|
|
|
|
|
|
|
|
Name
|
|
Ordinary shares
beneficially owned
|
|
Percent
|
|
Jessie Junfang ZHENG
|
|
|
*
|
|
|
*
|
|
All directors and executive officers as a group
|
|
|
270,369,948
|
|
|
10.6%
|
|
Greater than 5% Beneficial Owners:
|
|
|
|
|
|
|
|
SoftBank
(3)
|
|
|
746,998,571
|
|
|
29.2%
|
|
Yahoo
(4)
|
|
|
383,565,416
|
|
|
15.0%
|
|
Notes:
-
*
-
This
person beneficially owns less than 1% of our outstanding ordinary shares.
-
(1)
-
Represents
(i) 871,713 ordinary shares held directly by Jack Ma, (ii) 35,000,000 ordinary shares held by APN Ltd., a Cayman Islands company with
its registered address at Fourth Floor, One Capital Place, P.O. Box 847, Grand Cayman, KY1-1103, Cayman Islands, in which Jack holds a 70% equity interest, which ordinary shares,
together with Jack's equity interest in APN Ltd., have been pledged to us to support certain obligations under the 2014 SAPA, (iii) 13,073,921 ordinary shares held by Yun Capital
Limited, a British Virgin Islands company with its registered address at Woodbourne Hall, Road Town, Tortola, British Virgin Islands, which has granted Jack a revocable proxy over such shares and
which is wholly-owned by The Jack Ma Philanthropic Foundation, (iv) 13,073,921 ordinary shares held by Ying Capital Limited, a British Virgin Islands company with its registered address at
Woodbourne Hall, Road Town, Tortola, British Virgin Islands, which has granted Jack a revocable proxy over such shares and which is wholly owned by The Jack Ma Philanthropic Foundation,
(v) 57,367,988 ordinary shares held by JC Properties Limited, a British Virgin Islands company with its registered address at Woodburne Hall, Road Town Tortola, British Virgin Islands, which is
wholly-owned by a trust established for the benefit of Jack and his family and (vi) 58,884,906 ordinary shares held by JSP Investment Limited, a British Virgin Islands company with the address
of P.O. Box 916, Woodbourne Hall, Road Town, Tortola, British Virgin Islands, which is wholly-owned by a trust established for the benefit of Jack and his family. Excludes shares held by
SoftBank representing SoftBank's share ownership in excess of 30% of our outstanding ordinary shares as of the most recent record date with respect to any shareholders action and up to
121,500,000 ordinary shares held by Yahoo, over which Jack and Joe will share voting power pursuant to the voting agreement that we, Jack, Joe, SoftBank and Yahoo entered into as described in
"Item 7. Major Shareholders and Related Party Transactions B. Related Party Transactions Transactions and
Agreements with Yahoo and SoftBank Voting Agreement." Jack has historically voted the ordinary shares held by the family trusts and he is deemed a beneficial
owner of the ordinary shares held by the family trusts. Jack does not have any pecuniary interests in the 26,147,842 ordinary shares held by Yun Capital Limited and Ying Capital Limited. Jack's
business address is 969 West Yi Road, Yu Hang District, Hangzhou 311121, the People's Republic of China.
-
(2)
-
Represents
(i) 1,588,797 ordinary shares held directly by Joe Tsai, (ii) 15,000,000 ordinary shares held by APN Ltd., in which Joe holds a 30%
equity interest and serves as a director, which ordinary shares, together with Joe's equity interest in APN Ltd., have been pledged to us to support certain obligations under the 2014 SAPA,
(iii) 6,826,695 ordinary shares held by Joe and Clara Tsai Foundation Limited, a company incorporated under the law of the Island of Guernsey with its registered address at Helvetia Court,
South Esplanade, St. Peter Port, Guernsey GY1 4EE, that has granted Joe a revocable proxy over such shares and which is wholly-owned by Joe and Clara Tsai Foundation,
(iv) 19,405,952 ordinary shares and 1,200,000 ordinary shares underlying preferred shares of Alternate Solutions Management Limited, in each case held by Parufam Limited, a Bahamas
corporation with its registered address at Suite 200B, 2nd Floor, Centre of Commerce, One Bay Street, P.O. Box N-3944, Nassau, Bahamas, and over which, Joe, as a director
of Parufam Limited, has been delegated sole voting and disposition power and (v) 21,123,178 ordinary shares held by PMH Holding Limited, a British Virgin Islands corporation with its registered
address at Trident Chambers, P.O. Box 146, Road Town, Tortola, British Virgin Islands, and over which, Joe, as sole director of PMH Holding Limited, has voting and dispositive power.
Excludes shares held by SoftBank representing SoftBank's share ownership in excess of 30% of our outstanding ordinary shares as of the most recent record date with respect to any shareholders action
and up to 121,500,000 ordinary shares held by Yahoo, over which Joe and Jack will share voting power pursuant to the voting agreement that we, Jack, Joe, SoftBank and Yahoo have entered into as
described in "Item 7. Major Shareholders and Related Party Transactions B. Related Party
Transactions Transactions and Agreements with Yahoo and SoftBank Voting Agreement." Joe does not have any pecuniary
interests in the 6,826,695 ordinary shares held by Joe and Clara Tsai Foundation Limited. Joe's business address is c/o Alibaba Group Services Limited, 26/F Tower One, Times Square,
1 Matheson Street, Causeway Bay, Hong Kong S.A.R.
-
(3)
-
Represents
(a) 645,934,571 ordinary shares owned by SoftBank Group Corp. with its registered office at 1-9-1 Higashi-Shimbashi Minato-ku, Tokyo
105-7303, Japan, (b) 15,000,000 ordinary shares owned by SBBM Corporation with its registered office at 1-9-1 Higashi-Shimbashi Minato-ku, Tokyo 105-7303, Japan and (c) 86,064,000
ordinary shares owned by West Raptor Holdings, LLC with its registered office at 2711 Centerville Road, Suite 400, Wilmington, DE 19808, USA.
-
(4)
-
Represents
(a) 92,626,716 ordinary shares owned by Yahoo! Inc. with its registered office at 701 First Avenue, Sunnyvale, CA 94089, the
United States and (b) 290,938,700 ordinary shares owned by Altaba Holdings Hong Kong Limited with its registered office at 15/F Caroline Centre, 28 Yun Ping Road, Causeway Bay,
Hong Kong S.A.R. Yahoo! Inc. is a public company listed on the NASDAQ Global Select Market.
We
have one class of ordinary shares, and each holder of our ordinary shares is entitled to one vote per share.
As
of June 9, 2017, 2,561,154,020 of our ordinary shares were outstanding. To our knowledge, 1,296,105,131 ordinary shares, representing approximately 51% of our total outstanding
shares, were held by 109 record shareholders with registered addresses in the United States, including brokers and banks that hold securities in street name on behalf of their customers.
The number of beneficial owners of our ADSs in the United States is likely to be much larger than the number of record holders of our ordinary shares in the United States. We are not
aware of any arrangement that may at a subsequent date, result in a change of control of our company.
