chengxing, based on their respective equity interests in Chengxing. Concurrently, as a transitional arrangement and part of the Reorganization, a series of contractual agreements were entered into among WFOE, Chengxing and its existing shareholders, including the exclusive business cooperation agreement, the equity pledge agreement, the exclusive option agreement and the power of attorney. Consequently, WFOE became the primary beneficiary of Chengxing. In May 2020, Guangdong Xiaopeng Motors Technology Co., Ltd. exercised its rights under the contractual arrangement and purchased 100% of Chengxing. Consequently Chengxing became an indirect wholly owned subsidiary of XPeng Inc. |
The equity interests held by the existing shareholders in the Company after the Reorganization are the same as the equity interests held by them in Chengxing before the Reorganization. Out of the equity interests issued, 43.44%, 38.09% and 18.47% were in the form of ordinary shares, Preferred Shares and warrants, respectively.
Prior to the Reorganization, the shareholders of Chengxing included individual shareholders and institutional shareholders. Pursuant to laws applicable to PRC residents and entities incorporated in the PRC, PRC
F-12
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(All amount in thousands, except for share and per share data, unless otherwise stated)
1. Organization and Nature of Operations (continued)
(b) History of the Group and Reorganization (continued)
individuals should complete registration of its outbound investments (i.e. the foreign exchange registration under SAFE Circular 37), and PRC institutional investors should complete its statutory filings and foreign exchange registrations for outbound investment (i.e. ODI) respectively, before such PRC residents or entities can legally own offshore investments or equity interests in offshore entities. As such, all PRC individual shareholders and PRC institutional shareholders of Chengxing shall complete their relevant registrations and/or statutory filings, as appropriate, before they can, in accordance with applicable PRC laws, hold directly or indirectly the ordinary shares of the Company, which is incorporated under the laws of the Cayman Islands. The warrants are to reflect the holders (indirect) rights, obligations and interest in the Company as if the holders are holding Preferred Shares of the Company before the holders complete their necessary registration for outbound investment to exercise their warrants into Preferred Shares of the Company. Once the holders complete the necessary registration for outbound investment, the holders are required to exercise the warrants immediately at a nil price per share. The warrants are transferrable by the holder subject to approval of the Companys board of directors. Accordingly, the warrants are accounted for and presented based on the terms on the underlying Preferred Shares that the warrants are exercisable into (see Note 19).
The shareholders and their respective equity interest in the Company remain the same immediately before and after the Reorganization. Further, the Company, being the holding company after the Reorganization, is a newly established shell company. Accordingly, the Company determined that the Reorganization lacks substance and should be treated as a non-substantive merger with no change in the basis of assets, liabilities and shareholders deficits of Chengxing.
These consolidated financial statements are presented as if the Group Reorganization had already taken place as of the beginning of the period covered by these financial statements.
On March 20, 2020, the Company completed a 1:25 share split of all of its ordinary and Preferred Shares of the Company. All shares and per share amounts presented in the consolidated financial statements have been retrospectively adjusted to reflect the share split.
F-13
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(All amount in thousands, except for share and per share data, unless otherwise stated)
1. Organization and Nature of Operations (continued)
(b) History of the Group and Reorganization (continued)
As of December 31, 2019, the Companys principal subsidiaries and VIEs are as follows:
Place of incorporation |
Date of
incorporation or acquisition |
Equity
interest held |
Principal activities | |||||||||||
Principal subsidiaries |
||||||||||||||
XSense. AI, Inc. |
United States | November 27, 2018 | 100 | % | Technology development | |||||||||
XMotors. AI, Inc. |
United States | January 05, 2018 | 100 | % | Technology development | |||||||||
Chengxing(1) |
PRC | January 09, 2015 | 100 | % | Investment holding | |||||||||
Guangzhou Xiaopeng Motors Technology Co., Ltd.(Xiaopeng Technology) |
PRC | May 12, 2016 | 100 | % | Design and technology development | |||||||||
Guangzhou Xiaopeng Automobile Manufacturing Co., Ltd. |
PRC | April 07, 2017 | 100 | % | Manufacturing of vehicles | |||||||||
Zhaoqing Xiaopeng Automobile Co., Ltd.(Zhaoqing XPeng) |
PRC | May 18, 2017 | 100 | % | Manufacturing of vehicles | |||||||||
Xiaopeng Automobile Sales Co., Ltd. |
PRC | January 08, 2018 | 100 | % | Vehicle wholesale and retail | |||||||||
Beijing Xiaopeng Automobile Co., Ltd. |
PRC | April 28, 2018 | 100 | % | Vehicle wholesale and retail, design and technology development | |||||||||
Shenzhen Xiaopeng Automobile Sales Service Co., Ltd. |
PRC | August 06, 2018 | 100 | % | Vehicle wholesale and retail | |||||||||
Shanghai Xiaopeng Automobile Sales Service Co., Ltd. |
PRC | October 10, 2018 | 100 | % | Vehicle wholesale and retail |
Place of incorporation |
Date of
incorporation or acquisition |
Economic
interest held |
Principal activities | |||||||||||
VIEs |
||||||||||||||
Guangzhou Zhipeng IoV Technology Co., Ltd.(Zhipeng IoV) |
PRC | May 23, 2018 | 100 | % | Ride-hailing services and operating the related mobile app | |||||||||
Guangzhou Yidian Zhihui Chuxing Technology Co., Ltd.(Yidian Chuxing) |
PRC | May 24, 2018 | 100 | % |
Mobile apps and providing value-added services |
(1) |
A transitional arrangement and part of the Reorganization, a series of contractual agreements were entered into among WFOE, Chengxing and its existing shareholders, including the exclusive business cooperation agreement, the equity pledge agreement, the exclusive option agreement and the power of attorney. Consequently, WFOE became the primary beneficiary of Chengxing. In May 2020, Guangdong Xiaopeng Motors Technology Co., Ltd exercised its rights under the contractual arrangement and purchased 100% of Chengxing. Consequently, Chengxing Zhidong became an indirect wholly owned subsidiary of XPeng Inc. |
F-14
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(All amount in thousands, except for share and per share data, unless otherwise stated)
1. Organization and Nature of Operations (continued)
(c) Variable interest entity
Contractual Arrangements with Zhipeng IoV
Zhipeng IoV was established in May 23, 2018. In May 28, 2018, Xiaopeng Technology, Zhipeng IoV, and its shareholders entered into a series of contractual agreements. These agreements provide the Company, as the only shareholder of Xiaopeng Technology, with effective control over Zhipeng IoV to direct the activities that most significantly impact Zhipeng IoVs economic performance and enable the Company to obtain substantially all of the economic benefits arising from Zhipeng IoV. Management concluded that Zhipeng IoV is a variable interest entity of the Company and the Company is the ultimate primary beneficiary of Zhipeng IoV and shall consolidate the financial results of Zhipeng IoV in the Groups consolidated financial statements. As of December 31, 2018 and 2019, Zhipeng IoV did not have significant operations, nor any material assets or liabilities.
|
Equity Interest Pledge Agreements. Pursuant to the equity interest pledge agreement, each shareholder of Zhipeng IoV, has pledged all of such shareholders equity interest in Zhipeng IoV as a security interest, as applicable, to respectively guarantee Zhipeng IoV and its shareholders performance of their obligations under the relevant contractual arrangement, which include the exclusive service agreement, exclusive option agreement, power of attorney and loan agreement. If Zhipeng IoV or any of its shareholders breaches their contractual obligations under these agreements, Xiaopeng Technology, as pledgee, will be entitled to certain rights regarding the pledged equity interests. In the event of such breaches, upon giving written notice to Zhipeng IoVs shareholders, Xiaopeng Technology to the extent permitted by PRC laws may exercise the right to enforce the pledge, which is being paid in priority with the equity interest of Zhipeng IoV from the proceeds from auction or sale of the equity interest. Each of the shareholders of Zhipeng IoV 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 Xiaopeng Technology. Zhipeng IoVs shareholders may receive dividends distributed on the equity interest only with prior consent of Xiaopeng Technology. 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, whichever is later. |
|
Power of Attorney. Pursuant to the power of attorney, each shareholder of Zhipeng IoV has irrevocably authorized Xiaopeng Technology to exercise the following rights relating to all equity interests held by such shareholder in Zhipeng IoV 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 Zhipeng IoV according to Zhipeng IoVs articles of association, including without limitation to: (i) exercising all the shareholders voting rights, including but not limited designating and appointing the directors and other senior management members of Zhipeng IoV; (ii) other shareholders voting rights such shareholder is entitled to according to Zhipeng IoVs articles of association, as amended; and (iii) equity transfer (according to the exclusive option agreement), asset transfer, capital reduction and capital increase of Zhipeng IoV. |
|
Loan Agreement. Pursuant to the loan agreement, the Xiaopeng Technology should provide the shareholders of Zhipeng IoV with a loan in the aggregate amount of RMB10.0 million to fund business activities as permitted by Xiaopeng Technology. The shareholders agree that the proceeds from the transfer of the equity interest of the shareholders in Zhipeng IoV, pursuant to the exercise of the right to acquire such equity interest by Xiaopeng Technology under the exclusive option agreement, may be used by the shareholders to repay the loan to the extent permitted under PRC law. The loan agreement will remain effective until the earlier of (i) 20 years after the execution date of the loan agreement, (ii) the expiry date |
F-15
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(All amount in thousands, except for share and per share data, unless otherwise stated)
1. Organization and Nature of Operations (continued)
(c) Variable interest entity (continued)
Contractual Arrangements with Zhipeng IoV (continued)
of Xiaopeng Technologys licensed operating period; and (iii) the expiry date of Zhipeng IoVs licensed operating period. During the term of loan agreement, Xiaopeng Technology has the right, at its sole and absolute discretion, to accelerate maturity of loan at any time. |
|
Exclusive Service Agreement. Under the exclusive service agreement, Zhipeng IoV appoints Xiaopeng Technology as its exclusive services provider to provide Zhipeng IoV with services related to Zhipeng IoVs business during the term of the exclusive service agreement. In consideration of the services provided by Xiaopeng Technology, Zhipeng IoV shall pay Xiaopeng Technology annual fees, which should be mutually agreed by both parties and can be adjusted according to Xiaopeng Technologys suggestion to the extent permitted by PRC law. Unless terminated in accordance with the provisions of the exclusive service agreement or terminated in writing by Xiaopeng Technology, the exclusive service agreement shall remain effective for 20 years from May 28, 2018, and can be automatically renewed for one year every sequent year. |
|
Exclusive Option Agreement. Pursuant to the exclusive option agreement, Zhipeng IoV and each of Zhipeng IoVs shareholders have irrevocably granted Xiaopeng Technology an irrevocable and exclusive right to purchase, or designate one or more entities or persons to purchase the equity interests in Zhipeng IoV then held by its shareholders, and the assets of Zhipeng IoV, once or at multiple times at any time in part or in whole at Xiaopeng Technologys sole and absolute discretion to the extent permitted by PRC law. The purchase price for the equity interests in Zhipeng IoV shall equal to the amount of relevant registered capital contributed by the shareholders in Zhipeng IoV while the purchase price for the assets of Zhipeng IoV shall equal to the net book value of such assets, and if such amount in each case is lower than the minimum price permitted by PRC law, the minimum price permitted by PRC law shall be the purchase price. This agreement will remain effective until all equity interests of Zhipeng IoV held by its shareholders and all of Zhipeng IoVs assets have been transferred or assigned to Xiaopeng Technology or its designated entities or persons. |
Contractual Arrangements with Yidian Chuxing
Yidian Chuxing was established in May 24, 2018. In May 28, 2018, Xiaopeng Chuxing, Yidian Chuxing, and its shareholders entered into a series of contractual agreements. These agreements provide the Company, as the only shareholder of Xiaopeng Chuxing, with effective control over Yidian Chuxing to direct the activities that most significantly impact Yidian Chuxings economic performance and enable the Company to obtain substantially all of the economic benefits arising from Yidian Chuxing. Management concluded that Yidian Chuxing is a variable interest entity of the Company and the Company is the ultimate primary beneficiary of Yidian Chuxing and shall consolidate the financial results of Yidian Chuxing in the Groups consolidated financial statements. As of December 31, 2018 and 2019, Yidian Chuxing did not have significant operations, nor any material assets or liabilities.
|
Equity Interest Pledge Agreement. Pursuant to the equity interest pledge agreement, each shareholder of Yidian Chuxing, has pledged all of such shareholders equity interest in Yidian Chuxing as a security interest, as applicable, to respectively guarantee Yidian Chuxing and its shareholders performance of their obligations under the relevant contractual arrangement, which include the exclusive service agreement, exclusive option agreement, power of attorney and loan agreement. If Yidian Chuxing or any of its shareholders breaches their contractual obligations under these agreements, Xiaopeng Chuxing, as pledgee, will be entitled to certain rights regarding the pledged equity interests. In the event of such breaches, upon |
F-16
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(All amount in thousands, except for share and per share data, unless otherwise stated)
1. Organization and Nature of Operations (continued)
(c) Variable interest entity (continued)
Contractual Arrangements with Yidian Chuxing (continued)
giving written notice to Yidian Chuxings shareholders, Xiaopeng Chuxing to the extent permitted by PRC laws may exercise the right to enforce the pledge, which is being paid in priority with the equity interest of Yidian Chuxing from the proceeds from auction or sale of the equity interest. Each of the shareholders of Yidian Chuxing 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 Xiaopeng Chuxing. Yidian Chuxings shareholders may receive dividends distributed on the equity interest only with prior consent of Xiaopeng Chuxing. The equity interest pledge agreements remain effective until all obligations under the relevant contractual agreements have been fully performed or all secured indebtedness have been fully paid, whichever is later. |
|
Power of Attorney. Pursuant to the power of attorney, each shareholder of Yidian Chuxing has irrevocably authorized Xiaopeng Chuxing to exercise the following rights relating to all equity interests held by such shareholder in Yidian Chuxing 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 Yidian Chuxing according to Yidian Chuxings articles of association, including without limitation to: (i) exercising all the shareholders voting rights, including but not limited designating and appointing the directors and other senior management members of Yidian Chuxing; (ii) other shareholders voting rights such shareholder is entitled to according to Yidian Chuxings articles of association, as amended; and (iii) equity transfer (according to the exclusive option agreement), asset transfer, capital reduction and capital increase of Yidian Chuxing. |
|
Loan Agreement. Pursuant to the loan agreement, the Xiaopeng Chuxing should provide the shareholders of Yidian Chuxing with a loan in the aggregate amount of RMB10.0 million to fund business activities as permitted by Xiaopeng Chuxing. The shareholders agree that the proceeds from the transfer of the equity interest of the shareholders in Yidian Chuxing, pursuant to the exercise of the right to acquire such equity interest by Xiaopeng Chuxing under the exclusive option agreement, may be used by the shareholders to repay the loan to the extent permitted under PRC law. The loan agreement will remain effective until the earlier of (i) 20 years after the execution date of the loan agreement, (ii) the expiry date of Xiaopeng Chuxings licensed operating period; and (iii) the expiry date of Yidian Chuxings licensed operating period. During the term of loan agreement, Xiaopeng Chuxing has the right, at its sole and absolute discretion, to accelerate maturity of loan at any time. |
|
Exclusive Service Agreement. Under the exclusive service agreement, Yidian Chuxing appoints Xiaopeng Chuxing as its exclusive services provider to provide Yidian Chuxing with services related to Yidian Chuxings business during the term of the exclusive service agreement. In consideration of the services provided by Xiaopeng Chuxing, Yidian Chuxing shall pay Xiaopeng Chuxing annual fees, which should be mutually agreed by both parties and can be adjusted according to Xiaopeng Chuxings suggestion to the extent permitted by PRC law. Unless terminated in accordance with the provisions of the exclusive service agreement or terminated in writing by Xiaopeng Chuxing, the exclusive service agreement shall remain effective for 20 years, starting from May 28, 2018, and can be automatically renewed for one year every sequent year. |
F-17
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(All amount in thousands, except for share and per share data, unless otherwise stated)
1. Organization and Nature of Operations (continued)
(c) Variable interest entity (continued)
Risks in relation to the VIE structure
In the opinion of management, the contractual arrangements with the VIE and the nominee shareholders are in compliance with PRC laws and regulations and are legally binding and enforceable. However, there are substantial uncertainties regarding the interpretation and application of PRC laws and regulations including those that govern the contractual arrangements, which could limit the Groups ability to enforce these contractual arrangements and if the nominee shareholders of the VIE were to reduce their interests in the Group, their interest may diverge from that of the Group and that may potentially increase the risk that they would seek to act contrary to the contractual arrangements. In March 2019, the National Peoples Congress enacted PRC Foreign Investment Law which would be effective starting from January 1, 2020. The Foreign Investment Law does not explicitly classify contractual arrangements as a form of foreign investment, but it contains a catch-all provision under the definition of foreign investment, which includes investments made by foreign investors through means stipulated in laws or administrative regulations or other methods prescribed by the State Council. Existing laws or administrative regulations remain unclear whether the contractual arrangements with variable interest entities will be deemed to be in violation of the market access requirements for foreign investment under the PRC laws and regulations. However, the possibility that such entities will be deemed as foreign invested enterprise and subject to relevant restrictions in the future shall not be excluded. If variable interest entities fall within the definition of foreign investment entities, the Groups ability to use the contractual arrangements with its VIE and the Groups ability to conduct business through the VIE could be severely limited. The Groups ability to control the VIE also depends on the power of attorney that the wholly owned subsidiary of the Group has to vote on all matters requiring shareholder approval in the VIE. As noted above, the Group believes these power of attorney are legally enforceable but may not be as effective as direct equity ownership. In addition, if the Groups corporate structure and the contractual arrangements with the VIE through which the Group conducts its business in the PRC were found to be in violation of any existing or future PRC laws and regulations, the Groups relevant PRC regulatory authorities could:
|
revoke or refuse to grant or renew the Groups business and operating licenses; |
|
restrict or prohibit related party transactions between the wholly owned subsidiary of the Group and the VIE; |
|
impose fines, confiscate income or other requirements which the Group may find difficult or impossible to comply with; |
|
require the Group to alter, discontinue or restrict its operations; |
|
restrict or prohibit the Groups ability to finance its operations, and |
|
take other regulatory or enforcement actions against the Group that could be harmful to the Groups business. |
The imposition of any of these restrictions or actions could result in a material adverse effect on the Groups ability to conduct its business. In such case, the Group may not be able to operate or control the VIE, which may result in deconsolidation of the VIE in the Groups consolidated financial statements. In the opinion of management, the likelihood for the Group to lose such ability is remote based on current facts and circumstances. The Groups operations depend on the VIE to honor their contractual arrangements with the Group. These contractual arrangements are governed by PRC law and disputes arising out of these agreements are expected to be decided by arbitration in the PRC. The management believes that each of the contractual arrangements constitutes valid and legally binding obligations of each party to such contractual arrangements under PRC laws. However, the interpretation and implementation of the laws and regulations in the PRC and
F-18
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(All amount in thousands, except for share and per share data, unless otherwise stated)
1. Organization and Nature of Operations (continued)
(c) Variable interest entity (continued)
Risks in relation to the VIE structure (continued)
their application to an effect on the legality, binding effect and enforceability of contracts are subject to the discretion of competent PRC authorities, and therefore there is no assurance that relevant PRC authorities will take the same position as the Group herein in respect of the legality, binding effect and enforceability of each of the contractual arrangements. Meanwhile, since the PRC legal system continues to rapidly evolve, the interpretations of many laws, regulations and rules are not always uniform and enforcement of these laws, regulations and rules involve uncertainties, which may limit legal protections available to the Group to enforce the contractual arrangements should the VIE or the nominee shareholders of the VIE fail to perform their obligations under those arrangements.
(d) Liquidity
The Group has been incurring losses from operations since inception. The Group incurred net losses of RMB1,398,823 and RMB3,691,673 for the years ended December 31, 2018 and 2019, respectively. Accumulated deficit amounted to RMB2,182,266 and RMB6,824,503 as of December 31, 2018 and 2019, respectively. Net cash used in operating activities was approximately RMB1,572,715 and RMB3,562,765 for the years ended December 31, 2018 and 2019, respectively.
The Groups liquidity is based on its ability to enhance its operating cash flow position, obtain capital financing from equity interest investors and borrow funds to fund its general operations, research and development activities and capital expenditures. The Groups ability to continue as a going concern is dependent on managements ability to execute its business plan successfully, which includes increasing market acceptance of the Groups products to boost its sales volume to achieve economies of scale while applying more effective marketing strategies and cost control measures to better manage operating cash flow position and obtaining funds from outside sources of financing to generate positive financing cash flows. As of December 31, 2018 and 2019, the Groups balance of cash and cash equivalents, restricted cash, excluding RMB35,000 restricted cash in relation to a supplier dispute, short-term deposits and short-term investments was RMB4,637,772 and RMB2,780,587, respectively. Subsequent to December 31, 2019, the Group continued to obtain funds through capital financing and bank borrowings. Up to the date of this report, the Company has received the Series C financing amounted to RMB980,000, RMB20,000 and RMB8,400 on April 10, May 11 and May 26, 2020, respectively. Besides, the Group has received short-term unsecured bank borrowings of RMB107,900 subsequent to December 31, 2019. If the Group does not have, or is not able to obtain, sufficient funds, the Group may have to adjust the pace of its operation expansion and reduce operating expenses devoted to the products.
Management has concluded, after giving consideration to its plans as noted above and existing balance of cash and cash equivalents as of December 31, 2019, that the Group has sufficient funds for sustainable operations and it will be able to meet its payment obligations from operations and debt related commitments for the next twelve months from the issuance of the consolidated financial statements. Accordingly the consolidated financial statements have been prepared on a going concern basis, which contemplates the realization of assets and liquidation of liabilities during the normal course of operations.
2. Summary of Significant Accounting Policies
(a) Basis of presentation
The consolidated financial statements of the Group have been prepared in accordance with accounting principles generally accepted in the United States of America (U.S. GAAP) to reflect the financial position,
F-19
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(All amount in thousands, except for share and per share data, unless otherwise stated)
2. Summary of Significant Accounting Policies (continued)
(a) Basis of presentation (continued)
results of operations and cash flows of the Group. Significant accounting policies followed by the Group in the preparation of the accompanying consolidated financial statements are summarized below.
(b) Principles of consolidation
The consolidated financial statements include the financial statements of the Company, its subsidiaries and the VIEs for which the Company is the ultimate primary beneficiary. All transactions and balances among the Company, its subsidiaries and VIEs have been eliminated upon consolidation.
A subsidiary is an entity in which the Company, directly or indirectly, controls more than one half of the voting power: has the power to appoint or remove the majority of the members of the board of directors (the Board): to cast majority of votes at the meeting of the Board or to govern the financial and operating policies of the investee under a statute or agreement among the shareholders or equity holders.
A VIE is an entity in which the Company, or its subsidiary, through contractual arrangements, bears the risks of, and enjoys the rewards normally associated with, ownership of the entity, and therefore the Company or its subsidiary is the primary beneficiary of the entity. In determining whether the Company or its subsidiaries are the primary beneficiary, the Company considered whether it has the power to direct activities that are significant to the VIEs economic performance, and also the Companys obligation to absorb losses of the VIE that could potentially be significant to the VIE or the right to receive benefits from the VIEs that could potentially be significant to the VIEs.
(c) Use of estimates
The preparation of the 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, mezzanine equity and related disclosures of contingent assets and liabilities at the balance sheet date, and the reported revenues and expenses during the reported period in the consolidated financial statements and accompanying notes. Significant accounting estimates reflected in the Groups consolidated financial statements primarily include, but are not limited to, the determination of performance obligations and allocation of transaction price to those performance obligations, the determination of warranty cost, lower of cost and net realizable value of inventory, assessment for impairment of long-lived assets and intangible assets, valuation of deferred tax assets, determination of share-based compensation expenses as well as redemption value of the Preferred Shares.
Management bases the estimates on 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.
(d) Functional currency and foreign currency translation
The Company uses Renminbi (RMB) as its reporting currency. The functional currencies of the Company and its subsidiaries which are incorporated in United States or in Hong Kong are United States dollars (US$), while the functional currencies of the other subsidiaries and VIEs in the Group are RMB. The determination of the respective functional currency is based on the criteria set out by ASC 830, Foreign Currency Matters.
Transactions denominated in currencies other than in the functional currency are translated into the functional currency using the exchange rates prevailing at the transaction dates. Monetary assets and liabilities
F-20
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(All amount in thousands, except for share and per share data, unless otherwise stated)
2. Summary of Significant Accounting Policies (continued)
(d) Functional currency and foreign currency translation (continued)
denominated in foreign currencies are translated into functional currency using the applicable exchange rates at the balance sheet date. Non-monetary items that are measured in terms of historical cost in foreign currency are re-measured using the exchange rates at the dates of the initial transactions. Exchange gains or losses arising from foreign currency transactions are included in the consolidated statements of comprehensive loss.
The financial statements of the Groups entities of which the functional currency is not RMB are translated from their respective functional currency into RMB. Assets and liabilities denominated in foreign currencies are translated into RMB at the exchange rates at the balance sheet date. Equity accounts other than earnings generated in current period are translated into RMB at the appropriate historical rates. Income and expense items are translated into RMB using the periodic average exchange rates. The resulting foreign currency translation adjustments are recorded in other comprehensive loss in the consolidated statements of comprehensive loss, and the accumulated currency translation adjustments are presented as a component of accumulated other comprehensive (loss) gain in the consolidated statements of shareholders deficit.
(e) Convenience translation
Translations of balances in the consolidated balance sheets, consolidated statements of comprehensive loss and consolidated statements of cash flows from RMB into US$ as of and for the year ended December 31, 2019 are solely for the convenience of the reader and were calculated at the rate of US$1.00 = RMB7.0651 on June 30, 2020 as set forth in the H.10 statistical release of the U.S. Federal Reserve Board. No representation is made that the RMB amounts represent or could have been, or could be, converted, realized or settled into US$ at that rate on December 31, 2019, or at any other rate.
(f) Fair value
Fair value is defined 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 either recorded or disclosed at fair value, the Group considers the principal or most advantageous market in which it would transact, and it also considers assumptions that market participants would use when pricing the asset or liability.
The Group applies 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. This guidance specifies a hierarchy of valuation techniques, which is based on whether the inputs into the valuation technique are observable or unobservable. The hierarchy is as follows:
Level I Valuation techniques in which all significant inputs are unadjusted quoted prices from active markets for assets or liabilities that are identical to the assets or liabilities being measured.
Level II Valuation techniques in which significant inputs include quoted prices from active markets for assets or liabilities that are similar to the assets or liabilities being measured and/or quoted prices for assets or liabilities that are identical or similar to the assets or liabilities being measured from markets that are not active. Also, model-derived valuations in which all significant inputs and significant value drivers are observable in active markets are Level II valuation techniques.
Level III Valuation techniques in which one or more significant inputs or significant value drivers are unobservable. Unobservable inputs are valuation technique inputs that reflect the Groups own assumptions about the assumptions that market participants would use in pricing an asset or liability.
F-21
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(All amount in thousands, except for share and per share data, unless otherwise stated)
2. Summary of Significant Accounting Policies (continued)
(f) Fair value (continued)
The fair value guidance describes three main approaches to measure 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.
When available, the Group uses quoted market prices to determine the fair value of an asset or liability. If quoted market prices are not available, the Group will measure fair value using valuation techniques that use, when possible, current market-based or independently sourced market parameters, such as interest rates and currency rates.
Financial assets and liabilities of the Group primarily consist of cash and cash equivalents, restricted cash, short-term deposits, short-term investments, accounts receivable, other assets, accounts and notes payable, short-term borrowings, lease liabilities, accruals and other liabilities and long-term borrowings. As of December 31, 2018 and 2019, the carrying values of these financial instruments, except for other non-current assets, long-term borrowings and non-current portion for lease liabilities, are approximated to their fair values due to the short-term maturity of these instruments.
Financial assets that are measured at fair value on a recurring basis consist only of short-term investments. All of its short-term investments, which are comprised primarily of structured deposits and bank financial products, are classified within Level II of the fair value hierarchy because they are floating income products linked to currency exchange rate, gold and benchmark interest rate. They are not valued using quoted market prices, but can be valued based on other observable inputs, such as interest rates and currency rates. The group has derivative liabilities that are measured at fair value. The derivative liabilities are used to account for the redemption right that met the definition of a derivative and are classified within level III at the fair value hierarchy as the Company adopted the equity allocation model with unobservable inputs for which there little or no market data to determine the fair value.
(g) Cash and cash equivalents
Cash and cash equivalents represent cash on hand, time deposits and highly liquid investments placed with banks or other financial institutions, which are unrestricted as to withdrawal and use, and which have original maturities of three months or less.
Cash and cash equivalents as reported in the consolidated statement of cash flows are presented separately on the consolidated balance sheet as follows:
December 31, 2018 | December 31, 2019 | |||||||||||||||
Amount | RMB equivalent | Amount | RMB equivalent | |||||||||||||
Cash and cash equivalents: |
||||||||||||||||
RMB |
757,032 | 757,032 | 772,435 | 772,435 | ||||||||||||
US$ |
126,093 | 865,317 | 167,732 | 1,168,754 | ||||||||||||
HKD |
5,158 | 4,529 | 6,418 | 5,742 | ||||||||||||
|
|
|
|
|||||||||||||
Total |
1,626,878 | 1,946,931 | ||||||||||||||
|
|
|
|
As of December 31, 2018 and 2019, substantially all of the Groups cash and cash equivalents were held in reputable financial institutions located in the PRC, Hong Kong and the United States.
F-22
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(All amount in thousands, except for share and per share data, unless otherwise stated)
2. Summary of Significant Accounting Policies (continued)
(h) Restricted cash
Restricted cash primarily represents bank deposits for letter of credit and bank acceptance bill amounted to RMB4,647 as of December 31, 2018. Restricted cash primarily represents bank deposits for letter of credit and bank notes amounted to RMB425,812 and deposits, amounted to RMB35,000, that were restricted due to a supplier dispute as of December 31, 2019.
(i) Short-term deposits
Short-term deposits represent time deposits placed with banks with original maturities between three months and one year. Interest earned is recorded as interest income in the consolidated statements of comprehensive loss during the years presented. As of December 31, 2018, substantially all of the Groups short-term deposits amounted to RMB759,975 were placed with the reputable financial institutions in Hong Kong. As of December 31, 2019, there was no short-term deposit.
(j) Short-term investments
For investments in financial instruments with a variable interest rate indexed to the performance of underlying assets, the Group elected the fair value method at the date of initial recognition and carried these investments subsequently at fair value. Changes in fair values are reflected in the consolidated statements of comprehensive loss. The Groups short-term investments in financial instruments were RMB2,246,272 and RMB407,844 as of December 31, 2018 and 2019, respectively.
(k) Accounts receivable and allowance for doubtful accounts
The Group typically does not carry significant accounts receivable related to vehicle sales and related sales as customer payments are due prior to vehicle delivery, except for amounts of vehicle sales in relation of government subsidy to be collected from government on behalf of customers. The Group provides an allowance against accounts receivable to the amount the Group reasonably believes will be collected. The Group writes off accounts receivable when they are deemed uncollectible. Allowance for doubtful accounts amounted to nil and RMB3,812 were recognized for the years ended December 31, 2018 and 2019, respectively.
(l) Inventory
Inventories are stated at the lower of cost or net realizable value. Cost is calculated on the standard cost basis and includes all costs to acquire and other costs to bring the inventories to their present location and condition, which approximates actual cost on monthly weighted average method. The Group records inventory write-downs for excess or obsolete inventories based upon assumptions on current and future demand forecasts. If the inventory on hand is in excess of future demand forecast, the excess amounts are written off. The Group also reviews inventory to determine whether its carrying value exceeds the net amount realizable upon the ultimate sale of the inventory. This requires the determination of the estimated selling price of the vehicles less the estimated cost to convert inventory on hand into a finished product. Once inventory is written-down, a new, lower-cost basis for that inventory is established and subsequent changes in facts and circumstances do not result in the restoration or increase in that newly established cost basis.
No inventory write-downs were recognized for the years ended December 31, 2018. Inventory write-downs of RMB109,505 mainly due to the phasing out of G3 2019 model in 2019 were recognized in cost of sales for the year ended December 31, 2019.
F-23
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(All amount in thousands, except for share and per share data, unless otherwise stated)
2. Summary of Significant Accounting Policies (continued)
(m) Property, plant and equipment, net
Property, plant and equipment are stated at cost less accumulated depreciation and impairment loss, if any. Property, plant and equipment are depreciated primarily using the straight-line method over the estimated useful life of the asset. Leasehold improvements are depreciated over the shorter of the lease term or the estimated useful lives, which range from two to ten years, of the related assets. Salvage value rate is determined to 0% based on the economic value of the property, plant and equipment at the end of the estimated useful lives as a percentage of the original cost.
Estimated useful lives |
||
Machinery and equipment |
5 to 10 years | |
Charging infrastructure |
5 years | |
Vehicles |
4 to 5 years | |
Computer and electronic equipment |
3 years | |
Others |
2 to 5 years |
Depreciation for mold and tooling is computed using the units-of-production method whereby capitalized costs are amortized over the total estimated productive life of the related assets.
The cost of maintenance and repairs is expensed as incurred, whereas the cost of renewals and betterment that extends the useful lives of property, plant and equipment is capitalized as additions to the related assets.
Construction in progress represents property, plant and equipment under construction and pending installation and is stated at cost less accumulated impairment losses, if any. Completed assets are transferred to their respective asset classes and depreciation begins when an asset is ready for its intended use. Interest expense on outstanding debt is capitalized during the period of significant capital asset construction. Capitalized interest expense on construction-in-progress is included within property, plant and equipment and is amortized over the life of the related assets.
The gain or loss on the disposal of property, plant and equipment is the difference between the net sales proceeds and the carrying amount of the relevant assets and is recognized in the consolidated statement of comprehensive loss. The loss on the disposal of property, plant and equipment were recognized amounted to RMB30,275 and RMB1,191 in operating expenses during the years ended December 31, 2018 and 2019, respectively.
(n) Intangible assets, net
Intangible assets consist of license plate, software and license of maintenance and overhauls. Intangible assets with finite lives, including software and license of maintenance and overhaul, are carried at acquisition cost less accumulated amortization and impairment, if any. Finite lived intangible assets are tested for impairment if impairment indicators arise.
Amortization of intangible assets with finite lives are computed using the straight-line method over the estimated useful lives as below:
Estimated useful lives |
||
Software |
2 to 10 years | |
License of maintenance and overhauls |
26 months |
The estimated useful lives of intangible assets with finite lives are reassessed if circumstances occur that indicate the original estimated useful lives have changed.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(All amount in thousands, except for share and per share data, unless otherwise stated)
2. Summary of Significant Accounting Policies (continued)
(n) Intangible assets, net (continued)
Intangible assets that have indefinite useful life was license plate as of December 31, 2018 and 2019. The Group evaluates indefinite-lived intangible assets each reporting period to determine whether events and circumstances continue to support indefinite useful lives. The value of indefinite-lived intangible assets is not amortized, but tested for impairment annually or whenever events or changes in circumstances indicate that the carrying value of the assets may not be recoverable.
(o) Land use rights, net
Land use rights are recorded at cost less accumulated amortization. Amortization is provided on a straight-line basis over the estimated useful lives which are 50 years that represent the terms of land use rights certificate.
(p) Impairment of long-lived assets
Long-lived assets are evaluated for impairment whenever events or changes in circumstances (such as a significant adverse change to market conditions that will affect the future use of the assets) indicate that the carrying amount may not be fully recoverable or that the useful life is shorter than the Group had originally estimated. When these events occur, the Group evaluates the impairment by comparing carrying value of the assets to an estimate of future undiscounted cash flows expected to be generated from the use of the assets and their eventual disposition. If the sum of the expected future undiscounted cash flows is less than the carrying value of the assets, the Group recognizes an impairment loss based on the excess of the carrying value of the assets over the fair value of the assets. Fair value is determined using anticipated cash flows discounted at a rate commensurate with the risk involved.
(q) Warranties
The Group provides a manufacturers standard warranty on all vehicles sold. The Group accrues a warranty reserve for the vehicles sold by the Group, which includes the Groups best estimate of the projected costs to repair or replace items under warranties and recalls when identified. These estimates are based on actual claims incurred to date and an estimate of the nature, frequency and costs of future claims. These estimates are inherently uncertain given the Groups relatively short history of sales, and changes to the Groups historical or projected warranty experience may cause material changes to the warranty reserve in the future. The portion of the warranty reserve expected to be incurred within the next 12 months is included within accruals and other liabilities, while the remaining balance is included within other non-current liabilities on the consolidated balance sheets. Warranty expense is recorded as a component of cost of sales in the consolidated statements of comprehensive loss.
The Group considers the standard warranty is not providing incremental service to customers rather an assurance to the quality of the vehicle, and therefore is not a separate performance obligation and should be accounted for in accordance with ASC 460, Guarantees. The Group also provides extended lifetime warranty embedded through a vehicle sales contract. The extended lifetime warranty is likely incremental service provided to the customer to differentiate with other peer companies, as such, the lifetime warranty is a separate performance obligation distinct from other promises and should be accounted for in accordance with ASC 606.
(r) Revenue recognition
Revenue is recognized when or as the control of the goods or services is transferred upon delivery to customers. Depending on the terms of the contract and the laws that apply to the contract, control of the goods
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(All amount in thousands, except for share and per share data, unless otherwise stated)
2. Summary of Significant Accounting Policies (continued)
(r) Revenue recognition (continued)
and services may be transferred over time or at a point in time. Control of the goods and services is transferred over time if the Groups performance:
|
provides all of the benefits received and consumed simultaneously by the customer; |
|
creates and enhances an asset that the customer controls as the Group performs; or |
|
does not create an asset with an alternative use to the Group and the Group has an enforceable right to payment for performance completed to date. |
If control of the goods and services transfers over time, revenue is recognized over the period of the contract by reference to the progress towards complete satisfaction of that performance obligation. Otherwise, revenue is recognized at a point in time when the customer obtains control of the goods and services.
Contracts with customers may include multiple performance obligations. For such arrangements, the Group allocates overall contract price to each distinct performance obligation based on its relative standalone selling price in accordance with ASC 606. The Group generally determines standalone-selling prices for each individual distinct performance obligation identified based on the prices charged to customers. If the standalone selling price is not directly observable, it is estimated using expected cost plus a margin or adjusted market assessment approach, depending on the availability of observable information, the data utilized, and considering the Groups pricing policies and practices in making pricing decisions. Assumptions and estimations have been made in estimating the relative selling price of each distinct performance obligation, and changes in judgements on these assumptions and estimates may affect the revenue recognition. The discount provided in the contract are allocated by the Group to all performance obligations as conditions under ASC 606-10-32-37 are not met.
When either party to a contract has performed, the Group presents the contract in the consolidated balance sheet as a contract asset or a contract liability, depending on the relationship between the entitys performance and the customers payment.
A contract asset is the Groups right to consideration in exchange for goods and services that the Group has transferred to a customer. A receivable is recorded when the Group has an unconditional right to consideration. A right to consideration is unconditional if only the passage of time is required before payment of that consideration is due.
If a customer pays consideration or the Group has a right to an amount of consideration that is unconditional, before the Group transfers a good or service to the customer, the Group presents the contract liability when the payment is made or a receivable is recorded (whichever is earlier). A contract liability is the Groups obligation to transfer goods or services to a customer for which the Group has received consideration (or an amount of consideration is due) from the customer. The Groups contract liabilities are primarily resulted from the multiple performance obligations identified in the vehicle sales contract, which is recorded as deferred revenue and recognized as revenue based on the consumption of the services or the delivery of the goods.
Vehicle sales
The Group generates revenue from sales of electric vehicles, together with a number of embedded products and services through a contract. The Group identifies the customers who purchase the vehicle as its customers. There are multiple distinct performance obligations explicitly stated in a series of contracts including sales of vehicle, free charging within 4 years or 100,000 kilometers, extended lifetime warranty, option between household charging pile and charging card, and vehicle internet connection services which are accounted for in
F-26
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(All amount in thousands, except for share and per share data, unless otherwise stated)
2. Summary of Significant Accounting Policies (continued)
(r) Revenue recognition (continued)
Vehicle sales (continued)
accordance with ASC 606. The standard warranty provided by the Group is accounted for in accordance with ASC 460, Guarantees, and the estimated costs are recorded as a liability when the Group transfers the control of vehicle to a customer.
Car buyers in the PRC are entitled to government subsidies when they purchase electric vehicles. For efficiency purpose and better customer service, the Group or Zhengzhou Haima Automobile Co., Ltd. (Haima Auto) applies for and collect such government subsidies on behalf of the customers. Accordingly, customers only pay the amount after deducting government subsidies. The Group determined that the government subsidies should be considered as part of the transaction price because the subsidy is granted to the buyer of the electric vehicle and the buyer remains liable for such amount in the event the subsidies were not received by the Group.
The overall contract price is allocated to each distinct performance obligation based on the relative estimated standalone selling price. The revenue for sales of the vehicle and household charging pile is recognized at a point in time when the control of the vehicle is transferred to the customer and the charging pile is installed at customers designated location. For vehicle internet connection service, the Group recognizes the revenue using a straight-line method. For the extended lifetime warranty, given limited operating history and lack of historical data, the Group decides to recognize the revenue over time based on a straight-line method initially, and will continue monitoring the cost pattern periodically and adjust the revenue recognition pattern to reflect the actual cost pattern as it becomes available. For the free charging within 4 years or 100,000 kilometers and charging card to be consumed to exchange for charging services, the Group considers a measure of progress based on usage (rather than a time-based method) best reflects the performance as its typically a promise to deliver the underlying service rather than a promise to stand ready.
Initial refundable deposits for intention orders and non-refundable deposits for vehicle reservations received from customers prior to vehicle purchase agreements signed are recognized as advances from customers (accruals and other liabilities). When vehicle purchase agreements are signed, the consideration for the vehicle and all embedded services must be paid in advance, which means the payments received are prior to the transfer of goods or services by the Group, the Group records a contract liability (deferred revenue) for the allocated amount regarding to those unperformed obligations. At the same time, advances from customers are classified as contract liability (deferred revenue) as part of the consideration.
Other services
The Group provides variable other services to customers including services embedded in a sales contract, supercharging service, maintenance service, ride hailing services and vehicle leasing service.
Services embedded in a sales contract may include free charging within 4 years or 100,000 kilometers, extended lifetime warranty, option between household charging pile and charging card and vehicle internet connection services. Other services also include supercharging service and maintenance service. These services are recognized under ASC 606.
The Group provides ride hailing services with smart commuting solutions to customers by using the Groups self-owned G3 vehicles and hiring and training drivers employed by third party agents via service agreement. The Group believes it acts as a principle in the ride hailing services as it controls a specified good or service before it is transferred to the customers. The revenue for ride hailing services is recognized overtime in a period when the ride hailing services is consumed under ASC 606.
F-27
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(All amount in thousands, except for share and per share data, unless otherwise stated)
2. Summary of Significant Accounting Policies (continued)
(r) Revenue recognition (continued)
Other services (continued)
Revenue from vehicle leasing service to customers under operating lease and finance lease are recognized under ASC 842.
Practical expedients and exemptions
The Group follows the guidance on immaterial promises when identifying performance obligations in the vehicle sales contracts and concludes that lifetime roadside assistance, traffic ticket inquiry service, courtesy car service, on-site troubleshooting and parts replacement service, are not performance obligations considering these services are value-added services to enhance customer experience rather than critical items for vehicle driving and forecasted that usage of these five services will be very limited. The Group also performs an estimation on the stand-alone fair value of each promise applying a cost plus margin approach and concludes that the standalone fair value of foresaid services are insignificant individually and in aggregate, representing less than 1% of vehicle gross selling price and aggregate fair value of each individual promise.
Considering the qualitative assessment and the result of the quantitative estimate, the Group concluded not to assess whether promises are performance obligation if they are immaterial in the context of the contract and the relative stand-alone fair value individually and in aggregate is less than 1% of the contract price, namely the lifetime roadside assistance, traffic ticket inquiry service, courtesy car service, on-site troubleshooting and parts replacement service. Related costs are then accrued instead.
Customer Upgrade Program
In the third quarter of 2019, due to the upgrade of the latest vehicle model, G3 2020, the Group voluntarily offered all owners of G3 2019 model the options to either receive loyalty points, valid for 5 years since the grant date, which can be redeemed for goods or services, or obtain an enhanced trade-in right, which is valid for 120 days, contingent on a future purchase starting from the 34th month of the original purchase date but only if they purchase a new vehicle from the Group. The owners of G3 2019 model had to choose one of the two options within 30 days after receiving the notice. Anyone who did not make the choice before the date was deemed abandoning the options. At the time the offers were made, the Group still had unfulfilled performance obligations for services to the owners of G3 2019 model associated with their original purchase. The Group considered this offering is to improve the satisfaction of the owners of G3 2019 model but was not the result of any defects or resolving past claims regarding the G3 2019 model.
As both options provide a material right (a significant discount on future goods or services) for no consideration to existing customers with unfulfilled performance obligations, the Group considers this arrangement to be a modification of the existing contracts with customers. Further, as the customers did not pay for the additional rights, the contract modification is accounted for as the termination of the original contract and commencement of a new contract, which will be accounted for prospectively. The material right from the loyalty points or the trade-in right shall be considered in the reallocation of the remaining consideration from the original contracts among the promised goods or services not yet transferred at the date of the contract modification. This reallocation is based on the relative stand-alone selling prices of these various goods and services.
For the material right from loyalty points, the Group estimated the probability of points redemption when determining the stand-alone selling price. Since the fact that most merchandise can be redeemed without requiring a significant amount of points compared with the amount of points provided to customers, the Group believes it is reasonable to assume all points will be redeemed and no forfeiture is estimated currently. The
F-28
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(All amount in thousands, except for share and per share data, unless otherwise stated)
2. Summary of Significant Accounting Policies (continued)
(r) Revenue recognition (continued)
Customer Upgrade Program (continued)
amount allocated to the points as a separate performance obligation is recorded as a contract liability (deferred revenue) and revenue will be recognized when future goods or services are transferred. The Group will continue to monitor forfeiture rate data and will apply and update the estimated forfeiture rate at each reporting period. The estimated inventory cost associated with the material right from loyalty points amounted to RMB17,172, subject to adjustment for forfeiture rate, will be recognized as cost of sales, depending on the nature of the goods or services redeemed, upon the redemption.
According to the terms of the trade-in program, owners of G3 2019 who elected the trade-in right have the option to trade in their G3 2019 at a fixed predetermined percentage of its original G3 2019 purchase price (the guaranteed trade-in value) starting from the 34th month of the original purchase date but only if they purchase a new vehicle from the Group. Such trade-in right is valid for 120 days. That is, if the owner of a G3 2019 does not purchase a new vehicle within that 120-day period, the trade-in right expires. The guaranteed trade-in value will be deducted from the retail selling price of the new vehicle purchase. The customer cannot exercise the trade-in right on a stand-alone basis solely as a function of their original purchase of the G3 2019 and this program, and therefore, the Group does not believe the substance of the program is a repurchase feature that provides the customer with a unilateral right of return. Rather, the trade-in right and purchase of a new vehicle are linked as part of a single transaction to provide a loyalty discount to existing customers. The Group believes the guaranteed trade-in value will be greater than the expected market value of the G3 2019 at the time the trade-in rights become exercisable, and therefore, the excess value is essentially a sales discount on the new vehicle purchase. The Group estimated, for the trade-in right, the potential forfeiture rate based on the market expectation of the possibility of the future buying and applied the forfeiture rate when determining the stand-alone selling price at the date of the contract modification. The amount allocated to the trade-in right as a separate performance obligation is recorded as a contract liability (deferred revenue) and revenue will be recognized when the trade-in right is exercised and a new vehicle is purchased. The Group will continue to reassess the reasonableness of the forfeiture rate applied in the subsequent reporting periods. The estimated inventory provision cost of the trade-in right, taking into the forfeiture rate consideration, amounted to RMB67,058, will be recognized as cost of sales upon the Group repurchase the original model.
(s) Cost of sales
Vehicle
Cost of vehicle revenue includes direct parts, material, labor cost and manufacturing overhead (including depreciation of assets associated with the production) and reserves for estimated warranty expenses. Cost of vehicle revenue also includes charges to write-down the carrying value of the inventories when it exceeds its estimated net realizable value and to provide for on-hand inventories that are either obsolete or in excess of forecasted demand, and impairment charge of property, plant and equipment.
Services and others
Cost of services and others revenue generally includes cost of direct part, material, labor costs, installment costs, costs associated with providing non-warranty after-sales service and depreciation of associated assets used for providing the services.
Cost of ride hailing services revenue also includes agent and service fee paid to third party agents and revenue sharing fee to a third party data supporting entity.
F-29
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(All amount in thousands, except for share and per share data, unless otherwise stated)
2. Summary of Significant Accounting Policies (continued)
(t) Research and development expenses
All costs associated with research and development (R&D) are expensed as incurred. R&D expenses consist primarily of employee compensation for those employees engaged in R&D activities, design and development expenses with new technology, materials and supplies and other R&D related expenses. For the years ended December 31, 2018 and 2019, R&D expenses were RMB1,051,219 and RMB2,070,158, respectively.
(u) Selling, general and administrative expenses
Sales and marketing expenses consist primarily of employee compensation and marketing, promotional and advertising expenses. Advertising expenses consist primarily of costs for the promotion of corporate image and product marketing. Selling costs are expenses as incurred. For the years ended December 31, 2018 and 2019, advertising costs were RMB58,326 and RMB168,170 respectively, and total sales and marketing expenses were RMB317,109 and RMB668,602 respectively.
General and administrative expenses consist primarily of employee compensation for employees involved in general corporate functions and those not specifically dedicated to R&D activities, depreciation and amortization expenses, legal, and other professional services fees, lease and other general corporate related expenses. For the years ended December 31, 2018 and 2019, general and administrative expenses were RMB325,432 and RMB495,967 respectively.
(v) Employee benefits
Full-time employees of the Group in the PRC participate in a government mandated defined contribution plan, pursuant to which certain pension benefits, work-related injury benefits, maternity insurance, medical care, employee housing fund and other welfare benefits are provided to the employees. Chinese labor regulations require that the PRC subsidiaries and VIEs of the Group make contributions to the government for these benefits based on certain percentages of the employees salaries, up to a maximum amount specified by the local government. The PRC government is responsible for the medical benefits and the pension liability to be paid to these employees and the Groups obligations are limited to the amounts contributed and no legal obligation beyond the contributions made. Total amounts of such employee benefit expenses, which were expensed as incurred, were approximately RMB104,201 and RMB215,046 for the years ended December 31, 2018 and 2019, respectively.
(w) Government grants
The Groups PRC based subsidiaries received government subsidies from certain local governments. The Groups government subsidies consist of specific subsidies and other subsidies. Specific subsidies are subsidies that the local government has provided for a specific purpose, such as land fulfillment costs related to the manufacturing plant construction of Zhaoqing XPeng (Zhaoqing manufacturing plant). Other subsidies are the subsidies that the local government has not specified its purpose for and are not tied to future trends or performance of the Group, receipt of such subsidy income is not contingent upon any further actions or performance of the Group and the amounts do not have to be refunded under any circumstances. The Group recorded specific subsidies as other non-current liabilities when received or reduce interest expensed. The specific subsidies are amortized over the depreciation period of associated assets to reduce their depreciation cost. Other subsidies are recognized as other income upon receipt as further performance by the Group is not required.
F-30
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(All amount in thousands, except for share and per share data, unless otherwise stated)
2. Summary of Significant Accounting Policies (continued)
(x) Income taxes
Current income taxes are recorded in accordance with the regulations of the relevant tax jurisdiction. The Group accounts for income taxes under the asset and liability method in accordance with ASC 740, Income Tax. Under this method, deferred tax assets and liabilities are recognized for the tax consequences attributable to differences between carrying amounts of existing assets and liabilities in the consolidated financial statements and their respective tax basis, and operating loss carry-forwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred taxes of a change in tax rates is recognized in the consolidated statements of comprehensive loss in the period of change. Valuation allowances are established when necessary to reduce the amount of deferred tax assets if it is considered more likely than not that amount of the deferred tax assets will not be realized.
Uncertain tax positions
The guidance on accounting for uncertainties in income taxes prescribes a more likely than not threshold for financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. Guidance was also provided on derecognition of income tax assets and liabilities, classification of current and deferred income tax assets and liabilities, accounting for interest and penalties associated with tax positions, accounting for income taxes in interim periods, and income tax disclosures. The Group recognizes interests and penalties, if any, under accrued expenses and other current liabilities on its consolidated balance sheet and under other expenses in its consolidated statements of comprehensive loss. The Group did not recognize any significant interest and penalties associated with uncertain tax positions for the years ended December 31, 2018 and 2019. As of December 31, 2018 and 2019, the Group did not have any significant unrecognized uncertain tax positions.
Adoption of ASU 2016-16
In October 2016, the FASB issued ASU 2016-16, Income Taxes: Intra-Entity Transfers of Assets Other Than Inventory (Topic 740). This standard requires entities to recognize the income tax consequences of intra-entity transfers of assets other than inventory at the time of transfer. This standard requires a modified retrospective approach to adoption. The Company adopted ASU 2016-16 as of January 1, 2018 using a modified retrospective transition method, no reclassification of prepaid income taxes related to asset transfers that occurred prior to adoption from other current and non-current assets to opening retained earnings. There was no material impact on the Companys consolidated financial statements.
(y) Share-based compensation
The Group grants restricted shares and share options (collectively, Share-based Awards) to eligible employees and accounts for share-based compensation in accordance with ASC 718, CompensationStock Compensation. Share-based awards are measured at the grant date fair value of the awards and recognized as expenses using graded vesting method, net of estimated forfeitures, if any, over the requisite service period. For awards with performance conditions, Company would recognize compensation cost if and when it concludes that it is probable that the performance condition will be achieved.
The fair value of Share-based Awards is estimated on the grant or offering date using the Binomial option-pricing model. The assumptions used in share-based compensation expense recognition represent managements best estimates, but these estimates involve inherent uncertainties and application of management judgment. If factors change or different assumptions are used, the share-based compensation
F-31
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(All amount in thousands, except for share and per share data, unless otherwise stated)
2. Summary of Significant Accounting Policies (continued)
(y) Share-based compensation (continued)
expenses could be materially different for any period. Moreover, the estimates of fair value of the awards are not intended to predict actual future events or the value that ultimately will be realized by grantees who receive Share-based Awards, and subsequent events are not indicative of the reasonableness of the original estimates of fair value made by the Company for accounting purposes.
Share options granted to employees:
Since 2015, Chengxing has granted options to certain directors, executive officers and employees. The options granted are exercisable only upon the completion of an IPO or change in control.
Share options granted to employees includes both service condition and performance condition. Employees are required to provide continued service through the satisfaction of the occurrence of change of control or an IPO (collectively, the Liquidity Event) to retain the award since no share option would be vested prior to the occurrence of the Liquidity Event even though the service condition has been satisfied. Given the vesting of the share options granted is contingent upon the occurrence of the Liquidity Event, there is no share-based compensation expense to be recognized until the date of consummation of Liquidity Event.
Restricted shares granted to two co-founders:
In the years ended December 31, 2018 and 2019, two co-founders have agreed that their founders shares would be subject to requisite service conditions that shall vest in a certain period. The restricted shares require future requisite service and it does not contain a market or performance condition that must be satisfied before the grant date. Accordingly, no share-based compensation expenses would be recognized prior to the grant date but would be recognized based on the fair value of the shares at the grant date over the requisite service period.
A change in any of the terms or conditions of restricted shares granted to two co-founders is accounted for as a modification of the awards. The cumulative amount of share-based compensation expenses that would be recognized is the original grant-date fair value of the award plus any incremental fair value resulting from the modification. The Group calculates incremental compensation expense of a modification as the excess of the fair value of the modified awards over the fair value of the original awards immediately before its terms are modified at the modification date. For vested restricted shares, the Group recognizes incremental compensation cost in the period when the modification occurs. For restricted shares not being fully vested, the Group recognizes the sum of the incremental compensation expense and the remaining unrecognized compensation expense for the original awards over the remaining requisite service period after modification.
(z) Statutory reserve
The Groups subsidiaries and VIEs established in the PRC are required to make appropriations to certain non-distributable reserve funds.
In accordance with the laws applicable to PRCs Foreign Investment Enterprises, the Groups subsidiaries registered as wholly owned foreign enterprises have to make appropriations from its after-tax profit (as determined under the Accounting Standards for Business Enterprises as promulgated by the Ministry of Finance of the Peoples Republic of China (PRC GAAP) to reserve funds including general reserve fund, and staff bonus and welfare fund. The appropriation to the general reserve fund must be at least 10% of the after-tax profits calculated in accordance with PRC GAAP. Appropriation is not required if the reserve fund has reached 50% of the registered capital of the company. Appropriation to the staff bonus and welfare fund is at the companys discretion.
F-32
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(All amount in thousands, except for share and per share data, unless otherwise stated)
2. Summary of Significant Accounting Policies (continued)
(z) Statutory reserve (continued)
In addition, in accordance with the Company Laws of the PRC, the VIEs of the Company registered as PRC domestic companies must make appropriations from its after-tax profit as determined under the PRC GAAP to non-distributable reserve funds including a statutory surplus fund and a discretionary surplus fund. The appropriation to the statutory surplus fund must be at least 10% of the after-tax profits as determined under the PRC GAAP. Appropriation is not required if the surplus fund has reached 50% of the registered capital of the company. Appropriation to the discretionary surplus fund is made at the discretion of the company.
The use of the general reserve fund, statutory surplus fund and discretionary surplus fund is restricted to the offsetting of losses or increasing capital of the respective company. The staff bonus and welfare fund is a liability in nature and is restricted to fund payments of special bonus to staff and for the collective welfare of employees. No reserves are allowed to be transferred to the Company in terms of cash dividends, loans or advances, nor can they be distributed except under liquidation.
During the years ended December 31, 2018 and 2019, there is no statutory reserves.
(aa) Comprehensive loss
The Group applies ASC 220, Comprehensive Income, with respect to reporting and presentation of comprehensive loss and its components in a full set of financial statements. Comprehensive loss is defined to include all changes in equity of the Group during a period arising from transactions and other events and circumstances except those resulting from investments by shareholders and distributions to shareholders. For the years presented, the Groups comprehensive loss includes net loss and other comprehensive loss, which primarily consists of the foreign currency translation adjustment that has been excluded from the determination of net loss.
(ab) Leases
In February 2016, the FASB issued ASC 842, Leases, to require lessees to recognize all leases, with certain exceptions, on the balance sheet, while recognition on the statement of operations will remain similar to lease accounting under ASC 840. Subsequently, the FASB issued ASU No. 2018-10, Codification Improvements to Topic 842, Leases, ASU No. 2018-11, Targeted Improvements, ASU No. 2018-20, Narrow-Scope Improvements for Lessors, and ASU 2019-01, Codification Improvements, to clarify and amend the guidance in ASU No. 2016-02. ASC 842 eliminates real estate-specific provisions and modifies certain aspects of lessor accounting.
(a) As a lessee
(i) Operating lease
The Group early adopted the ASUs as of January 1, 2018 using the cumulative effect adjustment approach. Upon adoption, the Group elected the package of practical expedients permitted under the transition guidance within the new standard, which allowed the Group to carry forward the historical determination of contracts as leases, lease classification and not reassess initial direct costs for historical lease arrangements. In addition, the Group also elected the practical expedient to apply consistently to all of the Groups leases to use hindsight in determining the lease term (that is, when considering lessee options to extend or terminate the lease and to purchase the underlying asset) and in assessing impairment of the Groups right-of-use assets.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(All amount in thousands, except for share and per share data, unless otherwise stated)
2. Summary of Significant Accounting Policies (continued)
(ab) Leases (continued)
(a) As a lessee (continued)
(i) Operating lease (continued)
The Group includes a right-of-use asset and lease liability related to substantially all of the Groups lease arrangements in the consolidated balance sheets. All of the Groups leases are operating leases. Operating lease assets are included within right-of-use assets, and the corresponding lease liabilities are included within current portion of lease liabilities for the current portion, and within lease liabilities for the long-term portion on the consolidated balance sheet as of December 31, 2018 and 2019.
The Group has lease agreements with lease and non-lease components, and has elected to utilize the practical expedient to account for the non-lease components together with the associated lease component as a single combined lease component.
The Group has elected not to present short-term leases on the consolidated balance sheet as these leases have a lease term of 12 months or less at commencement date of the lease and do not include options to purchase or renew that the Group is reasonably certain to exercise. The Group recognizes lease expenses for such short-term lease generally on a straight-line basis over the lease term. All other lease assets and lease liabilities are recognized based on the present value of lease payments over the lease term at commencement date. Because most of the Groups leases do not provide an implicit rate of return, the Group uses the Groups incremental borrowing rate based on the information available at adoption date or lease commencement date in determining the present value of lease payments.
(b) As a lessor
The Group provides vehicle leasing service to customers under operating lease and finance lease.
(i) Operating lease
The Group recognizes the lease payments as vehicle leasing income in profit or loss over the lease term on a straight-line basis.
(ii) Finance lease
At the commencement of the lease term, the aggregate of the minimum lease receivable at the inception of the lease and the initial direct costs is recognized as finance lease receivables, and the unguaranteed residual value is recorded at the same time. The difference between the aggregate of the minimum lease receivable, the initial direct costs and the unguaranteed residual value, and the aggregate of their present values is recognized as unearned finance income. The net amount of finance lease receivables less unearned finance income is divided into finance lease receivablenet and current portion of finance lease receivablenet due within one year for presentation.
Finance lease receivables are carried at amortized cost net of loss allowance for finance lease receivables. When determining the loss allowance for a net investment in the lease, the Group takes into consideration the collateral relating to the net investment in the lease. The collateral relating to the net investment in the lease represents the cash flows that the Group would expect to receive (or derive) from the lease receivable and the unguaranteed residual asset during and following the end of the remaining lease term.
Lease income from finance lease is recognized in other revenues using the effective interest method.
F-34
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(All amount in thousands, except for share and per share data, unless otherwise stated)
2. Summary of Significant Accounting Policies (continued)
(ac) Dividends
Dividends are recognized when declared. No dividends was declared for the years ended December 31, 2018 and 2019, respectively.
(ad) Earnings (losses) per share
Basic earnings (loss) per share is computed by dividing net income (loss) attributable to holders of ordinary shares, considering the accretion on Preferred Shares to redemption value, deemed dividend due to extinguishment of Preferred Shares, deemed dividend due to modification of Preferred Shares, deemed dividend due to reclassification from mezzanine equity to ordinary shares upon extinguishment of Redeemable Shares and deemed contribution from repurchase of Preferred Shares, by the weighted average number of ordinary shares outstanding during the period using the two-class method. Under the two-class method, net income is allocated between ordinary shares and other participating securities based on their participating rights. Diluted earnings (loss) per share is calculated by dividing net income (loss) attributable to ordinary shareholders, as adjusted for the effect of dilutive ordinary equivalent shares, if any, by the weighted average number of ordinary and dilutive ordinary equivalent shares outstanding during the period. Ordinary equivalent shares consist of shares issuable upon the conversion of the Preferred Shares using the if-converted method, unvested restricted shares, and ordinary shares issuable upon the exercise of outstanding share options (using the treasury stock method). Ordinary equivalent shares are not included in the denominator of the diluted earnings per share calculation when inclusion of such shares would be anti-dilutive.
(ae) Segment reporting
ASC 280, Segment Reporting, establishes standards for companies to report in their financial statements information about operating segments, products, services, geographic areas, and major customers.
Based on the criteria established by ASC 280, the Groups chief operating decision maker (CODM) has been identified as the Chief Executive Officer, who reviews consolidated results when making decisions about allocating resources and assessing performance of the Group. As a whole and hence, the Group has only one reportable segment. The Group does not distinguish between markets or segments for internal reporting. As the Groups long-lived assets are substantially located in the PRC, no geographical segments are presented.
3. Recent Accounting Pronouncements
Recently issued accounting pronouncements not yet adopted
In June 2016, the FASB issued ASU No. 2016-13, Measurement of Credit Losses on Financial Instruments, to require financial assets carried at amortized cost to be presented at the net amount expected to be collected based on historical experience, current conditions and forecasts. Subsequently, the FASB issued ASU No. 2018-19, Codification Improvements to Topic 326, to clarify that receivables arising from operating leases are within the scope of lease accounting standards. Further, the FASB issued ASU No. 2019-04, ASU No. 2019-05, ASU 2019-10 and ASU 2019- 11 to provide additional guidance on the credit losses standard. The ASUs are effective for interim and annual periods beginning after December 15, 2019, with early adoption permitted. Adoption of the ASUs is on a modified retrospective basis. The Group plans to adopt the ASUs on January 1, 2020. The ASUs are currently not expected to have a material impact on the consolidated financial statements.
In January 2017, the FASB issued ASU No. 2017-04, Simplifying the Test for Goodwill Impairment, to simplify the test for goodwill impairment by removing Step 2. An entity will, therefore, perform the goodwill
F-35
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(All amount in thousands, except for share and per share data, unless otherwise stated)
3. Recent Accounting Pronouncements (continued)
Recently issued accounting pronouncements not yet adopted (continued)
impairment test by comparing the fair value of a reporting unit with its carrying amount and recognizing an impairment charge for the amount by which the carrying amount exceeds the fair value, not to exceed the total amount of goodwill allocated to the reporting unit. An entity still has the option to perform a qualitative assessment to determine if the quantitative impairment test is necessary. The ASU is effective for interim and annual periods beginning after December 15, 2019, with early adoption permitted. Adoption of the ASU is prospective. The Group plans to adopt the ASU prospectively on January 1, 2020. The ASU is currently not expected to have a material impact on the consolidated financial statements.
In August 2018, the FASB issued ASU No. 2018-15, Customers Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement that Is a Service Contract. The ASU aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software (and hosting arrangements that include an internal-use software license). The ASU is effective for interim and annual periods beginning after December 15, 2019, with early adoption permitted. Adoption of the ASU is either retrospective or prospective. The Group plans to adopt the ASU prospectively on January 1, 2020. The ASU is currently not expected to have a material impact on the consolidated financial statements.
In December 2019, the FASB issued ASU No. 2019-12, Simplifying the Accounting for Income Taxes, as part of its initiative to reduce complexity in accounting standards. The amendments in the ASU are effective for fiscal years beginning after December 15, 2020, including interim periods therein. Early adoption of the standard is permitted, including adoption in interim or annual periods for which financial statements have not yet been issued. The Group plans to adopt the ASU prospectively on January 1, 2021. The ASU is currently not expected to have a material impact on the consolidated financial statements.
In January 2020, the FASB issued ASU No. 2020-01, InvestmentsEquity Securities (Topic 321), InvestmentsEquity Method and Joint Ventures (Topic 323), and Derivatives and Hedging (Topic 815)Clarifying the Interactions between Topic 321, Topic 323, and Topic 815 (a consensus of the Emerging Issues Task Force). The amendments in this update clarify the interaction of the accounting for equity securities under Topic 321 and investments accounted for under the equity method of accounting in Topic 323 and the accounting for certain forward contracts and purchased options accounted for under Topic 815. For public business entities, the amendments in this Update are effective for fiscal years beginning after December 15, 2020, and interim periods within those fiscal years. For all other entities, the amendments are effective for fiscal years beginning after December 15, 2021, and interim periods within those fiscal years. Early adoption is permitted. The ASU is currently not expected to have a material impact on the consolidated financial statements.
In March 2020, the FASB issued ASU No. 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting. The amendments in this update are effective for all entities as of March 12, 2020 through December 31, 2022. The amendments in this update provide optional expedients and exceptions for applying generally accepted accounting principles (GAAP) to contracts, hedging relationships, and other transactions affected by reference rate reform if certain criteria are met. The ASU is currently not expected to have a material impact on the consolidated financial statements.
In March 2020, the FASB issued ASU No. 2020-03, Codification Improvements to Financial Instruments. The amendments in this Update are effective for all entities as of March 12, 2020 through December 31, 2022. The amendments related to Issue 1 (Fair Value Option Disclosures), Issue 2 (Applicability of Portfolio Exception in Topic 820 to Nonfinancial Items), Issue 4(Cross-Reference to Line of-Credit or Revolving-Debt Arrangements Guidance in Subtopic 470-50), and Issue 5 (Cross-Reference to Net Asset Value Practical Expedient in Subtopic 820-10) are conforming amendments. For public business entities, the
F-36
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(All amount in thousands, except for share and per share data, unless otherwise stated)
3. Recent Accounting Pronouncements (continued)
Recently issued accounting pronouncements not yet adopted (continued)
amendments are effective upon issuance of this final Update. For all other entities, the amendments are effective for fiscal years beginning after December 15, 2019, and interim periods within those fiscal years beginning after December 15, 2020. Early application is permitted. The amendment related to Issue 3 (Disclosures for Depository and Lending Institutions) is a conforming amendment that affects the guidance in the amendments in Accounting Standards Update 2019-04, Codification Improvements to Topic 326, Financial InstrumentsCredit Losses, Topic 815, Derivatives and Hedging, and Topic 825, Financial Instruments. That guidance relates to the amendments in 2016-01, Financial InstrumentsOverall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities. The effective date of Update 2019-04 for the amendments to Update 2016-01 is for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. The amendments of Issues 6 (Interaction of Topic 842 and Topic 326) clarify that the contractual term of a net investment in a lease determined in accordance with Topic 842 should be the contractual term used to measure expected credit losses under Topic 326. The amendments of Issues 6 clarify that when an entity regains control of financial assets sold, an allowance for credit losses should be recorded in accordance with Topic 326. For entities that have not yet adopted the amendments related to Update 2016-13, the effective dates and the transition requirements for amendments of Issue 6 and Issue 7 (Interaction of Topic 326 and Subtopic 860-20) are the same as the effective date and transition requirements in Update 2016-13. For entities that have adopted the guidance in Update 2016-13, the amendments of Issue 6 and Issue 7 are effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. For those entities, the amendments should be applied on a modified-retrospective basis by means of a cumulative-effect adjustment to opening retained earnings in the statement of financial position as of the date that an entity adopted the amendments in Update 2016-13. The ASU is currently not expected to have a material impact on the consolidated financial statements.
Recently adopted accounting pronouncements
In February 2016, the FASB issued ASU No. 2016-02, Leases, to require lessees to recognize all leases, with limited exceptions, on the balance sheet, while recognition on the statement of operations will remain similar to legacy lease accounting, ASC 840. The ASU also eliminates real estate-specific provisions and modifies certain aspects of lessor accounting. Subsequently, the FASB issued ASU No. 2018-10, Codification Improvements to Topic 842, ASU No. 2018-11, Targeted Improvements, ASU No. 2018-20, Narrow-Scope Improvements for Lessors, and ASU 2019-01, Codification Improvements, to clarify and amend the guidance in ASU No. 2016-02. Other than disclosed in Note 15, the adoption of the ASUs did not have a material impact on the consolidated financial statements.
In March 2016, the FASB issued ASU No. 2016-09, CompensationStock Compensation (Topic 718): Improvements to Employee Share -Based Payment Accounting (ASU 2016-09). ASU 2016-09 simplifies the accounting for share-based payment transactions specifically related to the tax effects associates with share-based compensation, an accounting policy election to determine how forfeitures are recorded and a change in the presentation requirements in the statement of cash flows. The adoption of ASU 2016-09 had no material impact on the Groups consolidated financial statements.
In August 2016, the FASB issued ASU No. 2016-15, Classification of Certain Cash Receipts and Cash Payments, to reduce the diversity in practice with respect to the classification of certain cash receipts and cash payments on the statement of cash flows. The ASU is effective for interim and annual periods beginning after December 15, 2017. Adoption of the ASU is retrospective. The Group adopted the ASU on January 1, 2018, which did not have a material impact on the consolidated financial statements.
F-37
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(All amount in thousands, except for share and per share data, unless otherwise stated)
3. Recent Accounting Pronouncements (continued)
Recently adopted accounting pronouncements (continued)
In November 2016, the FASB issued ASU No. 2016-18, Statement of Cash Flows: Restricted Cash (Topic 230). The 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. The standard should be applied to each period presented using a retrospective transition method. The adoption of this standard did not have a material impact on the consolidated financial statements, but resulted in restricted cash being included with cash and cash equivalents when reconciling the beginning-of-period and end-of-period total amounts shown on the consolidated statements of cash flows.
In January 2017, the FASB issued ASU No. 2017-01, Business Combinations (Topic 805), Clarifying the Definition of a Business, to clarify the definition of a business with the objective of adding guidance to assist entities with evaluating whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses. Public business entities should apply the amendments in this Update to annual periods beginning after December 15, 2017, including interim periods within those periods. The Group adopted the ASU on January 1, 2018, which did not have a material impact on the consolidated financial statements.
4. Concentration and Risks
(a) Concentration of credit risk
Assets that potentially subject the Group to significant concentrations of credit risk primarily consist of cash and cash equivalents, restricted cash, short-term deposits and short-term investment. The maximum exposure of such assets to credit risk is their carrying amounts as of the balance sheet dates. As of December 31, 2018 and 2019, substantially all of the Groups cash and cash equivalents, restricted cash, short-term deposits and short-term investments were placed with the PRC and international financial institutions. Management chooses these institutions because of their reputations and track records for stability, and their known large cash reserves, and management periodically reviews these institutions reputations, track records, and reported reserves. Management expects that any additional institutions that the Group uses for its cash and bank deposits would be chosen with similar criteria for soundness. Bank failure is uncommon in PRC and the Group believes that those Chinese banks that hold the Groups cash and cash equivalents, restricted cash, short-term deposits and short-term investments are financially sound based on publicly available information.
(b) Foreign currency exchange rate risk
The revenues and expenses of the Groups entities in the PRC are generally denominated in RMB and their assets and liabilities are denominated in RMB. The Groups oversea financing activities are denominated in U.S. dollars. The RMB is not freely convertible into foreign currencies. Remittances of foreign currencies into the PRC or remittances of RMB out of the PRC as well as exchange between RMB and foreign currencies require approval by foreign exchange administrative authorities and certain supporting documentation. The State Administration for Foreign Exchange, under the authority of the Peoples Bank of China, controls the conversion of RMB into other currencies.
5. Fair Value of Financial Instruments
ASC 820, Fair Value Measurements, states that fair value is an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants.
F-38
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(All amount in thousands, except for share and per share data, unless otherwise stated)
5. Fair Value of Financial Instruments (continued)
As such, fair value is a market-based measurement that should be determined based on assumptions that market participants would use in pricing an asset or a liability. The three-tiered fair value hierarchy, which prioritizes which inputs should be used in measuring fair value, is comprised of: (Level I) observable inputs such as quoted prices in active markets; (Level II) inputs other than quoted prices in active markets that are observable either directly or indirectly and (Level III) unobservable inputs for which there is little or no market data. The fair value hierarchy requires the use of observable market data when available in determining fair value. Assets and liabilities that were measured at fair value on a recurring basis were as follows:
December 31, 2018 | December 31, 2019 | |||||||||||||||||||||||||||||||
Fair Value | Level I | Level II | Level III |
Fair
Value |
Level I | Level II | Level III | |||||||||||||||||||||||||
Short-term investments |
2,246,272 | | 2,246,272 | | 407,844 | | 407,844 | | ||||||||||||||||||||||||
Derivative liabilities(i) |
637,015 | | | 637,015 | 897,091 | | | 897,091 | ||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(i) |
In determining the fair value of derivative liabilities, the Company has adopted the equity allocation model. For purposes of determining the redemption right of Series A, A-1 and A-2, B, B-1 and B-2, and C Preferred Shares, on March 26, 2018 (the issuance date of Series B), August 1, 2018 (the issuance date of Series B-1 and B-2), December 31, 2018, December 2, 2019 (the issuance date of Series C) and December 31, 2019, the Company re-performed the equity allocation model for Series A, A-1 and A-2, B, B-1 and B-2, and C Preferred Shares in scenarios assuming the redemption feature is removed, the difference between the with embedded redemption features scenario and the without embedded redemption features scenario is considered to be value of the redemption features of the Series A, A-1 and A-2, B, B-1 and B-2, and C Preferred Shares. Such approach involves certain significant estimates which are as follows: |
Valuation Date |
March 26,
2018 |
August 1,
2018 |
December 31,
2018 |
December 2,
and December 31, 2019 |
||||||||||||
Volatility(1) |
33.80 | % | 40.00 | % | 40.00 | % | 37.90 | % | ||||||||
Risk-free rate(2) |
3.40 | % | 3.65 | % | 3.31 | % | 2.65 | % | ||||||||
Dividend yield(3) |
0.00 | % | 0.00 | % | 0.00 | % | 0.00 | % | ||||||||
Time to expiration(4) (in years) |
7.00 | 6.71 | 6.29 | 5.37 |
(1) |
The volatility is estimated based on the historical share price movement of comparable companies for the period of time close to the expected time to exercise. |
(2) |
The risk-free rate is based on the market yield of US treasury curve with China country risk premium. |
(3) |
The dividend yield is estimated by the Company based on its expected dividend policy over the contractual term of the options. |
(4) |
Time to expiration is the time between valuation date and the redemption or liquidation date. |
F-39
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(All amount in thousands, except for share and per share data, unless otherwise stated)
6. Inventory
Inventory consisted of the following:
December 31, | ||||||||
2018 | 2019 | |||||||
Raw materials and work-in-process |
108,973 | 125,673 | ||||||
Finished goods |
60,353 | 328,443 | ||||||
|
|
|
|
|||||
Total |
169,326 | 454,116 | ||||||
|
|
|
|
Raw materials and work-in-process primarily consist of materials for volume production as well as materials used for trial production, or for R&D of new models which are expensed as incurred.
Finished goods primarily consist of vehicles ready for transit at production factory, vehicles in transit to fulfill customer orders, new vehicles available for immediate sale at its delivery and service centers, vehicle parts and charging piles.
7. Prepayments and Other Current Assets
Prepayments and other current assets consisted of the following:
December 31, | ||||||||
2018 | 2019 | |||||||
Receivables from issuance of Preferred Shares |
851,800 | 279,048 | ||||||
Deductible value-added tax input |
170,501 | 437,129 | ||||||
Deposits |
23,326 | 188,190 | ||||||
Prepayments |
151,956 | 80,699 | ||||||
Others |
39,013 | 98,241 | ||||||
|
|
|
|
|||||
Total |
1,236,596 | 1,083,307 | ||||||
|
|
|
|
Up to the date of this report, all the amount receivables from issuance of Preferred Shares have been received.
Deposits primarily consist of deposits to suppliers for guarantee of procurement and short-term leases.
Prepayments primarily consist of prepayment for raw materials, marketing and consulting services provided by suppliers.
F-40
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(All amount in thousands, except for share and per share data, unless otherwise stated)
8. Property, Plant and Equipment, Net
Property, plant and equipment, net, consisted of the following:
December 31, | ||||||||
2018 | 2019 | |||||||
Construction in progress |
623,262 | 2,236,775 | ||||||
Mold and tooling |
27,569 | 497,174 | ||||||
Vehicles |
64,182 | 230,328 | ||||||
Machinery and equipment |
39,790 | 193,889 | ||||||
Leasehold improvements |
107,247 | 191,356 | ||||||
Computer and electronic equipment |
33,941 | 54,044 | ||||||
Charging infrastructure |
3,400 | 39,792 | ||||||
Others |
6,802 | 27,770 | ||||||
|
|
|
|
|||||
Sub-total |
906,193 | 3,471,128 | ||||||
|
|
|
|
|||||
Less: Accumulated depreciation |
(42,836 | ) | (161,991 | ) | ||||
Less: Impairment charges |
| (79,185 | ) | |||||
|
|
|
|
|||||
Property, plant and equipment, net |
863,357 | 3,229,952 | ||||||
|
|
|
|
The Group recorded depreciation expenses of RMB53,527 and RMB125,453 for the years ended December 31, 2018 and 2019, respectively.
Vehicles represent the rides-qualified vehicles operated by the Group for the ride hailing services, certain vehicles under operating lease arrangement with customers and the vehicles used for the Groups daily operation.
Construction in progress primarily consists of the construction of Zhaoqing manufacturing plant and mold, tooling, machinery and equipment related to the manufacturing of the Groups vehicles. During the years ended December 31, 2018 and 2019, the Group capitalized RMB1,907 and RMB38,483 of interest, respectively. Subsidies for interest expenses capitalized received from government by the Group were recognized to reduce the interest expenses capitalized in the construction of Zhaoqing manufacturing plant.
With the phasing out of G3 2019 model and associated mold and tooling, the impairment charges of property, plant and equipment specifically for G3 2019, amounted to nil and RMB79,185, were recognized in cost of sales in the years ended December 31, 2018 and 2019, respectively.
F-41
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(All amount in thousands, except for share and per share data, unless otherwise stated)
9. Intangible Assets, Net
Intangible assets and related accumulated amortization consisted of the following:
December 31, 2018 | December 31, 2019 | |||||||||||||||||||||||
Gross
Carrying Amount |
Accumulated
amortization |
Net
Carrying Amount |
Gross
Carrying Amount |
Accumulated
amortization |
Net
Carrying Amount |
|||||||||||||||||||
Finite-lived intangible assets |
||||||||||||||||||||||||
Software |
21,642 | (3,389 | ) | 18,253 | 98,402 | (10,009 | ) | 88,393 | ||||||||||||||||
License of maintenance and overhauls |
2,290 | (617 | ) | 1,673 | 2,290 | (1,678 | ) | 612 | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total finite-lived intangible assets |
23,932 | (4,006 | ) | 19,926 | 100,692 | (11,687 | ) | 89,005 | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Indefinite-lived intangible assets |
||||||||||||||||||||||||
License plate |
28,927 | | 28,927 | 28,927 | | 28,927 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total intangible assets |
52,859 | (4,006 | ) | 48,853 | 129,619 | (11,687 | ) | 117,932 | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
The Group recorded amortization expenses of RMB3,546 and RMB7,681 for the years ended December 31, 2018 and 2019, respectively.
Total future amortization expenses for finite-lived intangible assets were estimated as follows:
2020 |
21,412 | |||
2021 |
19,742 | |||
2022 |
16,157 | |||
2023 |
14,797 | |||
2024 |
12,639 | |||
Thereafter |
4,258 | |||
|
|
|||
Total |
89,005 | |||
|
|
10. Land Use Rights, Net
Land use rights and related accumulated amortization consisted of the following:
December 31, | ||||||||
2018 | 2019 | |||||||
Land use rights |
264,886 | 264,886 | ||||||
Less: Accumulated amortization |
(4,306 | ) | (9,629 | ) | ||||
|
|
|
|
|||||
Total land use rights, net |
260,580 | 255,257 | ||||||
|
|
|
|
In November 2017, February 2018 and May 2018, the Group acquired land use rights to build a factory for manufacturing vehicles of the Group in Zhaoqing city, Guangdong province, PRC.
The Group recorded amortization expenses for land use rights of RMB4,058 and RMB5,323 for the years ended December 31, 2018 and 2019, respectively.
F-42
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(All amount in thousands, except for share and per share data, unless otherwise stated)
11. Other Non-current Assets
Other non-current assets consisted of the following:
December 31, | ||||||||
2018 | 2019 | |||||||
Prepayment for acquisition of assets |
| 100,000 | ||||||
Long-term deposits |
23,792 | 29,316 | ||||||
Prepayments for purchase of property, plant and equipment |
24,495 | 7,159 | ||||||
Others |
945 | 1,037 | ||||||
|
|
|
|
|||||
Total |
49,232 | 137,512 | ||||||
|
|
|
|
As of December 31, 2019, prepayments for acquisition of assets represented the prepayment amounted to RMB100,000 for an acquisition of a company that holds a manufactory license (Note 26(c)).
Long-term deposits primarily consist of deposits for offices and retail and service centers which will not be collectable within one year.
12. Accruals and Other Liabilities
Accruals and other liabilities consisted of the following:
December 31, | ||||||||
2018 | 2019 | |||||||
Payables for purchase of property, plant and equipment |
69,493 | 831,644 | ||||||
Payable for R&D expenses |
6,994 | 257,473 | ||||||
Employee compensation payable |
189,442 | 199,515 | ||||||
Accrued expenses |
36,119 | 107,712 | ||||||
Noncontrolling interests(i) |
| 98,010 | ||||||
Payables for marketing events |
67,931 | 83,552 | ||||||
Deposits from third parties |
14,535 | 62,696 | ||||||
Advances from customers |
34,951 | 37,478 | ||||||
Interest payables |
13,818 | 23,315 | ||||||
Warranty |
11 | 8,380 | ||||||
Others |
39,652 | 46,220 | ||||||
|
|
|
|
|||||
Total |
472,946 | 1,755,995 | ||||||
|
|
|
|
Accrued expenses primarily reflected receipts of goods and services that the Group had not been invoiced yet. As the Group are invoiced for these goods and services, this balance will reduce and accounts payable will increase.
F-43
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(All amount in thousands, except for share and per share data, unless otherwise stated)
12. Accruals and Other Liabilities (continued)
(i) |
On September 19, 2019, the Group entered into a partnership agreement with Guangzhou Industrial Transformation and Upgrading Development Fund Co., Limited (Industrial Fund) and Shenzhen Antuo Hengyuan Fund management Co., Limited (Shenzhen Antuo) to set up a limited liability partnership entity (the Kunpeng Kechuang LLP). Industrial Fund and Shenzhen Antuo subscribed for RMB98,000 and RMB10 paid in capital in Kunpeng Kechuang LLP with 24.5% and 0.0025%, of the shares, respectively. On October 22, 2019 and October 24, 2019, Industrial Fund and Shenzhen Antuo injected RMB98,000 and RMB10 in cash to Kunpeng Kechuang LLP, respectively. Pursuant to the investment agreement, Industrial Fund and Shenzhen Antuo do not have substantive participating rights to Kunpeng Kechuang LLP nor are able to transfer their interest in Kunpeng Kuchuang LLP to other third party. In addition, at any time within three years the Group is entitled to upon its request or is obligated to upon Industrial Funds request to purchase from Industrial Fund all of its interest in Kunpeng Kechuang LLP at its investment amount paid plus interest calculated at the current annual interest rate of the 3-year Treasury Bond in PRC. Upon exit of Industrial Fund, Kunpeng Kechuang LLP will be dissolved and Shenzhen Antuo will be entitled to its investment amount paid amounted to RMB10. As such, the Group consolidates Kunpeng Kechuang LLP. The investments by Industrial Fund and Shenzhen Antuo are accounted for as a liability because liability classification is required when the Group enters into a purchased call and written put with the NCI holders, and the put and call have the same fixed exercise price and exercise date. |
13. Borrowings
Borrowings consisted of the following:
December 31, | ||||||||
2018 | 2019 | |||||||
Current |
||||||||
Short-term borrowings: |
||||||||
Bank loans |
200,000 | 419,950 | ||||||
|
|
|
|
|||||
200,000 | 419,950 | |||||||
Current portion of long-term borrowings |
| 60,000 | ||||||
|
|
|
|
|||||
Total current borrowings |
200,000 | 479,950 | ||||||
|
|
|
|
|||||
Non-Current |
||||||||
Long-term borrowings: |
||||||||
Bank loans |
| 90,000 | ||||||
Other loans |
1,000,000 | 1,600,000 | ||||||
|
|
|
|
|||||
Total non-current borrowings |
1,000,000 | 1,690,000 | ||||||
|
|
|
|
|||||
Total borrowings |
1,200,000 | 2,169,950 | ||||||
|
|
|
|
As of December 31, 2018, the Group obtained two short-term borrowings of RMB200,000 in aggregate. The effective interest rate of these borrowings is 3.92% to 4.13% per annum.
As of December 31, 2019, the Group obtained short-term borrowings from five banks of RMB419,950 in aggregate. The effective interest rate of these borrowings is 3.92% to 4.57% per annum.
As of December 31, 2019, the Group entered into long-term loan agreements with a bank in PRC of total principals of RMB150,000, subject to a fixed interest rate of 4.99% per annum, and with a maturity date from
F-44
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(All amount in thousands, except for share and per share data, unless otherwise stated)
13. Borrowings (continued)
January 22, 2020 to November 20, 2022. As of December 31, 2019, the principal amount of RMB60,000 was due within 12 months after the reporting period and presented as current liabilities in the consolidated balance sheet.
In May 2017, Zhaoqing XPeng obtained a facility, specified for expenditures of the construction of Zhaoqing manufacturing plant, of up to RMB1,600,000 from Zhaoqing High-tech Zone Construction Investment Development Co., Ltd. As of December 31, 2018 and 2019, the aggregated draw amounted to RMB1,000,000 and RMB1,600,000 respectively. Out of the borrowing amounted to RMB 1,600,000 in aggregate as of December 31, 2019, RMB 500,000, RMB 500,000 and RMB 600,000 mature 6 years, 7 years and 8 years, respectively, since the commencement of production of the Zhaoqing manufacturing plant. The interest rate of these loans is 4.90% per annum. Moreover, the Group received subsidies from government for interest expenses incurred associated with this borrowing. For the year ended December 31, 2018 and 2019, upon the acceptance of subsidy application by government, the Group recognized the subsidies to reduce the interest expenses capitalized in the construction of Zhaoqing manufacturing factory or reduce related interest expenses as incurred if any.
Certain of the Groups banking facilities are subject to the fulfillment of covenants relating to certain of the Groups consolidated statement of financial position performance and results, as are commonly found in lending arrangements with financial institutions. If the Group were to breach the covenants, the drawn down facilities would become payable on demand. The Group regularly monitors its compliance with these covenants. As at December 31, 2018 and 2019, none of the covenants relating to drawn down facilities had been breached.
The carrying value of the borrowings approximates its fair value as of December 31, 2018 and 2019. The interest rates under the loan agreements with the banks were determined based on the prevailing interest rates in the market. The Group classifies the valuation techniques that use these inputs as Level II.
14. Other Non-Current Liabilities
Other non-current liabilities consisted of the following:
December 31, | ||||||||
2018 | 2019 | |||||||
Government grants |
720 | 46,798 | ||||||
Warranty |
62 | 26,217 | ||||||
|
|
|
|
|||||
Total |
782 | 73,015 | ||||||
|
|
|
|
Movement of accrued warranty is as following:
Year Ended
December 31, |
||||||||
2018 | 2019 | |||||||
Accrued warranty - beginning of year |
| 73 | ||||||
Warranty costs incurred |
| (575 | ) | |||||
Provision for warranty |
73 | 35,099 | ||||||
|
|
|
|
|||||
Accrued warranty - end of year |
73 | 34,597 | ||||||
Less: Current portion of warranty |
(11 | ) | (8,380 | ) | ||||
|
|
|
|
|||||
Non-current portion of warranty |
62 | 26,217 | ||||||
|
|
|
|
F-45
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(All amount in thousands, except for share and per share data, unless otherwise stated)
15. Leases
(a) As a lessee
The Group has entered into various non-cancellable operating lease agreements for certain offices, retail and service centers, warehouses for finished goods, parking area for charging infrastructure and factories for R&D activities which are substantially located in PRC. The Group determines if an arrangement is a lease, or contains a lease, at inception and record the leases in the consolidated financial statements upon lease commencement, which is the date when the lessor makes the underlying asset available for use by the lessee.
The Groups leases, where the Group is the lessee, may include options to extend the lease term and options to terminate the lease prior to the end of the agreed upon lease term. For purposes of calculating lease liabilities, lease terms include options to extend or terminate the lease when it is reasonably certain that the Group will exercise such options.
The balances for the operating leases where the Group is the lessee are presented as follows within the consolidated balance sheet:
December 31, | ||||||||
2018 | 2019 | |||||||
Operating lease right-of-use assets |
342,123 | 440,097 | ||||||
|
|
|
|
|||||
Lease liabilities - current |
83,582 | 90,740 | ||||||
Lease liabilities - non current |
267,356 | 361,404 | ||||||
|
|
|
|
|||||
Total operating lease liabilities |
350,938 | 452,144 | ||||||
|
|
|
|
The components of operating lease expense are as follows within the consolidated statements of comprehensive loss:
Year Ended
December 31, |
||||||||
2018 | 2019 | |||||||
Operating lease expense |
44,476 | 107,850 | ||||||
Short-term lease expense |
5,398 | 15,033 | ||||||
|
|
|
|
|||||
Total lease expense |
49,874 | 122,883 | ||||||
|
|
|
|
Short-term leases primarily represent the lease on parking area with a term of 12 months or less.
The operating lease expense and short-term lease expense were recognized in cost of sales, research and development expenses and selling, general and administrative expenses.
Other information related to operating leases where the Group is the lessee is as follows:
December 31, | ||||||||
2018 | 2019 | |||||||
Weighted-average remaining lease term |
6.3 years | 5.4 years | ||||||
Weighted-average discount rate |
4.74 | % | 4.48 | % |
Because most of the Groups leases do not provide an implicit rate of return, the Group used the incremental borrowing rate based on the information available at lease commencement date in determining the present value of lease payments.
