F-1 1 d653603df1.htm FORM F-1 Form F-1
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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MAY 5, 2014

REGISTRATION NO. 333-                

 

 

 

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

 

 

FORM F-1

REGISTRATION STATEMENT

UNDER

THE SECURITIES ACT OF 1933

 

 

Zhaopin Limited

(Exact name of Registrant as specified in its charter)

Not Applicable

(Translation of Registrant’s name into English)

 

 

 

Cayman Islands   7370   Not Applicable
(State or other jurisdiction of   (Primary Standard Industrial   (I.R.S. Employer
incorporation or organization)   Classification Code Number)   Identification Number)

6/F, Fosun International Centre

237 Chaoyang North Road

Chaoyang District, Beijing 100020

People’s Republic of China

(+86) 10-5863-5888

(Address, including zip code, and telephone number, including area code, of Registrant’s principal executive offices)

Law Debenture Corporate Services Inc.

400 Madison Avenue, 4th Floor

New York, New York 10017

(+1) 212-750-6474

(Name, address, including zip code, and telephone number, including area code, of agent for service)

 

 

Copies to:

 

Z. Julie Gao, Esq.

Will H. Cai, Esq.

Skadden, Arps, Slate, Meagher & Flom LLP

c/o 42/F, Edinburgh Tower, The Landmark

15 Queen’s Road Central

Hong Kong

(+852) 3740-4700

 

Adrian J. S. Deitz, Esq.

Skadden, Arps, Slate, Meagher & Flom

Level 13

131 Macquarie Street

Sydney, New South Wales 2000

Australia

(+61) 2-9253-6000

 

Howard Zhang, Esq.

Davis Polk & Wardwell LLP

2201 China World Office 2

1 Jian Guo Men Wai Avenue

Chaoyang District, Beijing 100004

People’s Republic of China

(+86) 10-8567-5002

 

 

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, 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. ¨

 

 

CALCULATION OF REGISTRATION FEE

 

 

Title of each class of

securities to be registered

  Proposed maximum aggregate
offering price(2)
 

Amount of

registration fee

Class A ordinary Shares, par value US$0.01 per share(1)

  US$100,000,000   US$12,880

 

 

(1) 

American depositary shares issuable upon deposit of the Class A ordinary shares registered hereby will be registered under a separate registration statement on Form F-6 (Registration No. 333-            ). Each American depositary share represents            Class A ordinary shares.

(2) 

Includes Class A ordinary shares that are issuable upon the exercise of the underwriters’ option to purchase additional shares. Also includes Class A ordinary shares initially offered and sold outside the United States that may be resold from time to time in the United States either as part of their distribution or within 40 days after the later of the effective date of this registration statement and the date the shares are first bona fide offered to the public. These Class A ordinary shares are not being registered for the purpose of sales outside the United States.

 

 

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 Commission, acting pursuant to such Section 8(a), may determine.

 

 

 


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The information in this preliminary prospectus is not complete and may be changed. We may not sell these securities until the registration statement filed with the Securities and Exchange Commission is effective. This preliminary prospectus is not an offer to sell these securities and is not soliciting an offer to buy these securities in any jurisdiction where the offer or sale is not permitted.

 

SUBJECT TO COMPLETION

PRELIMINARY PROSPECTUS DATED                 , 2014

American Depositary Shares

 

LOGO

Zhaopin Limited

Representing              Class A Ordinary Shares

 

 

This is an initial public offering of Zhaopin Limited. We are offering              American depositary shares, or ADSs, of Zhaopin Limited. Each ADS represents              of our Class A ordinary share(s), par value US$0.01 per share.

Prior to this offering, there has been no public market for our ADSs or our Class A ordinary shares. We anticipate that the initial public offering price will be between US$             and US$             per ADS.

We have applied to have the ADSs listed on the New York Stock Exchange under the symbol “ZPIN.”

We are an “emerging growth company” as defined in the Jumpstart Our Business Startups Act of 2012 and have elected to comply with certain reduced public company reporting requirements in this prospectus and future filings.

Investing in our ADSs involves risks. See “Risk Factors” beginning on page 13.