185
Table of Contents
B. Related Party Transactions
Our Related Party Transaction Policy
In order to prevent risks of conflicts of interest or the appearance of conflicts of interest, all of our directors and employees are subject to
our code of business conduct and other policies which require, among other things, that any potential transaction between us and an employee or director, their relatives and closely connected persons
and certain entities in which they, their relatives or closely connected persons have an interest be approved in writing by an appropriate supervisor or compliance officer.
We
have also adopted a related party transaction policy to which all of our directors, senior management and other key management personnel, all family members of the foregoing
individuals, Ant Financial Services and its subsidiaries as well as the Alibaba Partnership and certain other related entities are subject. This policy is intended to supplement the procedures set
forth in our code of business conduct and our other corporate governance policies and does not exempt any person from more restrictive provisions that may exist in our existing procedures
and policies.
This
related party transaction policy provides, among other things, that, unless otherwise pre-approved by our board of directors:
-
-
each related party transaction, or any material amendment or modification of a related party transaction, shall be adequately disclosed to, and
reviewed and approved or ratified by, our audit committee or any committee composed solely of disinterested independent directors or by the disinterested members of such committee; and
-
-
any employment relationship or similar transaction involving our directors or senior management of our company and any related compensation
shall be approved by the disinterested members of our compensation committee or recommended by the disinterested members of the compensation committee to our board for its approval.
Our
related party transaction policy, code of business conduct and our other corporate governance policies are subject to periodic review and revision by our board.
Transactions and Agreements with SoftBank and Yahoo
Voting Agreement
We have entered into a voting agreement with Jack Ma, Joe Tsai, SoftBank and Yahoo, which provides SoftBank with the right to nominate one
director to our board of directors who will, subject to certain conditions, have the right to receive notices and materials for all meetings of our committees and to join these meetings as an
observer, which rights are also reflected in our memorandum and articles of association. These nomination rights will terminate when SoftBank's shareholding declines below 15% of our outstanding
shares. The voting agreement also contains provisions to the effect that:
-
-
SoftBank agrees to:
-
o
-
vote its shares in favor of the election of the Alibaba Partnership's
director nominees at each annual general shareholders meeting until SoftBank's shareholding declines below 15% of our outstanding shares, and
-
o
-
grant the voting power of any portion of its shareholdings exceeding 30% of
our outstanding ordinary shares to Jack and Joe by proxy;
-
-
Jack and Joe will vote their shares and any other shares over which they hold voting rights in favor of the election of the SoftBank director
nominee at each annual general shareholders meeting in which the SoftBank nominee stands for election until SoftBank's shareholding declines below 15% of our outstanding ordinary shares;
186
Table of Contents
-
-
Yahoo agrees to:
-
o
-
vote its shares in favor of the election of all of the Alibaba
Partnership's director nominees and the SoftBank director nominee, if so standing for election, at each annual general shareholders meeting until SoftBank's shareholding declines below 15% of our
outstanding shares, and
-
o
-
grant the voting power over any shares it owns, up to 121.5 million
of our ordinary shares, to Jack and Joe by proxy;
-
-
each party to the voting agreement will use its commercially reasonable efforts to cause any other person with whom it jointly files a
statement (or an amendment to a statement) on Schedule 13D or Schedule 13G pursuant to the Exchange Act to become a party to the voting agreement and vote its shares in favor of
SoftBank's and the Alibaba Partnership's director nominees pursuant to the foregoing; and
-
-
SoftBank and Yahoo will receive certain information rights in connection with the preparation of their financial statements.
SoftBank's
and Yahoo's proxy obligations described in clause (ii) in the first bullet and the third bullet above, respectively, shall (a) not apply in respect of any
proposal submitted to our shareholders that may result in an issuance of shares or other equity interests of us, including securities exchangeable or convertible into shares, that would increase the
amount of our then-outstanding shares by 3% or more and (b) terminate when Jack owns less than 1% of our outstanding shares on a fully diluted basis or if we materially breach the voting
agreement.
Yahoo Technology and Intellectual Property License Agreement
We and Yahoo entered into a technology and intellectual property license agreement dated October 24, 2005, as amended and restated on
September 18, 2012, or the Yahoo TIPLA. Under the Yahoo TIPLA,
Yahoo granted to us the use of certain intellectual property. In consideration of the rights granted under the Yahoo TIPLA, we paid Yahoo a lump sum payment in the amount of US$550 million and
agreed to pay Yahoo an annual royalty equal to 2% of our consolidated revenues (less certain costs) for the period from January 1, 2006 to December 31, 2012 and 1.5% of our consolidated
revenues (less certain costs) for the period from January 1, 2013 until the completion of our initial public offering in September 2014. No royalties have been payable since then. For
fiscal year 2015, the royalty fees amounted to RMB448 million.
Patent Sale and Assignment Agreement with Yahoo
We and Yahoo entered into a patent sale and assignment agreement in fiscal year 2015, pursuant to which we acquired ownership of certain patents
and patent applications for aggregate consideration of US$24 million.
Our Repurchase of Ordinary Shares from SoftBank
On June 2, 2016, we entered into a share purchase agreement with SoftBank, pursuant to which we repurchased 27,027,027 ordinary
shares from SoftBank at US$74.00 per share for an aggregate amount of US$2 billion. Members of the Alibaba Partnership, acting collectively, also purchased 5,405,405 ordinary shares from
SoftBank at the same price per share for an aggregate amount of US$400 million. As of March 31, 2017, SoftBank owned 746,998,571 ordinary shares, representing approximately 29% of
our then issued share capital.
Investments Involving SoftBank
We have invested in businesses in which SoftBank is an existing shareholder or co-invested with SoftBank in other businesses. SoftBank has also
invested in businesses in which we or our controlled entities are existing shareholders. For instance, in January 2015, we participated in a financing round with SoftBank in
Travice Inc., the operator and developer of Kuaidi Dache, which in February 2015 merged into Didi Chuxing, the leading transportation network company that provides vehicles and taxis for
hire in China via smartphone applications. In June 2015, we announced that we agreed to invest in SoftBank's robotics business. In April 2017, SoftBank
187
Table of Contents
participated
in a new round of equity financing completed by Didi Chuxing. We expect that we will continue to engage in investment activities that involve SoftBank in the future. We may continue to
co-invest with SoftBank, invest in businesses in which SoftBank is already an existing investor, and may also bring SoftBank as an investor into our new businesses or businesses in which we are an
existing investor.