F-46
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(All amount in thousands, except for share and per share data, unless otherwise stated)
15. Leases (continued)
(a) As a lessee (continued)
Supplemental cash flow information related to leases where the Group is the lessee is as follows:
Year Ended
December 31, |
||||||||
2018 | 2019 | |||||||
Cash paid for amounts included in the measurement of lease liabilities: |
||||||||
Operating cash outflows from operating leases |
23,750 | 84,975 | ||||||
Leased assets obtained in exchange for operating lease liabilities |
224,851 | 186,181 |
As of December 31, 2018, the maturities of the Groups operating lease liabilities (excluding short-term leases) are as follows:
December 31,
2018 |
||||
2019 |
76,925 | |||
2020 |
61,336 | |||
2021 |
53,611 | |||
2022 |
70,776 | |||
2023 |
37,252 | |||
Thereafter |
119,178 | |||
|
|
|||
Total minimum lease payments |
419,078 | |||
Less: Interest |
(68,140 | ) | ||
|
|
|||
Present value of lease obligations |
350,938 | |||
Less: Current portion |
(83,582 | ) | ||
|
|
|||
Non-current portion of lease obligations |
267,356 | |||
|
|
As of December 31, 2019, the maturities of the Groups operating lease liabilities (excluding short-term leases) are as follows:
December 31,
2019 |
||||
2020 |
110,158 | |||
2021 |
94,535 | |||
2022 |
97,395 | |||
2023 |
56,145 | |||
2024 |
43,328 | |||
Thereafter |
124,397 | |||
|
|
|||
Total minimum lease payments |
525,958 | |||
Less: Interest |
(73,814 | ) | ||
|
|
|||
Present value of lease obligations |
452,144 | |||
Less: Current portion |
(90,740 | ) | ||
|
|
|||
Non-current portion of lease obligations |
361,404 | |||
|
|
F-47
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(All amount in thousands, except for share and per share data, unless otherwise stated)
15. Leases (continued)
(b) As a lessor
Finance lease receivables consisted of the following:
December 31, | ||||||||
2018 | 2019 | |||||||
Current portion of finance lease receivables - net |
| 45,836 | ||||||
Finance lease receivables - net |
| 109,965 | ||||||
|
|
|
|
|||||
Total |
| 155,801 | ||||||
|
|
|
|
The Group recognized interest income on the net investment in the lease of RMB4,929 for the year ended December 31, 2019.
Maturity analysis of the minimum lease payments receivable for each of the first five years and reconciliation of the undiscounted cash flows to the net investment in the lease are as follows:
December 31, | ||||||||
2018 | 2019 | |||||||
Within 1 year |
| 55,357 | ||||||
Between 1 and 2 years |
| 55,357 | ||||||
Between 2 and 3 years |
| 47,767 | ||||||
Between 3 and 4 years |
| 16,229 | ||||||
Between 4 and 5 years |
| 8,610 | ||||||
|
|
|
|
|||||
Total lease payments |
| 183,320 | ||||||
|
|
|
|
|||||
Less: Unrealized finance income |
| (26,686 | ) | |||||
|
|
|
|
|||||
Net investment in the lease |
| 156,634 | ||||||
Less: Allowance for finance lease receivables |
| (833 | ) | |||||
|
|
|
|
|||||
Finance lease receivables - net |
| 155,801 | ||||||
|
|
|
|
16. Revenues
Revenues by source consisted of the following:
Year Ended
December 31, |
||||||||
2018 | 2019 | |||||||
Vehicle sales |
4,153 | 2,171,231 | ||||||
Services and others |
5,553 | 149,988 | ||||||
|
|
|
|
|||||
Total |
9,706 | 2,321,219 | ||||||
|
|
|
|
F-48
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(All amount in thousands, except for share and per share data, unless otherwise stated)
17. Deferred Revenue
The following table shows a reconciliation in the current reporting period related to carried-forward deferred revenue.
December 31, | ||||||||
2018 | 2019 | |||||||
Deferred revenue - beginning of year |
| 2,366 | ||||||
Additions |
4,211 | 1,865,564 | ||||||
Recognition |
(1,845 | ) | (1,782,432 | ) | ||||
|
|
|
|
|||||
Deferred revenue - end of year |
2,366 | 85,498 | ||||||
|
|
|
|
Deferred revenue represents the transaction price allocated to the performance obligations that are unsatisfied, which primarily arises from the undelivered vehicles, charging piles, free charging within 4 years or 100,000 kilometers, the extended lifetime warranty, option between household charging pile and charging card as well as vehicle internet connection services, with unrecognized deferred revenue balance of RMB2,366 and RMB85,498 as of December 31, 2018 and 2019, respectively.
The Group expects that 19% of the transaction price allocated to unsatisfied performance obligations which were accounted for as deferred revenue as of December 31, 2019 will be recognized as revenue during the period from January 1, 2020 to December 31, 2020. The remaining 81% will be substantially recognized during the period from January 1, 2021 to December 31, 2030.
18. Manufacturing in Collaboration with Haima Auto
On March 31, 2017, the Group entered into a contract arrangement with Haima Auto for the manufacture of vehicles. The agreement will expire on December 31, 2021, and such agreements are renewable by mutual consent. Pursuant to the arrangement, starting from 2018, Haima Auto provides an annual production capacity of 50,000 units, for the manufacturing of G3. While Haima is in charge of the day-to-day operations of the plant, the Group retain effective control over the supply chain, the manufacturing process, testing and quality control. For each vehicle produced, the Group will incur manufacturing cost on a per-vehicle basis monthly. The Group did not have any compensation or fees for Haima Auto other than the aforementioned manufacturing cost.
19. Convertible Redeemable Preferred Shares
Series A Preferred Shares
On June 9, 2017, the Group issued 1,102,710 Series A Preferred Shares in exchange for an aggregate cash consideration of RMB168,000, or RMB152 per share. These 1,102,710 Series A Preferred Shares were split into 27,567,750 Series A Preferred Shares at par value of US$0.00001 upon a 1:25 share split in March 2020.
On November 27, 2017, the Group issued 2,021,635 Series A Preferred Shares in exchange for an aggregate cash consideration of RMB308,000, or RMB152 per share. These 2,021,635 Series A Preferred Shares were split into 50,540,875 Series A Preferred Shares at par value of US$0.00001 upon a 1:25 share split in March 2020.
F-49
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(All amount in thousands, except for share and per share data, unless otherwise stated)
19. Convertible Redeemable Preferred Shares (continued)
Series A-1 Preferred Shares
On January 5, 2018, the Group issued 2,712,095 Series A-1 Preferred Shares in exchange for an aggregate cash consideration of RMB460,000, or RMB170 per share. These 2,712,095 Series A-1 Preferred Shares were split into 67,802,375 Series A-1 Preferred Shares at par value of US$0.00001 upon a 1:25 share split in March 2020.
Series A-2 Preferred Shares
On January 5, 2018, the Group issued 466,856 Series A-2 Preferred Shares in exchange for an aggregate cash consideration of RMB100,000, or RMB214 per share. These 466,856 Series A-2 Preferred Shares were split into 11,671,400 Series A-2 Preferred Shares at par value of US$0.00001 upon a 1:25 share split in March 2020.
Series B Preferred Shares
On March 26, 2018, the Group issued 6,419,268 Series B Preferred Shares in exchange for an aggregate cash consideration of RMB2,200,000, or RMB343 per share. These 6,419,268 Series B Preferred Shares were split into 160,481,700 Series B Preferred Shares at par value of US$0.00001 upon a 1:25 share split in March 2020.
Series B-1 Preferred Shares
On August 1, 2018, the Company issued 5,330,910 Series B-1 Preferred Shares in exchange for an aggregate cash consideration of RMB2,900,000, or RMB544 per share. These 5,330,910 Series B-1 Preferred Shares were split into 133,272,750 Series B-1 Preferred Shares at par value of US$0.00001 upon a 1:25 share split in March 2020.
Series B-2 Preferred Shares
On August 1, 2018, the Company issued 1,526,543 Series B-2 Preferred Shares in exchange for an aggregate cash consideration of RMB955,000, or RMB626 per share. These 1,526,543 Series B-2 preferred shares were split into 38,163,575 Series B-2 preferred shares at par value of US$0.00001 upon a 1:25 share split in March 2020.
Series C Preferred Shares
On December 2, 2019, the Company issued 3,183,626 Series C Preferred Shares in exchange for an aggregate cash consideration of RMB2,107,860, or RMB662 per share. These 3,183,626 Series C preferred shares were split into 79,590,650 Series C preferred shares at par value of US$0.00001 upon a 1:25 share split in March 2020.
The key terms of the Series A Preferred Shares, Series A-1 Preferred Shares, Series A-2 Preferred Shares, Series B Preferred Shares, Series B-1 Preferred Shares, Series B-2 Preferred Shares and Series C Preferred Shares (collectively referred as the Preferred Shares) are summarized as follows.
F-50
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(All amount in thousands, except for share and per share data, unless otherwise stated)
19. Convertible Redeemable Preferred Shares (continued)
Conversion feature
Each Preferred Share shall automatically be converted into Class A Ordinary Shares at the Conversion Price at the time in effect immediately upon the earlier of (a) the consummation of a Qualified IPO; and (b) the date specified by written consent or agreement of 80% holders of each series.
The initial conversion ratio of Preferred Shares to ordinary shares shall be 1:1, subject to adjustments in the event of (i) reorganizations, mergers, consolidations or sales of Assets, (ii) certain issuances of shares below the Conversion Price, (iii) share dividends, subdivisions and combinations of Class A ordinary shares, (iv) other distributions or (v) reclassification or recapitalization of Class A ordinary shares.
The Company determined that there were no beneficial conversion features identified for any of the Preferred Shares during any of the periods. In making this determination, the Company compared the fair value of the ordinary shares into which the Preferred Shares are convertible with the respective effective conversion price at the issuance date. To the extent a conversion price adjustment occurs, as described above, the Company will re-evaluate whether or not a beneficial conversion feature should be recognized.
Redemption feature
Issuance of Series C, Series B-1 and B-2 and Series B Preferred Shares
Upon issuance of Series C, Series B-1 and B-2 and Series B Preferred Shares, the Company shall redeem, all of the outstanding Preferred Shares held by the requesting holder upon the written request of such holder, at any time after the earliest to occur of: (1) the Company fails to complete a Qualified IPO on or prior to April 16, 2025; (2) a breach by any of the Company, Principal Shareholders or the ESOP Holdco, where applicable, of its obligations that will have a material adverse effect to the Group; (3) A certain shareholder having requested the Company to redeem all or a portion of its shares after the occurrence of the Companys failure to cure, within a reasonable cure period, after the occurrence of a breach by any of the Company, Principal Shareholders or the ESOP Holdco, if where applicable, of its obligations under the specified agreements has, individually or together, caused a material adverse effect on the certain shareholders business, goodwill, or brand (A Certain Shareholder Redemption Event).
The redemption amount payable for each Preferred Share upon exercise of the redemption option by the holder, will be an amount equal to the greater of (a) 120% of the Original Issue Price of such Share, and (b) 100% of Original Issue Price plus compounded accrued daily interest (on the basis of a 365-day year basis) at a rate of twelve percent (12%) per annum. Upon the issuance of Series C, the redemption amount payable for each Preferred Share will be an amount equal to the greater of (a) 120% of the Original Issue Price, plus any dividends declared but unpaid thereon, of such Share, and (b) 100% of Original Issue Price plus compounded accrued daily interest (on the basis of a 365-day year basis) at a rate of twelve percent (12%) per annum. Upon redemption event, Series C Preferred Shares shall rank senior to Series B-1 and Series B-2 Preferred Shares, Series B-1 and Series B-2 Preferred Shares (the redemption of the Series B-2 Preferred Shares shall rank pari passu with the redemption of Series B-1 Preferred Shares) shall rank senior to Series B Preferred Shares. Series B Preferred Shares shall rank senior to Series A, Series A-1 and Series A-2 Preferred Shares. Series A, Series A-1 and A-2 Preferred Shares (the redemption of the Series A, Series A-1 and Series A-2 Preferred Shares shall rank pari passu with each other) shall rank senior to ordinary shares.
If any holder of outstanding Preferred Shares chooses to redeem and the Company does not have sufficient funds to pay the Redemption Price, such holder may sell its interests to a third party. If the aggregate price of
F-51
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(All amount in thousands, except for share and per share data, unless otherwise stated)
19. Convertible Redeemable Preferred Shares (continued)
Redemption feature (continued)
Issuance of Series C, Series B-1 and B-2 and Series B Preferred Shares (continued)
the Redemption Shares in such sale to third party is less than the Redemption Price of such Redemption Shares, the Company shall be obligated to pay to the Selling Holder the excess, if any, of the Redemption Price over the aggregate price of the Redemption Shares.
Issuance of Series A-1 Preferred Shares and Series A-2 Preferred Shares
Prior to the issuance of Series A-1 and A-2 Preferred Shares, the Company shall redeem, at the option of the holder, all of the outstanding Preferred Shares held by the requesting holder, at any time after the earliest to occur of (1) a breach by any of the company, the principals, the principals shareholders of its obligations under the transaction documents, individually or together with other breaches by the foregoing Persons of their obligations under the transaction documents, have a material adverse effect to the company and other members within the Group; (2) any sale, conveyance, lease or disposition of all or substantially all of the Group Companies assets to a third party other than a Group Company; (3) any acquisition, amalgamation, scheme of arrangement or merger of the Company or other Group Company, which the Persons having Control over the Company or such other Group Companies will discontinue to have Control over the surviving entity; and (4) A Certain Shareholder Redemption Event.
Upon issuance of Series A-1 Preferred Shares and Series A-2 Preferred Shares, the Company shall redeem, at the option of any holder of outstanding Preferred Shares, all of the outstanding Preferred Shares held by the requesting holder, at any time after the earliest to occur of (1) a breach by any of the company, the principals, the principals shareholders of its obligations under the transaction documents, individually or together with other breaches by the foregoing Persons of their obligations under the transaction documents, have a material adverse effect to the company and other members within the Group; and (2) A Certain Shareholder Redemption Event.
The redemption amount payable for each Preferred Share will be an amount equal to the greater of (a) 120% of the Original Issue Price, plus any dividends declared but unpaid thereon, of such Share, and (b) 100% of Original Issue Price plus compounded accrued daily interest (on the basis of a 365-day year basis) at a rate of twelve percent (12%) per annum.
Liquidation preferences
Liquidation Event means any of the following events: (i) any liquidation, dissolution or winding up of the Company, ii) any sale, conveyance, lease or disposition of all or substantially all of the Groups assets (including by means of an exclusive licensing of all or substantially all of the Groups intellectual property or similar arrangement) to a third party other than the Group; and (iii) any acquisition, amalgamation, scheme of arrangement or merger of the Company or the Group by or with another entity where the gross or net value of the assets or equities being acquired represents more than 50% of the consolidated total assets or the consolidated net assets of the Group, by means of any transaction or series of related transactions to which the Company or such other Group Company, as applicable, is a party (other than a transaction or series of transactions in which the Persons having Control over the Company or such other Group Companies will continue to have Control over the surviving entity), Provided, however, that the events set forth in the foregoing (ii) or (iii) shall not be deemed a Liquidation Event unless the Majority Preferred Holders have, by written notice to the Company, determined that such events constitute a Liquidation Event. The occurrence of
F-52
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(All amount in thousands, except for share and per share data, unless otherwise stated)
19. Convertible Redeemable Preferred Shares (continued)
Liquidation preferences (continued)
a Liquidation Event will trigger redemption and liquidation of net assets of the Company and distribution of the proceeds to redeem all the Companys equity securities in accordance with the seniority described below, not the Preferred Shares.
In the event of any liquidation, the holders of Preferred Shares have preference over holders of ordinary shares with respect to payment of dividends and distribution of assets. Upon Liquidation Event, Series C Preferred Shares shall rank senior to Series B-1 and Series B-2 Preferred Shares, Series B-1 and Series B-2 Preferred Shares (the liquidation preference of the Series B-2 Preferred Shares shall rank pari passu with the liquidation preference of Series B-1 Preferred Shares) shall rank senior to Series B Preferred Shares. Series B Preferred Shares shall rank senior to Series A, Series A-1 and Series A-2 Preferred Shares. Series A, Series A-1 and A-2 Preferred Shares (the liquidation preference of the Series A, Series A-1 and Series A-2 Preferred Shares shall rank pari passu with each other) shall rank senior to ordinary shares.
The holders of Preferred Shares and the ordinary shares shall be entitled to receive an amount per share equal to the greater of (a) 120% of the Original Issue Price, plus any dividends declared but unpaid thereon, of such Share, and (b) 100% of Original Issue Price plus compounded accrued daily interest (on the basis of a 365-day year basis) at a rate of twelve percent (12%) per annum.
After setting aside or paying in full the aggregate Liquidation Preference Amount of the Series C Preferred Shares, the Series B-2 Preferred Shares, the Series B-1 Preferred Shares, the Series B Preferred Shares, the Series A-2 Preferred Shares, the Series A-1 Preferred Shares, the Series A Preferred Shares and the Ordinary Shares, the remaining assets of the Company available for distribution to Shareholders, if any, shall be distributed to the holders of Class A and Class B Ordinary Shares and Preferred Shares on a pro rata basis, based on the number of Shares then held by each holder on an as converted basis.
Dividends rights
Each holder of Preferred Shares shall be entitled to receive, prior and in preference to any declaration or payment of any cash or non-cash dividend on the Ordinary Shares, but pari passu with other holders of Preferred Shares, noncumulative dividends at a simple rate of four percent (4%) per annum of the Original Issue Price of such Preferred Shares on each such Preferred Share held by such holder, payable when, as and if declared by the Board. Notwithstanding the foregoing, if the Board shall declare dividends on Ordinary Shares, each holder of any Preferred Shares shall be entitled to receive the higher of (i) four percent (4%) of the Original Issue Price of such Preferred Share, and (ii) the amount of dividends in respect of the Ordinary Shares into which such Preferred Share is then convertible.
Voting rights
The holders of the Preferred Shares shall have the right to one vote for each ordinary share into which each outstanding Preferred Share held could then be converted. The holders of the Preferred Shares vote together with the Ordinary Shareholders, and not as a separate class or series, on all matters put before the shareholders. The holders of the Preferred Shares are entitled to appoint a total of 4 out of 7 directors of the Board.
F-53
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(All amount in thousands, except for share and per share data, unless otherwise stated)
19. Convertible Redeemable Preferred Shares (continued)
Accounting for Series A, A-1, A-2, B, B-1, B-2 and C Preferred Shares
Prior to issuance of Series A-1 and A-2
The Company classified the Series A Preferred Shares as mezzanine equity in the consolidated balance sheets because they were contingently redeemable upon the occurrence of certain liquidation events outside of the Companys control. No accretion was recognized subsequently since it is not probable that the instrument will become redeemable.
Upon issuance of Series A-1 and A-2
The issuance of Series A-1 and A-2 Preferred Shares concurrently amended terms of Series A Preferred Shares. Key changes include 1) changing from all shareholders sharing net asset on pro rate basis upon liquidation to having liquidation preference based on the formula and a distribution waterfall and 2) under the liquidation event, an investor shall receive an amount equal to the higher of a) 120% of the original investment amount, and 2) 100% of the original investment plus compounded accrued daily interest (on the basis of a 365-day year basis) at a rate of twelve percent (12%) per annum. The management assessed the amendments quantitatively using the fair value model to Series A and concluded Series A should be accounted for as an extinguishment based on the assessment.
Post issuance of Series A-1 and A-2, the Company classified the Series A, Series A-1 and A-2 Preferred Shares as mezzanine equity in the consolidated balance sheets because they were contingently redeemable upon the occurrence of certain liquidation events outside of the Companys control. No accretion was recognized subsequently since it is not probable that the instrument will become redeemable.
Upon issuance of Series B
The issuance of Series B Preferred Shares concurrently amended terms of Series A, A-1 and A-2 Preferred Shares. Key changes include (i) under a redemption event, if any holder of outstanding Preferred Shares chooses to sell its interests to a third party but the aggregate price of the Redemption Shares in such sale to third party is less than the Redemption Price of such Redemption Shares, the Company shall be obligated to pay to the Selling Holder the excess, if any, of the Redemption Price over the aggregate price of the Redemption Shares; (2) if the Company fails to complete a Qualified IPO on or prior to April 16, 2025, the redemption event is triggered.
Upon the amendment, the time-based redemption right of Series A, A-1 and A-2 Preferred Shares, was deemed to have the characteristic of net settlement, and therefore the redemption right met the definition of a derivative. Accordingly, this feature was bifurcated and accounted for as a derivative liability, initially measured at fair value with changes in fair value in the subsequent periods recognized through earnings, as the feature is not considered clearly and closely related to the host. The Company concluded that the amendment to Series A, A-1 and A-2 should be accounted for as an extinguishment or modification based on its assessment on the amendments both qualitatively and quantitatively.
Post issuance of Series B
The net settlement mechanism of the redemption right described earlier exist in Series B, B-1, B-2 and C Preferred Shares subsequently issued. Therefore, the redemption right of Series B, B-1 and B-2 also met the definition of a derivative and was bifurcated and accounted for as derivative liabilities, which are initially
F-54
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(All amount in thousands, except for share and per share data, unless otherwise stated)
19. Convertible Redeemable Preferred Shares (continued)
Accounting for Series A, A-1, A-2, B, B-1, B-2 and C Preferred Shares (continued)
Post issuance of Series B (continued)
measured at fair value with changes in fair value in the subsequent periods recognized through earnings, as the host contract of the Preferred Shares is considered to be an equity host and the redemption feature is not clearly and closely related to the host contract. The initial carrying value for each series of Preferred Shares recorded in mezzanine equity is allocated on a residual basis, after the recognition of the redemption option at its fair value upon bifurcation. The mezzanine equity component is subsequently accreted to the amount equals to redemption value of each series of Preferred Shares, less the-then fair value of the derivative liability using the interest method.
Fair values of derivative liabilities
For the year ended December 31, 2018 and 2019, changes in the fair values of these redemption right are as follows:
Redemption
feature embedded in Series A |
Redemption
feature embedded in Series A-1 |
Redemption
feature embedded in Series A-2 |
Redemption
feature embedded in Series B |
Redemption
feature embedded in Series B-1 |
Redemption
feature embedded in Series B-2 |
Redemption
feature embedded in Series C |
Total | |||||||||||||||||||||||||
Balance as of December 31, 2017 |
| | | | | | | | ||||||||||||||||||||||||
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|||||||||||||||||
Bifurcation of redemption feature as of March 26, 2018 |
30,987 | 28,925 | 6,833 | 376,046 | | | | 442,791 | ||||||||||||||||||||||||
Bifurcation of redemption feature as of August 1, 2018 |
| | | | 334,886 | 113,801 | | 448,687 | ||||||||||||||||||||||||
Fair value (gain) loss on derivative liabilities |
(14,092 | ) | (13,105 | ) | (3,010 | ) | (250,628 | ) | 19,758 | 6,716 | | (254,361 | ) | |||||||||||||||||||
Derecognition of mezzanine equity classified as Preferred Shares |
(102 | ) | | | | | | | (102 | ) | ||||||||||||||||||||||
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|||||||||||||||||
Balance as of December 31, 2018 |
16,793 | 15,820 | 3,823 | 125,418 | 354,644 | 120,517 | | 637,015 | ||||||||||||||||||||||||
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|||||||||||||||||
Bifurcation of redemption feature as of December 2, 2019 |
| | | | | | 306,458 | 306,458 | ||||||||||||||||||||||||
Fair value loss (gain) on derivative liabilities |
692 | 655 | 164 | 285 | (30,127 | ) | 652 | | (27,679 | ) | ||||||||||||||||||||||
Repurchase of the Preferred Shares |
| | | | | (16,522 | ) | | (16,522 | ) | ||||||||||||||||||||||
Currency translation difference |
| | | | | | (2,181 | ) | (2,181 | ) | ||||||||||||||||||||||
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|||||||||||||||||
Balance as of December 31, 2019 |
17,485 | 16,475 | 3,987 | 125,703 | 324,517 | 104,647 | 304,277 | 897,091 | ||||||||||||||||||||||||
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F-55
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(All amount in thousands, except for share and per share data, unless otherwise stated)
19. Convertible Redeemable Preferred Shares (continued)
The Companys Preferred Shares activities for the years ended December 31, 2018 and 2019 are summarized below:
Redeemable
Ordinary Shares |
Series A | Series A-1 | Series A-2 | Series B | Series B-1 | Series B-2 | Series C | Total | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Number of
shares |
Amount
(RMB) |
Number of
shares |
Amount
(RMB) |
Number of
shares |
Amount
(RMB) |
Number of
shares |
Amount
(RMB) |
Number of
shares |
Amount
(RMB) |
Number of
shares |
Amount
(RMB) |
Number of
shares |
Amount
(RMB) |
Number of
shares |
Amount
(RMB) |
Number of
shares |
Amount
(RMB) |
|||||||||||||||||||||||||||||||||||||||||||||||||||||||
Balances as of December 31, 2017 |
15,753,000 | 11,201 | 88,281,125 | 499,397 | | | | | | | | | | | | | 104,034,125 | 510,598 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Issuance of Preferred Shares of Series A-1 and A-2 on January 5, 2018 |
| | | | 67,802,375 | 460,000 | 11,671,400 | 100,000 | | | | | | | | | 79,473,775 | 560,000 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
Extinguishment of mezzanine equity upon the completion of the issuance of Series A-1 and A-2 on January 5, 2018 |
| | | (474,376 | ) | | | | | | | | | | | | | | (474,376 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||||
Recognition of mezzanine equity upon the completion of the issuance of Series A-1 and A-2 on January 5, 2018 |
| | | 508,923 | | | | | | | | | | | | | | 508,923 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
Issuance of Preferred Shares of Series B on March 26, 2018 |
| | | | | | | | 160,481,700 | 1,823,954 | | | | | | | 160,481,700 | 1,823,954 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
Modification of mezzanine equity upon the completion of the issuance of Series B on March 26, 2018 |
| | | (12,088 | ) | | (10,597 | ) | | (2,360 | ) | | | | | | | | | | (25,045 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||
Extinguishment of mezzanine equity upon the completion of the issuance of Series B on March 26, 2018 |
| | | (25,021 | ) | | | | | | | | | | | | | | (25,021 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||||
Recognition of mezzanine equity at fair value upon the completion of the issuance of Series B on March 26, 2018 |
| | | 33,395 | | | | | | | | | | | | | | 33,395 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
Issuance of Preferred Shares of Series B-1 and B-2 on August 1, 2018 |
| | | | | | | | | | 133,272,750 | 2,565,113 | 38,163,575 | 841,199 | | | 171,436,325 | 3,406,312 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
Accretion on Preferred Shares to redemption value |
| | | 35,518 | | 49,178 | | 10,362 | | 450,449 | | 120,386 | | 39,436 | | | | 705,329 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
Derecognition of mezzanine equity classified as Preferred Shares |
| | (10,172,500 | ) | (33,395 | ) | | | | | | | | | | | | | (10,172,500 | ) | (33,395 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||
Derecognition of mezzanine equity classified as Redeemable Ordinary Shares |
(15,753,000 | ) | (11,201 | ) | | | | | | | | | | | | | | | (15,753,000 | ) | (11,201 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||
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|||||||||||||||||||||||||||||||||||||
Balances as of December 31, 2018 |
| | 78,108,625 | 532,353 | 67,802,375 | 498,581 | 11,671,400 | 108,002 | 160,481,700 | 2,274,403 | 133,272,750 | 2,685,499 | 38,163,575 | 880,635 | | | 489,500,425 | 6,979,473 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
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|||||||||||||||||||||||||||||||||||||
Issuance of Preferred Shares post extinguishment |
| | | | | | | | | | | | | | 79,590,650 | 1,801,402 | 79,590,650 | 1,801,402 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
Accretion on Preferred Shares to redemption value post extinguishment |
| | | 65,206 | | 61,073 | | 13,255 | | 287,695 | | 394,944 | | 119,880 | | 18,997 | | 961,050 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
Repurchase of the Preferred Shares |
| | | | | | | | | | | | (2,197,900 | ) | (48,447 | ) | | | (2,197,900 | ) | (48,447 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||
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|||||||||||||||||||||||||||||||||||||
Balances as of December 31, 2019 |
| | 78,108,625 | 597,559 | 67,802,375 | 559,654 | 11,671,400 | 121,257 | 160,481,700 | 2,562,098 | 133,272,750 | 3,080,443 | 35,965,675 | 952,068 | 79,590,650 | 1,820,399 | 566,893,175 | 9,693,478 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
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F-56
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(All amount in thousands, except for share and per share data, unless otherwise stated)
20. Ordinary Shares
As of December 31, 2018, the Company authorized 169,711,986 ordinary shares of par value US$0.00025, among which 18,527,598 shares were issued and 13,976,562 shares were outstanding.
As detailed in Note 19, upon closing of the issuance of Series C Preferred Shares on December 2, 2019, the Company adopted a dual voting structure on its shares and the Companys ordinary shares were divided into Class A and Class B ordinary shares, accordingly, the Companys issued ordinary shares as of December 31, 2018 were divided into 5,278,223 Class A and 13,249,375 Class B ordinary shares, and the Companys outstanding ordinary shares as of December 31, 2018 were divided into 1,260,520 Class A ordinary shares and 12,716,042 Class B ordinary shares, respectively. The Companys authorized ordinary shares have been revised as 169,711,986 shares, including 139,711,986 Class A ordinary shares of par value US$0.00025 and 30,000,000 Class B ordinary shares of par value US$0.00025.
Holders of Class A ordinary shares and Class B ordinary shares have the same rights, except for voting rights. Holders of Class A ordinary shares are entitled to one vote per share in all shareholders meetings, while holders of Class B ordinary shares are entitled to five votes per share.
After a share split effective on March 30, 2020, the Company authorized 3,492,799,650 Class A and 750,000,000 Class B ordinary shares of par value US$0.00001.
As of December 31, 2019, 131,955,575 Class A ordinary shares had been issued, 31,513,000 Class A ordinary shares outstanding and 331,234,375 Class B ordinary shares had been issued and outstanding.
630,120 ordinary shares issued to a shareholder on December 1, 2017, which were subdivided into 15,753,000 Class A ordinary shares with par value of US$0.00001 upon a 1:25 share split in March 2020, have redemption right upon certain redemption event (Redeemable Ordinary Shares) and were accounted for as mezzanine equity. Upon issuance of Series A-1 and A-2 on January 5, 2018, the redemption right was removed and the Redeemable Ordinary Shares were reclassified from mezzanine equity to permanent equity.
406,900 Series A Preferred Shares issued to a shareholder on July 24, 2018, which were subdivided into 10,172,500 Class B ordinary shares with par value of US$0.00001 upon a 1:25 share split in March 2020, have redemption right upon certain redemption event and were accounted for as mezzanine equity. Upon issuance of Series B-1 and B-2 on August 1, 2018, the redemption right was removed and the Redeemable Ordinary Shares were reclassified from mezzanine equity to permanent equity.
21. Share-based Compensation
(a) Share options
From 2015 to 2019, the Group granted share options to the employees to purchase its shares. One share option represent a right to purchase one Class A ordinary share of the Group with exercise price of RMB0.0004. The share options include both service condition and performance condition. For service condition, there are three types of vesting schedule, which are: (i) 25% of the share options shall become vested on each anniversary of the vesting commencement date for four years thereafter; (ii) 40% of the share options shall become vested on the grant date and 15% of the share options become vested on each anniversary of the vesting commencement date for four years thereafter; (iii) 85% of the share options shall become vested on the grant date and 3.75% of the share options become vested on each anniversary of the vesting commencement date for four years thereafter . In addition to the services condition, employees are also required to provide continued service through the satisfaction of the occurrence of Liquidity Event that occurs within seven years after the vesting commencement date. If no Liquidity Event occurs prior to the seventh anniversary of the vesting commencement date, all share options, even those for which the service condition have been satisfied, shall be forfeited.
F-57
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(All amount in thousands, except for share and per share data, unless otherwise stated)
21. Share-based Compensation (continued)
(a) Share options (continued)
Activities of the Groups share options during the years ended December 31, 2018 and 2019 were as follow:
Number of
Options Outstanding |
Weighted
Average Exercise Price |
Weighted
Average Remaining Contractual Life In Years |
||||||||||
RMB | ||||||||||||
Outstanding as of December 31, 2017 |
31,472,750 | 0.0004 | 5.72 | |||||||||
Granted |
44,706,900 | 0.0004 | ||||||||||
Forfeited |
(1,088,010 | ) | ||||||||||
Outstanding as of December 31, 2018 |
75,091,640 | 0.0004 | 5.56 | |||||||||
Granted |
23,599,310 | 0.0004 | ||||||||||
Forfeited |
(7,552,250 | ) | ||||||||||
Outstanding as of December 31, 2019 |
91,138,700 | 0.0004 | 4.98 | |||||||||
Expected to vest as of December 31, 2019 |
83,640,868 |
No share-based compensation expenses was recognized for share options during the years ended December 31, 2018 and 2019. As of December 31, 2018 and 2019, there were RMB183,244 and RMB342,683 of unrecognized share-based compensation expenses in relation to the share options granted to the Groups employees, out of which, unrecognized share-based compensation expenses of RMB58,176 and RMB86,205 in relation to share options for which the service condition had been met and are expected to be recognized when the performance condition is achieved.
The fair value of each share options granted was estimated on the date of each grant using the Binomial option-pricing model with the assumptions (or ranges thereof) in the following table:
For the year ended December 31, | ||||||||
2018 | 2019 | |||||||
Expected term (years) |
7 | 7 | ||||||
Exercise price (RMB) |
0.0004 | 0.0004 | ||||||
Fair value of the ordinary shares on the date of option grant (RMB) |
2.51 ~ 8.08 | 8.36 ~ 8.60 | ||||||
Risk-free interest rate |
3.03% ~ 3.68% | 2.66% ~ 3.31% | ||||||
Expected dividend yield |
0.00% | 0.00% | ||||||
Expected volatility |
34.28% ~ 34.39% | 33.32% ~ 33.56% |
Notes:
(i) The risk-free interest rate of periods within the contractual life of the share option based on the market yield of US Treasury Curve adjusted with the China country risk premium.
(ii) The dividend yield was estimated by the Company based on its expected dividend policy over the contractual term of the options.
(iii) The volatility of the underlying ordinary shares during the life of the options was estimated based on the historical stock price volatility of comparable listed companies over a period comparable to the contractual term of the options.
(iv) Expected term is the contract life of the options.
F-58
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(All amount in thousands, except for share and per share data, unless otherwise stated)
21. Share-based Compensation (continued)
(b) Restricted shares
On May 7, 2016, two co-founders entered into an arrangement with other investors of the Company, and 75% of their 80,000,000 ordinary shares (Restricted Shares) would be subject to requisite service conditions, which shall vest 25%, 25% and 25% in 2016, 2017 and 2018.
On January 5, 2018, two co-founders entered into an arrangement with other investors of the Company, and the number of Restricted Shares is modified to one-third of their ordinary shares held as of January 5, 2018, which is 26,666,675 shares. 50% of the Restricted Shares shall become vested on each anniversary of January 5, 2018 for 2 years thereafter.
As of January 5, 2018, only 50% of the Restricted Shares, which is 40,000,000 shares, were vested. Before the modification, there were 40,000,000 unvested Restricted Shares, among which 20,000,000 Restricted Shares to be vested on January 9, 2018 and 20,000,000 Restricted Shares to be vested on January 8, 2019. Upon the modification, there were 26,666,675 unvested Restricted Shares, and each 13,333,325 Restricted Shares to be vested on January 5, 2019 and January 5, 2020, respectively. There were effectively two modification in the arrangement. Since the Restricted Shares after modification are still subject to the service condition, excess of the fair value of the modified awards over the fair value of the original awards immediately before the terms are modified at the modification date is considered immaterial. For the reduction of 13,333,325 shares, which is the difference of unvested 40,000,000 shares and 26,666,675 shares, it is effectively a modification to shorten the requisite service period ending from January 9, 2018 to January 5, 2018. Share-based compensation expenses was recognized immediately. Given there is no future requisite service period for the 13,333,325 shares, there is no incremental expense to be further recognized. For the remaining 26,666,675 unvested Restricted Shares, the requisite service period was extended. Unrecognized share-based compensation expenses was recognized over the remaining two years of modified requisite service period.
On March 26, 2018, two co-founders entered into an arrangement with other investors of the Company, and Restricted Shares would be subject to requisite service conditions. 50% of the Restricted Shares shall become vested on each anniversary of January 1, 2018 for 2 years thereafter. Pursuant to the arrangement, the vesting commencement date is changed from January 5, 2018 to January 1, 2018, it is effectively a modification to shorten the requisite service period. Share-based compensation expenses was recognized over the modified requisite service period.
Vesting schedule of the Restricted Shares during the years ended December 31, 2018 and 2019 was as follow:
Number of shares |
Weighted average grant
date fair value |
|||||||
RMB | ||||||||
Unvested as of December 31, 2017 |
40,000,000 | 10.16 | ||||||
Vested |
(26,666,675 | ) | | |||||
|
|
|
|
|||||
Unvested as of December 31, 2018 |
13,333,325 | 10.16 | ||||||
Vested |
(13,333,325 | ) | | |||||
|
|
|
|
|||||
Unvested as of December 31, 2019 |
| | ||||||
|
|
|
|
Share-based compensation amounted to RMB1,630 and RMB517 in relation to the Restricted Shares was recognized during years ended December 31, 2018 and 2019, respectively.
F-59
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(All amount in thousands, except for share and per share data, unless otherwise stated)
22. Taxation
(a) Income taxes
Cayman Islands
Under the current laws of the Cayman Islands, the Company is not subject to tax on either income or capital gain. Additionally, upon payments of dividends to the shareholders, no Cayman Islands withholding tax will be imposed.
BVI
XPeng Limited is exempted from income tax on its foreign-derived income in the BVI. There are no withholding taxes in the BVI.
Hong Kong
Under the current Hong Kong Inland Revenue Ordinance, the subsidiaries of the Group incorporated in Hong Kong are subject to 16.5% Hong Kong profit tax on their taxable income generated from operations in Hong Kong. Additionally, payments of dividends by the subsidiaries incorporated in Hong Kong to the Company are not subject to any Hong Kong withholding tax.
United States
The applicable income tax rate of United States where the Companys subsidiaries having significant operations for the years ended December 31, 2018 and 2019 is 27.98%, which is a blended state and federal rate.
PRC
The PRC Enterprise Income Tax Law (EIT Law), which became effective on January 1, 2008, applies a uniform enterprise income tax (EIT) rate of 25% to both foreign-invested enterprises (FIEs) and domestic enterprises. Certified High and New Technology Enterprises (HNTE) are entitled to a favorable statutory tax rate of 15%, but need to re-apply every three years. During this three-year period, an HNTE must conduct a qualification self-review each year to ensure it meets the HNTE criteria and is eligible for the 15% preferential tax rate for that year. If an HNTE fails to meet the criteria for qualification as an HNTE in any year, the enterprise cannot enjoy the 15% preferential tax rate in that year, and must instead use the regular 25% EIT rate.
Xiaopeng Technology applied for the HNTE qualification and received approval in December 2019. Xiaopeng Technology is entitled to continue to enjoy the beneficial tax rate of 15% as an HNTE for the years 2019 through 2021.
Under the EIT Law enacted by the National Peoples Congress of the PRC, dividends generated after January 1, 2008 and payable by a foreign investment enterprise in the PRC to its foreign investors who are non-resident enterprises are subject to a 10% withholding tax, unless any such foreign investors jurisdiction of incorporation has a tax treaty with the PRC that provides for a different withholding arrangement. Under the taxation arrangement between the PRC and Hong Kong, a qualified Hong Kong tax resident which is the beneficial owner and directly holds 25% or more of the equity interest in a PRC resident enterprise is entitled to a reduced withholding tax rate of 5%. The Cayman Islands, where the Company was incorporated, does not have a tax treaty with the PRC.
F-60
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(All amount in thousands, except for share and per share data, unless otherwise stated)
22. Taxation (continued)
(a) Income taxes (continued)
PRC (continued)
In accordance with accounting guidance, all undistributed earnings are presumed to be transferred to the parent company and are subject to the withholding taxes. All FIEs are subject to the withholding tax from January 1, 2008. The presumption may be overcome if the Group has sufficient evidence to demonstrate that the undistributed dividends will be re-invested and the remittance of the dividends will be postponed indefinitely. The Group did not record any dividend withholding tax, as it has no retained earnings for any of the years presented.
The EIT Law also provides that an enterprise established under the laws of a foreign country or region but whose de facto management body is located in the PRC be treated as a resident enterprise for PRC tax purposes and consequently be subject to the PRC income tax at the rate of 25% for its global income. The Implementing Rules of the EIT Law merely define the location of the de facto management body as the place where the exercising, in substance, of the overall management and control of the production and business operation, personnel, accounting, properties, etc., of a non-PRC company is located. Based on a review of surrounding facts and circumstances, the Group does not believe that it is likely that its operations outside of the PRC will be considered a resident enterprise for PRC tax purposes. However, due to limited guidance and implementation history of the EIT Law, there is uncertainty as to the application of the EIT Law. Should the Company be treated as a resident enterprise for PRC tax purposes, the Company will be subject to PRC income tax on worldwide income at a uniform tax rate of 25%.
According to a policy promulgated by the State Tax Bureau of the PRC and effective from 2008 onwards, enterprises engaged in R&D activities are entitled to claim an additional tax deduction amounting to 50% of the qualified R&D expenses incurred in determining its tax assessable profits for that year. The additional tax deduction amount of the qualified R&D expenses has been increased from 50% to 75%, effective from 2018 to 2020, according to a new tax incentives policy promulgated by the State Tax Bureau of the PRC in September 2018 (Super Deduction).
Composition of income tax expenses for the periods presented are as follows:
Year Ended
December 31, |
||||||||
2018 | 2019 | |||||||
Current income tax expenses |
| 1 | ||||||
Deferred income tax expenses |
| | ||||||
|
|
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|
|||||
Income tax expenses |
| 1 | ||||||
|
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|
|
F-61
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(All amount in thousands, except for share and per share data, unless otherwise stated)
22. Taxation (continued)
(a) Income taxes (continued)
PRC (continued)
Reconciliations of the income tax expenses computed by applying the PRC statutory income tax rate of 25% to the Groups income tax expenses of the years presented are as follows:
Year Ended December 31, | ||||||||
2018 | 2019 | |||||||
Loss before income tax expenses |
(1,398,823 | ) | (3,691,672 | ) | ||||
Income tax expenses computed at the PRC statutory income tax rate of 25% |
(349,706 | ) | (922,918 | ) | ||||
Effect of tax holiday |
| 271,242 | ||||||
Effect of change in tax rate |
| 213,331 | ||||||
Effect of different tax rate of different jurisdictions |
(64,793 | ) | (9,853 | ) | ||||
Effect of additional deduction for qualified R&D expenses |
(127,329 | ) | (236,704 | ) | ||||
Non-deductible expenses |
1,421 | 2,050 | ||||||
Changes in valuation allowance |
540,407 | 682,853 | ||||||
|
|
|
|
|||||
Income tax expenses |
| 1 | ||||||
|
|
|
|
|||||
Effect of tax holiday inside the PRC on basic and dilutive loss per share |
| | ||||||
|
|
|
|
The PRC statutory income tax rate is used because the majority of the Groups operations are based in the PRC.
(b) Deferred tax
The Group considers positive and negative evidence to determine whether some portion or all of the deferred tax assets will be more-likely-than-not realized. This assessment considers, among other matters, the nature, frequency and severity of recent losses and forecasts of future profitability. These assumptions require significant judgment and the forecasts of future taxable income are consistent with the plans and estimates the Group is using to manage the underlying business. The statutory income tax rate of 25% or applicable preferential income tax rates were applied when calculating deferred tax assets.
December 31, | ||||||||
2018 | 2019 | |||||||
Deferred tax assets: |
||||||||
Net operating loss carry-forwards |
594,035 | 1,256,218 | ||||||
Deferred revenue |
| 9,168 | ||||||
Impairment of property, plant and equipment |
| 11,878 | ||||||
Government grants |
| 11,579 | ||||||
Impairment of inventory |
| 27,341 | ||||||
Advertising expenses in excess of deduction limit |
31,562 | 65 | ||||||
Accruals and others |
32,494 | 24,695 | ||||||
Valuation allowance |
(658,091 | ) | (1,340,944 | ) | ||||
|
|
|
|
|||||
Total deferred tax assets, net |
| | ||||||
|
|
|
|
F-62
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(All amount in thousands, except for share and per share data, unless otherwise stated)
22. Taxation (continued)
(b) Deferred tax (continued)
Full valuation allowances have been provided where, based on all available evidence, management determined that deferred tax assets are not more likely than not to be realizable in future tax years. Movement of valuation allowance is as follow:
Year Ended
December 31, |
||||||||
2018 | 2019 | |||||||
Valuation allowance |
||||||||
Balance at beginning of the year |
117,684 | 658,091 | ||||||
Additions |
545,605 | 901,491 | ||||||
Loss utilized |
(5,198 | ) | (5,307 | ) | ||||
Effect of change in tax rate |
| (213,331 | ) | |||||
|
|
|
|
|||||
Balance at end of the year |
658,091 | 1,340,944 | ||||||
|
|
|
|
For the year ended December 31, 2018 and 2019, with the growth of its business performance, some subsidiaries of the Group making profit and utilized the tax loss brought forward from prior years.
The Group has tax losses arising in Mainland PRC of RMB7,234,183 that will expire in one to ten years for deduction against future taxable profit.
Loss expiring in 2021 |
35,077 | |||
Loss expiring in 2022 |
12,866 | |||
Loss expiring in 2023 |
201,868 | |||
Loss expiring in 2024 |
896,052 | |||
Loss expiring in 2026 |
75,970 | |||
Loss expiring in 2027 |
310,939 | |||
Loss expiring in 2028 |
1,584,160 | |||
Loss expiring in 2029 |
4,117,251 | |||
|
|
|||
Total |
7,234,183 | |||
|
|
The Group has tax losses arising in the United States and Hong Kong of RMB221,780 that will not expire for deduction against future taxable profit.
United States |
196,793 | |||
Hong Kong |
24,987 | |||
|
|
|||
Total |
221,780 | |||
|
|
Uncertain Tax Position
The Group did not identify any significant unrecognized tax benefits for the years ended December 31, 2018 and 2019. The Group did not incur any interest related to unrecognized tax benefits, did not recognize any penalties as income tax expenses and also does not anticipate any significant change in unrecognized tax benefits within 12 months from December 31, 2019.
F-63
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(All amount in thousands, except for share and per share data, unless otherwise stated)
23. Loss Per Share
Basic loss per share and diluted loss per share have been calculated in accordance with ASC 260 on computation of earnings per share for the years ended December 31, 2018 and 2019 as follows:
Year Ended December 31, | ||||||||
2018 | 2019 | |||||||
Numerator: |
||||||||
Net loss |
(1,398,823 | ) | (3,691,673 | ) | ||||
Accretion on Preferred Shares to redemption value |
(705,329 | ) | (961,050 | ) | ||||
Deemed dividend due to extinguishment of Preferred Shares |
(43,136 | ) | | |||||
Deemed dividend due to modification of Preferred Shares |
(41,485 | ) | | |||||
Deemed contribution from repurchase of Preferred Shares |
| 9,969 | ||||||
Deemed dividend due to reclassification from mezzanine equity to ordinary shares upon extinguishment of Redeemable Shares |
(66,091 | ) | | |||||
|
|
|
|
|||||
Net loss attributable to ordinary shareholders of XPeng Inc. |
(2,254,864 | ) | (4,642,754 | ) | ||||
|
|
|
|
|||||
Denominator: |
||||||||
Weighted average number of ordinary shares outstanding-basic and diluted |
330,176,070 | 349,450,580 | ||||||
|
|
|
|
|||||
Basic and diluted net loss per share attributable to ordinary shareholders of XPeng Inc. |
(6.83 | ) | (13.29 | ) | ||||
|
|
|
|
For the years ended December 31, 2018 and 2019, the Company had potential ordinary shares, including non-vested restricted shares, share options granted and Preferred Shares. As the Group incurred losses for the years ended December 31, 2018 and 2019, these potential ordinary shares were anti-dilutive and excluded from the calculation of diluted net loss per share of the Company. The weighted-average numbers of non-vested share options excluded from the calculation of diluted net loss per share of the Company were 78,834,504 as of December 31, 2018 and 100,442,575 as of December 31, 2019. The weighted-average numbers of non-vested restricted shares excluded from the calculation of diluted net loss per share of the Company were 13,333,325 as of December 31, 2018 and nil as of December 31, 2019. Preferred Shares to be converted into ordinary shares were 352,122,730 as of December 31, 2018 and 500,059,108 as of December 31, 2019 on a weighted average basis.
24. Related parties
The principal related parties with which the Group had transactions during the year presented are as follows:
Name of Entity or Individual |
Relationship with the Company |
|
Mr. Xiaopeng He | Principal Shareholder of the Company, Chairman of the Board and Chief Executive Officer | |
Alibaba Group | Principal Shareholder |
F-64
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(All amount in thousands, except for share and per share data, unless otherwise stated)
24. Related parties (continued)
Transaction with related parties:
Year Ended
December 31, |
||||||||
2018 | 2019 | |||||||
Operation support services provided by Alibaba Group |
2,525 | 24,522 | ||||||
|
|
|
|
|||||
2,525 | 24,522 | |||||||
|
|
|
|
Year Ended
December 31, |
||||||||
2018 | 2019 | |||||||
Amount due from related parties consisted of the following: |
||||||||
Mr. Xiaopeng He |
20,425 | 20,425 | ||||||
Alibaba Group |
6,531 | 2,180 | ||||||
|
|
|
|
|||||
Total |
26,956 | 22,605 | ||||||
|
|
|
|
|||||
Amount due to a related party consisted of the following: |
||||||||
Alibaba Group |
| 678 | ||||||
|
|
|
|
|||||
Total |
| 678 | ||||||
|
|
|
|
Amount due from a related party represents the deposit and prepayment paid on behalf of Mr. Xiaopeng He, a principal shareholder of the Company, Chairman of the Board and Chief Executive Officer.
25. Commitments and Contingencies
(a) Capital commitments
Capital expenditures contracted for at the balance sheet dates but not recognized in the consolidated financial statements are as follows:
December 31, | ||||||||
2018 | 2019 | |||||||
Property, plant and equipment |
740,482 | 160,844 | ||||||
|
|
|
|
|||||
Investments (Note 26(c)) |
| 410,000 | ||||||
|
|
|
|
26. Subsequent events
(a) The Impact of COVID-19
Starting from January 2020, it was reported that a novel strain of coronavirus, later named COVID-19, spread worldwide. In an effort to halt the outbreak, the PRC government placed significant restrictions on travel within China and closed certain businesses.
F-65
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(All amount in thousands, except for share and per share data, unless otherwise stated)
26. Subsequent events (continued)
(a) The Impact of COVID-19 (continued)
The COVID-19 has impact on Chinas auto industry in general and the production and delivery of vehicles of the Group. While the Group has resumed normal business operations, the Group has experienced certain disruptions in its operations as a result of the government imposed suspensions due to COVID-19 outbreak in China. A substantial number of its offices and stores, as well as both of its manufacturing facilities, were closed for certain periods in February and March of 2020. Furthermore, as the Group orders certain components with some lead time and keeps an inventory of such components, the outbreak may affect future delivery of components from certain suppliers that are currently suspended in production. In addition, the Group incurred additional costs relating to the delivery of new smart EVs to customers homes, mask donations to its customers, technology advancement for remote working arrangements and OTA upgrades.
As a result of the outbreak of COVID-19, the Groups business, results of operation, financial position and cash flows were adversely affected in the first quarter of 2020 with potential continuing impact on subsequent periods, including but not limited to the adverse impact on the Groups revenues and operating cash flows. The extent to which COVID-19 impacts the business and financial results of the Group in the longer term will depend on future developments, which are uncertain and cannot be predicted, including new information which may emerge concerning the severity of the coronavirus and the actions to contain the coronavirus or treat its impact, among others. The Group will continue to evaluate the impact on the results of operation, financial position and cash flows of the Group and react actively as the situation evolves.
(b) Issuance of Series C Preferred Shares
On April 10, 2020, the Company issued 26,137,425 Series C Preferred Shares for a consideration of US$98,519. On May 11, 2020, the Company issued 795,907 Series C Preferred Shares for a consideration of US$3,000. On May 26, 2020, the Company issued 318,363 Series C Preferred Shares for a consideration of US$1,200.
(c) Acquisition of a Company that holds a manufacturing license
In March 2020, the Group entered into a framework agreement with a company to acquire its 100% equity interest (the Transaction) for a total cash consideration of approximately RMB500 million. Through a series of transactions, the Group will only ultimately obtain the manufacturing license that will enable them to manufacture their own vehicles or components.
(d) Loans from a shareholder
In February and March, 2020, the Company received shareholder loans from Mr. Xiaopeng He with principal amounts of US$150,000, subject to a interest rate of three months LIBOR plus 190 BPS per annum, with the maturity of six months. The loans have been repaid subsequently on March 13, 2020, April 8, 2020 and April 30, 2020.
27. Company Financial Statements
The Company performed a test on the restricted net assets of its consolidated subsidiaries and VIEs in accordance with Securities and Exchange Commission Regulation S-X Rule 4-08 (e) (3), General Notes to Financial Statements and concluded that it was applicable for the Company to disclose the financial information for the Company only.
F-66
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(All amount in thousands, except for share and per share data, unless otherwise stated)
27. Company Financial Statements (continued)
The subsidiaries did not pay any dividend to the Company for the years presented. Certain information and footnote disclosures generally included in financial statements prepared in accordance with U.S. GAAP have been condensed and omitted. The footnote disclosures contain supplemental information relating to the operations of the Company, as such, these statements are not the general-purpose financial statements of the reporting entity and should be read in conjunction with the notes to the consolidated financial statements of the Company.
The Company did not have significant capital and other commitments, or guarantees as of December 31, 2019.
Condensed Balance Sheets | As of December 31, | |||||||||||
2018 | 2019 | 2019 | ||||||||||
RMB | RMB |
US$
Note 2(e) |
||||||||||
ASSETS |
||||||||||||
Current assets |
||||||||||||
Cash and cash equivalents |
| 269,169 | 38,098 | |||||||||
|
|
|
|
|
|
|||||||
Total current assets |
| 269,169 | 38,098 | |||||||||
|
|
|
|
|
|
|||||||
Non-current assets |
||||||||||||
Investments in subsidiaries and VIEs |
5,431,263 | 3,490,970 | 494,118 | |||||||||
|
|
|
|
|
|
|||||||
Total non-current assets |
5,431,263 | 3,490,970 | 494,118 | |||||||||
|
|
|
|
|
|
|||||||
Total assets |
5,431,263 | 3,760,139 | 532,216 | |||||||||
|
|
|
|
|
|
|||||||
Liabilities |
||||||||||||
Non-current liabilities |
||||||||||||
Derivative liabilities |
637,015 | 897,091 | 126,978 | |||||||||
|
|
|
|
|
|
|||||||
Total non-current liabilities |
637,015 | 897,091 | 126,978 | |||||||||
|
|
|
|
|
|
|||||||
Total liabilities |
637,015 | 897,091 | 126,978 | |||||||||
|
|
|
|
|
|
F-67
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(All amount in thousands, except for share and per share data, unless otherwise stated)
27. Company Financial Statements (continued)
Condensed Balance Sheets | As of December 31, | |||||||||||||||
Note | 2018 | 2019 | 2019 | |||||||||||||
RMB | RMB |
US$
Note 2(e) |
||||||||||||||
MEZZANINE EQUITY |
||||||||||||||||
Series A Preferred Shares |
532,353 | 597,559 | 84,579 | |||||||||||||
Series A-1 Preferred Shares |
498,581 | 559,654 | 79,214 | |||||||||||||
Series A-2 Preferred Shares |
108,002 | 121,257 | 17,163 | |||||||||||||
Series B Preferred Shares |
2,274,403 | 2,562,098 | 362,641 | |||||||||||||
Series B-1 Preferred Shares |
2,685,499 | 3,080,443 | 436,008 | |||||||||||||
Series B-2 Preferred Shares |
880,635 | 952,068 | 134,756 | |||||||||||||
Series C Preferred Shares |
| 1,820,399 | 257,661 | |||||||||||||
|
|
|
|
|
|
|||||||||||
Total mezzanine equity |
6,979,473 | 9,693,478 | 1,372,022 | |||||||||||||
|
|
|
|
|
|
|||||||||||
SHAREHOLDERS DEFICIT |
||||||||||||||||
Ordinary shares |
20 | 21 | | | ||||||||||||
Class A Ordinary shares |
| 2 | | |||||||||||||
Class B Ordinary shares |
| 19 | 3 | |||||||||||||
Accumulated deficit |
(2,182,266 | ) | (6,824,503 | ) | (965,946 | ) | ||||||||||
Accumulated other comprehensive loss |
(2,980 | ) | (5,948 | ) | (841 | ) | ||||||||||
|
|
|
|
|
|
|||||||||||
Total shareholders deficit |
(2,185,225 | ) | (6,830,430 | ) | (966,784 | ) | ||||||||||
|
|
|
|
|
|
|||||||||||
Total liabilities, mezzanine equity and shareholders deficit |
5,431,263 | 3,760,139 | 532,216 | |||||||||||||
|
|
|
|
|
|
F-68
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(All amount in thousands, except for share and per share data, unless otherwise stated)
27. Company Financial Statements (continued)
Condensed Statements of Comprehensive Loss | Year Ended December 31, | |||||||||||||||
Note | 2018 | 2019 | 2019 | |||||||||||||
RMB | RMB |
US$ Note 2(e) |
||||||||||||||
Operating expenses |
||||||||||||||||
Selling, general and administrative expenses |
(1,630 | ) | (517 | ) | (73 | ) | ||||||||||
|
|
|
|
|
|
|||||||||||
Total operating expenses |
(1,630 | ) | (517 | ) | (73 | ) | ||||||||||
|
|
|
|
|
|
|||||||||||
Loss from operations |
(1,630 | ) | (517 | ) | (73 | ) | ||||||||||
Interest income |
| 1,140 | 161 | |||||||||||||
Equity in loss of subsidiaries and VIEs |
(1,651,554 | ) | (3,719,975 | ) | (526,529 | ) | ||||||||||
Fair value gain on derivative liabilities |
254,361 | 27,679 | 3,918 | |||||||||||||
|
|
|
|
|
|
|||||||||||
Loss before income tax expenses |
(1,398,823 | ) | (3,691,673 | ) | (522,523 | ) | ||||||||||
|
|
|
|
|
|
|||||||||||
Income tax expenses |
| | | |||||||||||||
|
|
|
|
|
|
|||||||||||
Net loss |
(1,398,823 | ) | (3,691,673 | ) | (522,523 | ) | ||||||||||
|
|
|
|
|
|
|||||||||||
Accretion on Preferred Shares to redemption value |
(705,329 | ) | (961,050 | ) | (136,028 | ) | ||||||||||
Deemed dividend due to extinguishment of Preferred Shares |
(43,136 | ) | | | ||||||||||||
Deemed dividend due to modification of Preferred Shares |
(41,485 | ) | | | ||||||||||||
Deemed dividend due to reclassification from mezzanine equity to ordinary shares upon extinguishment of Redeemable Shares |
(66,091 | ) | | | ||||||||||||
Deemed contribution from repurchase of Preferred Shares |
| 9,969 | 1,411 | |||||||||||||
|
|
|
|
|
|
|||||||||||
Net loss attributable to ordinary shareholders of XPeng Inc. |
(2,254,864 | ) | (4,642,754 | ) | (657,140 | ) | ||||||||||
|
|
|
|
|
|
|||||||||||
Other comprehensive loss |
||||||||||||||||
Foreign currency translation adjustment, net of nil tax |
(2,980 | ) | (2,968 | ) | (420 | ) | ||||||||||
|
|
|
|
|
|
|||||||||||
Total comprehensive loss attributable to XPeng Inc. |
(1,401,803 | ) | (3,694,641 | ) | (522,943 | ) | ||||||||||
|
|
|
|
|
|
|||||||||||
Accretion on Preferred Shares to redemption value |
(705,329 | ) | (961,050 | ) | (136,028 | ) | ||||||||||
Deemed dividend due to extinguishment of Preferred Shares |
(43,136 | ) | | | ||||||||||||
Deemed dividend due to modification of Preferred Shares |
(41,485 | ) | | | ||||||||||||
Deemed dividend due to reclassification from mezzanine equity to ordinary shares upon extinguishment of Redeemable Shares |
(66,091 | ) | | | ||||||||||||
Deemed contribution from repurchase of Preferred Shares |
| 9,969 | 1,411 | |||||||||||||
|
|
|
|
|
|
|||||||||||
Comprehensive loss attributable to ordinary shareholders of XPeng Inc. |
(2,257,844 | ) | (4,645,722 | ) | (657,560 | ) | ||||||||||
|
|
|
|
|
|
Consolidated Statements of Cash Flows | Year Ended December 31, | |||||||||||
2018 | 2019 | 2019 | ||||||||||
RMB | RMB |
US$
Note 2(e) |
||||||||||
Cash flows from operating activities |
| 1,140 | 160 | |||||||||
|
|
|
|
|
|
|||||||
Cash flows from investing activities |
||||||||||||
Acquisitions of equity investees |
| (1,658,783 | ) | (234,785 | ) | |||||||
|
|
|
|
|
|
|||||||
Net cash used in investing activities |
| (1,658,783 | ) | (234,785 | ) | |||||||
Cash flows from financing activities |
||||||||||||
Proceeds from issuance of Preferred Shares |
| 1,926,812 | 272,723 | |||||||||
|
|
|
|
|
|
|||||||
Net cash provided by financing activities |
| 1,926,812 | 272,723 | |||||||||
Net increase in cash, cash equivalents and restricted cash |
| 269,169 | 38,098 | |||||||||
Cash, cash equivalents and restricted cash at beginning of the year |
| | | |||||||||
|
|
|
|
|
|
|||||||
Cash, cash equivalents and restricted cash at end of the year |
| 269,169 | 38,098 | |||||||||
|
|
|
|
|
|
F-69
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(All amount in thousands, except for share and per share data, unless otherwise stated)
27. Company Financial Statements (continued)
Basis of presentation
The Companys accounting policies are the same as the Groups accounting policies with the exception of the accounting for the investments in subsidiaries and VIEs.
For the Company only condensed financial information, the Company records its investments in subsidiaries and VIEs under the equity method of accounting as prescribed in ASC 323, InvestmentsEquity Method and Joint Ventures.
Such investments are presented on the Condensed Balance Sheets as Investments in subsidiaries and VIEs and shares in the subsidiaries and VIEs loss are presented as Equity in loss of subsidiaries and VIEs on the Condensed Statements of Comprehensive Loss. The parent company only condensed financial information should be read in conjunction with the Groups consolidated financial statements.
28. Unaudited pro forma loss per share for conversion of preferred shares
Pursuant to the Companys memorandum and articles of association, the Companys Series A, Series A-1, Series A-2, Series B, Series B-1, Series B-2 and Series C Preferred Shares will be automatically converted into ordinary shares upon the closing of a qualified IPO.
The following table sets forth the computation of unaudited pro forma basic and diluted net loss per share for the year ended December 31, 2019 after giving effect to the assumption that all Series A-1, Series A-2, Series B, Series B-1, Series B-2 and Series C have been converted into ordinary shares as if the conversion occurred as of the beginning of the period or the original date of issuance, if later:
Year Ended
December 31, 2019 |
||||
Numerator: |
||||
Net loss attributable to ordinary shareholders |
(4,642,754 | ) | ||
Pro forma effect of conversion of Series A, Series A-1, Series A-2, Series B, Series B-1, Series B-2 and Series C Preferred Shares |
||||
Accretion on Preferred Shares to redemption value |
961,050 | |||
Deemed contribution from repurchase of Preferred Shares |
(9,969 | ) | ||
Fair value gain on derivative liabilities |
(27,679 | ) | ||
|
|
|||
Pro forma net loss attributable to ordinary shareholdersbasic and diluted |
(3,719,352 | ) | ||
Denominator: |
||||
Denominator for basic calculationweighted average number of ordinary shares outstanding |
349,450,580 | |||
Pro forma effect of conversion of Series A, Series A-1, Series A-2, Series B, Series B-1, Series B-2 and Series C Preferred Shares |
500,059,108 | |||
|
|
|||
Denominator for pro forma basic and diluted calculation |
849,509,688 | |||
Pro forma basic and diluted net loss per share attributable to ordinary shareholders |
(4.38 | ) |
F-70
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
AS OF DECEMBER 31, 2019 AND JUNE 30, 2020
(All amounts in thousands, except for share and per share data)
As of December 31, | As of June 30, | Pro forma As of June 30, | ||||||||||||||||||||
Note | 2019 | 2020 | 2020 | 2020 | 2020 | |||||||||||||||||
RMB | RMB | US$ | RMB | US$ | ||||||||||||||||||
Note 2(d) | (Note 25) | Note 2(d) | ||||||||||||||||||||
ASSETS |
||||||||||||||||||||||
Current assets |
||||||||||||||||||||||
Cash and cash equivalents |
2(f) | 1,946,931 | 1,061,209 | 150,204 | 1,061,209 | 150,204 | ||||||||||||||||
Restricted cash |
2(g) | 460,812 | 834,099 | 118,059 | 834,099 | 118,059 | ||||||||||||||||
Short-term investments |
407,844 | 223,173 | 31,588 | 223,173 | 31,588 | |||||||||||||||||
Accounts receivable, net |
539,199 | 692,099 | 97,960 | 692,099 | 97,960 | |||||||||||||||||
Current portion of finance lease receivables, net |
45,836 | 55,291 | 7,826 | 55,291 | 7,826 | |||||||||||||||||
Inventory |
6 | 454,116 | 774,062 | 109,561 | 774,062 | 109,561 | ||||||||||||||||
Amounts due from related parties |
22 | 22,605 | 4,684 | 663 | 4,684 | 663 | ||||||||||||||||
Prepayments and other current assets |
7 | 1,083,307 | 1,023,967 | 144,931 | 1,023,967 | 144,931 | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total current assets |
4,960,650 | 4,668,584 | 660,792 | 4,668,584 | 660,792 | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Non-current assets |
||||||||||||||||||||||
Property, plant and equipment, net |
8 | 3,229,952 | 3,218,922 | 455,609 | 3,218,922 | 455,609 | ||||||||||||||||
Right-of-use assets |
440,097 | 401,569 | 56,838 | 401,569 | 56,838 | |||||||||||||||||
Intangible assets, net |
9 | 117,932 | 613,443 | 86,827 | 613,443 | 86,827 | ||||||||||||||||
Land use rights, net |
10 | 255,257 | 252,596 | 35,753 | 252,596 | 35,753 | ||||||||||||||||
Finance lease receivables, net |
109,965 | 111,723 | 15,813 | 111,723 | 15,813 | |||||||||||||||||
Other non-current assets |
11 | 137,512 | 57,032 | 8,073 | 57,032 | 8,073 | ||||||||||||||||
Long-term investments |
| 1,000 | 142 | 1,000 | 142 | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total non-current assets |
4,290,715 | 4,656,285 | 659,055 | 4,656,285 | 659,055 | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total assets |
9,251,365 | 9,324,869 | 1,319,847 | 9,324,869 | 1,319,847 | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
F-71
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
AS OF DECEMBER 31, 2019 AND JUNE 30, 2020 (CONTINUED)
(All amounts in thousands, except for share and per share data)
As of December 31, | As of June 30, | Pro forma As of June 30, | ||||||||||||||||||||
Note | 2019 | 2020 | 2020 | 2020 | 2020 | |||||||||||||||||
RMB | RMB | US$ | RMB | US$ | ||||||||||||||||||
Note 2(d) | (Note 25) | Note 2(d) | ||||||||||||||||||||
LIABILITIES |
||||||||||||||||||||||
Current liabilities |
||||||||||||||||||||||
Short-term borrowings |
13 | 419,950 | 277,465 | 39,273 | 277,465 | 39,273 | ||||||||||||||||
Accounts and notes payable |
953,946 | 1,583,631 | 224,148 | 1,583,631 | 224,148 | |||||||||||||||||
Amounts due to related parties |
22 | 678 | 5,535 | 783 | 5,535 | 783 | ||||||||||||||||
Current portion of lease liabilities |
90,740 | 89,508 | 12,669 | 89,508 | 12,669 | |||||||||||||||||
Current portion of deferred revenue |
16 | 16,382 | 42,915 | 6,074 | 42,915 | 6,074 | ||||||||||||||||
Current portion of long-term borrowings |
13 | 60,000 | 60,000 | 8,492 | 60,000 | 8,492 | ||||||||||||||||
Accruals and other liabilities |
12 | 1,755,995 | 2,077,261 | 294,016 | 2,077,261 | 294,016 | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total current liabilities |
3,297,691 | 4,136,315 | 585,455 | 4,136,315 | 585,455 | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Non-current liabilities |
||||||||||||||||||||||
Long-term borrowings |
13 | 1,690,000 | 1,689,980 | 239,201 | 1,689,980 | 239,201 | ||||||||||||||||
Lease liabilities |
361,404 | 327,747 | 46,390 | 327,747 | 46,390 | |||||||||||||||||
Deferred revenue |
16 | 69,116 | 71,634 | 10,139 | 71,634 | 10,139 | ||||||||||||||||
Derivative liabilities |
897,091 | 389,430 | 55,120 | | | |||||||||||||||||
Other non-current liabilities |
14 | 73,015 | 35,704 | 5,054 | 35,704 | 5,054 | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total non-current liabilities |
3,090,626 | 2,514,495 | 355,904 | 2,125,065 | 300,784 | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total liabilities |
6,388,317 | 6,650,810 | 941,359 | 6,261,380 | 886,239 | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Commitments and contingencies |
23 |
F-72
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
AS OF DECEMBER 31, 2019 AND JUNE 30, 2020 (CONTINUED)
(All amounts in thousands, except for share and per share data)
As of December 31, | As of June 30, | Pro forma As of June 30, | ||||||||||||||||||||||
Note | 2019 | 2020 | 2020 | 2020 | 2020 | |||||||||||||||||||
RMB | RMB | US$ | RMB | US$ | ||||||||||||||||||||
Note 2(d) | (Note 25) | Note 2(d) | ||||||||||||||||||||||
MEZZANINE EQUITY |
||||||||||||||||||||||||
Series A convertible redeemable preferred shares (Series A Preferred Shares) (US$0.00001 par value; 78,108,625 shares authorized, and 78,108,625 shares issued and outstanding as of December 31, 2019 and June 30, 2020; redemption value of RMB615,044 and RMB650,800 as of December 31, 2019 and June 30, 2020, respectively; nil shares (unaudited) outstanding on a pro forma basis as of June 30, 2020) |
17 | 597,559 | 646,702 | 91,535 | | | ||||||||||||||||||
Series A-1 convertible redeemable preferred shares (Series A-1 Preferred Shares) (US$0.00001 par value; 67,802,375 shares authorized, and 67,802,375 shares issued and outstanding as of December 31, 2019 and June 30, 2020; redemption value of RMB576,129 and RMB609,623 as of December 31, 2019 and June 30, 2020, respectively; nil shares (unaudited) outstanding on a pro forma basis as of June 30, 2020) |
17 | 559,654 | 605,798 | 85,745 | | | ||||||||||||||||||
Series A-2 convertible redeemable preferred shares (Series A-2 Preferred Shares) (US$0.00001 par value; 11,671,400 shares authorized, and 11,671,400 shares issued and outstanding as of December 31, 2019 and June 30, 2020; redemption value of RMB125,244 and RMB132,525 as of December 31, 2019 and June 30, 2020, respectively; nil shares (unaudited) outstanding on a pro forma basis as of June 30, 2020) |
17 | 121,257 | 131,447 | 18,605 | | | ||||||||||||||||||
Series B convertible redeemable preferred shares (Series B Preferred Shares) (US$0.00001 par value; 160,481,700 shares authorized, and 160,481,700 shares issued and outstanding as of December 31, 2019 and June 30, 2020; redemption value of RMB2,687,801 and RMB2,844,060 as of December 31, 2019 and June 30, 2020, respectively; nil shares (unaudited) outstanding on a pro forma basis as of June 30, 2020) |
17 | 2,562,098 | 2,800,502 | 396,385 | | | ||||||||||||||||||
Series B-1 convertible redeemable preferred shares (Series B-1 Preferred Shares) (US$0.00001 par value; 137,868,350 shares authorized, and 133,272,750 shares issued and outstanding as of December 31, 2019 and June 30, 2020; redemption value of RMB3,404,960 and RMB3,602,911 as of December 31, 2019 and June 30, 2020, respectively; nil shares (unaudited) outstanding on a pro forma basis as of June 30, 2020) |
17 | 3,080,443 | 3,473,274 | 491,610 | | | ||||||||||||||||||
Series B-2 convertible redeemable preferred shares (Series B-2 Preferred Shares) (US$0.00001 par value; 35,965,675 shares authorized, 35,965,675 shares issued and outstanding as of December 31, 2019 and June 30, 2020; redemption value of RMB1,056,715 and RMB1,118,147 as of December 31, 2019 and June 30, 2020, respectively; nil shares (unaudited) outstanding on a pro forma basis as of June 30, 2020) |
17 | 952,068 | 1,072,603 | 151,817 | | | ||||||||||||||||||
Series C convertible redeemable preferred shares (Series C Preferred Shares) (US$0.00001 par value; 265,302,225 shares authorized, 79,590,650 and 106,842,345 shares issued and outstanding as of December 31, 2019 and June 30, 2020, respectively; redemption value of RMB2,111,790 and RMB3,015,635 as of December 31, 2019 and June 30, 2020, respectively; nil shares (unaudited) outstanding on a pro forma basis as of June 30, 2020) |
17 | 1,820,399 | 2,868,176 | 405,964 | | | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
Total mezzanine equity |
9,693,478 | 11,598,502 | 1,641,661 | | | |||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
F-73
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
AS OF DECEMBER 31, 2019 AND JUNE 30, 2020 (CONTINUED)
(All amounts in thousands, except for share and per share data)
As of December 31, | As of June 30, | Pro forma As of June 30, | ||||||||||||||||||||
Note | 2019 | 2020 | 2020 | 2020 | 2020 | |||||||||||||||||
RMB | RMB | US$ | RMB | US$ | ||||||||||||||||||
Note 2(d) | (Note 25) | Note 2(d) | ||||||||||||||||||||
SHAREHOLDERS DEFICIT |
||||||||||||||||||||||
Class A Ordinary shares (US$0.00001 par value; 3,492,799,650 shares authorized, 131,955,575 and 82,505,470 shares issued, 31,513,000 outstanding as of December 31, 2019 and June 30, 2020, respectively; 416,083,020 shares (unaudited) outstanding on a pro forma basis as of June 30, 2020) |
18 | 2 | 2 | | 29 | 4 | ||||||||||||||||
Class B Ordinary shares (US$0.00001 par value, 750,000,000 shares authorized, 331,234,375 shares issued and outstanding as of December 31, 2019 and June 30, 2020, respectively; 411,781,350 shares (unaudited) outstanding on a pro forma basis as of June 30, 2020) |
18 | 19 | 19 | 3 | 25 | 4 | ||||||||||||||||
Class C Ordinary shares (US$0.00001 par value, nil shares authorized, issued and outstanding as of December 31, 2019 and June 30, 2020, respectively; 129,027,875 shares (unaudited) outstanding on a pro forma basis as of June 30, 2020) |
| | | 9 | 1 | |||||||||||||||||
Additional paid-in capital |
| | | 11,987,890 | 1,696,775 | |||||||||||||||||
Accumulated deficit |
(6,824,503 | ) | (8,903,117 | ) | (1,260,154 | ) | (8,903,117 | ) | (1,260,154 | ) | ||||||||||||
Accumulated other comprehensive loss |
(5,948 | ) | (21,347 | ) | (3,022 | ) | (21,347 | ) | (3,022 | ) | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total shareholders (deficit) equity |
(6,830,430 | ) | (8,924,443 | ) | (1,263,173 | ) | 3,063,489 | 433,608 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total liabilities, mezzanine equity and shareholders (deficit) equity |
9,251,365 | 9,324,869 | 1,319,847 | 9,324,869 | 1,319,847 | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
F-74
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
FOR THE SIX MONTHS ENDED JUNE 30, 2019 AND 2020
(All amounts in thousands, except for share and per share data)
For the six months ended June 30, | ||||||||||||||
Note | 2019 | 2020 | 2020 | |||||||||||
RMB | RMB | US$ | ||||||||||||
Note 2(d) | ||||||||||||||
Revenues |
||||||||||||||
Vehicle sales |
15 | 1,197,499 | 913,269 | 129,265 | ||||||||||
Services and others |
15 | 33,993 | 89,581 | 12,679 | ||||||||||
|
|
|
|
|
|
|||||||||
Total revenues |
1,231,492 | 1,002,850 | 141,944 | |||||||||||
|
|
|
|
|
|
|||||||||
Cost of sales |
||||||||||||||
Vehicle sales |
(1,667,805 | ) | (963,136 | ) | (136,323 | ) | ||||||||
Services and others |
(34,475 | ) | (75,830 | ) | (10,733 | ) | ||||||||
|
|
|
|
|
|
|||||||||
Total cost of sales |
(1,702,280 | ) | (1,038,966 | ) | (147,056 | ) | ||||||||
|
|
|
|
|
|
|||||||||
Gross loss |
(470,788 | ) | (36,116 | ) | (5,112 | ) | ||||||||
|
|
|
|
|
|
|||||||||
Operating expenses(1) |
||||||||||||||
Research and development expenses |
2(j) | (983,198 | ) | (630,578 | ) | (89,253 | ) | |||||||
Selling, general and administrative expenses |
2(k) | (484,058 | ) | (798,974 | ) | (113,087 | ) | |||||||
|
|
|
|
|
|
|||||||||
Total operating expenses |
(1,467,256 | ) | (1,429,552 | ) | (202,340 | ) | ||||||||
|
|
|
|
|
|
|||||||||
Other income |
5,116 | 37,293 | 5,278 | |||||||||||
|
|
|
|
|
|
|||||||||
Loss from operations |
(1,932,928 | ) | (1,428,375 | ) | (202,174 | ) | ||||||||
|
|
|
|
|
|
|||||||||
Interest income |
58,031 | 20,953 | 2,966 | |||||||||||
Interest expenses |
(11,677 | ) | (15,954 | ) | (2,258 | ) | ||||||||
Fair value (loss) gain on derivative liabilities |
(47,079 | ) | 618,442 | 87,535 | ||||||||||
Other non-operating income, net |
15,324 | 9,131 | 1,292 | |||||||||||
|
|
|
|
|
|
|||||||||
Loss before income tax expenses |
(1,918,329 | ) | (795,803 | ) | (112,639 | ) | ||||||||
|
|
|
|
|
|
|||||||||
Income tax expenses |
20 | | | | ||||||||||
|
|
|
|
|
|
|||||||||
Net loss |
(1,918,329 | ) | (795,803 | ) | (112,639 | ) | ||||||||
|
|
|
|
|
|
|||||||||
Accretion on Preferred Shares to redemption value |
(397,193 | ) | (1,280,737 | ) | (181,277 | ) | ||||||||
Deemed contribution from repurchase of Preferred Shares |
9,969 | | | |||||||||||
|
|
|
|
|
|
|||||||||
Net loss attributable to ordinary shareholders of XPeng Inc. |
(2,305,553 | ) | (2,076,540 | ) | (293,916 | ) | ||||||||
|
|
|
|
|
|
F-75
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
FOR THE SIX MONTHS ENDED JUNE 30, 2019 AND 2020 (CONTINUED)
(All amounts in thousands, except for share and per share data)
For the six months ended June 30, | ||||||||||||||||
Note | 2019 | 2020 | 2020 | |||||||||||||
RMB | RMB | US$ | ||||||||||||||
Note 2(d) | ||||||||||||||||
Net loss |
(1,918,329 | ) | (795,803 | ) | (112,639 | ) | ||||||||||
Other comprehensive loss |
||||||||||||||||
Foreign currency translation adjustment, net of nil tax |
(26,210 | ) | (15,399 | ) | (2,180 | ) | ||||||||||
|
|
|
|
|
|
|||||||||||
Total comprehensive loss attributable to XPeng Inc. |
(1,944,539 | ) | (811,202 | ) | (114,819 | ) | ||||||||||
|
|
|
|
|
|
|||||||||||
Accretion on Preferred Shares to redemption value |
(397,193 | ) | (1,280,737 | ) | (181,277 | ) | ||||||||||
Deemed contribution from repurchase of Preferred Shares |
9,969 | | | |||||||||||||
|
|
|
|
|
|
|||||||||||
Comprehensive loss attributable to ordinary shareholders of XPeng Inc. |
(2,331,763 | ) | (2,091,939 | ) | (296,096 | ) | ||||||||||
|
|
|
|
|
|
|||||||||||
Weighted average number of ordinary shares used in computing net loss per ordinary share |
||||||||||||||||
Basic and diluted |
21 | 349,414,050 | 362,747,375 | 362,747,375 | ||||||||||||
Net loss per ordinary share attributable to ordinary shareholders |
||||||||||||||||
Basic and diluted |
21 | (6.60 | ) | (5.72 | ) | (0.81 | ) |
(1) Share-based compensation was allocated in operating expenses as follows:
For the six months ended June 30, | ||||||||||||||||
Note | 2019 | 2020 | 2020 | |||||||||||||
RMB | RMB | US$ | ||||||||||||||
Note 2(d) | ||||||||||||||||
Selling, general and administrative expenses |
19 | 256 | | |
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
F-76
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS DEFICIT
FOR THE SIX MONTHS ENDED JUNE 30, 2019 AND 2020
(All amounts in thousands, except for share and per share data)
Ordinary shares |
Treasury Shares |
Additional
Paid-in Capital |
Accumulated
Other Comprehensive Loss |
Accumulated
Deficit |
Total
Shareholders Deficit |
|||||||||||||||||||||||||||||
Note | Shares | Par Value | Shares | Par Value | ||||||||||||||||||||||||||||||
Balance as of December 31, 2018 |
463,189,950 | 30 | (113,775,900 | ) | (9 | ) | | (2,980 | ) | (2,182,266 | ) | (2,185,225 | ) | |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||
Share-based compensation |
19 | | | | | 256 | | | 256 | |||||||||||||||||||||||||
Accretion on convertible redeemable Preferred Shares to redemption value |
17 | | | | | (10,225 | ) | | (386,968 | ) | (397,193 | ) | ||||||||||||||||||||||
Deemed contribution from repurchase of Preferred Shares |
| | | | 9,969 | | | 9,969 | ||||||||||||||||||||||||||
Foreign currency translation adjustment |
| | | | | (26,210 | ) | | (26,210 | ) | ||||||||||||||||||||||||
Net loss |
| | | | | | (1,918,329 | ) | (1,918,329 | ) | ||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||
Balance as of June 30, 2019 |
463,189,950 | 30 | (113,775,900 | ) | (9 | ) | | (29,190 | ) | (4,487,563 | ) | (4,516,732 | ) | |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||
Balance as of December 31, 2019 |
463,189,950 | 30 | (100,442,575 | ) | (9 | ) | | (5,948 | ) | (6,824,503 | ) | (6,830,430 | ) | |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||
Cumulative effect of adoption of new accounting standard |
2(h) | | | | | | | (2,074 | ) | (2,074 | ) | |||||||||||||||||||||||
Repurchase of shares |
18 | (100,442,575 | ) | (9 | ) | 100,442,575 | 9 | | | | | |||||||||||||||||||||||
Issuance of shares |
18 | 50,992,470 | 4 | (50,992,470 | ) | (4 | ) | | | | | |||||||||||||||||||||||
Accretion on convertible redeemable Preferred Shares to redemption value |
17 | | | | | | | (1,280,737 | ) | (1,280,737 | ) | |||||||||||||||||||||||
Foreign currency translation adjustment |
| | | | | (15,399 | ) | | (15,399 | ) | ||||||||||||||||||||||||
Net loss |
| | | | | | (795,803 | ) | (795,803 | ) | ||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||
Balance as of June 30, 2020 |
413,739,845 | 25 | (50,992,470 | ) | (4 | ) | | (21,347 | ) | (8,903,117 | ) | (8,924,443 | ) | |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these unaudited condensed consolidated financial statement.
F-77
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 2019 AND 2020
(All amounts in thousands, except for share and per share data)
For the six months ended June 30, | ||||||||||||||
Note | 2019 | 2020 | 2020 | |||||||||||
RMB | RMB | US$ | ||||||||||||
Note 2(d) | ||||||||||||||
Cash flows from operating activities |
||||||||||||||
Net loss |
(1,918,329 | ) | (795,803 | ) | (112,639 | ) | ||||||||
Adjustments to reconcile net loss to net cash used in operating activities: |
||||||||||||||
Depreciation of property, plant and equipment |
8 | 53,092 | 103,985 | 14,718 | ||||||||||
Amortization of intangible assets |
9 | 2,686 | 7,160 | 1,013 | ||||||||||
Amortization of right-of-use assets |
38,315 | 49,314 | 6,980 | |||||||||||
Amortization of land use right |
10 | 2,661 | 2,661 | 377 | ||||||||||
Foreign exchange gains |
(17,079 | ) | (11,503 | ) | (1,628 | ) | ||||||||
Loss of disposal of property, plant and equipment |
296 | 2,332 | 330 | |||||||||||
Share-based compensation |
19(c) | 256 | | | ||||||||||
Impairment of property, plant and equipment |
8 | 79,185 | 8,516 | 1,205 | ||||||||||
Impairment of accounts receivable |
2(h) | 2,286 | 2,059 | 291 | ||||||||||
Reversal of impairment of other current assets |
2(h) | | (197 | ) | (28 | ) | ||||||||
Impairment of finance lease receivables |
2(h) | | 617 | 87 | ||||||||||
Inventory write-downs |
6 | 148,080 | 16,000 | 2,264 | ||||||||||
Interest income |
(45,680 | ) | (8,438 | ) | (1,194 | ) | ||||||||
Fair value loss (gain) on derivative liabilities |
47,079 | (618,442 | ) | (87,535 | ) | |||||||||
Changes in operating assets and liabilities: |
||||||||||||||
Accounts receivable |
(394,782 | ) | (154,959 | ) | (21,933 | ) | ||||||||
Inventory |
6 | (506,034 | ) | (335,946 | ) | (47,550 | ) | |||||||
Amounts due from related parties |
22 | 2,715 | 17,921 | 2,537 | ||||||||||
Prepayments and other current assets |
(253,334 | ) | (213,376 | ) | (30,200 | ) | ||||||||
Other non-current assets |
(6,868 | ) | (18,338 | ) | (2,596 | ) | ||||||||
Accounts and notes payable |
1,123,578 | 629,685 | 89,126 | |||||||||||
Deferred revenue |
16 | 84,088 | 29,051 | 4,112 | ||||||||||
Lease liabilities |
(35,124 | ) | (38,350 | ) | (5,428 | ) | ||||||||
Accruals and other liabilities |
93,877 | 113,270 | 16,032 | |||||||||||
Other non-current liabilities |
14 | 14,500 | 7,087 | 1,003 | ||||||||||
Finance lease receivables |
(90,358 | ) | (11,830 | ) | (1,674 | ) | ||||||||
Amount due to a related party |
22 | | 4,857 | 687 | ||||||||||
|
|
|
|
|
|
|||||||||
Net cash used in operating activities |
(1,574,894 | ) | (1,212,667 | ) | (171,643 | ) | ||||||||
|
|
|
|
|
|
|||||||||
Cash flows from investing activities |
||||||||||||||
Maturities of term deposits |
759,975 | | | |||||||||||
Maturities of short-term investments |
496,581 | 193,109 | 27,333 | |||||||||||
Purchase of property, plant and equipment |
(1,099,072 | ) | (314,369 | ) | (44,496 | ) | ||||||||
Receipt of government subsidy related to assets |
32,057 | 128,346 | 18,166 | |||||||||||
Purchase of intangible assets |
(41,334 | ) | (208,655 | ) | (29,533 | ) | ||||||||
Disposal of equity interest in a company |
| 10,000 | 1,415 | |||||||||||
Cash paid for long-term investments |
| (1,000 | ) | (142 | ) | |||||||||
Disposal of property, plant and equipment |
| 27,329 | 3,868 | |||||||||||
|
|
|
|
|
|
|||||||||
Net cash provided (used in) by investing activities |
148,207 | (165,240 | ) | (23,389 | ) | |||||||||
|
|
|
|
|
|
|||||||||
Cash flows from financing activities |
||||||||||||||
Proceeds from issuance of convertible redeemable Preferred Shares |
851,800 | 1,010,834 | 143,074 | |||||||||||
Proceeds from borrowings |
13 | 1,105,000 | 227,900 | 32,257 | ||||||||||
Repayment of borrowings |
13 | (50,000 | ) | (370,405 | ) | (52,427 | ) | |||||||
Loans from a related party |
22 | | 1,063,434 | 150,519 | ||||||||||
Repayment of loans to a related party |
22 | | (1,063,434 | ) | (150,519 | ) | ||||||||
|
|
|
|
|
|
|||||||||
Net cash provided by financing activities |
1,906,800 | 868,329 | 122,904 | |||||||||||
|
|
|
|
|
|
|||||||||
Effects of exchange rate changes on cash, cash equivalents and restricted cash |
(9,134 | ) | (2,857 | ) | (403 | ) | ||||||||
Net increase (decrease) in cash, cash equivalents and restricted cash |
470,979 | (512,435 | ) | (72,531 | ) | |||||||||
Cash, cash equivalents and restricted cash at beginning of the period |
1,631,525 | 2,407,743 | 340,794 | |||||||||||
|
|
|
|
|
|
|||||||||
Cash, cash equivalents and restricted cash at end of the period |
2,102,504 | 1,895,308 | 268,263 | |||||||||||
|
|
|
|
|
|
|||||||||
Supplemental disclosure of cash flows information |
||||||||||||||
Cash paid for interest, net of amounts capitalized |
(17,243 | ) | (13,284 | ) | (1,880 | ) | ||||||||
Acquisition of property, plant and equipment included in liabilities |
175,404 | 287,949 | 40,757 |
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
F-78
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(All amount in thousands, except for share and per share data, unless otherwise stated)
1. Organization and Nature of Operations
(a) Principal activities
XPeng Inc. (XPeng or the Company) was incorporated under the laws of the Cayman Islands in December 27, 2018, as an exempted company with limited liability. The Company, its subsidiaries and consolidated variable interest entity (VIE) and VIEs subsidiaries (VIEs, also refer to VIE and its subsidiaries as a whole, where appropriate) are collectively referred to as the Group.
The Group designs and develops smart electric vehicles. It delivered its first model of smart electric vehicles, G3, commercially in December 2018. The Group manufactures G3 through strategic collaboration with a third-party vehicles manufacturer. The Company started production of the P7 and began delivery in May 2020, which is positioned as a medium-sized pure electric vehicle. As of June 30, 2020, its primary operations are conducted in the Peoples Republic of China (PRC).
(b) History of the Group and Reorganization
The Group commenced its operation through Guangzhou Chengxing Zhidong Automotive Technology Co., Ltd. (Chengxing) since 2015, Chengxing was founded by Mr. Heng Xia, Mr. Tao He and Mr. Xiaopeng He (collectively the Founders), and subsequently obtained financing from various third party investors (collectively Third Party Investors) from 2016 through 2018.
In preparation for its initial public offering (IPO), the Group completed a reorganization (the Reorganization) in September 2019, which involved the following steps:
|
On December 27, 2018, the Company was established under the laws of the Cayman Islands as an exempted company with limited liability. |
|
On January 7, 2019, XPeng Limited was incorporated in British Virgin Islands as a wholly owned subsidiary of the Company. |
|
On February 21, 2019, XPeng (HK) Limited was incorporated in Hong Kong as a wholly owned subsidiary of XPeng Limited. |
|
On June 21, 2019, Guangdong Xiaopeng Motors Technology Co., Ltd. (WFOE) was established as a wholly owned subsidiary of XPeng (HK) Limited in the PRC. |
|
On September 2019, the Company issued 17,897,478 ordinary shares, 2,021,635 Series A Preferred Shares, 1,859,082 Series A-1 Preferred Shares, 23,343 Series A-2 Preferred Shares, 3,198,839 Series B Preferred Shares, 4,361,678 Series B-1 Preferred Shares, 1,045,497 Series B-2 Preferred Shares, 3,183,626 Series C Preferred Shares and 7,612,147 warrants in aggregate, to the existing shareholders of Chengxing, based on their respective equity interests in Chengxing. Concurrently, as a transitional arrangement and part of the Reorganization, a series of contractual agreements were entered into among WFOE, Chengxing and its existing shareholders, including the exclusive business cooperation agreement, the equity pledge agreement, the exclusive option agreement and the power of attorney. Consequently, WFOE became the primary beneficiary of Chengxing. In May 2020, WFOE exercised its rights under the contractual arrangement and purchased 100% of Chengxing. Consequently, Chengxing became an indirect wholly owned subsidiary of XPeng. |
The equity interests held by the existing shareholders in the Company after the Reorganization are the same as the equity interests held by them in Chengxing before the Reorganization. Out of the equity interests issued, 43.44%, 38.09% and 18.47% were in the form of ordinary shares, Preferred Shares and warrants, respectively.
Prior to the Reorganization, the shareholders of Chengxing included individual shareholders and institutional shareholders. Pursuant to laws applicable to PRC residents and entities incorporated in the PRC, PRC
F-79
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(All amount in thousands, except for share and per share data, unless otherwise stated)
1. Organization and Nature of Operations (continued)
(b) History of the Group and Reorganization (continued)
individuals should complete registration of its outbound investments (i.e. the foreign exchange registration under SAFE Circular 37), and PRC institutional investors should complete its statutory filings and foreign exchange registrations for outbound investment (i.e. ODI) respectively, before such PRC residents or entities can legally own offshore investments or equity interests in offshore entities. As such, all PRC individual shareholders and PRC institutional shareholders of Chengxing shall complete their relevant registrations and/or statutory filings, as appropriate, before they can, in accordance with applicable PRC laws, hold directly or indirectly the ordinary shares of the Company, which is incorporated under the laws of the Cayman Islands. The warrants are to reflect the holders (indirect) rights, obligations and interest in the Company as if the holders are holding Preferred Shares of the Company before the holders complete their necessary registration for outbound investment to exercise their warrants into Preferred Shares of the Company. Once the holders complete the necessary registration for outbound investment, the holders are required to exercise the warrants immediately at a nil price per share. The warrants are transferrable by the holder subject to approval of the Companys board of directors. Accordingly, the warrants are accounted for and presented based on the terms on the underlying Preferred Shares that the warrants are exercisable into (see Note 17).
The shareholders and their respective equity interest in the Company remain the same immediately before and after the Reorganization. Further, the Company, being the holding company after the Reorganization, is a newly established shell company. Accordingly, the Company determined that the Reorganization lacks substance and should be treated as a non-substantive merger with no change in the basis of assets, liabilities and shareholders deficits of Chengxing.