Neither the United States Securities and Exchange Commission nor any state securities commission or 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

Public offering price

     US$                  US$            

Underwriting discount

     US$                  US$            

Proceeds to us (before expenses)

     US$                  US$            

We have granted the underwriters an option to purchase up to             additional ADSs from us at the initial public offering price, less underwriting discounts and commissions, within 30 days from the date of this prospectus to cover any over-allotment.

We plan to adopt a dual-class share structure immediately prior to the completion of this offering, subject to shareholder approval. Immediately prior to the completion of this offering, our outstanding share capital will consist of                      Class A ordinary shares and                      Class B ordinary shares. Holders of Class A ordinary shares and Class B ordinary shares have the same rights except for conversion and voting rights. Each Class A ordinary share is entitled to one vote, and each Class B ordinary share is entitled to four votes and is convertible into one Class A ordinary share at any time. Class A ordinary shares cannot be converted into Class B ordinary shares under any circumstances. Upon the completion of this offering, our existing shareholders will own an aggregate of                      Class B ordinary shares, which will represent             % of the then total voting power of our outstanding shares, assuming the underwriters do not exercise their option to purchase additional ADSs. Holders of our Class A ordinary shares will own an aggregate of                      Class A ordinary shares, which will represent             % of the then total voting power of our outstanding shares, assuming the underwriters do not exercise their option to purchase additional ADSs.

The underwriters expect to deliver the ADSs against payment in U.S. dollars in New York, New York on or about                     , 2014.

 

Credit Suisse     

UBS Investment Bank

The date of this prospectus is                 , 2014


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TABLE OF CONTENTS

 

     Page  

CONVENTIONS USED IN THIS PROSPECTUS

     ii   

PROSPECTUS SUMMARY

     1   

RISK FACTORS

     13   

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS AND INDUSTRY DATA

     53   

USE OF PROCEEDS

     55   

DIVIDEND POLICY

     57   

CAPITALIZATION

     58   

DILUTION

     59   

EXCHANGE RATE INFORMATION

     61   

ENFORCEABILITY OF CIVIL LIABILITIES

     62   

OUR CORPORATE HISTORY AND STRUCTURE

     64   

SELECTED CONSOLIDATED FINANCIAL AND OPERATING DATA

     71   

MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

     74   

INDUSTRY OVERVIEW

     103   

BUSINESS

     106   

REGULATION

     116   

MANAGEMENT

     126   

PRINCIPAL SHAREHOLDERS

     136   

RELATED PARTY TRANSACTIONS

     138   

DESCRIPTION OF SHARE CAPITAL

     139   

DESCRIPTION OF AMERICAN DEPOSITARY SHARES

     148   

SHARES ELIGIBLE FOR FUTURE SALE

     160   

TAXATION

     162   

UNDERWRITING

     169   

EXPENSES RELATED TO THIS OFFERING

     177   

LEGAL MATTERS

     178   

EXPERTS

     179   

WHERE YOU CAN FIND ADDITIONAL INFORMATION

     180   

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

     F-1   

 

 

You should rely only on the information contained in this prospectus or in any related free-writing prospectus that we have filed with the United States Securities and Exchange Commission, or the SEC. Neither we nor the underwriters have authorized anyone to provide you with different information. We are offering to sell, and seeking offers to buy, the ADSs only in jurisdictions where such offers and sales are permitted. The information contained in this prospectus is current only as of the date of this prospectus, regardless of the time of delivery of this prospectus or of any sale of the ADSs.

Neither we nor the underwriters have taken any action to permit a public offering of the ADSs outside the United States. Persons outside the United States who come into possession of this prospectus must inform themselves about, and observe any restrictions relating to, the offering of the ADSs and the distribution of the prospectus outside the United States.

Through and including                     , 2014 (the 25th day after the date of this prospectus), all dealers effecting transactions in these securities, whether or not participating in this offering, may be required to deliver a prospectus. This is in addition to a dealer’s obligation to deliver a prospectus when acting as an underwriter and with respect to their unsold allotment or subscription.