Agreements and Transactions Related to Ant Financial Services and Its Subsidiaries
Ownership of Ant Financial Services and Alipay
We originally established Alipay in December 2004 to operate our payment services business. In June 2010, the PBOC issued new
regulations that required non-bank payment companies to obtain a license in order to operate in China. These regulations provided specific guidelines for license applications only for domestic
PRC-owned entities. These regulations stipulated that, in order for any foreign-invested payment company to obtain a license, the scope of business, the qualifications of any foreign investor and any
level of foreign ownership would be subject to future regulations to be issued, which in addition would require approval by the PRC State Council. Further, the regulations required that any payment
company that failed to obtain a license must cease operations by September 1, 2011. Although Alipay was prepared to submit its license application in early 2011, at that time the PBOC had not
issued any guidelines applicable to license applications for foreign-invested payment companies (and no such guidelines have been issued as of the date of this annual report). In light of the
uncertainties relating to the license qualification and application process for a foreign-invested payment company, our management determined that it was necessary to restructure Alipay as a company
wholly-owned by PRC nationals in order to avail Alipay of the specific licensing guidelines applicable only to domestic PRC-owned entities. Accordingly, we divested all of our interest in and control
over Alipay in 2011, which resulted in deconsolidation of Alipay from our financial statements. This action enabled Alipay to obtain a payment business license in May 2011 without delay and
without any detrimental impact to our China retail marketplaces or to Alipay.
Following
the divestment of our interest in and control over Alipay, effective in the first calendar quarter of 2011, the ownership structure of Alipay's parent entity, Ant Financial
Services, was changed such that Jack Ma held a substantial majority of the equity ownership interest in Ant Financial Services. The ownership structure of Ant Financial Services has subsequently been
further restructured. In May 2016, Ant Financial Services completed a round of equity financing of approximately US$4.5 billion. As of the date of this annual report, approximately
42.28% of its equity interests are held by Junhan, approximately 34.15% of its equity interests are held by Junao and approximately 23.57% of its equity interests are held by other shareholders.
Economic
interests of Ant Financial Services through Junhan are owned by Jack Ma, Simon Xie and other employees of our company and Ant Financial Services and its affiliates and investee
companies. These economic interests are in the form of limited partnership interests and interests similar to share appreciation rights tied to potential appreciation in the value of Ant Financial
Services. The economic interests in Junao are held in the form of limited partnership interests by certain members of the Alibaba Partnership.
We
understand that it is the intention of the shareholders of Ant Financial Services that:
-
-
Jack Ma's direct and indirect economic interest in Ant Financial Services will be reduced over time to a percentage that does not exceed his
and his affiliates' interest in our company as of the time immediately prior to the completion of our initial public offering (the percentage of our ordinary shares Jack and his affiliates
beneficially owned immediately prior to the completion of our initial public offering was 8.8%) and that this reduction will be caused in a manner by which neither Jack nor any of his affiliates would
receive any economic benefit. See " Commitments of Jack Ma to Alibaba Group." We have been informed by Ant Financial Services that the proposed reduction of Jack's economic
interest is expected to be accomplished within three to five years from our initial public offering in September 2014 through a combination of future equity-based incentive awards to employees
and dilutive issuances of equity in Ant Financial Services, among others;
188
Table of Contents
-
-
from time to time, additional economic interests in Ant Financial Services in the form of interests similar to share appreciation rights issued
by Junhan will be transferred to employees of Ant Financial Services and our employees; and
-
-
Ant Financial Services will raise equity capital from investors in the future in order to finance its business expansion, with the effect that
the shareholding of Junao and Junhan in Ant Financial Services will be reduced through dilution (the amount of dilution would depend on future valuations and the amount of equity capital to be
raised), but it is the intention that the combined ownership of Junao and Junhan (and through them, Jack Ma) will continue to constitute a majority of the outstanding equity interests of Ant
Financial Services.
The
general partner of both Junao and Junhan is an entity 100% owned by Jack Ma. As the general partner, this entity, and therefore indirectly Jack, holds the voting rights in the two
limited partnerships, while the limited partners hold a majority of the economic interests in each of Junao and Junhan. Accordingly, Jack is able to exercise the voting power of Junao and Junhan as
the major shareholders of Ant Financial Services.
Our Relationship with Ant Financial Services and Alipay through August 2014
After the divestment of our interest in and control over Alipay, we entered into a framework agreement in July 2011, or the 2011
framework agreement, with SoftBank, Yahoo, Alipay, Ant Financial Services, Jack Ma and Joe Tsai and certain of their affiliates. At the same time, we also entered into various implementation
agreements that included a commercial agreement, or the Alipay commercial agreement, an intellectual property license and software technology service agreement, or the Alipay IPLA, and a shared
services agreement, which together governed our financial and commercial relationships with Ant Financial Services and Alipay.
As
described in more detail below, we restructured our relationship with Ant Financial Services in August 2014 with the approval of our board of directors and with the agreement
of SoftBank, Yahoo, Alipay, Ant Financial Services, Jack Ma and Joe Tsai and certain of their and our affiliates.
Alipay Commercial Agreement
Under the Alipay commercial agreement among us, Alipay and Ant Financial Services, which agreement remains in place following the restructuring
described below, Alipay provides payment processing and escrow services to us. These services enable settlement of transactions on our marketplaces through a secure payment platform and escrow
process. We pay Alipay a fee for these services on terms that are preferential to us. These preferential terms enable us, with certain exceptions, to make available basic payment processing and escrow
services to consumers and merchants on our marketplaces free of charge. We believe that these services provide us with a competitive advantage that otherwise would be diminished without the
preferential terms of the Alipay commercial agreement.
The
fees that we pay Alipay are based on fee rates and actual payment volumes processed on our marketplaces. The fee rates reflect, among other things, Alipay's bank-processing costs and
operating costs allocable to the services provided to us, and accordingly are subject to adjustment on an annual basis to the extent these costs increase or decline. The Alipay commercial agreement
provided that the directors of our company designated by SoftBank and Yahoo approve the fee rates payable by us in advance on an annual basis. In connection with the restructuring of our relationship
with Ant Financial Services, the Alipay commercial agreement was amended to provide that, after the completion of our initial public offering, a special committee formed by our independent directors
and the director designated by SoftBank must approve the fee rates in advance on an annual basis. The fee rates for the immediately preceding year remain in effect until such time as such annual
approval by the special committee has been obtained. In fiscal years 2015, 2016 and 2017, we paid fees to Alipay totaling RMB3,853 million, RMB4,898 million and RMB5,487 million
(US$797 million), respectively, under this agreement. The Alipay commercial agreement has an initial term of 50 years, and is automatically renewable for further periods of
50 years, subject to our right to terminate at any time upon one year's prior written notice. If the Alipay commercial agreement is required by applicable regulatory authorities, including
under stock exchange listing rules,
189
Table of Contents
to
be modified in certain circumstances, a one-time payment may be payable to us by Ant Financial Services to compensate us for the impact of the adjustment.