These consolidated financial statements are presented as if the Group Reorganization had already taken place as of the beginning of the period covered by these financial statements.
On March 20, 2020, the Company completed a 1:25 share split of all of its ordinary and Preferred Shares of the Company. All shares and per share amounts presented in the consolidated financial statements have been retrospectively adjusted to reflect the share split.
As of June 30, 2020, the Companys principal subsidiaries and VIEs are as follows:
Place of
incorporation |
Date of incorporation
or acquisition |
Equity
interest held |
Principal activities |
|||||||||||
Principal subsidiaries |
||||||||||||||
Chengxing |
PRC | January 09, 2015 | 100 | % | Investment holding | |||||||||
Guangzhou Xiaopeng Motors Technology Co., Ltd.(Xiaopeng Technology) |
PRC | May 12, 2016 | 100 | % | Design and technology development | |||||||||
Guangzhou Xiaopeng Automobile Manufacturing Co., Ltd. |
PRC | April 07, 2017 | 100 | % | Manufacturing of vehicles | |||||||||
Zhaoqing Xiaopeng Automobile Co., Ltd.(Zhaoqing XPeng) |
PRC | May 18, 2017 | 100 | % | Manufacturing of vehicles | |||||||||
Xiaopeng Automobile Sales Co., Ltd. |
PRC | January 08, 2018 | 100 | % | Vehicle wholesale and retail | |||||||||
Beijing Xiaopeng Automobile Co., Ltd. |
|
PRC |
|
|
April 28, 2018 |
|
|
100 |
% |
Vehicle wholesale and retail, design and technology development |
F-80
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(All amount in thousands, except for share and per share data, unless otherwise stated)
1. Organization and Nature of Operations (continued)
(b) History of the Group and Reorganization (continued)
Place of
incorporation |
Date of incorporation
or acquisition |
Equity
interest held |
Principal activities |
|||||||||||
Shenzhen Xiaopeng Automobile Sales Service Co., Ltd. |
|
PRC |
|
|
August 06, 2018 |
|
|
100 |
% |
Vehicle wholesale and retail | ||||
Shanghai Xiaopeng Automobile Sales Service Co., Ltd. |
|
PRC |
|
|
October 10, 2018 |
|
|
100 |
% |
Vehicle wholesale and retail | ||||
XSense. AI, Inc. |
United States | November 27, 2018 | 100 | % | Technology development | |||||||||
XMotors. AI, Inc. |
United States | January 05, 2018 | 100 | % | Technology development |
Place of
incorporation |
Date of incorporation
or acquisition |
Economic
interest held |
Principal activities |
|||||||||||
VIEs |
||||||||||||||
Guangzhou Zhipeng IoV Technology Co., Ltd.(Zhipeng IoV) |
|
PRC |
|
|
May 23, 2018 |
|
|
100 |
% |
Ride-hailing services and operating the related mobile app | ||||
Guangzhou Yidian Zhihui Chuxing Technology Co., Ltd.(Yidian Chuxing) |
|
PRC |
|
|
May 24, 2018 |
|
|
100 |
% |
Mobile apps and providing value-added services |
(c) Variable interest entity
Zhipeng IoV was established by two shareholders of the Company (the Zhipeng IoVs Nominee Shareholders) in May 23, 2018. In May 28, 2018, Xiaopeng Technology, Zhipeng IoV, and Zhipeng IoVs Nominee Shareholders entered into a series of contractual agreements, including an equity interest pledge agreement, a loan agreement, exclusive service agreement, exclusive call option agreement and power of attorney that irrevocably authorized Xiaopeng Technology to exercise the equity owners rights over Zhipeng IoV. These agreements provide the Company, as the only shareholder of Xiaopeng Technology, with effective control over Zhipeng IoV to direct the activities that most significantly impact Zhipeng IoVs economic performance and enable the Company to obtain substantially all of the economic benefits arising from Zhipeng IoV. Management concluded that Zhipeng IoV is a variable interest entity of the Company and the Company is the ultimate primary beneficiary of Zhipeng IoV and shall consolidate the financial results of Zhipeng IoV in the Groups consolidated financial statements. As of December 31, 2019, and June 30, 2020, Zhipeng IoV did not have significant operations, nor any material assets or liabilities.
Yidian Chuxing was established by two shareholders of the Company (the Yidian Chuxings Nominee Shareholders) in May 24, 2018. In May 28, 2018, Guangzhou Xiaopeng Zhihui Chuxing Technology Co., Ltd, (Xiaopeng Chuxing), Yidian Chuxing, and Yidian Chuxings Nominee Shareholders entered into a series of contractual agreements, including an equity interest pledge agreement, a loan agreement, exclusive service agreement, exclusive call option agreement and power of attorney that irrevocably authorized Xiaopeng Chuxing to exercise the equity owners rights over Yidian Chuxing. These agreements provide the Company, as the only shareholder of Xiaopeng Chuxing, with effective control over Yidian Chuxing to direct the activities that most significantly impact Yidian Chuxings economic performance and enable the Company to obtain substantially all of the economic benefits arising from Yidian Chuxing. Management concluded that Yidian Chuxing is a variable interest entity of the Company and the Company is the ultimate primary
F-81
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(All amount in thousands, except for share and per share data, unless otherwise stated)
1. Organization and Nature of Operations (continued)
(c) Variable interest entity (continued)
beneficiary of Yidian Chuxing and shall consolidate the financial results of Yidian Chuxing in the Groups consolidated financial statements. As of December 31, 2019, and June 30, 2020, Yidian Chuxing did not have significant operations, nor any material assets or liabilities.
(d) Liquidity
The Group has been incurring losses from operations since inception. The Group incurred net losses of RMB1,918,329 and RMB795,803 for the six months ended June 30, 2019 and 2020, respectively. Accumulated deficit amounted to RMB6,824,503 and RMB8,903,117 as of December 31, 2019 and June 30, 2020, respectively. Net cash used in operating activities was approximately RMB1,574,894 and RMB1,212,667 for the six months ended June 30, 2019 and 2020, respectively.
The Groups liquidity is based on its ability to enhance its operating cash flow position, obtain capital financing from equity interest investors and borrow funds to fund its general operations, research and development activities and capital expenditures. The Groups ability to continue as a going concern is dependent on managements ability to execute its business plan successfully, which includes increasing market acceptance of the Groups products to boost its sales volume to achieve economies of scale while applying more effective marketing strategies and cost control measures to better manage operating cash flow position and obtaining funds from outside sources of financing to generate positive financing cash flows. As of December 31, 2019, and June 30, 2020, the Groups balance of cash and cash equivalents, restricted cash, excluding RMB35,000 restricted cash in relation to a supplier dispute, short-term deposits and short-term investments was RMB2,780,587 and RMB2,083,481, respectively. Subsequent to June 30, 2020, the Group continued to obtain funds through capital financing. Up to the date of this report, the Company has entered into five capital financing agreements and received the proceeds amounting to RMB6,271,720 in July and August 2020. If the Group does not have, or is not able to obtain, sufficient funds, the Group may have to adjust the pace of its operation expansion and reduce operating expenses devoted to the products.
Management has concluded, after giving consideration to its plans as noted above and existing balance of cash and cash equivalents as of June 30, 2020, that the Group has sufficient funds for sustainable operations and it will be able to meet its payment obligations from operations and debt related commitments for the next twelve months from the issuance of the unaudited condensed consolidated financial statements. Accordingly, the unaudited condensed consolidated financial statements have been prepared on a going concern basis, which contemplates the realization of assets and liquidation of liabilities during the normal course of operations.
2. Summary of Significant Accounting Policies
(a) Basis of presentation
The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (U.S. GAAP) for interim financial information. Accordingly, they do not include all of the information and footnotes required by U.S. GAAP for complete financial statements. Certain information and note disclosures normally included in the annual financial statements prepared in accordance with U.S. GAAP have been condensed or omitted consistent with Article 10 of Regulation S-X. The unaudited condensed consolidated financial statements have been prepared on the same basis as the audited financial statements and include all adjustments as necessary for the fair statement of the Groups financial position as of June 30, 2020, results of operations and cash flows
F-82
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(All amount in thousands, except for share and per share data, unless otherwise stated)
2. Summary of Significant Accounting Policies (continued)
(a) Basis of presentation (continued)
for the six months ended June 30, 2019 and 2020. The consolidated balance sheet at December 31, 2019 has been derived from the audited financial statements at that date but does not include all the information and footnotes required by U.S. GAAP. The unaudited condensed consolidated financial statements and related disclosures have been prepared with the presumption that users of the unaudited condensed consolidated financial statements have read or have access to the audited consolidated financial statements for the preceding fiscal years. Accordingly, these financial statements should be read in conjunction with the audited consolidated financial statements and related footnotes for the years ended December 31, 2018 and 2019. The accounting policies applied, other than the adoption of ASC Topic 326 as disclosed in Note 3, are consistent with those of the audited consolidated financial statements for the preceding fiscal year. Results for the six months ended June 30, 2020 are not necessarily indicative of the results expected for the full fiscal year or for any future period.
(b) Principles of consolidation
The unaudited condensed consolidated financial statements include the financial statements of the Company, its subsidiaries and the VIEs for which the Company is the ultimate primary beneficiary. All transactions and balances among the Company, its subsidiaries and VIEs have been eliminated upon consolidation.
A subsidiary is an entity in which the Company, directly or indirectly, controls more than one half of the voting power: has the power to appoint or remove the majority of the members of the board of directors (the Board): to cast majority of votes at the meeting of the Board or to govern the financial and operating policies of the investee under a statute or agreement among the shareholders or equity holders.
A VIE is an entity in which the Company, or its subsidiary, through contractual arrangements, bears the risks of, and enjoys the rewards normally associated with, ownership of the entity, and therefore the Company or its subsidiary is the primary beneficiary of the entity. In determining whether the Company or its subsidiaries are the primary beneficiary, the Company considered whether it has the power to direct activities that are significant to the VIEs economic performance, and also the Companys obligation to absorb losses of the VIE that could potentially be significant to the VIE or the right to receive benefits from the VIEs that could potentially be significant to the VIEs.
(c) Use of estimates
The preparation of the unaudited condensed 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, mezzanine equity and related disclosures of contingent assets and liabilities at the balance sheet date, and the reported revenues and expenses during the reported period in the unaudited condensed consolidated financial statements and accompanying notes. Significant accounting estimates reflected in the Groups unaudited condensed consolidated financial statements primarily include, but are not limited to, the determination of performance obligations and allocation of transaction price to those performance obligations, the determination of warranty cost, lower of cost and net realizable value of inventory, assessment for impairment of long-lived assets and intangible assets, valuation of deferred tax assets, collectability of receivables, determination of share-based compensation expenses as well as redemption value of the Preferred Shares.
F-83
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(All amount in thousands, except for share and per share data, unless otherwise stated)
2. Summary of Significant Accounting Policies (continued)
(c) Use of estimates (continued)
Management bases the estimates on 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.
(d) Convenience translation
Translations of balances in the unaudited condensed consolidated balance sheets, unaudited condensed consolidated statements of comprehensive loss and unaudited condensed consolidated statements of cash flows from RMB into US$ as of and for the six months ended June 30, 2020 are solely for the convenience of the reader and were calculated at the rate of US$1.00 = RMB7.0651 on June 30, 2020 as set forth in the H.10 statistical release of the U.S. Federal Reserve Board. No representation is made that the RMB amounts represent or could have been, or could be, converted, realized or settled into US$ at that rate on June 30, 2020, or at any other rate.
(e) Fair value
Fair value is defined 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 either recorded or disclosed at fair value, the Group considers the principal or most advantageous market in which it would transact, and it also considers assumptions that market participants would use when pricing the asset or liability.
The Group applies 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. This guidance specifies a hierarchy of valuation techniques, which is based on whether the inputs into the valuation technique are observable or unobservable. The hierarchy is as follows:
Level I Valuation techniques in which all significant inputs are unadjusted quoted prices from active markets for assets or liabilities that are identical to the assets or liabilities being measured.
Level II Valuation techniques in which significant inputs include quoted prices from active markets for assets or liabilities that are similar to the assets or liabilities being measured and/or quoted prices for assets or liabilities that are identical or similar to the assets or liabilities being measured from markets that are not active. Also, model-derived valuations in which all significant inputs and significant value drivers are observable in active markets are Level II valuation techniques.
Level III Valuation techniques in which one or more significant inputs or significant value drivers are unobservable. Unobservable inputs are valuation technique inputs that reflect the Groups own assumptions about the assumptions that market participants would use in pricing an asset or liability.
The fair value guidance describes three main approaches to measure 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.
When available, the Group uses quoted market prices to determine the fair value of an asset or liability. If quoted market prices are not available, the Group will measure fair value using valuation techniques that use,
F-84
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(All amount in thousands, except for share and per share data, unless otherwise stated)
2. Summary of Significant Accounting Policies (continued)
(e) Fair value (continued)
when possible, current market-based or independently sourced market parameters, such as interest rates and currency rates.
Financial assets and liabilities of the Group primarily consist of cash and cash equivalents, restricted cash, short-term investments, accounts receivable, other assets, accounts and notes payable, short-term borrowings, lease liabilities, accruals and other liabilities and long-term borrowings. As of December 31, 2019, and June 30, 2020, the carrying values of these financial instruments, except for other non-current assets, long-term borrowings and non-current portion for lease liabilities, are approximated to their fair values due to the short-term maturity of these instruments.
Financial assets that are measured at fair value on a recurring basis consist only of short-term investments. All of its short-term investments, which are comprised primarily of structured deposits and bank financial products, are classified within Level II of the fair value hierarchy because they are floating income products linked to currency exchange rate, gold and benchmark interest rate. They are not valued using quoted market prices, but can be valued based on other observable inputs, such as interest rates and currency rates. The Group has derivative liabilities that are measured at fair value. The derivative liabilities are used to account for the redemption right that met the definition of a derivative and are classified within level III at the fair value hierarchy as the Group adopted the equity allocation model with unobservable inputs for which there is little or no market data to determine the fair value.
(f) Cash and cash equivalents
Cash and cash equivalents represent cash on hand, time deposits and highly liquid investments placed with banks or other financial institutions, which are unrestricted as to withdrawal and use, and which have original maturities of three months or less.
Cash and cash equivalents as reported in the unaudited condensed consolidated statement of cash flows are presented separately on the unaudited condensed consolidated balance sheet as follows:
As of December 31, 2019 | As of June 30, 2020 | |||||||||||||||
Amount | RMB equivalent | Amount | RMB equivalent | |||||||||||||
Cash and cash equivalents: |
||||||||||||||||
RMB |
772,435 | 772,435 | 753,644 | 753,644 | ||||||||||||
US$ |
167,732 | 1,168,754 | 43,392 | 306,769 | ||||||||||||
HKD |
6,418 | 5,742 | 873 | 796 | ||||||||||||
|
|
|
|
|||||||||||||
Total |
1,946,931 | 1,061,209 | ||||||||||||||
|
|
|
|
As of December 31, 2019, and June 30, 2020, substantially all of the Groups cash and cash equivalents were held in reputable financial institutions located in the PRC, Hong Kong and the United States.
(g) Restricted cash
Restricted cash primarily represents bank deposits for letter of credit and bank notes amounted to RMB425,812 and 799,099 as of December 31, 2019 and June 30, 2020, respectively. And deposits, amounted to RMB35,000, that are restricted due to a supplier dispute as of December 31, 2019 and June 30, 2020, respectively.
F-85
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(All amount in thousands, except for share and per share data, unless otherwise stated)
2. Summary of Significant Accounting Policies (continued)
(h) Current expected credit losses
In 2016, the FASB issued ASU No. 2016-13, Financial InstrumentsCredit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (ASC Topic 326), which amends previously issued guidance regarding the impairment of financial instruments by creating an impairment model that is based on expected losses rather than incurred losses. The Group adopted this ASC Topic 326 and several associated ASUs on January 1, 2020 using a modified retrospective approach with a cumulative-effect increase of RMB2,074. recorded in accumulated deficit.
The Groups accounts receivable, other current assets and finance lease receivables are within the scope of ASC Topic 326. The Group has identified the relevant risk characteristics of its customers and the related receivables, other current assets and finance lease receivables which include size, type of the services or the products the Group provides, or a combination of these characteristics. Receivables with similar risk characteristics have been grouped into pools. For each pool, the Group considers the historical credit loss experience, current economic conditions, supportable forecasts of future economic conditions, and any recoveries in assessing the lifetime expected credit losses. Other key factors that influence the expected credit loss analysis include customer demographics, payment terms offered in the normal course of business to customers, and industry-specific factors that could impact the Groups receivables. Additionally, external data and macroeconomic factors are also considered. This is assessed at each quarter based on the Groups specific facts and circumstances. For the six months ended June 30, 2020, the Group recorded RMB2,479 expected credit loss expense in selling, general and administrative expenses. As of June 30, 2020, the expected credit loss provision for the current and non-current assets are RMB3,764 and 1,450 respectively.
The Group typically does not carry significant accounts receivable related to vehicle sales and related sales as customer payments are due prior to vehicle delivery, except for amounts of vehicle sales in relation of government subsidy to be collected from government on behalf of customers. Other current assets primarily consist of other receivables. Financial lease receivables primarily consist of the aggregate of the minimum lease receivable at the inception of the lease and the initial direct costs. The Group recorded a provision for current expected credit losses. The following table summarizes the activity in the allowance for credit losses related to accounts receivable, other current assets and finance lease receivables for the six months ended June 30, 2020:
For the six months ended June 30, 2020 | ||||
Balance as of December 31, 2019 |
4,645 | |||
Adoption of ASC Topic 326 |
2,074 | |||
|
|
|||
Balance as of January 1, 2020 |
6,719 | |||
Current period provision |
2,479 | |||
Write-offs |
(3,984 | ) | ||
|
|
|||
Balance as of June 30, 2020 |
5,214 | |||
|
|
Allowance for the accounts receivable, other current assets and finance lease receivables recognized for the six months ended June 30, 2019 was 2,286, nil and nil.
(i) Revenue recognition
Revenue is recognized when or as the control of the goods or services is transferred upon delivery to customers. Depending on the terms of the contract and the laws that apply to the contract, control of the goods
F-86
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(All amount in thousands, except for share and per share data, unless otherwise stated)
2. Summary of Significant Accounting Policies (continued)
(i) Revenue recognition (continued)
and services may be transferred over time or at a point in time. Control of the goods and services is transferred over time if the Groups performance:
|
provides all of the benefits received and consumed simultaneously by the customer; |
|
creates and enhances an asset that the customer controls as the Group performs; or |
|
does not create an asset with an alternative use to the Group and the Group has an enforceable right to payment for performance completed to date. |
If control of the goods and services transfers over time, revenue is recognized over the period of the contract by reference to the progress towards complete satisfaction of that performance obligation. Otherwise, revenue is recognized at a point in time when the customer obtains control of the goods and services.
Contracts with customers may include multiple performance obligations. For such arrangements, the Group allocates overall contract price to each distinct performance obligation based on its relative standalone selling price in accordance with ASC 606. The Group generally determines standalone-selling prices for each individual distinct performance obligation identified based on the prices charged to customers. If the standalone selling price is not directly observable, it is estimated using expected cost plus a margin or adjusted market assessment approach, depending on the availability of observable information, the data utilized, and considering the Groups pricing policies and practices in making pricing decisions. Assumptions and estimations have been made in estimating the relative selling price of each distinct performance obligation, and changes in judgments on these assumptions and estimates may affect the revenue recognition. The discount provided in the contract are allocated by the Group to all performance obligations as conditions under ASC 606-10-32-37 are not met.
When either party to a contract has performed, the Group presents the contract in the consolidated balance sheet as a contract asset or a contract liability, depending on the relationship between the entitys performance and the customers payment.
A contract asset is the Groups right to consideration in exchange for goods and services that the Group has transferred to a customer. A receivable is recorded when the Group has an unconditional right to consideration. A right to consideration is unconditional if only the passage of time is required before payment of that consideration is due.
If a customer pays consideration or the Group has a right to an amount of consideration that is unconditional, before the Group transfers a good or service to the customer, the Group presents the contract liability when the payment is made or a receivable is recorded (whichever is earlier). A contract liability is the Groups obligation to transfer goods or services to a customer for which the Group has received consideration (or an amount of consideration is due) from the customer. The Groups contract liabilities are primarily resulted from the multiple performance obligations identified in the vehicle sales contract, which is recorded as deferred revenue and recognized as revenue based on the consumption of the services or the delivery of the goods.
Vehicle sales
The Group generates revenue from sales of electric vehicles, together with a number of embedded products and services through a contract. The Group identifies the customers who purchase the vehicle as its customers. There are multiple distinct performance obligations explicitly stated in a series of contracts including sales of vehicle, free charging within 4 years or 100,000 kilometers, extended lifetime warranty, option between
F-87
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(All amount in thousands, except for share and per share data, unless otherwise stated)
2. Summary of Significant Accounting Policies (continued)
(i) Revenue recognition (continued)
Vehicle sales (continued)
household charging pile and charging card, and vehicle internet connection services which are accounted for in accordance with ASC 606. The standard warranty provided by the Group is accounted for in accordance with ASC 460, Guarantees, and the estimated costs are recorded as a liability when the Group transfers the control of vehicle to a customer.
Car buyers in the PRC are entitled to government subsidies when they purchase electric vehicles. For efficiency purpose and better customer service, the Group or Zhengzhou Haima Automobile Co., Ltd. (Haima Auto) applies for and collect such government subsidies on behalf of the customers. Accordingly, customers only pay the amount after deducting government subsidies. The Group determined that the government subsidies should be considered as part of the transaction price because the subsidy is granted to the buyer of the electric vehicle and the buyer remains liable for such amount in the event the subsidies were not received by the Group.
The overall contract price is allocated to each distinct performance obligation based on the relative estimated standalone selling price. The revenue for sales of the vehicle and household charging pile is recognized at a point in time when the control of the vehicle is transferred to the customer and the charging pile is installed at customers designated location. For vehicle internet connection service, the Group recognizes the revenue using a straight-line method. For the extended lifetime warranty, given limited operating history and lack of historical data, the Group decides to recognize the revenue over time based on a straight-line method initially, and will continue monitoring the cost pattern periodically and adjust the revenue recognition pattern to reflect the actual cost pattern as it becomes available. For the free charging within 4 years or 100,000 kilometers and charging card to be consumed to exchange for charging services, the Group considers a measure of progress based on usage (rather than a time-based method) best reflects the performance as its typically a promise to deliver the underlying service rather than a promise to stand ready.
Initial refundable deposits for intention orders and non-refundable deposits for vehicle reservations received from customers prior to vehicle purchase agreements signed are recognized as advances from customers (accruals and other liabilities). When vehicle purchase agreements are signed, the consideration for the vehicle and all embedded services must be paid in advance, which means the payments received are prior to the transfer of goods or services by the Group, the Group records a contract liability (deferred revenue) for the allocated amount regarding to those unperformed obligations. At the same time, advances from customers are classified as contract liability (deferred revenue) as part of the consideration.
XPILOT, the Groups autonomous driving system, provides assisted driving and parking functions tailored for driving behavior and road conditions in China. The Group plans to roll out XPILOT 3.0 by early 2021. A customer can subscribe for XPILOT 3.0 by either making a lump sum payment or paying annual installments for a three-year period. XPILOT 3.0 will feature several new functions, including a navigation guided pilot for highway driving and advanced automated parking. Revenue related to XPILOT 3.0 is recognized at a point in time when autonomous driving functionality of XPILOT 3.0 is activated and transferred to the customers.
Other services
The Group provides variable other services to customers including services embedded in a sales contract, supercharging service, maintenance service, ride hailing services and vehicle leasing service.
Services embedded in a sales contract may include free charging within 4 years or 100,000 kilometers, extended lifetime warranty, option between household charging pile and charging card and vehicle internet
F-88
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(All amount in thousands, except for share and per share data, unless otherwise stated)
2. Summary of Significant Accounting Policies (continued)
(i) Revenue recognition (continued)
Other services (continued)
connection services. Other services also include supercharging service and maintenance service. These services are recognized under ASC 606.
The Group provides ride hailing services with smart commuting solutions to customers by using the Groups self-owned G3 vehicles and hiring and training drivers employed by third party agents via service agreement. The Group believes it acts as a principal in the ride hailing services as it controls a specified good or service before it is transferred to the customers. The revenue for ride hailing services is recognized overtime in a period when the ride hailing services is consumed under ASC 606.
Revenue from vehicle leasing service to customers under operating lease and finance lease are recognized under ASC 842.
Practical expedients and exemptions
The Group follows the guidance on immaterial promises when identifying performance obligations in the vehicle sales contracts and concludes that lifetime roadside assistance, traffic ticket inquiry service, courtesy car service, on-site troubleshooting and parts replacement service, are not performance obligations considering these services are value-added services to enhance customer experience rather than critical items for vehicle driving and forecasted that usage of these five services will be very limited. The Group also performs an estimation on the stand-alone fair value of each promise applying a cost plus margin approach and concludes that the standalone fair value of foresaid services are insignificant individually and in aggregate, representing less than 1% of vehicle gross selling price and aggregate fair value of each individual promise.
Considering the qualitative assessment and the result of the quantitative estimate, the Group concluded not to assess whether promises are performance obligation if they are immaterial in the context of the contract and the relative stand-alone fair value individually and in aggregate is less than 1% of the contract price, namely the lifetime roadside assistance, traffic ticket inquiry service, courtesy car service, on-site troubleshooting and parts replacement service. Related costs are then accrued instead.
(j) Research and development expenses
All costs associated with research and development (R&D) are expensed as incurred. R&D expenses consist primarily of employee compensation for those employees engaged in R&D activities, design and development expenses with new technology, materials and supplies and other R&D related expenses. For the six months ended June 30, 2019 and 2020, R&D expenses were RMB983,198 and RMB630,578 respectively.
(k) Selling, general and administrative expenses
Sales and marketing expenses consist primarily of employee compensation and marketing, promotional and advertising expenses. Advertising expenses consist primarily of costs for the promotion of corporate image and product marketing. Selling costs are expenses as incurred. For the six months ended June 30, 2019 and 2020, advertising costs were RMB52,299 and RMB179,380 respectively, and total sales and marketing expenses were RMB257,732 and RMB513,292 respectively.
General and administrative expenses consist primarily of employee compensation for employees involved in general corporate functions and those not specifically dedicated to R&D activities, depreciation and
F-89
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(All amount in thousands, except for share and per share data, unless otherwise stated)
2. Summary of Significant Accounting Policies (continued)
(k) Selling, general and administrative expenses (continued)
amortization expenses, legal, and other professional services fees, lease and other general corporate related expenses. For the six months ended June 30, 2019 and 2020, general and administrative expenses were RMB226,326 and RMB285,682 respectively.
(l) Government Grants
The Groups PRC based subsidiaries received government subsidies from certain local governments. The Groups government subsidies consist of specific subsidies and other subsidies. Specific subsidies are subsidies that the local government has provided for a specific purpose, such as land fulfillment costs related to the manufacturing plant construction of Zhaoqing XPeng (Zhaoqing manufacturing plant). Other subsidies are the subsidies that the local government has not specified its purpose for and are not tied to future trends or performance of the Group, receipt of such subsidy income is not contingent upon any further actions or performance of the Group and the amounts do not have to be refunded under any circumstances. The Group recorded specific subsidies as other non-current liabilities when received or reduce interest expensed. The specific subsidies are amortized over the depreciation period of associated assets to reduce their depreciation cost. Other subsidies are recognized as other income upon receipt as further performance by the Group is not required.
(m) Share-based compensation
The Group grants restricted share units (RSUs), restricted shares and share options (collectively, Share-based Awards) to eligible employees and accounts for share-based compensation in accordance with ASC 718, CompensationStock Compensation. Share-based awards are measured at the grant date fair value of the awards and recognized as expenses using graded vesting method, net of estimated forfeitures, if any, over the requisite service period. For awards with performance conditions, Company would recognize compensation cost if and when it concludes that it is probable that the performance condition will be achieved.
The fair value of the RSUs and restricted shares were assessed using the income approach/discounted cash flow method, with a discount for lack of marketability given that the shares underlying the awards were not publicly traded at the time of grant. This assessment requires complex and subjective judgments regarding the Companys projected financial and operating results, its unique business risks, the liquidity of its ordinary shares and its operating history and prospects at the time the grants were made. The fair value of share options is estimated on the grant or offering date using the Binomial option-pricing model. The assumptions used in share-based compensation expense recognition represent managements best estimates, but these estimates involve inherent uncertainties and application of management judgment. If factors change or different assumptions are used, the share-based compensation expenses could be materially different for any period. Moreover, the estimates of fair value of the awards are not intended to predict actual future events or the value that ultimately will be realized by grantees who receive Share-based Awards, and subsequent events are not indicative of the reasonableness of the original estimates of fair value made by the Company for accounting purposes.
Share options granted to employees:
Since 2015, Chengxing has granted options to certain directors, executive officers and employees. The options granted are exercisable only upon the completion of an initial public offering (IPO) or change in control.
Share options granted to employees includes both service condition and performance condition. Employees are required to provide continued service through the satisfaction of the occurrence of change of control or an IPO
F-90
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(All amount in thousands, except for share and per share data, unless otherwise stated)
2. Summary of Significant Accounting Policies (continued)
(m) Share-based compensation (continued)
(collectively, the Liquidity Event) to retain the award since no share option would be vested prior to the occurrence of the Liquidity Event even though the service condition has been satisfied. Given the vesting of the share options granted is contingent upon the occurrence of the Liquidity Event, there is no share-based compensation expense to be recognized until the date of consummation of Liquidity Event.
On June 28, 2020, the board of directors of the Company approved the 2019 Equity Incentive Plan (ESOP Plan) with 161,462,100 Class A ordinary shares reserved. Options, restricted shares, RSUs, dividend equivalents, share appreciation rights and share payments may be granted under the ESOP Plan.
In June 2020, the Group agreed with the participants to cancel the existing stock options granted during the period between 2015 and the first quarter of 2020 along with a concurrent grant of a replacement RSUs (Replacement).
Restricted share units granted to employees:
RSUs granted to employees includes both service condition and performance condition. Employees are required to provide continued service through the satisfaction of the occurrence of Liquidity Event to retain the award since no RSU would be vested prior to the occurrence of the Liquidity Event even though the service condition has been satisfied. The Group also granted RSUs in 2020 with only performance condition and the RSUs would be vested upon the occurrence of Liquidity Event. Given the vesting of these two types of RSUs granted is contingent upon the occurrence of the Liquidity Event, there is no share-based compensation expense to be recognized until the date of consummation of Liquidity Event.
Restricted shares granted to two co-founders:
For the six months ended June 30, 2019, two co-founders have agreed that their founders shares would be subject to requisite service conditions that shall vest in a certain period. The restricted shares require future requisite service and it does not contain a market or performance condition that must be satisfied before the grant date. Accordingly, no share-based compensation expenses would be recognized prior to the grant date but would be recognized based on the fair value of the shares at the grant date over the requisite service period.
A change in any of the terms or conditions of restricted shares granted to two co-founders is accounted for as a modification of the awards. The cumulative amount of share-based compensation expenses that would be recognized is the original grant-date fair value of the award plus any incremental fair value resulting from the modification. The Group calculates incremental compensation expense of a modification as the excess of the fair value of the modified awards over the fair value of the original awards immediately before its terms are modified at the modification date. For vested restricted shares, the Group recognizes incremental compensation cost in the period when the modification occurs. For restricted shares not being fully vested, the Group recognizes the sum of the incremental compensation expense and the remaining unrecognized compensation expense for the original awards over the remaining requisite service period after modification.
As of December 31, 2019, all the restricted shares of two co-founders have been vested. No restricted shares vested for the six months ended June 30, 2020.
3. Recent Accounting Pronouncements
Recently adopted accounting pronouncements
In June 2016, the FASB issued ASU No. 2016-13, Measurement of Credit Losses on Financial Instruments, to require financial assets carried at amortized cost to be presented at the net amount expected to be collected based on historical experience, current conditions and forecasts. Subsequently, the FASB issued ASU
F-91
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(All amount in thousands, except for share and per share data, unless otherwise stated)
3. Recent Accounting Pronouncements (continued)
Recently adopted accounting pronouncements (continued)
No. 2018-19, Codification Improvements to Topic 326, to clarify that receivables arising from operating leases are within the scope of lease accounting standards. Further, the FASB issued ASU No. 2019-04, ASU No. 2019-05, ASU 2019-10 and ASU 2019- 11 to provide additional guidance on the credit losses standard. The ASUs are effective for interim and annual periods beginning after December 15, 2019, with early adoption permitted. Adoption of the ASUs is on a modified retrospective basis. The Group adopted the ASU on January 1, 2020, with a cumulative-effect increase of RMB2,074. recorded in accumulated deficit.
In January 2017, the FASB issued ASU No. 2017-04, Simplifying the Test for Goodwill Impairment, to simplify the test for goodwill impairment by removing Step 2. An entity will, therefore, perform the goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount and recognizing an impairment charge for the amount by which the carrying amount exceeds the fair value, not to exceed the total amount of goodwill allocated to the reporting unit. An entity still has the option to perform a qualitative assessment to determine if the quantitative impairment test is necessary. The ASU is effective for interim and annual periods beginning after December 15, 2019, with early adoption permitted. Adoption of the ASU is prospective. The Group adopted the ASU on January 1, 2020, which did not have a material impact on the consolidated financial statements.
In August 2018, the FASB issued ASU No. 2018-15, Customers Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement that Is a Service Contract. The ASU aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software (and hosting arrangements that include an internal-use software license). The ASU is effective for interim and annual periods beginning after December 15, 2019, with early adoption permitted. Adoption of the ASU is either retrospective or prospective. The Group adopted the ASU on January 1, 2020, which did not have a material impact on the consolidated financial statements.
In December 2019, the FASB issued ASU No. 2019-12, Simplifying the Accounting for Income Taxes, as part of its initiative to reduce complexity in accounting standards. The amendments in the ASU are effective for fiscal years beginning after December 15, 2020, including interim periods therein. Early adoption of the standard is permitted, including adoption in interim or annual periods for which financial statements have not yet been issued. The Group plans to adopt the ASU prospectively on January 1, 2021. The ASU is currently not expected to have a material impact on the consolidated financial statements.
In January 2020, the FASB issued ASU No. 2020-01, InvestmentsEquity Securities (Topic 321), InvestmentsEquity Method and Joint Ventures (Topic 323), and Derivatives and Hedging (Topic 815)Clarifying the Interactions between Topic 321, Topic 323, and Topic 815 (a consensus of the Emerging Issues Task Force). The amendments in this update clarify the interaction of the accounting for equity securities under Topic 321 and investments accounted for under the equity method of accounting in Topic 323 and the accounting for certain forward contracts and purchased options accounted for under Topic 815. For public business entities, the amendments in this Update are effective for fiscal years beginning after December 15, 2020, and interim periods within those fiscal years. For all other entities, the amendments are effective for fiscal years beginning after December 15, 2021, and interim periods within those fiscal years. Early adoption is permitted. The ASU is currently not expected to have a material impact on the consolidated financial statements.
In March 2020, the FASB issued ASU No. 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting. The amendments in this update are effective for all
F-92
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(All amount in thousands, except for share and per share data, unless otherwise stated)
3. Recent Accounting Pronouncements (continued)
Recently adopted accounting pronouncements (continued)
entities as of March 12, 2020 through December 31, 2022. The amendments in this update provide optional expedients and exceptions for applying generally accepted accounting principles (GAAP) to contracts, hedging relationships, and other transactions affected by reference rate reform if certain criteria are met. The ASU is currently not expected to have a material impact on the consolidated financial statements.
4. Concentration and Risks
(a) Concentration of credit risk
Assets that potentially subject the Group to significant concentrations of credit risk primarily consist of cash and cash equivalents, restricted cash, short-term deposits and short-term investment. The maximum exposure of such assets to credit risk is their carrying amounts as of the balance sheet dates. As of December 31, 2019, and June 30, 2020, substantially all of the Groups cash and cash equivalents, restricted cash, and short-term investments were placed with the PRC and international financial institutions. Management chooses these institutions because of their reputations and track records for stability, and their known large cash reserves, and management periodically reviews these institutions reputations, track records, and reported reserves. Management expects that any additional institutions that the Group uses for its cash and bank deposits would be chosen with similar criteria for soundness. Bank failure is uncommon in the PRC and the Group believes that those Chinese banks that hold the Groups cash and cash equivalents, restricted cash, short-term deposits and short-term investments are financially sound based on publicly available information.
(b) Foreign currency exchange rate risk
The revenues and expenses of the Groups entities in the PRC are generally denominated in RMB and their assets and liabilities are denominated in RMB. The Groups oversea financing activities are denominated in U.S. dollars. The RMB is not freely convertible into foreign currencies. Remittances of foreign currencies into the PRC or remittances of RMB out of the PRC as well as exchange between RMB and foreign currencies require approval by foreign exchange administrative authorities and certain supporting documentation. The State Administration for Foreign Exchange, under the authority of the Peoples Bank of China, controls the conversion of RMB into other currencies.
5. Fair Value of Financial Instruments
ASC 820, Fair Value Measurements, states that fair value is an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. As such, fair value is a market-based measurement that should be determined based on assumptions that market participants would use in pricing an asset or a liability. The three-tiered fair value hierarchy, which prioritizes which inputs should be used in measuring fair value, is comprised of: (Level I) observable inputs such as quoted prices in active markets; (Level II) inputs other than quoted prices in active markets that are observable either directly or indirectly and (Level III) unobservable inputs for which there is little or no market data. The fair value hierarchy requires the use of observable market data when available in determining fair value. Assets and liabilities that were measured at fair value on a recurring basis were as follows:
As of December 31, 2019 | As of June 30, 2020 | |||||||||||||||||||||||||||||||
Fair Value | Level I | Level II | Level III | Fair Value | Level I | Level II | Level III | |||||||||||||||||||||||||
Short-term investments |
407,844 | | 407,844 | | 223,173 | | 223,173 | | ||||||||||||||||||||||||
Derivative liabilities(i) |
897,091 | | | 897,091 | 389,430 | | | 389,430 | ||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-93
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(All amount in thousands, except for share and per share data, unless otherwise stated)
5. Fair Value of Financial Instruments (continued)
(i) In determining the fair value of derivative liabilities, the Company has adopted the equity allocation model. For purposes of determining the redemption right of Series A, A-1 and A-2, B, B-1 and B-2, and C Preferred Shares, on December 31, 2019, April 10, 2020 (the issuance date of Series C), May 11, 2020 (the issuance date of Series C), May 26, 2020 (the issuance date of Series C) and June 30, 2020, the Company re-performed the equity allocation model for Series A, A-1 and A-2, B, B-1 and B-2, and C Preferred Shares in scenarios assuming the redemption feature is removed, the difference between the with embedded redemption features scenario and the without embedded redemption features scenario is considered to be value of the redemption features of the Series A, A-1 and A-2, B, B-1 and B-2, and C Preferred Shares. Such approach involves certain significant estimates which are as follows:
Valuation Date |
December 31,
2019 |
April 10,
2020 |
May 11,
2020 |
May 26,
2020 |
June 30,
2020 |
|||||||||||||||
Volatility(1) |
37.90 | % | 42.38 | % | 42.82 | % | 42.69 | % | 41.75 | % | ||||||||||
Risk-free rate(2) |
2.65 | % | 1.10 | % | 1.05 | % | 1.03 | % | 0.97 | % | ||||||||||
Dividend yield(3) |
0.00 | % | 0.00 | % | 0.00 | % | 0.00 | % | 0.00 | % | ||||||||||
Time to expiration(4) (in years) |
5.37 | 5.02 | 4.93 | 4.89 | 4.80 |
(1) |
The volatility is estimated based on the historical share price movement of comparable companies for the period of time close to the expected time to exercise. |
(2) |
The risk-free rate is based on the market yield of US treasury curve with China country risk premium. |
(3) |
The dividend yield is estimated by the Company based on its expected dividend policy over the contractual term of the options. |
(4) |
Time to expiration is the time between valuation date and the redemption or liquidation date. |
6. Inventory
Inventory consisted of the following:
As of
December 31, |
As of
June 30, |
|||||||
2019 | 2020 | |||||||
Raw materials |
125,673 | 292,636 | ||||||
Work-in-process |
| 75,245 | ||||||
Finished goods |
328,443 | 406,181 | ||||||
|
|
|
|
|||||
Total |
454,116 | 774,062 | ||||||
|
|
|
|
Raw materials primarily consist of materials for volume production.
Work-in-process primarily consist of P7 in production which will be transferred into production cost when incurred.
Finished goods primarily consist of vehicles ready for transit at production factory, vehicles in transit to fulfill customer orders, new vehicles available for immediate sale at its delivery and service centers, vehicle parts and charging piles.
For the six months ended June 30, 2019, inventory write-downs of RMB148,080 mainly due to the phasing out of G3 2019 model were recognized in cost of sales. For the six months ended June 30, 2020, write-downs of inventories to net realizable value amounted to RMB16,000, which were recognized in cost of sales.
F-94
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(All amount in thousands, except for share and per share data, unless otherwise stated)
7. Prepayments and Other Current Assets
Prepayments and other current assets consisted of the following:
As of
December 31, |
As of
June 30, |
|||||||
2019 | 2020 | |||||||
Receivables from issuance of Preferred Shares |
279,048 | | ||||||
Deductible value-added tax input |
437,129 | 547,462 | ||||||
Deposits |
188,190 | 10,802 | ||||||
Prepayments |
80,699 | 415,476 | ||||||
Others |
98,241 | 50,227 | ||||||
|
|
|
|
|||||
Total |
1,083,307 | 1,023,967 | ||||||
|
|
|
|
Deposits primarily consist of deposits to suppliers for guarantee of procurement and short-term leases.
Prepayments primarily consist of prepayment for raw materials, marketing and consulting services provided by suppliers.
8. Property, Plant and Equipment, Net
Property, plant and equipment, net, consisted of the following:
As of
December 31, |
As of
June 30, |
|||||||
2019 | 2020 | |||||||
Construction in progress |
2,236,775 | 170,103 | ||||||
Buildings |
| 825,999 | ||||||
Mold and tooling |
497,174 | 956,519 | ||||||
Vehicles |
230,328 | 232,536 | ||||||
Machinery and equipment |
193,889 | 1,026,993 | ||||||
Leasehold improvements |
191,356 | 196,013 | ||||||
Computer and electronic equipment |
54,044 | 67,220 | ||||||
Charging infrastructure |
39,792 | 42,686 | ||||||
Others |
27,770 | 49,682 | ||||||
|
|
|
|
|||||
Sub-total |
3,471,128 | 3,567,751 | ||||||
|
|
|
|
|||||
Less: Accumulated depreciation |
(161,991 | ) | (261,128 | ) | ||||
Less: Accumulated impairment |
(79,185 | ) | (87,701 | ) | ||||
|
|
|
|
|||||
Property, plant and equipment, net |
3,229,952 | 3,218,922 | ||||||
|
|
|
|
The Group recorded depreciation expenses of RMB53,092 and RMB103,985 for the six months ended June 30, 2019 and 2020, respectively.
Vehicles represent the rides-qualified vehicles operated by the Group for the ride hailing services, certain vehicles under operating lease arrangement with customers and the vehicles used for the Groups daily operation.
F-95
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(All amount in thousands, except for share and per share data, unless otherwise stated)
8. Property, Plant and Equipment, Net (continued)
Construction in progress primarily consists of the construction of Zhaoqing manufacturing plant and mold, tooling, machinery and equipment related to the manufacturing of the Groups vehicles. For the six months ended June 30, 2019 and 2020, the Group capitalized RMB9,514 and RMB26,351 of interest, respectively. Subsidies for interest expenses capitalized received from government by the Group were recognized to reduce the interest expenses capitalized in the construction of Zhaoqing manufacturing plant. Subsidies for interest expenses received from government by the Group were recognized to reduce the interest expenses after completion of construction. In April 2020, the completed assets are transferred to their respective assets classes.
The accumulated impairment loss was RMB79,185 and RMB87,701 as of December 31, 2019 and June 30, 2020, primarily due to the phasing out of G3 2019 model and associated mold and tooling.
9. Intangible Assets, Net
Intangible assets and related accumulated amortization consisted of the following:
As of December 31, 2019 | As of June 30, 2020 | |||||||||||||||||||||||
Gross
Carrying Amount |
Accumulated
amortization |
Net
Carrying Amount |
Gross
Carrying Amount |
Accumulated
amortization |
Net
Carrying Amount |
|||||||||||||||||||
Finite-lived intangible assets |
||||||||||||||||||||||||
Software |
98,402 | (10,009 | ) | 88,393 | 106,783 | (16,348 | ) | 90,435 | ||||||||||||||||
License of maintenance and overhauls |
2,290 | (1,678 | ) | 612 | 2,290 | (2,209 | ) | 81 | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total finite-lived intangible assets |
100,692 | (11,687 | ) | 89,005 | 109,073 | (18,557 | ) | 90,516 | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Indefinite-lived intangible assets |
||||||||||||||||||||||||
Manufacturing license(i) |
| | | 494,000 | | 494,000 | ||||||||||||||||||
License plate |
28,927 | | 28,927 | 28,927 | | 28,927 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total indefinite-lived intangible assets |
28,927 | | 28,927 | 522,927 | | 522,927 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total intangible assets |
129,619 | (11,687 | ) | 117,932 | 632,000 | (18,557 | ) | 613,443 | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
The Group recorded amortization expenses of RMB2,686 and RMB7,160 for the six months ended June 30, 2019 and 2020, respectively.
(i) Acquisition and subsequent sale of the 100% equity interest in a company that holds a manufacturing license
On March 12, 2020, the Group entered into a share transfer agreement (the STA) to acquire the 100% equity interest in a company (the Acquiree) from its shareholders (the Sellers) for a total cash consideration of RMB510 million (the Acquisition).
In March 2020, as part of the equity purchase, all of the Acquirees net assets with a carrying value of RMB8 million which included the manufacturing license were acquired by the Group under the terms of the STA, subject to regulatory approval. In accordance with the STA, on June 6, 2020, immediately after approval from the relevant PRC regulatory authority was granted for the manufacturing license to be transferred from the Acquiree to the Group, the Group sold its 100% equity interest in the Acquiree to the Sellers related parties for consideration of RMB16 million, resulting in a sale of all of the Acquirees net assets, except for the manufacturing license. Given the acquisition from the Sellers and the subsequent sale to the Sellers related parties were in accordance with the terms of the STA, the consideration received of RMB16 million, in substance, represents an adjustment or reduction to the total cash consideration of RMB510 million incurred
F-96
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(All amount in thousands, except for share and per share data, unless otherwise stated)
9. Intangible Assets, Net (continued)
(i) Acquisition and subsequent sale of the 100% equity interest in a company that holds a manufacturing license (continued)
by the Group for the manufacturing license. The net effect of the series of transactions outlined above is that only the manufacturing license was acquired and retained by the Group. The Group determined that it was the nominee shareholder of the Acquiree during the period from acquisition to the sale of the Acquiree after regulatory approval was obtained for the transfer of the manufacturing license to the Group, approximately three months. During this period, the Group was not entitled to any of the economic results of the Acquiree. In accordance with ASC 810, the Group did not obtain a controlling financial interest in the Acquiree during this period, and accordingly, did not consolidate the financial statements of the Acquiree.
The Acquisition is determined to be an asset acquisition as the Group did not obtain a controlling financial interest in the Acquiree upon closing of the Acquisition in May 2020. On the basis above, the Group accounted for the acquisition of the manufacturing license as an intangible asset with a total cost of RMB494 million. The useful life of the license is assessed as indefinite as there is no limit to the valid period of the license under the relevant PRC laws and regulations.
Out of the initial cash consideration of RMB510 million, RMB100 million was paid in December 2019, RMB100 million was paid in March 2020, RMB100 million was paid in April 2020 and RMB100 million was paid subsequently in July 2020, and RMB110 million was paid subsequently in August 2020. For the repurchase consideration of RMB16 million due from the Sellers related parties, RMB10 million was received in June 2020.
10. Land Use Rights, Net
Land use rights and related accumulated amortization consisted of the following:
As of December 31, | As of June 30, | |||||||
2019 | 2020 | |||||||
Land use rights |
264,886 | 264,886 | ||||||
Less: Accumulated amortization |
(9,629 | ) | (12,290 | ) | ||||
|
|
|
|
|||||
Total land use rights, net |
255,257 | 252,596 | ||||||
|
|
|
|
The Group recorded amortization expenses for land use rights of RMB2,661 and RMB2,661 for the six months ended June 30, 2019 and 2020, respectively.
11. Other Non-current Assets
Other non-current assets consisted of the following:
As of December 31, | As of June 30, | |||||||
2019 | 2020 | |||||||
Prepayment for acquisition of assets |
100,000 | | ||||||
Long-term deposits |
29,316 | 46,222 | ||||||
Prepayments for purchase of property, plant and equipment |
7,159 | 8,341 | ||||||
Others |
1,037 | 2,469 | ||||||
|
|
|
|
|||||
Total |
137,512 | 57,032 | ||||||
|
|
|
|
Long-term deposits primarily consist of deposits for offices and retail and service centers which will not be collectable within one year.
F-97
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(All amount in thousands, except for share and per share data, unless otherwise stated)
12. Accruals and Other Liabilities
Accruals and other liabilities consisted of the following:
As of December 31, | As of June 30, | |||||||
2019 | 2020 | |||||||
Payables for purchase of manufacturing license |
| 210,000 | ||||||
Payables for purchase of property, plant and equipment |
831,644 | 822,317 | ||||||
Payable for research and development expenses |
257,473 | 219,742 | ||||||
Employee compensation payable |
199,515 | 224,375 | ||||||
Accrued expenses |
107,712 | 90,098 | ||||||
Noncontrolling interests(i) |
98,010 | 98,010 | ||||||
Payables for marketing events |
83,552 | 87,572 | ||||||
Deposits from third parties |
62,696 | 88,976 | ||||||
Advances from customers |
37,478 | 143,729 | ||||||
Interest payables |
23,315 | 24,044 | ||||||
Warranty |
8,380 | 14,682 | ||||||
Others |
46,220 | 53,716 | ||||||
|
|
|
|
|||||
Total |
1,755,995 | 2,077,261 | ||||||
|
|
|
|
As of June 30, 2020, payables for purchase of manufacturing license represented the payables for an acquisition of a Company that holds a manufactory license.
Accrued expenses primarily reflected receipts of goods and services that the Group had not been invoiced yet. As the Group are invoiced for these goods and services, this balance will reduce and accounts payable will increase.
(i) |
On September 19, 2019, the Group entered into a partnership agreement with Guangzhou Industrial Transformation and Upgrading Development Fund Co., Limited (Industrial Fund) and Shenzhen Antuo Hengyuan Fund management Co., Limited (Shenzhen Antuo) to set up a limited liability partnership entity (the Kunpeng Kechuang LLP). Industrial Fund and Shenzhen Antuo subscribed for RMB98,000 and RMB10 paid in capital in Kunpeng Kechuang LLP with 24.5% and 0.0025%, of the shares, respectively. On October 22, 2019 and October 24, 2019, Industrial Fund and Shenzhen Antuo injected RMB98,000 and RMB10 in cash to Kunpeng Kechuang LLP, respectively. Pursuant to the investment agreement, Industrial Fund and Shenzhen Antuo do not have substantive participating rights to Kunpeng Kechuang LLP nor are able to transfer their interest in Kunpeng Kuchuang LLP to other third party. In addition, at any time within three years the Group is entitled to upon its request or is obligated to upon Industrial Funds request to purchase from Industrial Fund all of its interest in Kunpeng Kechuang LLP at its investment amount paid plus interest calculated at the current annual interest rate of the 3-year Treasury Bond in the PRC. Upon exit of Industrial Fund, Kunpeng Kechuang LLP will be dissolved and Shenzhen Antuo will be entitled to its investment amount paid amounted to RMB10. As such, the Group consolidates Kunpeng Kechuang LLP. The investments by Industrial Fund and Shenzhen Antuo are accounted for as a liability because liability classification is required when the Group enters into a purchased call and written put with the noncontrolling interests holders, and the put and call have the same fixed exercise price and exercise date. |
F-98
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(All amount in thousands, except for share and per share data, unless otherwise stated)
13. Borrowings
Borrowings consisted of the following:
As of December 31, | As of June 30, | |||||||
2019 | 2020 | |||||||
Current |
||||||||
Short-term borrowings: |
||||||||
Bank loans |
419,950 | 277,465 | ||||||
|
|
|
|
|||||
419,950 | 277,465 | |||||||
Current portion of long-term borrowings |
60,000 | 60,000 | ||||||
|
|
|
|
|||||
Total current borrowings |
479,950 | 337,465 | ||||||
|
|
|
|
|||||
Non-Current |
||||||||
Long-term borrowings: |
||||||||
Bank loans |
90,000 | 89,980 | ||||||
Other loans |
1,600,000 | 1,600,000 | ||||||
|
|
|
|
|||||
Total non-current borrowings |
1,690,000 | 1,689,980 | ||||||
|
|
|
|
|||||
Total borrowings |
2,169,950 | 2,027,445 | ||||||
|
|
|
|
As of December 31, 2019, the Group obtained short-term borrowings from five banks of RMB419,950 in aggregate. The effective interest rate of these borrowings is 3.92% to 4.57% per annum.
As of June 30, 2020, the Group obtained short-term borrowings from five banks of RMB277,465 in aggregate. The effective interest rate of these borrowings is 3.92% to 4.50% per annum.
As of December 31, 2019, the Group entered into long-term loan agreements with a bank in the PRC of total principals of RMB150,000, subject to a fixed interest rate of 4.99% per annum, and with a maturity date from January 22, 2020 to November 20, 2022. As of December 31, 2019, the principal amount of RMB60,000 was due within 12 months after the reporting period and presented as current liabilities in the consolidated balance sheet. As of June 30, 2020, the principal amount of RMB60,000 was due within 12 months after the interim period and presented as current liabilities, RMB89,980 was due after 12 months and presented as non-current liabilities in the unaudited condensed consolidated balance sheet.
In May 2017, Zhaoqing XPeng obtained a facility, specified for expenditures of the construction of Zhaoqing manufacturing plant, of up to RMB1,600,000 from Zhaoqing High-tech Zone Construction Investment Development Co., Ltd. As of December 31, 2019, and June 30, 2020, the aggregated drawdown amounted to RMB1,600,000 and RMB1,600,000 respectively. Out of the borrowing amounting to RMB1,600,000 in aggregate, RMB500,000, RMB500,000 and RMB600,000 mature 6 years, 7 years and 8 years, respectively, since the commencement of production of the Zhaoqing manufacturing plant. The interest rate of these loans is 4.90% per annum. Moreover, the Group received subsidies from government for interest expenses incurred associated with this borrowing. For the year/period ended December 31, 2019 and June 30, 2020, upon the acceptance of subsidy application by government, the Group recognized the subsidies to reduce the interest expenses capitalized in the construction of Zhaoqing manufacturing plant or reduce related interest expenses as incurred if any.
Certain of the Groups banking facilities are subject to the fulfillment of covenants relating to the Groups financial position and results, as are commonly found in lending arrangements with financial institutions. If the
F-99
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(All amount in thousands, except for share and per share data, unless otherwise stated)
13. Borrowings (continued)
Group were to breach the covenants, the drawn down facilities would become payable on demand. The Group regularly monitors its compliance with these covenants. As of December 31, 2019, and June 30, 2020, none of the covenants relating to drawn down facilities had been breached.
The carrying value of the borrowings approximates its fair value as of December 31, 2019 and June 30, 2020. The interest rates under the loan agreements with the banks were determined based on the prevailing interest rates in the market. The Group classifies the valuation techniques that use these inputs as Level II.
14. Other Non-Current Liabilities
Other non-current liabilities consisted of the following:
As of December 31, | As of June 30, | |||||||
2019 | 2020 | |||||||
Government grants |
46,798 | 2,400 | ||||||
Warranty |
26,217 | 33,304 | ||||||
|
|
|
|
|||||
Total |
73,015 | 35,704 | ||||||
|
|
|
|
15. Revenues
Revenues by source consisted of the following:
For the six months ended June 30, | ||||||||
2019 | 2020 | |||||||
Vehicle sales |
1,197,499 | 913,269 | ||||||
Services and others |
33,993 | 89,581 | ||||||
|
|
|
|
|||||
Total |
1,231,492 | 1,002,850 | ||||||
|
|
|
|
16. Deferred Revenue
The following table shows a reconciliation in the current interim period related to carried-forward deferred revenue.
For the Six Months Ended June 30, | ||||||||
2019 | 2020 | |||||||
Deferred revenue - beginning of period |
2,366 | 85,498 | ||||||
Additions |
1,012,472 | 844,407 | ||||||
Recognition |
(928,384 | ) | (815,356 | ) | ||||
|
|
|
|
|||||
Deferred revenue - end of period |
86,454 | 114,549 | ||||||
|
|
|
|
Deferred revenue represents the transaction price allocated to the performance obligations that are unsatisfied, which primarily arises from the undelivered vehicles, charging piles, free charging within 4 years or 100,000 kilometers, the extended lifetime warranty, option between household charging pile and charging card as well as vehicle internet connection services.
F-100
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(All amount in thousands, except for share and per share data, unless otherwise stated)
16. Deferred Revenue (continued)
The Group expects that 37% of the transaction price allocated to unsatisfied performance obligations which were accounted for as deferred revenue as of June 30, 2020 will be recognized as revenue during the period from June 30, 2020 to June 30, 2021. The remaining 63% will be substantially recognized during the period from July 1, 2021 to December 31, 2030.
17. Convertible Redeemable Preferred Shares
Series A Preferred Shares
On June 9, 2017, the Group issued 1,102,710 Series A Preferred Shares in exchange for an aggregate cash consideration of RMB168,000, or RMB152 per share. These 1,102,710 Series A Preferred Shares were split into 27,567,750 Series A Preferred Shares at par value of US$0.00001 upon a 1:25 share split in March 2020.
On November 27, 2017, the Group issued 2,021,635 Series A Preferred Shares in exchange for an aggregate cash consideration of RMB308,000, or RMB152 per share. These 2,021,635 Series A Preferred Shares were split into 50,540,875 Series A Preferred Shares at par value of US$0.00001 upon a 1:25 share split in March 2020.
Series A-1 Preferred Shares
On January 5, 2018, the Group issued 2,712,095 Series A-1 Preferred Shares in exchange for an aggregate cash consideration of RMB460,000, or RMB170 per share. These 2,712,095 Series A-1 Preferred Shares were split into 67,802,375 Series A-1 Preferred Shares at par value of US$0.00001 upon a 1:25 share split in March 2020.
Series A-2 Preferred Shares
On January 5, 2018, the Group issued 466,856 Series A-2 Preferred Shares in exchange for an aggregate cash consideration of RMB100,000, or RMB214 per share. These 466,856 Series A-2 Preferred Shares were split into 11,671,400 Series A-2 Preferred Shares at par value of US$0.00001 upon a 1:25 share split in March 2020.
Series B Preferred Shares
On March 26, 2018, the Group issued 6,419,268 Series B Preferred Shares in exchange for an aggregate cash consideration of RMB2,200,000, or RMB343 per share. These 6,419,268 Series B Preferred Shares were split into 160,481,700 Series B Preferred Shares at par value of US$0.00001 upon a 1:25 share split in March 2020.
Series B-1 Preferred Shares
On August 1, 2018, the Company issued 5,330,910 Series B-1 Preferred Shares in exchange for an aggregate cash consideration of RMB2,900,000, or RMB544 per share. These 5,330,910 Series B-1 Preferred Shares were split into 133,272,750 Series B-1 Preferred Shares at par value of US$0.00001 upon a 1:25 share split in March 2020.
Series B-2 Preferred Shares
On August 1, 2018, the Company issued 1,526,543 Series B-2 Preferred Shares in exchange for an aggregate cash consideration of RMB955,000, or RMB626 per share. These 1,526,543 Series B-2 Preferred Shares were
F-101
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(All amount in thousands, except for share and per share data, unless otherwise stated)
17. Convertible Redeemable Preferred Shares (continued)
Series B-2 Preferred Shares (continued)
split into 38,163,575 Series B-2 Preferred Shares at par value of US$0.00001 upon a 1:25 share split in March 2020.
Series C Preferred Shares
On December 2, 2019, the Company issued 3,183,626 Series C Preferred Shares in exchange for an aggregate cash consideration of US$300,000, equivalent to RMB2,107,860, or US$94, equivalent to RMB662 per share. These 3,183,626 Series C Preferred Shares were split into 79,590,650 Series C Preferred Shares at par value of US$0.00001 upon a 1:25 share split in March 2020.
On April 10, 2020, the Company issued 26,137,425 Series C Preferred Shares (after a 1:25 share split) in exchange for an aggregate cash consideration of US$98,519, equivalent to RMB693,123, or US$3.77 equivalent to RMB27 per share.
On May 11, 2020, the Company issued 795,907 Series C Preferred Shares (after a 1:25 share split) in exchange for an aggregate cash consideration of US$3,000, equivalent to RMB21,231, or US$3.77, equivalent to RMB27 per share.
On May 26, 2020, the Company issued 318,363 Series C Preferred Shares (after a 1:25 share split) in exchange for an aggregate cash consideration of US$1,200, equivalent to RMB8,555, or US$3.77, equivalent to RMB27 per share.
The key terms of the Series A Preferred Shares, Series A-1 Preferred Shares, Series A-2 Preferred Shares, Series B Preferred Shares, Series B-1 Preferred Shares, Series B-2 Preferred Shares and Series C Preferred Shares (collectively referred as the Preferred Shares) are summarized as follows.
Conversion feature
Each Preferred Share shall automatically be converted into Class A Ordinary Shares at the Conversion Price at the time in effect immediately upon the earlier of (a) the consummation of a Qualified IPO; and (b) the date specified by written consent or agreement of 80% holders of each series.
The initial conversion ratio of Preferred Shares to ordinary shares shall be 1:1, subject to adjustments in the event of (i) reorganizations, mergers, consolidations or sales of Assets, (ii) certain issuances of shares below the Conversion Price, (iii) share dividends, subdivisions and combinations of Class A ordinary shares, (iv) other distributions or (v) reclassification or recapitalization of Class A ordinary shares.
The Company determined that there were no beneficial conversion features identified for any of the Preferred Shares during any of the periods. In making this determination, the Company compared the fair value of the ordinary shares into which the Preferred Shares are convertible with the respective effective conversion price at the issuance date. To the extent a conversion price adjustment occurs, as described above, the Company will re-evaluate whether or not a beneficial conversion feature should be recognized.
F-102
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(All amount in thousands, except for share and per share data, unless otherwise stated)
17. Convertible Redeemable Preferred Shares (continued)
Redemption feature
Issuance of Series C, Series B-1 and B-2 and Series B Preferred Shares
Upon issuance of Series C, Series B-1 and B-2 and Series B Preferred Shares, the Company shall redeem, all of the outstanding Preferred Shares held by the requesting holder upon the written request of such holder, at any time after the earliest to occur of: (1) the Company fails to complete a Qualified IPO on or prior to April 16, 2025; (2) a breach by any of the Company, Principal Shareholders or the ESOP Holdco, where applicable, of its obligations that will have a material adverse effect to the Group; (3) A certain shareholder having requested the Company to redeem all or a portion of its shares after the occurrence of the Companys failure to cure, within a reasonable cure period, after the occurrence of a breach by any of the Company, Principal Shareholders or the ESOP Holdco, if where applicable, of its obligations under the specified agreements has, individually or together, caused a material adverse effect on the certain shareholders business, goodwill, or brand (A Certain Shareholder Redemption Event).
The redemption amount payable for each Preferred Share upon exercise of the redemption option by the holder, will be an amount equal to the greater of (a) 120% of the Original Issue Price of such Share, and (b) 100% of Original Issue Price plus compounded accrued daily interest (on the basis of a 365-day year basis) at a rate of twelve percent (12%) per annum. Upon the issuance of Series C, the redemption amount payable for each Preferred Share will be an amount equal to the greater of (a) 120% of the Original Issue Price, plus any dividends declared but unpaid thereon, of such Share, and (b) 100% of Original Issue Price plus compounded accrued daily interest (on the basis of a 365-day year basis) at a rate of twelve percent (12%) per annum. Upon redemption event, Series C Preferred Shares shall rank senior to Series B-1 and Series B-2 Preferred Shares, Series B-1 and Series B-2 Preferred Shares (the redemption of the Series B-2 Preferred Shares shall rank pari passu with the redemption of Series B-1 Preferred Shares) shall rank senior to Series B Preferred Shares. Series B Preferred Shares shall rank senior to Series A, Series A-1 and Series A-2 Preferred Shares. Series A, Series A-1 and A-2 Preferred Shares (the redemption of the Series A, Series A-1 and Series A-2 Preferred Shares shall rank pari passu with each other) shall rank senior to ordinary shares.
If any holder of outstanding Preferred Shares chooses to redeem and the Company does not have sufficient funds to pay the Redemption Price, such holder may sell its interests to a third party. If the aggregate price of the Redemption Shares in such sale to third party is less than the Redemption Price of such Redemption Shares, the Company shall be obligated to pay to the Selling Holder the excess, if any, of the Redemption Price over the aggregate price of the Redemption Shares.
Issuance of Series A-1 Preferred Shares and Series A-2 Preferred Shares
Prior to the issuance of Series A-1 and A-2 Preferred Shares, the Company shall redeem, at the option of the holder, all of the outstanding Preferred Shares held by the requesting holder, at any time after the earliest to occur of (1) a breach by any of the company, the principals, the principals shareholders of its obligations under the transaction documents, individually or together with other breaches by the foregoing Persons of their obligations under the transaction documents, have a material adverse effect to the company and other members within the Group; (2) any sale, conveyance, lease or disposition of all or substantially all of the Group Companies assets to a third party other than a Group Company; (3) any acquisition, amalgamation, scheme of arrangement or merger of the Company or other Group Company, which the Persons having Control over the Company or such other Group Companies will discontinue to have Control over the surviving entity; and (4) A Certain Shareholder Redemption Event.
F-103
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(All amount in thousands, except for share and per share data, unless otherwise stated)
17. Convertible Redeemable Preferred Shares (continued)
Redemption feature (continued)
Issuance of Series A-1 Preferred Shares and Series A-2 Preferred Shares (continued)
Upon issuance of Series A-1 Preferred Shares and Series A-2 Preferred Shares, the Company shall redeem, at the option of any holder of outstanding Preferred Shares, all of the outstanding Preferred Shares held by the requesting holder, at any time after the earliest to occur of (1) a breach by any of the company, the principals, the principals shareholders of its obligations under the transaction documents, individually or together with other breaches by the foregoing Persons of their obligations under the transaction documents, have a material adverse effect to the company and other members within the Group; and (2) A Certain Shareholder Redemption Event.
The redemption amount payable for each Preferred Share will be an amount equal to the greater of (a) 120% of the Original Issue Price, plus any dividends declared but unpaid thereon, of such Share, and (b) 100% of Original Issue Price plus compounded accrued daily interest (on the basis of a 365-day year basis) at a rate of twelve percent (12%) per annum.
Liquidation preferences
Liquidation Event means any of the following events: (i) any liquidation, dissolution or winding up of the Company, (ii) any sale, conveyance, lease or disposition of all or substantially all of the Groups assets (including by means of an exclusive licensing of all or substantially all of the Groups intellectual property or similar arrangement) to a third party other than the Group; and (iii) any acquisition, amalgamation, scheme of arrangement or merger of the Company or the Group by or with another entity where the gross or net value of the assets or equities being acquired represents more than 50% of the consolidated total assets or the consolidated net assets of the Group, by means of any transaction or series of related transactions to which the Company or such other Group Company, as applicable, is a party (other than a transaction or series of transactions in which the Persons having Control over the Company or such other Group Companies will continue to have Control over the surviving entity), Provided, however, that the events set forth in the foregoing (ii) or (iii) shall not be deemed a Liquidation Event unless the Majority Preferred Holders have, by written notice to the Company, determined that such events constitute a Liquidation Event. The occurrence of a Liquidation Event will trigger redemption and liquidation of net assets of the Company and distribution of the proceeds to redeem all the Companys equity securities in accordance with the seniority described below, not the Preferred Shares.
In the event of any liquidation, the holders of Preferred Shares have preference over holders of ordinary shares with respect to payment of dividends and distribution of assets. Upon Liquidation Event, Series C Preferred Shares shall rank senior to Series B-1 and Series B-2 Preferred Shares, Series B-1 and Series B-2 Preferred Shares (the liquidation preference of the Series B-2 Preferred Shares shall rank pari passu with the liquidation preference of Series B-1 Preferred Shares) shall rank senior to Series B Preferred Shares. Series B Preferred Shares shall rank senior to Series A, Series A-1 and Series A-2 Preferred Shares. Series A, Series A-1 and A-2 Preferred Shares (the liquidation preference of the Series A, Series A-1 and Series A-2 Preferred Shares shall rank pari passu with each other) shall rank senior to ordinary shares.
The holders of Preferred Shares and the ordinary shares shall be entitled to receive an amount per share equal to the greater of (a) 120% of the Original Issue Price, plus any dividends declared but unpaid thereon, of such Share, and (b) 100% of Original Issue Price plus compounded accrued daily interest (on the basis of a 365-day year basis) at a rate of twelve percent (12%) per annum.
F-104
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(All amount in thousands, except for share and per share data, unless otherwise stated)
17. Convertible Redeemable Preferred Shares (continued)
Liquidation preferences (continued)
After setting aside or paying in full the aggregate Liquidation Preference Amount of the Series C Preferred Shares, the Series B-2 Preferred Shares, the Series B-1 Preferred Shares, the Series B Preferred Shares, the Series A-2 Preferred Shares, the Series A-1 Preferred Shares, the Series A Preferred Shares and the Ordinary Shares, the remaining assets of the Company available for distribution to Shareholders, if any, shall be distributed to the holders of Class A and Class B Ordinary Shares and Preferred Shares on a pro rata basis, based on the number of Shares then held by each holder on an as converted basis.
Dividends rights
Each holder of Preferred Shares shall be entitled to receive, prior and in preference to any declaration or payment of any cash or non-cash dividend on the Ordinary Shares, but pari passu with other holders of Preferred Shares, noncumulative dividends at a simple rate of four percent (4%) per annum of the Original Issue Price of such Preferred Shares on each such Preferred Share held by such holder, payable when, as and if declared by the Board. Notwithstanding the foregoing, if the Board shall declare dividends on Ordinary Shares, each holder of any Preferred Shares shall be entitled to receive the higher of (i) four percent (4%) of the Original Issue Price of such Preferred Share, and (ii) the amount of dividends in respect of the Ordinary Shares into which such Preferred Share is then convertible.
Voting rights
The holders of the Preferred Shares shall have the right to one vote for each ordinary share into which each outstanding Preferred Share held could then be converted. The holders of the Preferred Shares vote together with the Ordinary Shareholders, and not as a separate class or series, on all matters put before the shareholders. The holders of the Preferred Shares are entitled to appoint a total of 4 out of 7 directors of the Board.
Accounting for Series A, A-1, A-2, B, B-1, B-2 and C Preferred Shares
Prior to issuance of Series A-1 and A-2
The Company classified the Series A Preferred Shares as mezzanine equity in the unaudited condensed consolidated balance sheets because they were contingently redeemable upon the occurrence of certain liquidation events outside of the Companys control. No accretion was recognized subsequently since it is not probable that the instrument will become redeemable.
Upon issuance of Series A-1 and A-2
The issuance of Series A-1 and A-2 Preferred Shares concurrently amended terms of Series A Preferred Shares. Key changes include 1) changing from all shareholders sharing net asset on pro rate basis upon liquidation to having liquidation preference based on the formula and a distribution waterfall and 2) under the liquidation event, an investor shall receive an amount equal to the higher of a) 120% of the original investment amount, and 2) 100% of the original investment plus compounded accrued daily interest (on the basis of a 365-day year basis) at a rate of twelve percent (12%) per annum. The management assessed the amendments quantitatively using the fair value model to Series A and concluded Series A should be accounted for as an extinguishment based on the assessment.
Post issuance of Series A-1 and A-2, the Company classified the Series A, Series A-1 and A-2 Preferred Shares as mezzanine equity in the unaudited condensed consolidated balance sheets because they were
F-105
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(All amount in thousands, except for share and per share data, unless otherwise stated)
17. Convertible Redeemable Preferred Shares (continued)
Accounting for Series A, A-1, A-2, B, B-1, B-2 and C Preferred Shares (continued)
Upon issuance of Series A-1 and A-2 (continued)
contingently redeemable upon the occurrence of certain liquidation events outside of the Companys control. No accretion was recognized subsequently since it is not probable that the instrument will become redeemable.
Upon issuance of Series B
The issuance of Series B Preferred Shares concurrently amended terms of Series A, A-1 and A-2 Preferred Shares. Key changes include (i) under a redemption event, if any holder of outstanding Preferred Shares chooses to sell its interests to a third party but the aggregate price of the Redemption Shares in such sale to third party is less than the Redemption Price of such Redemption Shares, the Company shall be obligated to pay to the Selling Holder the excess, if any, of the Redemption Price over the aggregate price of the Redemption Shares; (2) if the Company fails to complete a Qualified IPO on or prior to April 16, 2025, the redemption event is triggered.
Upon the amendment, the time-based redemption right of Series A, A-1 and A-2 Preferred Shares, was deemed to have the characteristic of net settlement, and therefore the redemption right met the definition of a derivative. Accordingly, this feature was bifurcated and accounted for as a derivative liability, initially measured at fair value with changes in fair value in the subsequent periods recognized through earnings, as the feature is not considered clearly and closely related to the host. The Company concluded that the amendment to Series A, A-1 and A-2 should be accounted for as an extinguishment or modification based on its assessment on the amendments both qualitatively and quantitatively.
Post issuance of Series B
The net settlement mechanism of the redemption right described earlier exist in Series B, B-1, B-2 and C Preferred Shares subsequently issued. Therefore, the redemption right of Series B, B-1 and B-2 also met the definition of a derivative and was bifurcated and accounted for as derivative liabilities, which are initially measured at fair value with changes in fair value in the subsequent periods recognized through earnings, as the host contract of the Preferred Shares is considered to be an equity host and the redemption feature is not clearly and closely related to the host contract. The initial carrying value for each series of Preferred Shares recorded in mezzanine equity is allocated on a residual basis, after the recognition of the redemption option at its fair value upon bifurcation. The mezzanine equity component is subsequently accreted to the amount equals to redemption value of each series of Preferred Shares, less the-then fair value of the derivative liability using the interest method.
Accounting for a put option of an investor
In April 2020, the Company issued certain Series C to an investor, which is a fund (Investor Fund) owned by a partnership. As part of the arrangement, the Company provided a put option to a limited partner (LP) of the Investor Fund pursuant to which the LP shall have the right to redeem its LP interests in the Investor Fund (not Series C issued by the Company) with the principal amounted to RMB300,000 plus 8% annualized interest (Fund Redemption Price) in the event the Company was not able to reach a business agreement with the LP on or before December 31, 2020. The redemption right of the LP is accounted for as a freestanding put option at fair value, which was immaterial as of June 30, 2020.
F-106
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(All amount in thousands, except for share and per share data, unless otherwise stated)
17. Convertible Redeemable Preferred Shares (continued)
The Companys Preferred Shares activities for the six months ended June 30, 2019 and 2020 are summarized as follows:
Series A | Series A-1 | Series A-2 | Series B | Series B-1 | Series B-2 | Series C | Total | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Number
of shares |
Amount
(RMB) |
Number
of shares |
Amount
(RMB) |
Number
of shares |
Amount
(RMB) |
Number of
shares |
Amount
(RMB) |
Number of
shares |
Amount
(RMB) |
Number
of shares |
Amount
(RMB) |
Number of
shares |
Amount
(RMB) |
Number of
shares |
Amount
(RMB) |
|||||||||||||||||||||||||||||||||||||||||||||||||
Balances as of December 31, 2018 |
78,108,625 | 532,353 | 67,802,375 | 498,581 | 11,671,400 | 108,002 | 160,481,700 | 2,274,403 | 133,272,750 | 2,685,499 | 38,163,575 | 880,635 | | | 489,500,425 | 6,979,473 | ||||||||||||||||||||||||||||||||||||||||||||||||
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Accretion on Preferred Shares to redemption value post extinguishment |
| 38,247 | | 35,946 | | 7,661 | | 150,995 | | 132,790 | | 31,554 | | | | 397,193 | ||||||||||||||||||||||||||||||||||||||||||||||||
Repurchase of the Preferred Shares |
| | | | | | | | | | (2,197,900 | ) | (48,447 | ) | | | (2,197,900 | ) | (48,447 | ) | ||||||||||||||||||||||||||||||||||||||||||||
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Balances as of June 30, 2019 |
78,108,625 | 570,600 | 67,802,375 | 534,527 | 11,671,400 | 115,663 | 160,481,700 | 2,425,398 | 133,272,750 | 2,818,289 | 35,965,675 | 863,742 | | | 487,302,525 | 7,328,219 | ||||||||||||||||||||||||||||||||||||||||||||||||
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Balances as of December 31, 2019 |
78,108,625 | 597,559 | 67,802,375 | 559,654 | 11,671,400 | 121,257 | 160,481,700 | 2,562,098 | 133,272,750 | 3,080,443 | 35,965,675 | 952,068 | 79,590,650 | 1,820,399 | 566,893,175 | 9,693,478 | ||||||||||||||||||||||||||||||||||||||||||||||||
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Issuance of Series C Preferred Shares |
| | | | | | | | | | | | 27,251,695 | 624,287 | 27,251,695 | 624,287 | ||||||||||||||||||||||||||||||||||||||||||||||||
Accretion on Preferred Shares to redemption value post extinguishment |
| 49,143 | | 46,144 | | 10,190 | | 238,404 | | 392,831 | | 120,535 | | 423,490 | | 1,280,737 | ||||||||||||||||||||||||||||||||||||||||||||||||
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Balances as of June 30, 2020 |
78,108,625 | 646,702 | 67,802,375 | 605,798 | 11,671,400 | 131,447 | 160,481,700 | 2,800,502 | 133,272,750 | 3,473,274 | 35,965,675 | 1,072,603 | 106,842,345 | 2,868,176 | 594,144,870 | 11,598,502 | ||||||||||||||||||||||||||||||||||||||||||||||||
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F-107
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(All amount in thousands, except for share and per share data, unless otherwise stated)
18. Ordinary Shares
As detailed in Note 17, upon closing of the issuance of Series C Preferred Shares on December 2, 2019, the Company adopted a dual voting structure on its shares and the Companys ordinary shares were divided into Class A and Class B ordinary shares, accordingly.
Holders of Class A ordinary shares and Class B ordinary shares have the same rights, except for voting rights. Holders of Class A ordinary shares are entitled to one vote per share in all shareholders meetings, while holders of Class B ordinary shares are entitled to five votes per share.
After a share split effective on March 30, 2020, the Company authorized 3,492,799,650 Class A and 750,000,000 Class B ordinary shares of par value US$0.00001.
As of December 31, 2019, 131,955,575 Class A ordinary shares had been issued, 31,513,000 Class A ordinary shares outstanding and 331,234,375 Class B ordinary shares had been issued and outstanding.
The Company repurchased and cancelled 100,442,575 Class A ordinary shares with a par value of US$0.00001 per share which are currently held by Success Sharing Development Holding Limited on June 28, 2020. On the same day, 17,643,400 of Class A ordinary shares at par value of US$0.00001 per share was issued to Quack Holding Limited and 33,349,070 Class A Ordinary Shares at par value of US$0.00001 per share was issued to XPeng Fortune Holding Limited.
As of June 30, 2020, 82,505,470 Class A ordinary shares had been issued, 31,513,000 Class A ordinary shares outstanding and 331,234,375 Class B ordinary shares had been issued and outstanding.
19. Share-based Compensation
(a) Share options
During the period between 2015 and the first quarter of 2020, the Group granted share options to the employees to purchase its shares. One share option represents a right to purchase one Class A ordinary share of the Group with exercise price of RMB0.0004. The share options include both service condition and performance condition. For service condition, there are three types of vesting schedule, which are: (i) 25% of the share options shall become vested on each anniversary of the vesting commencement date for four years thereafter; (ii) 40% of the share options shall become vested on the grant date and 15% of the share options become vested on each anniversary of the vesting commencement date for four years thereafter; (iii) 85% of the share options shall become vested on the grant date and 3.75% of the share options become vested on each anniversary of the vesting commencement date for four years thereafter. In addition to the services condition, employees are also required to provide continued service through the satisfaction of the occurrence of Liquidity Event that occurs within seven years after the vesting commencement date. If no Liquidity Event occurs prior to the seventh anniversary of the vesting commencement date, all share options, even those for which the service condition have been satisfied, shall be forfeited.
F-108
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(All amount in thousands, except for share and per share data, unless otherwise stated)
19. Share-based Compensation (continued)
(a) Share options (continued)
Activities of the Groups share options for the six months ended June 30, 2019 and 2020 were as follow:
Number of
Options Outstanding |
Weighted
Average Exercise Price |
Weighted
Average Remaining Contractual Life In Years |
||||||||||
RMB | ||||||||||||
Outstanding as of December 31, 2018 |
75,091,640 | 0.0004 | 5.56 | |||||||||
Granted |
6,917,000 | 0.0004 | ||||||||||
Forfeited |
(3,211,070 | ) | ||||||||||
Outstanding as of June 30, 2019 |
78,797,570 | 0.0004 | 5.34 | |||||||||
Replacement |
(78,797,570 | ) | ||||||||||
Outstanding as of June 30, 2020 |
| | | |||||||||
|
|
|||||||||||
Expected to vest as of June 30, 2019 |
72,493,764 |
No share-based compensation expenses was recognized for share options for the six months ended June 30, 2019. As of June 30, 2019, there were RMB186,590 of unrecognized share-based compensation expenses in relation to the share options granted to the Groups employees, out of which, unrecognized share-based compensation expenses of RMB74,323 in relation to share options for which the service condition had been met and are expected to be recognized when the performance condition is achieved.
In June, 2020, the Group agreed with the participants to cancel the existing stock options granted during the period between 2015 and the first quarter of 2020 along with a concurrent grant of a replacement RSUs. As of June 30, 2020, no share option was outstanding.
The fair value of each share options granted was estimated on the date of each grant using the Binomial option-pricing model with the assumptions (or ranges thereof) in the following table:
For the six months ended June 30, 2019 | ||||
Expected term (years) |
7 | |||
Exercise price (RMB) |
0.0004 | |||
Fair value of the ordinary shares on the date of option grant (RMB) |
8.36 ~ 8.53 | |||
Risk-free interest rate |
3.10% ~ 3.31% | |||
Expected dividend yield |
0.00% | |||
Expected volatility |
33.35% ~ 33.56% |
Notes:
(i) The risk-free interest rate of periods within the contractual life of the share option based on the market yield of US Treasury Curve adjusted with the China country risk premium.
(ii) The dividend yield was estimated by the Company based on its expected dividend policy over the contractual term of the options.
(iii) The volatility of the underlying ordinary shares during the life of the options was estimated based on the historical stock price volatility of comparable listed companies over a period comparable to the contractual term of the options.
(iv) Expected term is the contract life of the options.
F-109
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(All amount in thousands, except for share and per share data, unless otherwise stated)
19. Share-based Compensation (continued)
(b) Restricted share units and restricted shares upon and subsequent to the Replacement
After the Replacement mentioned in note 2(m), all share options granted during the period between 2015 and the first quarter of 2020 were replaced by 75,010,330 RSUs and 17,643,400 restricted shares.
The Replacement did not change the classification and vesting condition of Share-based Awards as equity instruments. No incremental fair value was recognized immediately before and after the Replacement. Therefore, the replacement awards should be accounted for in the same way as its original awards.
Additional RSUs were granted to the employees in 2020. One RSU represents a right relating to one class A ordinary share of the Group with a par value of US$0.00001 per share.
The RSUs primarily include both service condition and performance condition. For service condition, vesting schedules include: (i) vesting schedules mentioned in note 19(a); (ii) 25% of the RSUs shall become vested on the first anniversary of the vesting commencement date, and the remaining 75% of the RSUs shall become vested in equal installments on each quarterly anniversary of the vesting commencement date for three years thereafter. In addition to the services condition, employees are also required to provide continued service through the satisfaction of the occurrence of Liquidity Event that occurs within seven or ten years after the vesting commencement date. If no Liquidity Event occurs prior to the seventh or tenth anniversary of the vesting commencement date, all RSUs, even those for which the service condition has been satisfied, shall be forfeited.
The Group also granted RSUs in 2020 with only performance condition and the RSUs would be vested upon the occurrence of the Liquidity Event.
Activities of the Groups RSUs for the six months ended June 30, 2020 were as follow:
Number of
restricted share units |
Weighted
average grant- date fair value |
|||||||
RMB | ||||||||
Outstanding as of December 31, 2019 |
| | ||||||
Replacement |
75,010,330 | 4.87 | ||||||
Granted |
7,398,820 | 25.20 | ||||||
Forfeited |
(1,608,380 | ) | 7.06 | |||||
Outstanding as of June 30, 2020 |
80,800,770 | 6.68 | ||||||
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|
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Expected to vest as of June 30, 2020 |
74,336,708 | 6.68 |
F-110
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(All amount in thousands, except for share and per share data, unless otherwise stated)
19. Share-based Compensation (continued)
(b) Restricted share units and restricted shares upon and subsequent to the Replacement (continued)
Activities of the Groups restricted share for the six months ended June 30, 2020 were as follow:
Number of
restricted shares |
Weighted
average grant- date fair value |
|||||||
RMB | ||||||||
Outstanding as of December 31, 2019 |
| | ||||||
Replacement |
17,643,400 | 2.51 | ||||||
Outstanding as of June 30, 2020 |
17,643,400 | 2.51 | ||||||
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|
No share-based compensation expenses was recognized for restricted share units and restricted shares upon and subsequent to the Replacement for the six months ended June 30, 2020. As of June 30, 2020, total unrecognized compensation expense relating to the restricted share units and restricted shares upon and subsequent to the Replacement was RMB584,413, out of which, unrecognized share-based compensation expenses of RMB210,305 in relation to restricted share units and restricted shares upon and subsequent to the Replacement for which the service condition had been met and are expected to be recognized when the performance condition is achieved. The expense is expected to be recognized over a weighted average period of 1.57 years using the graded-vesting attribution method.
(c) Restricted shares
On May 7, 2016, two co-founders entered into an arrangement with other investors of the Company, and 75% of their 80,000,000 ordinary shares (Restricted Shares) would be subject to requisite service conditions, which shall vest 25%, 25% and 25% in 2016, 2017 and 2018.
On January 5, 2018, two co-founders entered into an arrangement with other investors of the Company, and the number of Restricted Shares is modified to one-third of their ordinary shares held as of January 5, 2018, which is 26,666,675 shares. 50% of the Restricted Shares shall become vested on each anniversary of January 5, 2018 for 2 years thereafter.
As of January 5, 2018, only 50% of the Restricted Shares, which is 40,000,000 shares, were vested. Before the modification, there were 40,000,000 unvested Restricted Shares, among which 20,000,000 Restricted Shares to be vested on January 9, 2018 and 20,000,000 Restricted Shares to be vested on January 8, 2019. Upon the modification, there were 26,666,675 unvested Restricted Shares, and each 13,333,325 Restricted Shares to be vested on January 5, 2019 and January 5, 2020, respectively. There were effectively two modification in the arrangement. Since the Restricted Shares after modification are still subject to the service condition, excess of the fair value of the modified awards over the fair value of the original awards immediately before the terms are modified at the modification date is considered immaterial. For the reduction of 13,333,325 shares, which is the difference of unvested 40,000,000 shares and 26,666,675 shares, it is effectively a modification to shorten the requisite service period ending from January 9, 2018 to January 5, 2018. Share-based compensation expenses was recognized immediately. Given there is no future requisite service period for the 13,333,325 shares, there is no incremental expense to be further recognized. For the remaining 26,666,675 unvested Restricted Shares, the requisite service period was extended. Unrecognized share-based compensation expenses was recognized over the remaining two years of modified requisite service period.
On March 26, 2018, two co-founders entered into an arrangement with other investors of the Company, and Restricted Shares would be subject to requisite service conditions. 50% of the Restricted Shares shall become
F-111
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(All amount in thousands, except for share and per share data, unless otherwise stated)
19. Share-based Compensation (continued)
(c) Restricted shares (continued)
vested on each anniversary of January 1, 2018 for 2 years thereafter. Pursuant to the arrangement, the vesting commencement date is changed from January 5, 2018 to January 1, 2018, it is effectively a modification to shorten the requisite service period. Share-based compensation expenses was recognized over the modified requisite service period.
Vesting schedule of the Restricted Shares for the six months ended June 30, 2019 and 2020 was as follow:
Number of
shares |
Weighted average grant
date fair value |
|||||||
RMB | ||||||||
Unvested as of December 31, 2018 |
13,333,325 | 10.16 | ||||||
Vested |
| | ||||||
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|
|||||
Unvested as of June 30, 2019 |
13,333,325 | 10.16 | ||||||
Vested |
(13,333,325 | ) | | |||||
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|
|||||
Unvested as of June 30, 2020 |
| | ||||||
|
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|
Share-based compensation amounted to RMB256 and nil in relation to the Restricted Shares was recognized during six months ended June 30, 2019 and 2020, respectively.
As of December 31, 2019, all the restricted shares of two co-founders have been vested. No restricted shares vested for the six months ended June 30, 2020.
20. Taxation
Income taxes
Current and deferred income tax expense for the six months ended June 30, 2019 and 2020 was nil.
21. Loss Per Share
Basic loss per share and diluted loss per share have been calculated in accordance with ASC 260 on computation of earnings per share for the six months ended June 30, 2019 and 2020 as follows:
For the six months ended
June 30, |
||||||||
2019 | 2020 | |||||||
Numerator: |
||||||||
Net loss |
(1,918,329 | ) | (795,803 | ) | ||||
Accretion on Preferred Shares to redemption value |
(397,193 | ) | (1,280,737 | ) | ||||
Deemed contribution from repurchase of Preferred Shares |
9,969 | | ||||||
|
|
|
|
|||||
Net loss attributable to ordinary shareholders of XPeng Inc. |
(2,305,553 | ) | (2,076,540 | ) | ||||
|
|
|
|
|||||
Denominator: |
||||||||
Weighted average number of ordinary shares outstanding-basic and diluted |
349,414,050 | 362,747,375 | ||||||
|
|
|
|
|||||
Basic and diluted net loss per share attributable to ordinary shareholders of XPeng Inc. |
(6.60 | ) | (5.72 | ) | ||||
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|
F-112
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(All amount in thousands, except for share and per share data, unless otherwise stated)
21. Loss Per Share (continued)
For the six months ended June 30, 2019 and 2020, the Company had potential ordinary shares, including non-vested restricted shares, share options and RSUs granted, and Preferred Shares. As the Group incurred losses for the six months ended June 30, 2019 and 2020, these potential ordinary shares were anti-dilutive and excluded from the calculation of diluted net loss per share of the Company. The weighted-average numbers of non-vested share options excluded from the calculation of diluted net loss per share of the Company were 100,442,575 as of June 30, 2019 and the weighted-average numbers of non-vested RSUs excluded from the calculation of diluted net loss per share of the Company were 549,710 as of June 30, 2020. The weighted-average numbers of non-vested restricted shares excluded from the calculation of diluted net loss per share of the Company were 13,333,325 as of June 30, 2019 and 290,825 as of June 30, 2020. Preferred Shares to be converted into ordinary shares were 489,281,849 as of June 30, 2019 and 578,955,379 as of June 30, 2020 on a weighted average basis.
22. Related parties
The principal related parties with which the Group had transactions during the interim periods presented are as follows:
Name of Entity or Individual |
Relationship with the Company |
|
Mr. Xiaopeng He |
Principal Shareholder of the Company, Chairman of the Board and Chief Executive Officer | |
Alibaba Group |
Principal Shareholder |
(1) Transaction with related parties:
For the six months
ended June 30, |
||||||||
2019 | 2020 | |||||||
Loans from a shareholder |
| 1,063,434 | ||||||
Repayment of loans from a shareholder |
| 1,063,434 | ||||||
Interest expense on the loans from a shareholder |
| 5,922 | ||||||
Operation support services provided by Alibaba Group |
6,702 | 9,882 | ||||||
Rental expenses to a shareholder |
| 5,074 |
F-113
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(All amount in thousands, except for share and per share data, unless otherwise stated)
22. Related parties (continued)
(2) Amount due from/to related parties:
As of
December 31, |
As of
June 30, |
|||||||
2019 | 2020 | |||||||
Amount due from related parties consisted of the following: |
||||||||
Mr. Xiaopeng He |
20,425 | | ||||||
Alibaba Group |
2,180 | 4,684 | ||||||
|
|
|
|
|||||
Total |
22,605 | 4,684 | ||||||
|
|
|
|
|||||
Amount due to related parties consisted of the following: |
||||||||
Mr. Xiaopeng He |
| 5,531 | ||||||
Alibaba Group |
678 | 4 | ||||||
|
|
|
|
|||||
Total |
678 | 5,535 | ||||||
|
|
|
|
As of December 31, 2019, amount due from a related party represents the deposit and prepayment paid on behalf of Mr. Xiaopeng He, a principal shareholder of the Company, Chairman of the Board and Chief Executive Officer.