 

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CONVENTIONS USED IN THIS PROSPECTUS

In this prospectus, unless otherwise indicated or the context otherwise requires, references to:

 

   

“we,” “us,” “our company” and “our” refer to Zhaopin Limited, its subsidiaries and consolidated affiliated entities;

 

   

“ADSs” refers to our American depositary shares, each of which represents                     Class A ordinary shares;

 

   

“China” or “PRC” refers to the People’s Republic of China, excluding, for purposes of this prospectus only, Taiwan, Hong Kong and Macau;

 

   

“iResearch” refers to iResearch Consulting Group, a third-party market research firm; the “iResearch Survey” refers to 2014 iResearch China Online Recruitment Service User Survey, an industry report commissioned by us and prepared by iResearch; “iResearch Public Data” refers to data and information contained in research reports prepared by iResearch and made available to all subscribers, which are not commissioned by us;

 

   

“Daily unique visitors” refers to the number of visitors who accessed a website on any given day, with each visitor being identified by the device the visitor used to access the website, but not including visitors who accessed the website via mobile devices; and

 

   

“shares” or “ordinary shares” refers to our ordinary shares, par value US$0.01 per share, and “preferred shares” refers to our Series B and Series C convertible preferred shares, in each case par value US$0.01 per share. Immediately prior to the completion of this offering, our ordinary shares will consist of Class A and Class B ordinary shares, par value US$0.01 per share.

Unless the context indicates otherwise, all information in this prospectus assumes no exercise by the underwriters of their over-allotment option.

Our financial statements are expressed in Renminbi, which is our reporting currency. Certain of our financial data in this prospectus are translated into U.S. dollars solely for your convenience. Unless otherwise noted, all translations from Renminbi to U.S. dollars in this prospectus were made at a rate of RMB6.0537 to US$1.00, the exchange rate set forth in the H.10 statistical release of the Federal Reserve Board on December 31, 2013. We make no representation that any Renminbi or U.S. dollar amounts could have been, or could be, converted into U.S. dollars or Renminbi, as the case may be, at any particular rate, at the rate stated above, or at all. For more information, see “Exchange Rate Information.”

 

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PROSPECTUS SUMMARY

This summary highlights information contained elsewhere in this prospectus and does not contain all of the information that you should consider in making your investment decision. Before investing in the ADSs, you should carefully read the entire prospectus, including our financial statements and related notes included in this prospectus and the information set forth under the headings “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” This prospectus contains information from the 2014 iResearch China Online Recruitment Service User Survey, an industry report commissioned by us and prepared by iResearch Consulting Group, or iResearch, a third-party market research firm. We refer to this report as the iResearch Survey in this prospectus.

Our Company

We are a leading career platform in China, focusing on connecting users with relevant job opportunities throughout their career lifecycle. Our zhaopin.com website is the most popular career-focused website in China as measured by average daily unique visitors in each month of 2013, according to the iResearch Public Data. We are the second largest online recruitment services provider as measured by revenues in 2013, according to the iResearch Public Data. Our over 74 million registered users include diverse and educated job seekers who are at various stages of their careers and are in demand by employers as a result of the general shortage of skilled and educated workers in China. In the fiscal year ended June 30, 2013 and the six months ended December 31, 2013, over 10.5 million and 7.2 million job postings were respectively placed on our platform by approximately 250,000 and 226,000 employers including multinational corporations, small and medium-sized enterprises and state-owned entities. The quality and quantity of our users and the resumes in our database attract an increasing number of customers. This in turn leads to more users turning to us as their primary recruitment and career-related services provider, creating strong network effects and significant entry barriers for potential competitors.

Since our inception in 1994, we have capitalized on our early-mover advantage as an online career-related services provider to build a leading brand in China. Our “Zhaopin” (“ LOGO ”) brand, which means “hire” or “recruit” in Chinese, has contributed to our success. We focus on educated and skilled users, which positions us favorably in industries that contain high percentages of white-collar positions, where there are shortages of skilled labor. We understand the needs of both users and employers and, as a result, our platform is well-positioned to best match users with relevant job opportunities provided by employers.

Benefiting from our strong brand, our leading market position and our focus on industries with high hiring demand, we have achieved significant growth in our operations in recent years, as highlighted by the following data:

 

   

We had 74.1 million registered users as of December 31, 2013, representing an increase of 18.7% from December 31, 2012;

 

   

Approximately 10.5 million job postings were placed on our online platform by approximately 250,000 unique customers in the fiscal year ended June 30, 2013, representing increases of 38.0% and 12.2%, respectively, from the fiscal year ended June 30, 2012;

 

   

Approximately 7.2 million job postings were placed on our online platform by approximately 226,000 unique customers in the six months ended December 31, 2013, representing increases of 56.3% and 28.0%, respectively, from the six months ended December 31, 2012; and

 

   

Approximately 54.4 million completed resumes were available in our database as of December 31, 2013, representing an increase of 19.7% from December 31, 2012.