2014 Restructuring of Our Relationship with Ant Financial Services and Alipay
On August 12, 2014, we entered into a share and asset purchase agreement, or the 2014 SAPA, and entered into or amended certain ancillary
agreements including an amendment and restatement of the Alipay IPLA, or the amended Alipay IPLA. Pursuant to these agreements, we restructured our relationships with Ant Financial Services and
Alipay, its wholly-owned subsidiary, and terminated the 2011 framework agreement. The restructuring contemplated by the 2014 SAPA and the ancillary agreements described below has taken effect and
these agreements now govern our economic and commercial relationships with Ant Financial Services and Alipay. Under the 2014 SAPA, the arrangements are structured with the aim of securing long-term
economic participation in Ant Financial Services which we believe is in the best interests of our company and all of our shareholders. The potential for long-term economic participation can come in
the form of either a perpetual 37.5% profit share stream or a possible future direct equity interest as described below. We believe this restructuring will strengthen and benefit our company as well
as better position us for future growth.
Share and Asset Purchase Agreement
Pursuant to the 2014 SAPA, we agreed to sell certain securities and assets primarily relating to our SME loan business and other related
services to Ant Financial Services, for aggregate cash consideration of RMB3,219 million, which was based on a premium to the aggregate book value of the entities operating the SME loan
business. The sale was completed in February 2015. In addition, pursuant to software system use and service agreements relating to the know-how and related intellectual property that we agreed
to sell together with the SME loan business and related services, we will receive annual fees for a term of seven years. These fees, which will be recognized as other revenue, will be determined as
follows: for calendar years 2015 to 2017, the entities operating the SME loan business will pay us an annual fee equal to 2.5% of the average daily balance of the SME loans provided by these entities,
and in calendar years 2018 to 2021, these entities will pay an annual fee equal to the amount of the fees paid in calendar year 2017. In fiscal years 2015, 2016 and 2017, we received annual fees of
RMB90 million, RMB708 million and RMB847 million (US$123 million), respectively, from Ant Financial Services and its affiliates.
For
regulatory reasons, we retained approximately RMB1,225 million of the existing SME loan portfolio upon the completion of the transfer of the SME loan business. These loans
have been repaid as of March 31, 2017. We will not conduct any new SME loan business going forward.
Under the 2014 SAPA, in the event of a qualified IPO of Ant Financial Services or Alipay, if our total ownership of equity interests in Ant
Financial Services, if any, acquired as described under " Potential Equity Interest" below, has not reached 33%, which we refer to as the full 33% equity interest, we would
be entitled, at our election, to receive a one-time payment equal to 37.5% of the equity value, immediately prior to a qualified IPO of Ant Financial Services, as a whole and not just of Alipay, its
subsidiary. If we acquire equity interests in Ant Financial Services in an aggregate amount less than the full 33% equity interest, then the percentage of Ant Financial Services' equity value used to
calculate the liquidity event payment will be reduced proportionately.
In
lieu of receiving the liquidity event payment, we may elect to receive payments under the profit sharing provision of the amended Alipay IPLA described below in perpetuity, subject to
the receipt of regulatory approvals, including under applicable stock exchange listing rules, required to permit continuation of the profit share following a qualified IPO of Ant Financial Services or
Alipay. If we so elect, in connection with a qualified IPO, Ant Financial Services must use its commercially reasonable efforts to obtain these regulatory approvals. If
190
Table of Contents
these
approvals are not obtained, then Ant Financial Services will pay us the liquidity event payment described above.
Jack
Ma and Joe Tsai contributed 35,000,000 and 15,000,000, respectively, of our ordinary shares held by them to APN Ltd., a vehicle they established to hold these shares. The
shares of APN Ltd., as well as the 50,000,000 ordinary shares in us held by APN Ltd., have been pledged to us to secure the liquidity event payment and certain other obligations
of Ant Financial Services under the 2014 SAPA and commercial agreement, as well as the direct liability of APN Ltd. for up to US$500 million of the liquidity event payment whenever any
liquidity event payment becomes due.
The 2014 SAPA provides for future potential equity issuances to us by Ant Financial Services. In the event that Ant Financial Services applies
for and receives certain PRC regulatory approvals in the future, Ant Financial Services will issue and we will purchase newly-issued equity interests in Ant Financial Services, up to the full 33%
equity interest, or such lesser equity interest as may be permitted by the applicable regulatory approvals.
If
we were to acquire these equity interests, we will have a pre-emptive right prior to the time of a qualified IPO of Ant Financial Services, in the event Ant Financial Services issues
additional equity interests to third parties, that will entitle us to acquire additional equity interests in order to maintain the equity ownership percentage we hold in Ant Financial Services
immediately prior to these third-party issuances.
If
the liquidity event payment described above under " Liquidity Event Payment" has not become payable upon a qualified IPO of Ant Financial Services, then our
right to acquire up to the full 33% equity interest will continue after the qualified IPO. However, the equity interests that we are entitled to acquire will be
reduced in proportion to any dilutive issuances of equity securities by Ant Financial Services in and following the qualified IPO.
The
consideration to be paid by us to acquire any equity interest in Ant Financial Services up to the full 33% equity interest will be fully funded by payments from Ant Financial
Services under the 2014 SAPA in respect of certain intellectual property and asset transfers. Similarly, in connection with our exercise of the pre-emptive right, under the amended Alipay IPLA, we
will receive payments from Ant Financial Services that will effectively fund our subscription for the additional equity interests up to a value of US$1.5 billion.
To
the extent we acquire the full 33% equity interest pursuant to the provisions of the 2014 SAPA, the liquidity event payment and the profit share under the amended Alipay IPLA
described in " Alipay Intellectual Property License and Software Technology Services Agreement" below, other than the payments that effectively offset the purchase price with
respect to the exercise of the pre-emptive right, will automatically terminate. If we acquire less than the full 33% equity interest in Ant Financial Services pursuant to the provisions of the 2014
SAPA, the liquidity event payment amount and the profit sharing arrangement under the amended Alipay IPLA will be proportionately reduced based on the amount of equity interests acquired by us.
We
believe that under applicable regulatory rules and practices currently in effect, the relevant PRC approvals necessary for us to own an equity interest in Ant Financial Services would
not be granted. There can be no assurance that these applicable regulatory rules and practices will change in the near future.
Pursuant to the 2014 SAPA and amended Alipay IPLA, certain parties thereto, including in some cases our company, are subject to restrictions on
the transfer of equity interests in Ant Financial Services, including:
-
-
prior to our acquisition of the full 33% equity interest, none of Jack Ma, Junao, Junhan, our company or Ant Financial Services may transfer
any shares of Ant Financial Services that would result in Jack Ma, Junao, Junhan and our company, collectively, no longer having beneficial ownership of a majority voting interest in Ant Financial
Services;
191
Table of Contents
-
-
prior to our acquisition of the full 33% equity interest, none of Jack Ma, Joe Tsai (if he holds any equity interest at that time),
Junao, Junhan, Ant Financial Services or Alipay may transfer any equity interest in Ant Financial Services or Alipay if, to his or its knowledge, the transfer would result in a non-PRC person or
entity acquiring beneficial ownership of any equity interest in Ant Financial Services or Alipay;
-
-
following the earliest occurrence of any equity issuance by Ant Financial Services to us as described above in the first paragraph under "Share
and Asset Purchase Agreement Potential Equity Interest" and until the earlier of a qualified IPO of Ant Financial Services or the termination of the independent
director rights provided in the 2014 SAPA, none of Jack Ma, Joe Tsai (if he holds any equity interest at that time), Junao, Junhan or Ant Financial Services may knowingly transfer any equity in
Ant Financial Services to a third-party who would thereby acquire more than 50% of the voting or economic rights in, or assets of, Ant Financial Services; and
-
-
in the event we acquire an equity interest in Ant Financial Services, any transfer of equity interests in Ant Financial Services by Junao or
Junhan, on the one hand, or our company, on the other hand, will be subject to a right of first refusal by the other party.