23. Commitments and Contingencies
(a) Capital commitments
Capital expenditures contracted for at the balance sheet dates but not recognized in the unaudited condensed consolidated financial statements are as follows:
As of
December 31, |
As of
June 30, |
|||||||
2019 | 2020 | |||||||
Property, plant and equipment |
160,844 | 84,262 | ||||||
|
|
|
|
|||||
Investments |
410,000 | | ||||||
|
|
|
|
(b) Purchase commitments
Purchase expenditures contracted for at the balance sheet dates but not recognized in the unaudited interim condensed consolidated financial statements are as follows:
As of
December 31, |
As of
June 30, |
|||||||
2019 | 2020 | |||||||
Purchase commitments on purchase of raw materials |
| 346,869 | ||||||
|
|
|
|
F-114
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(All amount in thousands, except for share and per share data, unless otherwise stated)
24. Subsequent events
(a) Issuance of Additional Series C Preferred Shares
In July and August 2020, the Company issued a total of 207,588,515 Series C Preferred Shares for an aggregate consideration of US$900,000, equivalent to RMB6,271,720.
(b) Updates of the Impact of COVID-19
Starting from January 2020, it was reported that a novel strain of coronavirus, later named COVID-19, spread worldwide. In an effort to halt the outbreak, the PRC government placed significant restrictions on travel within China and closed certain businesses.
The COVID-19 has impact on Chinas auto industry in general and the production and delivery of vehicles of the Group. While the Group has resumed normal business operations, the Group has experienced certain disruptions in its operations as a result of the government imposed suspensions due to COVID-19 outbreak in China. A substantial number of its offices and stores, as well as both of its manufacturing facilities, were closed for certain periods in February and March of 2020. As a result, the Groups vehicle delivery for the first quarter decreased and were lower than expectation before the COVID-19 outbreak. Furthermore, while the outbreak has not materially and adversely affected the Groups supply chain as of the date hereof due to its advanced planning and effective supplier management, it may affect future delivery of components from certain suppliers that are currently suspended in production.
As a result of the outbreak of COVID-19, the Groups business, results of operation, financial position and cash flows were adversely affected in the first quarter of 2020 with potential continuing impact on subsequent periods, including but not limited to the adverse impact on the Groups revenues and operating cash flows. The extent to which COVID-19 impacts the business and financial results of the Group in the longer term will depend on future developments, which are uncertain and cannot be predicted, including new information which may emerge concerning the severity of the coronavirus and the actions to contain the coronavirus or treat its impact, among others. The Group will continue to evaluate the impact on the results of operation, financial position and cash flows of the Group and react actively as the situation evolves.
(c) Issuance of New Restricted Share Units
In July 2020, the Group granted 30,697,585 RSUs under the ESOP Plan to its employees. These RSUs include two types of vesting condition: (i) 25% of the RSUs shall become vested on each anniversary of the vesting commencement date for four years thereafter through the satisfaction of the occurrence of Liquidity Event; (ii) immediately vested at the grant date with no vesting condition.
(d) Reclassification and re-designation of ordinary shares
Pursuant to the seventh amended and restated memorandum and articles of association, which was approved by the Board of Directors on August 20, 2020 and effective immediately prior to the completion of an IPO, the Company shall reclassify and redesignate its ordinary shares into Class A, Class B and Class C ordinary shares. Holders of Class A ordinary shares are entitled to one vote per share, while holders of Class B ordinary shares are entitled to ten votes per share and holders of Class C ordinary shares are entitled to five votes per share upon the completion of an IPO.
F-115
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(All amount in thousands, except for share and per share data, unless otherwise stated)
25. Unaudited pro forma balance sheet and loss per share for conversion of preferred shares
Pursuant to the Companys memorandum and articles of association, the Companys Series A, Series A-1, Series A-2, Series B, Series B-1, Series B-2 and Series C Preferred Shares will be automatically converted into ordinary shares upon the closing of a qualified IPO.
The unaudited pro forma balance sheet as of June 30, 2020 presents an adjusted financial position as if the conversion of the preferred shares into ordinary shares occurred on June 30, 2020. Accordingly, the carrying value of the preferred shares and the relevant derivative liabilities, in the amount of RMB11,598,502 and RMB389,430, were reclassified from preferred shares and derivative liabilities to ordinary shares and additional paid-in capital for such pro forma presentation.
The following table sets forth the computation of unaudited pro forma basic and diluted net loss per share for the year ended June 30, 2020 after giving effect to the assumption that all Series A-1, Series A-2, Series B, Series B-1, Series B-2 and Series C have been converted into ordinary shares as if the conversion occurred as of the beginning of the period or the original date of issuance, if later:
For the six
months ended June 30, 2020 |
||||
Numerator: |
||||
Net loss attributable to ordinary shareholders |
(2,076,540 | ) | ||
Pro forma effect of conversion of Series A, Series A-1, Series A-2, Series B, Series B-1, Series B-2 and Series C Preferred Shares |
||||
Accretion on Preferred Shares to redemption value |
1,280,737 | |||
Fair value gain on derivative liabilities |
(618,442 | ) | ||
|
|
|||
Pro forma net loss attributable to ordinary shareholdersbasic and diluted |
(1,414,245 | ) | ||
Denominator: |
||||
Denominator for basic calculationweighted average number of ordinary shares outstanding |
362,747,375 | |||
Pro forma effect of conversion of Series A, Series A-1, Series A-2, Series B, Series B-1, Series B-2 and Series C Preferred Shares |
578,955,379 | |||
|
|
|||
Denominator for pro forma basic and diluted calculation |
941,702,754 | |||
Pro forma basic and diluted net loss per share attributable to ordinary shareholders |
(1.50 | ) |
The effects of all outstanding restricted shares and RSUs with a performance condition of an IPO and the related share-based compensation expenses were excluded from the computation of diluted pro-forma net loss per share for the six months ended June 30, 2020.
F-116
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 XPeng Inc. in December 2018 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. As we effected a share split on March 30, 2020, through which each one of the previously issued ordinary shares and preferred shares was split into 25 ordinary shares and preferred shares, respectively, the following share numbers have given effect to such share split.
Securities/Purchaser |
Date of Issuance |
Number of Securities |
Consideration in U.S. Dollars |
Underwriting
|
||||
Simplicity Holding Limited |
December 27, 2018 | 230,234,375 ordinary shares(1) | US$51,596,941.03 | n/a | ||||
Efficiency Investment Limited |
December 27, 2018 | 60,000,000 ordinary shares(1) | US$391,446.89 | n/a | ||||
Quality Enterprises Limited |
December 27, 2018 | 20,000,000 ordinary shares(1) | US$130,588.79 | n/a | ||||
Success Sharing Development Holding Limited |
December 27, 2018 | 137,202,575 ordinary shares(1) | US$522,168.80 | n/a | ||||
XPD Holdings Limited |
December 27, 2018 | 583,575 ordinary shares(1) | US$789,639.92 | n/a |
II-1
Securities/Purchaser |
Date of Issuance |
Number of Securities |
Consideration in U.S. Dollars |
Underwriting
|
||||
Taobao China Holding Limited |
September 12, 2019 | 50,540,875 Series A preferred shares | US$46,586,904.24 | n/a | ||||
GGV (Xpeng) Limited |
September 12, 2019 | 18,571,950 Series A-1 preferred shares | US$19,090,909.00 | n/a | ||||
Morningside TMT Holding IV Limited |
September 12, 2019 | 14,639,425 Series A-1 preferred shares | US$15,048,485.00 | n/a | ||||
Matrix Partners China IV Hong Kong Limited |
September 12, 2019 | 10,317,750 Series A-1 preferred shares | US$10,606,051.00 | n/a | ||||
Shunwei Top Venture Limited |
September 12, 2019 | 2,947,925 Series A-1 preferred shares | US$3,030,303.03 | n/a | ||||
XPD Holdings Limited |
September 12, 2019 | 583,575 Series A-2 preferred shares(2) | US$789,639.92 | n/a | ||||
Taobao China Holding Limited |
September 12, 2019 | 54,709,700 Series B preferred shares | US$117,787,479.98 | n/a | ||||
GGV (Xpeng) Limited |
September 12, 2019 | 4,376,775 Series B preferred shares | US$9,375,000.00 | n/a | ||||
Morningside TMT Holding IV Limited |
September 12, 2019 | 3,377,400 Series B preferred shares | US$7,234,375.00 | n/a | ||||
Matrix Partners China IV Hong Kong Limited |
September 12, 2019 | 2,917,850 Series B preferred shares | US$6,249,990.00 | n/a | ||||
Markarian Investments Limited |
September 12, 2019 | 14,589,250 Series B preferred shares | US$31,250,000.00 | n/a | ||||
Simplicity Holding Limited |
September 12, 2019 | 29,871,475 Series B-1 preferred shares | US$94,487,730.81 | n/a | ||||
GGV (Xpeng) Limited |
September 12, 2019 | 7,148,750 Series B-1 preferred shares | US$22,595,040.30 | n/a | ||||
Morningside TMT Holding IV Limited |
September 12, 2019 | 12,556,625 Series B-1 preferred shares | US$39,645,090.61 | n/a | ||||
Morningside Special IV Hong Kong Limited |
September 12, 2019 | 7,287,250 Series B-1 preferred shares | US$23,182,070.70 | n/a | ||||
Matrix Partners China IV Hong Kong Limited |
September 12, 2019 | 2,297,800 Series B-1 preferred shares | US$7,285,332.53 | n/a | ||||
Xenon Investment Limited |
September 12, 2019 | 21,387,275 Series B-1 preferred shares | US$67,550,819.37 | n/a | ||||
Sino EV Limited |
September 12, 2019 | 2,297,800 Series B-1 preferred shares | US$7,257,526.05 | n/a | ||||
Magical Star Project Company Limited |
September 12, 2019 | 2,665,450 Series B-1 preferred shares | US$8,554,319.93 | n/a | ||||
Proficient Development Project Company Limited |
September 12, 2019 | 1,571,700 Series B-1 preferred shares | US$5,044,098.99 | n/a |
II-2
Securities/Purchaser |
Date of Issuance |
Number of Securities |
Consideration in U.S. Dollars |
Underwriting
|
||||
CK Investment Holdings Limited |
September 12, 2019 | 358,450 Series B-1 preferred shares | US$1,156,005.01 | n/a | ||||
HH XP (HK) Holdings Limited |
September 12, 2019 | 2,297,800 Series B-1 preferred shares | US$7,285,337.53 | n/a | ||||
Robert S Bao |
September 12, 2019 | 919,125 Series B-1 preferred shares | US$2,914,135.01 | n/a | ||||
Taobao China Holding Limited |
September 12, 2019 | 18,382,450 Series B-1 preferred shares | US$57,965,973.97 | n/a | ||||
Simplicity Holding Limited |
September 12, 2019 | 7,033,275 Series B-2 preferred shares | US$25,584,370.19 | n/a | ||||
GGV (Xpeng) Limited |
September 12, 2019 | 1,776,075 Series B-2 preferred shares | US$6,455,725.91 | n/a | ||||
Xenon Investment Limited |
September 12, 2019 | 3,381,375 Series B-2 preferred shares | US$12,281,967.23 | n/a | ||||
KTB China Synergy Fund |
September 12, 2019 | 1,298,750 Series B-2 preferred shares | US$4,710,964.00 | n/a | ||||
KTB AI Limited Partnership |
September 12, 2019 | 2,697,425 Series B-2 preferred shares | US$10,049,577.92 | n/a | ||||
Sino EV Limited |
September 12, 2019 | 559,475 Series B-2 preferred shares | US$2,032,107.30 | n/a | ||||
Luminous Ace Limited |
September 12, 2019 | 783,250 Series B-2 preferred shares | US$2,885,000.00 | n/a | ||||
Truly Magnetic Project Company Limited |
September 12, 2019 | 1,214,850 Series B-2 preferred shares | US$4,483,643.55 | n/a | ||||
HH XP (HK) Holdings Limited |
September 12, 2019 | 1,998,100 Series B-2 preferred shares | US$7,285,337.53 | n/a | ||||
Taobao China Holding Limited |
September 12, 2019 | 5,394,850 Series B-2 preferred shares | US$19,563,516.22 | n/a | ||||
PV Xenon Investment II Limited |
December 2, 2019 | 10,612,100 Series C preferred shares | US$40,000,000.00 | n/a | ||||
Fast Pace Limited |
December 2, 2019 | 13,265,100 Series C preferred shares | US$50,000,000.00 | n/a | ||||
Simplicity Holding Limited |
December 2, 2019 | 43,642,225 Series C preferred shares | US$164,500,000.00 | n/a | ||||
GGV (Xpeng) Limited |
December 2, 2019 | 3,183,625 Series C preferred shares | US$12,000,000.00 | n/a | ||||
Matrix Partners China IV Hong Kong Limited |
December 2, 2019 | 1,326,500 Series C preferred shares | US$5,000,000.00 | n/a |
II-3
Securities/Purchaser |
Date of Issuance |
Number of Securities |
Consideration in U.S. Dollars |
Underwriting
|
||||
Shunwei Top Venture Limited |
December 2, 2019 | 397,950 Series C preferred shares | US$1,500,000.00 | n/a | ||||
Golden Eagle (Asia) Investment Limited |
December 2, 2019 | 2,653,025 Series C preferred shares | US$10,000,000.00 | n/a | ||||
Duowan Entertainment Corp. |
December 2, 2019 | 1,326,500 Series C preferred shares | US$5,000,000.00 | n/a | ||||
Evolution Special Opportunity Fund I, L.P. |
December 2, 2019 | 2,306,975 Series C preferred shares | US$8,695,652.00 | n/a | ||||
Evolution Fund I Co- investment, L.P. |
December 2, 2019 | 346,050 Series C preferred shares | US$1,304,348.00 | n/a | ||||
Bryan White |
December 2, 2019 | 265,300 Series C preferred shares | US$1,000,000.00 | n/a | ||||
Markarian Investments Limited |
December 2, 2019 | 265,300 Series C preferred shares | US$1,000,000.00 | n/a | ||||
Pacific Rays Limited |
April 10, 2020 | 26,137,425 Series C preferred shares(3) | US$98,519,394.25 | n/a | ||||
Shanghai Cheyou Enterprise Management Partnership (Limited Partnership) |
April 24, 2020 | 15,753,000 Class A ordinary shares and 27,567,750 Series A preferred shares(4) | US$25,531,932.02 | n/a | ||||
Shanghai Yuanxin Enterprise Management Partnership (Limited Partnership) |
April 24, 2020 | 8,935,900 Series B-1 preferred shares and 2,220,100 Series B-2 preferred shares(4) | US$36,034,997.19 | n/a | ||||
CX TMT Holding IV Limited |
April 24, 2020 | 3,932,550 Series A-1 preferred shares, 999,350 Series B preferred shares, 5,432,025 Series B-1 preferred shares and 999,050 Series B-2 preferred shares(4) | US$27,032,426.33 | n/a | ||||
Pacific Rays Limited |
April 24, 2020 | 14,739,650 Series A-1 preferred shares and 36,473,100 Series B preferred shares(4) | US$95,379,531.89 | n/a | ||||
Zhuhai Guangkong Zhongying Industrial Investment Fund Partnership (Limited Partnership) |
April 24, 2020 | 2,653,125 Series A-1 preferred shares(4) | US$ 2,848,416.76 | n/a |
II-4
Securities/Purchaser |
Date of Issuance |
Number of Securities |
Consideration in U.S. Dollars |
Underwriting
|
||||
Shanghai Jihe Enterprise Management Consulting Partnership (Limited Partnership) |
April 24, 2020 | 2,917,850 Series A-2 preferred shares, 729,450 Series B preferred shares, 919,125 Series B-1 preferred shares and 3,996,200 Series B-2 preferred shares(4) | US$22,830,179.38 | n/a | ||||
Shanghai Guangyi Investment Management Center (Limited Partnership) |
April 24, 2020 |
2,334,275 Series A-2 preferred
shares(4) |
US$ 3,162,255.32 | n/a | ||||
Speed Up Holdings Limited |
April 24, 2020 | 2,334,275 Series A-2 preferred shares and 459,550 Series B-1 preferred shares(4) | US$4,602,990.67 | n/a | ||||
Shanghai Huiyu Enterprise Management Partnership (Limited Partnership) |
April 24, 2020 | 7,294,625 Series B preferred shares(4) | US$ 15,914,950.50 | n/a | ||||
XP Management Limited |
April 24, 2020 |
13,130,325 Series B preferred
shares(4) |
US$28,611,848.48 | n/a | ||||
Yincheng Investment Limited |
April 24, 2020 | 3,888,600 Series B-1 preferred shares and 614,800 Series B-2 preferred shares(4) | US$14,418,155.34 | n/a | ||||
Ningbo Dingpeng Equity Investment Partnership (Limited Partnership) |
April 24, 2020 | 4,595,600 Series B-1 preferred shares and 1,998,100 Series B-2 preferred shares(4) | US$21,659,089.41 | n/a | ||||
Shanghai Yuanxin Enterprise Management Partnership (Limited Partnership) |
May 11, 2020 | 795,907 Series C preferred shares(3) | US$3,000,000.00 | n/a | ||||
Hongdi Brian Gu |
May 26, 2020 | 318,363 Series C preferred shares | US$1,200,000.00 | n/a | ||||
Quack Holding Limited |
June 28, 2020 | 17,643,400 Class A ordinary shares(5) | US$176.44 | n/a | ||||
Like Minded Enterprise Limited |
June 28, 2020 | 15,760,000 Class A ordinary shares(5) | US$157.60 | n/a | ||||
Xpeng Fortune Holdings Limited |
June 28, 2020 | 33,349,070 Class A ordinary shares(5) | US$333.49 | n/a | ||||
Respect Holding Limited |
June 28, 2020 | 21,000,000 Class B ordinary shares(5) | US$210.00 | n/a | ||||
Aspex Master Fund |
July 22, 2020 | 20,758,851 Series C preferred shares | US$90,000,000.00 | n/a |
II-5
Securities/Purchaser |
Date of Issuance |
Number of Securities |
Consideration in U.S. Dollars |
Underwriting
|
||||
Coatue PE Asia 33 LLC |
July 22, 2020 | 20,758,851 Series C preferred shares | US$90,000,000.00 | n/a | ||||
HH XP (HK) Holdings Limited |
July 22, 2020 | 16,145,773 Series C preferred shares | US$70,000,000.00 | n/a | ||||
SCC Growth VI Holdco E, Ltd. |
July 22, 2020 | 16,145,773 Series C preferred shares | US$70,000,000.00 | n/a | ||||
Hel Ved Master Fund |
July 22, 2020 | 2,306,539 Series C preferred shares | US$10,000,000.00 | n/a | ||||
Matrix Partners China IV Hong Kong Limited |
July 24, 2020 | 4,613,078 Series C preferred shares | US$20,000,000.00 | n/a | ||||
Anatole Partners Master Fund, L.P. |
July 24, 2020 | 3,010,034 Series C preferred shares | US$13,050,000.00 | n/a | ||||
Anatole Partners Enhanced Master Fund, L.P. |
July 24, 2020 | 449,775 Series C preferred shares | US$1,950,000.00 | n/a | ||||
Tairen Alpha Fund Limited |
July 24, 2020 | 3,459,809 Series C preferred shares | US$15,000,000.00 | n/a | ||||
3W Global Fund |
July 24, 2020 | 3,459,809 Series C preferred shares | US$15,000,000.00 | n/a | ||||
ZWC XP Investments Limited |
July 24, 2020 | 3,459,809 Series C preferred shares | US$15,000,000.00 | n/a | ||||
CloudAlpha Master Fund |
July 24, 2020 | 2,306,539 Series C preferred shares | US$10,000,000.00 | n/a | ||||
Summer Rocket Holdings Limited |
July 24, 2020 | 2,306,539 Series C preferred shares | US$10,000,000.00 | n/a | ||||
Grand Horizon Plus Investment Limited |
July 24, 2020 | 2,306,539 Series C preferred shares | US$10,000,000.00 | n/a | ||||
Azure Kingfisher Limited |
July 24, 2020 | 2,306,539 Series C preferred shares | US$10,000,000.00 | n/a | ||||
Pine Summit International Limited |
July 24, 2020 | 1,153,270 Series C preferred shares | US$5,000,000.00 | n/a | ||||
Neumann Capital |
July 24, 2020 | 1,153,270 Series C preferred shares | US$5,000,000.00 | n/a | ||||
Shengyu Ventures Limited |
July 24, 2020 | 461,308 Series C preferred shares | US$2,000,000.00 | n/a | ||||
Luminous Time Limited |
July 24, 2020 | 461,308 Series C preferred shares | US$2,000,000.00 | n/a | ||||
Cheung Shun Ching |
July 24, 2020 | 461,308 Series C preferred shares | US$2,000,000.00 | n/a | ||||
Celestial Dragon Holdings Limited |
July 24, 2020 | 461,308 Series C preferred shares | US$2,000,000.00 | n/a |
II-6
Securities/Purchaser |
Date of Issuance |
Number of Securities |
Consideration in U.S. Dollars |
Underwriting
|
||||
Robert S Bao |
July 24, 2020 | 230,654 Series C preferred shares | US$1,000,000.00 | n/a | ||||
Ampere Partners Holding Limited |
July 24, 2020 | 230,654 Series C preferred shares | US$1,000,000.00 | n/a | ||||
Credit Suisse AG, Singapore Branch |
July 24, 2020 | 3,459,809 Series C preferred shares | US$15,000,000.00 | n/a | ||||
Al-Rayyan Holding LLC |
July 29, 2020 | 23,065,390 Series C preferred shares | US$100,000,000.00 | n/a | ||||
Taobao China Holding Limited |
August 6, 2020 | 49,590,589 Series C preferred shares | US$215,000,000.00 | n/a | ||||
Aerospace Holding Company LLC |
August 6, 2020 | 23,065,390 Series C preferred shares | US$100,000,000.00 | n/a | ||||
Quack Holding Limited |
August 6, 2020 | 14,850,560 Class A ordinary shares(6) | US$148.50 | n/a | ||||
XPeng Fortune Holdings Limited |
August 6, 2020 | 9,695,210 Class A ordinary shares | US$96.95 | n/a | ||||
Dazzling Mount Holdings Limited |
August 6, 2020 | 3,501,425 Series A-2 preferred shares and 1,922,624 Series B preferred shares(4) | US$8,059,249.80 | n/a | ||||
Simplicity Holding Limited |
August 6, 2020 | 16,926,907 Series B preferred shares(4) | US$33,183,603.35 | n/a | ||||
Efficiency Investment Limited |
August 6, 2020 | 1,137,879 Series B preferred shares(4) | US$2,230,703.89 | n/a | ||||
Hongdi Brian Gu |
August 6, 2020 | 1,896,465 Series B preferred shares(4) | US$3,717,839.82 | n/a |
(1) |
As part of the Registrants reorganization, on June 14, 2019, the Registrant redeemed a certain number of ordinary shares from the investor, while later on August 8, 2019, the Registrant issued the same number of ordinary shares back to such investor. |
(2) |
As part of the Registrants reorganization, the Registrant redeemed 23,343 ordinary shares from XPD Holdings Limited, and re-designated and re-classified such ordinary shares into the same number of Series A-2 preferred shares. |
(3) |
Consideration for such shares was initially paid to Chengxing Zhidong in the form of interest-free loans denominated in RMB. After the relevant shareholder completes the regulatory registrations for overseas investment, Chengxing Zhidong will repay the loan, and the shareholder will pay the equivalent amount to XPeng Inc. in U.S. dollars. |
(4) |
Shares purchased pursuant to warrants granted on September 12, 2019. |
(5) |
Shares issued in connection with the restructuring of Success Sharing. |
(6) |
Shares issued pursuant to the RSUs granted to Hongdi Brian Gu. |
In June 2020, XPeng Inc. adopted a share incentive plan, or the Plan allows us to grant options, restricted shares, RSUs and other equity awards to our employees, directors and consultants. As of the date of this prospectus, 96,274,295 RSUs were granted and outstanding, and shares underlying 43,044,280 of such RSUs have been issued to XPeng Fortune Holdings Limited, which has been established for our share incentive plan.
Item 8. |
Exhibits and Financial Statement Schedules |
(a) |
Exhibits |
See Exhibit Index beginning on page II-7 of this Registration Statement.
II-7
(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 underwriters at the closing specified in the underwriting agreements, certificates in such denominations and registered in such names as required by the underwriters 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-8
EXHIBIT INDEX
II-9
* |
To be filed by amendment. |
** |
Incorporated by reference to the Registration Statement on Form F-6 filed with the Securities and Exchange Commission with respect to American depositary shares representing our ordinary shares. |
*** |
Previously filed. |
|
Portions of this exhibit have been omitted in accordance with Item 601(b)(10) of Regulation S-K. |
II-10
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 Guangdong, China on August 21, 2020.
XPENG INC. | ||||
By: |
/s/ Xiaopeng He |
|||
Name: | Xiaopeng He | |||
Title: | Chairman and Chief Executive Officer |
Signature |
Capacity |
Date |
||
/s/ Xiaopeng He |
Chairman and Chief Executive Officer (principal executive officer) |
August 21, 2020 | ||
Xiaopeng He | ||||
/s/ Heng Xia |
Director and President | August 21, 2020 | ||
Heng Xia | ||||
/s/ Hongdi Brian Gu |
Vice Chairman and President | August 21, 2020 | ||
Hongdi Brian Gu | ||||
* |
Director and Senior Vice President | August 21, 2020 | ||
Tao He | ||||
* |
Director | August 21, 2020 | ||
Ji-Xun Foo | ||||
* |
Director | August 21, 2020 | ||
Fei Yang | ||||
* |
Director | August 21, 2020 | ||
Qin Liu | ||||
* |
Director | August 21, 2020 | ||
Yongfu Yu | ||||
* |
Vice President of Finance and Accounting (principal financial and accounting officer) |
August 21, 2020 | ||
Hsuehching Lu |
*By: |
/s/ Xiaopeng He |
|||
Name: | Xiaopeng He | |||
Attorney-in-fact |
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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 XPeng Inc. has signed this registration statement or amendment thereto in New York on August 21, 2020.
US Authorized Representative Cogency Global Inc.
|
||
By: |
/s/ Colleen A. De Vries |
|
Name: Colleen A. De Vries | ||
Title: Senior Vice President |
II-12
Exhibit 1.1
XPeng Inc.
CLASS A ORDINARY SHARES, PAR VALUE US$0.00001 PER SHARE
in the Form of American Depositary Shares
Underwriting Agreement
[_______________], 2020
Credit Suisse Securities (USA) LLC
J.P. Morgan Securities LLC
BofA Securities, Inc.
As Representative of the
several Underwriters listed
in Schedule 1 hereto
c/o Credit Suisse Securities (USA) LLC
Eleven Madison Avenue
New York, New York 10010
U.S.A.
c/o J.P. Morgan Securities LLC
383 Madison Avenue
New York, New York 10179
U.S.A.
c/o BofA Securities, Inc.
One Bryant Park
New York, New York 10036
U.S.A.
Ladies and Gentlemen:
XPeng Inc., an exempted company incorporated in the Cayman Islands (the Company), proposes to issue and sell to the several underwriters listed in Schedule 1 hereto (the Underwriters), for whom you are acting as representatives (the Representatives), an aggregate of [ ● ] Class A ordinary shares, par value US$0.00001 per share, of the Company (Class A Ordinary Shares and, collectively with the Class B ordinary shares, par value $0.00001 per share, of the Company, the Ordinary Shares), in the form of [ ● ] American Depositary Shares (American Depositary Shares or ADSs). The aggregate of [ ● ] ADSs to be sold by the Company is hereinafter referred to as the Underwritten Shares. In addition, the Company proposes to issue and sell, at the option of the Underwriters, up to an additional [ ● ] Class A Ordinary Shares in the form of [ ● ] ADSs of the Company (the Option Shares). The Underwritten Shares and the Option Shares are herein referred to as the Shares.
Tiger Brokers (NZ) Limited (the Directed Share Underwriter) has agreed to reserve a portion of the Shares to be purchased by it under this Agreement, up to [ ● ] Shares, for sale to the Companys directors, officers, and certain employees and other parties related to the Company (collectively, Participants), as set forth in the Prospectus (as hereinafter defined) under the heading Underwriting (the Directed Share Program). The Shares to be sold by the Directed Share Underwriter and its affiliates pursuant to the Directed Share Program are referred to hereinafter as the Directed Shares. Any Directed Shares not orally confirmed for purchase by any Participant by [ ● ] [A/P].M., New York City time on the business day on which this Agreement is executed will be offered to the public by the Underwriters as set forth in the Prospectus.
The ADSs are to be issued pursuant to a deposit agreement dated the Closing Date (the Deposit Agreement) among the Company, Citibank, N.A., as Depositary (the Depositary), and the beneficial owners and holders from time to time of the American Depositary Receipts (ADRs) issued by the Depositary and evidencing the ADSs issued under the Deposit Agreement. Each ADS will initially represent the right to receive two Class A Ordinary Shares deposited pursuant to the Deposit Agreement.
The Company hereby confirms its agreement with the several Underwriters concerning the purchase and sale of the Shares, as follows:
1. Registration Statement. The Company has prepared and filed with the United States Securities and Exchange Commission (the Commission) under the Securities Act of 1933, as amended, and the rules and regulations of the Commission thereunder (collectively, the Securities Act), a registration statement on Form F-1 (File No. 333-242283), including a prospectus, relating to the Shares. Such registration statement, as amended at the time it became effective, including the information, if any, deemed pursuant to Rule 430A, 430B or 430C under the Securities Act to be part of the registration statement at the time of its effectiveness (Rule 430 Information), is referred to herein as the Registration Statement; and as used herein, the term Preliminary Prospectus means each prospectus included in such registration statement (and any amendments thereto) before effectiveness, any prospectus filed with the Commission pursuant to Rule 424(a) under the Securities Act and the prospectus included in the Registration Statement at the time of its effectiveness that omits Rule 430 Information, and the term Prospectus means the prospectus in the form first used (or made available upon request of purchasers pursuant to Rule 173 under the Securities Act) in connection with confirmation of sales of the Shares. If the Company has filed an abbreviated registration statement pursuant to Rule 462(b) under the Securities Act (the Rule 462 Registration Statement), then any reference herein to the term Registration Statement shall be deemed to include such Rule 462 Registration Statement. A registration statement on Form F-6 (No. 333-248098) relating to the ADSs has been filed with the Commission and has become effective; no stop order suspending the effectiveness of the ADS Registration Statement (as defined below) is in effect, and no proceedings for such purpose or pursuant to Section 8A of the Act are pending before or threatened by the Commission (such registration statement on Form F-6, including all exhibits thereto, as amended at the time such registration statement becomes effective, being hereinafter called the ADS Registration Statement). The Company has filed, in accordance with Section 12 of the Securities Exchange Act of 1934, as amended, or the Exchange Act, a registration statement as amended (the Exchange Act Registration Statement), on Form 8-A (File No. 001-[ ● ]) under the Exchange Act to register, under Section 12(b) of the Exchange Act, the Class A Ordinary Shares and the ADSs. Capitalized terms used but not defined herein shall have the meanings given to such terms in the Registration Statement and the Prospectus.
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At or prior to the Applicable Time (as defined below), the Company had prepared the following information (collectively with the pricing information set forth on Annex A, the Pricing Disclosure Package): a Preliminary Prospectus dated [ ● ], 2020 and each free-writing prospectus (as defined pursuant to Rule 405 under the Securities Act) listed on Annex A hereto.
Applicable Time means [ ● ] [A/P].M., New York City time, on [ ● ], 2020.
2. Purchase of the Shares. (a) The Company agrees to issue and sell the Underwritten Shares to the several Underwriters as provided in this underwriting agreement (this Agreement), and each Underwriter, on the basis of the representations, warranties and agreements set forth herein and subject to the conditions set forth herein, agrees, severally and not jointly, to purchase at a price per ADS of US$[ ● ] (the Purchase Price) from the Company the respective number of Underwritten Shares set forth opposite such Underwriters name in Schedule 1 hereto.
In addition, the Company agrees to issue and sell the Option Shares to the several Underwriters as provided in this Agreement, and the Underwriters, on the basis of the representations, warranties and agreements set forth herein and subject to the conditions set forth herein, shall have the option to purchase, severally and not jointly, from the Company the Option Shares at the Purchase Price less an amount per share equal to any dividends or distributions declared by the Company and payable on the Underwritten Shares but not payable on the Option Shares. If any Option Shares are to be purchased, the number of Option Shares to be purchased by each Underwriter shall be the number of Option Shares which bears the same ratio to the aggregate number of Option Shares being purchased as the number of Underwritten Shares set forth opposite the name of such Underwriter in Schedule 1 hereto (or such number increased as set forth in Section 10 hereof) bears to the aggregate number of Underwritten Shares being purchased from the Company by the several Underwriters, subject, however, to such adjustments to eliminate any fractional Shares as the Representatives in their sole discretion shall make.
The Underwriters may exercise the option to purchase Option Shares at any time in whole, or from time to time in part, on or before the thirtieth day following the date of the Prospectus, by written notice from the Representatives to the Company. Such notice shall set forth the aggregate number of Option Shares as to which the option is being exercised and the date and time when the Option Shares are to be delivered and paid for, which may be the same date and time as the Closing Date (as hereinafter defined) but shall not be earlier than the Closing Date nor later than the tenth full business day (as hereinafter defined) after the date of such notice (unless such time and date are postponed in accordance with the provisions of Section 10 hereof). Any such notice shall be given at least two business days prior to the date and time of delivery specified therein.
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(a) The Company understands that the Underwriters intend to make a public offering of the Shares, and initially to offer the Shares on the terms set forth in the Pricing Disclosure Package. The Company acknowledges and agrees that the Underwriters may offer and sell Shares to or through any affiliate of an Underwriter.
(b) Payment for the Shares shall be made by wire transfer in immediately available funds to the account specified by the Company, to the Representatives in the case of the Underwritten Shares, at the offices of Latham & Watkins LLP, at 18th Floor, One Exchange Square, 8 Connaught Place, Central Hong Kong at [10:00] A.M. New York City time on [ ● ], 2020, or at such other time or place on the same or such other date, not later than the fifth business day thereafter, as the Representatives and the Company may agree upon in writing or, in the case of the Option Shares, on the date and at the time and place specified by the Representatives in the written notice of the Underwriters election to purchase such Option Shares. The time and date of such payment for the Underwritten Shares is referred to herein as the Closing Date, and the time and date for such payment for the Option Shares, if other than the Closing Date, is herein referred to as the Additional Closing Date.
Payment for the Shares to be purchased on the Closing Date or each Additional Closing Date, as the case may be, shall be made against delivery to the Representatives for the respective accounts of the several Underwriters of the Shares to be purchased on such date with any transfer taxes payable in connection with the sale of such Shares duly paid by the Company. Delivery of the Shares shall be made through the facilities of The Depository Trust Company (DTC) unless the Representatives shall otherwise instruct. The certificates for the Shares will be made available for inspection and packaging by the Representatives at the office of DTC or its designated custodian not later than 1:00 P.M., New York City time, on the business day prior to the Closing Date [or each Additional Closing Date, as the case may be.
(c) The Company acknowledges and agrees that the Representatives and the other Underwriters are acting solely in the capacity of an arms length contractual counterparty to the Company with respect to the offering of Shares contemplated hereby (including in connection with determining the terms of the offering) and not as a financial advisor or a fiduciary to, or an agent of, the Company or any other person. Additionally, neither the Representatives nor any other Underwriter is advising the Company or any other person as to any legal, tax, investment, accounting or regulatory matters in any jurisdiction. The Company shall consult with its own advisors concerning such matters and shall be responsible for making its own independent investigation and appraisal of the transactions contemplated hereby, and neither the Representatives nor any other Underwriter shall have any responsibility or liability to the Company with respect thereto. Any review by the Representatives and the other Underwriters of the Company, the transactions contemplated hereby or other matters relating to such transactions will be performed solely for the benefit of the Representatives and the other Underwriters and shall not be on behalf of the Company.
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3. Representations and Warranties of the Company. The Company represents and warrants to each Underwriter that:
(a) Preliminary Prospectus. No order preventing or suspending the use of any Preliminary Prospectus has been issued by the Commission, and each Preliminary Prospectus included in the Pricing Disclosure Package, at the time of filing thereof, complied in all material respects with the Securities Act, and no Preliminary Prospectus, at the time of filing thereof, contained any untrue statement of a material fact or omitted to state a material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading; provided that the Company makes no representation or warranty with respect to any statements or omissions made in reliance upon and in conformity with information relating to any Underwriter furnished to the Company in writing by such Underwriter through the Representatives expressly for use in any Preliminary Prospectus, it being understood and agreed that the only such information furnished by any Underwriter consists of the information described as such in Section 7(b) hereof.
(b) Pricing Disclosure Package. The Pricing Disclosure Package as of the Applicable Time did not, and as of the Closing Date and as of each Additional Closing Date, as the case may be, will not, contain any untrue statement of a material fact or omit to state a material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading; provided that the Company makes no representation or warranty with respect to any statements or omissions made in reliance upon and in conformity with information relating to any Underwriter furnished to the Company in writing by such Underwriter through the Representatives expressly for use in such Pricing Disclosure Package, it being understood and agreed that the only such information furnished by any Underwriter consists of the information described as such in Section 7(b) hereof. No statement of material fact included in the Prospectus has been omitted from the Pricing Disclosure Package and no statement of material fact included in the Pricing Disclosure Package that is required to be included in the Prospectus has been omitted therefrom.
(c) Issuer Free Writing Prospectus. Other than the Registration Statement, the ADS Registration Statement, the Preliminary Prospectus and the Prospectus, the Company (including its agents and representatives, other than the Underwriters in their capacity as such) has not prepared, made, used, authorized, approved or referred to and will not prepare, make, use, authorize, approve or refer to any written communication (as defined in Rule 405 under the Securities Act) that constitutes an offer to sell or solicitation of an offer to buy the Shares (each such communication by the Company or its agents and representatives (other than a communication referred to in clause (i) below) an Issuer Free Writing Prospectus) other than (i) any document not constituting a prospectus pursuant to Section 2(a)(10)(a) of the Securities Act or Rule 134 under the Securities Act or (ii) the documents listed on Annex A hereto, each electronic road show and any other written communications approved in writing in advance by the Representatives. Each such Issuer Free Writing Prospectus complies in all material respects with the Securities Act, has been or will be (within the time period specified in Rule 433) filed in accordance with the Securities Act (to the extent required thereby) and does not conflict with the information contained in the Registration Statement, the ADS Registration Statement, the Pricing Disclosure Package or the Prospectus, and, when taken together with the Preliminary Prospectus accompanying, or delivered prior to delivery of, such Issuer Free Writing Prospectus, did not, and as of the Closing Date and as of each Additional Closing Date, as the case may be, will not, contain any untrue statement of a material fact or omit to state a material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading; provided that the Company makes no representation or warranty with respect to any statements or omissions made in each such Issuer Free Writing Prospectus or Preliminary Prospectus in reliance upon and in conformity with information relating to any Underwriter furnished to the Company in writing by such Underwriter through the Representatives expressly for use in such Issuer Free Writing Prospectus or Preliminary Prospectus, it being understood and agreed that the only such information furnished by any Underwriter consists of the information described as such in Section 7(b) hereof.
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(d) Emerging Growth Company. From the time of initial confidential submission of the Registration Statement to the Commission (or, if earlier, the first date on which the Company engaged directly or through any person authorized to act on its behalf in any Testing-the-Waters Communication undertaken in reliance on Section 5(d) of the Securities Act) through the date hereof, the Company has been and is an emerging growth company, as defined in Section 2(a) of the Securities Act (an Emerging Growth Company). Testing-the-Waters Communication means any oral or written communication with potential investors undertaken in reliance on either Section 5(d) of, or Rule 163B under, the Securities Act.
(e) Testing-the-Waters Materials. The Company (i) has not alone engaged in any Testing-the-Waters Communications other than Testing-the-Waters Communications with the consent of the Representatives (x) with entities that are qualified institutional buyers (QIBs) within the meaning of Rule 144A under the Securities Act or institutions that are accredited investors within the meaning of Rule 501(a)(1), (a)(2), (a)(3), (a)(7) or (a)(8) under the Securities Act (IAIs) and otherwise in compliance with the requirements of Section 5(d) of the Securities Act or (y) with entities that the Company reasonably believed to be QIBs or IAIs and otherwise in compliance with the requirements of Rule 163B under the Securities Act and (ii) has not authorized anyone other than the Representatives to engage in Testing-the-Waters Communications. The Company reconfirms that the Representatives have been authorized to act on its behalf in undertaking Testing-the-Waters Communications. The Company has not distributed or approved for distribution any Written Testing-the-Waters Communications other than those listed on Annex B hereto. Written Testing-the-Waters Communication means any Testing-the-Waters Communication that is a written communication within the meaning of Rule 405 under the Securities Act. Any individual Written Testing-the-Waters Communication does not conflict with the information contained in the Registration Statement, the ADS Registration Statement, the Pricing Disclosure Package, complied in all material respects with the Securities Act, and when taken together with the Pricing Disclosure Package as of the Applicable Time, did not, and as of the Closing Date and as of each Additional Closing Date, as the case may be, will not, contain any untrue statement of a material fact or omit to state a material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading.
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(f) Registration Statement and Prospectus. Each of the Registration Statement and the ADS registration Statement has been declared effective by the Commission and is not proposed to be amended, and the Exchange Act Registration Statement has become effective, as provided in Section 12 of the Exchange Act. Any Rule 462 Registration Statement has or will become effective upon filing with the Commission pursuant to Rule 462(b) and is not proposed to be amended. The Shares all have been or will be duly registered under the Securities Act pursuant to the Registration Statement and, if applicable, the Rule 462 Registration Statement. No order suspending the effectiveness of the Registration Statement or the ADS Registration Statement has been issued by the Commission, and no proceeding for that purpose or pursuant to Section 8A of the Securities Act against the Company or related to the offering of the Shares has been initiated or threatened by the Commission; as of the applicable effective date of the Registration Statement or the ADS Registration Statement and any post-effective amendment thereto, the Registration Statement, the ADS Registration Statement and any such post-effective amendment complied and will comply in all material respects with the Securities Act, and did not and will not contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary in order to make the statements therein not misleading; and as of the date of the Prospectus and any amendment or supplement thereto and as of the Closing Date and as of each Additional Closing Date, as the case may be, the Prospectus will comply in all material respects with the Securities Act and will not contain any untrue statement of a material fact or omit to state a material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading; provided that the Company makes no representation or warranty with respect to any statements or omissions made in reliance upon and in conformity with information relating to any Underwriter furnished to the Company in writing by such Underwriter through the Representatives expressly for use in the Registration Statement and the Prospectus and any amendment or supplement thereto, it being understood and agreed that the only such information furnished by any Underwriter consists of the information described as such in Section 7(b) hereof.
(g) Financial Statements. The consolidated financial statements (including the related notes thereto) of the Company and its subsidiaries, consolidated variable interest entities and the subsidiaries of the consolidated variable interest entities (collectively, the Controlled Entities) included in the Registration Statement, the Pricing Disclosure Package and the Prospectus comply in all material respects with the applicable requirements of the Securities Act and present fairly the financial position of the Company and its Controlled Entities as of the dates indicated and the results of their operations and the changes in their cash flows for the periods specified; such financial statements have been prepared in conformity with generally accepted accounting principles in the United States (U.S. GAAP) applied on a consistent basis throughout the periods covered thereby, and any supporting schedules included in the Registration Statement present fairly the information required to be stated therein; and the other financial information included in the Registration Statement, the Pricing Disclosure Package and the Prospectus has been derived from the accounting records of the Company and its Controlled Entities and presents accurately and fairly the information shown thereby and was prepared on a basis consistent with the financial statements and books and records of the Company; there are no financial statements (historical or pro forma) that are required to be included in the Registration Statement, the Pricing Disclosure Package and the Prospectus that are not included as required; and the Company and the Controlled Entities do not have any material liabilities or obligations, direct or contingent (including any off-balance sheet obligations) not described in the Registration Statement, the Pricing Disclosure Package and the Prospectus; all disclosures included in the Registration Statement, the Pricing Disclosure Package and the Prospectus regarding non-GAAP financial measures (as such term is defined by the rules and regulations of Commission) comply with Regulation G of the Exchange Act and Item 10 of Regulation S-K of the Securities Act, to the extent applicable.
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(h) No Material Adverse Change. Since the date of the most recent financial statements of the Company included in the Registration Statement, the Pricing Disclosure Package and the Prospectus, (i) there has not been any change in the share capital (other than the issuance of ordinary shares in connection with share-based awards pursuant to the existing equity incentive plans described in the Registration Statement, the Pricing Disclosure Package and the Prospectus), short-term debt or long-term debt, net current assets or net assets of the Company or any of its Controlled Entities, or any dividend or distribution of any kind declared, set aside for payment, paid or made by the Company on any class of its share capital, or any material adverse change, or any development involving a prospective material adverse change, in or affecting the condition (financial or otherwise), business, properties, management, financial position, shareholders equity, results of operations or prospects of the Company and its Controlled Entities, taken as a whole; (ii) neither the Company nor any of its Controlled Entities has entered into or assumed any transaction or agreement (whether or not in the ordinary course of business) that is material to the Company and its Controlled Entities taken as a whole or incurred, assumed or acquired any liability or obligation, direct or contingent, that is material to the Company and its Controlled Entities taken as a whole or acquired or disposed of or agreed to acquire or dispose of any business or other asset, that is material to the Company and its Controlled Entities, taken as a whole or agreed to take any of the foregoing actions; and (iii) neither the Company nor any of its Controlled Entities has sustained any loss or interference with its business that is material to the Company and its Controlled Entities taken as a whole and that is either from fire, explosion, flood or other calamity, whether or not covered by insurance, or from any labor disturbance or dispute or any action, order or decree of any court or arbitrator or governmental or regulatory authority, except in each case as otherwise disclosed in the Registration Statement, the Pricing Disclosure Package and the Prospectus.
(i) Organization and Good Standing of the Company. The Company has been duly incorporated and is validly existing and in good standing under the laws of the Cayman Islands, with power and authority (corporate and other) to own its properties and conduct its business as described in the Registration Statement, the Pricing Disclosure Package and the Prospectus; and the Company is duly qualified to do business as a foreign corporation in good standing in each jurisdiction in which its ownership or lease of property or the conduct of its business requires such qualification. The currently effective memorandum and articles of association or other constitutive or organizational documents of the Company comply with the requirements of applicable Cayman Islands law and are in full force and effect. The seventh amended and restated memorandum and articles of association of the Company adopted on August 20, 2020, filed as Exhibit 3.2 to the Registration Statement, comply with the requirements of applicable Cayman Islands laws and, immediately following closing on the Closing Date of the American Depositary Shares offered and sold hereunder, will be in full force and effect. Complete and correct copies of all constitutive documents of the Company and all amendments thereto have been delivered to the Representatives; except as set forth in the exhibits to the Registration Statement, no change will be made to any such constitutional documents on or after the date of this Agreement through and including the Closing Date and each Additional Closing Date.
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(j) Controlled Entities. The Controlled Entities listed on Exhibit 21.1 of the Registration Statement constitute all of the entities controlled directly or indirectly by the Company other than those subsidiaries and consolidated variable interest entities which, considered in the aggregate or as a single subsidiary, do not constitute a significant subsidiary as defined in Rule 1-02(w) of Regulation S-X under the Act. Except as disclosed in each of the Registration Statement, the Pricing Disclosure Package and the Prospectus, each Controlled Entity of the Company has been duly incorporated and is validly existing and in good standing under the laws of the jurisdiction of its incorporation, and is duly qualified to do business and is in good standing in each jurisdiction in which its ownership or lease of property or the conduct of its businesses requires such qualification, and has all power and authority (corporate and other) necessary to own or hold its properties and to conduct the businesses as described in the Registration Statement, the Pricing Disclosure Package and the Prospectus. All of the issued and outstanding share capital or other equity interests of each Controlled Entity of the Company has been duly and validly authorized and issued and is fully paid in accordance with applicable laws and the articles of association of such Controlled Entity and non-assessable; the share capital or other equity interests of each subsidiary of the Company is owned by the Company, directly or through subsidiaries, free and clear of any lien, charge, defect, encumbrance, security interest, restriction on voting or transfer or any other claim of any third party; the share capital of each consolidated variable interest entity is owned by such individuals as disclosed under Our History and Corporate Structure in the Registration Statement, the Pricing Disclosure Package and the Prospectus, free and clear of any lien, charge, defect, encumbrance, security interest, restriction on voting or transfer or any other claim of any third party except for those encumbrances on the equity interests of such consolidated variable interest entity as provided in the Control Agreements (as defined below); and the memorandum and articles of association or other constitutional or organizational documents of each Controlled Entity of the Company comply with the requirements applicable in their respective jurisdictions of incorporation and are in full force and effect. None of the outstanding share capital in any Controlled Entity was issued in violation of pre-emptive or similar rights of any shareholder of such Controlled Entity.
(k) Capitalization. The Company has an authorized share capital as set forth in the Registration Statement, the Pricing Disclosure Package and the Prospectus under the heading Capitalization; all the outstanding shares of the Company have been duly and validly authorized and issued and are fully paid and non-assessable and are not subject to any pre-emptive or similar rights; except as described in or expressly contemplated by the Registration Statement, the Pricing Disclosure Package and the Prospectus, there are no outstanding rights (including, without limitation, pre-emptive rights), warrants or options to acquire, or instruments convertible into or exchangeable for, any shares or other equity interest in the Company or any of its Controlled Entities, or any contract, commitment, agreement, understanding or arrangement of any kind relating to the issuance of any share capital of the Company or any such Controlled Entity, any such convertible or exchangeable securities or any such rights, warrants or options; the share capital of the Company conforms in all material respects to the description thereof contained in the Registration Statement, the Pricing Disclosure Package and the Prospectus.
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(l) Corporate Structure and Control Agreements. The description of the corporate structure of the Company and each of the agreements among the subsidiaries, the shareholders of the Controlled Entities that are variable interest entities (VIEs) and the VIEs, as the case may be (each, a Control Agreement and collectively, the Control Agreements) as set forth in the Registration Statement, the Pricing Disclosure Package and the Prospectus under the captions Our History and Corporate Structure and Related Party Transactions and filed as Exhibits 10.3 through 10.12 to the Registration Statement is true and accurate in all material respects and nothing has been omitted from such description which would make it misleading. There is no other material agreement, contract or other document relating to the corporate structure or the operation of the Company together with its Controlled Entities, taken as a whole, which has not been previously disclosed or made available to the Underwriters and disclosed in the Registration Statement, the Pricing Disclosure Package and the Prospectus. Except as disclosed in each of the Registration Statement, the Pricing Disclosure Package and the Prospectus, each of the Control Agreements has been duly authorized, executed and delivered by the parties thereto and constitutes a legal, valid and binding obligation of the parties thereto, enforceable against such parties in accordance with its terms except as enforceability may be limited by applicable bankruptcy, insolvency or similar laws affecting creditors rights generally or by equitable principles relating to enforceability (collectively, the Enforceability Exceptions). All required authorizations in respect of the Control Agreements to ensure the legality and enforceability of each of the Control Agreements have been duly obtained and no further authorizations are required in connection with the Control Agreements or the performance of the terms thereof and no stamp duty or similar tax is required to be paid in connection with the Control Agreements; and no authorization that has been obtained is being withdrawn or revoked or is subject to any condition precedent which has not been fulfilled or performed, except that the future exercise of the call options under the Control Agreements shall be approved and/or registered by the relevant governmental agencies and the equity pledge under the Control Agreements shall be continually registered with the relevant governmental agencies. The execution, delivery and performance of each of the Control Agreements by the parties thereto, and the consummation of the transactions contemplated thereunder, did not, do not and will not (A) result in any violation of the memorandum and articles of association, charter, by-law or other constituent documents (if any) or authorizations of any of the parties to the Control Agreements; (B) result in any violation of, or penalty under, any PRC laws or any other statute, rule, regulation or order of any governmental agency or body or any court, domestic or foreign, having jurisdiction over the Company or any of the Controlled Entities or any of their properties, or any arbitration award; or (C) conflict with or result in a breach or violation of any of the terms or provisions of, or constitute a default under, any indenture, mortgage[, deed of trust, loan agreement or other agreement or instrument to which the Company or any of the Controlled Entities is a party or by which any of them is bound or to which any of their properties or assets is subject.] The corporate structure of the Company (including the shareholding structure of each of the Controlled Entities) as described in the Registration Statement, the Pricing Disclosure Package and the Prospectus does not, and immediately following the offer and sale of the Shares will not violate, breach, contravene or otherwise conflict with any applicable PRC laws. There have been no legal, arbitration, government or other legal proceedings challenging the legality or validity of the corporate structure of the Company pending before or, to the Companys knowledge, threatened by, any governmental or regulatory authority or court, any arbitrator or any other person. Each Control Agreement is in full force and effect and none of the parties thereto is in breach or default in the performance of any of the terms or provisions of such Control Agreement. None of the parties to any of the Control Agreements has sent or received any communication regarding termination of, or intention not to renew, any of the Control Agreements, and no such termination or non-renewal has been threatened by any of the parties thereto. The Company possesses, directly or indirectly, the power to direct or cause the direction of the management and policies of the VIEs, through its wholly owned subsidiaries being authorized to exercise the voting rights in the VIEs by the respective shareholders of the VIEs.
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(m) Restricted Share Units. With respect to the restricted share units (the RSUs) granted pursuant to the employee performance incentive plans of the Company and its Controlled Entities (the Share Incentive Plans), (i) each grant of an RSU was duly authorized no later than the date on which the grant of such RSU was by its terms to be effective by all necessary corporate action, including, as applicable, approval and/or ratification by the board of directors of the Company (the Board of Directors) (or a duly constituted and authorized committee thereof) and any required shareholder approval by the necessary number of votes or written consents, and the award agreement governing such grant (if any) was duly executed and delivered by each party thereto, (ii) each such grant was made in accordance with the terms of the Share Incentive Plans and all other applicable laws and regulatory rules or requirements, and (iii) each such grant was properly accounted for in accordance with U.S. GAAP in the financial statements (including the related notes) of the Company and disclosed in the Companys filings with the Commission in accordance with the Exchange Act and all other applicable laws.
(n) Due Authorization. The Company has full right, power and authority (corporate and other) to execute and deliver this Agreement and the Deposit Agreement (collectively, the Transaction Documents) and to perform its obligations hereunder and thereunder; and all actions required to be taken for the consummation by it of the transactions contemplated by each of the Transaction Documents or by the Registration Statement, the Pricing Disclosure Package and the Prospectus have been duly and validly taken.
(o) Underwriting Agreement. This Agreement has been duly authorized, executed and delivered by the Company.
(p) Deposit Agreement. The Deposit Agreement was duly authorized by and constitutes a valid and legally binding obligation of the Company, enforceable in accordance with its terms, subject to the Enforceability Exceptions. Upon due execution and delivery by the Depositary of ADRs evidencing the Shares and the deposit of the Class A Ordinary Shares in respect thereof in accordance with the provisions of the Deposit Agreement, such Shares will be duly and validly issued and the persons in whose names the Shares are registered will be entitled to the rights specified therein and in the Deposit Agreement.
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(q) The Shares. The Shares and the underlying Class A Ordinary Shares to be issued and sold by the Company hereunder and under the Deposit Agreement and all other outstanding shares of the Company have been duly authorized by the Company. The authorized share capital of the Company is as set forth in the Registration Statement, the Pricing Disclosure Package and the Prospectus and, upon (A) the automatic conversion of all of the Companys issued and outstanding preferred shares into ordinary shares as described in the Registration Statement, the Pricing Disclosure Package and the Prospectus and (B) the issuance and sale of the Underwritten Shares, the Company shall have an authorized and outstanding capital as set forth under the columns of the Capitalization table labeled Pro Forma and Pro Forma as Adjusted. All outstanding shares of the Company are, and the Shares and the Class A Ordinary Shares represented thereby when issued and delivered and paid for as provided herein and in the Deposit Agreement, will be, duly and validly issued, fully paid and non-assessable and not subject to any security interest, other encumbrances or adverse claims, and such Shares and the Class A Ordinary Shares represented thereby will conform to the descriptions thereof included or incorporated by reference in the Registration Statement, the Pricing Disclosure Package and the Prospectus. The shareholders of the Company have no pre-emptive rights with respect to the Shares; the Shares and the underlying Class A Ordinary Shares to be sold by the Company, when issued and delivered against payment therefor pursuant to this Agreement, will not be subject to any security interest, other encumbrance or adverse claims, and have been issued in compliance with all federal and state securities laws and were not issued in violation of any pre-emptive right, resale right, right of first refusal or similar right; upon payment of the purchase price in accordance with this Agreement at the Closing Date and at each Additional Closing Date, the Depositary or its nominee, as the registered holder of the Class A Ordinary Shares represented by the Shares, will be, subject to the terms of the Deposit Agreement, entitled to all the rights of a shareholder conferred by the memorandum and articles of association of the Company as then in effect; except as disclosed in the Registration Statement, the Pricing Disclosure Package and the Prospectus and subject to the terms and provisions of the Deposit Agreement, there are no restrictions on transfers of Class A Ordinary Shares represented by the Shares or the Class A Ordinary Shares under the laws of the Cayman Islands or the United States, as the case may be; the Class A Ordinary Shares represented by the Shares may be freely deposited by the Company with the Depositary or its nominee against issuance of ADRs evidencing the Shares as contemplated by the Deposit Agreement.
(r) Description of the Transaction Documents. Each Transaction Document conforms in all material respects to the description thereof contained in the Registration Statement, the Pricing Disclosure Package and the Prospectus.
(s) No Violation or Default. Neither the Company nor any of its Controlled Entities is (i) in violation of its respective memorandum and articles of association, charter or by-laws or similar organizational documents; (ii) in default, and no event has occurred that, with notice or lapse of time or both, would constitute such a default, in the due performance or observance of any term, obligation, covenant or condition contained in any indenture, mortgage, deed of trust, loan agreement or other agreement or instrument to which the Company or any of its Controlled Entities is a party or by which the Company or any of its Controlled Entities is bound or to which any property or asset of the Company or any of its Controlled Entities is subject; or (iii) in violation of any law or statute or any judgment, order, rule or regulation of any court or arbitrator or governmental or regulatory authority, except, in the case of clauses (ii) and (iii) above, for any such default or violation that would not, individually or in the aggregate, have a material adverse effect on the business, properties, management, financial position, shareholders equity, results of operations or prospects of the Company and its Controlled Entities taken as a whole or on the performance by the Company of its obligations under the Transaction Documents (a Material Adverse Effect).
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(t) No Conflicts. The execution, delivery and performance by the Company of each of the Transaction Documents, the issuance and sale of the Shares and the Class A Ordinary Shares represented thereby by the Company, the deposit of the Class A Ordinary Shares with the Depositary against issuance of the Shares and the consummation by the Company of the transactions contemplated by the Transaction Documents or the Pricing Disclosure Package and the Prospectus will not (i) conflict with or result in a breach or violation of any of the terms or provisions of, or constitute a default under, result in the termination, modification, repurchase, repayment, redemption or acceleration of, or result in the creation or imposition of any lien, charge or encumbrance upon any property, right or asset of the Company or any of its Controlled Entities pursuant to, any indenture, mortgage, deed of trust, loan agreement or other agreement or instrument to which the Company or any of its Controlled Entities is a party or by which the Company or any of its Controlled Entities is bound or to which any property, right or asset of the Company or any of its Controlled Entities is subject, (ii) result in any violation of the provisions of the memorandum and articles of association or other constitutional or organizational documents of the Company or any of its Controlled Entities or (iii) result in the violation of any law or statute or any judgment, order, rule or regulation of any court or arbitrator or governmental or regulatory authority.
(u) No Consents Required. No consent, approval, authorization, order, license, permit, registration, declaration, filing or qualification of or with any court or arbitrator or governmental or regulatory authority is required for the execution, delivery and performance by the Company of each of the Transaction Documents, the issuance and sale of the Shares or the Class A Ordinary Shares represented thereby, the deposit of the Class A Ordinary Shares with the Depositary against issuance of the ADRs evidencing the Shares, and the consummation of the transactions contemplated by the Transaction Documents, except for the registration of the Shares and the Class A Ordinary Shares represented thereby under the Securities Act and such consents, approvals, authorizations, orders and registrations or qualifications as may be required by the Financial Industry Regulatory Authority, Inc. (FINRA) and under applicable state securities laws in connection with the purchase and distribution of the Shares and the Class A Ordinary Shares represented thereby by the Underwriters.
(v) Legal Proceedings. There are no legal, governmental or regulatory investigations, actions, demands, claims, suits, arbitrations, inquiries or proceedings (Actions) pending to which the Company or any of its Controlled Entities, is or may be a party or to which any property of the Company or any of its Controlled Entities is or may be the subject that, individually or in the aggregate, if determined adversely to the Company or any of its Controlled Entities (or their respective officers or directors), could reasonably be expected to have a Material Adverse Effect; no such Actions, to the knowledge of the Company, are threatened or contemplated by any governmental or regulatory authority or threatened by others; and (i) there are no current or pending Actions that are required under the Securities Act to be described in the Registration Statement, the Pricing Disclosure Package or the Prospectus that are not so described in the Registration Statement, the Pricing Disclosure Package and the Prospectus and (ii) there are no statutes, regulations or contracts or other documents that are required under the Securities Act to be filed as exhibits to the Registration Statement or described in the Registration Statement, the Pricing Disclosure Package or the Prospectus that are not so filed as exhibits to the Registration Statement or described in the Registration Statement, the Pricing Disclosure Package and the Prospectus.
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(w) Directors and Executive Officers. The Companys directors, director nominees and executive officers are not a party to any Actions that (i) would result in such director, director nominee or executive officer to be unsuitable for his or her position on the board of directors or in the Company, as the case may be, or (ii) would individually or in the aggregate have a Material Adverse Effect.
(x) Independent Accountants. PricewaterhouseCoopers Zhong Tian LLP, who has certified certain financial statements of the Company and its Controlled Entities, is an independent registered public accounting firm with respect to the Company and its Controlled Entities within the applicable rules and regulations adopted by the Commission and the Public Company Accounting Oversight Board (United States) and as required by the Securities Act.
(y) Title to Real and Personal Property. Except as disclosed in the Registration Statement, the Pricing Disclosure Package and the Prospectus, the Company and its Controlled Entities have good and marketable title (in the case of real property) to, or have valid and marketable rights to lease or otherwise use, all items of real and personal property and assets that are material to the respective businesses of the Company and its Controlled Entities, in each case free and clear of all liens, encumbrances, claims and defects and imperfections of title except those that (i) do not materially interfere with the use made and proposed to be made of such property by the Company and its Controlled Entities or (ii) could not reasonably be expected, individually or in the aggregate, to have a Material Adverse Effect. [The Company and the Controlled Entities hold their respective leased real or personal properties under valid and enforceable leases with no terms or provisions that would materially interfere with the use made or to be made thereof by them; and any real property and buildings held under lease by the Company and the Controlled Entities are held by them under valid, subsisting and enforceable leases with such exceptions as are not material and do not interfere with the use made and to be made thereof by them.]
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(z) Intellectual Property. Except as disclosed in the Registration Statement, the Pricing Disclosure Package and the Prospectus, (i) the Company and its Controlled Entities own or have the right to use all patents, patent applications, trademarks, service marks, trade names, trademark registrations, service mark registrations, domain names and other source indicators, copyrights and copyrightable works, inventions, know-how, trade secrets, systems, procedures and proprietary or confidential information and all other worldwide intellectual property, industrial property and proprietary rights (collectively, Intellectual Property) used in the conduct of their respective businesses as presently conducted, or as proposed to be conducted in each of the Registration Statement, the Pricing Disclosure Package and the Prospectus, and the expected expiration of such Intellectual Property would not, individually or in the aggregate, have a Material Adverse Effect; (ii) the Companys and its Controlled Entities conduct of their respective businesses does not infringe, misappropriate or otherwise violate any Intellectual Property of any person and there is no occurrence of any action or event that, with notice or the passage of time, would constitute any of the foregoing; (iii) to the knowledge of the Company, the Intellectual Property of the Company and its Controlled Entities is not being infringed, misappropriated or otherwise violated by any person; (iv) there is no pending or, to the knowledge of the Company, threatened action, suit, proceeding or claim by others challenging the Companys or any Controlled Entitys rights in or to, or the infringement or other violation of any of the rights or terms of, any of the Companys or any Controlled Entitys Intellectual Property, and the Company is unaware of any facts which would form a reasonable basis for any such claim; (v) there is no pending or threatened action, suit, proceeding or claim by others challenging the validity, enforceability or scope of any such Intellectual Property, and the Company is unaware of any facts which would form a reasonable basis for any such claim; (vi) there is no pending or threatened action, suit, proceeding, claim, or allegation by others against the Company or the Controlled Entities, that the Company or any Controlled Entity infringes, misappropriates or otherwise violates or conflicts with any Intellectual Property or other proprietary rights of others, and the Company is unaware of any facts which would form a reasonable basis for any such claim; (vii) none of the Intellectual Property used by the Company or the Controlled Entities in their businesses has been obtained or is being used by the Company or the Controlled Entities in violation of any contractual obligation binding on the Company or the Controlled Entities, or in violation of the rights of any persons; (viii) the Company is unaware of any facts which it believes would form a reasonable basis for a claim asserting that any of the employees it currently employs are in or have ever been in material violation of the terms of the employment contract in relation to any Intellectual Property, patent disclosure agreement, invention assignment agreement, non-competition agreement, non-solicitation agreement, non-disclosure agreement, any restrictive covenant to or with a former employer, or any other agreement with a former employer that relates to a) such employees prospective or actual employment with the Company or the Controlled Entities, or b) any actions undertaken by the employee while employed with the Company or the Controlled Entities; (ix) neither the Company nor any of the Controlled Entities are under an obligation to assign any of their rights in their patents and patent applications to a third party; (x) the Company and the Controlled Entities are not in breach of, and have complied in all respects with all terms of, any license or other agreement relating to Intellectual Property; (xi) there are no rights of third parties to any of the Intellectual Property owned by the Company or the Controlled Entities and (xii) the business of the Company and the Controlled Entities are conducted in compliance with the applicable intellectual property laws and regulations in the PRC and all other applicable jurisdictions in all respects, except in each case of (i) to (xii) that would not, individually or in the aggregate, result in a Material Adverse Effect.
(aa) No Undisclosed Relationships. No relationship, direct or indirect, exists between or among the Company or any of its Controlled Entities, on the one hand, and the directors, officers, shareholders, sponsors, customers, suppliers or other affiliates of the Company or any of its Controlled Entities or family members of such persons, on the other, that is required by the Securities Act to be described in each of the Registration Statement and the Prospectus and that is not so described in such documents and in the Pricing Disclosure Package.
(bb) Investment Company Act. The Company is not and, after giving effect to the offering and sale of the Shares and the application of the proceeds thereof received by the Company as described in the Registration Statement, the Pricing Disclosure Package and the Prospectus, will not be required to register as an investment company or an entity controlled by an investment company within the meaning of the Investment Company Act of 1940, as amended, and the rules and regulations of the Commission thereunder (collectively, the Investment Company Act).
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(cc) Taxes. Except, in each case, as would not have a Material Adverse Effect, (i) the Company and its Controlled Entities have paid all national, provincial, state, municipal local, foreign and other taxes and filed all tax returns required to be paid or filed through the date hereof (other than with respect to taxes that are being contested in good faith and for which reserves required by U.S. GAAP have been created in the financial statements of the Company and its Controlled Entities); and (ii) there is no tax deficiency that has been, or could reasonably be expected to be, asserted against the Company or any of its Controlled Entities or any of their respective properties or assets. The provisions included in the audited consolidated financial statements as set out in the Registration Statement, the Pricing Disclosure Package and the Prospectus included appropriate provisions required under U.S. GAAP for all taxation in respect of accounting periods ended on or before the accounting reference date to which such audited accounts relate for which the Company was then or might reasonably be expected thereafter to become or have become liable.
(dd) Licenses and Permits. Except as disclosed in the Registration Statement, the Pricing Disclosure Package and the Prospectus, (i) the Company and its Controlled Entities possess, and are in compliance with the terms of, all licenses, sub-licenses, certificates, permits and other authorizations issued by, and have made all declarations and filings with, the appropriate federal, state, local or foreign governmental or regulatory authorities that are necessary for the ownership or lease of their respective properties or the conduct of their respective businesses as described in each of the Registration Statement, the Pricing Disclosure Package and the Prospectus, except where the failure to possess or make the same would not, individually or in the aggregate, have a Material Adverse Effect; (ii) neither the Company nor any of its Controlled Entities has received notice of any revocation or modification of any such license, sub-license, certificate, permit or authorization or has any reason to believe that any such license, sub-license, certificate, permit or authorization will not be renewed in the ordinary course, except as would not, individually or in the aggregate, have a Material Adverse Effect; and (iii) such licenses, sub-licenses, certificates, permits or authorizations are valid and in full force and effect and contain no materially burdensome restrictions or conditions not described in the Registration Statement, the Pricing Disclosure Package or the Prospectus.
(ee) No Labor Disputes. No labor disturbance by or dispute with employees of the Company or any of its Controlled Entities exists or, to the knowledge of the Company, is contemplated or threatened, and the Company is not aware of any existing or imminent labor disturbance by, or dispute with, the employees of any of its or its Controlled Entities principal suppliers, contractors or customers, except as would not have a Material Adverse Effect. The Company and the Controlled Entities are and have been in all times in compliance with all applicable labor laws and regulations, and no governmental investigation or proceedings with respect to labor law compliance exists or, to the best of the Companys knowledge, is imminent.
(ff) No Undisclosed Benefits. Except as disclosed in each of the Registration Statement, Pricing Disclosure Package and Prospectus, neither the Company nor any of the Controlled Entities has any material obligation to provide retirement, healthcare, death or disability benefits to any of the present or past employees of the Company or any of the Controlled Entities.
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(gg) Certain Environmental Matters. (i) The Company and its Controlled Entities (A) are, and at all prior times were, in compliance with all, and have not violated any, applicable laws (including common law), rules, regulations, requirements, decisions, judgments, decrees, orders and other legally enforceable requirements relating to pollution or the protection of human health or safety, the environment, natural resources or Hazardous Substances (as defined below) (collectively, Environmental Laws); (B) have received and are in compliance with all, and have not violated any, permits, licenses, certificates or other authorizations or approvals required of them under any Environmental Laws to conduct their respective businesses; and (C) have not received notice of any actual or potential liability or obligation under or relating to, or any actual or potential violation of, any Environmental Laws, including for the investigation or remediation of any disposal or release of hazardous or toxic substances or wastes, pollutants or contaminants (Hazardous Substances), and have no knowledge of any event or condition that would reasonably be expected to result in any such notice;(ii) (A) neither the Company nor any of the Controlled Entities owns, occupies, operates or uses any real property contaminated with Hazardous Substances; (B) neither the Company nor any of the Controlled Entities is liable or allegedly liable for any release or threatened release of Hazardous Substances, including at any off-site treatment, storage or disposal site; and (C) neither the Company nor any of the Controlled Entities is subject to any claim by any governmental agency or governmental body or person relating to Environmental Laws or Hazardous Substances; and (iii) there are no costs or liabilities associated with Environmental Laws of or relating to the Company or its Controlled Entities; except in the case of each of (i) (ii) and (iii) above, for any such matter as would not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect; and (iv) (A) there is no proceeding that is pending, or that is known to be contemplated, against the Company or any of its Controlled Entities under any Environmental Laws in which a governmental entity is also a party that would reasonably be expected to have a Material Adverse Effect; (B) the Company and its Controlled Entities are not aware of any facts or issues regarding compliance with Environmental Laws, or liabilities or other obligations under Environmental Laws or concerning Hazardous Substances, that could reasonably be expected to have a material effect on the capital expenditures, earnings or competitive position of the Company and its Controlled Entities; (C) to the knowledge of the Company, there are no requirements proposed for adoption or implementation under any Environmental Law that would reasonably be expected to have a Material Adverse Effect; and (D) in the ordinary course of its business, the Company periodically evaluates the effect, including associated costs and liabilities, of Environmental Laws on the business, properties, results of operations and financial condition of it and the Controlled Entities, and, on the basis of such evaluation, the Company has reasonably concluded that such Environmental Laws will not, individually or in the aggregate, have a Material Adverse Effect.
(hh) Disclosure Controls. The Company and its Controlled Entities maintain an effective system of disclosure controls and procedures (as defined in Rule 13a-15(e) of the Exchange Act) that complies with the requirements of the Exchange Act and that has been designed to ensure that information required to be disclosed by the Company in reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Commissions rules and forms, including controls and procedures designed to ensure that such information is accumulated and communicated to the Companys management as appropriate to allow timely decisions regarding required disclosure.
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(ii) Accounting Controls. The Company and its Controlled Entities maintain systems of internal control over financial reporting (as defined in Rule 13a-15(f) of the Exchange Act) that comply with the requirements of the Exchange Act and have been designed by, or under the supervision of, their respective principal executive and principal financial officers, or persons performing similar functions, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with U.S. GAAP. The Company and its Controlled Entities maintain internal accounting controls sufficient to provide reasonable 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 U.S. GAAP 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; (v) material information relating to the Company and the Controlled Entities is made known to the Companys chief executive officer and chief financial officer by others within those entities, (vi) each of the Company and the Controlled Entities has made and kept books, records and accounts which, in reasonable detail, accurately and fairly reflect the transactions of such entity and provide a sufficient basis for the preparation of financial statements in conformity with U.S. GAAP, and (vii) the directors of the Company are able to make a proper assessment of the financial position and prospects of the Company and the Controlled Entities. Except as disclosed in the Registration Statement, the Pricing Disclosure Package and the Prospectus, there are no material weaknesses in the Companys internal controls. Except as disclosed in the Registration Statement, the Pricing Disclosure Package and the Prospectus, the Company has not publicly disclosed or reported to the Board of Directors, and within the next 135 days the Company does not reasonably expect to publicly disclose or report to the Board of Directors, a significant deficiency, material weakness, change in the design or operation of internal controls, or fraud involving management or other employees who have a significant role in the Companys internal controls, or any violation of, or failure to comply with, Securities Laws (as defined below), which if determined adversely, would have a Material Adverse Effect. Each of the Companys independent directors meets the criteria for independence under the Sarbanes-Oxley Act, the rules and regulations of the Commission and all applicable the rules of the New York Stock Exchange.
(jj) Insurance. The Company and its Controlled Entities have insurance covering their respective properties, operations, personnel and businesses, which insurance the Company reasonably believes is in amounts and insures against such losses and risks as are adequate to protect the Company and its Controlled Entities and their respective businesses; and all policies of insurance insuring the Company or any of its Controlled Entities or their respective businesses, assets, employees, officers and directors are in full force and effect. Neither the Company nor any of its Controlled Entities has (i) been refused any insurance coverage sought or applied for; (ii) received notice from any insurer or agent of such insurer that capital improvements or other expenditures are required or necessary to be made in order to continue such insurance or (iii) any reason to believe that it will not be able to renew its existing insurance coverage as and when such coverage expires or to obtain similar coverage at reasonable cost from similar insurers as may be necessary to continue its business. There is no material insurance claim made by or against the Company or any of its Controlled Entities, pending, outstanding, or to the Companys best knowledge, threatened, and no facts or circumstances exist which would reasonably be expected to give rise to any such claim.
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(kk) Cybersecurity; Data Protection. The Company and its Controlled Entities information technology assets and equipment, computers, systems, networks, hardware, software, websites, applications, and databases (collectively, IT Systems) are adequate for, and operate and perform in all material respects as required in connection with the operation of the business of the Company and its Controlled Entities as currently conducted, free and clear of all material bugs, errors, defects, Trojan horses, time bombs, malware and other corruptants. The Company and its Controlled Entities have implemented and maintained commercially reasonable controls, policies, procedures, and safeguards to maintain and protect their material confidential information and the integrity, continuous operation, redundancy and security of all IT Systems and data (including all personal, personally identifiable, sensitive, confidential or regulated data (Personal Data)) used in connection with their businesses, and there have been no breaches, violations, outages or unauthorized uses of or accesses to same except for those that would not have a Material Adverse Effect or, nor any incidents under internal review or investigations relating to the same. The Company and its Controlled Entities are presently in material compliance with all applicable laws or statutes and all judgments, orders, rules and regulations of any court or arbitrator or governmental or regulatory authority, internal policies and contractual obligations relating to the privacy and security of IT Systems and Personal Data and to the protection of such IT Systems and Personal Data from unauthorized use, access, misappropriation or modification.
(ll) No Unlawful Payments. Neither the Company nor any of its Controlled Entities, nor any director, officer or employee of the Company or any of its Controlled Entities, acting in their capacity as such, nor, to the knowledge of the Company, any representative, agent, affiliate or other person [associated with or] acting on behalf of the Company or any of its Controlled Entities has (i) used any corporate funds for any unlawful contribution, gift, entertainment or other unlawful expense relating to political activity; (ii) made or taken, or will make or take, an act in furtherance of an offer, promise or authorization of any direct or indirect unlawful payment, giving of money, property, gifts, benefit or anything else of value to any foreign or domestic government or regulatory official or employee, including of any government-owned or controlled entity or of a public international organization, or any person acting in an official capacity for or on behalf of any of the foregoing, or any political party or party official or candidate for political office, in order to influence official action or secure an improper advantage; (iii) violated or is in violation of any provision of the U.S. Foreign Corrupt Practices Act of 1977, as amended, or any applicable law or regulation implementing the OECD Convention on Combating Bribery of Foreign Public Officials in International Business Transactions, or committed an offence under the Bribery Act 2010 of the United Kingdom, or any applicable law, rule or regulation of the Cayman Islands, the British Virgin Islands, the PRC, Hong Kong, or any other applicable anti-bribery or anti-corruption law; (iv) made, offered, agreed, requested or taken an act in furtherance of any unlawful bribe or other unlawful benefit, including, without limitation, any rebate, payoff, influence payment, kickback or other unlawful or improper payment or benefit; or (v) will directly or indirectly use the proceeds of the offering of the Shares by the Company hereunder in furtherance of an offer, promise or authorization of any direct or indirect unlawful payment, giving of money, property, gifts, benefit or anything else of value, to any person in violation of any applicable anti-bribery or anti-corruption law. The Company and its Controlled Entities and affiliates have conducted their business in compliance with applicable anti-bribery and anti-corruption laws and have instituted, maintained and enforced, and will continue to maintain and enforce adequate policies and procedures designed to promote and ensure compliance with all applicable anti-bribery and anti-corruption laws. No investigation, action, suit or proceedings by or before any court or governmental agency, authority or body or any arbitrator involving the Company or any of the Controlled Entities with respect to anti-bribery or anti-corruption laws is pending or, to the knowledge of the Company, threatened.
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(mm) Compliance with Anti-Money Laundering Laws. The operations of the Company and its Controlled Entities are and have been conducted at all times in material compliance with applicable financial recordkeeping and reporting requirements, including, as applicable, those of the Currency and Foreign Transactions Reporting Act of 1970, as amended, and all the other applicable money laundering laws, rules and regulations of all jurisdictions where the Company or any of its Controlled Entities conducts business, and any related or similar rules, regulations or guidelines issued, administered or enforced by any governmental agency, including, without limitation, Title 18 U.S. Code section 1956 and 1957, the USA Patriot Act of 2001, and the Bank Secrecy Act, all as amended, and any executive order, directive, or regulation pursuant to the authority of any of the foregoing, or any orders or licenses issued thereunder (collectively, the Anti-Money Laundering Laws), and no action, suit or proceeding by or before any court or governmental agency, authority or body or any arbitrator involving the Company or any of its Controlled Entities with respect to the Anti-Money Laundering Laws is pending or, to the knowledge of the Company, threatened. Neither the Company nor any of its Controlled Entities, nor any director, officer, or employee of the Company or any of its Controlled Entities, nor, to the knowledge of the Company, any representative, agent, affiliate or other person acting on behalf of the Company or any of its Controlled Entities has violated any Anti-Money Laundering Laws.
(nn) No Conflicts with Sanctions Laws. Neither the Company nor any of its Controlled Entities, directors, or officers, nor, to the knowledge of the Company, any employee, representative, agent, affiliate or other person [associated with or] acting on behalf of the Company or any of its Controlled Entities is currently the subject or the target of any sanctions administered or enforced by the U.S. government (including, without limitation, the Office of Foreign Assets Control of the U.S. Department of the Treasury or the U.S. Department of State and including, without limitation, the designation as a specially designated national or blocked person), the United Nations Security Council, the European Union, Her Majestys Treasury or other relevant sanctions authority (collectively, Sanctions), nor is the Company or any of its Controlled Entities located, organized or resident in a country or territory that is the subject or target of Sanctions, including, without limitation, Crimea, Cuba, Iran, North Korea and Syria (each, a Sanctioned Country). Neither the Company nor any of its Controlled Entities, nor any director, supervisor, officer, manager or employee of the Company or any of its Controlled Entities nor, to the knowledge of the Company, any affiliate, representative, agent or other person acting on behalf of the Company or any of its Controlled Entities has violated any applicable laws and regulations imposing Sanctions. The Company will not directly or indirectly use the proceeds of the offering of the Shares hereunder, or lend, contribute or otherwise make available such proceeds to any Controlled Entity, joint venture partner or other person or entity (i) to fund or facilitate any activities of or business with any person that, at the time of such funding or facilitation, is the subject or target of Sanctions, (ii) to fund or facilitate any activities of or business in any Sanctioned Country or (iii) in any other manner that will result in a violation by any person (including any person participating in this transaction, whether as underwriter, advisor, investor or otherwise) of Sanctions. For the past five years, the Company and its Controlled Entities have not knowingly engaged in and are not now knowingly engaged in, and will not engage in, any dealings or transactions with any person that at the time of the dealing or transaction is or was the subject or the target of Sanctions or with any Sanctioned Country. The Company and its Controlled Entities have instituted, maintained and enforced, and will continue to maintain and enforce policies and procedures designed to promote and ensure compliance with all applicable laws and regulations imposing Sanctions. None of the issue and sale of the Shares, the execution, delivery and performance of this Agreement, the consummation of any other transaction contemplated hereby, or the provision of services contemplated by this Agreement to the Company will result in a violation of any Sanctions.
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(oo) No Brokers Fees. Neither the Company nor any of its Controlled Entities is a party to any contract, agreement or understanding with any person (other than this Agreement) that would give rise to a valid claim against any of them or any Underwriter for a brokerage commission, finders fee or like payment in connection with the offering and sale of the Shares and the Class A Ordinary Shares represented thereby.
(pp) No Registration Rights. Except as disclosed in the Registration Statement, the Pricing Disclosure Package and the Prospectus, no person has the right to require the Company or any of its Controlled Entities to register any securities for sale under the Securities Act by reason of the filing of the Registration Statement with the Commission, the issuance and sale of the Shares by the Company.
(qq) Listing. The Shares have been approved for listing on the New York Stock Exchange, subject to notice of issuance.
(rr) No Stabilization. Neither the Company nor any of its Controlled Entities or affiliates and, to the knowledge of the Company, any director, officer, agent, employee or person acting on behalf of the Company and the Controlled Entities, has taken, directly or indirectly, any action designed to or that has constituted or that could reasonably be expected to cause or result in any stabilization or manipulation of the price of the Shares.
(ss) Accurate Disclosure. The statements in the Registration Statement, the Pricing Disclosure Package and the Prospectus under the headings [Prospectus Summary, Risk Factors, Use of Proceeds, Dividend Policy, Enforcement of Civil Liabilities, Our History and Corporate Structure, Managements Discussion and Analysis of Financial Condition and Results of Operations, Business, Regulations, Management, Principal [and Selling] Shareholders, Related Party Transactions, Description of Share Capital, Description of American Depositary Shares, Shares Eligible for Future Sale, Taxation and Underwriting,] insofar as such statements summarize legal matters, agreements, documents or proceedings discussed therein, are accurate and fair summaries of such legal matters, agreements, documents or proceedings and present the information required to be shown.
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(tt) Critical Accounting Policies. The section entitled Managements Discussion and Analysis of Financial Condition and Results of Operations, in the Registration Statement, the Pricing Disclosure Package and the Prospectus accurately and fully, in all material respects, describes (i) accounting policies that the Company believes are the most important in the portrayal of the Companys financial condition and results of operations and that require managements most difficult, subjective or complex judgments, (ii) judgments and uncertainties affecting the application of the foregoing critical accounting policies and (iii) the likelihood that materially different amounts would be reported under different conditions or using different assumptions and an explanation thereof. The Companys directors and management have reviewed and agreed with the selection, application and disclosure of the Companys critical accounting policies as described in the Registration Statement, the Pricing Disclosure Package and the Prospectus and have consulted with the Companys independent registered public accounting firm with regard to such disclosure.
(uu) Liquidity and Capital Resources. The sections entitled Managements Discussion and Analysis of Financial Condition and Results of Operations Liquidity and Capital Resources in the Registration Statement, the Pricing Disclosure Package and the Prospectus fairly and accurately, in all material respects, describes all trends, demands, commitments, events, uncertainties and risks and the potential effects thereof known to the Company, that the Company believes would materially affect its liquidity and are reasonably likely to occur. The section entitled Managements Discussion and Analysis of Financial Condition and Results of Operations Off-Balance Sheet Arrangements in the Registration Statement, the Pricing Disclosure Package and the Prospectus fairly and accurately, in all material respects, describes all off-balance sheet transactions, arrangements, commitments and obligations of the Company or the Controlled Entities that are reasonably likely to have a material effect on the liquidity of the Company or its Controlled Entities or the availability thereof or the requirements of the Company or its Controlled Entities for capital resources.
(vv) Forward-Looking Statements. No forward-looking statement (within the meaning of Section 27A of the Securities Act and Section 21E of the Exchange Act) included or incorporated by reference in any of the Registration Statement, the Pricing Disclosure Package or the Prospectus has been made or reaffirmed without a reasonable basis or has been disclosed other than in good faith.
(ww) Operating Data. All operating data of the Company and the Controlled Entities included in each of the Registration Statement, Pricing Disclosure Package and Prospectus, including but not limited to, [number of units delivered, number of stores, number of employees and distance driven], are true and accurate in all material respects.
(xx) Statistical and Market Data. Nothing has come to the attention of the Company that has caused the Company to believe that the statistical and market-related data included in each of the Registration Statement, the Pricing Disclosure Package and the Prospectus is not based on or derived from sources that are reliable and accurate in all material respects, and the Company has obtained the written consent for the use of such data from such sources to the extent required.
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(yy) Sarbanes-Oxley Act. There is and has been no failure on the part of the Company or any of the Companys directors or officers, in their capacities as such, to comply with any provision of the Sarbanes-Oxley Act of 2002, as amended and the rules and regulations promulgated in connection therewith (the Sarbanes-Oxley Act), including Section 402 related to loans.
(zz) No Sale, Issuance and Distribution of Shares. The Company has not sold, issued or distributed any securities during the six-month period preceding the date hereof, including any sales pursuant to Rule 144A, Regulation D or Regulation S promulgated under the Securities Act, other than the share-based awards issued or granted pursuant to the Share Incentive Plans or shares issued pursuant to outstanding options, rights or warrants or private placement agreements entered into in 2020 as disclosed in the Registration Statement, the Pricing Disclosure Package and the Prospectus.
(aaa) Status under the Securities Act. At the time of filing the Registration Statement and any post-effective amendment thereto, at the earliest time thereafter that the Company or any offering participant made a bona fide offer (within the meaning of Rule 164(h)(2) under the Securities Act) of the Shares and at the date hereof, the Company was not and is not an ineligible issuer, as defined in Rule 405 under the Securities Act.
(bbb) No Ratings. There are (and prior to the Closing Date, will be) no debt securities, convertible securities or preferred stock issued or guaranteed by the Company or any of its Controlled Entities that are rated by a nationally recognized statistical rating organization, as such term is defined in Section 3(a)(62) under the Exchange Act.
(ccc) Directed Share Program. The Company represents and warrants that (i) the Registration Statement, the Pricing Disclosure Package and the Prospectus, any Preliminary Prospectus and any Issuer Free Writing Prospectuses comply in all material respects, and any further amendments or supplements thereto will comply in all material respects, with any applicable laws or regulations of foreign jurisdictions in which the Pricing Disclosure Package, the Prospectus, any Preliminary Prospectus and any Issuer Free Writing Prospectus, as amended or supplemented, if applicable, are distributed in connection with the Directed Share Program, and that (ii) no authorization, approval, consent, license, order, registration or qualification of or with any government, governmental instrumentality or court, other than such as have been obtained, is necessary under the securities laws and regulations of foreign jurisdictions in which the Directed Shares are offered outside the United States. The Company has not offered, or caused the underwriters to offer, Shares to any person pursuant to the Directed Share Program with the specific intent to unlawfully influence (i) a customer or supplier of the Company to alter the customer or suppliers level or type of business with the Company, or (ii) a trade journalist or publication to write or publish favorable information about the Company or its products.
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(ddd) Stamp Taxes. Except as disclosed in the Registration Statement, the Pricing Disclosure Package and the Prospectus and except for any net income, capital gains or franchise taxes imposed on the Underwriters by the Cayman Islands, the British Virgin Islands, Hong Kong or the PRC or any political subdivision or taxing authority thereof or therein as a result of any present or former connection (other than any connection resulting from the transactions contemplated by this Agreement and the Transaction Documents) between the Underwriters and the jurisdiction imposing such tax, no stamp duties or other issuance or transfer taxes or duties and no capital gains, income, withholding or other taxes are payable by or on behalf of the Underwriters in the Cayman Islands (other than nominal stamp duty if the original Transaction Documents are executed in, brought to, or produced before a court of, the Cayman Islands), the British Virgin Islands, Hong Kong or the PRC or any political subdivision or taxing authority thereof solely in connection with (A) the execution, delivery and performance of the Transaction Documents, (B) the issuance and delivery of the Shares in the manner contemplated by this Agreement and the Prospectus, (C) the deposit by the Company with the Depositary of the Class A Ordinary Shares against the issuance of the ADRs evidencing the Shares to be sold by the Company hereunder, (D) the sale and delivery by the Company of the Shares to or for the respective accounts of the several Underwriters, or (E) the sale and delivery by the Underwriters of the Shares as contemplated herein and in the Prospectus.
(eee) Use of Proceeds. The application of the net proceeds received by the Company from the offering of Shares by the Company, as described in the Registration Statement, Pricing Disclosure Package and Prospectus, will not (i) result in any violation of the provisions of the memorandum and articles of association, charter or by-laws or similar organizational documents of the Company or any of its Controlled Entities, (ii) contravene or violate any applicable laws, (iii) conflict with or result in a breach or violation of any of the terms or provisions of, or constitute a default under, or result in the creation or imposition of any lien, charge or encumbrance upon any property or assets of the Company or any of its Controlled Entities pursuant to, any indenture, mortgage, deed of trust, loan agreement or other agreement or instrument to which the Company or any of its Controlled Entities is a party or by which the Company or any of its Controlled Entities is bound or to which any of the property or assets of the Company or any of its Controlled Entities is subject or (iv) contravene or violate the terms or provisions of any licenses, sub-licenses, certificates, permits or authorization applicable to any of the Company or any of the Controlled Entities, except in the case of clauses (iii) and (iv) above, where such contravention or default would not have a Material Adverse Effect.
(fff) Due Authorization of Registration Statement. Each Registration Statement, the Preliminary Prospectus, the Pricing Disclosure Package, the Prospectus, the ADS Registration Statement, the Exchange Act Registration Statement and any Issuer Free Writing Prospectus, and the filing of the Registration Statement, the Preliminary Prospectus, the Pricing Disclosure Package, the Prospectus, the ADS Registration Statement, the Exchange Act Registration Statement and any Issuer Free Writing Prospectus with the Commission, have been duly authorized by and on behalf of the Company, and each of the Registration Statement and the ADS Registration Statement and the Exchange Act Registration Statement has been duly executed pursuant to such authorization by and on behalf of the Company.
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(ggg) Merger or Consolidation. Neither the Company nor any of its Controlled Entities is a party to any effective memorandum of understanding, letter of intent, definitive agreement or any similar agreements with respect to a merger or consolidation or a material acquisition or disposition of assets, technologies, business units or businesses which is required to be disclosed but not so disclosed in the Registration Statement, the Pricing Disclosure Package and the Prospectus.
(hhh) Termination of Contracts. (i) Neither the Company nor any of its Controlled Entities has sent or received any written communication regarding termination of, or intent not to renew, any of the material contracts or agreements referred to or described in the Registration Statement, the Pricing Disclosure Package and the Prospectus or filed as an exhibit to the Registration Statement; and (ii) no such termination or non-renewal has been threatened by the Company or any of its Controlled Entities, or to the best knowledge of the Company after due inquiry, by any other party to any such contract or agreement.
(iii) No Immunity. Neither the Company nor any of its Controlled Entities or their respective properties, assets or revenues is entitled to any right of immunity under the laws of the Cayman Islands, the British Virgin Islands, Hong Kong, the PRC, U.S. federal or New York state law from any legal action, suit or proceeding, from the giving of any relief in any such legal action, suit or proceeding, from set-off or counterclaim, from the jurisdiction of any Cayman Islands, the British Virgin Islands, Hong Kong, the PRC, U.S. federal or New York state court, from service of process, attachment upon or prior to judgment, or attachment in aid of execution of judgment, or from execution of a judgment, or any other legal process or proceeding for the giving of any relief or for the enforcement of any judgment, in any such court with respect to their respective obligations, liabilities or any other matter under or arising out of or in connection herewith; and, to the extent that the Company or any of its Controlled Entities or any of its properties, assets or revenues may have or may hereafter become entitled to any such right of immunity in any such court in which proceedings arising out of, or relating to the transactions contemplated by the Transaction Documents, may at any time be commenced, the Company has, pursuant to Section 16(f) of this Agreement, waived, and it will waive, or will cause its subsidiaries to waive, such right to the extent permitted by law. The irrevocable and unconditional waiver and agreement of the Company or its Controlled Entities in this Agreement and the Deposit Agreement not to plead or claim any such immunity in any legal action, suit or proceeding based on this Agreement or the Deposit Agreement is valid and binding under the laws of the Cayman Islands, the British Virgin Islands, Hong Kong, the United States and the PRC.