 

 

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Our revenues are driven in part by the number of unique customers who purchase our services and more specifically, based on the number of job postings and display advertisements they place on our platform and the number of completed resumes they download from our database. Although we do not directly generate revenues from job-seekers for using our services, our large and increasing number of registered users and the number of average daily unique visitors are key indicators of the scale of our platform, which enable us to encourage our existing customers to purchase more services and to attract new customers.

We provide a broad range of services, including online recruitment, campus recruitment, assessment and other human resources related services. Through our zhaopin.com website, we provide classified job postings and display advertisements, resume access services and other online services. We provide campus recruitment services primarily to customers seeking to recruit college and university students. These services include selecting campuses, organizing recruiting events, collecting and managing resumes and conducting interviews and assessment tests with candidates. We provide online and offline assessment services to assist customers in evaluating capabilities and dispositions of their job candidates and existing employees. Our other human resources related services mainly include executive search.

Our growth is supported by our nationwide sales and customer services network. We have a large sales and customer service team with strong recruitment and human resources expertise, local market knowledge and deep understanding of industry verticals to assist us in best serving our customers’ needs. As of December 31, 2013, we employed more than 2,000 sales and account management representatives located in 32 regional offices across China and our headquarter and call center in Beijing.

Our total revenues were RMB889.6 million (US$147.0 million) for the fiscal year ended June 30, 2013 as compared to RMB821.5 million for the fiscal year ended June 30, 2012. Our total revenues were RMB501.0 million (US$82.8 million) for the six months ended December 31, 2013, representing a 12.4% increase from RMB445.6 million for the same period in 2012. We focus primarily on providing online recruitment services, which are highly scalable and have higher gross margin than our offline recruitment services. Revenues from our online recruitment services accounted for 84.3% of our total revenues in both fiscal years ended June 30, 2012 and 2013 and 79.4% of our total revenues in the six months ended December 31, 2013.

Our Market Opportunities

Driven by continued economic growth and favorable macroeconomic trends, the recruitment and career-related services industry in China has grown substantially over the past decade and has reached a considerable size. As a result of these evolving economic dynamics, China is experiencing a general shortage of skilled and educated workers, which has resulted in significant mismatches in the labor market. This drives the strong and growing demand for recruitment and career-related services.

The online recruitment and career-related services market in particular has demonstrated rapid growth, as it has benefited from the increasing internet and mobile penetration in China and growing acceptance among both employers and job seekers of online recruitment and career-related services. As a leading career platform in China focusing on connecting users with relevant job opportunities throughout their career lifecycle, we believe we are well-positioned to capture those market opportunities.

Our Strengths

We are a leading career platform in China, focusing on connecting users with relevant job opportunities throughout their career lifecycle. We believe the following competitive strengths have contributed to our success:

 

   

A leading career platform in China;

 

   

Highly recognized brand among users;

 

 

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Strong and diversified customer base; nationwide extensive sales and customer services network;

 

   

Scalable business model with high operating and capital efficiency; and

 

   

Highly experienced management team backed by a strategic investor with deep industry experience.

Our Strategies

We aspire to become the largest and most effective career platform in China for users to find relevant job opportunities to progress their career and for customers to find right talents. To achieve our goals, we plan to pursue the following strategies:

 

   

Attract and retain more users through branding and enhanced user experience;

 

   

Acquire and retain more customers;

 

   

Continue to pursue our mobile strategies;

 

   

Expand our product offerings; and

 

   

Pursue strategic investment and acquisition opportunities.