Under the 2014 SAPA, we and Ant Financial Services have each agreed to certain limitations on our respective ability to enter into or
participate in the same line of business as the other party. The 2014 SAPA provides that Ant Financial Services may not engage in any business conducted by us from time to time, including businesses
that we enter into after the date of the 2014 SAPA, or logical extensions thereof, and we are restricted from engaging in specified activities within the scope of business of Ant Financial Services,
including the provision and distribution of credit facilities and insurance, the provision of investment management and banking services, payment transaction processing and payment clearing services,
leasing, lease financing and related services,
trading, dealing and brokerage with respect to foreign exchange and financial instruments, distribution of securities, commodities, funds, derivatives and other financial products and the provision of
credit ratings, credit profiles and credit reports. Each party may, however, make passive investments in competing businesses below specified thresholds, in some cases after offering the investment
opportunity to the other party, and we will be permitted to wind down the portion of our SME loan business that is not transferred to Ant Financial Services.
The 2014 SAPA provides that, unless not permitted in connection with a qualified IPO of Ant Financial Services and subject to other conditions,
we and Ant Financial Services will recommend one independent person who Ant Financial Services will nominate as a member of its board, and Jack Ma, Joe Tsai, Junhan and Junao will agree to vote the
equity interests in Ant Financial Services controlled by them in favor of their nomination. Pursuant to the 2014 SAPA, we and the other parties agreed on the initial independent director who Ant
Financial Services subsequently nominated and appointed as a member of its board. If this independent director resigns or such seat otherwise becomes vacant, so long as SoftBank owns at least 20% of
our outstanding ordinary shares, and certain other conditions are satisfied, SoftBank and Jack, acting jointly, will select on our behalf the individual to be designated as a replacement director,
subject to the approval of an independent committee of our board. We have agreed to form an independent committee of our board comprised of our directors who meet the independent director standards
under New York Stock Exchange listing rules and who are not our officers or employees, as well as any director of our board nominated by SoftBank, to approve certain actions that we may take in
connection with the 2014 SAPA and related agreements.
In connection with the 2014 SAPA, we also entered into the amended Alipay IPLA, a data sharing agreement, an amended and restated shared
services agreement, a cooperation agreement and a trademark agreement, each of which is described below. We also entered into a binding term sheet in respect of a technology services agreement
192
Table of Contents
pursuant
to which we agreed to provide certain cloud computing, database service and storage, computing services and certain other services to Ant Financial Services on a cost-plus basis. We further
agreed to a new form of
crosslicense agreement to be entered into under the 2014 SAPA, providing for a license of certain intellectual property by Ant Financial Services to us, and by us to Ant Financial Services.
Alipay Intellectual Property License and Software Technology Services Agreement
Under the terms of the Alipay IPLA, we and our subsidiaries, licensed to Alipay certain intellectual property rights and provided various
software technology services to Alipay and its subsidiaries. We originally entered into the Alipay IPLA in connection with the 2011 framework agreement, and, in August 2014, we entered into the
amended Alipay IPLA.
Under
the Alipay IPLA, Alipay paid us a royalty and software technology services fee equal to the sum of an expense reimbursement plus 49.9% of the consolidated pre-tax income of Alipay
and its subsidiaries until a liquidity event of Alipay or Ant Financial Services. The profit share percentage was subject to downward adjustments upon certain dilutive equity issuances by Alipay or
Ant Financial Services. Under the Amended IPLA, which became effective on the date we entered into the 2014 SAPA, we will receive, in addition to a service fee, royalty streams related to Alipay and
other current and future businesses of Ant Financial Services, which we refer to collectively as the profit share payments. The profit share payments will be paid at least annually and will equal the
sum of an expense reimbursement plus 37.5% of the consolidated pre-tax income of Ant Financial Services on a consolidated basis (subject to certain adjustments), including not only Alipay but all of
Ant Financial Services' subsidiaries. The profit share payments will be reduced in proportion to any equity issuances made to us under the 2014 SAPA.
In
addition, if we acquire any equity interest in Ant Financial Services as described above under "Share and Asset Purchase Agreement Potential
Equity Interest," the profit share payments will be reduced in proportion to the equity issuance and, at or prior to the time of the equity issuance, Ant Financial Services will make a payment to us
in consideration for the reduction in profit share payments, in exchange for the transfer by us to Ant Financial Services of certain intellectual property. This payment by Ant Financial Services will
effectively fund our subscription for up to the full 33% equity interest. This payment will result in our acquiring equity interests in Ant Financial Services with effectively no cash impact to us,
subject to applicable taxes.
The
amended Alipay IPLA will terminate, and the remainder (if any) of the intellectual property exclusively related to the business of Ant Financial Services will be transferred
to Ant Financial Services after the termination of the amended Alipay IPLA, (i) after our total equity interest ownership in Ant Financial Services has reached the full 33%, when either the
full funding of funded payments under the 2014 SAPA is completed or a qualified IPO of Ant Financial Services or Alipay occurs; (ii) after a qualified IPO of Ant Financial Services or Alipay
has occurred, when our total equity interest ownership in Ant Financial Services reaches the full 33%; (iii) when the liquidity event payment as described above under "Share and Asset Purchase
Agreement Liquidity Event Payment" becomes payable or (iv) upon transfer of certain intellectual property to Ant Financial Services as required by the
relevant stock exchange or securities authority in order to obtain approval for a qualified IPO of either Ant Financial Services or Alipay.
In
fiscal years 2015, 2016 and 2017, under the Alipay IPLA, we recognized royalty and software technology services fee income, net of costs incurred by our company, amounting to
RMB1,667 million, RMB1,122 million and RMB2,086 million (US$303 million), respectively, as other income.
The
effect of the amended Alipay IPLA is that the base of profits of the financial services businesses that we will share has been expanded, from the pre-tax income of only Alipay to the
pre-tax income of the entire Ant Financial Services, while the profit sharing percentage is reduced to align with the percentage that will be used to calculate the liquidity event payment. In
addition, our participation in the profits of Ant Financial Services, subject to receipt of required regulatory approvals, including under applicable stock exchange listing rules, is perpetual under
the amended Alipay IPLA (unless we elect to receive the liquidity event payment under the 2014 SAPA upon a qualified IPO of Ant Financial Services or Alipay or unless we acquire the full 33% equity
interest in Ant
193
Table of Contents
Financial
Services), as opposed to automatic termination of the profit share upon a liquidity event under the 2011 framework agreement and Alipay IPLA.