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(jjj) Enforcement of Foreign Judgments. Any final judgment for a fixed or determined sum of money rendered by a New York Court (as defined below) having jurisdiction under its own laws in respect of any suit, action or proceeding against the Company based upon this Agreement and the Deposit Agreement would be recognized and enforced by courts of the Cayman Islands, the British Virgin Islands, Hong Kong and the PRC (as the case may be) without re-examination or review of the merits of the cause of action in respect of which the original judgment was given or re-litigation of the matters adjudicated upon, by the courts of the Cayman Islands, the British Virgin Islands, Hong Kong and PRC, subject to conditions and restrictions described under the caption Enforcement of Civil Liabilities in the Registration Statement, Pricing Disclosure Package and Prospectus and subject to the applicable provisions of the PRC Civil Procedures Law and the General Principles of Civil Law of the PRC relating to the enforceability of foreign judgments. The courts of the Cayman Islands would recognize as a valid judgment, a final and conclusive judgment in personam obtained in the New York Court against the Company based upon this Agreement or the Deposit Agreement 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) or, in certain circumstances, an in personam judgment for non-monetary relief, and would give a judgment based thereon provided that (a) such courts had proper jurisdiction over the parties subject to such judgment, (b) such courts did not contravene the rules of natural justice of the Cayman Islands, (c) such judgment was not obtained by fraud, (d) the enforcement of the judgment would not be contrary to the public policy of the Cayman Islands, (e) 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 (f) there is due compliance with the correct procedures under the laws of the Cayman Islands. The Company is not aware of any reason why the enforcement in the Cayman Islands, the British Virgin Islands, Hong Kong or the PRC of such a New York Court judgment would be, as of the date hereof, contrary to public policy of the Cayman Islands, the British Virgin Islands, Hong Kong or PRC.
(kkk) Valid Choice of Law. The choice of the laws of the State of New York as the governing law of this Agreement and Deposit Agreement is a valid choice of law under the laws of the PRC and will be honored by courts in the Cayman Islands, the British Virgin Islands, Hong Kong and the PRC, subject to the conditions and restrictions described under the caption Enforcement of Civil Liabilities in the Registration Statement, the Pricing Disclosure Package and the Prospectus and subject to applicable provisions of the Civil Procedure Law and the General Principles of Civil Law of the PRC relating to choice of foreign laws. The choice of the laws of the State of New York as the governing law of this Agreement and Deposit Agreement is a valid choice of law and would be recognized and given effect to in any action brought before a court of competent jurisdiction in the Cayman Islands, except for those laws (i) which such court considers to be procedural in nature, (ii) which are revenue or penal laws or (iii) the application of which would be inconsistent with public policy, as such term is interpreted under the laws of the Cayman Islands. The Company has the power to submit, and pursuant to Section 16(d) of this Agreement and Section [ ● ] of the Deposit Agreement, has legally, validly, effectively and irrevocably submitted, to the exclusive jurisdiction of New York Courts (as defined below) and has validly and irrevocably waived any objection to the laying of venue of any suit, action or proceeding brought in any such court; and the Company has the power to designate, appoint and authorize, and pursuant to Section 16(d) of this Agreement and Section [ ● ] of the Deposit Agreement, has legally, validly, effectively and irrevocably designated, appointed and authorized, an agent for service of process in any action arising out of or relating to this Agreement, the Deposit Agreement, the Registration Statement or the offering of the Shares in the Borough of Manhattan in The City of New York, and service of process in any manner permitted by applicable laws effected on such authorized agent will be effective to confer valid personal jurisdiction over the Company as provided hereof or in the Deposit Agreement.
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(lll) SAFE Compliance. [Except as disclosed in each of the Registration Statement, the Pricing Disclosure Package and the Prospectus, each of the Company and the Controlled Entities has taken all necessary steps to comply in all material respects with, and to ensure compliance by all of the Companys direct or indirect shareholders, directors and officers who are, or to the Companys knowledge, are directly or indirectly owned or controlled by, PRC residents or PRC citizens, with any applicable rules and regulations of the State Administration of Foreign Exchange of the PRC (the SAFE Rules and Regulations) in all material respects, including, without limitation, requiring each shareholder, that is, or is directly or indirectly owned or controlled by, a PRC resident or PRC citizen, to complete any registration and other procedures required under applicable SAFE Rules and Regulations, except where such non-compliance would not have a Material Adverse Effect.]
(mmm) PRC Mergers and Acquisitions Rules. [The Company is aware of and has been advised as to the content of the Rules on Mergers and Acquisitions of Domestic Enterprises by Foreign Investors jointly promulgated by the Ministry of Commerce, the State Assets Supervision and Administration Commission, the State Administration of Taxation, the State Administration of Industry and Commerce (which has been merged into the State Administration for Market Regulation), the China Securities Regulatory Commission (the CSRC) and the State Administration of Foreign Exchange of the PRC on August 8, 2006 and amended on June 22, 2009 (the PRC Mergers and Acquisition Rules), including the relevant provisions thereof which purport to require offshore special purpose entities formed for listing purposes and controlled directly or indirectly by PRC companies or individuals, to obtain the approval of the CSRC prior to the listing and trading of their securities on an overseas stock exchange. The Company has received legal advice specifically with respect to the PRC Mergers and Acquisitions Rules from its PRC counsel and the Company understands such legal advice and has fully communicated such legal advice to each of its directors and executive officers that signed the Registration Statement and each such director and executive officer has confirmed that he or she understands such legal advice. The issuance and sale of the Shares, the listing and trading of the Shares on the New York Stock Exchange or the consummation of the transactions contemplated by this Agreement and the Deposit Agreement (i) is not and will not be, as of the date hereof or on the Closing Date or each Additional Closing Date, as the case may be, materially and adversely affected by the PRC Mergers and Acquisitions Rules or any official clarifications, guidance, interpretations or implementation rules in connection with or related to the PRC Mergers and Acquisitions Rules and (ii) does not require the prior approval of the CSRC.]
(nnn) FINRA Affiliation. There are no affiliations or associations between (A) any member of the FINRA and (B) the Company or any of the Controlled Entities or any of their respective officers, directors or 5% or greater security holders or any beneficial owner of the Companys unregistered equity securities that were acquired at any time on or after the 180th day immediately preceding the date a draft of the Registration Statement was initially confidentially submitted to the Commission.
(ooo) Passive Foreign Investment Company. The Company does not believe it was a passive foreign investment company (PFIC) as defined in Section 1297 of the Internal Revenue Code of 1986, as amended for its most recently completed taxable year and the Company does not expect to be a PFIC for its current taxable year or in the foreseeable future.
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(ppp) No Restrictions on Controlled Entities; Payment of Dividends. Except for those encumbrances on the consolidated variable interest entities as provided in the Control Agreements and except as disclosed in each of the Registration Statement, the Pricing Disclosure Package and the Prospectus, no Controlled Entity of the Company is currently prohibited, directly or indirectly, under any agreement or other instrument to which it is a party or is subject, from paying any dividends to the Company, from making any other distribution on such Controlled Entitys share capital or similar ownership interest, from repaying to the Company any loans or advances to such Controlled Entity from the Company or from transferring any of such Controlled Entitys properties or assets to the Company or any other Controlled Entity of the Company. Except as disclosed in each of the Registration Statement, the Pricing Disclosure Package and the Prospectus, under current laws and regulations of the Cayman Islands, the British Virgin Islands, Hong Kong, the PRC, the United States and any political subdivision thereof, all dividends and other distributions declared and payable on the share capital of the Company or the Controlled Entities may be paid by the Company or such Controlled Entity to the holders thereof outside the PRC in United States dollars and freely transferred out of the Cayman Islands, the British Virgin Islands, Hong Kong, the United States or the PRC; [and except as disclosed in each of the Registration Statement, the Pricing Disclosure Package and the Prospectus, all such payments made to holders of the share capital who are non-residents of the Cayman Islands, the British Virgin Islands, Hong Kong or the PRC will not be subject to income, withholding or other taxes under laws and regulations of the Cayman Islands, the British Virgin Islands, Hong Kong or the PRC or any political subdivision or taxing authority thereof or therein and will otherwise be free and clear of any other tax, duty, withholding or deduction in the Cayman Islands, the British Virgin Islands, Hong Kong or the PRC or any political subdivision or taxing authority thereof or therein and without the necessity of obtaining any authorization in the Cayman Islands, the British Virgin Islands, Hong Kong or the PRC or any political subdivision or taxing authority thereof or therein.]
(qqq) Legality. The legality, validity, enforceability or admissibility into evidence of any of the Registration Statement, the Pricing Disclosure Package, the Prospectus, the Transaction Documents or the Shares in any jurisdiction in which the Company is organized or does business is not dependent upon such document being submitted into, filed or recorded with any court or other authority in any such jurisdiction on or before the date hereof or that any tax, imposition or charge be paid in any such jurisdiction on or in respect of any such document.
(rrr) Legal Action. A holder of the Shares and each Underwriter are each entitled to sue as plaintiff in the court of the jurisdiction of formation and domicile of the Company for the enforcement of their respective rights under this Agreement and the Shares and such access to such courts will not be subject to any conditions which are not applicable to residents of such jurisdiction or a company incorporated in such jurisdiction.
(sss) Foreign Private Issuer. The Company is a foreign private issuer as defined in Rule 405 under the Securities Act.
In addition, any certificate signed by any executive officer of the Company and delivered to the Underwriters or counsel for the Underwriters in connection with the offering of the Shares shall be deemed to be a representation and warranty by the Company, as to matters covered thereby, to each of the Underwriters.
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4. Further Agreements of the Company. The Company covenants and agrees with each Underwriter that:
(a) Required Filings. The Company will file the final Prospectus with the Commission within the time periods specified by Rule 424(b) and Rule 430A, 430B or 430C under the Securities Act, will file any Issuer Free Writing Prospectus to the extent required by Rule 433 under the Securities Act; and the Company will furnish copies of the Prospectus and each Issuer Free Writing Prospectus (to the extent not previously delivered) to the Underwriters in New York City prior to 5:00 P.M., New York City time, on the business day next succeeding the date of this Agreement in such quantities as the Representatives may reasonably request.
(b) Delivery of Copies. The Company will deliver, without charge, (i) to each of the Representatives, [two] copies of the Registration Statement as originally filed and each amendment thereto, in each case including all exhibits and consents filed therewith; and (ii) to each Underwriter (A) a conformed copy of the Registration Statement as originally filed and each amendment thereto (without exhibits) and (B) during the Prospectus Delivery Period (as defined below), as many copies of the Prospectus (including all amendments and supplements thereto and each Issuer Free Writing Prospectus) as the Representatives may reasonably request. As used herein, the term Prospectus Delivery Period means such period of time after the first date of the public offering of the Shares as in the opinion of counsel for the Underwriters a prospectus relating to the Shares is required by law to be delivered (or required to be delivered but for Rule 172 under the Securities Act) in connection with sales of the Shares by any Underwriter or dealer.
(c) Amendments or Supplements, Issuer Free Writing Prospectuses. Before making, preparing, using, authorizing, approving, referring to or filing any Issuer Free Writing Prospectus, and before filing any amendment or supplement to the Registration Statement, the ADS Registration Statement, the Pricing Disclosure Package or the Prospectus, the Company will furnish to the Representatives and counsel for the Underwriters a copy of the proposed Issuer Free Writing Prospectus, amendment or supplement for review and will not make, prepare, use, authorize, approve, refer to or file any such Issuer Free Writing Prospectus or file any such proposed amendment or supplement to which the Representatives reasonably object.
(d) Notice to the Representatives. The Company will advise the Representatives promptly, and confirm such advice in writing, (i) when the Registration Statement, the ADS Registration Statement or the Exchange Act Registration Statement has become effective; (ii) when any amendment to the Registration Statement, the ADS Registration Statement or the Exchange Act Registration Statement has been filed or becomes effective; (iii) when any supplement to the Pricing Disclosure Package, the Prospectus, any Issuer Free Writing Prospectus or any Written Testing-the-Waters Communication or any amendment to the Prospectus has been filed or distributed; (iv) of any request by the Commission for any amendment to the Registration Statement, the ADS Registration Statement, the Exchange Act Registration Statement or any amendment or supplement to the Prospectus or the receipt of any comments from the Commission relating to the Registration Statement, the ADS Registration Statement, the Exchange Act Registration Statement or any other request by the Commission for any additional information including, but not limited to, any request for information concerning any Testing-the-Waters Communication; (v) of the issuance by the Commission or any other governmental or regulatory authority of any order suspending the effectiveness of the Registration Statement, the ADS Registration Statement or the Exchange Act Registration Statement or preventing or suspending the use of any Preliminary Prospectus, any of the Pricing Disclosure Package, the Prospectus or any Written Testing-the-Waters Communication or the initiation or threatening of any proceeding for that purpose or pursuant to Section 8A of the Securities Act; (vi) of the occurrence of any event or development within the Prospectus Delivery Period as a result of which the Prospectus, any of the Pricing Disclosure Package, any Issuer Free Writing Prospectus or any Written Testing-the-Waters Communication as then amended or supplemented would include any untrue statement of a material fact or omit to state a material fact necessary in order to make the statements therein, in the light of the circumstances existing when the Prospectus, the Pricing Disclosure Package, any such Issuer Free Writing Prospectus or any Written Testing-the-Waters Communication is delivered to a purchaser, not misleading; and (vii) of the receipt by the Company of any notice with respect to any suspension of the qualification of the Shares for offer and sale in any jurisdiction or the initiation or threatening of any proceeding for such purpose; and the Company will use its best efforts to prevent the issuance of any such order suspending the effectiveness of the Registration Statement, the ADS Registration Statement or the Exchange Act Registration Statement, preventing or suspending the use of any Preliminary Prospectus, any of the Pricing Disclosure Package or the Prospectus or any Written Testing-the-Waters Communication or suspending any such qualification of the Shares and, if any such order is issued, will obtain as soon as possible the withdrawal thereof.
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(e) Ongoing Compliance. (1) If during the Prospectus Delivery Period (i) any event or development shall occur or condition shall exist as a result of which the Prospectus as then amended or supplemented would include any untrue statement of a material fact or omit to state any material fact necessary in order to make the statements therein, in the light of the circumstances existing when the Prospectus is delivered to a purchaser, not misleading or (ii) it is necessary to amend or supplement the Prospectus to comply with law, the Company will immediately notify the Underwriters thereof and forthwith prepare and, subject to paragraph (c) above, file with the Commission and furnish, at its own expense, to the Underwriters and to such dealers as the Representatives may designate such amendments or supplements to the Prospectus as may be necessary so that the statements in the Prospectus as so amended or supplemented will not, in the light of the circumstances existing when the Prospectus is delivered to a purchaser, be misleading or so that the Prospectus will comply with law; and (2) if at any time prior to the Closing Date (i) any event or development shall occur or condition shall exist as a result of which the Pricing Disclosure Package as then amended or supplemented would include any untrue statement of a material fact or omit to state any material fact necessary in order to make the statements therein, in the light of the circumstances existing when the Pricing Disclosure Package is delivered to a purchaser, not misleading or (ii) it is necessary to amend or supplement the Pricing Disclosure Package to comply with law, the Company will immediately notify the Underwriters thereof and forthwith prepare and, subject to paragraph (c) above, file with the Commission (to the extent required) and furnish, at its own expense, to the Underwriters and to such dealers as the Representatives may designate, such amendments or supplements to the Pricing Disclosure Package as may be necessary so that the statements in the Pricing Disclosure Package as so amended or supplemented will not, in the light of the circumstances existing when the Pricing Disclosure Package is delivered to a purchaser, be misleading or so that the Pricing Disclosure Package will comply with law; and (3) if at any time following issuance of an Issuer Free Writing Prospectus any event occurred or occurs as a result of which such Issuer Free Writing Prospectus would conflict with the information in the Registration Statement, the Pricing Disclosure Package or the Prospectus or would include an untrue statement of a material fact or omit to state any material fact necessary in order to make the statements therein, in the light of the circumstances then prevailing, not misleading, the Company will give prompt notice thereof to the Representatives and, if requested by the Representatives, will prepare and furnish without charge to each Underwriter an Issuer Free Writing Prospectus or other document which will correct such conflict, statement or omission. Neither the Representatives consent to, nor the Underwriters delivery of, any such amendment or supplement shall constitute a waiver of any of the conditions set forth in Section 6 hereof.
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(f) Blue Sky Compliance. The Company will qualify the Shares for offer and sale under the securities or Blue Sky laws of such jurisdictions as the Representatives shall reasonably request and will continue such qualifications in effect so long as required for distribution of the Shares; provided that the Company shall not be required to (i) qualify as a foreign corporation or other entity or as a dealer in securities in any such jurisdiction where it would not otherwise be required to so qualify, (ii) file any general consent to service of process in any such jurisdiction or (iii) subject itself to taxation in any such jurisdiction if it is not otherwise so subject.
(g) Earning Statement. The Company will make generally available to its security holders and the Representatives as soon as practicable an earning statement that satisfies the provisions of Section 11(a) of the Securities Act and Rule 158 of the Commission promulgated thereunder covering a period of at least twelve months beginning with the first fiscal quarter of the Company occurring after the effective date (as defined in Rule 158) of the Registration Statement.
(h) Clear Market. For a period of 180 days after the date of the Prospectus (the Lock-Up Period), the Company will not (i) offer, pledge, issue, 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, or submit to, or file with, the Commission a registration statement under the Securities Act relating to, any Ordinary Shares or ADSs, or any securities convertible into or exercisable or exchangeable for Ordinary Shares or ADSs (collectively, the Lock-Up Securities), or publicly disclose the intention to undertake any of the foregoing, or (ii) enter into any swap, hedge or other agreement that transfers, in whole or in part, any of the economic consequences of ownership of the Lock-Up Securities, or establish or increase a put equivalent position or liquidate or decrease a call equivalent position in Lock-Up Securities within the meaning of Section 16 of the Exchange Act, or publicly disclose the intention to make any such agreement or transaction, whether any such transaction described in clause (i) or (ii) above is to be settled by delivery of Lock-Up Securities, in cash or otherwise, without the prior written consent of the Representatives, other than the Shares to be sold hereunder. The Company will not facilitate the conversion of the Ordinary Shares held by the Lock-Up Shareholders (as defined below) to ADSs during the Lock-Up Period and will not release the Depositary from the obligations set forth in, or otherwise amend, terminate or fail to enforce, the Depositary Side Letter without the prior written consent of the Representatives during the Lock-Up Period.
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The restrictions described above do not apply to (i) the Shares to be sold hereunder; (ii) the issuance of Lock-Up Securities pursuant to the conversion or exchange of convertible or exchangeable securities or the exercise of warrants or options (including net exercise) or the settlement of restricted share units (RSUs) (including net settlement), in each case outstanding on the date of this Agreement and described in the Prospectus; (iii) grants of share options, share awards, restricted shares, RSUs, or other equity awards and the issuance of Lock-Up Securities (whether upon the exercise of share options or otherwise) to the Companys employees, officers, directors, advisors, or consultants pursuant to the terms of an equity compensation plan in effect as of the Closing Date and described in the Prospectus; (iv) the facilitation of the establishment of a trading plan on behalf of a shareholder, officer or director of the Company pursuant to Rule 10b5-1 under the Exchange Act for the transfer of Ordinary Shares or ADSs of the Company, provided that (a) such plan does not provide for the transfer of the Lock-Up Securities during the Lock-Up Period and (b) no public announcement or filing under the Exchange Act is required of or voluntarily made by or on behalf of the undersigned or the Company regarding the establishment of such plan; or (v) the filing of any registration statement on Form S-8 relating to securities granted or to be granted pursuant to any plan in effect on the date of this Agreement and described in the Prospectus or any assumed benefit plan pursuant to an acquisition or similar strategic transaction.
[If the Representatives, in their sole discretion, agree to release or waive the restrictions set forth in a lock-up agreement described in Section 6(r) hereof for an officer or director of the Company and provide the Company with notice of the impending release or waiver substantially in the form of Exhibit A hereto at least three business days before the effective date of the release or waiver, the Company agrees to announce the impending release or waiver substantially in the form of Exhibit B hereto through a major news service at least two business days before the effective date of the release or waiver.]
(i) Use of Proceeds. The Company will apply the net proceeds from the sale of the Shares by the Company as described in each of the Registration Statement, the Pricing Disclosure Package and the Prospectus under the heading Use of Proceeds. The Company will not invest, or otherwise use the proceeds received by the Company from its sale of the Shares in such a manner (i) as would require the Company or any of the Controlled Entities to register as an investment company under the Investment Company Act, or (ii) that would result in the Company being not in compliance with any applicable SAFE Rules and Regulations in all material respects.
(j) No Stabilization. Neither the Company nor its Controlled Entities will take, directly or indirectly, any action designed to or that could reasonably be expected to cause or result in any stabilization or manipulation of the price of the Shares.
(k) Exchange Listing. The Company will use its reasonable best efforts to list, subject to notice of issuance, the Shares on the New York Stock Exchange (the Exchange).
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(l) Reports. So long as the Shares are outstanding, the Company will furnish to the Representatives, as soon as they are available, copies of all reports, any definitive proxy or information statements or other communications (financial or other) furnished to holders of the Shares, and copies of any reports and financial statements furnished to or filed with the Commission or any national securities exchange or automatic quotation system; provided the Company will be deemed to have furnished such reports and financial statements to the Representatives to the extent they are filed on the Commissions Electronic Data Gathering, Analysis, and Retrieval system.
(m) Record Retention. The Company will, pursuant to reasonable procedures developed in good faith, retain copies of each Issuer Free Writing Prospectus that is not filed with the Commission in accordance with Rule 433 under the Securities Act.
(n) Filings. The Company will file with the Commission such reports as may be required by Rule 463 under the Securities Act.
(o) Directed Share Program. The Company will comply with all applicable securities and other laws, rules and regulations in each jurisdiction in which the Directed Shares are offered in connection with the Directed Share Program.
(p) Emerging Growth Company; Foreign Private Issuer. The Company will promptly notify the Representatives if the Company ceases to be an Emerging Growth Company or a Foreign Private Issuer at any time prior to the later of (i) completion of the distribution of Shares within the meaning of the Securities Act and (ii) completion of the 180-day restricted period referred to in Section 4(h) hereof.
(q) Tax Indemnity. The Company will indemnify and hold harmless the Underwriters against any documentary, stamp, registration or similar issuance tax, including any interest and penalties, on the creation, issue and sale of the Shares by the Company to the Underwriters and on the execution and delivery of this Agreement and on payment received by the Underwriters under this Agreement. All payments to be made by the Company hereunder shall be made without withholding or deduction for or on account of any present or future taxes, duties or governmental charges whatsoever unless the Company is compelled by law to deduct or withhold such taxes, duties or charges. In that event, the Company shall pay such additional amounts as may be necessary in order to ensure that the net amounts received after such withholding or deductions shall equal the amounts that would have been received if no withholding or deduction had been made; provided, however, that no such additional amounts shall be paid in respect of any taxes, duties or charges that would not have been imposed but for (A) a present or former connection between an Underwriter and the jurisdiction imposing such taxes, duties or charges (other than a connection that would not have arisen but for the transactions contemplated by this Agreement) or (B) the failure of an Underwriter to provide, upon reasonable request, any certification, identification or other documentation concerning such Underwriters nationality, residence, identity or connection with the jurisdiction imposing such taxes, duties or charges if such compliance is required or imposed by law or administrative practice as a precondition to an exemption from, or reduction in, such taxes, duties or charges.
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(r) SAFE Compliance. The Company will use its best efforts to comply in all material respects with the SAFE Rules and Regulations, and will use commercially reasonable efforts to cause its shareholders named in the Companys share register and holders of RSUs that are, or that are directly or indirectly owned or controlled by, PRC residents or PRC citizens, to comply in all material respects with the SAFE Rules and Regulations applicable to them in connection with the Company, including without limitation, requesting each shareholder named in the Companys share register and holders of RSUs, that is, or is directly or indirectly owned or controlled by, a PRC resident or PRC citizen to complete any registration and other procedures required under applicable SAFE Rules and Regulations.
(s) Deposit of Ordinary Shares. The Company will deposit the Class A Ordinary Shares represented by the Shares with the Depository in accordance with the provisions of the Deposit Agreement and otherwise comply with the Deposit Agreement so that Underwritten Shares or Option Shares, as the case may be, will be issued by the Depositary against receipt of such Class A Ordinary Shares and delivered to the Underwriters on the Closing Date or each Additional Closing Date, as the case may be.
(t) License of Trademarks. Upon request of any Underwriter, the Company will furnish, or cause to be furnished, to such Underwriter an electronic version of the Companys trademarks, service marks and corporate logo for use on the website, if any, operated by such Underwriter for the purpose of facilitating the offering of the Shares.
(u) Judgment and Approval. The Company agrees that (i) it will not attempt to avoid any judgment in connection with this Agreement obtained by it, applied to it, or denied to it in a court of competent jurisdiction outside the Cayman Islands; (ii) following the consummation of the offering of the Shares, it will use its reasonable efforts to obtain and maintain all approvals required, if any, in the Cayman Islands to pay and remit outside the Cayman Islands all dividends declared by the Company and payable on the Ordinary Shares; and (iii) it will use its reasonable efforts to obtain and maintain all approvals required, if any, in the Cayman Islands for the Company to acquire sufficient foreign exchange for the payment of dividends and all other relevant purposes.
(v) No Other Prospectus. The Company agrees not to, at any time at or after the execution of this Agreement, directly or indirectly, offer or sell any ordinary shares or ADSs by means of any prospectus (within the meaning of the Securities Act), or use any prospectus (within the meaning of the Securities Act) in connection with the offer or sale of the Ordinary Shares or the Shares, in each case other than the Prospectus.
5. Certain Agreements of the Underwriters. Each Underwriter hereby severally represents and agrees that:
(a) It has not and will not use, authorize use of, refer to or participate in the planning for use of, any free writing prospectus, as defined in Rule 405 under the Securities Act (which term includes use of any written information furnished to the Commission by the Company and not incorporated by reference into the Registration Statement and any press release issued by the Company) other than (i) a free writing prospectus that contains no issuer information (as defined in Rule 433(h)(2) under the Securities Act) that was not included (including through incorporation by reference) in the Preliminary Prospectus or a previously filed Issuer Free Writing Prospectus, (ii) any Issuer Free Writing Prospectus listed on Annex A or prepared pursuant to Section 3(c) above (including any electronic road show), or (iii) any free writing prospectus prepared by such Underwriter and approved by the Company in advance in writing (each such free writing prospectus referred to in clauses (i) or (iii), an Underwriter Free Writing Prospectus).
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(b) It has not and will not, without the prior written consent of the Company, use any free writing prospectus that contains the final terms of the Shares unless such terms have previously been included in a free writing prospectus filed with the Commission; provided further that any Underwriter using such term sheet shall notify the Company, and provide a copy of such term sheet to the Company, prior to, or substantially concurrently with, the first use of such term sheet.
(c) It is not subject to any pending proceeding under Section 8A of the Securities Act with respect to the offering (and will promptly notify the Company if any such proceeding against it is initiated during the Prospectus Delivery Period).
6. Conditions of Underwriters Obligations. The obligation of each Underwriter to purchase the Underwritten Shares on the Closing Date or the Option Shares on an Additional Closing Date, as the case may be, as provided herein is subject to the performance by the Company of its covenants and other obligations hereunder and to the following additional conditions:
(a) Registration Compliance; No Stop Order. No order suspending the effectiveness of the Registration Statement or the ADS Registration Statement shall be in effect, and no proceeding for such purpose or pursuant to Section 8A under the Securities Act shall be pending before or threatened by the Commission; the Prospectus and each Issuer Free Writing Prospectus shall have been timely filed with the Commission under the Securities Act (in the case of an Issuer Free Writing Prospectus, to the extent required by Rule 433 under the Securities Act) and in accordance with Section 4(a) hereof; and all requests by the Commission for additional information shall have been complied with to the reasonable satisfaction of the Representatives.
(b) Representations and Warranties. The representations and warranties of the Company contained herein shall be true and correct on the date hereof and on and as of the Closing Date or such Additional Closing Date, as the case may be; and the statements of the Company and its officers made in any certificates delivered pursuant to this Agreement shall be true and correct on and as of the Closing Date or such Additional Closing Date, as the case may be.
(c) No Material Adverse Change. No event or condition of a type described in Section 3(h) hereof shall have occurred or shall exist, which event or condition is not described in the Pricing Disclosure Package (excluding any amendment or supplement thereto) and the Prospectus (excluding any amendment or supplement thereto) and the effect of which in the judgment of the Representatives makes it impracticable or inadvisable to proceed with the offering, sale or delivery of the Shares on the Closing Date or such Additional Closing Date, as the case may be, on the terms and in the manner contemplated by this Agreement, the Pricing Disclosure Package and the Prospectus.
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(d) Officers Certificate. The Representatives shall have received on and as of the Closing Date or such Additional Closing Date, as the case may be, a certificate of the chief executive officer or chief financial officer of the Company who is satisfactory to the Representatives (i) confirming that such officers have carefully reviewed the Registration Statement, the Pricing Disclosure Package and the Prospectus and, to the best knowledge of such officers, the representations of the Company set forth in Sections 3(b) and 3(f) hereof are true and correct, (ii) confirming that the other representations and warranties of the Company in this Agreement are true and correct and that the Company has complied with all agreements and satisfied all conditions on its part to be performed or satisfied hereunder at or prior to the Closing Date or such Additional Closing Date, as the case may be, and (iii) to the effect set forth in paragraph (a) and (c) above.
(e) Comfort Letters. (i) On the date of this Agreement and on the Closing Date or such Additional Closing Date, as the case may be, PricewaterhouseCoopers Zhong Tian LLP shall have furnished to the Representatives, letters, dated the respective dates of delivery thereof and addressed to the Underwriters, in form and substance reasonably satisfactory to the Representatives, containing statements and information of the type customarily included in accountants comfort letters to underwriters with respect to the financial statements and certain financial information contained in each of the Registration Statement, the Pricing Disclosure Package and the Prospectus; provided, that the letter delivered on the Closing Date or such Additional Closing Date, as the case may be, shall use a cut-off date no more than two business days prior to such Closing Date or such Additional Closing Date, as the case may be.
(f) Opinion and 10b-5 Statement of U.S. Counsel for the Company. Simpson Thacher & Bartlett LLP, U.S., counsel for the Company, shall have furnished to the Representatives, their written opinion and 10b-5 statement, dated the Closing Date or such Additional Closing Date, as the case may be, and addressed to the Underwriters, in form and substance reasonably satisfactory to the Representatives.
(g) Opinion of Cayman Islands Counsel for the Company. Harney Westwood & Riegels, Cayman Islands counsel for the Company, shall have furnished to the Representatives, their written opinion, dated the Closing Date or such Additional Closing Date, as the case may be, and addressed to the Underwriters, in form and substance reasonably satisfactory to the Representatives.
(h) Opinion of Hong Kong Counsel for the Company. [ ● ], Hong Kong counsel for the Company, shall have furnished to the Representatives, their written opinion, dated the Closing Date or such Additional Closing Date, as the case may be, and addressed to the Underwriters, in form and substance reasonably satisfactory to the Representatives.
(i) Opinion of PRC Counsel for the Company. Fangda Partners, PRC counsel for the Company, shall have furnished to the Representatives their written opinion, dated the Closing Date or such Additional Closing Date, as the case may be, and addressed to the Company in form and substance reasonably satisfactory to the Representatives.
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(j) Opinion of US/California Counsel for the Company. Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, P.C., California counsel for the Company, shall have furnished to the Representatives their written opinion, dated the Closing Date or such Additional Closing Date, as the case may be, and addressed to the Underwriters, in form and substance reasonably satisfactory to the Representatives.
(k) Opinion and 10b-5 Statement of U.S. Counsel for the Underwriters. The Representatives shall have received on and as of the Closing Date or such Additional Closing Date, as the case may be, an opinion and 10b-5 statement, addressed to the Underwriters, of Latham & Watkins LLP, U.S. counsel for the Underwriters, with respect to such matters as the Representatives may reasonably request, and such counsel shall have received such documents and information as they may reasonably request to enable them to pass upon such matters.
(l) Opinion of PRC Counsel for the Underwriters. The Representatives shall have received on and as of the Closing Date or such Additional Closing Date, as the case may be, an opinion of JunHe LLP, PRC counsel for the Underwriters, with respect to such matters as the Representatives may reasonably request, and such counsel shall have received such documents and information as they may reasonably request to enable them to pass upon such matters.
(m) Opinion of Counsel for the Depositary. The Representatives shall have received an opinion, on and as of the Closing Date or such Additional Closing Date, as the case may be, of Patterson Belknap Webb & Tyler LLP, counsel for the Depositary, addressed to the Underwriters in form and substance reasonably satisfactory to the Representatives.
(n) No Legal Impediment to Issuance and/or Sale. No action shall have been taken and no statute, rule, regulation or order shall have been enacted, adopted or issued by any federal, state, provincial or foreign governmental or regulatory authority that would, as of the Closing Date or such Additional Closing Date, as the case may be, prevent the issuance or sale of the Shares by the Company; and no injunction or order of any federal, state or foreign court shall have been issued that would, as of the Closing Date or such Additional Closing Date, as the case may be, prevent the issuance or sale of the Shares by the Company.
(o) Good Standing. The Representatives shall have received on and as of the Closing Date or such Additional Closing Date, as the case may be, satisfactory evidence of the good standing of XMotors. ai, Inc. and XSense.ai, Inc.in their respective jurisdictions of organization and their good standing in such other jurisdictions as the Representatives may reasonably request, in each case in writing or any standard form of telecommunication from the appropriate governmental authorities of such jurisdiction.
(p) Exchange Listing. The Shares to be delivered on the Closing Date or such Additional Closing Date, as the case may be, shall have been approved for listing on the New York Stock Exchange, subject to official notice of issuance.
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(q) No FINRA Objection. FINRA shall not have raised any objection with respect to the fairness or reasonableness of the underwriting or other arrangements of the transactions contemplated hereby.
(r) Lock-up Agreements. The lock-up agreements, each substantially in the form of Exhibit A hereto, between the Representatives and shareholders, officers and directors (collectively, the Lock-Up Parties) of the Company relating to sales and certain other dispositions of Ordinary Shares, ADSs and/or certain other securities, delivered to you on or before the date hereof, shall be in full force and effect on the Closing Date or such Additional Closing Date, as the case may be.
(s) Depositary Side Letter. The Company shall have entered into a side letter agreement with the Depository (the Depositary Side Letter), instructing the Depositary, for a period of 180 days after the date of the Prospectus, not to accept any Class A Ordinary Shares for deposit under the Deposit Agreement for the purpose of issuance of ADSs or take any measures to establish any additional ADS facility for any other securities relating to the Company unless the Company has consented to such deposit. The Company covenants that it will not release the Depositary from the obligations set forth in, or otherwise amend, terminate, fail to enforce or provide any consent under, the Depositary Side Letter during the Lock-Up Period without the prior written consent of the Representatives.
(t) Deposit Agreement. The Deposit Agreement shall be in full force and effect and the Company and the Depositary shall have taken all action necessary to permit the deposit of the Class A Ordinary Shares and the issuance of the Shares in accordance with the Deposit Agreement.
(u) Depositarys Certificate. The Depositary shall have furnished or caused to be furnished to the Representatives on the Closing Date or such Additional Closing Date, as the case may be, certificates satisfactory to the Representatives evidencing the deposit with it of the Class A Ordinary Shares being so deposited against issuance of ADRs evidencing the Shares to be delivered by the Company on such Closing Date or such Additional Closing Date, and the execution, countersignature (if applicable), issuance and delivery of ADRs evidencing such Shares pursuant to the Deposit Agreement and such other matters related thereto as the Representatives may reasonably request.
(v) Additional Documents. On or prior to the Closing Date or such Additional Closing Date, as the case may be, the Company shall have furnished to the Representatives such further certificates and documents as the Representatives may reasonably request.
All opinions, letters, certificates and evidence mentioned above or elsewhere in this Agreement shall be deemed to be in compliance with the provisions hereof only if they are in form and substance reasonably satisfactory to counsel for the Underwriters.
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7. Indemnification and Contribution.
(a) Indemnification of the Underwriters by the Company. The Company agrees to indemnify and hold harmless each Underwriter and its partners, members and affiliates, and their respective directors, officers, employees and agents, and each person, if any, who controls such Underwriter within the meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act, from and against any and all losses, claims, damages and liabilities (including, without limitation, legal fees and other expenses incurred in connection with any loss, claim, damage, liability, litigation, investigation, suit, action or proceeding (whether or not such Indemnified Person (as defined below) is a party thereto), whether commenced or threatened, and in connection with the enforcement of this provision with respect to any of the above, in each case, as such fees and expenses are incurred), joint or several, that arise out of, or are based upon, (i) any untrue statement or alleged untrue statement of a material fact contained in the Registration Statement or caused by any omission or alleged omission to state therein a material fact required to be stated therein or necessary in order to make the statements therein, not misleading, or (ii) any untrue statement or alleged untrue statement of a material fact contained in the Prospectus (or any amendment or supplement thereto), any Preliminary Prospectus, any Issuer Free Writing Prospectus, any issuer information filed or required to be filed pursuant to Rule 433(d) under the Securities Act, any Written Testing-the-Waters Communication, any road show as defined in Rule 433(h) under the Securities Act (a road show) or any Pricing Disclosure Package (including any Pricing Disclosure Package that has subsequently been amended), or caused by any omission or alleged omission to state therein a material fact necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading, in each case except insofar as such losses, claims, damages or liabilities arise out of, or are based upon, any untrue statement or omission or alleged untrue statement or omission made in reliance upon and in conformity with any information relating to any Underwriter furnished to the Company in writing by such Underwriter through the Representatives expressly for use therein, it being understood and agreed that the only such information furnished by any Underwriter consists of the information described as such in paragraph (b) below.
(b) Indemnification of the Company. Each Underwriter agrees, severally and not jointly, to indemnify and hold harmless the Company, its directors, its officers who signed the Registration Statement and each person, if any, who controls the Company within the meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act to the same extent as the indemnity set forth in paragraph (a) above, but only with respect to any and all losses, claims, damages or liabilities (including, without limitation, legal fees and other expenses incurred in connection with any loss, claim, damage, liability, litigation, investigation, suit, action or proceeding (whether or not such Indemnified Person (as defined below) is a party thereto), whether commenced or threatened, and in connection with the enforcement of this provision with respect to any of the above, in each case, as such fees and expenses are incurred) that arise out of, or are based upon, any untrue statement or omission or alleged untrue statement or omission made in reliance upon and in conformity with any information relating to such Underwriter furnished to the Company in writing by such Underwriter through the Representatives expressly for use in the Registration Statement, the Prospectus (or any amendment or supplement thereto), any Preliminary Prospectus, any Issuer Free Writing Prospectus, any Written Testing-the-Waters Communication, any road show or any Pricing Disclosure Package (including any Pricing Disclosure Package that has subsequently been amended), it being understood and agreed upon that the only such information furnished by any Underwriter consists of the following information in the Prospectus furnished on behalf of each Underwriter: [the name of such Underwriter appearing in the first paragraph under the caption Underwriting and the concession and reallowance figures appearing in the third paragraph under the caption Underwriting.]
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(c) Notice and Procedures. If any suit, action, proceeding (including any governmental or regulatory investigation), claim or demand shall be brought or asserted against any person in respect of which indemnification may be sought pursuant to the preceding paragraphs of this Section 7, such person (the Indemnified Person) shall promptly notify the person against whom such indemnification may be sought (the Indemnifying Person) in writing; provided that the failure to notify the Indemnifying Person shall not relieve it from any liability that it may have under the preceding paragraphs of this Section 7 except to the extent that it has been materially prejudiced (through the forfeiture of substantive rights or defenses) by such failure; and provided, further, that the failure to notify the Indemnifying Person shall not relieve it from any liability that it may have to an Indemnified Person otherwise than under the preceding paragraphs of this Section 7. If any such proceeding shall be brought or asserted against an Indemnified Person and it shall have notified the Indemnifying Person thereof, the Indemnifying Person shall retain counsel reasonably satisfactory to the Indemnified Person (who shall not, without the consent of the Indemnified Person, be counsel to the Indemnifying Person) to represent the Indemnified Person and any others entitled to indemnification pursuant to this Section 7 that the Indemnifying Person may designate in such proceeding and shall pay the fees and expenses in such proceeding and shall pay the fees and expenses of such counsel related to such proceeding, as incurred. In any such proceeding, any Indemnified Person shall have the right to retain its own counsel, but the fees and expenses of such counsel shall be at the expense of such Indemnified Person unless (i) the Indemnifying Person and the Indemnified Person shall have mutually agreed to the contrary; (ii) the Indemnifying Person has failed within a reasonable time to retain counsel reasonably satisfactory to the Indemnified Person; (iii) the Indemnified Person shall have reasonably concluded that there may be legal defenses available to it that are different from or in addition to those available to the Indemnifying Person; or (iv) the named parties in any such proceeding (including any impleaded parties) include both the Indemnifying Person and the Indemnified Person and representation of both parties by the same counsel would be inappropriate due to actual or potential differing interests between them. It is understood and agreed that the Indemnifying Person shall not, in connection with any proceeding or related proceeding in the same jurisdiction, be liable for the fees and expenses of more than one separate firm (in addition to any local counsel) for all Indemnified Persons, and that all such fees and expenses shall be paid or reimbursed as they are incurred. Any such separate firm for any Underwriter, its affiliates, directors and officers and any control persons of such Underwriter shall be designated in writing by the Representatives and any such separate firm for the Company, its directors, its officers who signed the Registration Statement and any control persons of the Company shall be designated in writing by the Company. The Indemnifying Person shall not be liable for any settlement of any proceeding effected without its written consent, but if settled with such consent or if there be a final judgment for the plaintiff, the Indemnifying Person agrees to indemnify each Indemnified Person from and against any loss or liability by reason of such settlement or judgment. Notwithstanding the foregoing sentence, if at any time an Indemnified Person shall have requested that an Indemnifying Person reimburse the Indemnified Person for fees and expenses of counsel as contemplated by this paragraph, the Indemnifying Person shall be liable for any settlement of any proceeding effected without its written consent if (i) such settlement is entered into more than 45 days after receipt by the Indemnifying Person of such request and (ii) the Indemnifying Person shall not have reimbursed the Indemnified Person in accordance with such request prior to the date of such settlement. No Indemnifying Person shall, without the written consent of the Indemnified Person, effect any settlement of any pending or threatened proceeding in respect of which any Indemnified Person is or could have been a party and indemnification could have been sought hereunder by such Indemnified Person, unless such settlement (x) includes an unconditional release of such Indemnified Person, in form and substance reasonably satisfactory to such Indemnified Person, from all liability on claims that are the subject matter of such proceeding and (y) does not include any statement as to or any admission of fault, culpability or a failure to act by or on behalf of any Indemnified Person.
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(d) Contribution. If the indemnification provided for in paragraphs (a) or (b) above is unavailable to an Indemnified Person or insufficient in respect of any losses, claims, damages or liabilities referred to therein, then each Indemnifying Person under such paragraph, in lieu of indemnifying such Indemnified Person thereunder, shall contribute to the amount paid or payable by such Indemnified Person as a result of such losses, claims, damages or liabilities (i) in such proportion as is appropriate to reflect the relative benefits received by the Company, on the one hand, and the Underwriters on the other, from the offering of the Shares or (ii) if the allocation provided by clause (i) is not permitted by applicable law, in such proportion as is appropriate to reflect not only the relative benefits referred to in clause (i) but also the relative fault of the Company, on the one hand, and the Underwriters on the other, in connection with the statements or omissions that resulted in such losses, claims, damages or liabilities, as well as any other relevant equitable considerations. The relative benefits received by the Company, on the one hand, and the Underwriters on the other, shall be deemed to be in the same respective proportions as the net proceeds (before deducting expenses) received by the Company from the sale of the Shares and the total underwriting discounts and commissions received by the Underwriters in connection therewith, in each case as set forth in the table on the cover of the Prospectus, bear to the aggregate offering price of the Shares. The relative fault of the Company, on the one hand, and the Underwriters on the other, shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or the omission or alleged omission to state a material fact relates to information supplied by the Company or by the Underwriters and the parties relative intent, knowledge, access to information and opportunity to correct or prevent such statement or omission.
(e) Limitation on Liability. The Company and the Underwriters agree that it would not be just and equitable if contribution pursuant to paragraph (d) above were determined by pro rata allocation (even if the Underwriters were treated as one entity for such purpose) or by any other method of allocation that does not take account of the equitable considerations referred to in paragraph (d) above. The amount paid or payable by an Indemnified Person as a result of the losses, claims, damages and liabilities referred to in this paragraph and paragraph (d) above shall be deemed to include, subject to the limitations set forth above, any legal or other expenses incurred by such Indemnified Person in connection with any such action or claim. Notwithstanding the provisions of this paragraph and paragraph (d) above, in no event shall an Underwriter be required to contribute any amount in excess of the amount by which the total underwriting discounts and commissions received by such Underwriter with respect to the offering of the Shares exceeds the amount of any damages that such Underwriter has otherwise been required to pay by reason of such untrue or alleged untrue statement or omission or alleged omission. No person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) shall be entitled to contribution from any person who was not guilty of such fraudulent misrepresentation. The Underwriters obligations to contribute pursuant to this paragraph and paragraph (d) above are several in proportion to their respective purchase obligations hereunder and not joint.
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(f) Non-Exclusive Remedies. The remedies provided for in paragraphs (a) through (e) are not exclusive and shall not limit any rights or remedies which may otherwise be available to any Indemnified Person at law or in equity.
(g) Directed Share Program Indemnification. The Company agrees to indemnify and hold harmless the Directed Share Underwriter and its partners, members and affiliates, and their respective directors, officers, employees and agents, and each person, if any, who controls the Directed Share Underwriter within the meaning of either Section 15 of the Securities Act or Section 20 of the Exchange Act (each a Directed Share Underwriter Entity) from and against any and all losses, claims, damages and liabilities (including, without limitation, legal fees and other expenses incurred in connection with any loss, claim, damage, liability, litigation, investigation, suit, action or proceeding (whether or not such Directed Share Underwriter Entity is a party thereto), whether commenced or threatened, and in connection with the enforcement of this provision with respect to any of the above, in each case, as such fees and expenses are incurred) (i) caused by any untrue statement or alleged untrue statement of a material fact contained in any material prepared by or with the consent of the Company for distribution to Participants in connection with the Directed Share Program or caused by any omission or alleged omission to state therein a material fact necessary to make the statements therein, in light of the circumstances under which they were made, not misleading; (ii) caused by the failure of any Participant to pay for and accept delivery of Directed Shares that the Participant agreed to purchase; or (iii) related to, arising out of, or in connection with the Directed Share Program, other than losses, claims, damages or liabilities (or expenses relating thereto) that are finally judicially determined to have resulted from the bad faith or gross negligence of the Directed Share Underwriter Entities.
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(h) In case any proceeding (including any governmental investigation) shall be instituted involving any Directed Share Underwriter Entity in respect of which indemnity may be sought pursuant to paragraph (f) above, the Directed Share Underwriter Entity seeking indemnity shall promptly notify the Company in writing and the Company, upon request of the Directed Share Underwriter Entity, shall retain counsel reasonably satisfactory to the Directed Share Underwriter Entity to represent the Directed Share Underwriter Entity and any others the Company may designate in such proceeding and shall pay the reasonable fees and disbursements of such counsel related to such proceeding. In any such proceeding, any Directed Share Underwriter Entity shall have the right to retain its own counsel, but the fees and expenses of such counsel shall be at the expense of such Directed Share Underwriter Entity unless (i) the Company and such Directed Share Underwriter Entity shall have mutually agreed to the retention of such counsel, (ii) the Company has failed within a reasonable time to retain counsel reasonably satisfactory to such Directed Share Underwriter Entity, (iii) the Directed Share Underwriter Entity shall have reasonably concluded that there may be legal defenses available to it that are different from or in addition to those available to the Company or (iv) the named parties to any such proceeding (including any impleaded parties) include both the Company and the Directed Share Underwriter Entity and representation of both parties by the same counsel would be inappropriate due to actual or potential differing interests between them. The Company shall not, in respect of the legal expenses of the Directed Share Underwriter Entities in connection with any proceeding or related proceedings in the same jurisdiction, be liable for the fees and expenses of more than one separate firm (in addition to any local counsel) for all Directed Share Underwriter Entities. The Company shall not be liable for any settlement of any proceeding effected without its written consent, but if settled with such consent, the Company agrees to indemnify the Directed Share Underwriter Entities from and against any loss or liability by reason of such settlement. Notwithstanding the foregoing sentence, if at any time any Directed Share Underwriter Entity shall have requested the Company to reimburse such Directed Share Underwriter Entity for fees and expenses of counsel as contemplated by the second and third sentences of this paragraph, the Company agrees that it shall be liable for any settlement of any proceeding effected without its written consent if (i) such settlement is entered into more than 30 days after receipt by the Company of the aforesaid request and (ii) the Company shall not have reimbursed such Directed Share Underwriter Entity in accordance with such request prior to the date of such settlement. The Company shall not, without the prior written consent of the Directed Share Underwriter, effect any settlement of any pending or threatened proceeding in respect of which any Directed Share Underwriter Entity is or could have been a party and indemnity could have been sought hereunder by such Directed Share Underwriter Entity, unless (x) such settlement includes an unconditional release of the Directed Share Underwriter Entities from all liability on claims that are the subject matter of such proceeding and (y) does not include any statement as to or any admission of fault, culpability or a failure to act by or on behalf of the Directed Share Underwriter Entity.
(i) To the extent the indemnification provided for in paragraph (g) above is unavailable to a Directed Share Underwriter Entity or insufficient in respect of any losses, claims, damages or liabilities referred to therein, then the Company in lieu of indemnifying the Directed Share Underwriter Entity thereunder, shall contribute to the amount paid or payable by the Directed Share Underwriter Entity as a result of such losses, claims, damages or liabilities (1) in such proportion as is appropriate to reflect the relative benefits received by the Company on the one hand and the Directed Share Underwriter Entities on the other hand from the offering of the Directed Shares or (2) if the allocation provided by clause 7(i)(1) above is not permitted by applicable law, in such proportion as is appropriate to reflect not only the relative benefits referred to in clause 7(i)(1) above but also the relative fault of the Company on the one hand and of the Directed Share Underwriter Entities on the other hand in connection with any statements or omissions that resulted in such losses, claims, damages or liabilities, as well as any other relevant equitable considerations. The relative benefits received by the Company on the one hand and the Directed Share Underwriter Entities on the other hand in connection with the offering of the Directed Shares shall be deemed to be in the same respective proportions as the net proceeds from the offering of the Directed Shares (before deducting expenses) and the total underwriting discounts and commissions received by the Directed Share Underwriter Entities for the Directed Shares, bear to the aggregate public offering price of the Directed Shares. If the loss, claim, damage or liability is caused by an untrue or alleged untrue statement of material fact or the omission or alleged omission to state a material fact, the relative fault of the Company on the one hand and the Directed Share Underwriter Entities on the other hand shall be determined by reference to, among other things, whether the untrue or alleged untrue statement or the omission or alleged omission relates to information supplied by the Company or by the Directed Share Underwriter Entities and the parties relative intent, knowledge, access to information and opportunity to correct or prevent such statement or omission.
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(j) The Company and the Directed Share Underwriter Entities agree that it would be not just or equitable if contribution pursuant to paragraph (i) above were determined by pro rata allocation (even if the Directed Share Underwriter Entities were treated as one entity for such purpose) or by any other method of allocation that does not take account of the equitable considerations referred to in paragraph (i) above. The amount paid or payable by the Directed Share Underwriter Entities as a result of the losses, claims, damages and liabilities referred to in the immediately preceding paragraph shall be deemed to include, subject to the limitations set forth above, any legal or other expenses reasonably incurred by the Directed Share Underwriter Entities in connection with investigating or defending such any action or claim. Notwithstanding the provisions of paragraph (h) above, no Directed Share Underwriter Entity shall be required to contribute any amount in excess of the amount by which the total price at which the Directed Shares distributed to the public were offered to the public exceeds the amount of any damages that such Directed Share Underwriter Entity has otherwise been required to pay. No person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) shall be entitled to contribution from any person who was not guilty of such fraudulent misrepresentation. The remedies provided for in paragraphs (g) through (j) are not exclusive and shall not limit any rights or remedies which may otherwise be available to any indemnified party at law or in equity.
(k) The indemnity and contribution provisions contained in paragraphs (g) through (j) above shall remain operative and in full force and effect regardless of (i) any termination of this Agreement, (ii) any investigation made by or on behalf of any Directed Share Underwriter Entity or the Company, its officers or directors or any person controlling the Company and (iii) acceptance of and payment for any of the Directed Shares.
8. Effectiveness of Agreement. This Agreement shall become effective as of the date first written above.
9. [Termination. This Agreement may be terminated in the absolute discretion of the Representatives, by notice to the Company, if after the execution and delivery of this Agreement and on or prior to the Closing Date or, in the case of the Option Shares, prior to each Additional Closing Date (i) trading generally shall have been suspended or materially limited on or by any of the New York Stock Exchange or The Nasdaq Stock Market; (ii) trading of any securities issued or guaranteed by the Company shall have been suspended on any exchange or in any over-the-counter market; (iii) a general moratorium on commercial banking activities shall have been declared by United States federal, or New York State, Cayman Islands, British Virgin Islands, Hong Kong or PRC authorities; (v) there is any major disruption of settlements of securities, payment, or clearance services in the United States, Cayman Islands, British Virgin Islands, Hong Kong or the PRC; or (vi) there shall have occurred any outbreak or escalation of hostilities or any change in financial markets or any calamity or crisis, either within or outside the United States, or any change in U.S., PRC, Hong Kong, Cayman Islands, British Virgin Islands or international financial, political or economic conditions or currency exchange rates or exchange controls, that, in the judgment of the Representatives, is material and adverse and makes it impracticable or inadvisable to proceed with the offering, sale or delivery of the Shares on the Closing Date or an Additional Closing Date, as the case may be, on the terms and in the manner contemplated by this Agreement, the Pricing Disclosure Package and the Prospectus, or to enforce contracts for the sale of Shares.]
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10. Defaulting Underwriter.
(a) If, on the Closing Date or any Additional Closing Date, as the case may be, any Underwriter defaults on its obligation to purchase the Shares that it has agreed to purchase hereunder on such date, the non-defaulting Underwriters may in their discretion arrange for the purchase of such Shares by other persons satisfactory to the Company on the terms contained in this Agreement. If, within 36 hours after any such default by any Underwriter, the non-defaulting Underwriters do not arrange for the purchase of such Shares, then the Company shall be entitled to a further period of 36 hours within which to procure other persons satisfactory to the non-defaulting Underwriters to purchase such Shares on such terms. If other persons become obligated or agree to purchase the Shares of a defaulting Underwriter, either the non-defaulting Underwriters or the Company may postpone the Closing Date or such Additional Closing Date, as the case may be, for up to five full business days in order to effect any changes that in the opinion of counsel for the Company or counsel for the Underwriters may be necessary in the Registration Statement and the Prospectus or in any other document or arrangement, and the Company agrees to promptly prepare any amendment or supplement to the Registration Statement and the Prospectus that effects any such changes. As used in this Agreement, the term Underwriter includes, for all purposes of this Agreement unless the context otherwise requires, any person not listed in Schedule 1 hereto that, pursuant to this Section 10, purchases Shares that a defaulting Underwriter agreed but failed to purchase.
(b) If, after giving effect to any arrangements for the purchase of the Shares of a defaulting Underwriter or Underwriters by the non-defaulting Underwriters and the Company as provided in paragraph (a) above, the aggregate number of Shares that remain unpurchased on the Closing Date or such Additional Closing Date, as the case may be, does not exceed one-eleventh of the aggregate number of Shares to be purchased on such date, then the Company shall have the right to require each non-defaulting Underwriter to purchase the number of Shares that such Underwriter agreed to purchase hereunder on such date plus such Underwriters pro rata share (based on the number of Shares that such Underwriter agreed to purchase on such date) of the Shares of such defaulting Underwriter or Underwriters for which such arrangements have not been made.
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(c) If, after giving effect to any arrangements for the purchase of the Shares of a defaulting Underwriter or Underwriters by the non-defaulting Underwriters and the Company as provided in paragraph (a) above, the aggregate number of Shares that remain unpurchased on the Closing Date or such Additional Closing Date, as the case may be, exceeds one-eleventh of the aggregate amount of Shares to be purchased on such date, or if the Company shall not exercise the right described in paragraph (b) above, then this Agreement or, with respect to any Additional Closing Date, the obligation of the Underwriters to purchase Shares on such Additional Closing Date, as the case may be, shall terminate without liability on the part of the non-defaulting Underwriters. Any termination of this Agreement pursuant to this Section 10 shall be without liability on the part of the Company, except that the Company will continue to be liable for the payment of expenses as set forth in Section 11 hereof and except that the provisions of Section 7 hereof shall not terminate and shall remain in effect.
(d) Nothing contained herein shall relieve a defaulting Underwriter of any liability it may have to the Company or any non-defaulting Underwriter for damages caused by its default.
11. Payment of Expenses.
(a) [Whether or not the transactions contemplated by this Agreement are consummated or this Agreement is terminated, the Company will pay or cause to be paid all costs and expenses incident to the performance of its obligations hereunder, including without limitation, (i) the costs incident to the authorization, issuance, sale, preparation and delivery of the Shares and any taxes payable in that connection; (ii) the costs incident to the preparation, printing and filing under the Securities Act of the Registration Statement, the Preliminary Prospectus, any Issuer Free Writing Prospectus, any Pricing Disclosure Package and the Prospectus (including all exhibits, amendments and supplements thereto) and the distribution thereof; (iii) the costs of reproducing and distributing each of the Transaction Documents; (iv) the fees and expenses of the Companys counsel and independent accountants; (v) the fees and expenses incurred in connection with the registration or qualification and determination of eligibility for investment of the Shares under the state or foreign securities or blue sky laws of such jurisdictions as the Representatives may designate and the preparation, printing and distribution of a Blue Sky Memorandum [or Canadian wrapper] (including the related fees and expenses of counsel for the Underwriters); (vi) the cost of issuing Shares; (vii) the costs and charges of any transfer agent and any registrar; (viii) all expenses and application fees incurred in connection with any filing with, and clearance of the offering by, FINRA, and the fees and disbursements of counsel for the Underwriters in connection with, any required review by FINRA of the terms of the sale of the Shares, provided that the reimbursement obligation for any such fees and expenses representing fees and expenses of counsel for the Underwriters shall not exceed $[ ● ]; (ix) all expenses incurred by the Company in connection with any road show presentation to potential investors [; and (x) all expenses and application fees related to the listing of the Shares on the New York Stock Exchange [and (xi) all of the fees and disbursements of counsel incurred by the Underwriters in connection with the Directed Share Program and stamp duties, similar taxes or duties or other taxes, if any, incurred by the Underwriters in connection with the Directed Share Program].]
(b) [If (i) this Agreement is terminated pursuant to Section 9, (ii) the Company for any reason fails to tender the Shares for delivery to the Underwriters or (iii) the Underwriters decline to purchase the Shares for any reason permitted under this Agreement, the Company agrees to reimburse the Underwriters for all out-of-pocket costs and expenses (including the fees and expenses of their counsel) reasonably incurred by the Underwriters in connection with this Agreement and the offering contemplated hereby.]
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12. Persons Entitled to Benefit of Agreement. This Agreement shall inure to the benefit of and be binding upon the parties hereto and their respective successors and the officers and directors and any controlling persons referred to herein and the affiliates of each Underwriter referred to in Section 7 hereof. Nothing in this Agreement is intended or shall be construed to give any other person any legal or equitable right, remedy or claim under or in respect of this Agreement or any provision contained herein. No purchaser of Shares from any Underwriter shall be deemed to be a successor merely by reason of such purchase.
13. Survival. The respective indemnities, rights of contribution, representations, warranties and agreements of the Company and and the Underwriters contained in this Agreement or made by or on behalf of the Company or the Underwriters pursuant to this Agreement or any certificate delivered pursuant hereto shall survive the delivery of and payment for the Shares and shall remain in full force and effect, regardless of any termination of this Agreement or any investigation made by or on behalf of the Company or the Underwriters or the directors, officers, controlling persons or affiliates referred to in Section 7 hereof.
14. Certain Defined Terms. For purposes of this Agreement, (a) except where otherwise expressly provided, the term affiliate has the meaning set forth in Rule 405 under the Securities Act; (b) the term business day means any day other than a day on which banks are permitted or required to be closed in New York City; and (c) the term subsidiary has the meaning set forth in Rule 405 under the Securities Act.
15. Compliance with USA Patriot Act. In accordance with the requirements of the USA Patriot Act (Title III of Pub. L. 107-56 (signed into law October 26, 2001)), the Underwriters are required to obtain, verify and record information that identifies their respective clients, including the Company, which information may include the name and address of their respective clients, as well as other information that will allow the Underwriters to properly identify their respective clients.
16. Miscellaneous.
(a) Authority of the Representations. Any action by the Underwriters hereunder may be taken by the Representatives on behalf of the Underwriters, and any such action taken by the Representatives shall be binding upon the Underwriters.
(b) Notices. All notices and other communications hereunder shall be in writing and shall be deemed to have been duly given if mailed or transmitted and confirmed by any standard form of telecommunication. Notices to the Underwriters shall be given to the Representatives c/o Credit Suisse Securities (USA) LLC, Eleven Madison Avenue, New York, NY 10010, U.S.A., Attention: [ ● ]; c/o J.P. Morgan Securities LLC, 383 Madison Avenue, New York, New York 10179 (fax: (212) 622-8358), Attention: Equity Syndicate Desk; and c/o BofA Securities, Inc., One Bryant Park, New York, New York 10036, U.S.A., Attention: [Syndicate Department and ECM Legal]. Notices to the Company shall be given to it at [ ● ], Attention: [ ● ].
(c) Governing Law. This Agreement and any claim, controversy or dispute arising under or related to this Agreement shall be governed by and construed in accordance with the laws of the State of New York.
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(d) Submission to Jurisdiction. The Company hereby submits to the exclusive jurisdiction of the U.S. federal and New York state courts in the Borough of Manhattan in The City of New York (the New York Courts) in any suit or proceeding arising out of or relating to this Agreement or the transactions contemplated hereby. The Company irrevocably and unconditionally waives any objection which it may now or hereafter have to the laying of venue of any such suit or proceeding in such courts and irrevocably and unconditionally waives and agrees not to plead or claim in any such court that any such suit or proceeding in any such court has been brought in an inconvenient forum. The Company agrees that final judgment in any such suit, action or proceeding brought in such court shall be conclusive and binding upon the Company and may be enforced in any court to the jurisdiction of which the Company is subject by a suit upon such judgment. The Company irrevocably appoints [insert name of agent for service of process], located [ ● ], New York, New York [ ● ], as its authorized agent in the Borough of Manhattan in The City of New York upon which process may be served in any such suit or proceeding, and agrees that service of process upon such authorized agent, and written notice of such service to the Company by the person serving the same to the address provided in this Section 16, shall be deemed in every respect effective service of process upon the Company in any such suit or proceeding. The Company hereby represents and warrants that such authorized agent has accepted such appointment and has agreed to act as such authorized agent for service of process. The Company further agrees to take any and all action as may be necessary to maintain such designation and appointment of such authorized agent in full force and effect for a period of seven years from the date of this Agreement.
(e) Judgment Currency. The Company agrees to indemnify each Underwriter, its directors, officers, affiliates and each person, if any, who controls such Underwriter within the meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act, against any loss incurred by such Underwriter as a result of any judgment or order being given or made for any amount due hereunder and such judgment or order being expressed and paid in a currency (the judgment currency) other than U.S. dollars and as a result of any variation as between (i) the rate of exchange at which the U.S. dollar amount is converted into the judgment currency for the purpose of such judgment or order, and (ii) the rate of exchange at which such indemnified person is able to purchase U.S. dollars with the amount of the judgment currency actually received by the indemnified person. The foregoing indemnity shall constitute a separate and independent obligation of the Company and shall continue in full force and effect notwithstanding any such judgment or order as aforesaid. The term rate of exchange shall include any premiums and costs of exchange payable in connection with the purchase of, or conversion into, the relevant currency.
(f) Waiver of Immunity. To the extent that the Company has or hereafter may acquire any immunity (sovereign or otherwise) from jurisdiction of any court of (i) Cayman Islands, the PRC, Hong Kong, or any political subdivision thereof, (ii) the United States or the State of New York, (iii) any jurisdiction in which it owns or leases property or assets or from any legal process (whether through service of notice, attachment prior to judgment, attachment in aid of execution, execution, set-off or otherwise) with respect to itself or its property and assets or this Agreement, the Company hereby irrevocably waives such immunity in respect of its obligations under this Agreement to the fullest extent permitted by applicable law.
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(g) Waiver of Jury Trial. Each of the parties hereto hereby waives any right to trial by jury in any suit or proceeding arising out of or relating to this Agreement.
(h) Recognition of the U.S. Special Resolution Regimes.
(i) In the event that any Underwriter that is a Covered Entity becomes subject to a proceeding under a U.S. Special Resolution Regime, the transfer from such Underwriter of this Agreement, and any interest and obligation in or under this Agreement, will be effective to the same extent as the transfer would be effective under the U.S. Special Resolution Regime if this Agreement, and any such interest and obligation, were governed by the laws of the United States or a state of the United States.
(ii) In the event that any Underwriter that is a Covered Entity or a BHC Act Affiliate of such Underwriter becomes subject to a proceeding under a U.S. Special Resolution Regime, Default Rights under this Agreement that may be exercised against such Underwriter are permitted to be exercised to no greater extent than such Default Rights could be exercised under the U.S. Special Resolution Regime if this Agreement were governed by the laws of the United States or a state of the United States.
As used in this Section 16(h):
BHC Act Affiliate has the meaning assigned to the term affiliate in, and shall be interpreted in accordance with, 12 U.S.C. § 1841(k).
Covered Entity means any of the following:
(i) a covered entity as that term is defined in, and interpreted in accordance with, 12 C.F.R. § 252.82(b);
(ii) a covered bank as that term is defined in, and interpreted in accordance with, 12 C.F.R. § 47.3(b); or
(iii) a covered FSI as that term is defined in, and interpreted in accordance with, 12 C.F.R. § 382.2(b).
Default Right has the meaning assigned to that term in, and shall be interpreted in accordance with, 12 C.F.R. §§ 252.81, 47.2 or 382.1, as applicable.
U.S. Special Resolution Regime means each of (i) the Federal Deposit Insurance Act and the regulations promulgated thereunder and (ii) Title II of the Dodd-Frank Wall Street Reform and Consumer Protection Act and the regulations promulgated thereunder.
(i) Counterparts; Electronic Signatures. This Agreement may be signed in counterparts (which may include counterparts delivered by any standard form of telecommunication), each of which shall be an original and all of which together shall constitute one and the same instrument. Delivery of an executed Agreement by one party to the other may be made by facsimile, electronic mail or other transmission method as permitted by applicable law, and the parties hereto agree that any counterpart so delivered shall be deemed to have been duly and validly delivered and be valid and effective for all purposes. A partys electronic signature (complying with the New York Electronic Signatures and Records Act (N.Y. State Tech. §§ 301-309), as amended from time to time, or other applicable law) of this Agreement shall have the same validity and effect as a signature affixed by the partys hand.
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(j) Amendments or Waivers. No amendment or waiver of any provision of this Agreement, nor any consent or approval to any departure therefrom, shall in any event be effective unless the same shall be in writing and signed by the parties hereto.
(k) Headings. The headings herein are included for convenience of reference only and are not intended to be part of, or to affect the meaning or interpretation of, this Agreement.
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If the foregoing is in accordance with your understanding, please indicate your acceptance of this Agreement by signing in the space provided below.
Very truly yours, | ||
XPENG INC. | ||
By: |
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Name: | ||
Title: |
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Accepted: As of the date first written above | ||
CREDIT SUISSE SECURITIES (USA) LLC | ||
For itself and on behalf of the | ||
several Underwriters listed | ||
in Schedule 1 hereto. | ||
By: |
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Authorized Signatory |
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Accepted: As of the date first written above |
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J.P. MORGAN SECURITIES LLC |
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For itself and on behalf of the |
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several Underwriters listed |
||
in Schedule 1 hereto. |
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By: |
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Authorized Signatory |
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Accepted: As of the date first written above |
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BOFA SECURITIES, INC. |
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For itself and on behalf of the |
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several Underwriters listed |
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in Schedule 1 hereto. |
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By: |
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Authorized Signatory |
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Exhibit A
Form of Waiver of Lock-up
Corporation
Public Offering of Common Stock
, 20__
[Name and Address of
Officer or Director
Requesting Waiver]
Dear Mr./Ms. [Name]:
This letter is being delivered to you in connection with the offering by XPeng Inc. (the Company) of [ ● ] Class A ordinary shares, par value US$0.00001 per share, of the Company in the form of [ ● ] American Depositary Shares, and the lock-up agreement dated __________________, 20__ (the Lock-up Agreement), executed by you in connection with such offering, and your request for a [waiver] [release] dated __________________, 20__, with respect to ______ ordinary shares (the Shares).
The undersigned hereby agree to [waive] [release] the transfer restrictions set forth in the Lock-up Agreement, but only with respect to the Shares, effective __________________, 20__ {40}; provided, however, that such [waiver] [release] is conditioned on the Company announcing the impending [waiver] [release] by press release through a major news service at least two business days before effectiveness of such [waiver] [release]. This letter will serve as notice to the Company of the impending [waiver] [release].
Except as expressly [waived] [released] hereby, the Lock-up Agreement shall remain in full force and effect.
Yours very truly, |
||
Acting severally on behalf of themselves and the several Underwriters named in Schedule 1 hereto |
||
By: |
cc: Company
Exhibit A-1
Exhibit B
Form of Press Release*
[Company]
[Date]
XPeng Inc. (the Company) announced today that Credit Suisse Securities (USA) LLC, J.P. Morgan Securities LLC and BofA Securities, Inc., the lead book-running managers in the Companys recent public sale of American Depositary Shares, each representing Class A ordinary shares (Ordinary Shares) of the Company, are [waiving] [releasing] a lock-up restriction with respect to Ordinary Shares held by [certain officers or directors] [an officer or director] of the Company. The [waiver] [release] will take effect on ____________________, 20__, and the shares may be sold on or after such date.
This press release is not an offer for sale of the securities in the United States or in any other jurisdiction where such offer is prohibited, and such securities may not be offered or sold in the United States absent registration or an exemption from registration under the United States Securities Act of 1933, as amended.
Exhibit B-1
Exhibit C
Form of Lock-Up Agreement
August 20, 2020
Credit Suisse Securities (USA) LLC
J.P. Morgan Securities LLC
BofA Securities, Inc.
As Representative of the
several Underwriters listed
in Schedule 1 to the Underwriting Agreement referred to below
c/o Credit Suisse Securities (USA) LLC
Eleven Madison Avenue
New York, New York 10010
U.S.A.
c/o J.P. Morgan Securities LLC
383 Madison Avenue
New York, New York 10179
U.S.A.
c/o BofA Securities, Inc.
One Bryant Park
New York, New York 10036
U.S.A.
Re: |
XPeng Inc. Public Offering |
Ladies and Gentlemen:
The undersigned understands that you, as Representatives of the several Underwriters, propose to enter into an underwriting agreement (the Underwriting Agreement) with XPeng Inc., an exempted company incorporated in the Cayman Islands (the Company), providing for the initial public offering (the Public Offering) by the several Underwriters named in Schedule 1 to the Underwriting Agreement (the Underwriters), of American Depositary Shares (the ADSs), each representing two Class A ordinary shares, par value $0.00001 per share, of the Company (collectively with the Class B ordinary shares, par value $0.00001 per share, of the Company and Class C ordinary shares, par value $0.00001 per share, of the Company, the Ordinary Shares). Capitalized terms used herein and not otherwise defined shall have the meanings set forth in the Underwriting Agreement.
Exhibit C-1
In consideration of the Underwriters agreement to purchase and make the Public Offering of the ADSs, and for other good and valuable consideration receipt of which is hereby acknowledged, the undersigned hereby agrees that, without the prior written consent of each of the Representatives on behalf of the Underwriters, the undersigned will not, and will not cause any controlled affiliate to, during the period beginning on the date of this letter (this Letter) and ending at the close of business of 180 days after the date of the final prospectus relating to the Public Offering (the Prospectus) (such period, the Restricted Period), (1) offer, pledge, sell, contract to sell, sell any option, sell any 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, ADSs or any securities convertible into or exercisable or exchangeable for Ordinary Shares or ADSs owned, or which may be deemed to be beneficially owned, by the undersigned in accordance with the rules and regulations of the Securities and Exchange Commission, and any Ordinary Shares, ADSs or such other securities which may be issued upon exercise of a stock option or warrant (collectively, the Lock-Up Securities), (2) enter into any hedging, swap or other agreement or transaction that transfers, in whole or in part, any of the economic consequences of ownership of the Lock-Up Securities, whether any such transaction described in clause (1) or (2) above is to be settled by delivery of Lock-Up Securities, in cash or otherwise, (3) make any demand for, or exercise any right with respect to, the registration of any Lock-Up Securities, or (4) publicly disclose the intention to do any of the foregoing. The undersigned acknowledges and agrees that the foregoing precludes the undersigned from engaging in any hedging or other transactions or arrangements (including, without limitation, any short sale or the purchase or sale of, or entry into, any put or call option, or combination thereof, forward, swap or any other derivative transaction or instrument, however described or defined) designed or intended, or which could reasonably be expected to lead to or result in, a sale or disposition or transfer (whether by the undersigned or any other person) of any economic consequences of ownership, in whole or in part, directly or indirectly, of any Lock-Up Securities, whether any such transaction or arrangement (or instrument provided for thereunder) would be settled by delivery of Lock-Up Securities, in cash or otherwise.
Notwithstanding the foregoing, the undersigned may:
(a) transfer the undersigneds Lock-Up Securities:
(i) as a bona fide gift or gifts, or for bona fide estate planning purposes,
(ii) by will or intestacy,
(iii) to any trust for the direct or indirect benefit of the undersigned or the immediate family of the undersigned, or if the undersigned is a trust, to a trustor or beneficiary of the trust or to the estate of a beneficiary of such trust (for purposes of this Letter, immediate family shall mean any relationship by blood, current or former marriage, domestic partnership or adoption, not more remote than first cousin),
(iv) to a partnership, limited liability company or other entity of which the undersigned and the immediate family of the undersigned are the legal and beneficial owner of all of the outstanding equity securities or similar interests,
(v) to a nominee or custodian of a person or entity to whom a disposition or transfer would be permissible under clauses (i) through (iv) above,
(vi) if the undersigned is a corporation, partnership, limited liability company, trust or other business entity, (A) to another corporation, partnership, limited liability company, trust or other business entity that is an affiliate (as defined in Rule 405 promulgated under the Securities Act of 1933, as amended) of the undersigned, or to any investment fund or other entity controlling, controlled by, managing or managed by or under common control with the undersigned or affiliates of the undersigned (including, for the avoidance of doubt, where the undersigned is a partnership, to its general partner or a successor partnership or fund, or any other funds managed by such partnership), or (B) as part of a distribution to partners, members or shareholders of the undersigned,
Exhibit C-2
(vii) by operation of law, such as pursuant to a qualified domestic order, divorce settlement, divorce decree or separation agreement,
(viii) to the Company from an employee of the Company upon death, disability or termination of employment, in each case, of such employee,
(ix) as part of a transfer of the undersigneds Lock-Up Securities acquired in the Public Offering or in open market transactions after the closing date for the Public Offering,
(x) to the Company in connection with the vesting, settlement, or exercise of restricted share units, options, warrants or other rights to purchase Ordinary Shares (including, in each case, by way of net or cashless exercise), including for the payment of exercise price and tax and remittance payments due as a result of the vesting, settlement, or exercise of such restricted share units, options, warrants or rights, provided that any such Ordinary Shares received upon such exercise, vesting or settlement shall be subject to the terms of this Letter, and provided further that any such restricted share units, options, warrants or rights are held by the undersigned pursuant to an agreement or equity awards granted under a stock incentive plan or other equity award plan, each such agreement or plan which is described in the Registration Statement, the Pricing Disclosure Package and the Prospectus, or
(xi) pursuant to a bona fide third-party tender offer, merger, consolidation or other similar transaction that is approved by the Board of Directors of the Company and made to all holders of the Companys share capital involving a Change of Control (as defined below) of the Company (for purposes hereof, Change of Control shall mean the transfer (whether by tender offer, merger, consolidation or other similar transaction), in one transaction or a series of related transactions, to a person or group of affiliated persons, of shares of capital stock if, after such transfer, such person or group of affiliated persons would hold more than 50% of the outstanding voting securities of the Company (or the surviving entity)); provided that in the event that such tender offer, merger, consolidation or other similar transaction is not completed, the undersigneds Lock-Up Securities shall remain subject to the provisions of this Letter;
provided that (A) in the case of any transfer or distribution pursuant to clause (a)(i), (ii), (iii), (iv), (v), (vi) and (vii), such transfer shall not involve a disposition for value and each donee, devisee, transferee or distributee shall execute and deliver to the Representative a lock-up letter in the form of this Letter, (B) in the case of any transfer or distribution pursuant to clause (a) (i), (ii), (iii), (iv), (v), (vi) and (ix), no filing by any party (donor, donee, devisee, transferor, transferee, distributer or distributee) under the Securities Exchange Act of 1934, as amended (the Exchange Act), or other public announcement shall be required or shall be made voluntarily in connection with such transfer or distribution (other than a filing on a Form 5 made after the expiration of the Restricted Period referred to above) and (C) in the case of any transfer or distribution pursuant to clause (a)(vii) and (viii) it shall be a condition to such transfer that no public filing, report or announcement shall be voluntarily made and if any filing under Section 16(a) of the Exchange Act, or other public filing, report or announcement reporting a reduction in beneficial ownership of Ordinary Shares in connection with such transfer or distribution shall be legally required during the Restricted Period, such filing, report or announcement shall clearly indicate in the footnotes thereto the nature and conditions of such transfer;
Exhibit C-3
(b) exercise outstanding options, settle restricted shares units or other equity awards or exercise warrants pursuant to plans described in the Registration Statement, the Pricing Disclosure Package and the Prospectus; provided that any Lock-Up Securities received upon such exercise, vesting or settlement shall be subject to the terms of this Letter;
(c) convert outstanding preferred shares, warrants to acquire preferred shares or convertible securities into Ordinary Shares or ADSs or warrants to acquire Ordinary Shares or ADSs; provided that any such Ordinary Shares or ADSs or warrants received upon such conversion shall be subject to the terms of this Letter;
(d) establish trading plans pursuant to Rule 10b5-1 under the Exchange Act for the transfer of shares of Lock-Up Securities; provided that (1) such plans do not provide for the transfer of Lock-Up Securities during the Restricted Period and (2) no filing by any party under the Exchange Act or other public announcement shall be required or made voluntarily in connection with such trading plan; and
(e) sell the ADSs representing the Ordinary Shares to be sold by the undersigned pursuant to the terms of the Underwriting Agreement.
If the undersigned is an officer or director of the Company, the undersigned further agrees that the foregoing provisions shall be equally applicable to any Company-directed ADSs the undersigned may purchase in the Public Offering.
If the undersigned is an officer or director of the Company, (i) the Representatives on behalf of the Underwriters agree that, at least three business days before the effective date of any release or waiver of the foregoing restrictions in connection with a transfer of Lock-Up Securities, the Representatives on behalf of the Underwriters will notify the Company of the impending release or waiver, and (ii) the Company has agreed in the Underwriting Agreement to announce the impending release or waiver a major news service at least two business days before the effective date of the release or waiver. Any release or waiver granted by the Representatives on behalf of the Underwriters hereunder to any such officer or director shall only be effective two business days after the publication date of such announcement. The provisions of this paragraph will not apply if (a) the release or waiver is effected solely to permit a transfer not for consideration or that is to an immediate family member as defined in FINRA Rule 5130(i)(5) and (b) the transferee has agreed in writing to be bound by the same terms described in this letter to the extent and for the duration that such terms remain in effect at the time of the transfer.
Exhibit C-4
In furtherance of the foregoing, the Company, and any duly appointed transfer agent for the registration or transfer of the securities described herein, are hereby authorized to decline to make any transfer of securities if such transfer would constitute a violation or breach of this Letter.
The undersigned hereby represents and warrants that the undersigned has full power and authority to enter into this Letter. All authority herein conferred or agreed to be conferred and any obligations of the undersigned shall be binding upon the successors, assigns, heirs or personal representatives of the undersigned.
The undersigned acknowledges and agrees that the Underwriters have not provided any recommendation or investment advice nor have the Underwriters solicited any action from the undersigned with respect to the Public Offering of the ADSs and the undersigned has consulted their own legal, accounting, financial, regulatory and tax advisors to the extent deemed appropriate. The undersigned further acknowledges and agrees that, although the Representative may be required or choose to provide certain Regulation Best Interest and Form CRS disclosures to you in connection with the Public Offering, the Representative and the other Underwriters are not making a recommendation to you to participate in the Public Offering, enter into this Letter, or sell any Shares at the price determined in the Public Offering, and nothing set forth in such disclosures is intended to suggest that the Representative or any Underwriter is making such a recommendation.
Notwithstanding anything to the contrary contained herein, this Letter will automatically terminate and the undersigned will be released from all his, her or its obligations hereunder upon the earliest to occur, if any, of (i) prior to the execution of the Underwriting Agreement, the Company advises the Representatives in writing that it has determined not to proceed with the Public Offering, (ii) the Company files an application to withdraw the Registration Statement, (iii) the Underwriting Agreement is executed but is terminated (other than the provisions thereof which survive termination) prior to payment for and delivery of the ADSs to be sold thereunder, or (iv) December 31, 2020, in the event that the Underwriting Agreement has not been executed nor become effective by such date. The undersigned understands that the Underwriters are entering into the Underwriting Agreement and proceeding with the Public Offering in reliance upon this Letter.
Exhibit C-5
This Letter and any claim, controversy or dispute arising under or related to this Letter shall be governed by and construed in accordance with the laws of the State of New York.
Very truly yours, | ||
By: |
|
|
Name: | ||
Title: |
Exhibit C-6
Exhibit 3.2
THE COMPANIES LAW (AS REVISED)
OF THE CAYMAN ISLANDS
Company Limited by Shares
Seventh Amended and Restated Memorandum of Association
of
XPeng Inc.
(Adopted by Special Resolution dated August 20, 2020 and effective immediately prior to the completion of the Companys initial public offering of American depositary shares representing the Companys Class A Ordinary Shares)
1. |
The name of the Company is XPeng Inc. |
2. |
The registered office is situated at Harneys Fiduciary (Cayman) Limited, 4th Floor, Harbour Place, 103 South Church Street, P.O. Box 10240, Grand Cayman KY1-1002, Cayman Islands or at such other place in the Cayman Islands 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 to carry out any object not prohibited by any law as provided by Section 7 (4) of the Companies Law (Revised). |
4. |
Except as prohibited or limited by the laws of the Cayman Islands, the Company shall have full power and authority to carry out any object and shall have and be capable of from time to time and at all times exercising any and all of the powers at any time or from time to time exercisable by a natural person or body corporate in any part of the world whether as principal, agent, contractor or otherwise. |
5. |
The Company shall not be permitted to carry on any business where a licence is required under the laws of the Cayman Islands to carry on such a business until such time as the relevant licence has been obtained. |
6. |
If the Company is an exempted company, its operations will be carried on subject to the provisions of Section 174 of the Companies Law (Revised). |
7. |
The liability of each Member is limited to the amount from time to time unpaid on such Members share. |
8. |
The authorised share capital of the Company is US$100,000 consisting of 10,000,000,000 shares comprising (i) 8,850,000,000 Class A Ordinary Shares of a par value of US$0.00001 each, (ii) 750,000,000 Class B Ordinary Shares of a par value of US$0.00001 each and (iii) 400,000,000 Class C Ordinary Shares of a par value of US$0.00001 each. Subject to the Law and the Articles, the Company shall have power to redeem or purchase any of its Shares and to increase or reduce its authorised share capital and to sub-divide or consolidate the said Shares or any of them and to issue all or any part of its capital whether original, redeemed, increased or reduced with or without any preference, priority, special privilege or other rights or subject to any postponement of rights or to any conditions or restrictions and so that, unless the condition of issue shall otherwise expressly declare, every issue of shares, whether declared to be ordinary, preference or otherwise, shall be subject to the power on the part of the Company hereinbefore contained. |
9. |
The Company may exercise the powers contained in the Law to transfer and be registered by way of continuation as a body corporate limited by shares under the laws of any jurisdiction outside the Cayman Islands and to be de-registered in the Cayman Islands. |
10. |
Capitalised terms used and not defined in this Memorandum of Association shall bear the same meaning as those given in the Articles of Association of the Company. |
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THE COMPANIES LAW (AS REVISED)
OF THE CAYMAN ISLANDS
Company Limited by Shares
Seventh Amended and Restated Articles of Association
of
XPeng Inc.
(Adopted by Special Resolution dated August 20, 2020 and effective immediately prior to the completion of the Companys initial public offering of American depositary shares representing the Companys Class A Ordinary Shares)
1. |
The Regulations contained or incorporated in Table A of the First Schedule of the Law (as defined below) shall not apply to this Company. |
INTERPRETATION
2. |
(a) In these Articles the following terms shall have the meanings set opposite unless the context otherwise requires:- |
ADS | means an American Depositary Share representing Class A Ordinary Shares | |
Affiliate | means in respect of a person, any other person that, directly or indirectly, through one or more intermediaries, controls, is controlled by, or is under common control with, such person, and (i) in the case of a natural person, shall include, without limitation, such persons spouse, parents, children, siblings, mother-in-law, father-in-law, brothers-in-law and sisters-in-law, a trust for the benefit of any of the foregoing, and a corporation, partnership or any other entity wholly or jointly owned by any of the foregoing, and (ii) in the case of an entity, shall include a partnership, a corporation or any other entity or any natural person which directly, or indirectly through one or more intermediaries, controls, is controlled by, or is under common control with, such entity. The term control shall mean the ownership, directly or indirectly, of shares possessing more than fifty per cent (50%) of the voting power of the corporation, partnership or other entity (other than, in the case of a corporation, securities having such power only by reason of the happening of a contingency), or having the power to control the management or elect a majority of members to the board of directors or equivalent decision-making body of such corporation, partnership or other entity |
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Alibaba | means Taobao China Holding Limited | |
Alibaba Affiliate | means any entity that is ultimately controlled by Alibaba Group Holding Limited. The term control shall mean the ownership, directly or indirectly, of shares possessing more than fifty per cent (50%) of the voting power of the corporation, partnership or other entity (other than, in the case of a corporation, securities having such power only by reason of the happening of a contingency), or having the power to control the management or elect a majority of members to the board of directors or equivalent decision-making body of such corporation, partnership or other entity. For the avoidance of doubt and notwithstanding the foregoing, for purposes of these Articles, each of Ant Group Co., Ltd. (蚂蚁科技集团股份有限公司) (a company organized under the Laws of the PRC) and its Affiliates shall be deemed an Alibaba Affiliate. | |
Articles | these Articles of Association as from time to time amended by Special Resolution | |
Auditors | the Auditors for the time being of the Company, if any | |
Chairman | means the chairman of the Board of Directors | |
Class A Ordinary Share | means an Ordinary Share of a par value of US$0.00001 in the capital of the Company, designated as a Class A Ordinary Share and having the rights provided for in these Articles | |
Class B Ordinary Share | means an Ordinary Share of a par value of US$0.00001 in the capital of the Company, designated as a Class B Ordinary Share and having the rights provided for in these Articles | |
Class C Ordinary Share | means an Ordinary Share of a par value of US$0.00001 in the capital of the Company, designated as a Class C Ordinary Share and having the rights provided for in these Articles | |
Commission | means the Securities and Exchange Commission of the United States of America or any other federal agency for the time being administering the Securities Act |
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Companies Law | the Companies Law (Revised) of the Cayman Islands as amended from time to time and every other act, order regulation or other instrument having statutory effect (as amended from time to time) for the time being in force in the Cayman Islands applying to or affecting the Company, the Memorandum and/or the Articles | |
Company | XPeng Inc. | |
Directors or Board or | the directors of the Company for the time being or, as the Board of Directors case may be, the directors assembled as a board | |
Electronic Transactions Law | means the Electronic Transactions Law of the Cayman Islands | |
Exchange | any securities exchange or other system on which any Shares or ADSs are listed or authorised for trading from time to time | |
Exchange Rules | the relevant code, rules and regulations, as amended, from time to time, applicable as a result of the original and continued listing of any Shares or ADSs on the Exchange | |
Founders | refer to Mr. Xiaopeng He, Mr. Heng Xia and Mr. Tao He, each of whom is referred to as a Founder | |
Founder Affiliate | means any entity that is ultimately controlled by any of the Founders. The term control shall mean the ownership, directly or indirectly, of shares possessing more than fifty per cent (50%) of the voting power of the corporation, partnership or other entity (other than, in the case of a corporation, securities having such power only by reason of the happening of a contingency), or having the power to control the management or elect a majority of members to the board of directors or equivalent decision-making body of such corporation, partnership or other entity | |
Independent Director | a director who is an independent director as defined in the Exchange Rules | |
Law | the Companies Law (Revised) of the Cayman Islands and any amendment or other statutory modification thereof and where in these Articles any provision of the Law is referred to, the reference is to that provision as modified by law for the time being in force |
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Member or Shareholder | a person who is registered in the Register of Members as the holder of any Share in the Company | |
Memorandum | means the memorandum of association of the Company, as amended or substituted from time to time | |
Month | a calendar month | |
Ordinary Resolution | a resolution (a) passed by a simple majority of the votes cast by such Shareholders as, being entitled to do so, vote in person or, where proxies are allowed, by proxy or, in the case of corporations, by their duly authorised representatives, at a general meeting of the Company held in accordance with these Articles; or (b) approved in writing by all of the Shareholders entitled to vote at a general meeting of the Company in one or more instruments each signed by one or more of the Shareholders and the effective date of the resolution so adopted shall be the date on which the instrument, or the last of such instruments, if more than one, is executed | |
Ordinary Share | means a Class A Ordinary Share or a Weighted Voting Share | |
paid up | means paid up as to the par value in respect of the issue of any Shares and includes credited as paid up | |
person | means any natural person, firm, company, joint venture, partnership, corporation, association or other entity (whether or not having a separate legal personality) or any of them as the context so requires | |
Registered Office | the registered office of the Company as provided in Section 50 of the Law | |
Register of Members | the register of Members to be kept pursuant to section 40 of the Law | |
Secretary | any person appointed by the Directors to perform any of the duties of the secretary of the Company and including any assistant secretary | |
Securities Act | means the Securities Act of 1933 of the United States of America, as amended, or any similar federal statute and the rules and regulations of the Commission thereunder, all as the same shall be in effect at the time |
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Seal | the common seal of the Company or any facsimile for official seal for use outside of the Cayman Islands | |
Share | means a share in the capital of the Company. All references to Shares herein shall be deemed to be Shares of any or all Classes as the context may require. For the avoidance of doubt in these Articles the expression Share shall include a fraction of a Share | |
Special Resolution | means a special resolution of the Company passed in accordance with the Companies Law, being a resolution: (a) passed by not less than two-thirds of the votes cast by such Shareholders as, being entitled to do so, vote in person or, where proxies are allowed, by proxy or, in the case of corporations, by their duly authorised representatives, at a general meeting of the Company of which notice specifying the intention to propose the resolution as a special resolution has been duly given; or (b) approved in writing by all of the Shareholders entitled to vote at a general meeting of the Company in one or more instruments each signed by one or more of the Shareholders and the effective date of the special resolution so adopted shall be the date on which the instrument or the last of such instruments, if more than one, is executed | |
Treasury Share | means a Share held in the name of the Company as a treasury share in accordance with the Law | |
United States | means the United States of America, its territories, its possessions and all areas subject to its jurisdiction | |
Weighted Voting Share | means a Class B Ordinary Share or a Class C Ordinary Share |
(b) |
Unless the context otherwise requires, expressions defined in the Law and used herein shall have the meanings so defined. |
(c) |
In these Articles unless the context otherwise requires:- |
(i) |
words importing the singular number shall include the plural number and vice-versa; |
(ii) |
words importing the masculine gender only shall include the feminine gender; |
(iii) |
words importing persons only shall include companies or associations or bodies of persons whether incorporated or not; |
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(iv) |
the word may shall be construed as permissive and the word shall shall be construed as imperative; |
(v) |
reference to a dollar or dollars (or US$) and to a cent or cents is reference to dollars and cents of the United States of America; |
(vi) |
reference to a statutory enactment shall include reference to any amendment or re-enactment thereof for the time being in force; |
(vii) |
reference to any determination by the Directors shall be construed as a determination by the Directors in their sole and absolute discretion and shall be applicable either generally or in any particular case; |
(viii) |
reference to in writing shall be construed as written or represented by any means reproducible in writing, including any form of print, lithograph, email, facsimile, photograph or telex or represented by any other substitute or format for storage or transmission for writing including in the form of an electronic record or partly one and partly another; |
(ix) |
any requirements as to delivery under the Articles include delivery in the form of an electronic record or an electronic communication; |
(x) |
any requirements as to execution or signature under the Articles, including the execution of the Articles themselves, can be satisfied in the form of an electronic signature as defined in the Electronic Transaction Law; and |
(xi) |
Sections 8 and 19(3) of the Electronic Transactions Law shall not apply. |
(d) |
The headings herein are for convenience only and shall not affect the construction of these Articles. |
3. | (a) | Subject to these Articles (including but not limited to Article 12), all Shares for the time being unissued shall be under the control of the Directors who may, in their absolute discretion and without the approval of the Members, cause the Company to: (a) issue, allot and dispose of Shares (including, without limitation, preferred shares) (whether in certificated form or non-certificated form) to such persons, in such manner, on such terms and having such rights and being subject to such restrictions as they may from time to time determine; (b) grant rights over Shares or other securities to be issued in one or more classes or series as they deem necessary or appropriate and determine the designations, powers, preferences, privileges and other rights attaching to such Shares or securities, including dividend rights, voting rights, conversion rights, terms of redemption and liquidation preferences, any or all of which may be greater than the powers, preferences, privileges and rights associated with the then issued and outstanding Shares, at such times and on such other terms as they think proper; and (c) grant options with respect to Shares and issue warrants or similar instruments with respect thereto. |
8
(b) |
The Directors may authorise the division of Shares into any number of Classes and the different Classes shall be authorised, established and designated (or re-designated as the case may be) and the variations in the relative rights (including, without limitation, voting, dividend and redemption rights), restrictions, preferences, privileges and payment obligations as between the different Classes (if any) may be fixed and determined by the Directors or by an Ordinary Resolution. The Directors may issue Shares with such preferred or other rights, all or any of which may be greater than the rights of Ordinary Shares, at such time and on such terms as they may think appropriate. Notwithstanding Article 3(c), the Directors may issue from time to time, out of the authorised share capital of the Company (other than the authorised but unissued Ordinary Shares), series of preferred shares in their absolute discretion and without approval of the Members; provided, however, before any preferred shares of any such series are issued, the Directors shall by resolution of Directors determine, with respect to any series of preferred shares, the terms and rights of that series, including: |
(i) |
the designation of such series, the number of preferred shares to constitute such series and the subscription price thereof if different from the par value thereof; |
(ii) |
whether the preferred shares of such series shall have voting rights, in addition to any voting rights provided by law, and, if so, the terms of such voting rights, which may be general or limited; |
(iii) |
the dividends, if any, payable on such series, whether any such dividends shall be cumulative, and, if so, from what dates, the conditions and dates upon which such dividends shall be payable, and the preference or relation which such dividends shall bear to the dividends payable on any shares of any other class or any other series of shares; |
(iv) |
whether the preferred shares of such series shall be subject to redemption by the Company, and, if so, the times, prices and other conditions of such redemption; |
9
(v) |
whether the preferred shares of such series shall have any rights to receive any part of the assets available for distribution amongst the Members upon the liquidation of the Company, and, if so, the terms of such liquidation preference, and the relation which such liquidation preference shall bear to the entitlements of the holders of shares of any other class or any other series of shares; |
(vi) |
whether the preferred shares of such series shall be subject to the operation of a retirement or sinking fund and, if so, the extent to and manner in which any such retirement or sinking fund shall be applied to the purchase or redemption of the preferred shares of such series for retirement or other corporate purposes and the terms and provisions relative to the operation thereof; |
(vii) |
whether the preferred shares of such series shall be convertible into, or exchangeable for, shares of any other class or any other series of preferred shares or any other securities and, if so, the price or prices or the rate or rates of conversion or exchange and the method, if any, of adjusting the same, and any other terms and conditions of conversion or exchange; |
(viii) |
the limitations and restrictions, if any, to be effective while any preferred shares of such series are outstanding upon the payment of dividends or the making of other distributions on, and upon the purchase, redemption or other acquisition by the Company of, the existing shares or shares of any other class of shares or any other series of preferred shares; |
(ix) |
the conditions or restrictions, if any, upon the creation of indebtedness of the Company or upon the issue of any additional shares, including additional shares of such series or of any other class of shares or any other series of preferred shares; and |
(x) |
any other powers, preferences and relative, participating, optional and other special rights, and any qualifications, limitations and restrictions thereof; |
and, for such purposes, the Directors may reserve an appropriate number of Shares for the time being unissued. The Company shall not issue Shares to bearer.