Our Challenges

We are subject to numerous risks and uncertainties related to our business and industry that could adversely impact our business, including but not limited to:

 

   

Slowdowns or other adverse developments in the PRC economy or the recruitment and career-related services industry;

 

   

Significant competition in our industry, including intense competition from existing competitors or new entrants to the recruitment and career-related services market;

 

   

Continued acceptance of the internet as an effective recruitment and career-related channel;

 

   

Our ability to acquire and retain more customers;

 

   

Our ability to maintain and enhance our brand and to increase our user base;

 

   

Our ability to improve user experience, product offerings and technology platform;

 

   

Our ability to manage our current and future growth and form appropriate corporate growth strategies;

 

   

Our ability to maintain and expand our scale of operations and profitability; and

 

   

Our ability to retain our management and key employees and attract new talent.

In addition, we are subject to risks and uncertainties related to our corporate structure and doing business in China, including, but not limited to:

 

   

Risks associated with our control of our consolidated affiliated entities, which is based upon contractual arrangements rather than equity ownership. If the PRC government determines that our contractual arrangements do not comply with applicable PRC laws and regulations, we could be subject to severe penalties. In addition, our contractual arrangements may not be as effective in providing operational control of our consolidated affiliated entities as direct ownership of such entities. In 2012, we deconsolidated one of our consolidated affiliated entities due to the non-compliance by a nominee shareholder of such entity with the contractual arrangements, and subsequently remediated the situation with an alternative business structure;

 

   

Risks associated with lacking necessary permits and registrations, which may subject us to penalties and have a material adverse impact on our business and results of operations. In particular, four out of the 28 operating branch offices of our joint venture are yet to complete the procedures to obtain the human resources permit; and

 

 

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Risks associated with the potential conflicts of interests between the fiduciary duties owed by the equity owners of our consolidated affiliated entities to such entities and us under PRC and Cayman Islands laws, respectively, and the lack of an effective mechanism to resolve these conflicts between the two jurisdictions.

See “Risk Factors” and “Special Note Regarding Forward-Looking Statements and Industry Data” for a discussion of these and other risks and uncertainties associated with our business and investing in our ADSs.

Our Corporate History and Structure

We started our operations in 1994 as an executive search firm. Our holding company, Zhaopin.com Limited, was incorporated in the Cayman Islands in 1999 and subsequently changed its name to Zhaopin Limited.

We are a holding company incorporated in the Cayman Islands and we operate our business in China through our wholly-owned subsidiaries, consolidated affiliated entities and our joint venture.

The following diagram illustrates our corporate structure, including our principal subsidiaries, consolidated affiliated entities and our joint venture as of the date of this prospectus:

 

LOGO

 

 

The diagram above does not include our four inactive subsidiaries and our 13 inactive variable interest entities.

* Wholly foreign owned enterprise.
** Variable interest entity. Zhilian Sanke is our website operator and holds an internet content provider license necessary to conduct our internet related operations in China.

 

 

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*** Beijing Wangpin holds the human resources service license necessary to conduct our human resources related business in China. Beijing Wangpin is our joint venture company.
Consists of Business Operations Agreements, Equity Interest Pledge Agreements, Power of Attorney, Exclusive Technical and Consulting Services Agreements, Exclusive Equity Option Agreements and Loan Agreements. For details on the contractual arrangements, see “Our Corporate History and Structure—Contractual Arrangements with Our Consolidated Affiliated Entities.”

 

(1) 

Mr. Yuanwei Xie and Mr. Xin Wang are both nominee shareholders of our consolidated affiliated entities and employees of SEEK Limited, which is the parent company of SEEK International Investments Pty Ltd., our largest shareholder as of the date of this prospectus.

(2) 

Mr. Hao Liu is a director of our company.

Our recruitment services involve different aspects of PRC laws and regulations, including human resources, internet information provision, and advertising. PRC laws and regulations currently limit foreign ownership of companies that provide value-added telecommunication services, advertising services and human resources related services. To comply with these restrictions while maintaining our equity ownership to the extent practical, we conduct our business in China through: (i) our wholly-owned subsidiaries; (ii) our consolidated affiliated entities through contractual arrangements; and (iii) our joint venture, Beijing Wangpin, of which we hold a 90% equity interest and one of our consolidated affiliated entities holds the remaining 10% of the equity interest. As of the date of this prospectus, we conduct the majority of our human resources business through the branch offices of our joint venture, instead of relying on contractual arrangements with our consolidated affiliated entities.