Data Sharing Agreement
We and Ant Financial Services have entered into a data sharing agreement dated August 12, 2014.
Pursuant
to the data sharing agreement, we, Ant Financial Services, and our controlled affiliates, which we refer to hereinafter as full data participants, will contribute all data
collected or generated as a result of the use by users of our or their respective products or services (subject to applicable law, industry rules and contractual requirements) to a data platform that
we operate and maintain, and to which all of the full data participants will have access. A data platform management committee established by us and Ant Financial Services may also approve
non-controlled affiliates of us and Ant Financial Services and unaffiliated third parties to have certain access to and contribute data to the platform, subject to execution of a data platform
participation agreement containing the terms and restrictions on access to and use of the data sharing platform and shared data as the data management committee shall determine. No fees or other
compensation are required to be paid by any of the full data participants for access to the data platform, other than the obligation for participants to share in the costs of the operation of the data
platform on a fair and reasonable basis. The data sharing agreement provides that none of the participants may reproduce any of the data on the data platform for transfer to their own servers, except
that a participant may retain its own data that it has contributed to the data platform. As of the date of this annual
report, Cainiao Network, Koubei and Alibaba Pictures have entered into data platform participation agreements with us.
The
data sharing agreement initially had a minimum term of 10 years. Pursuant to the data sharing agreement, if we completed our initial public offering within five years from the
date of the agreement, our board could extend the term for up to a total of 50 years. In May 2015, our board approved the extension of the term of the agreement to a total of
50 years.
Cooperation Agreement
We and Ant Financial Services entered into a SME loan cooperation framework agreement dated August 12, 2014, pursuant to which each party
agreed to cooperate with, and provide certain services with respect to, the other party's enforcement of certain rights of the other party against users of its platforms and services and with respect
to the provision of certain financial services to our customers and merchants. In particular, we agreed, upon request, to close down or suspend online storefronts and restrict marketing activities on
our platforms of persons defaulting on loans made by Ant Financial Services and persons in violation of Alipay rules and regulations, and to publish notices on our platforms and provide information
regarding these persons, in each case in a manner to be further agreed from time to time. Ant Financial Services agreed, upon request, to make loans and/or extensions of credit and related financial
services available to our users, freeze and pay over to us funds in accounts of users violating our rules and regulations or agreements with us, accelerate loans and terminate credit facilities of
these users, restrict marketing activities on its platforms by these users, and provide information regarding these users, in each case in a manner to be further agreed from time to time. Neither
party is required to pay any fees in consideration for the services provided by the other party, and apart from the provision of these services, there will be no other exchange of value in connection
with this agreement. The cooperation agreement has an initial term of five years, with automatic renewals upon expiry for additional five-year periods. From time to time, we expect to enter into
similar commercial arrangements with respect to cooperation matters and the provision of services between us and Ant Financial Services and to our respective customers.
Trademark Agreement
We and Ant Financial Services entered into a trademark agreement dated August 12, 2014, pursuant to which we granted Ant Financial
Services a non-transferable, non-assignable and non-sublicensable (except to its subsidiaries) license for it and its sublicensed subsidiaries to continue to use certain trademarks and domain names
194
Table of Contents
based
on trademarks owned by us, in connection with their payment services business and the SME loan business transferred by us to them, and in the same manner of use as of August 12, 2014, and
a non-transferable, non-assignable and non-sublicensable (except to its subsidiaries) license to use other trademarks and domain names based on trademarks owned by us, and in such manner, as we may
agree to allow in the future. Pursuant to the trademark agreement, each of the parties further agreed to the rights and limitations that each would have to use the "Ali" name or prefix and the
"e-commerce" (and its Chinese equivalent) name, prefix or logo as part of a trademark or domain name in each party's and its subsidiaries' respective businesses. Neither party is required to
pay any fees under this agreement, and apart from the licenses and rights set forth in the agreement, there will be no other exchange of value in connection with this agreement.
Shared Services Agreement with Ant Financial Services
We and Ant Financial Services have entered into a shared services agreement, which was amended and restated as of August 12, 2014, in
connection with the 2014 SAPA, pursuant to which we and Ant Financial Services provide certain administrative and support services to each other and our respective affiliates.
Ant
Financial Services paid us RMB158 million, RMB670 million and RMB531 million (US$77 million) in fiscal years 2015, 2016 and 2017, respectively, for the
services we provided to it under the agreement. We paid Ant Financial Services RMB58 million, RMB56 million and RMB15 million (US$2 million) in fiscal years 2015, 2016 and
2017, respectively, for services Ant Financial Services provided to us under the agreement.
Other Commercial Arrangements with Ant Financial Services
We have also entered into other commercial arrangements with Ant Financial Services, its subsidiaries and affiliates, such as online marketing
services, treasury management and other services. In fiscal years 2015, 2016 and 2017, the amounts generated and receivable from Ant Financial Services under these arrangements were nil,
RMB416 million and RMB763 million (US$111 million), respectively. During the same periods, the amounts incurred and payable by us to Ant Financial Services under these
arrangements were RMB248 million, RMB243 million and RMB937 million (US$136 million), respectively.
Investments Involving Ant Financial Services
We have invested in businesses in which Ant Financial Services is an existing shareholder or co-invested with Ant Financial Services in other
businesses. For instance, in September 2015, we established a joint venture under the brand name Koubei with Ant Financial Services. We and Ant Financial Services injected certain related
businesses into Koubei and each invested RMB3.0 billion in this joint venture. Koubei is one of the leading local services guide businesses in China. In February 2016 and March 2017, we
agreed to invest US$900 million and US$400 million, respectively, in a co-investment with Ant Financial Services in Ele.me, an operator of one of the largest mobile food ordering and delivery
services in China. In addition, in August 2016, we and Ant Financial Services co-invested in AGTech. Ant Financial Services is also a shareholder of both Paytm, a mobile payment platform in
India, and Paytm Mall, an e-commerce platform in India, which are our investees.
Equity-based Award Arrangements
We grant options and RSUs relating to our ordinary shares to the employees of Ant Financial Services. As of March 31, 2015, 2016 and
2017, there were 6,097,651, 4,362,339 and 2,967,982 of our ordinary shares, respectively, underlying outstanding options and RSUs held by employees of Ant Financial Services.
We
entered into agreements with Ant Financial Services in calendar years 2012 and 2013 under which we will receive reimbursements for options and RSUs relating to our ordinary shares
granted to the employees of Ant Financial Services and its subsidiaries during the period from December 14, 2011 to March 31, 2014. Pursuant to these agreements, we will, upon vesting of
these options and RSUs, receive a cash reimbursement equal to their respective grant date fair value. The amounts of these reimbursements in fiscal years 2015, 2016 and 2017 were
RMB206 million, RMB113 million and RMB30 million (US$4 million), respectively.