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(c) |
If at any time, the share capital of the Company is divided into different classes of shares, the rights attached to any class of shares may, subject to the provisions of the Companies Law, be varied with the sanction of an Ordinary Resolution passed at a general meeting of the holders of the Shares of that class. To every such general meeting all the provisions of these Articles relating to general meetings of the Company or to the proceedings thereat shall, mutatis mutandis, apply, except that the necessary quorum shall be one or more persons holding or representing by proxy at least one-third in nominal or par value amount of the issued Shares of the relevant class (but so that if at any adjourned meeting of such holders a quorum as above defined is not present, those Shareholders who are present shall form a quorum) and that, subject to any rights or restrictions for the time being attached to the Shares of that class, every Members of that class shall on a poll have one vote for each Share of that class held by him. For the purposes of this Article, the Directors may treat all the classes or any two or more classes as forming one class if they consider that all such Classes would be affected in the same way by the proposals under consideration, but in any other case shall treat them as separate classes. |
(d) |
The rights conferred upon the holders of the shares of any class 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, redesignation, or issue of shares ranking pari passu therewith. |
4. | (a) | Every person whose name is entered as a Member in the Register of Members shall, without payment and upon its written request, request a certificate under the seal of the Company specifying the Share or Shares held by him and the amount paid up thereon, provided that in respect of a Share or Shares held jointly by several persons, the Company shall not be bound to issue more than one certificate, and delivery of a certificate for a Share to one of several joint holders shall be sufficient delivery to all. |
(b) |
If a Share certificate is defaced, lost or destroyed it may be renewed on payment of such fee, if any, and on such terms, if any, as to evidence and indemnity, as the Directors think fit. |
(c) |
Every share certificate of the Company shall bear legends required under the applicable laws, including the Securities Act. |
(d) |
Any two or more certificates representing Shares of any one Class held by any Member may at the Members request be cancelled and a single new certificate for such Shares issued in lieu on payment (if the Directors shall so require) of one dollar (US$1.00) or such smaller sum as the Directors shall determine. |
5. |
Except as required by law, no person shall be recognised by the Company as holding any Share upon any trust, and the Company shall not be bound by or be compelled in any way to recognise (even when having notice thereof) any equitable, contingent, future or actual interest in any Share (except only as by these Articles or by law otherwise provided or under an order of a court of competent jurisdiction) or any other rights in respect of any Share except an absolute right to the entirety thereof in the registered holder, but the Company may in accordance with the Law issue fractions of Shares. |
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6. |
The Shares shall be at the disposal of the Directors, and they may (subject to the provisions of the Law) allot, grant options over, or otherwise dispose of them to such persons, on such terms and conditions, and at such times as they think fit, but so that no Share shall be issued at a discount, except in accordance with the provisions of the Law. |
CLASS A ORDINARY SHARES, CLASS B ORDINARY SHARES AND CLASS C
ORDINARY SHARES
7. |
Holders of Class A Ordinary Shares and Weighted Voting Shares shall at all times vote together as one class on all resolutions submitted to a vote by the Members. Each Class B Ordinary Share shall entitle the holder thereof to ten (10) votes on all matters subject to vote at general meetings of the Company, each Class C Ordinary Share shall entitle the holder thereof to five (5) votes on all matters subject to vote at general meetings of the Company and each Class A Ordinary Share shall entitle the holder thereof to one (1) vote on all matters subject to vote at general meetings of the Company. |
8. |
Each Weighted Voting Share is convertible into one (1) Class A Ordinary Share at any time at the option of the holder thereof. The right to convert shall be exercisable by the holder of the Weighted Voting Share delivering a written notice to the Company that such holder elects to convert a specified number of Weighted Voting Shares into Class A Ordinary Shares. In no event shall Class A Ordinary Shares be convertible into Weighted Voting Shares. |
9. |
Any conversion of Weighted Voting Shares into Class A Ordinary Shares pursuant to these Articles shall be effected by means of the re-designation and re-classification of each relevant Weighted Voting Shares as a Class A Ordinary Share. Such conversion shall become effective forthwith upon entries being made in the Register of Members to record the conversion of the relevant Weighted Voting Shares as Class A Ordinary Shares. |
10. |
Upon any sale, transfer, assignment or disposition of any Class B Ordinary Share by a Member to any person who is not a Founder or Founder Affiliate, or upon a change of ultimate beneficial ownership of any Class B Ordinary Share to any person who is not a Founder or Founder Affiliate, such Class B Ordinary Share shall be automatically and immediately converted into the same number of Class A Ordinary Share. Upon any sale, transfer, assignment or disposition of any Class C Ordinary Share by Alibaba to any person who is not an Alibaba Affiliate, or upon a change of ultimate beneficial ownership of any Class C Ordinary Share to any person who is not an Alibaba Affiliate, such Class C Ordinary Share shall be automatically and immediately converted into the same number of Class A Ordinary Share. For the avoidance of doubt, (i) a sale, transfer, assignment or disposition shall be effective upon the Companys registration of such sale, transfer, assignment or disposition in its Register; and (ii) the creation of any pledge, charge, encumbrance or other third party right of whatever description on any Weighted Voting Shares to secure a holders contractual or legal obligations shall not be deemed as a sale, transfer, assignment or disposition unless and until any such pledge, charge, encumbrance or other third party right is enforced and results in the third party holding legal title to or beneficial ownership of the relevant Weighted Voting Shares. For purpose of this Article 10, beneficial ownership shall have the meaning set forth in Rule 13d-3 under the United States Securities Exchange Act of 1934, as amended. |
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11. |
Save and except for voting rights and conversion rights as set out in Articles 7 to 10 (inclusive), the Class A Ordinary Shares and the Weighted Voting Shares shall rank pari passu with one another and shall have the same rights, preferences, privileges and restrictions. |
12. |
Following the adoption of these Articles: |
(a) |
the Companys issuance of any additional Class B Ordinary Shares, or any options, warrants or convertible securities of similar nature conferring the right upon the holders thereof to subscribe for, purchase or receive any Class B Ordinary Shares shall require the prior written consents of the majority of existing holders of Class B Ordinary Shares; and |
(b) |
the Companys issuance of any additional Class C Ordinary Shares, or any options, warrants or convertible securities of similar nature conferring the right upon the holders thereof to subscribe for, purchase or receive any Class C Ordinary Shares shall require the prior written consents of the majority of existing holders of Class C Ordinary Shares. |
LIEN
13. |
The Company shall have a first and paramount lien on every Share (not being a fully paid Share) for all moneys (whether presently payable or not) called or payable at a fixed time in respect of that Share, and the Company shall also have a lien on all Shares (other than fully paid-up Shares) standing registered in the name of a single person for all moneys presently payable by him or his estate to the Company; but the Directors may at any time declare any Share to be wholly or in part exempt from the provision of this Article. The Companys lien, if any, on a Share shall extend to all dividends payable thereon. |
14. |
The Company may sell, in such manner as the Directors think fit, any Shares on which the Company has a lien, but no sale shall be made unless some sum in respect of which the lien exists is presently payable nor until the expiration of fourteen days after a notice in writing, stating and demanding payment of such part of the amount in respect of which the lien exists as is presently payable, has been given to the registered holder for the time being of the Share, or the persons entitled thereto by reason of his death or bankruptcy. |
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15. |
For giving effect to any such sale, the Directors may authorise some person to transfer the Shares sold to the purchaser thereof. The purchaser shall be registered as the holder of the Shares comprised in any such transfer and he shall not be bound to see to the application of the purchase money, nor shall his title to the Shares be affected by any irregularity or invalidity in the proceedings in reference to the sale. |
16. |
The proceeds of the sale shall be received by the Company and applied in payment of such part of the amount in respect of which the lien exists as is presently payable, and the residue shall (subject to a like lien for sums not presently payable as existed upon the Shares prior to the sale) be paid to the person entitled to the Shares at the date of the sale. |
CALLS ON SHARES
17. |
The Directors may from time to time make calls upon the Members in respect of any moneys unpaid on their Shares provided that no call shall be payable earlier than one month from the last call; and each Member shall (subject to receiving at least fourteen days, notice specifying the time or times of payment) pay to the Company at the time or times so specified the amount called on his Shares. |
18. |
The joint holders of a Share shall be jointly and severally liable to pay calls in respect thereof. |
19. |
If a sum called in respect of a Share is not paid before or on the day appointed for payment thereof, the person from whom the sum is due shall pay interest upon the sum at the rate of six per cent per annum from the day appointed for the payment thereof to the time of the actual payment, but the Directors shall be at liberty to waive payment of that interest wholly or in part. |
20. |
The provisions of these Articles as to the liability of joint holders and as to payment of interest shall apply in the case of non-payment of any sum which, by the terms of issue of a Share, becomes payable at a fixed time, whether on account of the amount of the Share, or by way of premium, as if the same had become payable by virtue of a call duly made and notified. |
21. |
The Directors may make arrangements on the issue of Shares for a difference between the holders in the amount of calls to be paid and in the times of payment. |
22. |
The Directors may, if they think fit, receive from any Member willing to advance the same all or any part of the moneys uncalled and unpaid upon any Shares held by him; and upon all or any of the moneys so advanced may (until the same would, but for such advance, become presently payable) pay interest at such rate (not exceeding without the sanction at the Company in general meeting six per cent per annum) as may be agreed upon between the Member paying the sum in advance and the Directors. No such sum paid in advance of calls shall entitle the Member paying such sum to any portion of a dividend declared in respect of any period prior to the date upon which such sum would, but for such payment, become presently payable. |
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FORFEITURE OF SHARES
23. |
If a Member fails to pay any call or installment of a call on the day appointed for payment thereof, the Directors may, at any time thereafter during such time as any part of such call or installment remains unpaid, serve a notice on him requiring payment of so much of the call or installment as is unpaid, together with any interest which may have accrued. |
24. |
The notice shall name a further day (not earlier than the expiration of fourteen days from the date of the notice) on or before which the payment required by the notice is to be made, and shall state that in the event of non-payment at or before the time appointed, the Shares in respect of which the call was made will be liable to be forfeited. |
25. |
If the requirements of any such notice as aforesaid are not complied with, any Share in respect of which the notice has been given may at any time thereafter, before the payment required by the notice has been made, be forfeited by a resolution of the Directors to that effect. |
26. |
A forfeited Share may be sold or otherwise disposed of on such terms and in such manner as the Directors think fit, and at any time before a sale or disposition, the forfeiture may be cancelled on such terms as the Directors think fit. |
27. |
A person whose Shares have been forfeited shall cease to be a Member in respect of the forfeited Shares, but shall, notwithstanding, remain liable to pay to the Company all moneys which at the date of forfeiture were payable by him to the Company in respect of the Shares forfeited, but his liability shall cease if and when the Company receives payment in full of the amount due on the Shares forfeited. |
28. |
A statutory declaration in writing that the declarant is a Director of the Company, and that a Share in the Company has been duly forfeited on a date stated in the declaration, shall be conclusive evidence of the facts therein stated as against all persons claiming to be entitled to the Share. The Company may receive the consideration, if any, given for the Share on any sale or disposition thereof and may execute a transfer of the Share in favour of the person to whom the Share is sold or disposed of and he shall thereupon be registered as the holder of the Share, and shall not be bound to see to the application of the purchase money, if any, nor shall his title to the Share be affected by any irregularity or invalidity in the proceedings in reference to the forfeiture, sale or disposal of the Share. |
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29. |
The provisions of these Articles as to forfeiture shall apply in the case of non-payment of any sum which, by the terms of issue of a Share, becomes payable at a fixed time, whether on account of the amount of the Share, or by way of premium, as if the same had been made payable by virtue of a call duly made and notified. |
TRANSFER AND TRANSMISSION OF SHARES
30. |
The instrument of transfer of any Share shall be in writing and in any usual or common form or such other form as the Directors may, in their absolute discretion, approve and be executed by or on behalf of the transferor and if in respect of a nil or partly paid up Share, or if so required by the Directors, shall also be executed on behalf of the transferee and shall be accompanied by the certificate (if any) of the Shares to which it relates and such other evidence as the Directors may reasonably require to show the right of the transferor to make the transfer. The transferor shall be deemed to remain a holder of the Share until the name of the transferee is entered in the Register of Members in respect thereof. |
31. |
The Directors may decline to register any transfer of shares unless: |
(c) |
the instrument of transfer is lodged with the Company, accompanied by the certificate for the Ordinary Shares to which it relates and such other evidence as the Board of Directors may reasonably require to show the right of the transferor to make the transfer; |
(d) |
the instrument of transfer is in respect of only one class of Ordinary Shares; |
(e) |
the instrument of transfer is properly stamped, if required; |
(f) |
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 |
(g) |
a fee of such maximum sum as the Exchange may determine to be payable or such lesser sum as the Directors may from time to time require is paid to the Company in respect thereof. |
32. |
The registration of transfers may, after compliance with any notice required of the Exchange, be suspended and the register of Members closed at such times and for such periods as the Directors may, in their absolute discretion, from time to time determine, provided always that such registration of transfer shall not be suspended nor the register of Members closed for more than 30 days in any year. |
33. |
Shares shall be transferred in the following form, or in any usual or common form approved by the Directors: |
I, _____________ of ____________ in consideration of the sum of $____ paid to me by _____________ of ______________ (hereinafter called the Transferee) do hereby transfer to the Transferee the __ Share (or Shares) numbered __ in the Company called [ ], to hold the same unto the Transferee, subject to the several conditions on which I hold the same.
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As witness our hands on the ______ day of __________ 20____.
Transferor
34. |
The Directors may, in their absolute discretion and without assigning any reason therefore decline to register any transfer of Shares to a person of whom they do not approve. The Directors may also suspend the registration of transfers at such times and for such periods (not exceeding thirty days in aggregate in each year) as the Directors may from time to time determine. The Directors may decline to recognise any instrument of transfer unless (a) a fee not exceeding one dollar is paid to the Company in respect thereof, and (b) the instrument of transfer is accompanied by the certificate of the Shares to which it relates, and such other evidence as the Directors may reasonably require to show the right of the transferor to make the transfer. |
35. |
If the Directors refuse to register a transfer of Shares, they shall within three (3) months after the date on which the transfer was lodged with the Company, send to each of the transferor and the transferee notice of the refusal. |
36. |
The legal personal representative of a deceased sole holder of a Share shall be the only person recognised by the Company as having any title to the Share. In case of a Share registered in the names of two or more holders, the survivors or survivor, or the legal personal representatives of the deceased survivor, shall be the only persons recognised by the Company as having any title to the Share. |
37. |
Any person becoming entitled to a Share in consequence of the death or bankruptcy of a Member shall upon such evidence being produced as may from time to time be properly required by the Directors, have the right either to be registered as a Member in respect of the Share or, instead of being registered himself, to make such transfer of the Share as the deceased or bankrupt person could have made; but the Directors shall, in either case, have the same right to decline or suspend registration as they would have had in the case of a transfer of the Share by the deceased or bankrupt person before the death or bankruptcy. |
38. |
A person becoming entitled to a Share by reason of the death or bankruptcy of the holder shall be entitled to the same dividends and other advantages to which he would be entitled if he were the registered holder of the Share, except that he shall not, before being registered as a Member in respect of the Share, be entitled in respect of it to exercise any right conferred by membership in relation to meetings of the Company provided however, that the Directors may at any time give notice requiring any such person to elect either to be registered himself or to transfer the Share, and if the notice is not complied with within ninety (90) calendar days, the Directors may thereafter withhold payment of all dividends, bonuses or other monies payable in respect of the Share until the requirements of the notice have been complied with. |
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CONVERSION OF SHARES INTO STOCK
39. |
The Company may by Ordinary Resolution convert any paid-up Shares into stock, and reconvert any stock into paid-up Shares of any denomination. |
40. |
The holders of stock may transfer the same, or any part thereof in the same manner and subject to the same regulations as and subject to which the Shares from which the stock arose might prior to conversion have been transferred, or as near thereto as circumstances admit; but the Directors may from time to time fix the minimum amount of stock transferable, and restrict or forbid the transfer of fractions of that minimum, but the minimum shall not exceed the nominal amount of the Shares from which the stock arose. |
41. |
The holders of stock shall, according to the amount of the stock held by them, have the same rights, privileges and advantages as regards dividends, voting at meetings of the Company and other matters as if they held the Shares from which the stock arose, but no such privilege or advantage (except participation in the dividends and profits of the Company) shall be conferred by any such aliquot part of stock as would not, if existing as Shares, have conferred that privilege or advantage. |
42. |
Such of the Articles of the Company as are applicable to paid-up Shares shall apply to stock, and the words Share and Member herein shall include stock and stock-holder. |
REGISTRATION OF EMPOWERING INSTRUMENTS
43. |
The Company shall be entitled to charge a fee not exceeding one U.S. dollar (US$1.00) on the registration of every probate, letters of administration, certificate of death or marriage, power of attorney, notice in lieu of distringas, or other instrument. |
ALTERATION OF SHARE CAPITAL
44. |
The Company 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. |
45. |
Subject to any direction to the contrary that may be given by the Company in general meeting, all new Shares shall be at the disposal of the Directors in accordance with Article 6. |
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46. |
The new Shares shall be subject to the same provisions with reference to the payment of calls, lien, transfer, transmission, forfeiture and otherwise as the Shares in the original share capital. |
47. |
The Company may by Ordinary Resolution: |
(a) |
increase its share capital by such sum as the resolution shall prescribe and with such rights, priorities and privileges annexed thereto, as it in general meeting may determine; |
(b) |
consolidate and divide all or any of its share capital into Shares of a larger amount than its existing Shares; |
(c) |
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 of Association, subject nevertheless to the provisions of section 13 of the Law; and |
(d) |
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 diminish the amount of its share capital by the amount of the Shares so cancelled. |
48. |
The Company may by Special Resolution reduce its share capital and any capital redemption reserve in any manner permitted by the Law. |
49. |
Subject to the provisions of the Law and the Memorandum of Association, the Company may (a) issue Shares that are to be redeemed or are liable to be redeemed at the option of the Shareholder or the Company. The redemption of Shares shall be effected in such manner and upon such terms as may be determined, before the issue of such Shares, by either the Board or by the Shareholders by Special Resolution; (b) purchase its own Shares, including any redeemable Shares, provided that the manner of purchase has first been authorised by Ordinary Resolution; and (c) make payment therefor or for any redemption or purchase of its own Shares in any manner authorised by the Law, including out of capital. |
50. |
In addition, the Company is authorised to purchase any share listed on an Exchange in accordance with the following manner of purchase: The maximum number of shares that may be repurchased shall be equal to the number of issued shares, less one share; at such time; at such price and on such other terms as determined and agreed by the Directors in their sole discretion, provided, however, that (i) such repurchase transactions shall be in accordance with the relevant code, rules and regulations applicable to the listing of the shares on the Exchange; and (ii) at the time of the repurchase the Company is able to pay its debts as they fall due in the ordinary course of its business. |
51. |
The Directors may accept the surrender for no consideration of any fully paid Share. |
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TREASURY SHARES
52. |
The Directors may, prior to the purchase, redemption or surrender of any Share, determine that such Share shall be held as a Treasury Share. |
53. |
The Directors may determine to cancel a Treasury Share or transfer a Treasury Share on such terms as they think proper (including, without limitation, for nil consideration). |
GENERAL MEETINGS
54. |
All general meetings other than annual general meetings shall be called extraordinary general meetings. |
(a) |
The Company may (but shall not be obliged to) in each calendar year hold a general meeting as its annual general meeting and shall specify the meeting as such in the notice calling it. The annual general meeting shall be held at such time and place as may be determined by the Directors, and at these meetings the report of the Directors (if any) shall be presented. |
(b) |
Extraordinary general meetings may be convened by a majority of the Board of Directors. The Directors shall also, upon the requisition in writing of one or more Members holding Shares which carry in the aggregate not less than one-third (1/3) of all votes attaching to all issued and outstanding Shares of the Company that as at the date of the requisition carries the right of voting at general meetings, convene a general meeting. Any such requisition shall express the object of the meeting proposed to be called, and shall be left at the Registered Office of the Company. If the Directors do not proceed to convene a general meeting within twenty-one days from the date of such requisition being left as aforesaid, the requisitionists or any or either of them or any other Member or Members holding Shares which carry in the aggregate not less than one-third (1/3) of all votes attaching to all issued and outstanding Shares of the Company that as at the date of the requisition carries the right of voting at general meetings, may convene a general meeting to be held at the Registered Office of the Company or at some convenient place at such time, subject to the Companys Articles as to notice, as the persons convening the meeting fix. |
55. |
At least seven (7) calendar days notice shall be given for any general meeting. Every notice shall be exclusive of the day on which it is given or deemed to be given and of the day for which it is 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 Article 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: |
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(a) |
in the case of an annual general meeting, by all the Shareholders (or their proxies) entitled to attend and vote thereat; and |
(b) |
in the case of an extraordinary general meeting, by not less than ninety percent (90%) of the Shares giving a right to attend and vote at the meeting. |
56. |
The accidental omission to give notice of a meeting to, or the non-receipt of a notice of a meeting by, any Member entitled to receive notice shall not invalidate the proceedings at any meeting. |
57. |
The Directors may cancel or postpone any duly convened general meeting at any time prior to such meeting, except for general meetings requisitioned by the Shareholders in accordance with these Articles, for any reason or for no reason, upon notice in writing to Shareholders. A postponement may be for a stated period of any length or indefinitely as the Directors may determine. |
58. | (a) | No business shall be transacted at any general meeting unless a quorum of Members is present at the time that the meeting proceeds to business; save as herein otherwise provided, a quorum required for a meeting of Shareholders consists of the holders of not less than one-third (1/3) of the aggregate voting power of all of the Ordinary Shares present in person or by proxy. |
(b) |
An Ordinary Resolution or a Special Resolution (subject to the provisions of the Law) in writing signed by all the Members for the time being entitled to receive notice of and to attend and vote at general meetings, (or being corporations by their duly authorised representatives) including a resolution signed in counterpart by or on behalf of such Members or by way of signed telefax transmission, shall be as valid and effective as if the same had been passed at a general meeting of the Company duly convened and held. |
59. |
If within half an hour from the time appointed for the meeting a quorum is not present, the meeting, if convened upon the requisition of Members, shall be dissolved. In any other case it shall stand adjourned to the same day in the next week, at the same time and place, and if at the adjourned meeting a quorum is not present within half an hour from the time appointed for the meeting, the Members present shall be a quorum. |
60. |
The Chairman, if any, of the Board of Directors shall preside as chairman at every general meeting of the Company. |
61. |
If there is no such chairman, or if at any meeting he is not present within fifteen minutes after the time appointed for holding the meeting or is unwilling to act as chairman, the Members present shall choose one of their number to be chairman. |
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62. |
The chairman may with the consent of any meeting at which a quorum is present (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 meeting is adjourned for ten days or more, notice of the adjourned meeting shall be given as in the case of an original meeting. Save as aforesaid it shall not be necessary to give any notice of an adjournment or of the business to be transacted at an adjourned meeting. |
63. |
At any general meeting a resolution put to the vote of the meeting shall be decided on a show of hands, unless a poll is (before or on the declaration of the result of the show of hands) demanded by the chairman of such meeting or any one or more shareholders who together hold Shares carrying not less than 10% of all votes attaching to all of the total issued voting shares of the Company present in person or by proxy. |
64. |
If a poll is duly demanded it shall be taken in such manner as the chairman directs, and the result of the poll shall be deemed to be the resolution of the meeting at which the poll was demanded. |
65. |
In the case of an equality of votes, whether on a show of hands or on a poll, the chairman of the meeting at which the show of hands takes place or at which the poll is demanded, shall be entitled to a second or casting vote. |
66. |
A poll demanded on the election of a chairman or on a question of adjournment shall be taken forthwith. A poll demanded on any other question shall be taken at such time as the chairman of the meeting directs. |
VOTES OF MEMBERS
67. |
Subject to any rights and restrictions for the time being attached to any Share, on a show of hands every Member present in person or by proxy and entitled to vote at a general meeting of the Company shall each have one (1) vote and on a poll every Member present in person or by proxy and entitled to vote shall have one (1) vote for each Class A Ordinary Share of which he is the holder, shall have ten (10) votes for each Class B Ordinary Share of which he/she/it is the holder and shall have five (5) votes for each Class C Ordinary Share of which he/she/it is the holder. |
68. |
In the case of joint holders the vote of the senior 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 for this purpose seniority shall be determined by the order in which the names stand in the Register of Members. |
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69. |
A Member of unsound mind, or in respect of whom an order has been made by any court having jurisdiction in lunacy, may vote, whether on a show of hands or on a poll, by his committee or other person in the nature of a committee appointed by that court, and any such committee or other person may vote by proxy. |
70. |
No Member shall be entitled to vote at any general meeting, unless all calls or other sums presently payable by him in respect of Shares in the Company have been paid. |
71. |
On a poll votes may be given either personally or by proxy. |
72. |
Each Member, other than a recognized clearing house (or its nominee(s)) or depositary (or its nominee(s)), may only appoint one proxy on a show of hand. The instrument appointing a proxy shall be in writing under the hand of the Member or, if the Member is a corporation, either under seal or under the hand of a director or officer or attorney duly authorised. A proxy need not be a Member of the Company. |
73. |
The instrument appointing a proxy shall be deposited at the Registered Office of the Company or at such other place as is specified for that purpose in the notice convening the meeting not less than 48 hours before the time for holding the meeting or adjourned meeting at which the person named in the instrument proposes to vote, and in default the instrument of proxy shall not be treated as valid PROVIDED THAT the chairman of the meeting may in his discretion accept an instrument of proxy sent by telex or telefax upon receipt of telex or telefax confirmation that the signed original thereof has been sent. |
74. |
An instrument appointing a proxy may be in the following form or any other form approved by the Directors: |
[ ]
I, __________________________, of _______________________, hereby appoint __________________________ of _______________________ as my proxy, to vote for me and on my behalf at the general meeting of the Company to be held on the ______ day of ________________, 20___.
Signed this ______ day of ________________________, 20___.
75. |
The instrument appointing a proxy shall be deemed to confer authority to demand or join in demanding a poll. |
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CORPORATIONS ACTING BY REPRESENTATIVES AT MEETING
76. |
Any corporation which is a Member of the Company may by resolution of its Directors or any committee of the Directors authorise such person as it thinks fit to act as its representative at any meeting of the Company or of any class of Members of the Company, and the person so authorised shall be entitled to exercise the same powers on behalf of the corporation which he represents as that corporation could exercise if it were an individual Member of the Company. |
DEPOSITARY AND CLEARING HOUSES
77. |
If a recognized clearing house (or its nominee(s)) or depositary (or its nominee(s)) is a Member of the Company it may, by resolution of its directors or other governing body or by power of attorney, authorize such person(s) as it thinks fit to act as its representative(s) at any general meeting of the Company or of any Class of Shareholders provided that, if more than one person is so authorized, the authorization shall specify the number and Class of Shares in respect of which each such person is so authorized. A person so authorized pursuant to this Article shall be entitled to exercise the same powers on behalf of the recognized clearing house (or its nominee(s)) or depositary (or its nominee(s)) which he represents as that recognized clearing house (or its nominee(s)) or depositary (or its nominee(s)) could exercise if it were an individual Member holding the number and Class of Shares specified in such authorization, including the right to vote individually on a show of hands. |
DIRECTORS AND OFFICERS
78. | (a) | Unless otherwise determined by the Company in general meeting, the minimum number of Directors shall be three (3), the exact number of Directors to be determined from time to time by the Board of Directors. |
(b) |
Alibaba shall be entitled to appoint one (1) Director and remove the Director appointed by it at any time by delivering a written notice to the Company and such appointment and removal shall become effective automatically upon the delivery of such notice without any further action or resolution of the Board or the Members, provided, however, that in the event that Alibaba ceases to hold, together with its Affiliates, at least ten percent (10%) of the Companys issued and outstanding Shares (on an as-converted and fully-diluted basis), then, Alibaba shall cease to be entitled to appoint and remove such Director, the Company shall have the right to immediately remove the Director appointed by Alibaba (and Alibaba shall take all necessary actions to ensure that such Director is promptly removed) from the Board of Director, and upon the removal of such Director, all the Members shall consult with each other in good faith on whether and how to fill such vacancy. |
If the Director appointed by Alibaba ceases to be a Director pursuant to Article 88, Alibaba shall have the right to appoint another person as a Director by delivering a written notice to the Company and such replacement shall become effective automatically upon the delivery of such notice without any further action or resolution of the Board or the Members.
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Each Member shall vote all Shares held by him, her or it (whether now held or hereafter acquired) in whatever manner as shall be necessary, and agrees to give his, her or its written consent, as the case may be, from time to time and at all times to cause, at the election of the Directors, the election or re-election as Director of the Board and during such period to continue in office, the individual designated pursuant to this Article 78(b), and to vote against any nominee not designated pursuant to this Article 78(b).
(c) |
The Board of Directors shall elect and appoint a Chairman by a majority of the Directors then in office. The period for which the Chairman will hold office will also be determined by a majority of all of the Directors then in office. The Chairman shall preside as chairman at every meeting of the Board of Directors. To the extent the Chairman is not present at a meeting of the Board of Directors within fifteen minutes after the time appointed for holding the same, the attending Directors may choose one of their number to be the chairman of the meeting. |
(d) |
Subject to Articles 78(b), the Company may by Ordinary Resolution appoint any person to be a Director. |
(e) |
Subject to these Articles (including but not limited to 78(a) and (b)), the Board may, by the affirmative vote of a simple majority of the remaining Directors present and voting at a Board meeting, appoint any person as a Director, to fill a casual vacancy on the Board or as an addition to the existing Board. |
(f) |
An appointment of a Director may be on terms that the Director shall automatically retire from office (unless he has sooner vacated office) at the next or a subsequent annual general meeting or upon any specified event or after any specified period in a written agreement between the Company and the Director, if any; but no such term shall be implied in the absence of express provision. Each Director whose term of office expires shall be eligible for re-election at a meeting of the Shareholders or re-appointment by the Board. |
(g) |
Subject to Article 78(b), a Director may be removed from office by Ordinary Resolution of the Company, notwithstanding anything in these Articles or in any agreement between the Company and such Director (but without prejudice to any claim for damages under such agreement). A vacancy on the Board created by the removal of a Director under the previous sentence may be filled by Ordinary Resolution or by the affirmative vote of a simple majority of the remaining Directors present and voting at a Board meeting. |
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(h) |
The Board may, from time to time, and except as required by applicable law or Exchange Rules, adopt, institute, amend, modify or revoke the corporate governance policies or initiatives of the Company and determine on various corporate governance related matters of the Company as the Board shall determine by resolution of Directors from time to time. |
79. |
The remuneration of the Directors shall from time to time be determined by the Directors or by the Company in general meeting. The Directors shall also be entitled to be paid their travelling, hotel and other expenses properly incurred by them in going to, attending and returning from meetings of the Directors, or any committee of the Directors, or general meetings of the Company, or otherwise in connection with the business of the Company, or to receive a fixed allowance in respect thereof as may be determined by the Directors from time to time, or a combination partly of one such method and partly the other. |
80. |
No shareholding qualification shall be required for Directors. |
81. |
Any Director may in writing appoint another person to be his alternate to act in his place at any meeting of the Directors at which he is unable to be present. Every such alternate shall be entitled to notice of meetings of the Directors and to attend and vote thereat as a Director when the person appointing him is not personally present, and where he is a Director, to have a separate vote on behalf of the Director he is representing in addition to his own vote. A Director may at any time, in writing, revoke the appointment of an alternate appointed by him and such appointment shall be revoked automatically if the appointor of the alternate ceases to be a Director at any time. Every such alternate shall not be deemed to be the agent of the Director appointing him. The remuneration of such alternate shall be payable out of the remuneration of the Director appointing him and the proportion thereof shall be agreed between them. |
82. |
Any Director may appoint any person, whether or not a Director, to be the proxy of that Director to attend and vote on his behalf, in accordance with instructions given by that Director, or in the absence of such instructions at the discretion of the proxy, at a meeting or meetings of the Directors which that Director is unable to attend personally. The instrument appointing the proxy shall be in writing under the hand of the appointing Director and shall be in any usual or common form or such other form as the Directors may approve, and must be lodged with the chairman of the meeting of the Directors at which such proxy is to be used, or first used, prior to the commencement of the meeting. |
83. |
The Directors may by resolution, appoint any natural person or corporation, whether or not a Director to hold such office in the Company as the Directors may think necessary for the administration of the Company, including but not limited to, chief executive officer, one or more other executive officers, president, one or more vice-presidents, treasurer, assistant treasurer, manager or controller, and for upon such terms as to duration of office, remuneration, powers and duties and otherwise as they may think fit. Subject to these Articles (including but not limited to 78(a) and (b)), any natural person or corporation so appointed by the Directors may be removed by the Directors. The Directors may also appoint one or more of their number to the office of managing director upon like terms, but any such appointment shall ipso facto terminate if any managing director ceases for any cause to be a Director, or if the Company by Ordinary Resolution resolves that his tenure of office be terminated. |
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84. |
The Directors may also by resolution appoint a Secretary and such other officers as may from time to time be required upon such terms as to duration of office, remuneration, powers and duties and otherwise as they may think fit. Such Secretary or other officers need not be Directors and in the case of the other officers may be ascribed such titles as the Directors may decide. Any Secretary or assistant Secretary so appointed by the Directors may be removed by the Directors or by Ordinary Resolution. |
POWERS AND DUTIES OF DIRECTORS
85. |
The business of the Company shall be managed by the Directors, who may pay all expenses incurred in setting up and registering the Company and may exercise all such powers of the Company as are not, by the Law or these Articles, required to be exercised by the Company in general meeting, subject, nevertheless, to any clause of these Articles, to the provisions of the Law, and to such regulations, being not inconsistent with the aforesaid clauses or provisions, as may be prescribed by the Company in general meeting but no regulation made by the Company in general meeting shall invalidate any prior act of the Directors which would have been valid if that regulation had not been made. |
86. |
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, to issue debentures, debenture stock and other securities whenever money is borrowed or as security for any debt, liability or obligation of the Company or of any third party. |
87. | (a) | The Directors may from time to time and at any time by power of attorney appoint any company, firm or person or body of persons, whether nominated directly or indirectly by the Directors, to be the attorney or attorneys of the Company for such purposes 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 may contain such provisions for the protection and convenience of persons dealing with any such attorney as the Directors may think fit and may also authorise any such attorney to delegate all or any of the powers, authorities and discretions vested in him. |
(b) |
The Directors may delegate any of the powers exercisable by them to a Managing Director or any other person or persons acting individually or jointly as they may from time to time by resolution appoint upon such terms and conditions (including without limitation as to duration of office and remuneration) and with such restrictions as they may think fit, and may from time to time by resolution revoke, withdraw, alter or vary all or any such powers. |
(c) |
All cheques promissory notes, drafts, bills of exchange and other negotiable instruments, and all receipts for moneys 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 from time to time by resolution determine. |
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88. |
The Directors shall cause minutes to be prepared: |
(a) |
of all appointments of officers made by the Directors; |
(b) |
of the names of the Directors present at each meeting of the Directors and of any committee of the Directors; |
(c) |
of all resolutions and proceedings at all meetings of the Members of the Company and of the Directors and of committees of Directors; and the chairman of all such meetings or of any meeting confirming the minutes thereof shall sign the same. |
DISQUALIFICATION AND CHANGES OF DIRECTORS
89. |
The office of Director shall be vacated if the Director:- |
(a) |
dies, or becomes bankrupt or makes any arrangement or composition with his creditors; |
(b) |
is found to be or becomes of unsound mind; |
(c) |
resigns his office by notice in writing to the Company; |
(d) |
without special leave of absence from the board, is absent from three consecutive board meetings and the Directors resolve that his office be vacated; or |
(e) |
is removed from office pursuant to any other provision of these Articles. |
90. |
For so long as the shares are listed on an Exchange, the Directors shall include such number of Independent Directors as applicable law, rules or regulations or the Exchange Rules require, unless the Directors resolve to follow any available exceptions or exemptions. |
91. |
Any casual vacancy occurring in the Board of Directors may be filled by the Directors. |
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PROCEEDINGS OF DIRECTORS
92. |
The Directors may meet together (either within or without the Cayman Islands) for the dispatch of business, adjourn, and otherwise regulate their meetings and proceedings, as they think fit. Questions arising at any meeting shall be decided by a majority of votes. At any meeting of the Directors, each Director present in person or represented by his proxy or alternate shall be entitled to one vote. In case of an equality of votes, the chairman of the meeting shall be entitled to a second or casting vote. |
93. |
A Director or alternate Director may, and the Secretary on the requisition of a Director or alternate Director shall, at any time, summon a meeting of Directors by at least five days notice in writing to every Director and alternate Director which notice shall set forth the general nature of the business to be considered PROVIDED HOWEVER that notice may be waived by all the Directors (or their alternates) either at, before or after the meeting is held PROVIDED FURTHER that notice or waiver thereof may be given by telex or telefax. |
94. |
A Director may participate in any meeting of the Directors, or of any committee appointed by the Directors of which such Director is a member, by means of telephone or similar communication equipment by way of which all persons participating in such meeting can communicate with each other and such participation shall be deemed to constitute presence in person at the meeting. |
95. |
The quorum necessary for the transaction of the business of the Board may be fixed by the Directors, and unless so fixed, the quorum shall be a majority of Directors then in office. For the purpose of this Article, an alternate appointed by a Director shall be counted in a quorum at a meeting at which the Director appointing him is not present. |
96. |
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 the Articles of the Company as the necessary quorum of Directors, the continuing Directors 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. |
97. |
A Director who is in any way, whether directly or indirectly, interested in a contract or proposed contract or arrangement with the Company shall declare the nature of his interest at a meeting of the Directors. A general notice given to the Directors by any Director to the effect that he is a member of any specified company or firm and is to be regarded as interested in any contract or transaction which may thereafter be made with that company or firm shall be deemed a sufficient declaration of interest in regard to any contract so made or transaction so consummated. A Director may vote in respect of 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 the 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. |
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98. |
Any Director or officer may act by himself or his firm in a professional capacity for the Company, and he or his firm shall be entitled to remuneration for professional services as if he were not a Director or officer PROVIDED THAT nothing herein contained shall authorise a Director or officer or his firm to act as Auditor of the Company. |
99. |
No person shall be disqualified from the office of Director or alternate 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 or alternate Director shall be in any way interested be or be liable to be avoided, nor shall any Director or alternate Director so contracting or being so interested be liable to account to the Company for any profit realised by any such contract or transaction by reason of such Director or alternate Director holding office or of the fiduciary relation thereby established. A Director (or his alternate Director in his absence) shall be at liberty to vote in respect of any contract or transaction in which he is so interested as aforesaid PROVIDED HOWEVER that the nature of the interest of any Director or alternate Director in any such contract or transaction shall be disclosed by him or the alternate Director appointed by him at or prior to its consideration and any vote thereon and a general notice that a Director or alternate Director is a shareholder of any specified firm or company and/or is to be regarded as interested in any transaction with such firm or company shall be sufficient disclosure hereunder and after such general notice it shall not be necessary to give special notice relating to any particular transaction. |
100. |
The Directors may delegate any of their powers to committees consisting of such member or members of their body as they think fit; any committee so formed shall, in the exercise of the powers so delegated, conform to any regulations that may be imposed on it by the Directors. |
101. |
The Directors may, from time to time, and except as required by applicable law or the listing rules of the Exchange, adopt, institute, amend, modify or revoke the corporate governance policies or initiatives, which shall be intended to set forth the policies of the Company and the Directors on various corporate governance related matters as the Directors shall determine by resolution from time to time. |
A committee may elect a chairman of its meetings; if no such chairman is elected, or if at any meeting the chairman is not present within five minutes after the time appointed for holding the same, the members present may choose one of their number to be chairman of the meeting.
102. |
A committee may meet and adjourn as it thinks proper. Questions arising at any meeting shall be determined by a majority of votes of the members present and in case of an equality of votes the chairman shall not have a second or casting vote. |
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103. |
All acts done by any meeting of the Directors or of a committee of Directors, or by any person acting as a Director shall, notwithstanding that it be afterwards discovered that there was some defect in the appointment of any such Director or person acting as aforesaid, or that they or any of them were disqualified, be as valid as if every such person had been duly appointed and was qualified to be a Director. |
104. |
Upon the Directors (being in number at least a quorum) signing the minutes of a meeting of the Directors the same shall be deemed to have been duly held notwithstanding that the Directors have not actually come together or that there may have been a technical defect in the proceedings. A resolution signed by all such Directors, including a resolution signed in counterpart by the Directors or by way of signed telefax transmission, shall be as valid and effectual as if it had been passed at a meeting of the Directors duly called and constituted. To the extent permitted by law, the Directors may also meet by telephone conference call where all Directors are capable of speaking to and hearing the other Directors at the same time. |
SEALS AND DEEDS
105. | (a) | If the Directors determine that the Company shall have a common Seal, the Directors shall provide for the safe custody of the common Seal and the common Seal of the Company shall not be affixed to any instrument except by the authority of a resolution of the Directors, and in the presence of a Director and of the Secretary or, in place of the Secretary, by such other person as the Directors may appoint for the purpose; and that Director and the Secretary or other person as aforesaid shall sign every instrument to which the common Seal of the Company is so affixed in their presence. Notwithstanding the provisions hereof, annual returns and notices filed under the Law may be executed either as a deed in accordance with the Law or by the common Seal being affixed thereto in either case without the authority of a resolution of the Directors by one Director or the Secretary. |
(b) |
The Company may maintain a facsimile of any common Seal in such countries or places as the Directors shall appoint and such facsimile Seal shall not be affixed to any instrument except by the authority of the Directors and in the presence of such person or persons as the Directors shall for this purpose appoint and such person or persons as aforesaid shall sign every instrument to which the facsimile Seal of the Company is so affixed in their presence and such affixing of the facsimile Seal and signing as aforesaid shall have the same meaning and effect as if the common Seal had been affixed in the presence of and the instrument signed by a Director and the Secretary or such other person as the Directors may appoint for the purpose. |
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(c) |
In accordance with the Law, the Company may execute any deed or other instrument which would otherwise be required to be executed under Seal by the signature of such deed or instrument as a deed by two Directors of the Company or where there is a Sole Director of the Company, by such Sole Director, or by a Director and the Secretary of the Company or, in place of the Secretary, by such other person as the Directors may appoint or by any other person or attorney on behalf of the Company appointed by a deed or other instrument executed as a deed by two Directors of the Company, or a Sole Director or by a Director and the Secretary or such other person as aforesaid. |
DIVIDENDS AND RESERVE
106. |
The Company may by Ordinary Resolution declare dividends, but no dividend shall exceed the amount recommended by the Directors. |
107. |
The Directors may from time to time pay to the Members interim dividends. |
108. |
No dividend shall be paid otherwise than out of profits or out of monies otherwise available for dividend in accordance with the Law. |
109. |
Subject to the rights of persons, if any, entitled to Shares with special rights as to dividends, all dividends on any class of Shares not fully paid shall be declared and paid according to the amounts paid on the Shares of that class, but if and so long as nothing is paid up on any of the Shares in the Company, dividends may be declared and paid according to the number of Shares. No amount paid on a Share in advance of calls shall, while carrying interest, be treated for the purposes of this Article as paid on the Share. |
110. |
The Directors may, before recommending any dividend, set aside out of the profits of the Company such sums as they think proper as a reserve or reserves which shall, at the discretion of the Directors, be applicable for meeting contingencies, or for equalising dividends, or for any other purpose to which the profits of the Company may be properly applied, and pending such application may, at their like discretion, either be employed in the business of the Company or be invested in such investments as the Directors may from time to time think fit. |
111. |
If several persons are registered as joint holders of any Share, any of them may give effectual receipts for any dividend or other monies payable on or in respect of the Share. |
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112. |
Any dividend payable in cash to the holder of Shares may be paid in any manner determined by the Directors. Any dividend may be paid by cheque or warrant sent through the post to the registered address of the Member or person entitled thereto or in the case of joint holders to any one of such joint holders at his registered address or to such person at such address as the Member or person entitled or such joint holders, as the case may be, may direct. Every such cheque or warrant shall be made payable to the order of the person to whom it is sent or to the order of such other person as the Member or person entitled or such joint holders, as the case may be, may direct. |
113. |
The Directors may declare that any dividend is paid wholly or partly by the distribution of specific assets and in particular of paid-up shares, debentures or debenture stock of any other company or in any one or more of such ways, and the Directors shall give effect to such resolution, and where any difficulty arises with regard to such distribution, the Directors may settle the same as they, think expedient, and in particular may issue fractional certificates 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 footing of the value so fixed in order to adjust the rights of all parties, and may vest any such specific assets in trustees as may seem expedient to the Directors. |
114. |
No dividend shall bear interest against the Company. |
115. |
Any dividend unclaimed after a period of six calendar years from the date of declaration of such dividend may be forfeited by the Board of Directors and, if so forfeited, shall revert to the Company. |
CAPITALISATION OF PROFITS
116. |
The Company may upon the recommendation of the Directors by Ordinary Resolution authorise the Directors to 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 the profit and loss account or otherwise available for distribution and to appropriate such sums 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 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 action and things required to give effect to such capitalisation, with full power to the Directors to make such provision as they think fit for the case of Shares becoming distributable in fractions (including provision 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 the Members interested into an agreement with the Company providing for such capitalisation and matters incidental thereto and any agreement made under such authority shall be effective and binding on all concerned. |
ACCOUNTS
117. |
The books of account relating to the Companys affairs shall be kept in such manner as may be determined from time to time by Ordinary Resolution or failing such determination by the Directors of the Company. |
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118. |
The Company may by Ordinary Resolution from time to time determine or, failing such determination, the Directors may from time to time determine that Auditors shall be appointed and that the accounts relating to the Companys affairs shall be audited in such manner as the Company by Ordinary Resolution or the Directors (as the case may be) shall determine PROVIDED THAT nothing contained in this Article shall require Auditors to be appointed or the accounts relating to the Companys affairs to be audited. The appointment of and provisions relating to Auditors shall be in accordance with applicable law and the relevant code, rules and regulations applicable to the listing of the Shares on the Exchange. |
VOLUNTARY LIQUIDATION
119. |
Subject to the Law, the Company may by Special Resolution be wound up voluntarily. |
WINDING UP
120. |
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 Law, divide amongst the Members in specie or 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 such purpose set such value as he deems fair upon any property to be divided as aforesaid and may determine how such 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 contributors as the liquidator, with the like sanction, shall think fit, but so that no Member shall be compelled to accept any Shares or other securities upon which there is any liability. This Article is to be without prejudice to the rights of the holders of Shares issued upon special terms and conditions. |
121. |
If the Company shall be wound up and the assets available for distribution amongst the Members as such shall be insufficient to repay the whole of the paid up capital, such assets shall be distributed so that, as nearly as may be, the losses shall be borne by the Members in proportion to the capital paid up, or which ought to have been paid up, at the commencement of the winding up, on the Shares held by them respectively. And if in a winding up the assets available for distribution amongst the Members shall be more than sufficient to repay the whole of the capital paid up at the commencement of the winding up, the excess shall be distributed amongst the Members in proportion to the capital paid up at the commencement of the winding up on the Shares held by them respectively. This Article is to be without prejudice to the rights of the holders of Shares issued upon special terms and conditions. |
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NOTICES
122. | (a) | A notice may be given by the Company to any Member either personally or by sending it by post, telex or telefax to him to his registered address, or (if he has no registered address) to the address, if any, supplied by him to the Company for the giving of notices to him. |
(b) |
Where a notice is sent by post, service of the notice shall be deemed to be effected by properly addressing, prepaying, and posting a letter containing the notice (by airmail if the address is outside the Cayman Islands) and to have been effected, in the case of a notice of a meeting at the expiration of three days after the time at which the letter would be delivered in the ordinary course of post. |
(c) |
Where a notice is sent by telex or telefax, service of the notice shall be deemed to be effected by properly addressing and sending such notice through the appropriate transmitting medium and to have been effected on the day the same is sent. |
123. |
If a Member has no registered address and has not supplied to the Company an address for the giving of notice to him, a notice addressed to him and advertised in a newspaper circulating in the Cayman Islands shall be deemed to be duly given to him at noon on the day following the day on which the newspaper is circulated and the advertisement appeared therein. |
124. |
A notice may be given by the Company to the joint holders of a Share by giving the notice to the joint holder named first in the Register of Members in respect of the Share. |
125. |
A notice may be given by the Company to the person entitled to a Share in consequence of the death or bankruptcy of a Member by sending it through the post in a prepaid letter 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, if any supplied for the purpose by the persons claiming to be so entitled or (until such an address has been so supplied) by giving the notice in any manner in which the same might have been given if the death or bankruptcy had not occurred. |
126. |
Notice of every general meeting shall be given in the same manner hereinbefore authorised to: |
(a) |
every Member entitled to vote, except those Members entitled to vote who (having no registered address) have not supplied to the Company an address for the giving of notices to them; and |
(b) |
every person entitled to a Share in consequence of the death or bankruptcy of a Member, who, but for his death or bankruptcy would be entitled to receive notice of the meeting. |
No other persons shall be entitled to receive notices of general meetings.
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RECORD DATE
127. |
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 and, for the purpose of determining the Members entitled to receive payment of any dividend, the Directors may, at or within 90 days prior to the date of the declaration of such dividend, fix a subsequent date as the record date for such determination. |
AMENDMENT OF MEMORANDUM AND ARTICLES
128. |
Subject to and insofar as permitted by the provisions of the Law, the Company may from time to time by Special Resolution alter or amend its Memorandum of Association or these Articles in whole or in part provided however that no such amendment shall effect the rights attaching to any class of shares without the consent or sanction provided for in Article 3(b). |
ORGANISATION EXPENSES
129. |
The preliminary and organisation expenses incurred in forming the Company shall be paid by the Company and may be amortised in such manner and over such period of time and at such rate as the Directors shall determine and the amount so paid shall in the accounts of the Company, be charged against income and/or capital. |
OFFICES OF THE COMPANY
130. |
Subject to the provisions of the Statute, the Company may by resolution of the Directors change the location of its Registered Office. The Company, in addition to its Registered Office, may establish and maintain an office in the Cayman Islands or elsewhere as the Directors may from time to time determine. |
INFORMATION
131. |
Subject to the relevant laws, rules and regulations applicable to the Company, no Member shall be entitled to require discovery of any information in respect of any detail of the Companys trading or any information which is or may be in the nature of a trade secret or secret process which may relate to the conduct of the business of the Company and which in the opinion of the Board would not be in the interests of the Members of the Company to communicate to the public. |
132. |
Subject to due compliance with the relevant laws, rules and regulations applicable to the Company, the Board shall be entitled to release or disclose any information in its possession, custody or control regarding the Company or its affairs to any of its Members including, without limitation, information contained in the Register and transfer books of the Company. |
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FINANCIAL YEAR
133. |
Unless the Directors otherwise prescribe, the financial year of the Company shall end on December 31st in each calendar year and shall begin on January 1st in each calendar year. |
INDEMNITY
134. |
Every Director and officer for the time being of the Company or any trustee for the time being acting in relation to the affairs of the Company and their respective heirs, executors, administrators, personal representatives or successors or assigns shall, in the absence of dishonesty or fraud, be indemnified by the Company against, and it shall be the duty of the Directors out of the funds and other assets of the Company to pay, all costs, losses, damages and expenses, including travelling expenses, which any such Director, officer or trustee may incur or become liable in respect of by reason of any contract entered into, or act or thing done by him as such Director, officer or trustee or in any way in or about the execution of his duties and the amount for which such indemnity is provided shall immediately attach as a lien on the property of the Company and have priority as between the Members over all other claims. No such Director, officer or trustee shall be liable or answerable for the acts, receipts, neglects or defaults of any other Director, officer or trustee or for joining in any receipt or other act for conformity or for any loss or expense happening to the Company through the insufficiency or deficiency of any security in or upon which any of the monies of the Company shall be invested or for any loss of the monies of the Company which shall be invested or for any loss or damage arising from the bankruptcy, insolvency or tortious act of any person with whom any monies, securities or effects shall be deposited, or for any other loss, damage or misfortune whatsoever which shall happen in or about the execution of the duties of his respective office or trust or in relation thereto unless the same happens through his own dishonesty or fraud. |
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FORUM SELECTION
135. |
Save for any proceedings, actions, claims or complaints however so called, which rely on the provisions of the Securities Act or the U.S. Securities Exchange Act of 1934 (as amended or superseded from time to time), and, in relation to which, such cause of action can only be determined by the courts within the United States of America (US Actions), the courts of the Cayman Islands shall have exclusive jurisdiction to hear, settle and/or determine any dispute, controversy or claim (including any non-contractual dispute, controversy or claim) whether arising out of or in connection with these Articles or otherwise, including any question regarding their existence, validity, formation or termination, unless otherwise agreed by the Company, at its option, in writing. For the avoidance of doubt and without limiting the jurisdiction of the Cayman Courts to hear, settle and/or determine disputes related to the Company, the courts of the Cayman Islands shall be the sole and exclusive forum for (i) any derivative action or proceeding brought on behalf of the Company, (ii) any action asserting a claim of breach of a fiduciary duty owed by any Director, officer or other employee of the Company to the Company or the Companys Members, (iii) any action asserting a claim arising pursuant to any provision of the Law or these Articles including but not limited to any purchase or acquisition of Shares, security or guarantee provided in consideration thereof, or (iv) any action asserting a claim against the Company which if brought in the United States of America would be a claim arising under the internal affairs doctrine (as such concept is recognised under the laws of the United States of America from time to time). The federal courts of the United States of America shall have exclusive jurisdiction to hear, settle and/or determine any dispute, controversy or claim in relation to any US Actions, unless otherwise agreed by the Company in writing. Without prejudice to the foregoing, if any part of this Article is held to be illegal, invalid or unenforceable under applicable law, the illegal, invalid or unenforceable portion of this Article shall not affect or impair the legality, validity or enforceability of the rest of the Articles and this Article shall be interpreted and construed to the maximum extent possible to apply in the relevant jurisdiction with whatever modification or deletion may be necessary so as best to give effect to the intention of the Company. Any person or entity purchasing or otherwise acquiring any share in or of the Company or other security of the Company whether by transfer, sale, operation of law or otherwise, shall be deemed to have notice of and have irrevocably agreed and consented to the provisions of this Article. |
TRANSFER BY WAY OF CONTINUATION
136. |
The Company shall, subject to the provisions of the Statute and, with the approval of a Special Resolution, have the power to register by way of continuation as a body corporate under the laws of any jurisdiction outside the Cayman Islands and the Directors may cause an application to be made to the Registrar of Companies to deregister the Company. |
DISCLOSURE
137. |
The Directors, or any service providers (including the officers, the Secretary and the registered office agent of the Company) specifically authorised by the Directors, shall be entitled to disclose to any regulatory or judicial authority or to any stock exchange on which securities of the Company may from time to time be listed any information regarding the affairs of the Company including without limitation information contained in the Register and books of the Company. |
38
Exhibit 4.1
SHARE CERTIFICATE
Number CA O [ ] |
Shares [ ] |
XPeng Inc.
THIS SHARE CERTIFICATE CERTIFIES THAT as of [DATE], [ ] of [ ] is the registered holder of [ ] fully paid Class A Ordinary Shares of US$0.00001 par value per share in the above named Company which are held subject to, and transferable in accordance with, the Memorandum and Articles of Association of the Company (as Revised).
In Witness Whereof the Company has authorised this certificate to be issued on [ ].
By |
|
|
Director |
SHARE CERTIFICATE
Number CB O [ ] |
Shares [ ] |
XPeng Inc.
THIS SHARE CERTIFICATE CERTIFIES THAT as of [ ], [ ] of [ ] is the registered holder of [ ] fully paid Class B Ordinary Shares of US$0.00001 par value per share in the above named Company which are held subject to, and transferable in accordance with, the Memorandum and Articles of Association of the Company (as Revised).
In Witness Whereof the Company has authorised this certificate to be issued on [ ].
By |
|
|
Director |
SHARE CERTIFICATE
Number CC O [ ] |
Shares [ ] |
XPeng Inc.
THIS SHARE CERTIFICATE CERTIFIES THAT as of [DATE], [ ] of [ ] is the registered holder of [ ] fully paid Class C Ordinary Shares of US$0.00001 par value per share in the above named Company which are held subject to, and transferable in accordance with, the Memorandum and Articles of Association of the Company (as Revised).
In Witness Whereof the Company has authorised this certificate to be issued on [ ].
By |
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Director |
Exhibit 4.6
REGISTRATION RIGHTS AGREEMENT
by and among
XPENG INC.
and
THE SHAREHOLDERS
(as defined herein)
Dated as of August 20, 2020
CONTENTS
Clause |
Page | |||
SECTION 1 DEFINITIONS AND INTERPRETATION |
1 | |||
SECTION 2 REQUIRED REGISTRATION |
5 | |||
SECTION 3 PIGGYBACK REGISTRATIONS |
7 | |||
SECTION 4 FORM F-3 REGISTRATION |
8 | |||
SECTION 5 REGISTRATION PROCEDURES |
8 | |||
SECTION 6 EXPENSES |
11 | |||
SECTION 7 INDEMNIFICATION |
11 | |||
SECTION 8 ASSIGNMENT OF REGISTRATION RIGHTS |
14 | |||
SECTION 9 MARKET STAND-OFF AGREEMENT |
15 | |||
SECTION 10 CHANGES IN ORDINARY SHARES |
15 | |||
SECTION 11 OTHER REGISTRATION RIGHTS |
15 | |||
SECTION 12 REPRESENTATIONS AND WARRANTIES OF THE COMPANY |
16 | |||
SECTION 13 RULE 144 REPORTING |
16 | |||
SECTION 14 MISCELLANEOUS |
17 |
- i -
REGISTRATION RIGHTS AGREEMENT
This REGISTRATION RIGHTS AGREEMENT (this Agreement), dated as of August 20, 2020, is made and entered into by and among:
(1) |
XPENG INC., a Cayman Islands exempted company with its registered office at the offices of Harneys Fiduciary (Cayman) Limited, 4th Floor, Harbour Place, 103 South Church Street, P.O. Box 10240, Grand Cayman KYI-1002, the Cayman Islands (the Company); |
(2) |
each of the holders of Shares (as defined below) listed on Schedule A attached hereto (herein referred to individually as a Shareholder and collectively, as the Shareholders) |
Each of the Company and the Shareholders shall be referred to individually as a Party and collectively as the Parties.
WHEREAS, the Shareholders entered into a Fourth Amended and Restated Shareholders Agreement with the Company on June 28, 2020, as supplemented on August 5, 2020 (the Shareholders Agreement);
NOW, THEREFORE, in consideration of the foregoing premises and of the mutual covenants and obligations hereinafter set forth, the Company hereby covenants and agrees with the other parties hereto as follows:
SECTION 1
DEFINITIONS AND INTERPRETATION
1.1 As used in this Agreement, and unless the context requires a different meaning, the following terms shall have the following respective meanings:
Affiliate means, with respect to any specified Person, any other Person who directly or indirectly Controls, is Controlled by, or is under common Control with such specified Person; provided that for purposes of this Agreement, none of the Group Companies shall be deemed to be an Affiliate of any Shareholder, and vice versa. With respect to any such Person who is a natural person, Affiliate of such Person shall also include such Persons Family Members and trusts for bona fide estate planning purpose. For the avoidance of doubt and notwithstanding the foregoing, for purposes of this Agreement, Ant Group Co., Ltd. (蚂蚁科技集团股份有限公司) (a company organized under the Laws of the PRC) and its Affiliates shall be deemed Affiliates of Alibaba.
Alibaba means Taobao China Holding Limited.
Applicable Securities Law means (a) with respect to any offering of securities in the United States of America, or any other act or omission within that jurisdiction, the securities laws of the United States, including the Exchange Act and the Securities Act, and any applicable law of any state of the United States of America, and (b) with respect to any offering of securities in any jurisdiction other than the United States of America, or any related act or omission in that jurisdiction, the applicable laws of that jurisdiction.
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Board shall mean the board of directors of the Company.
Commission shall mean the United States Securities and Exchange Commission or any successor agency.
Control means, as used with respect to any Person, the possession, directly or indirectly, of the power or authority, whether exercised or not, to direct or cause the direction of the business, management and policies of such Person, whether through the ownership of voting securities, as trustee, personal representative, executor, or by contract, credit arrangement or otherwise; provided that such power 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 a majority of the board of directors of such Person. The terms Controlled by and under common Control with shall have correlative meanings.
Domestic Company means Guangzhou Chengxing Zhidong Automobile Technology Co., Ltd. (广州橙行智动汽车科技有限公司), a limited liability company organized under the Laws of PRC with the unified social credit code 91440113327605503R.
Equity Securities means any Ordinary Share in the capital of the Company and any Ordinary Share Equivalents.
Exchange Act shall mean the United States Securities Exchange Act of 1934, as amended.
Family Member means, with respect to any Person, any child, grandchild, parent, grandparent, spouse, sibling, mother-in-law, father-in-law, brother-in-law, sister-in-law, daughter-in-law or son-in-law of such Person, and shall include adoptive relationships of the same type.
Group Companies means the Company and all Persons Controlled by the Company, collectively, and each is herein referred to individually as a Group Company. For the avoidance of doubt, WFOE and Domestic Company are included in the Group Companies.
Holders means the holders of Registrable Securities who are also Parties to this Agreement from time to time, and their permitted transferees that become Parties to this Agreement from time to time.
Ordinary Share Equivalents means warrants, options and rights exercisable for Ordinary Shares or securities convertible into or exchangeable for Ordinary Shares, including, without limitation, the Preferred Shares.
Ordinary Shares means any class or series of ordinary shares the Company may issue from time to time.
Preferred Shares shall mean the Series A Preferred Shares, Series A-1 Preferred Shares, Series A-2 Preferred Shares, Series B Preferred Shares, Series B-1 Preferred Shares, Series B-2 Preferred Shares, and Series C Preferred Shares, or any of them as the context permits.
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Qualified Public Offering means the Qualified Public Offering as defined in the Shareholders Agreement.
Registration means a registration effected by preparing and filing a Registration Statement and the declaration or ordering of the effectiveness of that Registration Statement, and the terms Register and Registered have meanings correlative with the foregoing.
Requesting Holders shall have the meaning ascribed to in Section 2.1 of this Agreement.
Registration Expenses shall mean expenses so described in Section 6 hereof.
Registrable Shares or Registrable Securities shall mean (i) any and all Ordinary Shares issuable or issued upon conversion of the Preferred Shares (the Conversion Shares) and (ii) any and all Ordinary Shares issued or issuable with respect to such Preferred Shares or Conversion Shares by way of a share dividend or share split or in connection with a combination of shares, recapitalization, merger, conversion, consolidation or other reorganization.
Registration Statement means a registration statement prepared on Form F-1, F-3, S-1 or S-3 under the Securities Act (including, without limitation, Rule 415 under the Securities Act), or on any comparable form in connection with registration in a jurisdiction other than the United States.
Restated Articles means the Sixth Amended and Restated Memorandum and Articles of Association of the Company, as may be further amended, modified, supplemented or restated from time to time.
Securities Act shall mean the United States Securities Act of 1933, as amended.
Selling Expenses shall mean the underwriting discounts and commissions and share transfer taxes.
Series A Preferred Shares means the series A preferred shares with a par value of US$0.00001 per share in the share capital of the Company, with such rights and obligations as set out in this Agreement and the Restated Articles.
Series A-1 Preferred Shares means the series A-1 preferred shares with a par value of US$0.00001 per share in the share capital of the Company, with such rights and obligations as set out in this Agreement and the Restated Articles.
Series A-2 Preferred Shares means the series A-2 preferred shares with a par value of US$0.00001 per share in the share capital of the Company, with such rights and obligations as set out in this Agreement and the Restated Articles.
Series B Preferred Shares means the series B preferred shares with a par value of US$0.00001 per share in the share capital of the Company, with such rights and obligations as set out in this Agreement and the Restated Articles.
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Series B-1 Preferred Shares means the series B-1 preferred shares with a par value of US$0.00001 per share in the share capital of the Company, with such rights and obligations as set out in this Agreement and the Restated Articles.
Series B-2 Preferred Shares means the series B-2 preferred shares with a par value of US$0.00001 per share in the share capital of the Company, with such rights and obligations as set out in this Agreement and the Restated Articles.
Series C Preferred Shares means the series C preferred shares with a par value of US$0.00001 per share in the share capital of the Company, with such rights and obligations as set out in this Agreement and the Restated Articles.
Transfer has the meaning set forth in the shareholders agreement entered into between the Company and the Shareholders on the date hereof.
Underwritten Public Offering shall mean a firm underwritten public offering of the Ordinary Shares in the United States that has been registered under the Securities Act, or a similar public offering of the Ordinary Shares in another jurisdiction, which results in the Ordinary Shares trading publicly on a recognized regional or national securities exchange.
WFOE means Guangdong Xiaopeng Motors Technology Co., Ltd. (广东小鹏汽车科技有限公司), a limited liability company organized under the Laws of PRC with the unified social credit code 91440101MA5CTGH317.
1.2 All references herein to Forms or Rules refer to the relevant Form or Rule, as the case may be, promulgated by the Commission.
1.3 Jurisdiction.
The terms of this Agreement are drafted primarily in contemplation of an offering of securities in the United States of America. The parties hereto recognize, however, the possibility that securities may be qualified or registered in a jurisdiction other than the United States of America for offering to the public or that the Company might effect an offering in the United States of America in the form of American Depositary Shares. Accordingly:
(a) It is their intention that, whenever this Agreement refers to a law, form, process or institution of the United States of America but the parties hereto wish to effectuate qualification or registration in a different jurisdiction, reference in this Agreement to the laws or institutions of the United States shall be read as referring, mutatis mutandis, to the comparable laws or institutions of the jurisdiction in question; and
(b) It is agreed that the Company will not undertake any listing of American Depositary Shares or any other security derivative of the Companys Ordinary Shares unless arrangements have been made reasonably satisfactory to a majority in interest of the Holders of then outstanding Registrable Securities to ensure that the spirit and intent of this Agreement will be realized and that the Company is committed to take such actions as are necessary such that the Holders will enjoy rights corresponding to the rights hereunder to sell their Registrable Securities in a public offering in the United States of America as if the Company had listed Ordinary Shares in lieu of such derivative securities.
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SECTION 2
REQUIRED REGISTRATION
2.1 At any time beginning after six (6) months following the completion of the Qualified Public Offering of the Company, Holders holding twenty-five percent (25%) or more of the Registrable Shares (each an Initial Requesting Holder) may, by written notice, request that the Company register under the Securities Act all or any portion of the Registrable Shares held by such Initial Requesting Holders for sale in the manner specified in such notice; provided that the reasonably anticipated aggregate offering price to the public of such Registrable Shares is no less than $5,000,000; and provided, however, that the Company shall not be obligated to register Registrable Shares pursuant to such request: (i) subject to Section 3.1 below, during the period beginning thirty (30) days prior to the Companys good faith estimate of the date of the filing, and ending on a date ninety (90) days following the effective date, of a registration statement filed by the Company relating to an Underwritten Public Offering of the Companys equity capital (other than a registration statement for the Companys equity capital which does not give rise to incidental registration rights pursuant to Section 3.1 below), provided that the Company is actively employing in good faith its best efforts to cause such registration statement to become effective; (ii) the Company then meets the eligibility requirements applicable to use the Form F-3 or Form S-3 in connection with such registration and is able to effect such requested registration pursuant to Section 4 hereof; or (iii) if external U.S. counsel to the Company of reputable standing opines to the Initial Requesting Holders within fifteen (15) days of the relevant request that the filing of such a registration statement would require the disclosure of material non-public information about the Company that the Company is not otherwise required to disclose, the disclosure of which could have a material adverse effect on the business or financial condition of the Company, in which event no such registration statement need be filed until the earlier of the lapse of sixty (60) days from the issuance of the opinion of counsel or such time as the information is no longer required to be disclosed, is not material or non-public, or its disclosure would not have a material adverse effect on the business or financial condition of the Company; provided, however, that the Company may not exercise its right under this clause more than twice in any twelve-month-period; and provided further that the Company shall not register any Equity Securities for the account of itself or any other stockholder during such period. Notwithstanding anything to the contrary contained herein, no request may be made under this Section 2 within one hundred eighty (180) days after the effective date of a registration statement filed by the Company covering an Underwritten Public Offering in which the holders of Registrable Shares shall have been entitled to join pursuant to this Section 2.1 or Section 3 hereof and in which they shall have effectively registered all Registrable Shares as to which registration shall have been so requested.
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2.2 Promptly following receipt of any notice under Section 2.1, the Company shall immediately notify all other holders of Registrable Shares from whom notice has not been received and shall file and use its best efforts to have declared effective a registration statement under the Securities Act for the public sale, in accordance with the method of disposition specified in such notice from the Initial Requesting Holders, of the number of Registrable Shares specified in such notice (and in any notices received from other holders of Registrable Shares within twenty (20) days after the date of such notice from the Company) (each a Requesting Holder). If such method of disposition shall be an Underwritten Public Offering, the Company may designate the managing underwriter of such Underwritten Public Offering, subject to the approval of the Requesting Holders, which approval shall not be unreasonably withheld or delayed. The number of Registrable Shares to be included in such an underwriting may be reduced (pro rata among all Requesting Holders, under this Section 2, to participate in such registration) if and to the extent that the managing underwriter shall be of the opinion that such inclusion would adversely affect the marketing of the securities to be sold therein; provided, however, that the Company shall include in such underwriting, prior to the inclusion of any securities held by the management or by employees or directors of the Company (or any other securities that are not Registrable Shares), the number of Registrable Shares requested to be included which in the opinion of such managing underwriter will not adversely affect the marketing of the securities to be sold therein, pro rata among the respective holders thereof on the basis of the amount of Registrable Shares owned by each such holder. With respect to the preceding sentence, if the Company elects to reduce pro rata the amount of Registrable Shares proposed to be offered in the underwriting, for purposes of making any such reduction, each holder of Registrable Shares which is a partnership, together with the affiliates, partners, employees, retired partners and retired employees of such holder, the estates and family members of any such partners, employees, retired partners and retired employees and of their spouses, and any trusts for the benefit of any of the foregoing persons shall be deemed to be a single person, and any pro rata reduction with respect to such person shall be based upon the aggregate number of Registrable Shares owned by all entities and individuals included as such person, as defined in this sentence (and the aggregate number so allocated to such person shall be allocated among the entities and individuals included in such person in such manner as such holder of Registrable Shares may reasonably determine). The Company shall be obligated to register Registrable Shares pursuant to requests made under this Section 2 on only two occasions; provided, however, that as to each such occasion such obligation shall be deemed satisfied only when a registration statement covering at least fifty percent (50%) of the Registrable Shares specified in notices received as aforesaid, for sale in accordance with the method of disposition specified by the Initial Requesting Holders, shall have become effective and, if such method of disposition is an Underwritten Public Offering, all such Registrable Shares shall have been sold pursuant thereto. Inclusion of Registrable Shares held by any Requesting Holders in a registration statement pursuant to this Section 2.2 shall be counted towards the threshold for fulfillment of the Companys obligation to file registration statements under Section 2.
2.3 The Company shall be entitled to include in any registration statement referred to in this Section 2 for which the method of distribution is an Underwritten Public Offering, for sale in accordance with the method of disposition specified by the Initial Requesting Holders, Ordinary Shares to be sold by the Company for its own account, except as and to the extent that, in the opinion of the managing underwriter, such inclusion would adversely affect the marketing of the Registrable Shares to be sold. Except as set forth in this Section 2.3, no securities shall be included in any registration statement referred to in this Section 2 without the prior written consent of the Requesting Holders. Except with respect to registration statements on Form S-8, the Company will not file with the Commission any other registration statement with respect to its Ordinary Shares, whether for its own account or that of other shareholders, from the date of receipt of a notice from Initial Requesting Holders pursuant to this Section 2 until the completion of the period of distribution of the registration contemplated thereby.
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SECTION 3
PIGGYBACK REGISTRATIONS
3.1 Registration of the Companys Securities
Subject to the terms of this Agreement, if the Company proposes to register for its own account any of its Equity Securities, or for the account of any holder (other than a Holder) of Equity Securities any of such holders Equity Securities, in connection with the public offering of such securities (except as set forth in Section 3.4), the Company shall promptly give each Holder written notice of such registration and, upon the written request of any Holder given within fifteen (15) days after receipt of such notice, the Company shall use its reasonable best efforts to include in such registration any Registrable Securities thereby requested to be registered by such Holder. If a Holder decides not to include all or any of its Registrable Securities in such registration by the Company, such Holder shall nevertheless continue to have the right to include any Registrable Securities in any subsequent Registration Statement as may be filed by the Company, all upon the terms and conditions set forth herein.
3.2 Right to Terminate Registration
The Company shall have the right to terminate or withdraw any registration initiated by it under Section 3.1 prior to the effectiveness of such registration, whether or not any Holder has elected to participate therein. The expenses of such withdrawn registration shall be borne by the Company in accordance with Section 6.
3.3 Underwriting Requirements
(a) In connection with any Underwritten Public Offering involving the Companys Equity Securities solely for cash, the Company shall not be required to Register the Registrable Securities of a Holder under this Section 3 unless such Holders Registrable Securities are included in the underwriting and such Holder enters into an underwriting agreement in customary form with the underwriter or underwriters of internationally recognized standing selected by the Company. In the event the underwriters advise Holders seeking registration of Registrable Shares pursuant to this Section 3 in writing that the inclusion of all such Registrable Securities would adversely affect the Equity Securities to be underwritten, the underwriters may in the event the Underwritten Public Offering is the Companys initial public offering, exclude all of the Registrable Securities.
(b) If any Holder disapproves the terms of any underwriting, the Holder may elect to withdraw therefrom by written notice to the Company and the underwriters delivered at least ten (10) days prior to such Holders good faith estimate of the effective date of the Registration Statement. Any Registrable Securities excluded or withdrawn from the underwriting shall be withdrawn from the registration.
3.4 Exempt Transactions
The Company shall have no obligation to Register any Registrable Securities under this Section 3 in connection with a registration by the Company (i) relating solely to the sale of securities to participants in a Company employees share incentive plan, (ii) relating to a corporate reorganization or other transaction under Rule 145 of the Securities Act (or comparable provision under the laws of another jurisdiction, as applicable); (iii) 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 Shares; or (iv) relating to a registration in which the only Ordinary Shares being registered are Ordinary Shares issuable upon conversion of debt securities that are also being registered.
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SECTION 4
FORM F-3 REGISTRATION
If, at a time when Form S-3 or Form F-3 is available for registration, the Company shall receive from any holder of Registrable Shares a written request or requests that the Company effect a registration on Form S-3 or Form F-3 of any of such holders Registrable Shares, the Company will promptly give written notice of the proposed registration to all other holders of Registrable Shares and, as soon as practicable, effect such registration and all such related qualifications and compliances as may be requested and as would permit or facilitate the sale and distribution of all Registrable Shares as are specified in such request and any written requests of other holders of Registrable Shares given within twenty (20) days after receipt of such notice. The Company shall not be required to file a registration statement under Form S-3 or Form F-3 if it would not be required to file a registration statement under Section 2 hereof pursuant to clause (iii) of the first sentence of Section 2.1. The Company shall have no obligation to effect a registration under this Section 4 unless the aggregate offering price of the securities requested to be sold pursuant to such registration is, in the good faith judgment of the Board, expected to be equal to or greater than US$5,000,000. The Company shall not be obligated to effect more than two F-3 registrations consecutively in any twelve-month period. Any registration under this Section 4 will not be counted as a registration under Section 2 above.
SECTION 5
REGISTRATION PROCEDURES
5.1 If and whenever the Company is required by the provisions of Section 2, Section 3 or Section 4 hereof to effect the registration of any Registrable Shares under the Securities Act, the Company will, as expeditiously as possible:
(a) prepare and file with the Commission a Registration Statement with respect to such securities and use its best efforts to cause such registration statement to become and remain effective (provided that before filing a registration statement or any amendments or supplements thereto, the Company will furnish to the counsel selected by the holders of a majority of the Registrable Shares covered by such registration statement copies of all such documents and include any reasonable comments of such counsel in such document) for the period of the distribution contemplated thereby (determined as provided in Section 5.2);
(b) prepare and file with the Commission such amendments and supplements to such registration statement and the prospectus used in connection therewith as may be necessary to keep such registration statement effective for the period specified in Section 5.1(a) above and as to comply with the provisions of the Securities Act with respect to the disposition of all Registrable Shares covered by such registration statement in accordance with the sellers intended method of disposition set forth in such registration statement for such period;
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(c) furnish to each seller and to each underwriter such number of copies of the registration statement and the prospectus included therein (including each preliminary prospectus and any amendment or supplement thereto) and such other documents as such persons may reasonably request in order to facilitate the public sale or other disposition of the Registrable Shares covered by such registration statement;
(d) use its best efforts to register or qualify the Registrable Shares covered by such registration statement under the securities or blue sky laws of such jurisdictions as the sellers of Registrable Shares or, in the case of an Underwritten Public Offering, the managing underwriter shall reasonably request and do any and all other acts and things which are reasonably necessary or advisable to enable such seller to consummate the disposition in such jurisdictions of the Registrable Shares owned by such seller (provided that the Company will not be required to (i) qualify generally to do business in any jurisdiction where it would not otherwise be required to qualify but for this subsection or (ii) consent to general service of process (i.e., service of process which is not limited solely to securities law violations) in any such jurisdiction);
(e) immediately notify each seller under such registration statement and each underwriter, at any time when a prospectus relating thereto is required to be delivered under the Securities Act, of the happening of any event as a result of which the prospectus contained in such registration statement, as then in effect, includes an untrue statement of a material fact or omits to state any material fact required to be stated therein or necessary to make the statements therein not misleading in the light of the circumstances then existing and, at the request of any seller, the Company will promptly prepare a supplement or amendment to such registration statement so that, as thereafter delivered to the purchasers of such Registrable Shares, such registration statement will not contain an untrue statement of a material fact or omit to state any fact necessary to make the statements therein not misleading;
(f) use its best efforts to cause all such Registrable Shares to be listed on a recognized U.S. share exchange or traded on a U.S. inter-dealer quotation system and, if similar securities issued by the Company are already so listed, on each securities exchange or inter-dealer quotation system on which similar securities issued by the Company are then listed or traded;
(g) provide a transfer agent and registrar for all such Registrable Shares not later than the printing of any preliminary prospectus;
(h) assist any underwriter or seller participating in such registration and public offering in its marketing efforts with prospective investors by causing the Companys officers, directors and employees to participate in marketing efforts, including roadshow presentations in various major national and international centers, in connection with any public offering;
(i) otherwise use its best efforts to comply with all applicable rules and regulations of the Commission or any other applicable regulatory authority, and make available to its security holders, as soon as reasonably practicable, an earnings statement covering the period of at least twelve months beginning with the first day of the Companys first full calendar quarter after the effective date of the registration statement, which earnings statement shall satisfy the provisions of Section 11(a) of the Securities Act and Rule 158 promulgated thereunder;
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(j) in the event of the issuance of any stop order suspending the effectiveness of a registration statement, or of any order suspending or preventing the use of any related public offering document or suspending the qualification of any Registrable Securities included in such registration statement or public offering document for sale in any jurisdiction, the Company will use its best efforts promptly to obtain the withdrawal of such order and the Company shall notify holders of the Registrable Shares promptly and without any delay; and
(k) use its best efforts to cause such Registrable Shares covered by such registration statement to be registered with or approved by such other governmental agencies or authorities as would ordinarily be necessary to enable the sellers thereof to consummate the disposition of such Registrable Shares.
5.2 For purposes of Sections 5.1(a) and (b) above and of Section 2.3 hereof, the period of distribution of Registrable Shares in an Underwritten Public Offering shall be deemed to extend until each underwriter has completed the distribution of all securities purchased by it, and the period of distribution of Registrable Shares in any other registration shall be deemed to extend until the earlier of the sale of all Registrable Shares covered thereby or six months after the effective date thereof.
5.3 In connection with each registration hereunder, the selling holders of Registrable Shares will only be required to furnish to the Company such information with respect to themselves and the proposed distribution by them as shall be necessary in order to assure compliance with United States and applicable state securities laws.
5.4 In connection with each registration pursuant to Section 2 and Section 3 hereof covering an Underwritten Public Offering, the Company agrees to enter into such customary agreements (including underwriting agreements) as the managing underwriter selected in the manner herein provided may request in such form and containing such provisions as are customary in the securities business for such an arrangement between major underwriters and companies of the Companys size and investment stature, provided that such agreement shall not contain any such provision applicable to the Company which is inconsistent with the provisions hereof.
5.5 Any Holder and their permitted transferees, receiving any written notice from the Company regarding the Companys plans to file a registration statement shall treat such notice confidentially and shall not disclose such information to any person other than as necessary to exercise its rights under this Agreement; provided, however, that such Holder may disclose such notice in its reasonable discretion for the purpose of seeking additional insurance coverage for such Holders directors and officers and for purposes of fund reporting or inter-fund reporting or to its fund manager, other funds managed by its fund manager or their respective affiliates, advisers, consultants, auditors, directors, officers, employees, shareholders, investors or insurers.
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SECTION 6
EXPENSES
All expenses incurred in complying with Section 2, Section 3, Section 4 and Section 5 hereof, including, without limitation, all registration and filing fees, fees and expenses of compliance with securities and blue sky laws, fees and expenses in connection with any listing of the Ordinary Shares on a securities exchange or inter-dealer quotation system, printing expenses, fees and disbursements of counsel and independent public accountants for the Company and the fees and disbursements of the underwriters, fees of the United States Financial Industry Regulatory Authority (FINRA), transfer taxes, fees of transfer agents and registrars and costs of insurance and the reasonable fees and expenses of one counsel for the sellers of Registrable Shares, but excluding any Selling Expenses, are herein called Registration Expenses. The Company will pay all Registration Expenses in connection with each registration statement filed pursuant to Section 2, Section 3, Section 4 or Section 5 hereof, provided, however, that the Company shall not be required to pay for any expenses of any registration proceeding begun pursuant to Section 2 if the registration request is subsequently withdrawn at the request of the Holders of a majority of the Registrable Securities to be registered (in which case all selling Holders shall bear such expenses pro rata based upon the number of Registrable Securities that were to be included in the withdrawn registration), unless the Holders of a majority of the Registrable Securities agree to forfeit their right to one registration pursuant to Section 2; provided, further, that if at the time of such withdrawal, the Holders have learned of a material adverse change in the condition, business or prospects of the Company from that known to the Holders at the time of their request and have withdrawn the request with reasonable promptness following disclosure by the Company of such material adverse change, then the Holders shall not be required to pay any of such expenses. All Selling Expenses incurred in connection with any sale of Registrable Shares by any participating seller shall be borne by such participating seller, or by such persons other than the Company (except to the extent the Company shall be a seller) as they may agree.
SECTION 7
INDEMNIFICATION
7.1 In the event of a registration of any of the Registrable Shares under the Securities Act pursuant to Section 2, Section 3 or Section 4 hereof, the Company will indemnify and hold harmless each seller of such Registrable Shares thereunder and their respective officers, directors, shareholders, accountants and legal counsel and each other person, if any, who controls such seller within the meaning of the Securities Act, against any and all losses, claims, damages, expenses or liabilities, joint or several, to which such person may become subject under the Securities Act or otherwise, insofar as such losses, claims, damages or liabilities (or actions in respect thereof) arise out of or are based upon any untrue statement or alleged untrue statement of any material fact contained in any registration statement under which such Registrable Shares were registered under the Securities Act pursuant to Section 2, Section 3 or Section 4, any preliminary prospectus or final prospectus contained therein, any amendment or supplement thereof, or arise out of or are based upon the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, and will reimburse each such person for any legal or other expenses reasonably incurred by them in connection with investigating or defending any such loss, claim, damage, liability, expense or action; provided, however, that the Company will not be liable in any such case if and to the extent that any such loss, claim, damage or liability arises out of or is based upon an untrue statement or alleged untrue statement or omission or alleged omission so made in conformity with information furnished by such person in writing specifically for use in such registration statement or prospectus nor for amounts paid in settlement of any claim or proceeding if such settlement is effected without the consent of the Company, which consent shall not be unreasonably withheld.
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7.2 In the event of a registration of any of the Registrable Shares under the Securities Act pursuant to Section 2, Section 3 or Section 4 hereof, each seller of such Registrable Shares thereunder, severally and not jointly, will indemnify and hold harmless the Company, each director or officer of the Company who signs the registration statement, and each person, if any, who controls the Company within the meaning of the Securities Act, against all losses, claims, damages, expenses or liabilities, to which the Company or such director or officer or controlling person may become subject under the Securities Act or otherwise, insofar as such losses, claims, damages, expenses or liabilities (or actions in respect thereof) arise out of or are based upon any untrue statement or alleged untrue statement of any material fact contained in the registration statement under which such Registrable Shares was registered under the Securities Act pursuant to Section 2, Section 3 or Section 4, any preliminary prospectus or final prospectus contained therein, or any amendment or supplement thereof, or arise out of or are based upon the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, and will reimburse the Company and each such director, officer and controlling person for any legal or other expenses reasonably incurred by them in connection with investigating or defending any such loss, claim, damage, liability or action; provided, however, that such seller will be liable hereunder in any such case if and only to the extent that any such loss, claim, damage or liability arises out of or is based upon an untrue statement or alleged untrue statement or omission or alleged omission made in reliance upon and in conformity with information pertaining to such seller, as such, furnished in writing to the Company by such seller specifically for use in such registration statement or prospectus; provided, further, however, that the liability of each seller hereunder shall be limited to the proportion of any such loss, claim, damage, liability or expense which is equal to the proportion that the public offering price of the shares sold by such seller under such registration statement bears to the total public offering price of all securities sold thereunder, but not to exceed the proceeds received by such seller from the sale of Registrable Shares covered by such registration statement.
7.3 Promptly after receipt by an indemnified party hereunder of notice of the commencement of any action, such indemnified party shall, if a claim in respect thereof is to be made against the indemnifying party hereunder, notify the indemnifying party in writing thereof. In case any such action shall be brought against any indemnified party, the indemnified party shall notify the indemnifying party of the commencement thereof and the indemnifying party shall be entitled to participate in and, to the extent it shall wish, to assume and undertake the defense thereof with counsel reasonably satisfactory to such indemnified party. After notice from the indemnifying party to such indemnified party of its election to assume and undertake the defense thereof, the indemnifying party shall not be liable to such indemnified party under this Section 7 for any legal expenses subsequently incurred by such indemnified party in connection with the defense thereof other than reasonable costs of investigation and of liaison with counsel so selected; provided, however, that, if the indemnified party shall have reasonably concluded that there may be reasonable defenses available to it which are different from or additional to those available to the other party or parties thereto or if the interests of the indemnified party reasonably may be deemed to conflict with the interests of the other party or parties thereto, the indemnified party shall have the right to select a separate counsel and to assume such legal defenses and otherwise to participate in the defense of such action, with the expenses and fees of such separate counsel and other expenses related to such participation to be reimbursed by the indemnifying party as incurred. The failure to deliver written notice to the indemnifying party within a reasonable time of the commencement of any such action, if prejudicial to its ability to defend such action, shall relieve such indemnifying party, to the extent so prejudiced, of any liability to the indemnified party under this Section 7, but the omission to deliver written notice to the indemnifying party will not relieve it of any liability that it may have to any indemnified party other than under this Section 7.
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7.4 It is understood that the indemnifying party shall not, in connection with any action or related actions in the same jurisdiction, be liable for the fees and disbursements of more than one separate firm qualified in such jurisdiction to act as counsel for the indemnified party. The indemnifying party shall not (i) without the prior written consent of the indemnified parties (which consent shall not be unreasonably withheld), settle or compromise or consent to the entry of any judgment with respect to any pending or threatened claim, action, suit or proceeding in respect of which indemnification or contribution may be sought hereunder (whether or not the indemnified parties are actual or potential parties to such claim or action) unless such settlement, compromise or consent includes an unconditional release of each indemnified party from all liability arising out of such claim, action, suit or proceeding, or (ii) be liable for any settlement of any proceeding effected without its written consent (which consent shall not be unreasonably withheld), but if settled with such consent or if there be a final judgment for the plaintiff, the indemnifying party agrees to indemnify the indemnified party from and against any loss or liability by reason of such settlement or judgment. If the indemnification provided for in the first two paragraphs of this Section 7 is unavailable to or insufficient to hold harmless an indemnified party under such paragraphs in respect of any losses, claims, damages or liabilities or actions referred to therein, then each indemnifying party shall in lieu of indemnifying such indemnified party contribute to the amount paid or payable by such indemnified party as a result of such losses, claims, damages, liabilities or actions in such proportion as appropriate to reflect the relative fault of the Company, on the one hand, and the sellers of such Registrable Shares, on the other, in connection with the statement or omissions which resulted in such losses, claims, damages, liabilities or actions, as well as any other relevant equitable considerations including, without limitation, the failure to give any notice under the second paragraph of this Section 7. The relative fault shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or the omission or alleged omission to state a material fact relates to information supplied by the Company, on the one hand, or by the sellers of such Registrable Shares, on the other hand, and to the parties relative intent, knowledge, access to information and opportunity to correct or prevent such statement or omission.
7.5 The Company and the sellers of Registrable Shares agree that it would not be just and equitable if contribution pursuant to this Section 7 were determined by pro rata allocation (even if all of the sellers of Registrable Shares were treated as one entity for such purpose) or by any other method of allocation which does not take account of the equitable considerations referred to in the immediately preceding paragraph. The amount paid or payable by an indemnified party as a result of the losses, claims, damages, liabilities or action referred to in the immediately preceding paragraph shall be deemed to include, subject to the limitations set forth above, any legal or other expenses reasonably incurred by such indemnified party in connection with investigating or defending any such action or claim. Notwithstanding the provisions of this and the immediately preceding paragraph, the sellers of such Registrable Shares shall not be required to contribute any amount in excess of the amount, if any, by which the net proceeds received by such sellers exceeds the amount of any damages which they would have otherwise been required to pay by reason of such untrue or alleged untrue statement or omission. No person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) shall be entitled to contribution from any person who is not guilty of such fraudulent misrepresentation. The indemnification of underwriters provided for in this Section 7 shall be on such other terms and conditions as are at the time customary and reasonably required by such underwriters and the indemnification of the sellers of Registrable Shares in such underwriting shall, at the sellers request, be modified to conform to such terms and conditions.
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7.6 The indemnification provided for under this Agreement will remain in full force and effect regardless of any investigation made by or on behalf of the indemnified party or any officer, director or controlling person of such indemnified party and will survive the transfer of securities.