The table below sets forth the respective revenues contribution from our wholly-owned subsidiaries, our joint venture and our consolidated affiliated entities for the periods indicated:

 

     Total Revenues  
     For the year ended June 30,     For the six
months ended
December 31,
 
     2012     2013     2013  

Wholly-owned subsidiaries

     11.7     10.6     3.6

Joint venture

     69.5     78.2     90.7

Consolidated affiliated entities

     18.8     11.2     5.7
  

 

 

   

 

 

   

 

 

 

Total

     100     100     100
  

 

 

   

 

 

   

 

 

 

Our Wholly-Owned Subsidiaries

We have two principal wholly-owned subsidiaries in China, Zhilian Wangpin (Beijing) Technology Co., Ltd., or Zhilian Wangpin and Zhilian Yipin (Beijing) Technology Co., Ltd., or Zhilian Yipin. To the extent permissible under PRC laws and regulations, we provide services through our wholly-owned subsidiaries and our joint venture. The business scope set forth in the business license of Zhilian Wangpin includes research and development of internet technology and computer software; technology consulting, technical services and technology transfer, computer technology training; and sale of self-manufactured products. The business scope set forth in the business license of Zhilian Yipin includes research and development of internet technology and computer software; production of computer software; technology consulting, technical services and technology transfer; computer technology training; and sale of self-manufactured products.

Our Joint Venture

We conduct our human resources related operations in China primarily through Beijing Wangpin Consulting Co., Ltd., or Beijing Wangpin. Beijing Wangpin is a Sino-foreign equity joint venture that is 90% owned by Zhaopin Limited and 10% owned by Beijing Zhilian Sanke Human Resources Service Co., Ltd., or Zhilian Sanke. Through contractual arrangements with Zhilian Sanke and its shareholders, we exercise effective control over, and receive substantially all the economic benefits from, Zhilian Sanke and therefore consolidate Zhilian

 

 

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Sanke’s results of operations, financial position and cash flows. As we directly own 90% of the equity interest of Beijing Wangpin and indirectly own the remaining 10% through Zhilian Sanke, we account for Beijing Wangpin as a consolidated subsidiary in our consolidated financial statements. For details on the contractual arrangements, see “Our Corporate History and Structure—Contractual Arrangements with Our Consolidated Affiliated Entities.” Beijing Wangpin holds a human resources service license.

Our Consolidated Affiliated Entities

We currently conduct internet related businesses through our consolidated affiliated entities in China. Our principal consolidated affiliated entity is Zhilian Sanke, which is our website operator and holds an internet content provider license, or ICP license, necessary to conduct our internet related operations in China. Zhilian Sanke owns the domain names used in our online businesses. Our wholly-owned PRC subsidiary, Zhilian Wangpin, has entered into a series of contractual arrangements with our consolidated affiliated entities and their respective shareholders, which enable us to:

 

   

exercise effective control over the business management and shareholders’ voting rights of our consolidated affiliated entities;

 

   

receive substantially all of the economic benefits of our consolidated affiliated entities through service fees in consideration for the technical and consulting services provided by Zhilian Wangpin; and

 

   

have an exclusive option to purchase all of the equity interests in each of our consolidated affiliated entities to the extent permitted under PRC laws, regulations and legal procedures.

We do not have any equity interest in any of our consolidated affiliated entities except for Harbin Zhilian Wangcai Advertising Co., Ltd. However, as a result of contractual arrangements, we retain control over and are considered the primary beneficiary of each of our consolidated affiliated entities, and we have consolidated the financial results of these companies in our consolidated financial statements in accordance with generally accepted accounting principles of the United States, or U.S. GAAP. If our PRC consolidated affiliated entities and their shareholders fail to perform their respective obligations under the contractual arrangements, we could be limited in our ability to enforce the contractual arrangements that give us effective control over our consolidated affiliated entities and consequently, we may be unable to conduct our internet related operations because the ICP License and domain name are owned by Zhilian Sanke and we may potentially lose control over Beijing Wangpin, our joint venture. Further, if we are unable to maintain effective control, we may not be able to continue to consolidate the financial results of our consolidated affiliated entities in our financial statements. Although we are able to consolidate the financial results of our consolidated affiliated entities, this does not mean that we are able to have unfettered access to the revenues and profits of our wholly-owned subsidiaries and consolidated affiliated entities due to the significant PRC legal restrictions on the payment of dividends by PRC companies, foreign exchange control restrictions and the restrictions on foreign investment, among other restrictions. In October 2013, we were paid a cash dividend of RMB224.1 million from Beijing Wangpin, our joint venture. In the fiscal years ended June 30, 2012 and 2013, we received service fees of RMB2.5 million and RMB0.0 from our consolidated affiliated entities, respectively. We mostly conduct our human resources business through the branch offices of our joint venture, instead of relying on contractual arrangements with our consolidated affiliates entities. We are in the process of liquidating two subsidiaries of Zhilian Wangpin and 13 consolidated affiliated entities. As of the date of this prospectus, such subsidiaries and consolidated affiliated entities have no material business operations.