195
Table of Contents
We understand that Jack Ma, as the controlling shareholder of Ant Financial Services, believes that providing equity-related awards to our employees tied to the
success of Ant Financial Services will enhance the value of our business because of the strategic importance of Alipay to our marketplaces and because, through our strategic and financial relationship
with Ant Financial Services, we have a significant participation in the profits and value accretion of Ant Financial Services. In March 2014, Junhan, the general partner of which is an entity
controlled by Jack Ma, made a grant of certain equity-based awards similar to share-appreciation rights linked to the valuation of Ant Financial Services to most of our employees. Since then, Junhan
has granted similar equity-based performance awards to our employees on an annual basis.
The
grant by Junhan to our employees is subject to approval by our audit committee. The vesting of these awards is conditional upon the fulfillment of requisite service conditions to us,
and these awards will be settled in cash by Junhan upon disposal of these awards by the holders. Junhan has the right to repurchase the vested awards from the holders upon an initial public offering
of Ant Financial Services or the termination of their employment with us at a price to be determined based on the then fair market value of Ant Financial Services. Junhan's obligation to cash settle
these awards will be funded by the proceeds of sales of or loans against the equity interests in Ant Financial Services that Jack contributed to Junhan. We have no obligation to reimburse Junhan, Ant
Financial Services or its subsidiaries for the cost associated with these awards. For accounting purposes, we recognize the cost relating to the equity-based awards granted by the shareholder through
Junhan as a shareholder contribution
as the awards will ultimately be settled in cash by Junhan. The awards are accounted for as financial derivatives and initially measured at their fair value, and the related expense will be recognized
over the requisite service period in our consolidated income statements with a corresponding credit to additional paid-in capital. Subsequent changes in the fair value of the awards are recorded in
our consolidated income statements through the date on which the underlying awards are settled by Junhan. The expenses arising from Ant Financial Services' share-based awards granted to our employees
represent a non-cash charge that will not result in any economic costs or equity dilution to our shareholders.
Subsequent
to our initial public offering, based on the arrangements agreed to in the 2014 SAPA, we, Junhan and Ant Financial Services entered into an agreement, under which we agreed to
continue granting our share-based awards to employees of Ant Financial Services, and Junhan and Ant Financial Services agreed that Junhan and/or Ant Financial Services through one of its subsidiaries
will continue granting equity-based performance awards to our employees on an annual basis. Due to the mutually beneficial nature of this arrangement, the parties agreed that none of them has any
obligation to reimburse any other party any expenses relating to the equity-based awards. This agreement has a term of three years and will be automatically renewed for another three years, unless
otherwise terminated by written agreement among the parties or unilaterally by Ant Financial Services if it is required under applicable laws (including any regulatory requirements applicable to a
public offer of Ant Financial Services' shares) to terminate the agreement.
Transactions with Alibaba Pictures
In June 2014, as part of our digital media and entertainment strategy, we completed an investment of HK$6,244 million
(RMB4,955 million) in newly issued ordinary shares representing approximately 60% of the issued share capital of Alibaba Pictures. In addition, in June 2015, Alibaba Pictures placed
newly issued ordinary shares to unrelated third-party investors for aggregate proceeds of approximately HK$12,179 million (RMB9,647 million). Our equity interest in Alibaba Pictures was
therefore diluted to 49.5% upon completion of this transaction. In December 2015, Alibaba Pictures completed its purchase of our online movie ticketing business and movie and TV series
financing platform for a cash consideration of US$350 million (RMB2,259 million) plus certain reimbursement amounts.
Transaction with Entity Affiliated with Our Directors and Officers
Jack Ma, our executive chairman, Joe Tsai, our executive vice chairman, and J. Michael Evans, our president, have purchased their own aircraft
for both business and personal use. The use of the above-mentioned executive officers' own aircraft in connection with the performance of their duties as our employees is free of charge to us,
196
Table of Contents
and
we have agreed to assume the cost of maintenance, crew and operation of the aircraft where the cost is allocated for business purposes.
Relationship with Investment Funds Affiliated with Our Executive Chairman
Jack Ma currently has an approximately 40% interest, held directly and/or indirectly, in the general partners of each of three Yunfeng
Capital-sponsored investment funds in which he is entitled to receive a portion of carried interest proceeds, namely, Shanghai Yunfeng Equity Investment (Limited Partnership), Shanghai Yunfeng
New Innovation Enterprise Equity Investment (Limited Partnership) and Smart System Investment Fund, L.P. Jack Ma also currently has an approximately 26.7% indirect interest in the
general partner of Yunfeng Fund II, L.P. and KHL, L.P., each of which is also a Yunfeng Capital-sponsored investment fund in which he is also entitled to receive a portion of carried
interest proceeds. Of the five Yunfeng Capital-sponsored funds in respect of which Jack Ma holds an interest in the general partner entities thereof and is entitled to receive carried interest
proceeds, one is a U.S. dollar denominated fund, or the U.S. Dollar Fund, two are RMB denominated funds, or the RMB Funds, one is a co-investment fund of the U.S. Dollar Fund and
one is a parallel fund of the U.S. Dollar Fund. We refer to these funds collectively as the Yunfeng Funds. Jack Ma also currently has a 40% interest in each of Shanghai Yunfeng Investment
Management Co., Ltd. and Shanghai Yunfeng New Innovation Investment Management Co., Ltd., which are the investment advisor entities of the RMB Funds and which,
together with Yunfeng Capital Limited, the investment advisor entity of the U.S. Dollar Fund, we collectively refer to as Yunfeng Capital. Jack Ma, his wife, a trust established for the benefit
of his family and an entity controlled by Jack and his wife have committed, directly or indirectly, approximately US$4.0 million and US$26.0 million as general partners and limited
partners, respectively, to the U.S. Dollar Fund, and approximately RMB20.0 million and approximately RMB201.1 million as general partners and limited partners, respectively, to
the RMB Funds. The U.S. Dollar Fund has accepted approximately US$1.1 billion in capital commitments and the RMB Funds have accepted over RMB5.0 billion in capital commitments.
Jack
has agreed to donate all distributions of (x) carried interest proceeds he may receive in respect of the Yunfeng Funds and (y) dividends he may receive with respect to
his holdings of shares in any member of Yunfeng Capital, which we collectively refer to as the Yunfeng Distributions, to, or for the benefit of, the Alibaba Group Charitable Fund or other entities
identified by Jack that serve charitable purposes. In addition, Jack has agreed that he will not claim any deductions from his applicable income tax obligations resulting from payment of the Yunfeng
Distributions to the Alibaba Group Charitable Fund or any other entity identified by Jack that serves charitable purposes. See " Commitments of Jack Ma to Alibaba Group." We
expect that, through its expertise, knowledge base and extensive network of contacts in private equity in China, Yunfeng Capital will assist us in developing a range of relevant strategic investment
opportunities.