7.7 To the extent that the provisions on indemnification and contribution contained in the underwriting agreement entered into in connection with the underwritten public offering are in conflict with the foregoing provisions, the provisions in the underwriting agreement shall control.
SECTION 8
ASSIGNMENT OF REGISTRATION RIGHTS
Except as set forth herein, the rights to cause the Company to register Registrable Securities pursuant to Section 2, Section 3 and Section 4 may be assigned (but only with all related obligations) by a Holder to (i) a transferee or assignee that holds no less than five percent (5%) in aggregate of then outstanding Registrable Securities after the transfer or assignment; or (ii) an Affiliate or partner of the Holder (without restrictions as to minimum shareholdings); provided the Company is, within a reasonable time after such transfer, furnished with written notice of the name and address of such transferee or assignee and the securities with respect to which such registration rights are being assigned; and provided, further, that any such assignee shall first be required to execute a document in a form reasonably acceptable to the Company pursuant to which it agrees and undertakes to be bound by the provisions of this Agreement as though named herein as a Holder.
For the purposes of determining the number of shares of Registrable Securities held by a transferee or assignee, the holdings of transferees and assignees of a partnership who are partners or retired partners of such partnership (including spouses and ancestors, lineal descendants and siblings of such partners or spouses who acquire Registrable Securities by gift, will or intestate succession) shall be aggregated together and with the partnership; provided that all assignees and transferees who would not qualify individually for assignment of registration rights shall have a single attorney-in-fact for the purpose of exercising any rights, receiving notices or taking any action hereunder.
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SECTION 9
MARKET STAND-OFF AGREEMENT
Each Holder hereby agrees that, if and to the extent requested by the lead underwriter of securities of the Company in connection with a registration relating to a Qualified Public Offering (other than a registration on Form S-8 or a related or successor form relating solely to an employee benefit plan or a registration on Form S-4, Form F-4 or a related or successor form relating solely to a transaction under SEC Rule 145), such Holder will, subject to the following conditions, enter into a lock-up or standoff agreement in customary form (subject to the following conditions) under which such Holder agrees not to sell or otherwise transfer or dispose of any Registrable Securities or other shares of the Company owned by such Holder as of the date of such registration for up to one hundred eighty (180) days following the effective date of the related registration statement. The obligations of each Holder under this Section 9 are subject to the following conditions: (i) the lockup or standoff agreement applies only to the first registration statement of the Company which covers securities to be sold on its behalf to the public in an Underwritten Public Offering, but not to Registrable Securities actually sold pursuant to such registration statement; (ii) such Holder is reasonably satisfied that all directors, officers, and holders of one percent (1%) or more of any class of securities of the Company are bound by substantially identical restrictions; (iii) the lockup or standoff agreement provides that if any securities of the Company are to be excluded or released in whole or part from such restrictions, the underwriter shall so notify each Holder and each Holder shall be excluded or released, in proportionate amounts to the extent of the exclusion or release, prior to any other holder of the Companys securities, including director, officer, or holder of one percent (1%) or more of any class of securities of the Company subject to such restrictions; and (iv) the lockup or standoff agreement by its terms permits transfers of Registrable Securities by any Holder to any Affiliate of such Holder during the restricted period, provided that such Affiliate executes a lock-up or standoff agreement substantively identical to that signed by the transferring Holder. The Company may impose a stop-transfer instruction with respect to Registrable Securities subject to any such lockup or standoff agreement but shall remove such instruction immediately upon expiration of the underlying restrictions.
SECTION 10
CHANGES IN ORDINARY SHARES
If, and as often as, there are any changes in the Ordinary Shares by way of share split, share dividend, combination or reclassification, or through merger, consolidation, reorganization or recapitalization, or by any other means, appropriate adjustment shall be made in the provisions hereof, as may be required, so that the rights and privileges granted by this Agreement shall continue with respect to the Ordinary Shares as so changed.
SECTION 11
OTHER REGISTRATION RIGHTS
Except as provided in this Agreement, the Company will not grant to any person the right to request the Company to register any Ordinary Shares, or any securities convertible or exchangeable into or exercisable for Ordinary Shares, which are superior to or pari passu with the rights granted to the Preferred Shareholders hereunder, without the prior written consent of the holders of sixty percent (60%) of the Registrable Shares. The Company will not enter into any agreement inconsistent with the terms of this Agreement.
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SECTION 12
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company represents and warrants to each of the other parties hereto as follows (which representations and warranties shall survive the execution and delivery of this Agreement):
12.1 The execution, delivery and performance of this Agreement by the Company have been duly authorized by all requisite corporate action and will not violate any provision of law, any order of any court or other agency of government, the Restated Articles, or any provision of any indenture, agreement or other instrument to which it or any of its properties or assets is bound, or conflict with, result in a breach of or constitute (with due notice or lapse of time or both) a default under any such indenture, agreement or other instrument, or result in the creation or imposition of any lien, charge or encumbrance of any nature whatsoever upon any of the properties or assets of the Company or any of its subsidiaries.
12.2 This Agreement has been duly executed and delivered by the Company and constitutes the legal, valid and binding obligation of the Company, enforceable in accordance with its terms.
SECTION 13
RULE 144 REPORTING
With a view to making available to the Holders the benefits of Rule 144 promulgated under the Securities Act and any comparable provision of any Applicable Securities Laws that may at any time permit a Holder to sell securities of the Company to the public without Registration or pursuant to a Registration Statement on Form F-3 or Form S-3 (or any comparable form in a jurisdiction other than the United States), the Company agrees to:
13.1 make and keep public information available, as those terms are understood and defined in Rule 144 (or comparable provision, if any, under Applicable Securities Laws in any jurisdiction where the Companys securities are listed), at all times following ninety (90) days after the effective date of the first Registration under the Securities Act filed by the Company for an offering of its securities to the general public;
13.2 file with the Commission in a timely manner all reports and other documents required of the Company under all Applicable Securities Laws; and
13.3 at any time following ninety (90) days after the effective date of the first Registration under the Securities Act filed by the Company for an offering of its securities to the general public by the Company, promptly furnish to any Holder holding Registrable Shares, upon request (i) a written statement by the Company that it has complied with the reporting requirements of all Applicable Securities Laws at any time after it has become subject to such reporting requirements or, at any time after so qualified, that it qualifies as a registrant whose securities may be resold pursuant to Form F-3 or Form S-3 (or any form comparable thereto under Applicable Securities Laws of any jurisdiction where the Companys securities are listed), (ii) a copy of the most recent annual or quarterly report of the Company and such other reports and documents as may be filed by the Company with the Commission, and (iii) such other information as may be reasonably requested in availing any Holder of any rule or regulation of the Commission, that permits the selling of any such securities without Registration or pursuant to Registration Statement on Form F-3 or Form S-3 (or any form comparable thereto under Applicable Securities Laws of any jurisdiction where the Companys Securities are listed).
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SECTION 14
MISCELLANEOUS
14.1 The rights of any holder of Registrable Shares under Section 2, Section 3, Section 4, Section 8 and Section 10 shall terminate and cease to apply to such holder (i) five (5) years after the Qualified Public Offering of the Company, or (ii) with respect to any Holder of registration rights, at such time as all Registrable Securities of such Holder may be sold in a period of three (3) months pursuant to Rule 144.
14.2 All covenants and agreements contained in this Agreement by or on behalf of any of the parties hereto shall bind and inure to the benefit of the respective successors and assigns of the parties hereto whether so expressed or not.
14.3 All notices, demands and other communications provided for or permitted hereunder shall be made in writing and shall be by telefax, commercial express courier service or personal delivery:
(a) if to the Company:
Address: No. 8 Songgang Road, Changxing Street
Cencun, Tianhe District, Guangzhou
Guangdong 510640
Peoples Republic of China
email: linsc@xiaopeng.com
Att: General Counsel
(b) if to Shareholders, at the Shareholders respective addresses set forth on Schedule A hereto.
or to such other address or addresses as shall have been furnished in writing to the other parties hereto. Each party hereto agrees, at all times, to provide the Company with an address for notices hereunder. All such notices and communications shall be deemed to have been duly given: when delivered by hand, if personally delivered; when delivered by courier, if delivered by commercial express courier service; or if faxed, when transmission is confirmed by the senders fax machine.
14.4 GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY, CONSTRUED IN ACCORDANCE WITH, AND ENFORCED UNDER, THE LAW OF THE STATE OF NEW YORK APPLICABLE TO AGREEMENTS OR INSTRUMENTS ENTERED INTO AND PERFORMED ENTIRELY WITHIN SUCH STATE.
14.5 This Agreement constitutes the entire agreement of the parties with respect to the subject matter hereof and shall supersede the prior agreements and all other prior agreements and understandings between the parties with respect to such subject matter. This Agreement may not be modified or amended except in writing by holders of not less than sixty percent (60%) of the outstanding Registrable Shares.
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14.6 All shares held or acquired by Affiliates shall be aggregated together for the purpose of determining the availability of any right under this Agreement.
14.7 If any one or more of the provisions contained in this Agreement, or the application thereof in any circumstance, is held invalid, illegal or unenforceable in any respect for any reason, the validity, legality and enforceability of any such provision in every other respect and of the remaining provisions hereof shall not be in any way impaired, unless the provisions held invalid, illegal or unenforceable shall substantially impair the benefits of the remaining provisions of this Agreement. The parties hereto further agree to replace such invalid, illegal or unenforceable provision of this Agreement with a valid, legal and enforceable provision that will achieve, to the extent possible, the economic, business and other purposes of such invalid, illegal or unenforceable provision.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
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IN WITNESS WHEREOF, the Parties hereto have caused their respective duly authorized representatives to execute this Agreement as of the date first above written.
[Signature page to Registration Rights Agreement]
IN WITNESS WHEREOF, the Parties hereto have caused their respective duly authorized representatives to execute this Agreement as of the date first above written.
3W Global Fund | ||
By: |
/s/ Weiwei WU |
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Name: | Weiwei WU | |
Title: | Director |
IN WITNESS WHEREOF, the Parties hereto have caused their respective duly authorized representatives to execute this Agreement as of the date first above written.
Aerospace Holding Company LLC |
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By: |
/s/ BADR AL-OLAMA |
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Name: BADR AL-OLAMA | ||
Title: EXECUTIVE DIRECTER |
IN WITNESS WHEREOF, the Parties hereto have caused their respective duly authorized representatives to execute this Agreement as of the date first above written.
Al Rayyan Holding LLC | ||
By: |
/s/ AHMAD AL-KHANJI |
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Name: | AHMAD AL-KHANJI | |
Title: | DIRECTOR & AUTHORISED SIGNATORY |
IN WITNESS WHEREOF, the Parties hereto have caused their respective duly authorized representatives to execute this Agreement as of the date first above written.
Ampere Partners Holding Limited | ||
By: |
/s/ Daniel Wetstein |
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Name: Daniel Wetstein | ||
Title: Partner |
IN WITNESS WHEREOF, the Parties hereto have caused their respective duly authorized representatives to execute this Agreement as of the date first above written.
Anatole Partners GP Enhanced Ltd., | ||
General partner of Anatole Partners Enhanced Master | ||
Fund, L.P. | ||
By: |
/s/ Gary Lee |
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Name: Gary Lee | ||
Title: Authorized Signatory |
IN WITNESS WHEREOF, the Parties hereto have caused their respective duly authorized representatives to execute this Agreement as of the date first above written.
Anatole Partners GP Ltd., | ||
General partner of Anatole Partners Master Fund, L.P. | ||
By: |
/s/ Gary Lee |
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Name: Gary Lee | ||
Title: Authorized Signatory |
IN WITNESS WHEREOF, the Parties have caused their respective duly authorized representatives to execute this Agreement as of the date first above written.
ASPEX MASTER FUND | ||
By: |
/s/ LI HOKEI |
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Name: LI HOKEI | ||
Title: DIRECTOR |
IN WITNESS WHEREOF, the Parties hereto have caused their respective duly authorized representatives to execute this Agreement as of the date first above written.
Azure Kingfisher Limited | ||
By: |
/s/ GUARDSTAND NOMINEES |
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Name: GUARDSTAND NOMINEES (H.K.) LIMITED | ||
Title: Director |
IN WITNESS WHEREOF, the Parties hereto have caused their respective duly authorized representatives to execute this Agreement as of the date first above written.
Bryan White | ||
By: |
/s/ Bryan White |
IN WITNESS WHEREOF, the Parties hereto have caused their respective duly authorized representatives to execute this Agreement as of the date first above written.
Celestial Dragon Holdings Limited | ||
By: |
[Authorized signature is affixed here] |
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Name: | ||
Title: |
IN WITNESS WHEREOF, the Parties hereto have caused their respective duly authorized representatives to execute this Agreement as of the date first above written.
Cheung Shun Ching |
/s/ Cheung Shun Ching |
IN WITNESS WHEREOF, the Parties hereto have caused their respective duly authorized representatives to execute this Agreement as of the date first above written.
CK Investment Holdings Limited | ||
By: |
/s/ Cheng Chi Kong |
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Name: Cheng Chi Kong | ||
Title: Director |
IN WITNESS WHEREOF, the Parties hereto have caused their respective duly authorized representatives to execute this Agreement as of the date first above written.
CloudAlpha Master Fund | ||
By: |
/s/ Yang Jin |
|
Name: | Yang Jin | |
Title: | Director |
IN WITNESS WHEREOF, the Parties hereto have caused their respective duly authorized representatives to execute this Agreement as of the date first above written.
Coatue PE Asia 33 LLC | ||
By: Coatue Management, L.L.C., its investment manager | ||
By: |
/s/ Zachary Feingold |
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Name: | Zachary Feingold | |
Title: | Authorized Signatory |
IN WITNESS WHEREOF, the Parties hereto have caused their respective duly authorized representatives to execute this Agreement as of the date first above written.
Credit Suisse AG, Singapore Branch | ||
By: |
/s/ Paul Scott |
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Name: | Paul Scott | |
Title: | Director |
IN WITNESS WHEREOF, the Parties hereto have caused their respective duly authorized representatives to execute this Agreement as of the date first above written.
CX TMT HOLDING IV LIMITED | ||
By: |
/s/ TANG, Miu Yee |
|
Name: TANG, Miu Yee Title: Authorized Signatory |
IN WITNESS WHEREOF, the Parties hereto have caused their respective duly authorized representatives to execute this Agreement as of the date first above written.
Dazzling Mount Holdings Limited | ||
By: |
[Authorized signature is affixed here] |
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Name: | ||
Title: |
IN WITNESS WHEREOF, the Parties hereto have caused their respective duly authorized representatives to execute this Agreement as of the date first above written.
Duowan Entertainment Corp. | ||
By: |
/s/ Li, Xue Ling |
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Name: Li, Xue Ling | ||
Title: Director |
IN WITNESS WHEREOF, the Parties hereto have caused their respective duly authorized representatives to execute this Agreement as of the date first above written.
Efficiency Investment Limited | ||
By: |
/s/ Heng Xia |
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Name: Heng Xia | ||
Title: Authorized Signatory |
IN WITNESS WHEREOF, the Parties hereto have caused their respective duly authorized representatives to execute this Agreement as of the date first above written.
EVOLUTION FUND I CO-INVESTMENT, L.P.
a Cayman Islands exempted limited partnership
By: MSVC GP Limited, a Cayman Islands exempted company, as its general partner |
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By: |
/s/ Wai Shan WONG |
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Name: Wai Shan WONG Title: Director |
IN WITNESS WHEREOF, the Parties hereto have caused their respective duly authorized representatives to execute this Agreement as of the date first above written.
EVOLUTION SPECIAL OPPORTUNITY FUND I, L.P.
a Cayman Islands exempted limited partnership
By: MSVC GP Limited, a Cayman Islands exempted company, as its general partner |
||
By: |
/s/ Wai Shan WONG |
|
Name: Wai Shan WONG |
||
Title: Director |
IN WITNESS WHEREOF, the Parties hereto have caused their respective duly authorized representatives to execute this Agreement as of the date first above written.
Fast Pace Limited | ||
By: |
[Authorized signature is affixed here] |
|
Name: | ||
Title: |
IN WITNESS WHEREOF, the Parties hereto have caused their respective duly authorized representatives to execute this Agreement as of the date first above written.
GGV (XPENG) LIMITED | ||
By: |
/s/ FOO JI-XUN |
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Name: FOO JI-XUN | ||
Title: Director |
IN WITNESS WHEREOF, the Parties hereto have caused their respective duly authorized representatives to execute this Agreement as of the date first above written.
Golden Eagle (Asia) Investment Limited | ||
By: |
/s/ Koo Yuen Kim |
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Name: Koo Yuen Kim | ||
Title: Director |
IN WITNESS WHEREOF, the Parties hereto have caused their respective duly authorized representatives to execute this Agreement as of the date first above written.
Grand Horizon Plus Investment Limited | ||
By: |
/s/ Wu Yongming |
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Name: | Wu Yongming | |
Title: | Director |
IN WITNESS WHEREOF, the Parties hereto have caused their respective duly authorized representatives to execute this Agreement as of the date first above written.
GU Brian Hongdi | ||
By: |
/s/ GU Brian Hongdi |
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Name: GU Brian Hongdi |
IN WITNESS WHEREOF, the Parties hereto have caused their respective duly authorized representatives to execute this Agreement as of the date first above written.
Hel Ved Master Fund | ||
By: |
/s/ Yunmin CHAI |
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Name: | Yunmin CHAI | |
Title: | Director |
IN WITNESS WHEREOF, the Parties hereto have caused their respective duly authorized representatives to execute this Agreement as of the date first above written.
HH XP (HK) Holdings Limited | ||
By: |
[Authorized signature is affixed here] |
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Name: | ||
Title: |
IN WITNESS WHEREOF, the Parties hereto have caused their respective duly authorized representatives to execute this Agreement as of the date first above written.
KTB AI Limited Partnership | ||
By: |
/s/ YEH Aieming Amy |
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Name: YEH Aieming Amy | ||
Title: Authorized Signatory |
IN WITNESS WHEREOF, the Parties hereto have caused their respective duly authorized representatives to execute this Agreement as of the date first above written.
KTB China Synergy Fund | ||
By: |
/s/ YEH Aieming Amy |
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Name: YEH Aieming Amy | ||
Title: Authorized Signatory |
IN WITNESS WHEREOF, the Parties hereto have caused their respective duly authorized representatives to execute this Agreement as of the date first above written.
Like Minded Enterprise limited | ||
By: |
/s/ XIAO Bin |
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Name: XIAO Bin | ||
Title: Director |
IN WITNESS WHEREOF, the Parties hereto have caused their respective duly authorized representatives to execute this Agreement as of the date first above written.
Luminous Ace Limited | ||
By: |
/s/ Cheng Chi Kong |
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Name: Cheng Chi Kong | ||
Title: Director |
IN WITNESS WHEREOF, the Parties hereto have caused their respective duly authorized representatives to execute this Agreement as of the date first above written.
Luminous Time Limited | ||
By: |
[Authorized signature is affixed here] |
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Name: | ||
Title: |
IN WITNESS WHEREOF, the Parties hereto have caused their respective duly authorized representatives to execute this Agreement as of the date first above written.
Magical Star Project Company Limited | ||
By: |
/s/ Cheng Yin Pan |
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Name: Cheng Yin Pan | ||
Title: Director |
IN WITNESS WHEREOF, the Parties hereto have caused their respective duly authorized representatives to execute this Agreement as of the date first above written.
Markarian Investments Limited | ||
By: |
/s/ David Muir |
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Name: David Muir | ||
Title: President |
IN WITNESS WHEREOF, the Parties hereto have caused their respective duly authorized representatives to execute this Agreement as of the date first above written.
MATRIX PARTNERS CHINA IV HONG KONG LIMITED |
By: |
[Authorized signature is affixed here] |
Name: | ||
Title: |
IN WITNESS WHEREOF, the Parties hereto have caused their respective duly authorized representatives to execute this Agreement as of the date first above written.
MORNINGSIDE SPECIAL IV HONG KONG LIMITED | ||
By: |
/s/ TANG, Miu Yee |
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Name: TANG, Miu Yee | ||
Title: Authorized Signatory |
IN WITNESS WHEREOF, the Parties hereto have caused their respective duly authorized representatives to execute this Agreement as of the date first above written.
MORNINGSIDE TMT HOLDING IV LIMITED | ||
By: |
/s/ TANG, Miu Yee |
|
Name: TANG, Miu Yee | ||
Title: Authorized Signatory |
IN WITNESS WHEREOF, the Parties hereto have caused their respective duly authorized representatives to execute this Agreement as of the date first above written.
NEUMANN CAPITAL | ||
By: |
/s/ ZHANG FEI |
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Name: ZHANG FEI | ||
Title: DIRECTOR |
IN WITNESS WHEREOF, the Parties hereto have caused their respective duly authorized representatives to execute this Agreement as of the date first above written.
Ningbo Dingpeng Equity Investment Partnership (Limited Partnership) (宁波鼎鹏股权投资合伙企业(有限合伙)) | ||
By: |
[Authorized signature is affixed here] |
|
Name: | ||
Title: |
IN WITNESS WHEREOF, the Parties hereto have caused their respective duly authorized representatives to execute this Agreement as of the date first above written.
PACIFIC RAYS LIMITED | ||
By: |
/s/ Chi Sing Ho |
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Name: Chi Sing Ho | ||
Title: Authorized Signatory |
IN WITNESS WHEREOF, the Parties hereto have caused their respective duly authorized representatives to execute this Agreement as of the date first above written.
Pine Summit International Limited | ||
By: | /s/ VINCENT LETI GAO | |
Name: VINCENT LETI GAO | ||
Title: DIRECTOR |
IN WITNESS WHEREOF, the Parties hereto have caused their respective duly authorized representatives to execute this Agreement as of the date first above written.
Proficient Development Project Company Limited | ||
By: | /s/ Cheng Yin Pan | |
Name: Cheng Yin Pan | ||
Title: Director |
IN WITNESS WHEREOF, the Parties hereto have caused their respective duly authorized representatives to execute this Agreement as of the date first above written.
PV Xenon Investment II Limited | ||
By: | /s/ Ena Leung | |
Name: Ena Leung | ||
Title: Director |
IN WITNESS WHEREOF, the Parties hereto have caused their respective duly authorized representatives to execute this Agreement as of the date first above written.
Quack Holding Limited | ||
By: | /s/ Hongdi Brian Gu | |
Name: Hongdi Brian Gu | ||
Title: Authorized Signatory |
IN WITNESS WHEREOF, the Parties hereto have caused their respective duly authorized representatives to execute this Agreement as of the date first above written.
Quality Enterprises Limited | ||
By: | /s/ Tao He | |
Name: Tao He | ||
Title: Authorized Signatory |
IN WITNESS WHEREOF, the Parties hereto have caused their respective duly authorized representatives to execute this Agreement as of the date first above written.
Respect Holding Limited | ||
By: |
/s/ Xiaopeng He |
|
Name: Xiaopeng He | ||
Title: Authorized Signatory |
IN WITNESS WHEREOF, the Parties hereto have caused their respective duly authorized representatives to execute this Agreement as of the date first above written.
Robert S Bao | ||
/s/ Robert S Bao |
IN WITNESS WHEREOF, the Parties hereto have caused their respective duly authorized representatives to execute this Agreement as of the date first above written.
SCC Growth VI Holdco E, Ltd. | ||
By: |
/s/ Ip Siu Wai Eva |
|
Name: Ip Siu Wai Eva | ||
Title: Authorized Signatory |
IN WITNESS WHEREOF, the Parties hereto have caused their respective duly authorized representatives to execute this Agreement as of the date first above written.
Shanghai Cheyou Enterprise Management Partnership (Limited Partnership) (上海车优企业管理合伙企业(有限合伙)) | ||
By: |
/s/ Lin Xiaoqin |
|
Name:Lin Xiaoqin | ||
Title: Authorized Signatory |
IN WITNESS WHEREOF, the Parties hereto have caused their respective duly authorized representatives to execute this Agreement as of the date first above written.
Shanghai Guangyi Investment Management Center (Limited Partnership) (上海光易投资管理中心(有限合伙)) | ||
By: |
/s/ Yan Han |
|
Name: Yan Han | ||
Title: Authorized Signatory |
IN WITNESS WHEREOF, the Parties hereto have caused their respective duly authorized representatives to execute this Agreement as of the date first above written.
Shanghai Huiyu Enterprise Management Partnership (Limited Partnership) (上海汇豫企业管理合伙企业(有限合伙)) | ||
By: |
[Authorized signature is affixed here] |
|
Name: | ||
Title: |
IN WITNESS WHEREOF, the Parties hereto have caused their respective duly authorized representatives to execute this Agreement as of the date first above written.
Shanghai Jihe Enterprise Management Consulting Partnership (Limited Partnership) (上海霁赫企业管理咨询合伙企业(有限合伙)) | ||
By: |
/s/ Chi Zhang |
|
Name: Chi Zhang | ||
Title: Authorized Signatory |
IN WITNESS WHEREOF, the Parties hereto have caused their respective duly authorized representatives to execute this Agreement as of the date first above written.
SHANGHAI YUANXIN ENTERPRISE MANAGEMENT PARTNERSHIP (LIMITED PARTNERSHIP) (上海源莘企业管理合伙企业(有限合 |
||
By: |
/s/ XU Bingdong |
|
Name: XU Bingdong | ||
Title: Authorized Signatory |
IN WITNESS WHEREOF, the Parties hereto have caused their respective duly authorized representatives to execute this Agreement as of the date first above written.
Shengyu Ventures Limited | ||
By: | /s/ DAVID SU TUONG SING | |
Name: DAVID SU TUONG SING | ||
Title: |
IN WITNESS WHEREOF, the Parties hereto have caused their respective duly authorized representatives to execute this Agreement as of the date first above written.
Shunwei Top Venture Limited | ||
By: | [Authorized signature is affixed here] | |
Name: | ||
Title: |
IN WITNESS WHEREOF, the Parties hereto have caused their respective duly authorized representatives to execute this Agreement as of the date first above written.
Simplicity Holding Limited | ||
By: | /s/ Xiaopeng He | |
Name: Xiaopeng He | ||
Title: Authorized Signatory |
IN WITNESS WHEREOF, the Parties hereto have caused their respective duly authorized representatives to execute this Agreement as of the date first above written.
Sino EV Limited | ||
By: | /s/ Ip, Wing Kiu Wendy | |
Name: Ip, Wing Kiu Wendy | ||
Title: Director |
IN WITNESS WHEREOF, the Parties hereto have caused their respective duly authorized representatives to execute this Agreement as of the date first above written.
Speed Up Holdings Limited | ||
By: | [Authorized signature is affixed here] | |
Name: | ||
Title: |
IN WITNESS WHEREOF, the Parties hereto have caused their respective duly authorized representatives to execute this Agreement as of the date first above written.
Summer Rocket Holdings Limited | ||
By: | /s/ Zhang Birong | |
Name: Zhang Birong Title: Director |
||
IN WITNESS WHEREOF, the Parties hereto have caused their respective duly authorized representatives to execute this Agreement as of the date first above written.
Tairen Alpha Fund Limited | ||
By: | /s/ Christopher Jiang | |
Name: Christopher Jiang Title: Senior Vice President |
||
IN WITNESS WHEREOF, the Parties hereto have caused their respective duly authorized representatives to execute this Agreement as of the date first above written.
TAOBAO CHINA HOLDING LIMITED | ||
By: | /s/ Yi ZHANG | |
Name: Yi ZHANG | ||
Title: Authorized Signatory |
IN WITNESS WHEREOF, the Parties hereto have caused their respective duly authorized representatives to execute this Agreement as of the date first above written.
Truly Magnetic Project Company Limited | ||
By: | /s/ Cheng Yin Pan | |
Name: Cheng Yin Pan | ||
Title: Director |
IN WITNESS WHEREOF, the Parties hereto have caused their respective duly authorized representatives to execute this Agreement as of the date first above written.
Xenon Investment Limited | ||
By: | /s/ Ena Leung | |
Name: Ena Leung | ||
Title: Director |
IN WITNESS WHEREOF, the Parties hereto have caused their respective duly authorized representatives to execute this Agreement as of the date first above written.
XP Management Limited | ||
By: | /s/ Huang Xin | |
Name: Huang Xin | ||
Title: Authorized Signatory |
IN WITNESS WHEREOF, the Parties hereto have caused their respective duly authorized representatives to execute this Agreement as of the date first above written.
XP MOTOR INVESTMENT LIMITED | ||
By: | /s/ Kevin Yeung | |
Name: | Kevin Yeung | |
Title: | Director |
IN WITNESS WHEREOF, the Parties hereto have caused their respective duly authorized representatives to execute this Agreement as of the date first above written.
XPD Holdings Limited | ||
By: | [Authorized signature is affixed here] | |
Name: | ||
Title: |
IN WITNESS WHEREOF, the Parties hereto have caused their respective duly authorized representatives to execute this Agreement as of the date first above written.
XPeng Fortune Holdings Limited | ||
By: | /s/ T Proteus Limited | |
Name: T Proteus Limited | ||
Title: Director |
IN WITNESS WHEREOF, the Parties hereto have caused their respective duly authorized representatives to execute this Agreement as of the date first above written.
Yincheng Investment Limited | ||
By: | /s/ Ena Leung | |
Name: Ena Leung | ||
Title: Director |
IN WITNESS WHEREOF, the Parties hereto have caused their respective duly authorized representatives to execute this Agreement as of the date first above written.
Zhuhai Guangkong Zhongying Industrial Investment Fund Partnership (Limited Partnership) (珠海光控众盈产业投资基金合伙企业 (有限合伙)) |
||
By: |
[Authorized signature is affixed here] |
|
Name: | ||
Title: |
IN WITNESS WHEREOF, the Parties hereto have caused their respective duly authorized representatives to execute this Agreement as of the date first above written.
ZWC XP INVESTMENTS LIMITED | ||
By: | /s/ Cheung Wing Hon | |
Name: | Cheung Wing Hon | |
Title: | Director |
SCHEDULE A
SCHEDULE OF SHAREHOLDERS
Shareholder |
Address for Notice |
|
3W Global Fund | Suite 507, ICBC Tower, 3 Garden Road, Central, Hong Kong | |
Aerospace Holding Company LLC |
c/o Mubadala Investment Company PJSC PO Box 45005 Al Mamoura Building A Intersection of Muroor Road & 15th Street Abu Dhabi, UAE
For the attention of: Chairman of Aerospace Holding Company Telephone: +971 2 413 0000 Fax. No: +971 2 413 0102 With a copy email to legalunit@mubadala.ae |
|
Al Rayyan Holding LLC |
Al Rayyan Holding LLC Ooredoo Tower (Building 14) Al Dafna Street (Street 801) Al Dafna Doha Qatar |
|
Ampere Partners Holding Limited |
Suite 1501 Nexxus Building, 41 Connaught Road, Central, Hong Kong Email: daniel.wetstein@amperepartners.com |
|
Anatole Partners Enhanced Master Fund, L.P. |
Address: 17/F, Southland Building, 48 Connaught Road Central, Hong Kong Attention: Gary Lee Tel: +852 3508 5509 Email: ops@anatole-inv.com / glee@anatole-inv.com |
|
Anatole Partners Master Fund, L.P. |
Address: 17/F, Southland Building, 48 Connaught Road Central, Hong Kong Attention: Gary Lee Tel: +852 3508 5509 Email: ops@anatole-inv.com / glee@anatole-inv.com |
Aspex Master Fund |
Rooms 606-607, St. Georges Building, 2 Ice House Street, Hong Kong Attention: Bonnie Fong Tel: +852 3468-4139 Email: bonnie@aspexmanagement.com
With a required copy, which shall not constitute notice, to: Paul, Weiss, Rifkind, Wharton & Garrison LLP Hong Kong Club Building, 12th Floor, 3A Chater Road, Central, Hong Kong Attention: Betty Yap Email: byap@paulweiss.com Facsimile: +852 3015-3823 |
|
Azure Kingfisher Limited |
Building 46, Quanxi District Baishaquan M&A Block Laoshuguang Road, Xihu District Hangzhou, China Attention: Flora Wang Tel: +86-18258829977 Email: florahuaduo@gmail.com |
|
Bryan White |
Bryan White Sahsen Ventures 600 University Street, Suite 3247 Seattle, WA 98101 (206) 632-4700 |
|
Celestial Dragon Holdings Limited |
Suite 2801, 28th Floor, Two Pacific Place, 88 Queensway, Admiralty, HK |
|
Cheung Shun Ching |
Address: 6 Moorsom road Jardine s lookout Hong Kong Email: mikecheung22@gmail.com |
|
CK Investment Holdings Limited |
34/F, New World Tower 1 18 Queens Road Central, Hong Kong Attention: Li Suyu Email: suyuli@nwd.com.hk Telephone: 852-37266486 |
CloudAlpha Master Fund | 9th Floor, Southland Building, 48 Connaught Road Central, Hong Kong | |
Coatue PE Asia 33 LLC |
Attention: Zachary Feingold Address: c/o Coatue Management, L.L.C. 9 West 57th Street, 25th Floor, New York, NY 10019 USA Email: compliance@coatue.com
With a copy which does not constitute a notice to:
Kirkland & Ellis Attention: Gary Li Address: 26th Floor, Gloucester Tower, The Landmark, 15 Queens Road Central, Hong Kong Tel: +852 3761 3442 Fax: +852 3761 3301 Email: gary.li@kirkland.com |
|
Credit Suisse AG, Singapore Branch |
1 Changi Business Park Central 1, #01-101 0NE@Changi City, Singapore 486036 Attention: Broker Ops / Project Commander team Email: singapore.brokerops@credit-suisse.com / desmond.chong@credit-suisse.com Facsimile:+65 6212 4666/ +65 6212 2341 |
|
CX TMT Holding IV Limited |
380 Wuyuan Road, Xuhui District Shanghai, PRC Attention: Junfang Li (李俊芳) Email: chenxi@morningsidevc.com Telephone: +86-021-64380260 |
|
Dazzling Mount Holdings Limited |
Room B10, 13th Floor Ye Fa Industrial Building No.1 No.77 Kaiyuan Road Kwun Tong, Kowloon Hong Kong |
Duowan Entertainment Corp. |
Block B-1, Wanda Plaza Wanbo 2nd Road, Panyu District Guangzhou City, Guangdong, PRC |
|
Efficiency Investment Limited |
No. 8 Songgang Road, Changxing Street Cencun, Tianhe District, Guangzhou Guangdong 510640, China Attention: XIA Heng Email: xiah@xiaopeng.com |
|
Evolution Fund I Co-Investment, L.P. |
Suite 905-6 on the 9th Floor of ICBC Tower Three Garden Road, Hong Kong Attention: Stephanie, TANG Email: USTMT_INV@morningsidevc.com Telephone: +852 2989 1120 Fax: +852 2989 1127 |
|
Evolution Special Opportunity Fund I, L.P. |
Suite 905-6 on the 9th Floor of ICBC Tower Three Garden Road, Hong Kong Attention: Stephanie, TANG Email: USTMT_INV@morningsidevc.com Telephone: +852 2989 1120 Fax: +852 2989 1127 |
|
Fast Pace Limited |
No. 33 Xierqi Middle Road, Haidian District Beijing, 100085, China Attention: ZHU Chengcai Email: zhuchengcai@xiaomi.com Telephone +86 18600826751 |
GGV (Xpeng) Limited |
Unit 3501, IFC II, 8 Century Avenue Shanghai 200120, PRC Attention: Jixun Foo Email:jfoo@ggvc.com; ykuang@ggvc.com; zzhao@ggvc.com Facsimile : +86(21) 5403 5580 Telephone: +86(21) 6161 1720
With a copy to:
3000 Sand Hill Road, Building 4, Suite 230, Menlo Park CA 94025, USA Attention: Stephen Hyndman Facsimile: +1 650 475 2151 Telephone: +1 650 475 2150 |
|
Golden Eagle (Asia) Investment Limited |
Wanmei Mansion, Civil Science & Technology Park Dongming North Road, Shiqi District Zhongshan City, Guangdong, PRC |
|
Grand Horizon Plus Investment Limited |
No. 6 Fudi, Xixi wetland Hangzhou, China Attention: Allen Huang Tel: +86-13816362753 |
|
GU Brian Hongdi |
GU Brian Hongdi House B10, Regalia Bay, 88 Wong Ma Kok Road, Stanley, Hong Kong, PRC |
|
Hel Ved Master Fund |
Hel Ved Capital Management Limited Suite 4120, Jardine House, 1 Connaught Place, Central, Hong Kong Attention: Annie Lai Tel: +852 3611 2987 Mobile: +852 9101 2227 Email: annie@helvedcapital.com |
HH XP (HK) Holdings Limited |
28/F, Tower B, Ping An International Finance Centre 3 Xinyuan South Road, Chaoyang District Beijing, 100027, PRC Attention: Liming Huang Email: lmhuang@hillhousecap.com; Carbon Copy: legal@hillhousecap.com Telephone: +86(10)-59520888 |
|
KTB AI Limited Partnership |
C/O, Room 2806, LAvenue, No.99 Xianxia Road Changning District, Shanghai, China Attention: YEH Aieming Amy Email: ayeh@ktbchina.com Telephone: +86-21-6067-1778*168 |
|
KTB China Synergy Fund |
C/O, Room 2806, LAvenue, No.99 Xianxia Road Changning District, Shanghai, China Attention: YEH Aieming Amy Email: ayeh@ktbchina.com Telephone: +86-21-6067-1778*168 |
|
Like Minded Enterprise limited |
No. 8 Songgang Road, Changxing Street Cencun, Tianhe District, Guangzhou Guangdong 510640, China Attention: XIAO Bin Email: xiaob@xiaopeng.com |
|
Luminous Ace Limited |
34/F, New World Tower 1 18 Queens Road Central, Hong Kong Attention: Li Suyu Email: suyuli@nwd.com.hk Telephone: 852-37266486 |
|
Luminous Time Limited |
Yongmin Hu 39E, The Manhattan, 33 Tai Tam Road, Hong Kong email: terryhu@yahoo.com phone: 852-98821129 |
Magical Star Project Company Limited |
Room 1111, New World Tower 1 18 Queens Road Central, Central, Hong Kong Attention: Cheng Yin Pan (郑彦斌) / Zhengxuan Shi(施正炫) Email: benypcheng@nwd.com.hk; simonshi@nwd.com.hk Telephone: 852-37266483 |
|
Markarian Investments Limited |
c/o Tulloch & Co., 4 Hill Street London W1J 5NE, UK Attention: Alastair Tulloch Email: atulloch@atulloch.com; bhancock@dstgservices.com Telephone: +44 20 7318 1180 |
|
Matrix Partners China IV Hong Kong Limited |
Flat 2807, 28/F, AIA Central No.1 Connaught Road, Central, Hong Kong Attention: Harry Man Email: harry.man@matrixpartners.com.cn; notice@matrixpartners.com.cn Telephone: +852 3651 6220 |
|
Morningside Special IV Hong Kong Limited |
Suite 905-6 on the 9th Floor of ICBC Tower Three Garden Road, Hong Kong Attention: Stephanie, TANG Email: USTMT_INV@morningsidevc.com Telephone: +852 2989 1120 Fax: +852 2989 1127 |
|
Morningside TMT Holding IV Limited |
Suite 905-6 on the 9th Floor of ICBC Tower Three Garden Road, Hong Kong Attention: Stephanie, TANG Email: USTMT_INV@morningsidevc.com Telephone: +852 2989 1120 Fax: +852 2989 1127 |
|
Neumann Capital |
Address: 802 West Bay Road, P.O. Box 31119, Grand Cayman, KY1-1205, Cayman Islands c/o Unit 905-6 ICBC Tower, 3 Garden Road, Central, Hong Kong Tel: +852 39564336 Email: fz@neumannadvisors.com / cl@neumannadvisors.com Attention: Fisher Zhang / Catherine Leung |
Ningbo Dingpeng Equity Investment Partnership (Limited Partnership) (宁波鼎鹏股权投资合伙企业(有限合伙)) |
7C East Hope Plaza, No. 1777 Century Avenue, Pudong Shanghai 200122, PRC Attention: Sha Li Email: sha.li@ebvc.com.cn Telephone: +86(21) 6165 2668 |
|
Pacific Rays Limited |
Address: 6/Fl., Tower A, COFCO Plaza, 8 Jianguomennei Dajie, Dongcheng District, Beijing, 100005, PRC Attention: Mr. Weiyi Zhang Email: weiyi_zhang@idgcapital.com Telephone: (86-10) 8590 1920 |
|
Pine Summit International Limited |
Room 15, Level 9, Core C Cyberport Three 100 Cyberport Road Hong Kong |
|
Proficient Development Project Company Limited |
Room 1111, New World Tower 1 18 Queens Road Central, Central, Hong Kong Attention: Cheng Yin Pan (郑彦斌) / Zhengxuan Shi(施正炫) Email: benypcheng@nwd.com.hk; simonshi@nwd.com.hk Telephone: 852-37266483 |
|
PV Xenon Investment II Limited |
48/F, China World Tower A 1 Jian Guo Men Wai Avenue, Beijing, China Attention: Jimmy Guo/Ena Leung Tel: (010) 85598918 / (852) 3767-5000 Email: Jimmy.Guo@primavera-capital.com / ena.leung@primvera-capital.com |
|
Quack Holding Limited |
No. 8 Songgang Road, Changxing Street Cencun, Tianhe District, Guangzhou Guangdong 510640, China Attention: GU Brian Hongdi Email: briangu@xiaopeng.com |
Quality Enterprises Limited |
No. 8 Songgang Road, Changxing Street Cencun, Tianhe District, Guangzhou Guangdong 510640, China Attention: HE Tao Email: het@xiaopeng.com |
|
Respect Holding Limited |
No. 8 Songgang Road, Changxing Street Cencun, Tianhe District, Guangzhou Guangdong 510640, China Attention: HE Xiaopeng Email: hexp@xiaopeng.com |
|
Robert S Bao |
No. 8 Songgang Road, Changxing Street Cencun, Tianhe District, Guangzhou Guangdong 510640, China Email: robertsbao@xiaopeng.com Telephone: +852-92208832 |
|
SCC Growth VI Holdco E, Ltd. |
Maples Corporate Services Limited, PO Box 309, Ugland House, Grand Cayman, KY1-1104, Cayman Islands c/o Suite 3613, Two Pacific Place, 88 Queensway, Hong Kong Tel: +852 2501 8989 Fax: +852 2501 5249 Attention: Ip Siu Wai Eva Email: eip@sequoiacap.com |
|
Shanghai Cheyou Enterprise Management Partnership (Limited Partnership) (上海车优企业管理合伙企业(有限合伙)) |
Room 2204, Building A1, Central Park Plaza No. 10 Park South Road, Chaoyang District Beijing 100026, PRC Attention: Charles Lin Email: charles.lin@centurium.com |
|
Shanghai Guangyi Investment Management Center (Limited Partnership) (上海光易投资管理中心(有限合伙)) |
Room 2105, 21st Floor, Xinmao Building 233 Taicang Road, Huangpu District Shanghai, 200021, China Attention: Yan Han (韩彦) Email: herryhan@lightspeedcp.com Telephone: +86(21)-53866500 |
Shanghai Huiyu Enterprise Management Partnership (Limited Partnership) (上海汇豫企业管理合伙企业(有限合伙)) |
809-810, Kailin Center, Jinshui District Zhengzhou, Henan, 450000, PRC Attention: Xiangguang Zhang (张向光) Email: zhangxg@cicchuirong.com Telephone: +86 15120006670 |
|
Shanghai Jihe Enterprise Management Consulting Partnership (Limited Partnership) (上海霁赫企业管理咨询合伙企业(有限合伙)) |
2/F, Building 10, 15 Xinxing East Lane Xicheng District, Beijing, 100032, PRC Attention: Chi Zhang (张弛) Email: zhangchi@xindingcapital.com Telephone: +86 18611716227 |
|
Shanghai Yuanxin Enterprise Management Partnership (Limited Partnership) (上海源莘企业管理合伙企业(有限合伙)) |
3000 Sand Hill Road, Building 4, Suite 230 Menlo Park,CA 94025, U.S.A. Attention: Stephen Hyndman Email: shyndman@ggvc.com Telephone: +1 650 475 2150
With a copy to:
Unit 3501, IFC II, 8 Century Avenue Pudong New District, Shanghai, PRC Attention: FOO JI-XUN Email:jfoo@ggvc.com Telephone: +86(21) 6161 1720 |
|
Shengyu Ventures Limited |
9 Farrer Drive #03-02, Sommerville Grandeur, Singapore 259279 Email: davidsu@gmail.com; grace.wang@matrixpartners.com.cn |
Shunwei Top Venture Limited |
Vistra Corporate Services Center, Wickhams Cay II, Road Town, Tortola, VG 1110, British Virgin Islands Attention: Mr. Tuck Lye Koh (许达来) Email: tlkoh@shunwei.com; legal@shunwei.com; finance@shunwei.com
With a copy to:
Address: Unit 1309A, 13/F, Cable TV Tower, No. 9 Hoi Shing Road, Tsuen Wan, N.T., Hong Kong Attention: Mr. Tuck Lye Koh (许达来) Telephone: +852 24050088 Fax: +852 24050003 |
|
Simplicity Holding Limited |
No. 8 Songgang Road, Changxing Street Cencun, Tianhe District, Guangzhou Guangdong 510640, China Attention: HE Xiaopeng Email: hexp@xiaopeng.com |
|
Sino EV Limited |
21/F., Central 88, 88 Des Voeux Road Central, Hong Kong Attention: Ip, Wing Kiu Wendy Email: loveorigin@gmail.com Telephone: +852-3468-6928 |
|
Speed Up Holdings Limited |
Suite 604, FFC 5 Dongsanhuanzhong Road Beijing 100020, PRC Attention: General Counsel Email: legal-finance@kinzoncap.com Mobile: +86 18500067002 |
|
Summer Rocket Holdings Limited | Suite 708, 7th Floor, Chater House, 8 Connaught Road Central, Hong Kong | |
Tairen Alpha Fund Limited |
Address: 26/F, 8 Queens Road Central, Hong Kong Tel: +852-28155887 Fax: +852-28155087 Email: compliance@tairencapital.com Attention: Christopher Jiang |
Taobao China Holding Limited |
c/o Alibaba Group Services Limited 26th Floor, Tower One Times Square, 1 Matheson Street Causeway Bay, Hong Kong S.A.R. Attention: General Counsel Email: legalnotice@list.alibaba-inc.com |
|
Truly Magnetic Project Company Limited |
Room 1111, New World Tower 1 18 Queens Road Central, Central, Hong Kong Attention: Cheng Yin Pan (郑彦斌) / Zhengxuan Shi (施正炫) Email: benypcheng@nwd.com.hk; simonshi@nwd.com.hk Telephone: 852-37266483 |
|
Xenon Investment Limited |
48/F, China World Tower A 1 Jian Guo Men Wai Avenue, Beijing, China Attention: Jimmy Guo/Ena Leung Tel: (010) 85598918 / (852) 3767-5000 Email: Jimmy.Guo@primavera-capital.com / ena.leung@primvera-capital.com |
|
XP Management Limited |
Room 3501, 35th Floor, Jiahua Center 1010 Huaihai Zhong Road, Shanghai, 200031 Attention: Yikai Zhu (朱艺恺); Huaijin Dong (董怀谨) Email: allan.zhu@yfc.cn (Yikai Zhu); andrea.dong@yfc.cn (Huaijin Dong) Telephone: +8621-3127 0909 |
|
XP Motor Investment Limited |
Vistra Corporate Services Centre, Wickhams Cay II, Road Town, Tortola, VG1110, British Virgin Islands |
|
XPD Holdings Limited |
Building 101, Jia No. 10 Jiuxianqiao North Road Chaoyang District, Beijing 100015, PRC Attention: Dai Keying Email: sara@tupo.com Telephone: +86-18601199178 |
XPeng Fortune Holdings Limited |
Trident Trust Company (HK) Limited 14/F Golden Centre 188 Des Voeux Road Central Hong Kong Attention: Yan Wensheng Telephone: +852 3760 3905 |
|
Yincheng Investment Limited |
48/F, China World Tower A 1 Jian Guo Men Wai Avenue, Beijing, China Attention: Jimmy Guo/Ena Leung Tel: (010) 85598918 / (852) 3767-5000 Email: Jimmy.Guo@primavera-capital.com / ena.leung@primvera-capital.com |
|
Zhuhai Guangkong Zhongying Industrial Investment Fund Partnership (Limited Partnership) (珠海光控众盈产业投资基金合伙企业(有限合伙)) |
Room 908, Qihao Beijing West Tower No. 8 Xinyuan South Road, Chaoyang District Beijing, 100027, PRC Attention: Zeying Wang (王泽滢) Email: zeying.wang@ebfcapital.com Telephone: +86(10) 65025277-616; +86 13811321933 |
|
ZWC XP Investments Limited |
15/F, St. John Building, 33 Garden Road, Hong Kong Tel: +852-35202959 |
Exhibit 5.1
|
Harney Westwood & Riegels 3501 The Center 99 Queens Road Central Hong Kong Tel: +852 5806 7800 Fax: +852 5806 7810 |
21 August 2020
051773.0006
XPeng Inc.
4th Floor, Harbour Place, 103 South Church Street
P.O. Box 10240, Grand Cayman KY1-1002
Cayman Islands
Dear Sir or Madam
XPeng Inc. (the Company)
We are lawyers qualified to practise in the Cayman Islands and have acted as Cayman Islands legal advisers to the Company in connection with the Companys registration statement on Form F-1 and accompanying prospectus filed with the Securities and Exchange Commission (the Commission) under the United States Securities Act of 1933, as amended (the Securities Act) (the Registration Statement), relating to the offering by the Company of American depositary shares (the Listing) representing certain Class A ordinary shares of par value US$0.00001 per share of the Company (the Shares).
We are furnishing this opinion as Exhibit 5.1 to the Registration Statement.
For the purposes of giving this opinion, we have examined the Corporate Documents (as defined in Schedule 1). We have not examined any other documents, official or corporate records or external or internal registers and have not undertaken or been instructed to undertake any further enquiry or due diligence in relation to the transaction which is the subject of this opinion.
In giving this opinion we have relied upon the assumptions set out in Schedule 2 which we have not independently verified.
Based solely upon the foregoing examinations and assumptions and upon such searches as we have conducted and having regard to legal considerations which we deem relevant, and subject to the qualifications set out in Schedule 3, we are of the opinion that under the laws of the Cayman Islands:
1 |
Existence and Good Standing. The Company has been duly incorporated as an exempted company with limited liability and is validly existing and in good standing under the laws of the Cayman Islands. |
2 |
Authorised Share Capital. Based on our review of the A&R M&A (as defined in Schedule 1), the authorized share capital of the Company, upon its coming into effect, will be US$100,000 consisting of 10,000,000,000 shares comprising (i) 8,850,000,000 Class A Ordinary Shares of a par value of US$0.00001 each, (ii) 750,000,000 Class B Ordinary Shares of a par value of US$0.00001 each and (iii) 400,000,000 Class C Ordinary Shares of a par value of US$0.00001 each. |
Resident Partners: M Chu | JP Engwirda | A Johnstone P Kay | BJ King | MW Kwok | IN Mann | R Ng | ME Parrott ATC Ridgers | N Roberts | PJ Sephton | X Yin Bermuda legal services provided through an association with Zuill & Co. |
Anguilla | Bermuda | British Virgin Islands | Cayman Islands Cyprus | Hong Kong | London | Luxembourg | Montevideo São Paulo | Shanghai | Singapore | Vancouver www.harneys.com |
3 |
Valid Issuance of Shares. The issue and allotment of the Shares as contemplated by the Registration Statement have been duly authorised and, when allotted, issued and fully paid for in accordance with the Registration Statement, and when name of the shareholder is entered in the register of members of the Company, the Shares will be validly issued, allotted and fully paid and there will be no further obligation on the holder of any of the Shares to make any further payment to the Company in respect of such Shares. |
4 |
Cayman Islands Law. The statements under the caption 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 as at the date of this opinion and such statements constitute our opinion. |
This opinion is confined to the matters expressly opined on herein and given on the basis of the laws of the Cayman Islands as they are in force and applied by the Cayman Islands courts at the date of this opinion. We have made no investigation of, and express no opinion on, the laws of any other jurisdiction. Except as specifically stated herein, we express no opinion as to matters of fact.
In connection with the above opinion, we hereby consent to the filing of this opinion as an exhibit to the Registration Statement and to the reference made to this firm in the Registration Statement under the headings Enforceability of Civil Liabilities, Taxation and Legal Matters and elsewhere in the prospectus included 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 Rules and Regulations of the Commission thereunder.
This opinion is limited to the matters referred to herein and shall not be construed as extending to any other matter or document not referred to herein.
This opinion shall be construed in accordance with the laws of the Cayman Islands.
Yours faithfully |
Harney Westwood & Riegels |
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SCHEDULE 1
List of Documents and Records Examined
1 |
The certificate of incorporation of the Company dated 27 December 2018; |
2 |
The sixth amended and restated memorandum and articles of association of the Company filed on 6 August 2020; |
3 |
The seventh amended and restated memorandum and articles of association of the company as adopted by a special resolution passed on 20 August 2020 and effective immediately upon the completion of the Listing (the A&R M&A); |
4 |
The register of members and register of directors of the Company provided to us on 20 August 2020; |
Copies of 1-4 above have been provided to us by its registered office in the Cayman Islands (together the Corporate Documents)
5 |
A copy of executed written resolutions of the directors of the Company dated 20 August 2020 and a copy of executed written resolutions of the members of the Company dated 20 August 2020 (the Resolutions); |
6 |
A certificate of good standing dated 3 August 2020 in respect of the Company, issued by the Registrar of Companies in the Cayman Islands (the Certificate of Good Standing); and |
7 |
The Registration Statement. |
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SCHEDULE 2
Assumptions
1 |
Authenticity of Documents. Copy documents or drafts of documents provided to us are true and complete copies of, or in the final forms of, the originals. All original Corporate Documents are authentic, all signatures, initials and seals are genuine, all copies of the Registration Statement are true and correct copies and the Registration Statement conform in every material respect to the latest drafts of the same produced to us and, where the Registration Statement has been provided to us in successive drafts marked-up to indicate changes to such documents, all such changes have been so indicated. |
2 |
Corporate Documents. All matters required by law to be recorded in the Corporate Documents are so recorded, and all corporate minutes, resolutions, certificates, documents and records which we have reviewed are accurate and complete, and all facts expressed in or implied thereby are accurate and complete as at the date of the passing of the Resolutions. |
3 |
Constitutional Documents. The A&R M&A remain in full force and effect and are otherwise unamended. |
4 |
Conversion. The conversion of any shares in the capital of the Company will be effected via legally available means under Cayman law. |
5 |
No Steps to Wind-up. The directors and shareholders of the Company have not taken any steps to appoint a liquidator of the Company and no receiver has been appointed over any of the Companys property or assets. |
6 |
Resolutions. The Resolutions have been duly executed (and where by a corporate entity such execution has been duly authorised if so required) by or on behalf of each director, or by or on behalf of each shareholder in respect of the shareholder resolutions, and the signatures and initials thereon are those of a person or persons in whose name the Resolutions have been expressed to be signed. The Resolutions remain in full force and effect. |
7 |
Unseen Documents. Save for the Corporate Documents provided to us there are no resolutions, agreements, documents or arrangements which materially affect, amend or vary the transactions envisaged in the Registration Statement. There is no contractual prohibition (other than as arising under Cayman Islands law) binding on the Company prohibiting it from issuing and allotting the Shares. |
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SCHEDULE 3
Qualifications
1 |
We express no opinion in relation to provisions making reference to foreign statutes in the Registration Statement. |
2 |
Except as specifically stated herein, we make no comment with respect to any representations and warranties which may be made by or with respect to the Company in any of the documents or instruments cited in this opinion or otherwise with respect to the commercial terms of the transactions the subject of this opinion. |
3 |
Our opinion as to good standing is based solely upon receipt of the Certificate of Good Standing. The Company shall be deemed to be in good standing under section 200A of the Companies Law (as amended) of the Cayman Islands (the Companies Law) on the date of issue of the certificate if all fees and penalties under the Companies Law have been paid and the Registrar of Companies in the Cayman Islands has no knowledge that the Company is in default under the Companies Law. |
4 |
We have undertaken no enquiry and express no view as to the compliance of the Company with the International Tax Co-operation (Economic Substance) Law (2020 Revision). |
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Exhibit 10.1
XPENG INC.
FORM OF INDEMNIFICATION AGREEMENT
This Indemnification Agreement (the Agreement) is entered into as of by and between XPeng Inc., a Cayman Islands company (the Company) and the undersigned, a [director/officer] of the Company (Indemnitee).
RECITALS
1. The Company recognizes that highly competent persons are becoming more reluctant to serve corporations as directors or in other capacities unless they are provided with adequate protection through insurance or adequate indemnification against risks of claims and actions against them arising out of their services to the corporation.
2. The Board of Directors of the Company (the Board) has determined that the inability to attract and retain highly competent persons to serve the Company would be detrimental to the best interests of the Company and its shareholders and that it is reasonable and necessary for the Company to provide adequate protection to such persons against risks of claims and actions against them arising out of their services to the Company.
3. The Company and Indemnitee do not regard the indemnities available under the Companys memorandum and articles of association, as now or hereinafter in effect (the Articles of Association) as adequate to protect Indemnitee against the risks associated with his service to the Company.
4. The Company is willing to indemnify Indemnitee to the fullest extent permitted by applicable law, and Indemnitee is willing to serve and continue to serve the Company on the condition that he be so indemnified.
AGREEMENT
In consideration of the premises and the covenants contained herein, the Company and Indemnitee do hereby covenant and agree as follows:
I. |
Definitions |
The following terms shall have the meanings defined below:
Change in Control shall be deemed to have occurred if, on or after the date of this Agreement, (i) any person (as such term is used in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934, as amended (the Exchange Act)), other than (a) a trustee or other fiduciary holding securities under an employee benefit plan of the Company acting in such capacity; (b) a corporation owned directly or indirectly by the shareholders of the Company in substantially the same proportions as their ownership of ordinary shares of the Company; or (c) any current beneficial shareholder or group, as defined by Rule 13d-5 of the Exchange Act, including the heirs, assigns and successors thereof, of beneficial ownership, within the meaning of Rule 13d-3 of the Exchange Act, of securities possessing more than 50% of the total combined voting power of the Companys outstanding securities; hereafter becomes the beneficial owner (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of the Company representing more than 20% of the total combined voting power represented by the Companys then outstanding ordinary shares, (ii) during any period of two (2) consecutive years, individuals who at the beginning of such period constitute the Board and any new director whose election by the Board or nomination for election by the Companys shareholders was approved by a vote of at least two thirds (2/3) of the directors then still in office who either were directors at the beginning of the period or whose election or nomination for election was previously so approved, cease for any reason to constitute a majority thereof, or (iii) the shareholders of the Company approve a merger or consolidation of the Company with any other corporation other than a merger or consolidation which would result in the ordinary shares of the Company outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into ordinary shares of the surviving entity) at least 80% of the total voting power represented by the ordinary shares of the Company or such surviving entity outstanding immediately after such merger or consolidation, or the shareholders of the Company approve a plan of complete liquidation of the Company or an agreement for the sale or disposition by the Company of (in one transaction or a series of related transactions) all or substantially all of the Companys assets.
Disinterested Director means a director of the Company who is not and was not a party to the Proceeding in respect of which indemnification is sought by Indemnitee.
Expenses shall include damages, judgments, fines, penalties, settlements and costs, attorneys fees and disbursements and costs of attachment or similar bond, investigations, liabilities, losses, taxes, any expenses paid or incurred in connection with investigating, defending, being a witness in, participating in (including on appeal), or preparing for any of the foregoing in, any Proceeding, and any taxes, interests, assessments or other charges imposed as a result of the actual or deemed receipt of any payments under this Agreement; provided that if the Indemnitee provides his or her primary professional services based on an hourly fee rate (the Hourly Rate), the Expenses shall also include the product of the amount of time he or she shall spend for any Proceeding and the effective Hourly Rate.
Indemnifiable Event means any event or occurrence that takes place either before or after the execution of this Agreement, related to the fact that Indemnitee is or was a director or an officer of the Company, or any subsidiary or consolidated variable interest entity of the Company, or is or was serving at the request of the Company as a director, officer, employee or agent of another corporation, partnership, limited liability company, joint venture, trust or other entity, including services with respect to employee benefit plans, or was a director or officer of an entity that was a predecessor of the Company or another entity at the request of such predecessor entity, or related to anything done or not done by Indemnitee in any such capacity.
Independent Counsel means a law firm, or a member of a law firm, that is experienced in matters of corporation law and neither presently is, nor in the past five (5) years has been, retained to represent (i) the Company or Indemnitee in any matter material to either such party (other than with respect to matters concerning the Indemnitee under this Agreement, or of other indemnitees under similar indemnification agreements), or (ii) any other party to the Proceeding giving rise to a claim for indemnification hereunder. Notwithstanding the foregoing, the term Independent Counsel shall not include any person who, under the applicable standards of professional conduct then prevailing, would have a conflict of interest in representing either the Company or Indemnitee in an action to determine Indemnitees rights under this Agreement.
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Participant means a person who is a party to, or witness or participant (including on appeal) in, a Proceeding.
Proceeding means any threatened, pending, or completed action, suit or proceeding, or any inquiry, hearing or investigation, whether civil, criminal, administrative, investigative or other, including any appeal thereof, in which Indemnitee may be or may have been involved as a party or otherwise by reason of an Indemnifiable Event, including, without limitation, any threatened, pending, or completed action, suit or proceeding by or in the right of the Company.
Reviewing Party means (i) the Board by a majority vote of a quorum consisting of Disinterested Directors, or (ii) if a quorum of the Board consisting of Disinterested Directors is not obtainable or, even if obtainable, said Disinterested Directors so direct, Independent Counsel in a written opinion to the Board, a copy of which shall be delivered to Indemnitee.
II. |
Agreement To Indemnify |
1. General Agreement. In the event Indemnitee was, is, or becomes a Participant in, or is threatened to be made a Participant in, a Proceeding, the Company shall indemnify the Indemnitee from and against any and all Expenses which Indemnitee incurs or becomes obligated to incur in connection with such Proceeding, to the fullest extent permitted by applicable law, even if such indemnification is not specifically authorized by the other provisions of this Agreement or any other agreement, the Articles of Association, or by statute. In the event of any change after the date of this Agreement in any applicable law, statute or rule which expands the right of a Cayman Islands company to indemnify a member of its Board of Directors or an officer, it is the intent of the parties hereto that Indemnitee shall enjoy by this Agreement the greater benefits afforded by such change. In the event of any change in any applicable law, statute or rule which narrows the right of a Cayman Islands company to indemnify a member of its Board of Directors or an officer, such change, to the extent not otherwise required by such law, statute or rule to be applied to this Agreement, shall have no effect on this Agreement or the parties rights and obligations hereunder except as set forth in Section II.3 hereof.
2. Partial Indemnification. If Indemnitee is entitled under any provision of this Agreement to indemnification by the Company for a portion of Expenses, but not for the total amount of Expenses, the Company shall indemnify the Indemnitee for the portion of such Expenses to which Indemnitee is entitled.
3. Exclusions. Notwithstanding anything in this Agreement to the contrary, Indemnitee shall not be entitled to indemnification under this Agreement:
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(a) to the extent that payment is actually made to Indemnitee under a valid, enforceable and collectible insurance policy, except in respect of any excess beyond the amount of payment under such insurance policy;
(b) to the extent that Indemnitee is fully indemnified and actually paid other than pursuant to this Agreement;
(c) in connection with any Proceeding initiated by Indemnitee against the Company, any director or officer of the Company or any other party, and not by way of defense, unless (i) the Company has joined in or the Reviewing Party (as defined herein) has consented to the initiation of such Proceeding; or (ii) the Proceeding is one to enforce indemnification rights under this Agreement or any applicable law;
(d) to the extent the Proceeding is brought about by the conduct of the Indemnitee that is finally adjudicated to (i) have been knowingly fraudulent or deliberately dishonest or to have constituted willful misconduct, and (ii) be material to the cause of action so adjudicated;
(e) for any judgment, fine or penalty which the Company is prohibited by applicable law from paying as indemnity;
(f) arising out of Indemnitees personal tax matter; or
(g) arising out of Indemnitees breach of an employment agreement with the Company (if any) or any other agreement with the Company or any of its subsidiaries.
4. No Employment Rights. Nothing in this Agreement is intended to create in Indemnitee any right to continued employment with the Company.
5. Contribution. If the indemnification provided in this Agreement is unavailable and may not be paid to the Indemnitee for any reason other than those set forth in Section II. 3, then the Company shall contribute to the amount of Expenses paid in settlement actually and reasonably incurred and paid or payable by the Indemnitee in such proportion as is appropriate to reflect (i) the relative benefits received by the Company on the one hand and by the Indemnitee on the other hand from the transaction from which such Proceeding arose, and (ii) the relative fault of the Company on the one hand and of the Indemnitee on the other hand in connection with the events which resulted in such Expenses, as well as any other relevant equitable considerations. The relative fault of the Company on the one hand and of the Indemnitee on the other hand shall be determined by reference to, among other things, the parties relative intent, knowledge, access to information and opportunity to correct or prevent the circumstances resulting in such Expenses, judgments, fines or settlement amounts. The Company agrees that it would not be just and equitable if contribution pursuant to this Section II.5 were determined by pro rata allocation or by any other method of allocation which does not take account of the foregoing equitable considerations.
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III. |
Indemnification Process |
1. Notice and Cooperation By Indemnitee. Indemnitee shall give the Company notice in writing as soon as practicable of any claim made against Indemnitee for which indemnification will or could be sought under this Agreement. Notice to the Company shall be given in accordance with Section VI.7 below. In addition, Indemnitee shall give the Company such information and cooperation as the Company may reasonably request.
2. Indemnification Payment.
(a) Advancement of Expenses. Indemnitee may submit a written request with reasonable particulars to the Company requesting that the Company advance to Indemnitee all Expenses that may be reasonably incurred in advance by Indemnitee in connection with a Proceeding. The Company shall, within ten (10) business days of receiving such a written request by Indemnitee, advance all requested Expenses to Indemnitee. Any excess of the advanced Expenses over the actual Expenses will be repaid to the Company.
(b) Reimbursement of Expenses. To the extent Indemnitee has not requested any advanced payment of Expenses from the Company, Indemnitee shall be entitled to receive reimbursement for the Expenses incurred in connection with a Proceeding from the Company as soon as practicable after Indemnitee makes a written request to the Company for reimbursement.
(c) Determination by the Reviewing Party. Notwithstanding the foregoing, (i) the obligations of the Company under Section II.1 shall be subject to the condition that the Reviewing Party shall not have determined (in a written opinion, in any case in which the Independent Counsel referred to in Section III.2(e) hereof is involved) that the Indemnitee would not be permitted to be indemnified under applicable law or the Companys Articles of Association, and (ii) the obligation of the Company to make an advance payment of Expenses to the Indemnitee pursuant to Section III.2(a) shall be subject to the condition that, if, when and to the extent that the Reviewing Party determines that Indemnitee would not be permitted to be so indemnified under applicable law or the Companys Articles of Association, the Company shall be entitled to be reimbursed by Indemnitee (who hereby agrees to reimburse the Company) for all such amounts theretofore paid; provided, however, that if Indemnitee has commenced or thereafter commences legal proceedings in a court of competent jurisdiction to secure a determination that Indemnitee should be indemnified under applicable law, any determination made by the Reviewing Party that the Indemnitee would not be permitted to be indemnified under applicable law shall not be binding and Indemnitee shall not be required to reimburse the Company for any advanced Expenses until a final judicial determination is made with respect thereto (as to which all rights of appeal therefrom have been exhausted or lapsed). The Indemnitees obligation to reimburse the Company for any advanced Expenses shall be unsecured and no interest shall be charged thereon. If there has not been a Change in Control, the Reviewing Party shall be selected by the Board, and if there has been such a Change in Control (other than a Change in Control which has been approved by a majority of the Companys Board who were directors immediately prior to such Change in Control), the Reviewing Party shall be the Independent Counsel referred to in Section III.2(e) hereof.
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(d) Enforcement of Indemnification Rights. If there has been no determination by the Reviewing Party or if the Reviewing Party determines that Indemnitee substantively would not be permitted to be indemnified in whole or in part under applicable law, or if Indemnitee has not otherwise been paid in full within 30 days after a written demand has been received by the Company, Indemnitee shall have the right to commence litigation in any court having subject matter jurisdiction thereof and in which venue is proper to recover the unpaid amount of the demand (an Enforcement Proceeding) and, if successful in whole or in part, Indemnitee shall be entitled to be paid any and all Expenses in connection with such Enforcement Proceeding. The Company hereby consents to service of process and to appear in any such proceeding.
(e) Change in Control. The Company agrees that if there is a Change in Control of the Company (other than a Change in Control which has been approved by a majority of the Companys Board who were directors immediately prior to such Change in Control) then, with respect to all matters thereafter arising concerning the rights of Indemnitees to payments of Expenses under this Agreement or any other agreement or under the Companys Articles of Association, Independent Counsel shall be selected by the Indemnitee and approved by the Company (which approval shall not be unreasonably withheld). Such counsel, among other things, shall render its written opinion to the Company and Indemnitee as to whether and to what extent Indemnitee would be permitted to be indemnified under applicable law, and the Company agrees to abide by such opinion. The Company agrees to pay the reasonable fees of the Independent Counsel referred to above and to fully indemnify such counsel against any and all expenses (including attorneys fees), claims, liabilities and damages arising out of or relating to this Agreement or its engagement pursuant hereto.
3. Assumption of Defense. In the event the Company is obligated under this Agreement to advance or bear any Expenses for any Proceeding against Indemnitee, the Company shall be entitled to assume the defense of such Proceeding, with counsel approved by Indemnitee, upon delivery to Indemnitee of written notice of its election to do so. After delivery of such notice, approval of such counsel by Indemnitee in writing and the retention of such counsel by the Company, the Company will not be liable to Indemnitee under this Agreement for any fees of counsel subsequently incurred by Indemnitee with respect to the same Proceeding, unless (i) the employment of counsel by Indemnitee has been previously authorized by the Company, (ii) Indemnitee shall have reasonably concluded that, based on written advice of counsel, there may be a conflict of interest of such counsel retained by the Company between the Company and Indemnitee in the conduct of any such defense, or that counsel selected by the Company may not be adequately representing Indemnitee, or (iii) the Company ceases or terminates the employment of such counsel with respect to the defense of such Proceeding, in any of which events the fees and expenses of Indemnitees counsel shall be at the expense of the Company. At all times, Indemnitee shall have the right to employ counsel in any Proceeding at Indemnitees expense.
4. Defense to Indemnification, Burden of Proof and Presumptions. It shall be a defense to any action brought by Indemnitee against the Company to enforce this Agreement that it is not permissible under this Agreement or applicable law for the Company to indemnify the Indemnitee for the amount claimed. In connection with any such action or any determination by the Reviewing Party or otherwise as to whether Indemnitee is entitled to be indemnified under this Agreement, the burden of proving such a defense or determination shall be on the Company. Neither the failure of the Reviewing Party or the Company to have made a determination prior to the commencement of such action by Indemnitee that indemnification is proper under the circumstances because Indemnitee has met the standard of conduct set forth in applicable law, nor an actual determination by the Reviewing Party or the Company that Indemnitee had not met such applicable standard of conduct shall be a defense to the action or create a presumption that Indemnitee has not met the applicable standard of conduct.
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5. No Settlement Without Consent. Neither party to this Agreement shall settle any Proceeding in any manner that would impose any damage, loss, penalty or limitation on Indemnitee without the other partys written consent. Neither the Company nor Indemnitee shall unreasonably withhold its consent to any proposed settlement.
6. Company Participation. Subject to Section II.5, the Company shall not be liable to indemnify the Indemnitee under this Agreement with regard to any judicial action if the Company was not given a reasonable and timely opportunity, at its expense, to participate in the defense, conduct and/or settlement of such action.
IV. |
Director and Officer Liability Insurance |
1. Liability Insurance. The Company shall obtain and maintain a policy or policies of insurance with reputable insurance companies providing the officers and directors of the Company with coverage for losses incurred in connection with their services to the Company or to ensure the Companys performance of its indemnification obligations under this Agreement. To the extent the Company determines that it is no longer practicable for the Company to maintain such insurances, it shall notify promptly its directors and officers before it terminates such insurances and such termination must be approved by the majority of the Companys directors.
2. Coverage of Indemnitee. To the extent the Company maintains an insurance policy or policies providing directors and officers liability insurance, Indemnitee shall be covered by such policy or policies, in accordance with its or their terms, to the maximum extent of the coverage available for any of the Companys directors or officers.
3. No Obligation. Notwithstanding the foregoing, the Company shall have no obligation to obtain or maintain any director and officer insurance policy if a majority of the Companys directors determines in good faith that such insurance is not reasonably available in the case that (i) premium costs for such insurance are disproportionate to the amount of coverage provided, (ii) the coverage provided by such insurance is limited by exclusions so as to provide an insufficient benefit, or (iii) Indemnitee is covered by similar insurance maintained by a parent or subsidiary of the Company.
V. |
Non-Exclusivity; Federal Preemption; Term |
1. Non-Exclusivity. The indemnification provided by this Agreement shall not be deemed exclusive of any rights to which Indemnitee may be entitled under the Articles of Association, any vote of shareholders or directors, applicable law or any written agreement between Indemnitee and the Company (including its subsidiaries and affiliates). The indemnification provided under this Agreement shall continue to be available to Indemnitee for any action taken or not taken while serving in an indemnified capacity even though he may have ceased to serve in any such capacity at the time of any Proceeding.
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2. Federal Preemption. Notwithstanding the foregoing, both the Company and Indemnitee acknowledge that in certain instances, U.S. federal law or public policy may override applicable law and prohibit the Company from indemnifying its directors and officers under this Agreement or otherwise. Such instances include, but are not limited to, the U.S. Securities and Exchange Commissions prohibition on indemnification for liabilities arising under certain U.S. federal securities laws. Indemnitee understands and acknowledges that the Company has undertaken or may be required in the future to undertake with the U.S. Securities and Exchange Commission to submit the question of indemnification to a court in certain circumstances for a determination of the Companys right under public policy to indemnify Indemnitee.
3. Duration of Agreement. All agreements and obligations of the Company contained herein shall continue during the period Indemnitee is an officer and/or a director of the Company (or is or was serving at the request of the Company as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise) and shall continue thereafter so long as Indemnitee shall be subject to any Proceeding by reason of his former or current capacity at the Company or any other enterprise (including service with respect to employee benefit plans) at the Companys request, whether or not he is acting or serving in any such capacity at the time any Expense is incurred for which indemnification can be provided under this Agreement. This Agreement shall continue in effect regardless of whether Indemnitee continues to serve as an officer and/or a director of the Company or any other enterprise at the Companys request.
VI. |
Miscellaneous |
1. Amendment of this Agreement. No supplement, modification, or amendment of this Agreement shall be binding unless executed in writing by the parties hereto. No waiver of any of the provisions of this Agreement shall operate as a waiver of any other provisions (whether or not similar), nor shall such waiver constitute a continuing waiver. Except as specifically provided in this Agreement, no failure to exercise or any delay in exercising any right or remedy shall constitute a waiver.
2. Subrogation. In the event of payment to Indemnitee by the Company under this Agreement, the Company shall be subrogated to the extent of such payment to all of the rights of recovery of Indemnitee, who shall execute all papers required and shall do everything that may be necessary to secure such rights, including the execution of such documents necessary to enable the Company to bring suit to enforce such rights.
3. Assignment; Binding Effect. Neither this Agreement nor any of the rights or obligations hereunder may be assigned by either party hereto without the prior written consent of the other party; except that the Company may, without such consent, assign all such rights and obligations to a successor in interest to the Company which assumes all obligations of the Company under this Agreement in a written agreement in form and substance satisfactory to Indemnitee. Notwithstanding the foregoing, this Agreement shall be binding upon and inure to the benefit of and be enforceable by and against the parties hereto and the Companys successors (including any direct or indirect successor by purchase, merger, consolidation, or otherwise to all or substantially all of the business and/or assets of the Company) and assigns, as well as Indemnitees spouses, heirs, and personal and legal representatives.
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4. Severability and Construction. Nothing in this Agreement is intended to require or shall be construed as requiring the Company to do or fail to do any act in violation of applicable law. The Companys inability, pursuant to a court order, to perform its obligations under this Agreement shall not constitute a breach of this Agreement. In addition, if any portion of this Agreement shall be held by a court of competent jurisdiction to be invalid, void, or otherwise unenforceable, the remaining provisions shall remain enforceable to the fullest extent permitted by applicable law. The parties hereto acknowledge that they each have opportunities to have their respective counsels review this Agreement. Accordingly, this Agreement shall be deemed to be the product of both of the parties hereto, and no ambiguity shall be construed in favor of or against either of the parties hereto.
5. Counterparts. This Agreement may be executed in two (2) counterparts, both of which taken together shall constitute one instrument.
6. Governing Law. This agreement and all acts and transactions pursuant hereto and the rights and obligations of the parties hereto shall be governed, construed and interpreted in accordance with the laws of the State of New York, U.S.A., without giving effect to conflicts of law provisions thereof.
7. Notices. All notices, demands, and other communications required or permitted under this Agreement shall be made in writing and shall be deemed to have been duly given if delivered by hand, against receipt, on the date of delivery, or mailed, on the third business day after mailing, postage prepaid, certified or registered mail, return receipt requested, and addressed to the Company at:
Xpeng Inc.
No. 8 Songgang Road, Changxing Street
Cencun, Tianhe District, Guangzhou
Guangdong 510640
Peoples Republic of China
Attention: General Counsel
and to Indemnitee at:
[Name]
[Address]
[Address]
[Address]
Notice of change of address shall be effective only when done in accordance with this Section.
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8. Certain Relationships. The obligations and rights created under this Agreement shall not be affected by any amendment to the Companys Articles of Association or any other agreement or instrument to which Indemnitee is not a party, and shall not diminish any other rights which Indemnitee now or in the future has against the Company or any other person or entity.
9. Acknowledgment. The Company expressly acknowledges that it has entered into this Agreement and assumed the obligations imposed on the Company under this Agreement in order to induce Indemnitee to serve or to continue to serve as a director or officer and acknowledges that Indemnitee is relying on this Agreement in serving or continuing to serve in such capacity. The Company further agrees to stipulate in any court proceeding that the Company is bound by all of the provisions of this Agreement.
10. Period of Limitations. No legal action shall be brought and no cause of action shall be asserted by or in the right of the Company against Indemnitee, or Indemnitees estate, heirs, executors, administrators or personal or legal representatives after the expiration of two years from the date of accrual of such cause of action, and any claim or cause of action of the Company shall be extinguished and deemed released unless asserted by the timely filing of a legal action within such two-year period; provided, however, that if any shorter period of limitations is otherwise applicable to any such cause of action, such shorter period shall govern.
11. Entire Agreement. This Agreement constitutes the entire agreement and supersedes all prior agreements and understandings, both written and oral, between the parties with respect to the subject matter hereof.
[Signature page follows]
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IN WITNESS WHEREOF, the parties hereto execute this Agreement as of the date first written above.
XPENG INC. |
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Name: |
Title: |
INDEMNITEE |
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Name: |
Exhibit 10.2
Contract No.:
Employment Contract
Party A:
Party B:
Execution date:
1 / 16
Party A (Employer): | Party B (Employee): | |
ID No.: | ||
Correspondence address: | Domicile address: | |
Legal representative: | Correspondence address: | |
Tel: | Tel: |
Party A and Party B enter into this contract according to the Labor Law of the Peoples Republic of China (Labor Law), the Employment Contract Law of the Peoples Republic of China (Employment Contract Law) and applicable provisions of the State, province and city, and pursuant to the principles of legality, fairness, equality, voluntariness, consensus and good faith.
1. Preconditions
1.1 Party B warrants that all personal information and materials provided or declared by him/her to Party A are true and free of any false content. Party B will bear all adverse consequences if any information is untrue or any material is defective.
1.2 Party B undertakes that he/she does not have any employment or service relationship with other entities or assume any obligation of restricting or prohibiting competition to other entities. Otherwise, he/she shall be solely liable for any dispute arising therefrom, without any liability of Party A.
2. Term of Contract
2.1 Term of contract
Party A and Party B agree to determine the term of this contract according to paragraph (1) below:
(1) Fixed term: from [dd/mm/yy] to [dd/mm/yy].
(2) Non-fixed term: from [dd/mm/yy] to the satisfaction of any statutory conditions on termination.
(3) Term ending on completion of certain work: from [dd/mm/yy] to the completion of [insert the work], and marked with [●].
2.2 Probation period
Both Parties agree to determine the probation period according to paragraph (1) below:
(1) No probation period.
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(2) Probation period from [dd/mm/yy] to [dd/mm/yy].
(The probation period shall not exceed one month if the term of contract is no less than three months and no more than one year, shall not exceed two months if the term of contract is no less than one year and no more than three years, and shall not exceed six months if the term of contract is a fixed term of three years or not fixed. No probation period may be specified if the term of contract ends when certain work is completed or if the term of contract is less than three months. One probation period only may be specified between the same employer and employee.)
2.3 Terminating the employment contract during the probation period
2.3.1 If Party B has one of the following circumstances during the probation period, he/she will be deemed as not meeting the employment conditions, and Party A can terminate the employment contract with him/her at any time without paying any financial compensation:
(1) Party B fails to go through the employment formalities specified by the government;
(2) Party B is not competent for the tasks arranged by Party A or the job duties specified by Party A;
(3) Party B fails to rescind or terminate his/her employment contract or employment relationship with the original employer according to law;
(4) Party B has non-competition agreement with the original employer and Party A is within the scope of the restriction;
(5) Party B is suspected of violation of law or crime;
(6) Party B fails to take the position at the time agreed in this contract without Party As written permission;
(7) Party B does not agree to purchase social insurance or fails to sign the employment contract according to the version of the employment contract formulated by Party A;
(8) Party B fails to meet the employment conditions for the specific position specified by the employer in other aspects.
2.3.2 Either Party intending to terminate the employment contract during the probation period shall give a three-day written notice to the other Party. Otherwise, the terminating Party shall be liable for any damages caused thereby.
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3. Content and Place of Work
3.1 Party Bs position: ____________. Party B must complete the work according to the time, quality, and quantity specified in the job responsibilities of the position, and accept Party As assessment.
3.2 Party Bs working place: ___________.
3.3 Party A and Party B agree that Party A can adjust Party Bs work position and Party Bs labor remuneration will be adjusted to the standard for the new position accordingly if:
(1) Party B is proved to be incompetent for the job;
(2) Party B cannot perform the original job when and after Party Bs medical treatment of any illness or non-work-related injury expires;
(3) Party Bs position no longer exists or the number of positions similar to that of Party B reduces due to any change to Party As production and operation mode, organization or personnel structure, and Party A have to adjust Party Bs position to continue the performance of this contract;
(4) Party Bs position needs to be changed due to Party As business development needs.
3.4 The incompetent for the job specified in Article 3.3 hereof includes but is not limited to the following:
(1) Party B cannot complete the tasks arranged by Party A as required by the job responsibilities;
(2) Party B fails to pass the performance assessment;
(3) Party B loses the statutory or agreed job qualifications (including but not limited to professional qualifications).
3.5 Party B clearly understands that Party A has business operations within and outside the Peoples Republic of China, that Party A can make temporary adjustments to Party Bs work content and work place based on work needs, including but not limited to arranging Party B to work in other cities where Party A has already started or will start business within or outside the Peoples Republic of China, and Party B shall complete the work dutifully.
4. Working Hours, Rest and Leave
4.1 Both Parties agree to determine the working hours of Party B according to paragraph (1) below, and, if Party Bs work content or corresponding position is approved by the labor administrative department to use other working hour system, the approved working hour system shall be applied from the date of approval:
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(1) Standard working hour system: The companys regulations shall apply and Party B may rest at least one day per week.
(2) Flexible working hour system: After approval by the labor administrative department, a flexible working hour system will be applied to Party Bs position, and Party B may rest at least one day per week.
(3) Comprehensive working hour system: After approval by the labor administrative department, the comprehensive working hour system with a period of one year ( )/half a year ( )/one quarter ( )/one month ( ) will be applied to Party Bs position.
4.2 In the event that the standard working hour system or the comprehensive working hour system is applied, Party A may arrange Party B to work overtime according to law upon negotiation and consensus with Party B if the business needs. Party B undertakes to obey Party As work arrangements during the overtime period. If Party B does need to work overtime due to job requirements, he/she must perform overtime work application and approval procedures in advance in accordance with Party As rules and regulations, and can work overtime only after approval. Otherwise, it will not be regarded as overtime work. Both Parties acknowledge that the attendance and clocking-in records will not be used as a basis for overtime work.
4.3 Where Party A implements the statutory rules and regulations on work, rest, and leave and those supplemented by the company in accordance with the law, it shall be regarded as absenteeism if Party B leaves the position without going through the leave formalities or if Party B so leaves when his/her application for leave is not approved. If Party B is absent from work for 3 or more days in aggregate within one month (or 30 natural days), or for 2 or more days consecutively, or for 5 or more days in aggregate within one year (or 12 months), it shall be regarded as resignation by Party B unilaterally and serious violation of labor discipline. In that case, Party B agrees that the employment contract terminates without paying by Party A any financial compensation or remuneration to Party B.
5. Remuneration
5.1 Party B is entitled to the labor remuneration paid by Party A in accordance with this Article 5 after providing normal labor to Party A according to this Contract. Both Parties agree that Party Bs salary shall be subject to the latest written notice of Party As adjustment to Party Bs position remuneration before signing this contract or the fixed basic salary amount in Party Bs payroll and that if Party As rules and regulations provide otherwise for the calculation and payment of Party Bs position remuneration, such rules and regulations shall apply. During the term of this contract, Party A can adjust Party Bs salary if it complies with the law. The above agreed salary has included Party Bs overtime pay.
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5.2 Party A shall pay the previous months currency salary before the 10th day of each month based on Party Bs attendance. In case of special reasons such as force majeure, the payment can be delayed, but Party A must promptly explain the reason to Party B. If Party B fails to fully attend work due to personal leave, new employment, resignation, etc., Party Bs salary for the current month shall be calculated and paid according to the actual number of working days based on the above-mentioned daily salary calculation standard.
5.3 Unless otherwise specified, the salary paid by Party A to Party B is pre-tax salary. Party A can deduct the following expenses from Party Bs salary according to the legal authorization:
(1) The social insurance premium, individual income tax and other expenses borne by Party B that should be deducted according to law;
(2) Compensation for the economic losses of the employer caused by the fault of Party B;
(3) Other expenses agreed by Party B or specified by the national laws and regulations.
5.4 Party B shall check his monthly salary list and the salary amount in his personal bank account in a timely manner. If there is any objection to the salary payment of the current month, he/she shall submit the objection in writing to the human resources department before the 15th day of the next month. If any mistakes are verified, the company shall verify and correct them. If Party B fails to submit the objection timely, he/she shall be deemed to have no objection to the salary payment of the current month, and Party B agrees to waive the right to make any claims regarding the calculation and payment of salary in the future.
6. Social Insurance
6.1 Party A and Party B shall participate in social insurance and pay social insurance premiums in accordance with relevant regulations of the State, province or city, and Party B shall enjoy corresponding social insurance benefits in accordance with the law. Party B undertakes to timely submit to Party A the relevant information, materials, certificates, etc. necessary for handling the above insurance.
6.2 If Party B becomes ill or suffers non-work-related injury, Party A shall provide Party B with the medical period and medical treatment in accordance with national and local regulations, and pay sick leave salary or sickness relief fees during the prescribed medical period.
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6.3 If Party B suffers from an occupational disease, is injured at work, or dies due to work, Party A shall follow the laws and regulations of the State, province or city on work-related injury insurance.
7. Labor Protection, Labor Conditions and Occupational Hazard Protection
7.1 Party A shall provide Party B with labor workplaces that comply with the national labor hygiene standards in accordance with relevant regulations of the State, province or city on labor protection, and effectively protect Party Bs safety and health during production. If occupational disease hazards may occur during Party Bs work, Party A shall truthfully inform Party B and protect Party Bs health and related rights and interests in accordance with the provisions of the Occupational Disease Prevention and Control Law.
7.2 Party A shall properly conduct the labor protection for female employees and underage workers in accordance with relevant national and local regulations.
7.3 If Party A directs in violation of regulations or forces risky operations to endanger personal safety, Party B has the right to refuse and can terminate this employment contract at any time. For Party A and its management personnels disregard of Party Bs safety and health, Party B has the right to request corrections and report and complain to the relevant authorities.
7.4 Party B clearly understands that Party Bs workplace is indoors and that Party A has taken effective heatstroke prevention and cooling measures such as air-conditioning. Party B is not a high-temperature worker. If the temperature of Party Bs workplace exceeds 33°C and Party A has not taken effective heatstroke prevention and cooling measures, Party B shall promptly raise an objection to Party A in writing.
8. Labor Disciplines; Rules and Regulations
8.1 Party A may formulate and modify the Employee Code of Conduct and other rules and regulations on salary, benefits, attendance, rewards and punishments in accordance with the needs of business management. Party B shall strictly abide by the national laws and regulations and the Employee Code of Conduct formulated by Party A in accordance with the law and other company rules and regulations, and abide by the operating procedures. If Party B violates laws and regulations and the Employee Code of Conduct formulated by Party A and other company rules and regulations, Party A has the right to deal with such violation up to the termination of this contract. Party B confirms that it knows, recognizes and will abide by the Employee Code of Conduct and all company rules and regulations.
8.2 During the employment by Party A, Party B shall not engage in any behavior irrelevant to the work, and shall not engage in any behavior that damages Party As image, reputation, or interests.
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9. Modification, Rescission and Termination of Contract
9.1 Party A and party B shall modify, rescind, terminate and renew this contract in accordance with the Labor Law, the Employment Contract Law and other applicable national and local regulations and the rules and regulations of the company.
9.2 Upon agreement between Party A and Party B, the relevant content of this contract can be changed, and the fixed-term contract, the non-fixed-term contract, and the contract with a certain period of work to be completed can be rescinded.
9.3 Except for statutory circumstances, if Party B proposes to terminate this contract during the term hereof, he/she must notify Party A in writing thirty days in advance (If Party B resigns during the probation period, he/she shall notify Party A in writing three days in advance). If Party B rescinds this contract, he/she shall complete the resignation and handover procedures in accordance with Party As regulations before the last working day. If Party B fails to complete the work handover or notify in advance in accordance with the law, Party A has the right not to go through the resignation procedures and request Party B to compensate Party As actual loss caused thereby. The actual loss includes but is not limited to:
(1) the training fees and recruitment fees paid by Party A for Party B;
(2) the overtime pay and additional management cost of Party A for any temporary arrangement of the substitute for Party B;
(3) the labor remuneration and relevant management cost of Party A for any temporary use of any substitute for Party B;
(4) Other direct economic loss to Party As production, operation and work.
9.4 Party A has the right to immediately rescind this contract without paying any economic compensation if during the term of this contract Party B:
(1) is proved to be failing the employment conditions;
(2) seriously violates the labor discipline or Party As rules and regulations;
(3) conducts serious dereliction of duty or malpractices for private purposes, causing significant damage to Party A;
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(4) establishes employment with other employers at the same time, which seriously affects the completion of Party As work tasks, or refuses to make corrections upon request of Party A;
(5) uses fraud or coercion or takes advantage of others to make Party A enter into or change this contract against its true intentions;
(6) is held criminally responsible according to law.
(7) Has other circumstances specified by the national laws and regulations.
9.5 Party A shall issue a certificate of rescission or termination of the employment contract when rescinding or terminating this contract, and shall cooperate with Party B in handling the transfer procedures of archives and social insurance relations within fifteen days after this contract is rescinded or terminated. Party B shall complete the handover of work according to this contract and the agreement between both Parties.
9.6 In order to protect Party As business secrets and legal rights and interests, Party B agrees to sign a confidentiality and non-competition agreement as required by Party A and abide by it. Otherwise, if Party B infringes on Party As business secrets and other legal rights and interests, it shall bear corresponding legal liabilities and be liable for any damages.
10. Work Handover
10.1 Regardless this contract is rescinded or terminated for whatever reasons, Party B must go through the work and article handover procedures in accordance with the procedures specified by Party A:
(1) Return all identification documents representing Party A, such as employee information cards, etc.
(2) Return all Party As documents, materials, records, equipment, tools, stationery, communication equipment, etc.;
(3) Explain all the work clearly to the successor in writing, or other handover methods and results approved by Party A;
(4) Settle or determine the settlement method with Party A for all relevant payables, receivables, etc.;
(5) Other items and materials that must be handed over or the handover procedures that must be completed according to Party As regulations.
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10.2 In any of the following circumstances when this contract is rescinded or terminated, Party B shall assist Party A in handling relevant matters properly. If these circumstances cause losses to Party A, Party B shall bear the corresponding compensation liability:
(1) The economic losses caused by Party B to Party A or related third parties have not yet been dealt with;
(2) Party B is investigated by relevant national authority according to law and the case has not been closed;
(3) The national or local government specifically provides for.
10.3 If Party B meets the statutory circumstances and Party A needs to pay economic compensation, it shall be paid on the first salary payment day of Party A after Party B completes all resignation handover procedures. The specific payment standards shall be subject to relevant laws and regulations. If Party B fails to go through the resignation and handover procedures in accordance with applicable regulations or the agreement between the both Parties, Party A has the right to temporarily suspend the payment of economic compensation and, if any loss is caused to Party A, may require Party B to compensate.
10.4 To rescind or terminate this contract, Party A shall issue a Certificate of Rescission/Termination of Employment Contract to Party B, and go through the transfer procedures for archives and social insurance relationships within 15 days from the date of rescission or termination of the employment relationship. Party A shall not be liable for any overdue processing due to Party Bs reasons.
11. Breach of Contract and Compensation Liabilities
11.1 If Party B breaches this contract or violates Party As Employee Code of Conduct or other rules and regulations, Party A has the right to deal with it (including but not limited to warning, sanctions, dismissal, etc.), up to the termination of this contract. If losses are caused to Party As production, operation or work, Party B shall be liable for compensation to Party A.