Yunfeng
Funds have historically, and may in the future, enter into co-investment transactions with us and third parties. We have also invested in other businesses in which Yunfeng Funds
are existing shareholders, such as Damai, a leading online ticketing platform for live events in China. In addition, in May 2014, we committed US$80 million as a limited partner of
Yunfeng Fund II, L.P. through one of our investment vehicles, Alibaba Investment Limited. In addition, Yunfeng Fund, L.P. was an indirect holder of approximately
84,600 convertible preference shares purchased by an entity wholly-owned by it in September 2012, and the convertible preference shares were automatically converted into our ordinary
shares upon the completion of our initial public offering in September 2014.
Commitments of Jack Ma to Alibaba Group
Jack Ma, our executive chairman, has confirmed the following commitments to our board of directors
in writing:
-
-
He intends to reduce and thereafter limit his direct and indirect economic interest in Ant Financial Services over time, to a percentage that
does not exceed his and his affiliates' interest in our company immediately prior to our initial public offering and that the reduction will occur in a manner by which neither Jack nor any of his
affiliates would receive any economic benefit;
197
Table of Contents
-
-
He has entered into a deed to, and will, donate all of his Yunfeng Distributions to, or for the benefit of, the Alibaba Group Charitable Fund
or other entities identified by him that serve charitable purposes;
-
-
He will not claim any deductions from his applicable income tax obligations resulting from donating his Yunfeng Distributions to the Alibaba
Group Charitable Fund or any other entity identified by him that serve charitable purposes; and
-
-
If required by us, while he remains an Alibaba executive, he will assume for our benefit legal ownership of investment vehicles, holding
companies and variable interest entities that further our business interests in Internet, media and telecom related businesses and, in such circumstances, he will disclaim all economic benefits from
his ownership and enter into agreements to transfer any benefits to us (or as we may direct) when permitted by applicable law.
Pledge for the Benefit of and Loan Arrangement with a Related Party
In May 2015, we entered into a pledge with a financial institution in the PRC in connection with certain wealth management products with
an aggregate principal amount of RMB7.3 billion we invested in to secure an RMB6.9 billion financing provided by this financial institution to Simon Xie, one of our founders and an
equity holder in certain of our variable interest entities, to finance the minority investment by a PRC limited partnership in Wasu, a company listed on the Shenzhen Stock Exchange and engaged in the
business of digital media broadcasting and distribution in China. In addition, we entered into a loan agreement for a principal amount of up to RMB2.0 billion with Simon Xie in
April 2015 to finance the repayment by Simon of the interest under the financing. These arrangements strengthen our strategic business arrangements with Wasu to enhance our entertainment
strategy. Our loan to Simon will be made at an interest rate equal to SHIBOR as specified by us from time to time and is repayable in five years. The loan is secured by a pledge of Simon's limited
partnership interest in the PRC limited partnership. As of March 31, 2017, the balance of this loan was RMB749 million (US$109 million). We have entered into strategic cooperation
agreements with a major shareholder of Wasu in order to enhance our capabilities and influence in the entertainment sector in China. A company controlled by Jack Ma serves as one of the general
partners of the PRC limited partnership. Yuzhu Shi, the founder, chairman and a principal shareholder of Giant Interactive, a China-based online game company that was previously listed on the
New York Stock Exchange, and who is also an entrepreneur with significant experience in and knowledge of the media industry in China, serves as the other general partner. Jack, through his
control of one of the general partners, and Mr. Shi, as the other general partner and the executive partner, jointly control this PRC limited partnership. The interest of the general partner
controlled by Jack in the limited partnership is limited to the return of its RMB10,000 contributed capital.
Transactions with Cainiao Network
During fiscal year 2016, we disposed of a wholly-owned subsidiary to Cainiao Network for cash consideration of US$33 million
(RMB204 million). The gain on disposal in fiscal year 2016 was RMB3 million. The major asset of the disposed subsidiary consisted of a land use right in the PRC.
We
have commercial arrangements with Cainiao Network conducted on an arm's length basis to receive certain logistics services. Expenses incurred in connection with the logistics services
provided by Cainiao Network in fiscal years 2015, 2016 and 2017 were RMB785 million, RMB2,370 million and RMB4,444 million (US$646 million), respectively.
We
also have cost sharing arrangements with Cainiao Network on various administrative and cloud computing services. In connection with the services we provided, Cainiao Network paid us
RMB20 million, RMB86 million and RMB152 million (US$22 million) in fiscal years 2015, 2016 and 2017, respectively.
From
time to time, we also co-invest with Cainiao Network in other businesses.
198
Table of Contents
Transactions with Weibo
We entered into a strategic collaboration agreement and a marketing cooperation agreement with Weibo, one of our equity investees, during fiscal
year 2014. These agreements expired in January 2016. In fiscal years 2015, 2016 and 2017, the amounts paid to Weibo in connection with the marketing services provided by Weibo pursuant to these
agreements and other commercial arrangements were RMB654 million, RMB715 million and RMB340 million (US$49 million), respectively.
We
also have other commercial arrangements with Weibo primarily relating to the provision of cloud computing services. In connection with the services we provided, Weibo paid us
RMB2 million, RMB38 million and RMB105 million (US$15 million) in fiscal years 2015, 2016 and 2017, respectively.
Other commercial transactions with equity investees
Other than the transactions disclosed above, we also have commercial arrangements with certain of our equity investees and other related parties
to provide and receive certain marketing, logistics, traffic acquisition, cloud computing and other services. The amounts relating to these services provided and received represent less than 1% of our
revenue and total expenses, respectively, for the years ended March 31, 2015, 2016 and 2017. We believe that all transactions were conducted through arms-length negotiations and on terms
similar to those with unrelated parties.
Contractual Arrangements among Our Wholly-foreign Owned Enterprises, Variable Interest Entities and the
Variable Interest Entity Equity Holders
Chinese law restricts foreign ownership in enterprises that provide value-added telecommunications services, which includes the ICPs. As a
result, we operate our Internet businesses and other businesses in which foreign investment is restricted or prohibited in China through contractual arrangements between our wholly-foreign owned
enterprises, our variable interest entities, which, where applicable, hold the ICP licenses and other regulated licenses and generally operate our Internet businesses and other businesses in which
foreign investment is restricted or prohibited, and the variable interest entity equity holders. For a description of these contractual arrangements, see "Item 4. Information on the
Company C. Organizational Structure Contractual Arrangements among Our Wholly-foreign Owned Enterprises, Variable
Interest Entities and the Variable Interest Entity Equity Holders."
Indemnification Agreements
We have entered into indemnification agreements with our directors and executive officers. These agreements require us to indemnify these
individuals, to the fullest extent permitted by law, for certain liabilities to which they may become subject as a result of their affiliation with us.
Employment Agreements
See "Item. 6 Directors, Senior Management and Employees B.
Compensation Employment Agreements."
Share Options
See "Item. 6 Directors, Senior Management and Employees B.
Compensation Equity Incentive Plans."
C. Interests of Experts and Counsel
Not applicable.