11.2 If Party B violates confidentiality or non-competition obligations, it shall bear corresponding responsibilities in accordance with the confidentiality and non-competition agreement signed by both Parties, Party As Employee Code of Conduct and other company rules and regulations.
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11.3 Where Party B accepts the relevant training provided by Party A, Party A will sign a separate training agreement with Party B and Party B will perform the training agreement. If Party B rescinds or terminates the employment relationship with Party A before the expiry of the service period, or this contract is terminated by Party A due to incompetence or the circumstances specified in Article 26, Paragraph 2 of the Implementation Regulations of the Employment Contract Law, he/she shall pay the liquidated damages, damages or refunds to Party A in accordance with the training agreement before departure. Party B agrees that Party A has the right to directly offset the corresponding amount of salaries and bonuses that have not been paid to Party B against corresponding amount. If both Parties do not sign the training agreement or if the training agreement does not provide for or relevant provision is not clear, Party B shall return to Party A the training expenses that should be allocated to the unfulfilled portion of the service period.
12. Notice and Delivery
12.1 Party B agrees that during the term of this contract any act of the emergency contact shall be deemed an act of Party B: name: , correspondence address: , Tel: . As the agent of Party B, the emergency contact has fully authority to deal with all matters hereunder on behalf of Party B, including but not limited to negotiation, settlement, receipt and payment of relevant amount, and receipt and delivery of relevant documents with Party A.
12.2 All notices, documents, instruments, materials, etc. issued or provided by Party A during the performance of this contract shall be delivered to the correspondence address of Party B (including the emergency contact) listed in this contract. If Party B (including the emergency contact) moves to another address or changes the contact address, Party B shall notify Party A in writing. If Party B fails to fulfill the notification obligation, Party A shall be deemed to have fulfilled the service obligation by mailing relevant materials to the original mailing address. Where the above materials are delivered in person, they shall be deemed to have been delivered at the time of delivery.
13. Dispute Resolution
If Party B believes that Party A infringes on his/her lawful rights and interests, he/she can first raise it with Party A or report to Party As trade union for a solution. If it cannot be resolved, a complaint may be made to the labor administrative department having jurisdiction. The Parties shall negotiate and resolve the disputes arising from performance of this contract. If the negotiation fails, they can apply to the labor dispute mediation committee of Party A for mediation within 30 days from the date of the dispute. If the mediation fails or the mediation agreement is not fulfilled after its conclusion, either Party may apply to the labor dispute arbitration committee in the place of Party A.
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14. Miscellaneous
14.1 The relevant agreements signed by Party A and Party B on matters such as confidentiality, competition restrictions, training, service inventions, and Party As Employee Code of Conduct and rules and regulations are all valid schedules to this contract. Party B confirms that it has read, fully understood and accepted the content thereof, and undertakes to strictly abide by them. The Employee Code of Conduct and other company rules and regulations revised or newly formulated by Party A in accordance with the law will also be effective schedules to this contract. After being announced to Party B, they will be binding on Party B and Party B shall also strictly abide by them.
14.2 Matters not covered in this contract shall be subject to the national laws and regulations, Party As Employee Code of Conduct and other company rules and regulations. If any provision of this contract becomes invalid due to the revision of laws and regulations, the validity of other provisions in this contract will not be affected. The provisions of this contract that purport to survive the termination of the employment relationship between Party B and Party A shall continue to be effective after the termination of the employment relationship between Party B and Party A.
14.3 No failure or delay of Party A to exercise any right or remedy hereunder shall prejudice to such right or remedy, or be interpreted as waiver of such right or remedy. Party A may exercise any right or remedy in a single or partial way. Any single or partial exercise by Party A of any right or remedy shall not preclude any further exercise of such right or remedy. The right or remedy granted to Party A hereunder shall not preclude other right or remedy enjoyed by Party A according to law.
14.4 Party B has confirmed the content of the Employee Integrity Commitment as attached hereto when signing this contract. The exhibit is an integral part of this contract and has equal legal force with this contract.
14.5 This contract is made in two counterparts, with each Party holding one. This contract becomes effective when Party A seals and Party B signs. The term of this contract ends when it is terminated according to the provisions hereof or the law. If the employment contract signed by both Parties before has not expires, this contract will act as a modification to that employment contract.
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Exhibit:
Employee Integrity Commitment
Name: | ID No.: | |
Department: | Position: |
I am an employee of (Company). In order to strictly comply with laws, regulations and the rules and regulations of the Company, I hereby commit as follows:
1. In the cooperation with the Companys business related parties (including but not limited to suppliers, cooperative entities, individuals, etc.), I will strictly observe the principles of impartiality, fairness, and openness.
2. I shall not directly or indirectly bribe the Companys business related parties in any way (including but not limited to providing gift of cashes, goods or securities, or other advantages or benefits to the other party).
3. I shall not accept or solicit any form of gifts provided by the Companys business related parties in any way, including but not limited to discounts, rebates, commissions, cash gifts, securities, intermediary fees, facilitation fees, thank fees, etc.
4. I shall not participate in any non-work-related investigation, tourism, entertainment, cultural, sports and health care activities invited by business related parties. If I have to participate due to the situation, I shall first report to my supervisor and can participate only after my supervisor approves. I shall not participate alone, and must be accompanied by at least one Company peer.
5. I shall not accept or request personal expense reimbursement, or any benefit for the work of my relatives and/or travel convenience, etc. provided by the Companys business related parties for any reason.
6. I shall not accept valuable gifts from business related parties. If I have to accept the gift due to the circumstances, I can accept it at my discretion (but the gift provider and I must not have any entrusted matters), and the gift received should be shared/commonly used as much as possible.
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7. I shall not accept non-work-related entertainment or banquets from the Companys business related parties, nor entertain business related parties for personal reasons (including but not limited to weddings, birthdays, childrens school banquets, etc.). If I have to participate due to the situation, I shall first report to my supervisor and can participate only after my supervisor approves. I shall not participate alone, and must be accompanied by at least one Company peer.
8. I shall not use the convenience of my position to misappropriate public funds, occupy Companys property, or use Companys resources, business channels, trade secrets, etc. to conduct other profitable activities for myself or others.
9. I guarantee that the accounts of mine and the Company are distinguished clearly and accurately, and the accounts are reported in a timely manner and completed on a regular basis.
10. I will not do anything that violates integrity, harms or is suspected of harming the rights of the Company. When my work involves or may involve my relatives and friends due to the scope of my duties, I should consciously ask for recusal from the superior.
11. I guarantee that my relatives, friends or other people with a specific relationship with me will also comply with the above commitments.
12. I shall not conduct private business transactions with business related parties or engage in business-related paid intermediary activities.
13. I shall not participate in the business operations of the Companys business related parties relating to the Companys business in the form of personal equity investment.
If I breach any of the above commitments, the Company has the right to investigate. I promise to cooperate actively and not to conceal the truth, and I agree that the Company has the right to adjust my position.
If my breach constitutes serious violation of laws or disciplines, I agree that the Company has the right to take the following measures:
1. The Company has the right to rescind the employment contract with me without constituting illegal termination or paying any economic compensation and/or damages, and I agree to compensate all losses incurred by the Company thereby;
2. The company has the right to make company-wide announcement about my violation of relevant (including personal information) and enter it into the dishonest blacklist of the China Enterprise Anti-fraud Alliance. According to the relevant regulations of the China Enterprise Anti-Fraud Alliance, the member enterprises will have the right to refuse to hire the blacklisted person.
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3. The Company has the right to hold me accountable for all civil, administrative or criminal legal liabilities caused thereby according to the due legal procedures.
This Commitment is an exhibit to the employment contract entered into between me and the Company, and has equal legal force with the employment contract.
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Exhibit 10.17
XPENG INC.
AMENDED AND RESTATED 2019 EQUITY INCENTIVE PLAN
As adopted on August 20, 2020
1. Purposes of the Plan.
The purposes of this XPeng Inc. Amended and Restated 2019 Equity Incentive Plan (the Plan) is to enable XPeng Inc., an exempted company incorporated in the Cayman Islands (the Company) to attract and retain the services of Employees and Directors considered essential to the success of the Company and the Group Members (as defined below) (collectively, the Group) by providing additional incentives to promote the success of the Group as a whole. Options, Restricted Shares, Restricted Share Units, Dividend Equivalents, Share Appreciation Rights and Share Payments (each as defined below) may be granted under the Plan. Options granted under the Plan shall be Nonstatutory Stock Options, as determined by the Administrator (as defined below) at the time of grant.
2. Definitions and Interpretation.
(a) Definitions. In this Plan, unless the context otherwise requires, the following expressions shall have the following meanings:
Administrator means the Committee or any member(s) of the Board or officer(s) of the Company whom the Committee has delegated its authority to act as the Administrator as provided in Section 4(e).
Applicable Law means the legal requirements relating to the Plan and the Awards under applicable provisions of the corporate, securities, tax and other laws, rules, regulations and government orders, and the rules of any applicable stock exchange or national market system, of any jurisdiction applicable to Awards granted to residents therein.
As-Converted Basis means assuming that, with respect to any outstanding preferred shares that are convertible into Shares, such preferred shares have been so converted, and with respect to any warrants that are convertible into preferred shares, that the preferred shares issuable upon the exercise of the warrants have been so issued and that such issued preferred shares have also been so converted into Shares.
Award means an Option, Restricted Share, Restricted Share Unit, Dividend Equivalent, Share Appreciation Right or Share Payment award granted to a Participant pursuant to the Plan.
Award Agreement means any written agreement, contract, or other instrument or document evidencing an Award, including through electronic medium.
Board means the board of directors of the Company.
Business means any Person that carries on activities for profit, and shall be deemed to include any affiliate of such Person.
Cause means, with respect to a Participant, unless in the case of a particular Award, the particular Award Agreement states otherwise, (a) the applicable Group Member having cause, just cause or term of similar meaning or import, to terminate a Participants employment or service, as defined in any employment, consulting or services agreement between the Participant and such Group Member in effect at the time of such termination or (b) in the absence of any such employment, consulting or services agreement (or the absence of any definition of cause, just cause or term of similar meaning or import contained therein), the following events or conditions, as determined by the Administrator in its sole discretion:
(i) any commission of an act of theft, embezzlement, fraud, dishonesty, ethical breach or other similar acts, or commission of a criminal offense;
(ii) any material breach of any agreement or understanding between the Participant and any Group Member including, without limitation, any applicable intellectual property and/or invention assignment, employment, non-competition, confidentiality or other similar agreement or the Group Members code of conduct or other workplace rules;
(iii) any material misrepresentation or omission of any material fact in connection with the Participants employment with any Group Member or service as a Service Provider;
(iv) any material failure to perform the customary duties as an Employee or Director, to obey the reasonable directions of a supervisor or to abide by the policies or codes of conduct of the Company or any other Group Member or to satisfy the requirements or working standards of the applicable Group Member during any applicable probationary employment period; or
(v) any conduct that is materially adverse to the name, reputation or interests of the Group Members.
Change in Control means any of the following transactions:
(i) an amalgamation, arrangement, merger, consolidation or scheme of arrangement 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 which following such transaction the holders of the Companys voting shares immediately prior to such transaction own more than fifty percent (50%) of the voting shares of the surviving entity;
(ii) the sale, transfer or other disposition of all or substantially all of the assets of the Company (other than to a Subsidiary);
(iii) the completion of a voluntary or insolvent liquidation or dissolution of the Company;
(iv) any takeover, reverse takeover, scheme of arrangement, or series of related transactions culminating in a reverse takeover or scheme of arrangement (including, but not limited to, a tender offer followed by a takeover or reverse takeover) in which the Company survives but (A) the shares of the Company outstanding immediately prior to such transaction are converted or exchanged by virtue of the transaction into other property, whether in the form of shares, securities, cash or otherwise, or (B) the shares carrying more than fifty percent (50%) of the total combined voting power of the Companys then issued and outstanding shares are transferred to a person or persons different from those who held such shares immediately prior to such transaction culminating in such takeover, reverse takeover or scheme of arrangement, or (C) the Company issues new voting shares in connection with any such transaction, in each case such that holders of the Companys voting shares immediately prior to the transaction no longer hold more than fifty percent (50%) of the voting shares of the Company after the transaction; or
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(v) the acquisition in a single or series of related transactions by any person or related group of persons (other than Employees of one or more Group Members or entities established for the benefit of the Employees of one or more Group Members) of (A) control of the board of directors of the Company or the ability to appoint a majority of the members of such board, or (B) beneficial ownership (within the meaning of Rule 13d-3 under the U.S. Securities Exchange Act) of shares carrying more than fifty percent (50%) of the total combined voting power of the Companys then issued and outstanding shares.
Code means the United States Internal Revenue Code of 1986, as amended.
Committee means the Compensation Committee of the Board (or a subcommittee thereof), or such other committee of the Board to which the Board has delegated power to act pursuant to the provisions of the Plan; provided, that in the absence of any such committee, the term Committee shall mean the Board.
Company has the meaning set forth in Section 1.
Competitor means any Business that is engaged in or is about to become engaged in any activity of any nature that competes with a product, process, technique, procedure, device or service of any Group Member.
Delivered Shares has the meaning set forth in Section 7(c)(iv).
Director means a member of the board of directors or similar governing body of a Group Member.
Disability means, unless in the case of a particular Award, the particular Award Agreement states otherwise, as to any Participant, (a) Disability, as defined in any employment, consulting or services agreement between the Participant and the applicable Group Member in effect at the time of such termination; or (b) in the absence of any such employment, consulting or services agreement (or in the absence of any definition of Disability contained therein), a disability, whether temporary or permanent, partial or total, as determined by the Administrator in its sole discretion.
Dividend Equivalent means a right to receive (in cash or other property or, subject to Section 14, a reduction in exercise price or base price of the relevant outstanding Award) dividends paid on Shares underlying an Award (or an amount equal to the dividends that would have been paid on such Shares as if such Shares had been issued and outstanding during the relevant period) as provided under Section 14.
Employee means any person who has an employment relationship with any Group Member. A Service Provider shall not cease to be an Employee in the case of (i) any leave of absence approved by the relevant Group Member under Applicable Laws, or (ii) transfers between locations of Group Members.
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Fair Market Value means, as of any date, the value of Shares determined as follows:
(i) If the Shares are listed on one or more established stock exchanges or traded on automated quotation systems, the 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 or traded on the date of determination, as reported in Bloomberg or such other source as the Administrator deems reliable unless otherwise prescribed by any Applicable Law, or, if the date of determination is not a Trading Date, the closing price as quoted on the principal exchange or system on which the Shares are listed or traded on the Trading Date immediately preceding the date of determination;
(ii) If depositary receipts representing the Shares are listed on one or more established stock exchanges or traded on automated quotation systems, the Fair Market Value shall be the closing sales price for such depositary receipts (or the closing bid, if no sales were reported) as quoted on the principal exchange or system on the date of determination, as reported in Bloomberg or such other source as the Administrator deems reliable, divided by the number of Shares that are represented by such depositary receipts, or, if the date of determination is not a Trading Date, the closing sales price for such depositary receipts as quoted on the principal exchange or system on which such depositary receipts are listed or traded on the Trading Date immediately preceding the date of determination, divided by the number of Shares that are represented by such depositary receipts;
(iii) If the Shares or depositary receipts representing the Shares are regularly quoted by a recognized securities dealer but selling prices are not reported, the Fair Market Value shall be the mean between the high bid and low asked prices for (a) the Shares on the date of determination or (b) depositary receipts representing the Shares on the date of determination, divided by the number of Shares that are represented by such depositary receipts, as applicable; or
(iv) In the absence of an established market for the Shares, the Fair Market Value thereof shall be determined in good faith by the Administrator.
Family Member means (i) any person who is a family member of the Participant, as such term is used in the instructions to Form S-8 under the U.S. Securities Act (collectively, the Immediate Family Members, which includes any child, stepchild, grandchild, parent, stepparent, grandparent, spouse, former spouse, sibling, niece, nephew, mother-in-law, father-in-law, son-in-law, daughter-in-law, brother-in-law, or sister-in-law, including adoptive relationships, and any person sharing the Participants household (other than a tenant or employee); (ii) a trust solely for the benefit of the Participant and/or the Participants Immediate Family Members; or (iii) a partnership or limited liability company whose only partners or shareholders are the Participant and/or the Participants Immediate Family Members; or (iv) any other transferee as may be approved by the Administrator in its sole discretion in an Award Agreement or otherwise.
Fully Diluted Basis means assuming that all outstanding preferred shares, options, warrants and other equity securities that are convertible into or exercisable or exchangeable for Shares (whether or not by their terms then currently convertible, exercisable or exchangeable) have been so converted, exercised or exchanged.
Group has the meaning set forth in Section 1.
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Group Member means the Company, any Subsidiary or any Related Entity.
Incentive Stock Option means an Option intended to qualify as an incentive stock option within the meaning of Section 422 of the Code.
Initial Public Offering means the first firm commitment underwritten offering of the IPO Corporation pursuant to an effective registration statement under the U.S. Securities Act (other than a registration statement on Form S-4 or Form S-8 or any similar form).
IPO Corporation means the Company or any other entity which undertakes the Initial Public Offering.
Nonstatutory Stock Option means an Option not intended to qualify as an Incentive Stock Option.
Option means an option to purchase Shares granted pursuant to the Plan.
Participant means the holder of an outstanding Award granted under the Plan.
Person means any natural person, firm, company, corporation, body corporate, partnership, association, government, state or agency of a state, local, municipal or provincial authority or government body, joint venture, trust, individual proprietorship, business trust or other enterprise, entity or organization (whether or not having separate legal personality).
Plan has the meaning set forth in Section 1.
Related Entity means any Person in or of which the Company or a Subsidiary holds a substantial economic interest, or possesses the power to direct or cause the direction of the management policies, directly or indirectly, through the ownership of voting securities, by contract, or other arrangements as trustee, executor or otherwise, but which, for purposes of the Plan, is not a Subsidiary and which the Administrator designates as a Related Entity. For purposes of the Plan, any Person in or of which the Company or a Subsidiary owns, directly or indirectly, securities or interests representing twenty percent (20%) or more of its total combined voting power of all classes of securities or interests shall be deemed a Related Entity unless the Administrator determines otherwise.
Repurchased Shares has the meaning set forth in Section 7(c)(iv).
Restricted Share means a Share subject to restrictions and repurchase rights granted pursuant to the Plan.
Restricted Share Unit means the right to receive a Share, or any number or fraction thereof, at a future date granted pursuant to the Plan.
Service Provider means any Person who is an Employee or a Director; provided, that Awards shall not be granted to any Director in any jurisdiction in which, pursuant to Applicable Laws, grants to non-employees are not permitted. If any Person is a Service Provider by reason of being an Employee or Director to the Company or any Subsidiary and such Persons service is transferred to a Related Entity, then the Administrator, in its sole discretion, may determine that such Persons service as a Service Provider has terminated as a result of such transfer for any or all purposes of any Award, Award Agreement and the Plan.
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Share means a class A ordinary share of the Company, par value US$0.00001 per share, as adjusted in accordance with Section 14(a) below.
Share Appreciation Right means a right to receive a payment equal to the excess of the Fair Market Value of a specified number of Shares on the date the Share Appreciation Right is exercised over the base price set forth in the applicable Award Agreement, granted pursuant to the Plan.
Share Payment means a payment in the form of Shares, as part of any bonus, deferred compensation or other cash compensation arrangement, made in lieu of all or any portion of such bonus, deferred compensation or other cash compensation arrangement, granted pursuant to the Plan.
Subsidiary means any Person Controlled by the Company. Control means, with respect to any Person, the possession, directly or indirectly, of the power to direct or cause the direction of the management policies of a Person whether through the ownership of the voting securities of such Person or by contract or otherwise; provided, that for purposes of Incentive Stock Options, a Subsidiary shall mean only a corporation, a majority of the outstanding voting securities or voting power of which is beneficially owned, directly or indirectly, by the Company. For purposes of the Plan, any variable interest entity that is consolidated into the consolidated financial statements of the Company under applicable accounting principles or standards as may apply to the consolidated financial statements of the Company shall be deemed a Subsidiary; provided, that for purposes of Incentive Stock Options, a Subsidiary shall mean only a corporation, a majority of the outstanding voting securities or voting power of which is beneficially owned, directly or indirectly, by the Company.
Tax means any income, employment, social welfare or other tax withholding obligations (including a Participants tax obligations) or any levies, stamp duties, charges or taxes required or permitted to be withheld or otherwise payable under Applicable Laws with respect to any taxable event concerning a Participant arising as a result of this Plan.
Terminated for Cause or Termination for Cause means, in the case of a Participant, (i) the termination of the Participants status as a Service Provider for Cause or (ii) the Participants termination without Cause or voluntary resignation as a Service Provider if the Administrator determines at any time that, before or after the Participants termination without Cause or resignation, a Group Member had Cause to terminate such Participants status as a Service Provider.
Trading Date means any day on which the Shares or depositary receipts representing the Shares are (i) publicly traded on one or more established stock exchanges or automated quotation systems under an effective registration statement or similar document under Applicable Law or (ii) quoted by a recognized securities dealer.
U.S. Person means each Person who is a United States Person within the meaning of Section 7701(a)(30) of the Code (i.e., a citizen or resident of the United States, including a lawful permanent resident, even if such individual resides outside of the United States).
U.S. Securities Act means the United States Securities Act of 1933 and the regulations thereunder, as amended from time to time.
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U.S. Securities Exchange Act means the United States Securities Exchange Act of 1934 and the regulations thereunder, as amended from time to time.
(b) Interpretation. Unless expressly provided otherwise, or the context otherwise requires:
(i) the headings in this Plan are for convenience only and shall not affect its interpretation;
(ii) the terms defined in the singular shall have a comparable meaning when used in the plural, and vice versa;
(iii) references to include, includes and including shall be deemed to be followed by the phrase without limitation;
(iv) references to dollars or US$ shall be deemed references to the lawful money of the United States of America;
(v) references to clauses, sub-clauses, paragraphs, sub-paragraphs and schedules are to clauses, sub-clauses, paragraphs and sub-paragraphs of, and schedules to, this Plan;
(vi) use of any gender includes the other genders;
(vii) a reference to any statute or statutory provision shall be construed as a reference to the same as it may have been, or may from time to time be, amended, modified or re-enacted;
(viii) a reference to any other document referred to in this Plan is a reference to that other document as amended, varied, novated or supplemented at any time; and
(ix) sections 8 and 19(3) of the Electronic Transactions Law (2003 Revision) of the Cayman Islands shall not apply.
3. Shares Subject to the Plan.
(a) Subject to the provisions of Sections 14 and paragraph (b) of this Section 3, the maximum aggregate number of Shares which may be subject to Awards under the Plan is 161,462,100 Shares (the Plan Share Reserve).
(b) After the completion of the Initial Public Offering, if the aggregate number of Shares reserved and available for issuance pursuant to Awards that may be granted in the future under the Plan falls below 4% of the total shares of the Company outstanding on the last day of the immediately preceding calendar year (the Limit), the Plan Share Reserve shall automatically be increased so that the aggregate number of Shares reserved and available for issuance pursuant to Awards that may be granted in the future under the Plan shall be equal to the Limit on January 1 thereafter, assuming, for purposes of determining the number of Shares outstanding on such date, that all preferred shares, options, warrants and other equity securities that are convertible into or exercisable or exchangeable for Shares (whether or not by their terms then currently convertible, exercisable or exchangeable) that were outstanding on such date, are deemed to have been so converted, exercised or exchanged.
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(c) The Shares that may be subject to Awards are authorized but unissued Shares of the Company.
(d) If an Award (or any portion thereof) terminates, expires or lapses or is cancelled for any reason, any Shares subject to the Award (or such portion thereof) shall again be available for the grant of an Award pursuant to the Plan (unless the Plan has terminated). Shares that have actually been issued under the Plan, pursuant to Awards under the Plan shall not be returned to the Plan and shall not cause the number of Shares available to be subject to Awards under the Plan to be increased, except that if:
(i) |
any unvested Restricted Shares are cancelled (or surrendered) or the Company repurchases unvested Restricted Shares pursuant to the terms of the Award Agreement, or |
(ii) |
the Company repurchases any Shares granted under any Award (or a portion thereof) in the event of a Participants joining a Competitor, Termination for Cause, or any of the other circumstances as set forth in Section 18(a), then such Restricted Shares or Shares shall form part of the authorized but unissued share capital of the Company and may become available for future grant under the Plan (to the extent permitted under Applicable Laws). |
4. Administration of the Plan.
(a) Administrator. The Plan shall be administered by the Administrator (except as otherwise permitted herein).
(b) Duties and Powers of Administrator. It shall be the duty of the Administrator to conduct the general administration of the Plan in accordance with its provisions. Subject to the provisions of the Plan, the Administrator shall have the power and authority, in its discretion:
(i) to select the Service Providers to whom Awards may from time to time be granted hereunder;
(ii) to determine the type or types of Awards to be granted to each Service Provider;
(iii) to determine the exercise price of an Option or the base price of a Share Appreciation Right;
(iv) to determine the number of Shares, or fractions thereof, to be covered by each such Award granted hereunder;
(v) to prescribe the forms of Award Agreement for use under the Plan, which need not be identical for each Participant and to amend any Award Agreement; provided, that: (1) the rights or obligations of the Participant holding the Award that is the subject of any such Award Agreement are not affected adversely by such amendment; (2) the consent of the affected Participant is obtained; or (3) such amendment is otherwise permitted under the Plan. Any such amendment of an Award under the Plan need not be the same with respect to each Participant;
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(vi) to determine the terms and conditions of any Award granted hereunder (such terms and conditions to include, but not be limited to, the exercise price, the time or times when Awards may be vested, issued or exercised as the case may be (which may be based on performance criteria), the times at which Shares are issuable under a Restricted Share Unit, whether any Award may be paid in cash or Shares, any rules for tolling the vesting of Awards upon an authorized leave of absence, any vesting acceleration or waiver of cancellation restrictions, and any restriction or limitation regarding any Awards or the Shares relating thereto, based in each case on such factors as the Administrator, in its sole discretion, shall determine);
(vii) to determine all matters and questions relating to whether a Participants status as a Service Provider has been terminated, including without limitation if such termination was for Cause or for Disability and, if so, to determine the effective date of such termination (which it may determine to be the date of notice of resignation or the date of an act or omission by such Participant constituting Cause) and all questions of whether particular leaves of absence constitute a termination of the Service Provider;
(viii) to determine whether a Business is a Competitor;
(ix) unless otherwise required in the shareholders agreement of the Company (as it may be amended from time to time), to prescribe, amend and rescind rules and regulations relating to the Plan and the administration of the Plan and all Award Agreements, including rules and regulations relating to sub-plans established for the purpose of qualifying for preferred Tax treatment under the tax laws of any jurisdiction;
(x) to allow the Participants to satisfy minimum Tax withholding obligations by having the Company withhold from the Shares to be issued pursuant to an Award (or a portion thereof), that number of Shares having a Fair Market Value equal to the amount required to be withheld as set forth in Section 15(j) below;
(xi) to take any action, before or after an Award is made, that it deems advisable to obtain approval or comply with Applicable Laws or any necessary local governmental regulatory exemptions or approvals or listing requirements of any securities exchange or automated quotation system;
(xii) to construe, interpret, reconcile any inconsistency in, correct any defect in and/or supply any omission in, the terms of the Plan, any Award Agreement and any Award granted pursuant to the Plan; and
(xiii) make all other decisions and determinations that may be required pursuant to the Plan or as the Administrator deems necessary or advisable to administer the Plan.
(c) Action by the Administrator. The Administrator may act at a meeting or in writing signed by all members of the Administrator in lieu of a meeting. The Administrator is entitled to, in good faith, rely or act upon any report or other information furnished by any officer or other employee of any Group Member, the Companys independent certified public accountants, or any executive compensation consultant or other professional retained by the Company or the Administrator to assist in the administration of the Plan.
(d) Effect of Administrators Decision. The Administrators interpretation of the Plan, any Awards granted pursuant to the Plan and any Award Agreement, and all decisions, determinations and interpretations of the Administrator shall be final, binding and conclusive for all purposes and upon all Participants.
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(e) Delegation of Authority. To the extent permitted by Applicable Laws, the Administrator may from time to time delegate to a committee of one or more members of the Board or one or more officers of the Company the authority to grant or amend Awards or to take other administrative actions pursuant to this Section 4. Any delegation hereunder shall be subject to the restrictions and limits that the Administrator specifies at the time of such delegation, and the Administrator may at any time rescind the authority so delegated or appoint a new delegate.
5. Eligibility.
(a) Subject to the terms of the Plan, all forms of Awards may be granted to any Service Provider.
(b) Neither the Plan nor any Award shall confer upon any Participant any right with respect to continuing the Participants relationship as a Service Provider with any Group Member, nor shall it interfere in any way with the Participants right or any Group Members right to terminate such relationship at any time, with or without Cause.
6. Terms of Awards.
(a) Term. The term of each Award shall be stated in the Award Agreement; provided, that the term shall be no more than ten (10) years from the date of grant thereof. Subject to the foregoing, except as limited by the requirements of Section 409A of the Code and regulations and rulings thereunder, the Administrator may extend the term of any outstanding Award, and may extend the time period during which vested Awards may be exercised, in connection with any termination of a Participants status as a Service Provider, and may amend any other term or condition of an Award relating to such termination.
(b) Timing of Granting of Awards. The date of grant of an Award shall, for all purposes, be the date on which the Administrator makes the determination granting such Award or such other future date as is determined by the Administrator. Notice of the determination shall be given to each Service Provider to whom an Award is so granted within a reasonable time after the date of such grant.
(c) Stand-Alone and Tandem Awards. Awards granted pursuant to the Plan may, in the sole discretion of the Administrator, be granted either alone, in addition to, or in tandem with, any other Award granted pursuant to the Plan (or any other award granted pursuant to another compensation plan). Awards granted in addition to or in tandem with other Awards may be granted either at the same time as or at a different time from the grant of such other Awards (or any other award granted pursuant to another compensation plan).
(d) Award Agreement. All Awards shall be evidenced by an Award Agreement setting forth the number of Shares subject to the Award and the terms and conditions of the Award, which shall not be inconsistent with the Plan; provided, that if necessary to comply with Section 409A of the Code, for each U.S. Person the Shares subject to the Awards shall be service recipient stock within the meaning of Section 409A of the Code or the Award shall otherwise comply with Section 409A of the Code, unless the Participant consents otherwise.
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(e) Vesting. The period during which an Award, in whole or in part, vests shall be set by the Administrator, and the Administrator may determine that an Award may not vest in whole or in part for a specified period after it is granted. Such vesting may be based on service with a Group Member and/or any other criteria selected by the Administrator. At any time after grant of an Award, the Administrator may, in its sole discretion and subject to whatever terms and conditions it selects, accelerate the period during which an Award vests. No portion of an Award that is unvested or unexercisable at the termination of a Participants status as a Service Provider shall thereafter become vested or exercisable, except as may be otherwise provided by the Administrator either in the Award Agreement or by action of the Administrator following the grant of the Award.
(f) Issuance of Shares. Shares issued upon grant, exercise or vesting of an Award (or any portion thereof) shall be issued in the name of the Participant or, if requested by the Participant and if approved by the Administrator in its sole discretion, in the name of the Participant and/or in the name of one of more of the Participants Family Members.
(g) Termination of Relationship as a Service Provider. If a Participants status as a Service Provider terminates, such Participant may exercise any unexercised Award (to the extent exercisable) within such period of time, if any, as is specified in the Award Agreement to the extent that the Award is vested and exercisable on the date of termination (but in no event later than the expiration of the term of the Award as set forth in the Award Agreement). In the absence of a specified time in the Award Agreement, and except as provided in Sections 6(h), 6(i) and 6(j), Awards shall cease to be exercisable immediately following the Participants termination (and in no event shall any Award be exercisable later than the expiration of the term of the Award as set forth in the Award Agreement). Unless otherwise specified in the Award Agreement or otherwise determined by the Administrator, if, on the date of termination, the Participant is not vested as to the Participants entire Award, the unvested portion of such Award shall be deemed cancelled and the Shares covered by the unvested portion of the Award shall revert to the Plan and again be available for grant or award under the Plan. If, after termination, the Participant does not exercise the Participants Award within the time specified by the Administrator, the Award shall terminate, and the Shares covered by such Award shall revert to the Plan and again be available for grant or award under the Plan.
(h) Disability of Participant. If a Participants status as a Service Provider terminates as a result of the Participants Disability, the Participant may exercise any unexercised Award (to the extent exercisable) within such period of time as is specified in the Award Agreement to the extent the Award is vested and exercisable on the date of termination (but in no event later than the expiration of the term of such Award as set forth in the Award Agreement). In the absence of a specified time in the Award Agreement, the Award shall remain exercisable until the expiration of the term of the Award as set forth in the Award Agreement. Unless otherwise specified in the Award Agreement or otherwise determined by the Administrator, if, on the date of termination, the Participant is not vested as to the Participants entire Award, the unvested portion of such Award shall be deemed cancelled and the Shares covered by the unvested portion of the Award shall revert to the Plan and again be available for grant or award under the Plan. If, after termination, the Participant does not exercise the Participants Award within the time specified herein, the Award shall terminate, and the Shares covered by such Award shall revert to the Plan and again be available for grant or award under the Plan.
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(i) Death of Participant. If a Participant dies while a Service Provider, any unexercised Award (to the extent exercisable) may be exercised within such period of time as is specified in the Award Agreement to the extent that the Award is vested on the date of death of the Participant (but in no event later than the expiration of the term of such Award as set forth in the Award Agreement) by the Participants estate or by a person who acquires the right to exercise the Award by bequest or inheritance. In the absence of a specified time in the Award Agreement, the Award shall remain exercisable until the expiration of the term of the Award as set forth in the Award Agreement. Unless otherwise specified in the Award Agreement or otherwise determined by the Administrator, if, at the time of death, the Participant is not vested as to the entire Award, the unvested portion of such Award shall be deemed cancelled and the Shares covered by the unvested portion of the Award shall immediately revert to the Plan and again be available for grant or award under the Plan. If the Award is not so exercised within the time specified herein, the Award shall terminate, and the Shares covered by such Award shall revert to the Plan and again be available for grant or award under the Plan.
(j) Termination for Cause. Subject to Applicable Law, if a Participant is Terminated for Cause, all unexercised Options or Share Appreciation Rights, whether vested or unvested, and all other unvested Awards, shall be cancelled as of the date of such termination as determined by the Administrator in its sole discretion, and all Shares acquired pursuant to an Award by such Participant shall be subject to a right of repurchase by the Company in accordance with Section 18(b). Any Shares covered by cancelled Awards, and any Shares so repurchased, may revert to the Plan and again be available for grant or award under the Plan.
7. Options.
(a) Rights to Purchase. After the Administrator determines that it will offer Options under the Plan, it shall advise the offeree in writing or electronically of the terms, conditions and restrictions related to such Options.
(b) Exercise Price. The exercise price per Share subject to an Option shall be determined by the Administrator and set forth in the Award Agreement which, unless otherwise determined by the Administrator, 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 (i) no Option may be granted to a U.S. Person with an exercise price per Share which is less than the Fair Market Value of a Share 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, (ii) an Option 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, and (iii) 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 Administrator, 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.
(c) Consideration. The consideration to be paid for the Shares to be issued upon exercise of an Option, including the method of payment, shall be determined by the Administrator (and, in the case of an Incentive Stock Option, shall be determined at the time of grant). Such consideration may consist of:
(i) cash;
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(ii) check;
(iii) promissory note;
(iv) subject to the consent of the Administrator, Shares (Repurchased Shares) (including Shares issuable upon exercise of such Options) which have a Fair Market Value on the date of exercise equal to the aggregate exercise price of the Shares as to which such Option shall be exercised (Delivered Shares), provided that: (A) arrangements have been made for the repurchase or cancellation, as applicable, by the Company of such Repurchased Shares and the paying up in full of the par value of the Delivered Shares as required under Applicable Laws; (B) such Repurchased Shares have been held by the Participant for such period as established from time to time by the Administrator in order to avoid adverse accounting treatment applying generally accepted accounting principles; and (C) any other reasonable requirements as may be imposed by the Administrator (including by means of attestation of ownership of a sufficient number of Shares in lieu of actual delivery of such Shares to the Company) have been satisfied;
(v) consideration received by the Company under a broker-assisted or similar cashless exercise program implemented by the Company in connection with the Plan; provided, that, where relevant, arrangements have been made for the payment in full of the par value of any Shares as required under Applicable Laws in connection with such program;
(vi) such other consideration as may be approved by the Administrator from time to time to the extent permitted by Applicable Laws; or
(vii) any combination of the foregoing methods of payment. In making its determination as to the type of consideration to accept, the Administrator shall consider if acceptance of such consideration may be reasonably expected to benefit the Company.
(d) Procedure for Exercise. Any Option granted hereunder shall be exercisable according to the terms hereof at such times and under such conditions as determined by the Administrator and set forth in the Award Agreement. An Option may not be exercised for a fraction of a Share. An Option shall be exercised when the Company receives written or electronic notice of exercise (in accordance with the Award Agreement) from the person entitled to exercise the Option and payment of the exercise price and Taxes which are required to be withheld or paid by the relevant Group Member. Full payment may consist of any consideration and method of payment permitted under Section 7(c) above.
(e) Rights as a Shareholder. Until the Shares are evidenced as issued by entry in the Companys register of members, no right to vote or receive dividends or any other rights as a shareholder shall exist with respect to the Shares, notwithstanding the exercise of the Option. The Company shall cause such Shares to be evidenced as issued by entry in the Companys register of members promptly after the Option is exercised. No adjustment will be made for a dividend or other right for which the record date is prior to the date the Shares are issued, except as provided in Section 14.
(f) Substitution of Share Appreciation Rights. The Administrator may provide in the Award Agreement evidencing the grant of an Option that the Administrator, in its sole discretion, shall have the right to substitute a Share Appreciation Right for such Option at any time prior to or upon exercise of such Option; provided, that such Share Appreciation Right shall be exercisable with respect to the same number of Shares for which such substituted Option would have been exercisable.
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8. Restricted Shares.
(a) Rights to Purchase. After the Administrator determines that it will offer Restricted Shares under the Plan, it shall advise the offeree in writing or electronically of the terms, conditions and restrictions related to such Restricted Shares.
(b) Restrictions. All Restricted Shares shall, in the terms of each individual Award Agreement, be subject to such restrictions and vesting requirements as the Administrator shall provide. Restricted Shares may not be sold or encumbered until all restrictions are terminated or expire in accordance with the terms of the relevant Award Agreement. All share certificates relating to Restricted Shares shall be held by the Company in escrow for the Participant until all restrictions on such Restricted Shares have been removed.
(c) Repurchase or Cancellation of Restricted Shares. If the price for the Restricted Shares was paid by the Participant in services, then, upon termination as a Service Provider, the Participant shall no longer have any right in the unvested Restricted Shares, and such unvested Restricted Shares shall be cancelled (and for these purposes the Participant shall be deemed to have surrendered such Restricted Shares) and thereupon either cancelled or surrendered to the Company without consideration. If a purchase price was paid by the Participant for the Restricted Shares (other than in services), then, upon the Participants termination as a Service Provider, the Company shall have the right to repurchase from the Participant the unvested Restricted Shares then subject to restrictions at a cash price per Share equal to the price paid by the Participant for such Restricted Shares or such other amount as may be specified in the Award Agreement.
(d) Rights as a Shareholder. Once the Restricted Shares are issued, subject only to the restrictions on such Restricted Shares as provided in the Award Agreement and the memorandum and articles of association of the Company as amended from time to time, the Participant shall have rights as a shareholder that are equivalent to the rights of other holders of Shares, and shall be a shareholder when the Participant is recorded as the holder of such Restricted Shares upon entry in the Companys register of members. No adjustment shall be made for a dividend or other right in respect of any Restricted Share for which the record date is prior to the date the Participant is entered on the Companys register of members in respect of such Restricted Shares, except as provided in Section 14 of the Plan.
9. Restricted Share Units.
(a) Rights to Purchase. After the Administrator determines that it will offer Restricted Share Units under the Plan, it shall advise the offeree in writing or electronically of the terms, conditions and restrictions related to such Restricted Share Units.
(b) Rights as a Shareholder. Until a Share is issued in settlement of any Restricted Share Units by entry in the Companys register of members, no right to vote or receive dividends or any other rights as a shareholder shall exist with respect to such Share. The Company shall cause such Share to be evidenced as issued by entry in the Companys register of members promptly after the Restricted Share Unit vests. No adjustment will be made for a dividend or other right for which the record date is prior to the date the Shares are issued, except as provided in Section 14.
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10. Share Appreciation Rights.
(a) Rights to Purchase. After the Administrator determines that it will offer Share Appreciation Rights under the Plan, it shall advise the offeree in writing or electronically of the terms, conditions and restrictions related to such Share Appreciation Rights.
(b) Base Price. The price per Share over which the appreciation of each Share Appreciation Right is to be measured shall be the base price as determined by the Administrator and set forth in the Award Agreement, which may be a fixed or variable price determined by reference to the Fair Market Value of the Shares; provided, that, for each U.S. Person, such base price may not be established at less than the Fair Market Value on the date the Share Appreciation Right is granted without such Share Appreciation Right either complying with Section 409A of the Code, or the Participants consent. The base price per Share so established for a Share Appreciation Right may be amended or adjusted in the absolute discretion of the Administrator, provided, that such adjustment does not result in a materially adverse impact to the Participant. For the avoidance of doubt, to the extent not prohibited by Applicable Laws, a downward adjustment in the base price 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.
(c) Payment. Payment to the Company for a Share Appreciation Right shall be in cash, in Shares (based on their Fair Market Value as of the date the Share Appreciation Right is exercised) or a combination of both, as determined by the Administrator in the Award Agreement or, if the Award Agreement does not specifically so provide, by the Administrator at the time of exercise. To the extent any payment is effected in Shares, only that number of Shares actually issued in payment of the Share Appreciation Right shall be counted against the Plan Share Reserve under Section 3.
(d) Procedure for Exercise. Any Share Appreciation Right granted hereunder shall be exercisable according to the terms hereof at such times and under such conditions as determined by the Administrator and set forth in the Award Agreement. A Share Appreciation Right shall be exercised when the Company receives written or electronic notice of exercise (in accordance with the Award Agreement) from the person entitled to exercise the Share Appreciation Right and payment of Taxes which are required to be withheld by the relevant Group Member. If Shares are issued upon exercise of a Share Appreciation Right, then such Shares shall be issued in the name of the Participant or, if requested by the Participant and if approved by the Administrator in its sole discretion, in the name of the Participant and/or in the name of one or more of the Participants Family Members.
(e) Rights as a Shareholder. Until the Shares are issued by entry in the Companys register of members, no right to vote or receive dividends or any other rights as a shareholder shall exist with respect to the Shares, notwithstanding the exercise of the Share Appreciation Right. The Company shall issue (or cause to be issued) such Shares promptly after the Share Appreciation Right is exercised. No adjustment will be made for a dividend or other right for which the record date is prior to the date the Shares are issued, except as provided in Section 14.
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11. Dividend Equivalents.
The Administrator is authorized to grant Dividend Equivalents with respect to any Award and any Service Provider. Dividend Equivalents with respect to an Award may be granted by the Administrator based on dividends declared on the Shares underlying such Award (and, in the case of any such Shares which have not been issued, the Dividend Equivalent may entitle the holder of such Award to receive an amount equal to the dividends which would have been paid on such Shares, as if such Shares had been issued and outstanding during the relevant period), to be credited as of dividend payment dates during the period between the date the Dividend Equivalent is granted to a Participant and the date the Award with respect to which the Dividend Equivalent vests, is exercised, is distributed or expires, as determined by the Administrator. Such Dividend Equivalents shall be settled in cash, other property or a reduction in exercise price or base price of the relevant Award by such formula and at such time and subject to such limitations as may be determined by the Administrator and as set forth in the Award Agreement or otherwise. Dividend Equivalents shall not be granted with respect to Options or Share Appreciation Rights granted to U.S. Persons.
12. Share Payments.
The Administrator is authorized to grant Share Payments to any Service Provider in the manner determined from time to time by the Administrator; provided, that unless otherwise determined by the Administrator such Share Payments shall be made in lieu of base salary, bonus or other cash compensation otherwise payable to such Participant, including any such compensation that has been deferred at the election of the Participant; provided, further, that not less than the par value of any Share shall be received by the Company in connection with its issuance of a Share pursuant to any such Share Payment. In accordance with Applicable Law, such par value may be paid through the provision of services. The number of Shares issuable as a Share Payment shall be determined by the Administrator and may be based upon satisfaction of such specific criteria as determined appropriate by the Administrator, including specified dates for electing to receive such Share Payment at a later date and the date on which such Share Payment is to be made.
13. Non-Transferability of Awards.
Awards, and any interest therein, will not be transferable or assignable by the Participant, and may not be made subject to execution, attachment or similar process; provided, that (i) during a Participants lifetime, with the consent of the Administrator (on such terms and conditions as the Administrator determines appropriate), the Participant may transfer Awards (except Restricted Share Units) pursuant to domestic relations order in the settlement of marital property rights, (ii) the Administrator may permit transfer of an Award to Family Members in its sole discretion under such circumstances as it deems appropriate, and (iii) following a Participants death, Awards, to the extent they are vested upon the Participants death, may be transferred by will or by the laws of descent and distribution.
14. Adjustments Upon Changes in Capitalization, Change in Control.
(a) Changes in Capitalization. Subject to any required action by the shareholders of the Company, the number of Shares covered by each outstanding Award, the number of Shares which have been authorized for issuance under the Plan but as to which no Awards have yet been granted or which have been returned to the Plan upon cancellation or expiration of an Award, as well as the price per Share covered by each such outstanding Award and any other affected terms of such Awards, shall be proportionally and equitably adjusted for any increase or decrease in the number of issued Shares resulting from a subdivision or consolidation, share dividend, amalgamation, spin-off, arrangement or consolidation, combination or reclassification of Shares. Additionally, in the event of any other increase or decrease in the number of issued Shares effected without consideration by the Company, then the number of Shares covered by each outstanding Award, the number of Shares which have been authorized for issuance under the Plan but as to which no Awards have yet been granted or which have been returned to the Plan upon cancellation or expiration of an Award, as well as the price per Share covered by each outstanding Award may be adjusted for any increase or decrease in the number of issued Shares resulting therefrom. The conversion of any convertible securities of the Company shall not be deemed to have been effected without receipt of consideration. The manner in which such adjustments under this Section 14(a) are to be accomplished shall be determined by the Board, whose determination shall be final, binding and conclusive. Except as expressly provided herein, 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 or price of Shares subject to an Award. For the avoidance of doubt, in the case of any extraordinary cash dividend, the Administrator shall make an equitable or proportionate adjustment to outstanding Awards to reflect the effect of such extraordinary cash dividend.
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(b) Dissolution or Liquidation. In the event of the proposed dissolution or liquidation of the Company, the Administrator shall notify each Participant as soon as practicable prior to the effective date of commencement of such proposed dissolution or liquidation. The Administrator in its discretion may provide for a Participant to have the right to exercise the Participants Option or Share Appreciation Right until fifteen (15) days prior to the commencement of such dissolution or liquidation as to all of the Shares covered thereby. In addition, the Administrator may provide that any Company repurchase option or any vesting condition applicable to any Restricted Shares shall lapse as to all such Restricted Shares and any Shares issuable under any Restricted Share Units or as Share Payments shall be issued as of such date; provided, that the proposed dissolution or liquidation commences at the time and in the manner contemplated by the proposed dissolution or liquidation. To the extent it has not been previously exercised or paid out, all Awards will terminate immediately prior to the commencement of such proposed dissolution or liquidation.
(c) Change in Control. 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 a Change in Control occurs, the Company, as determined in the sole discretion of the Administrator and without the consent of the Participant, may take any of the following actions:
(i) accelerate the vesting, in whole or in part, of any Award;
(ii) purchase any Award for an amount of cash or shares equal to the value that could have been attained upon the exercise of such Award or realization of the Participants rights had such Award been currently exercisable or payable or fully vested (and, for the avoidance of doubt, if as of such date the Administrator determines in good faith that no amount would have been attained upon the exercise of such Award or realization of the Participants rights, then such Award may be terminated by the Company without payment); or
(iii) provide for the assumption, conversion or replacement of any Award by the successor or surviving company or a parent or subsidiary of the successor or surviving company with other rights (including cash) or property selected by the Administrator in its sole discretion or the assumption or substitution of such Award by the successor or surviving company, or a parent or subsidiary thereof, with such appropriate adjustments as to the number and kind of shares and prices as the Administrator deems, in its sole discretion, reasonable, equitable and appropriate. In the event the successor or surviving company refuses to assume, convert or replace outstanding Awards, the Awards shall fully vest, and the Participant shall have the right to exercise or receive payment as to all of the Shares subject to the Award, including Shares as to which it would not otherwise be vested, exercisable or otherwise issuable (including at the time of the Change in Control).
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(d) Prior to any payment or adjustment contemplated under this Section 14, the Committee may require a Participant to (i) represent and warrant as to the unencumbered title to the Participants Awards; (ii) bear such Participants pro rata share of any post-closing indemnity obligations, and be subject to the same post-closing purchase price adjustments, escrow terms, offset rights, holdback terms, and similar conditions as the other holders of Shares, subject to any limitations or reductions as may be necessary to comply with Section 409A of the Code; and (iii) deliver customary transfer documentation as reasonably determined by the Committee.
15. Miscellaneous General Rules.
(a) Share Certificates; Book Entry Procedures. Notwithstanding anything herein to the contrary, the Company shall not be required to issue or deliver any certificates evidencing Shares or ADSs (as defined in Section 15(e)) issued pursuant to the vesting, exercise or settlement of any Award, unless and until the Board has determined, with advice of counsel, that the issuance and/or delivery of such certificates, as applicable, is in compliance with all Applicable Laws, regulations of governmental authorities and, if applicable, the requirements of any exchange on which the Shares or ADSs are listed or traded. All Share and ADS certificates delivered pursuant to the Plan are subject to any stop-transfer orders and other restrictions as the Administrator deems necessary or advisable to comply with all Applicable Laws, and the rules of any national securities exchange or automated quotation system on which the Shares or ADSs are listed, quoted, or traded. The Administrator may place legends on any Share or ADS certificate to reference restrictions applicable to the Share or ADS. In addition to the terms and conditions provided herein, the Board may require that a Participant make such reasonable covenants, agreements, and representations as the Board, in its discretion, deems advisable in order to comply with any such laws, regulations, or requirements. The Administrator 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 Administrator. Notwithstanding any other provision of the Plan, unless otherwise determined by the Administrator or required by any Applicable Law, the Company shall not deliver to any Participant certificates evidencing Shares or ADSs issued in connection with any Award and instead such Shares or ADSs shall be recorded in the books of the Company (or, as applicable, its transfer agent or share plan administrator).
(b) Paperless Administration. Subject to Applicable Laws, the Administrator may make Awards, provide applicable disclosure and procedures for exercise of Awards by an internet website, electronic mail or interactive voice response system for the paperless administration of Awards.
(c) Applicable Currency. The Award Agreement shall specify the currency applicable to such Award. The Administrator may determine, in its sole discretion, that an Award denominated in one currency may be paid in any other currency based on the prevailing exchange rate as the Administrator deems appropriate. A Participant may be required to provide evidence that any currency used to pay the exercise price or purchase price of any Award was acquired and taken out of the jurisdiction in which the Participant resides in accordance with Applicable Laws, including foreign exchange control laws and regulations.
(d) 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 Subsidiary or Related Entity except to the extent otherwise expressly provided in writing in such other plan or an agreement thereunder.
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(e) Government, Other Regulations and Distribution of Shares. The obligation of the Company to make payment of awards in Shares or otherwise shall be subject to all Applicable Laws, rules, and regulations, 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 any Applicable Laws. If the Shares paid pursuant to the Plan may in certain circumstances be exempt from registration under 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. Additionally, in the discretion of the Administrator, American depositary shares (ADSs), may be distributed in lieu of Shares in settlement of any Award; provided, that the ADSs shall be of equal value to the Shares that would have otherwise been distributed; provided, further, that, in the discretion of the Administrator, in lieu of issuing a fractional ADS, the Company shall make a cash payment to the Participant equal to the Fair Market Value of such fractional ADS. If the number of Shares represented by an ADS is other than on a one-to-one basis, the limitations contained in Section 3 shall be adjusted to reflect the distribution of ADSs in lieu of Shares.
(f) Expenses. The expenses of administering the Plan shall be borne by the Company and its Subsidiaries.
(g) 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.
(h) Fractional Shares. The Administrator shall have the discretion to determine whether any fractional Share shall be issued under the Plan, or whether cash shall be given in lieu of fractional shares or whether such fractional shares shall be eliminated by rounding down.
(i) 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 Administrator is obligated to treat Participants, Employees, Directors or any other persons uniformly.
(j) Taxes. No Shares shall be issued, and no payment shall be made under the Plan to any Participant, until such Participant has made arrangements acceptable to the Administrator for the satisfaction of Taxes and any other costs and expenses in connection with the grant, exercise or vesting of Awards and/or the issuance of the Shares. The Company or the relevant Group Member shall have the authority and the right to deduct or withhold from any compensation payable to a Participant, or require a Participant to remit to the Company or the relevant Group Member, an amount sufficient to satisfy all Taxes. The Administrator may, in its discretion and in satisfaction of the foregoing requirement, allow or require a Participant to satisfy Taxes by electing to have the Company withhold Shares otherwise issuable under an Award (or other amounts payable under an Award) having a Fair Market Value equal to the Taxes. Notwithstanding any other provision of the Plan, the number of Shares otherwise issuable under an Award which may be withheld with respect to the grant, issuance, vesting, exercise or payment of any Award (or which may be repurchased from the Participant of such Award (or a portion thereof) after such Shares were acquired by the Participant from the Company) in order to satisfy all Taxes, unless specifically approved by the Administrator, will be limited to the number of Shares otherwise issuable under an Award that have a Fair Market Value on the date of withholding or repurchase equal to the aggregate amount of such Taxes. The Fair Market Value of the Shares otherwise issuable under an Award to be withheld shall be determined on the date that the amount of Taxes to be withheld is to be determined. All elections by the Participants to have Shares otherwise issuable under an Award withheld for this purpose shall be made in such form and under such conditions as the Administrator may deem necessary or advisable.
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(k) Buy-Out. In the sole discretion of the Administrator, any Award (in whole or in part) under the Plan may be settled in cash or other property in lieu of Shares; provided, that payment in cash or other property in lieu of Shares shall not be made earlier than the time such Shares are issuable pursuant to the terms of the Award.
(l) Valuation. For purposes of Section 14(c) where an Award is converted into, or any underlying Share is substituted with, cash or other property or securities (a Substitute Property), the valuation of such Award and its Substitute Property, or the exchange ratio between the two, shall be determined in good faith by the Administrator and supported by the valuation achieved in the relevant transaction, or in the absence of any such transaction, by an independent valuation expert selected by the Administrator.
(m) Effect of Plan upon Other Compensation Plans. The adoption of the Plan is not intended to affect any other compensation or incentive plans in effect for the Company or any Subsidiary or Related Entity. Nothing in the Plan shall be construed to limit the right of the Company, any Subsidiary or any Related Entity (i) to establish any other forms of incentives or compensation for Service Providers, or (ii) to grant or assume options or other rights or awards otherwise than under the Plan in connection with any proper corporate purpose including without limitation, the grant or assumption of options in connection with the acquisition by purchase, lease, merger, consolidation or otherwise, of the business, securities or assets of any corporation, partnership, limited liability company, firm or association.
(n) Section 409A. To the extent that the Administrator determines that any Award granted to a U.S. Person under the Plan is 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 Award Agreements shall be interpreted in accordance with Section 409A of the Code and Department of Treasury regulations and other interpretive guidance issued thereunder. Notwithstanding any provision of the Plan to the contrary, in the event that the Administrator determines that any Award may be subject to Section 409A of the Code and related Department of Treasury guidance, the Administrator 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 Administrator determines are necessary or appropriate to (i) exempt the Award from Section 409A of the Code and/or preserve the intended tax treatment of the benefits provided with respect to the Award, or (ii) comply with the requirements of Section 409A of the Code and related Department of Treasury guidance and thereby avoid the application of any penalty taxes under such Section. The Administrator shall use commercially reasonable efforts to implement the provisions of this Section 15(n) in good faith; provided, that none of the Company, the Administrator nor any of the Companys employees, directors or representatives shall have any liability to any Participant with respect to this Section 15(n).
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(o) Indemnification. To the extent allowable pursuant to Applicable Laws, the Administrator (or any individual member of the Committee or the Board acting as the Administrator) 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 it or such member in connection with or resulting from any claim, action, suit, or proceeding to which it, he or she may be a party or in which it, he or she 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 it, him or her in satisfaction of judgment in such action, suit, or proceeding against it, him or her; provided, that it, he or she gives the Company an opportunity, at its own expense, to handle and defend the same before it, he or she undertakes to handle and defend it on its, his or her own behalf. The foregoing right of indemnification shall not be exclusive of any other rights of indemnification to which such persons may be entitled pursuant to the Companys memorandum and articles of association as amended from time to time, as a matter of law, or otherwise, or any power that the Company may have to indemnify them or hold them harmless.
(p) Plan Language. The official language of the Plan shall be English. To the extent that the Plan or any Award Agreements are translated from English into another language, the English version of the Plan and Award Agreements will always govern, in the event that there are inconsistencies or ambiguities which may arise due to such translation.
(q) Other Provisions. The Award Agreement shall contain such other terms, provisions and conditions not inconsistent with the Plan as may be determined by the Administrator in its sole discretion.
16. Amendment and Termination of the Plan.
(a) Effective Date; Term of Plan. The Plan became effective on June 28, 2020 (the Effective Date). This Plan shall continue in effect for a term of ten (10) years unless sooner terminated under this Section 16.
(b) Amendment and Termination. The Board in its sole discretion may terminate this Plan at any time. The Board may amend this Plan at any time in such respects as the Board may deem advisable subject to Applicable Laws.
(c) Effect of Termination. Except as otherwise provided in Section 14, any amendment or termination of this Plan shall not affect Awards previously granted or issued, as the case may be, and such Awards shall remain in full force and effect as if this Plan had not been amended or terminated, unless mutually agreed otherwise between the affected Participant and the Company, which agreement must be in writing and signed by the Participant and the Company.
17. Certain Securities Law Matters.
(a) The Company intends that, as long as it is not subject to the reporting requirements of Section 13 or 15(d) of the U.S. Securities Exchange Act, and is not an investment company registered or required to be registered under the Investment Company Act of 1940, as amended, all grants of Awards and Shares issuable upon exercise or vesting of Awards shall be exempt from registration under the provisions of Section 5 of the U.S. Securities Act, and this Plan shall be administered in such a manner so as to preserve such exemption. The Company intends for this Plan to constitute a written compensatory benefit plan within the meaning of Rule 701(b) of Title 17, Code of Federal Regulations, Section 230.701 (Rule 701), promulgated by the U.S. Securities Act. Unless otherwise designated by the Administrator at the time an Award is granted, all Awards granted under this Plan by the Company, and the issuance of any Shares pursuant thereto, are intended to be granted to (i) persons who meet the requirements of a U.S. Person as such term is defined in Rule 902(k) of Title 17, Code of Federal Regulations, Section 230.901 through 230.905, promulgated under the U.S. Securities Act (Regulation S) in reliance on Rule 701 or (ii) persons other than persons who meet the requirements of a U.S. Person as such term is defined in Regulation S, in compliance with Regulation S or otherwise be exempt from registration.
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(b) The obligation of the Company to settle Awards in Shares or other consideration shall be subject to all Applicable Laws, rules and regulations, and to such approvals by governmental agencies as may be required. Notwithstanding any terms or conditions of any Award to the contrary, the Company shall be under no obligation to offer to sell or to sell, and shall be prohibited from offering to sell or selling, any Shares pursuant to an Award unless such Shares have been properly registered for sale pursuant to Applicable Laws or unless the Company has received an opinion of counsel, satisfactory to the Company, that such Shares may be offered or sold without such registration pursuant to an available exemption therefrom and the terms and conditions of such exemption have been fully complied with. The Company shall be under no obligation to register for sale under any Applicable Laws any of the Shares to be offered or sold under the Plan.
(c) The Administrator may cancel an Award or any portion thereof if it determines, in its sole discretion, that legal or contractual restrictions and/or blockage and/or other market considerations would make the Companys acquisition of Shares from the public markets, the Companys issuance of the Shares to the Participant, the Participants acquisition of the Shares from the Company and/or the Participants sale of Shares to the public markets, illegal, impracticable or inadvisable. If the Administrator determines to cancel all or any portion of an Award in accordance with the foregoing, the Company shall pay to the Participant an amount equal to the excess of (i) the aggregate Fair Market Value of the Shares subject to such Award or portion thereof canceled (determined as of the applicable exercise date or the date that the Shares would have been vested or issued, as applicable), over (ii) the aggregate exercise price or base amount or any amount payable as a condition of issuance of Shares (in the case of any other Award). Such amount shall be delivered to the Participant as soon as practicable following the cancellation of such Award or portion thereof.
(d) Notwithstanding any provision of the Plan to the contrary, in no event shall a Participant be permitted to exercise an Option in a manner that the Administrator determines would violate the United States Sarbanes-Oxley Act of 2002, or any other Applicable Law or the applicable rules and regulations of the U.S. Securities Exchange Commission or the applicable rules and regulations of any securities exchange or inter-dealer quotation system on which the securities of the Company are listed or traded.
18. Joining a Competitor; Termination for Cause. If a Participant is Terminated for Cause or if within 12 months after termination as a Service Provider, or such longer period determined by the Administrator and as set forth in the applicable Award Agreement, the Participant (A) directly or indirectly, establishes, incorporates, forms, enters into, or participates in the Business as an owner, partner, principal or shareholder or other proprietor (other than through a purchase on the open market, solely as a passive investment, of not more than five percent (5%) of the interest) of any Competitor, or (B) has become, is or becomes an officer, director, employee, adviser of, or otherwise, directly or indirectly, enters the employ of, continues any employment with or renders any services to or for, any Competitor, or (C) knowingly performs or has performed any act that may confer a competitive benefit or advantage upon any Competitor (in each case as determined by the Administrator), then:
(a) All Awards (whether vested or unvested) shall be cancelled as of the date of termination of the Participant as a Service Provider;
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(b) All Shares issued pursuant to any Award (or a portion thereof) shall be subject to repurchase by the Company at (i) the lesser of the (X) original purchase price of such Shares (or in the event no payment was made or the price was paid in services, then the Shares will be surrendered to and cancelled by the Company without payment), or (Y) Fair Market Value or such other value of Shares as determined by the Administrator or as set forth in the applicable Award Agreement, or (ii) the par value of such Shares, if such Shares have been issued in exchange for services which shall be considered the original purchase price, or (iii) the par value of such Shares, if such Shares have been issued under Restricted Share Units or as Share Payments; and
(c) All proceeds, gains or other economic benefit actually or constructively received by the Participant upon any receipt or exercise of any Awards (or a portion thereof) or upon the receipt or resale of any Shares underlying any Award (or a portion thereof), must be paid to the Company.
19. Certain Transfer Restrictions, Repurchase Rights and Similar Matters.
Any Shares issued upon the exercise of or in settlement of an Award shall be subject to such special cancellation conditions, rights of repurchase or redemption, rights of first refusal, and other transfer restrictions as set forth in the shareholders agreement of the Company or, if there is no shareholders agreement or such provisions do not exist in the shareholders agreement of the Company, as the Administrator may determine as set forth in an Award Agreement (which restrictions shall apply in addition to any restrictions that may apply to holders of Shares generally). Any transfer or attempted transfer of any shares not made in compliance with such restrictions shall be rejected by the Administrator.
20. Governing Law.
This Plan shall be governed by the laws of the Cayman Islands.
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Exhibit 10.18
EMPLOYMENT AGREEMENT
This Agreement is entered into as of (the Effective Date) by and between (the Company) and (Executive).
1. Duties and Scope of Employment.
(a) Positions and Duties. As of the Effective Date, Executive serves and will serve as of the Company. Executive will render such business and professional services in the performance of Executives duties, consistent with Executives position within the Company, as will reasonably be assigned to Executive by the Companys Board of Directors (the Board). The period of Executives employment under this Agreement is referred to herein as the Employment Term.
(b) Obligations. During the Employment Term, Executive will perform Executives duties faithfully and to the best of Executives ability and will devote Executives full business efforts and time to the Company. For the duration of the Employment Term, Executive agrees not to engage in any other employment, occupation or consulting activity for any direct or indirect remuneration or no remuneration without the prior approval of the Board.
2. At-Will Employment. THE PARTIES AGREE THAT EXECUTIVES EMPLOYMENT WITH THE COMPANY WILL BE AT-WILL EMPLOYMENT AND MAY BE TERMINATED AT ANY TIME WITH OR WITHOUT CAUSE OR NOTICE, FOR ANY REASON OR NO REASON. Executive understands and agrees that neither Executives job performance nor promotions, commendations, bonuses or the like from the Company give rise to or in any way serve as the basis for modification, amendment, or extension, by implication or otherwise, of Executives employment with the Company.
3. Compensation.
(a) Base Salary. Executives initial salary will be (the Base Salary), The Base Salary will be paid periodically in accordance with the Companys normal payroll practices and be subject to the usual, required withholding. Executives salary will be subject to review and adjustments will be made based upon the Companys normal performance review practices.
(b) Bonus. Executive shall be entitled to the following bonus:
i. |
A one-time Signing Bonus of |
ii. |
A non-guaranteed Annual Performance Bonus equal to an amount that is 10% - 15% of Base Salary assuming Executives performance is in good standing |
All bonus will be subject to statutory deductions and withholdings.
(c) Relocation Assistance. Executive shall be entitled to 4 round-trip tickets (from San Francisco to San Diego) per month in the 6 months after the Effective Date. In addition, within thirty (30) days following the Effective Date, the company will pay a one-time Miscellaneous Relocation Allowance of less applicable deductions and tax withholding.
(d) Repayment of Relocation Expenses and Signing Bonus
Executive agrees that should Executive voluntarily terminate employment with the Company prior to the date of the one (1) year anniversary of the Effective Date, Executive will be required to repay to the Company, the pro-rata proportion of each of the following amounts (calculated as a percentage by dividing the number of days Executive is employed by 365 days): (a) Signing Bonus; (b) Relocation Allowance.
4. Employee Benefits. During the Employment Term, Executive will be entitled to participate in the employee benefit plans currently and hereafter maintained by the Company of general applicability to other senior executives of the Company. The Company reserves the right to cancel or change the benefit plans and programs it offers to its employees at any time.
5. Vacation. Executive will be entitled to receive Executives days of paid time off per year during Executives employment based on the Companys Paid Time Off policy.
6. Expenses. The Company will reimburse Executive for reasonable travel, entertainment or other expenses incurred by Executive in the furtherance of or in connection with the performance of Executives duties hereunder, in accordance with the Companys expense reimbursement policy as in effect from time to time.
7. Non-Solicitation. Executive agrees that he/she will not use Proprietary Information to solicit or indirectly solicit employees of the Company, the business of customers or suppliers of the Company (or its parent, subsidiary or affiliate where Executive has had access to Proprietary Information about such parent, subsidiary or affiliate during Executives employment with the Company) for any purpose whatsoever. Executive understands and agrees that non-public information regarding such employees, customers and suppliers, and all other confidential information related to them, including employee contact information, special experience or skills, customers or suppliers buying and selling habits and special needs, created or obtained by Executive during Executives employment, constitute trade secrets or proprietary or confidential information of the Company. The Company and Executive agree that the provisions of this Section 7 contain restrictions that are not greater than necessary to protect the interests of the Company or Executives rights as an employee. In the event of the breach or threatened breach by Executive of this Section 7, the parties, in addition to all other remedies available to it at law or in equity, will be entitled to seek injunctive relief and/or specific performance to enforce this Section.
8. Confidential Information and Conflicts. Executive has established employment with the Company based on Executives personal skills and experience, and not due to his/her knowledge of any confidential, proprietary or trade secret information of a prior or current employer or an entity. Executive shall not make use of or disclose any such information or to retain or disclose any materials from a prior or current employer. Similarly, Executive agrees not to bring any third party confidential, proprietary or trade secret information to the Company, including that of his/her former employer, and that in performing his/her duties for the Company Executive will not in any way utilize any such information. Executive warrants that no lawful reason or agreements relating to his/her prior employment that may affect your eligibility to be employed by the Company or limit the manner in which he/she may be employed.
Likewise, as an employee of the Company, Executive will become knowledgeable about confidential, trade secret and/or proprietary information related to the operations, products and services of the Company and its business. Executive agrees that, during the term of employment with the Company, Executive will not engage in any other employment, occupation, consulting or other business activity directly or indirectly related to the business in which the Company is now involved or becomes involved during the term of employment, nor will Executive engage in any other activities that conflict with his/her obligations to the Company.
9. Company Policies. Executive shall abide by the Companys rules and policies. Executive shall read and understand the Companys rules and policies, which may change from time to time.
10. Definitions.
(a) Benefit Plans. For purposes of this Agreement, Benefit Plans means plans, policies or arrangements that the Company sponsors (or participates in) and that immediately prior to Executives termination of employment provide Executive and/or Executives eligible dependents with medical, dental and vision benefits. Benefit Plans do not include any other type of benefit (including, but not by way of limitation, disability, life insurance or retirement benefits). The Company may, at its option, satisfy any requirement that the Company provide coverage under any Benefit Plan by (i) reimbursing Executives premiums under Title X of the Consolidated Budget Reconciliation Act of 1985, as amended (COBRA) after Executive has properly elected continuation coverage under COBRA (in which case Executive will be solely responsible for electing such coverage for Executives eligible dependents), or (ii) providing coverage under a separate plan or plans providing coverage that is sufficient to provide Executive and Executives eligible dependents with equivalent coverage that is reasonably available to Executive and/or Executives eligible dependents.
(b) Cause. For purposes of this Agreement, Cause is defined as (i) Executives conviction of or plea of nolo contendere to any felony or any crime involving moral turpitude or dishonesty; (ii) Executives gross misconduct in the performance of Executives duties which is injurious to the Company; (iii) failure by Executive to substantially perform Executives material duties other than a failure resulting from the Executives complete or partial incapacity due to physical or mental illness or impairment; (iv) a material breach of any material agreement between Executive and the Company concerning the terms and conditions of Executives employment with the Company; (v) Executives willful violation of a material Company employment policy (including, without limitation, any insider trading policy); or (vi) Executives willful commission of an act of fraud, breach of trust, or dishonesty including, without limitation, embezzlement, that results in material damage or harm to the business, financial condition, reputation or assets of the Company or any of its subsidiaries.
11. Successors.
(a) The Companys Successors. Any successor to the Company (whether direct or indirect and whether by purchase, merger, consolidation, liquidation or otherwise) to all or substantially all of the Companys business and/or assets will assume the obligations under this Agreement and agree expressly to perform the obligations under this Agreement in the same manner and to the same extent as the Company would be required to perform such obligations in the absence of a succession. For all purposes under this Agreement, the term Company will include any successor to the Companys business and/or assets which executes and delivers the assumption agreement described in this Section 11(a) or which becomes bound by the terms of this Agreement by operation of law. The failure of the Company to obtain the assumption of this Agreement by any successor will constitute a material breach of a material part of this Agreement.
(b) Executives Successors. The terms of this Agreement and all rights of Executive hereunder will inure to the benefit of, and be enforceable by, Executives personal or legal representatives, executors, administrators, successors, heirs, distributees, devisees and legatees.
12. Confidential Information. Executive agrees to enter into the Companys standard Confidential Information and Invention Assignment Agreement (the Confidential Information Agreement) upon commencing employment hereunder.
13. Notices. All notices, requests, demands and other communications called for hereunder will be in writing and will be deemed given (i) on the date of delivery if delivered personally, (ii) one (1) day after being sent by a well established commercial overnight service, or (iii) four (4) days after being mailed by registered or certified mail, return receipt requested, prepaid and addressed to the parties or their successors at the following addresses, or at such other addresses as the parties may later designate in writing:
If to the Company:
Attn: Corporate Secretary
If to Executive:
at the last residential address known by the Company.
14. Arbitration.
(a) Arbitration. In consideration of Executives employment with the Company, its promise to arbitrate all employment-related disputes, and Executives receipt of the compensation, pay raises and other benefits paid to Executive by the Company, at present and in the future, Executive agrees that any and all controversies, claims, or disputes with anyone (including the Company and any employee, officer, director, shareholder or benefit plan of the Company in their capacity as such or otherwise) arising out of, relating to, or resulting from Executives employment with the Company or termination thereof, including any breach of this Agreement, will be subject to binding arbitration pursuant to California law and the Federal Arbitration Act.
(b) Dispute Resolution. Disputes that Executive agrees to arbitrate, and thereby agrees to waive any right to a trial by jury, include any statutory claims under local, state, or federal law, including, but not limited to, claims under Title VII of the Civil Rights Act of 1964, the Americans with Disabilities Act of 1990, the Age Discrimination in Employment Act of 1967, the Older Workers Benefit Protection Act, the Sarbanes Oxley Act, the Worker Adjustment and Retraining Notification Act, the California Fair Employment and Housing Act, the Family and Medical Leave Act, the California Family Rights Act, the California Labor Code, Claims of harassment, discrimination, and wrongful termination, and any statutory or common law claims. Executive further understands that this Agreement to arbitrate also applies to any disputes that the Company may have with Executive.
(c) Procedure. Executive agrees that any arbitration will be administered by the Judicial Arbitration & Mediation Services, Inc. (JAMS), pursuant to its Employment Arbitration Rules & Procedures (the JAMS Rules), a copy of which may be found at: https://www.jamsadr.com/rules-employment-arbitration/. The arbitrator shall have the power to decide any motions brought by any party to the arbitration, including motions for summary judgment and/or adjudication, motions to dismiss and demurrers, and motions for class certification, prior to any arbitration hearing. The arbitrator shall have the power to award any remedies available under applicable law. The Company will pay for any administrative or hearing fees charged by the administrator or JAMS, except that Executive shall pay any filing fees associated with any arbitration that Executive initiates, but only so much of the filing fee as Executive would have instead paid had Executive filed a complaint in a court of law. Executive agrees that the arbitrator shall administer and conduct any arbitration in accordance with California law, including the California Code of Civil Procedure, and that the arbitrator shall apply substantive and procedural California law to any dispute or claim, without reference to the rules of conflict of law. To the extent that the JAMS Rules conflict with California law, California law shall take precedence. The decision of the arbitrator shall be in writing. Any arbitration under this Agreement shall be conducted in Santa Clara County, California.
(d) Remedy. Except as provided by the Act, arbitration shall be the sole, exclusive, and final remedy for any dispute between Executive and the Company. Accordingly, except as provided by the Act and this Agreement, neither Executive nor the Company will be permitted to pursue court action regarding claims that are subject to arbitration.
(e) Administrative Relief. Executive is not prohibited from pursuing an administrative claim with a local, state, or federal administrative body or government agency that is authorized to enforce or administer laws related to employment, including, but not limited to, the Department of Fair Employment and Housing, the Equal Employment Opportunity Commission, the National Labor Relations Board, or the Workers Compensation Board. However, Executive may not pursue court action regarding any such claim, except as permitted by law.
(f) Voluntary Nature of Agreement. Executive acknowledges and agrees that Executive is executing this Agreement voluntarily and without any duress or undue influence by the Company or anyone else. Executive further acknowledges and agrees that Executive has carefully read this Agreement and that Executive has asked any questions needed for Executive to understand the terms, consequences and binding effect of this Agreement and fully understands it, including that EXECUTIVE IS WAIVING EXECUTIVES RIGHT TO A JURY TRIAL. Finally, Executive agrees that Executive has been provided an opportunity to seek the advice of an attorney of Executives choice before signing this Agreement.
15. Miscellaneous Provisions.
(a) No Duty to Mitigate. Executive will not be required to mitigate the amount of any payment contemplated by this Agreement, nor will any such payment be reduced by any earnings that Executive may receive from any other source.
(b) Amendment. The written terms of this Agreement solely govern and supersede any prior understandings, communications, or agreements between the Executive and the Company or any affiliates, employees or agents of the Company. No provision of this Agreement will be modified, waived or discharged unless the modification, waiver or discharge is agreed to in writing and signed by Executive and by an authorized officer of the Company (other than Executive) that is expressly designated as an amendment to this Agreement.
(c) Integration. This Agreement, together with the Option Plan, Option Agreement and the Confidential Information Agreement represents the entire agreement and understanding between the parties as to the subject matter herein and supersedes all prior or contemporaneous agreements whether written or oral. This Agreement may be modified only by agreement of the parties by a written instrument executed by the parties that is designated as an amendment to this Agreement.
(d) Waiver of Breach. The waiver of a breach of any term or provision of this Agreement, which must be in writing, will not operate as or be construed to be a waiver of any other previous or subsequent breach of this Agreement.
(e) Headings. All captions and section headings used in this Agreement are for convenient reference only and do not form a part of this Agreement.
(f) Tax Withholding. All payments made pursuant to this Agreement will be subject to all applicable withholdings, including all applicable income and employment taxes, as determined in the Companys reasonable judgment.
(g) Governing Law. This Agreement will be governed by the laws of the State of California (with the exception of its conflict of laws provisions).
(h) Severability. The invalidity or unenforceability of any provision or provisions of this Agreement will not affect the validity or enforceability of any other provision hereof, which will remain in full force and effect.
16. Acknowledgment. Executive acknowledges that he has had the opportunity to discuss this matter with and obtain advice from Executives private attorney, has had sufficient time to, and has carefully read and fully understands all the provisions of this Agreement, and is knowingly and voluntarily entering into this Agreement.
17 . Counterparts. This Agreement may be executed in counterparts, and each counterpart will have the same force and effect as an original and will constitute an effective, binding agreement on the part of each of the undersigned.
Exhibit 10.19
EMPLOYMENT AGREEMENT
(the Agreement)
THIS AGREEMENT is dated the [Date], and is made BETWEEN:-
(1) |
XMotors Limited, the registered business address of which is at Room 1903,19F, Lee Garden One, 33 Hysan Avenue, Causeway Bay, Hong Kong (hereafter referred to as the Company); and |
(2) |
[Name], holder of HKID card No. [ID number] (Hereafter referred to as the Employee). |
NOW IT IS HEREBY AGREED as follows: -
Definitions
IN this Agreement:
Associated Company means a company which is a subsidiary or a holding company of the Company or a subsidiary (other than the Company) of a holding company of the Company.
Commencement Date means [Date] or such other date to be agreed upon and, if applicable, dependent on successfully obtaining an employment visa;
Confidential Information means the confidential information of the Companys or Associated Companys clients, customers, business associates, introducers, prospects, agents, suppliers, consultants, including without limitation, information concerning the Companys or Associated Companys methodology, plans, products and services, reports, technical operations, pricing and marketing methods, inventions, processes, compilations of names and physical and electronic addresses of clients, contacts, prospects, and introducers, trade secrets, business budgets and financial statements and reports of the Company or Associated Company;
Employee Manual means the Company Employee Manual outlining the rules, regulations, guidelines, and Code of Conduct that employees of the Company are required to follow, in existence and as may be introduced and/or amended by the Company from time to time; if there are inconsistencies in the terms and conditions between this Agreement and the Employee Manual, the terms and conditions of this Agreement will supersede;
Page 1 of 7
Reference to Clauses is to clauses of this Agreement;
He, His or Him refers to both genders.
1. |
Term of Appointment |
(A) |
THE Company hereby appoints the Employee and the Employee hereby agrees to act as [Position], reporting to [Manager] (the Employees Manager). |
(B) |
THE said appointment shall commence on the Commencement Date and shall continue, unless or until terminated by either party. Notice of termination shall be served in such a manner as stipulated in Part 8 of this Agreement. |
(C) |
THE Company shall be at liberty from time to time to appoint any other person or persons to act jointly with the Employee in the said office. |
2. |
Probation Period |
The employment agreement is subject to a 6 Months probationary period from Commencement Date.
3. |
Roles & Responsibilities |
[ ]
THE Company shall be at liberty from time to time to adjust the Roles & Responsibilities of THE Employee.
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4. |
Working Hours and Places of Work |
(A) |
Normal working hours 9:00am 6:00pm Monday to Friday, with Saturday working in alternative week, including 1.5 hour of flexible lunch break. |
(B) |
THE Employee is generally expected to be present in the office and assuming his duties during the normal working hours of the Company and is expected to fulfil his duties. The Company reserves the right to alter the established working hours to meeting business contingencies, from time to time. As may be required, the Employee will work outside or beyond normal working hours or weekends or no holidays for no additional cash remuneration. |
(C) |
THE Employees working location will be based at Hong Kong, however, THE Employee may be required to work out of Hong Kong from time to time. |
5. |
Confidentiality, Non Solicitation and Non-Competition |
(A) |
THE Employee shall not, either during his employment or thereafter, use to the detriment or prejudice of the Company or any Associated Company or, except in the proper course of his duties, divulge to any person any trade secrets or any other Confidential Information concerning the business or affairs of the Company or any Associated Company which may have come to his knowledge during his employment. |
(B) |
THE Employee will not for a period of one (1) month after the termination of his employment with the Company (howsoever caused) either personally or by an agent directly or indirectly: |
(i) |
either on his own account or for any other person, firm or company or in association with or in the employment of any other person, firm or company solicit or endeavour to entice away from the Company or any Associated Company, any person, firm or company who within the twelve (12) months prior to or at the date of such termination was a client, prospect, introducer of or in the habit of dealing with the Company or any Associated Company and with whom the Employee had business contact in the course of his employment; or |
(ii) |
either on his own account or for any other person firm or company solicit or endeavour to entice away from the Company or any Associated Company any person who within twelve (12) months from the date of termination of his employment with the Company was an employee, a director or a consultant of the Company or an Associated Company. |
(C) |
THE Employee will not at any time after the termination of his employment with the Company (howsoever caused) either personally or by an agent directly or indirectly represent himself as being in any way, connected with or interested in the business of the Company or any Associated Company. |
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(D) |
DURING his employment, the Employee shall not (unless otherwise agreed in writing by the Company) undertake any other business or profession or be or become an employee or agent of any other company, firm or person or assist or have any financial interest in any other business or profession. The Employee may, however, hold or acquire by way of bona fide investment shares or other securities of any company which are listed or dealt in on any recognised Stock Exchange. |
(E) |
THE Employee will not for a period of one (1) month after the termination of his employment with the Company (howsoever caused) either personally or by an agent, directly or indirectly, either on his own account or for any other person, firm, or company, or in association with, or in the employment of, any other person, firm, or company, be engaged in, or concerned directly or indirectly in any capacity, in any business concern which is in competition with the business of the company or any Associated Company, in a position similar to the Position which this Employment Agreement concerns. |
(F) |
UPON the request of the Company and in any event upon the termination of his employment, the Employee shall sign a hand-over note (the Hand-Over Note) confirming all the items that may be listed in the Hand-Over Note, including but not limited to: clients or customers lists, correspondence, memoranda, and all other documents, papers and records which may have been prepared by him or have come into his possession, custody or control in the course of his employment. |
6. |
Compensation and Other Benefits |
(A) |
Salary: |
[HKD xxx] per month payable on or before the 7th day of the next month. This salary will be subject to adjustment pursuant to the Companys employee compensation policies in effect from time to time.
(B) |
Fixed Bonus & Performance Bonus |
THE Employee will be eligible to fixed bonus which equals to his monthly salary as of December of each calendar year.
In addition, THE Employee will be eligible to be considered for an incentive bonus targeted at 200% of his average monthly salary of each calendar year. The bonus (if any) will be awarded based on objective or subjective criteria established by the Company.
Any bonus for the year in which THE Employees employment begins will be prorated, based on the number of days he is employed by the Company during the year.
Any bonus for a year will be paid before March 31st of next year, but only if THE Employee is still employed by the Company at the time of payment. The determinations of the Company regarding performance bonuses or commission payments are final.
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(C) |
MEDICAL SCHEME |
THE Employee will be enrolled in the Companys medical scheme subject to the provisions of the scheme/plan as from time to time in force.
(D) |
MANDATORY PROVIDENT FUNDS |
THE Employee will be enrolled in the Companys Hong Kong provident funds.
THE Company and THE Employee will each contribute the applicable maximum statutory amount of contribution to the Mandatory Provident Fund in accordance with the requirements of the Mandatory Provident Fund Schemes Ordinance (the MPFS Ordinance). THE Employees contribution will be deducted from his salary in accordance with the provisions of the MPFS Ordinance.
7. |
Holidays, Sick Leave and Personal Leave |
(A) |
The Employee is entitled to statutory holidays as specified in the Hong Kong Employment Ordinance. |
(B) |
The Employee is entitled to sick leave in accordance with the provisions of the Hong Kong Employment Ordinance and upon production of a Medical Certificate, or otherwise at the discretion of The Employees manager in the Company. |
(C) |
The Employee is entitled to paid annual leave as specified in the Hong Kong Employment Ordinance. |
(D) |
The Employee (for female) is entitled to maternity leave as specified in the Hong Kong Employment Ordinance. |
(E) |
The Employee (for male) is entitled to paternity leave as specified in the Hong Kong Employment Ordinance. |
8. |
Termination of Employment |
(A) |
After successful completion of probation, the Employee is required to give one month notice in writing to terminate this Agreement or provide pay-in-lieu of notice. |
(B) |
In the event that the Company becomes entitled to terminate this Agreement after the Employee has successfully completed probation, the Company shall give the Employee one month written notice or provide pay-in-lieu of notice. |
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9. |
Novation |
THE Company may, at its sole discretion, novate this Agreement so as to transfer it into the name of an Associated Company, and the Employee will at the request of the Company enter into a novation agreement with the Company and such Associated Company to effect such transfer and release the Company from its obligations hereunder.
10. |
Miscellaneous |
(A) |
THIS Agreement shall supersede any agreements or arrangements, written or verbal, between the Employee and the Company, or any of their respective representatives, relating to the present or future appointment of the Employee by the Company. |
(B) |
ALL the provisions hereof are severable and distinct from one another and the invalidity, illegality or unenforceability of any such provision shall not affect or impair the validity, legality or enforceability, of any of the remaining provisions hereof and any such invalidity, illegality or unenforceability in any jurisdiction shall not affect or impair the validity, legality, enforceability thereof in any other jurisdictions. |
(C) |
THIS Agreement shall be governed by and construed in all respects in accordance with the laws of Hong Kong Special Administrative Region and the parties hereby irrevocably submit to the non-exclusive jurisdiction of courts of Hong Kong Special Administrative Region in respect of this Agreement. |
The remainder of this page has been intentionally left blank
Page 6 of 7
SIGNED by
for and on behalf of
Name:
Date:
SIGNED by
Name: [employees name]
Date:
Page 7 of 7
Exhibit 23.1
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We hereby consent to the use in this Registration Statement on Form F-1 of XPeng Inc. of our report dated June 2, 2020 relating to the financial statements of XPeng Inc., which appears in this Registration Statement. We also consent to the reference to us under the heading Experts in such Registration Statement.
/s/ PricewaterhouseCoopers Zhong Tian LLP |
Guangzhou, the Peoples Republic of China |
August 21, 2020 |
Exhibit 99.1
CODE OF BUSINESS CONDUCT AND ETHICS
OF XPENG INC.
INTRODUCTION
XPeng 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.
2
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. |
3
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.
4
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:
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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. |
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Within the Companys offices, confidential matters should not be discussed within hearing range of visitors or others not working on such matters. |
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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:
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Information we supply to customers should be accurate and complete to the best of our knowledge. Employees should not deliberately misrepresent information to customers. |
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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:
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Meals and Entertainment. You may occasionally accept or give meals, refreshments or other entertainment if: |
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The items are a reasonable value; |
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The purpose of the meeting or attendance at the event is related to the Companys business; and |
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The expenses would be paid by the Company as a reasonable business expense if not paid for by another party. |
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Advertising and Promotional Materials. You may occasionally accept or give advertising or promotional materials of nominal value. |
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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. |
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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:
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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; |
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withdraw an issued report; or |
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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:
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Financial results or forecasts, or any information that indicates the Companys financial results may exceed or fall short of forecasts or expectations; |
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Important new products or services; |
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Pending or contemplated acquisitions or dispositions, including mergers, tender offers or joint venture proposals; |
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Possible management changes or changes of control; |
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Pending or contemplated public or private sales of debt or equity securities; |
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Engagement or loss of a significant business partner or contract; |
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Significant write-offs; |
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Initiation or settlement of significant litigation; and |
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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:
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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). |
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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. |
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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. |
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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
FANGDA PARTNERS
上海 Shanghai·北京 Beijing·深圳 Shenzhen·广州 Guangzhou·香港 Hong Kong
http://www.fangdalaw.com
中国北京市朝阳区光华路1号 | 电子邮件 | E-mail: | email@fangdalaw.com | |||||
嘉里中心北楼27楼 | 电 话 | Tel.: | 86-10-5769-5600 | |||||
邮政编码:100020 | 传 真 | Fax: | 86-10-5769-5788 | |||||
文 号 | ||||||||
27/F, North Tower, Kerry Center | ||||||||
No. 1, Guanghua Road, Chaoyang District | ||||||||
Beijing 100020, PRC |
To: XPeng Inc.
August 21, 2020
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 XPeng 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 proposed 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 Class A ordinary shares of par value US$0.00001 per share of the Company, and (B) the proposed issuance and sale of the ADSs and the proposed listing and trading of the ADSs on the New York Stock Exchange.
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 Subsidiaries means Guangzhou Xiaopeng Zhihui Chuxing Technology Co., Ltd. and Guangzhou Xiaopeng Motors Technology Co., Ltd.; (E) Variable Interest Entities means Guangzhou Yidian Intelligent Travel Technology Co., Ltd. and Guangzhou Zhipeng Telematics Technology Co., Ltd.; 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, which has been merged into the State Administration for Market Regulation, 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, of the documents provided to us by the Company, the PRC Subsidiaries and the Variable Interest Entities, 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, 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 Subsidiaries and the Variable Interest Entities in response to our enquiries for the purpose of this opinion is true, accurate, complete and not misleading, and that the Company, the PRC Subsidiaries and the Variable Interest Entities 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 Subsidiaries, and the Variable Interest Entities 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 Subsidiaries and the Variable Interest Entities 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 the current PRC Laws (i) the ownership structures of the PRC Subsidiaries and the Variable Interest Entities, both currently and immediately after giving effect to the Offering, do not and will not violate applicable PRC Laws; (ii) each of the VIE Agreements is valid, binding and enforceable in accordance with its terms and applicable PRC Laws both currently and immediately after giving effect to the Offering, does not and will not violate applicable PRC Laws. However, there are substantial uncertainties regarding the interpretation and application of PRC Laws and future PRC laws, rules 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 through acquisition of PRC domestic interests held by such PRC companies or individuals 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 the 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) Guangdong Xiaopeng Motors Technology Co., Ltd., the wholly foreign-owned PRC subsidiary of the Company, was established by means of direct investment 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 arrangements among the PRC Subsidiaries and the Variable Interest Entities and their respective 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 implementations and interpretations 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 definitive 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, or 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.
(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.
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(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
I. VIE Agreements among Guangzhou Xiaopeng Motors Technology Co., Ltd., Guangzhou Zhipeng IoV Technology Co., Ltd., Heng Xia and Tao He:
(a) |
Exclusive Option Agreement dated May 28, 2018 among Guangzhou Xiaopeng Motors Technology Co., Ltd., Guangzhou Zhipeng IoV Technology Co., Ltd., Heng Xia and Tao He; |
(b) |
Equity Pledge Agreement dated May 28, 2018 among Guangzhou Xiaopeng Motors Technology Co., Ltd., Guangzhou Zhipeng IoV Technology Co., Ltd., Heng Xia and Tao He; |
(c) |
Exclusive Service Agreement dated May 28, 2018 between Guangzhou Xiaopeng Motors Technology Co., Ltd. and Guangzhou Zhipeng IoV Technology Co., Ltd.; |
(d) |
Shareholder Voting Right Trust Agreement dated May 28, 2018 among Guangzhou Xiaopeng Motors Technology Co., Ltd., Guangzhou Zhipeng IoV Technology Co., Ltd., Heng Xia and Tao He; |
(e) |
Loan Agreements dated May 28, 2018 among Guangzhou Xiaopeng Motors Technology Co., Ltd., Heng Xia and Tao He. |
II. VIE Agreements among Guangzhou Xiaopeng Zhihui Chuxing Technology Co., Ltd., Guangzhou Yidian Zhihui Chuxing Technology Co., Ltd., Heng Xia and Xiaopeng He:
(a) |
Exclusive Option Agreement dated May 28, 2018 among Guangzhou Xiaopeng Zhihui Chuxing Technology Co., Ltd., Guangzhou Yidian Zhihui Chuxing Technology Co., Ltd., Heng Xia and Xiaopeng He; |
(b) |
Equity Pledge Agreement dated May 28, 2018 among Guangzhou Xiaopeng Zhihui Chuxing Technology Co., Ltd., Guangzhou Yidian Zhihui Chuxing Technology Co., Ltd., Heng Xia and Xiaopeng He; |
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(c) |
Exclusive Service Agreement dated May 28, 2018 between Guangzhou Xiaopeng Zhihui Chuxing Technology Co., Ltd. and Guangzhou Yidian Zhihui Chuxing Technology Co., Ltd.; |
(d) |
Shareholder Voting Right Trust Agreement dated May 28, 2018 among Guangzhou Xiaopeng Zhihui Chuxing Technology Co., Ltd., Guangzhou Yidian Zhihui Chuxing Technology Co., Ltd., Heng Xia and Xiaopeng He; |
(e) |
Loan Agreements dated May 28, 2018 among Guangzhou Xiaopeng Zhihui Chuxing Technology Co., Ltd., Heng Xia and Xiaopeng He. |
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