Under our contractual arrangements, the PRC shareholders of our consolidated affiliated entities have agreed to pledge all their equity interests therein as collateral to us. As of the date of this prospectus, Harbin Zhilian Wangcai Advertising Co., Ltd. has registered its equity pledge with the relevant local administration for industry and commerce, while Zhilian Sanke and Shenyang Zhilian Wangpin Advertising Co., Ltd. have not

 

 

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made such registrations. We recently replaced the nominee shareholders of Zhilian Sanke and will seek registration of the equity pledges after the completion of the registration of the new shareholding structure with relevant local branch of PRC State Administration of Industry and Commerce, or SAIC. The lack of registration of the equity pledges does not affect the validity of the equity pledge agreements or our ability to enforce the agreements against the current shareholders of our consolidated affiliated entities. However, the equity pledges, which form part of the contractual arrangements with our consolidated affiliated entities, will not be deemed validly created security interests under the PRC Property Rights Law until they are registered. Until the equity pledges are registered, we may not be able to successfully enforce these pledges against any third parties who may acquire the equity interests in the two consolidated affiliated entities in good faith. Should a third party acquire the equity interests in good faith, we may lose control of these businesses and may not be able to consolidate the assets, liabilities and results of operations of these entities. We would not have any direct remedies against any such bona fide third party although we could seek remedies for breach of contract under the contractual arrangements against the shareholders who transferred their equity interests in our consolidated affiliated entities without our consent.

For the fiscal years ended June 30, 2012 and 2013 and the six months ended December 31, 2013, the two consolidated affiliated entities that have not registered their equity pledges, Shenyang Zhilian Wangpin Advertising Co., Ltd. and Zhilian Sanke, in the aggregate, contributed 0.5%, 0.3% and 0.2% of our total revenues, respectively. As of the date of this prospectus, these consolidated affiliated entities have a total registered capital of RMB1.6 million (US$0.3 million). The registered capital amount, which represents corresponding equity interests to be pledged, is the amount required by the SAIC to be stated in the registration form of the equity interest pledges. However, the registered capital amount does not reflect the fair market value of the equity interests that are pledged under the equity pledge agreements; rather, the registered capital amount reflects the amount of capital required to be contributed to the consolidated affiliated entity under its articles of association by the holders of its equity interests. The value secured by equity pledges is not limited to the amount of the registered capital stated on the registration form. Instead, under the equity pledge agreements, it covers all debts and liabilities arising from the relevant principal agreements under our contractual arrangements. We are preparing necessary documents required by local authorities to register the equity pledges of these two consolidated affiliated entities, but it is difficult to predict the amount of time required to complete these equity pledge registrations. Further, under PRC law and the equity pledge agreements, in the event of a default under our contractual arrangements, our primary remedy would be to engage in a public auction or sale of the shares and not a direct transfer of the pledged equity interest to us if we choose to enforce the pledge. Such an auction or sale may not result in our receipt of full value of the equity or the business of the entities. Under our contractual arrangements, the PRC shareholders of our consolidated affiliated entities have agreed to pledge all their equity interests therein as collateral to us. For a description of these contractual arrangements, see “Our Corporate History and Structure.” For a detailed description of the regulatory environment that necessitates the adoption of our corporate structure, see “Regulation.” For a detailed description of the risks associated with our corporate structure, see “Risk Factors—Risks Related to Our Corporate Structure.”

Our Corporate Information

Our principal executive offices are located at 6/F, Fosun International Centre, 237 Chaoyang North Road, Chaoyang District, Beijing, the People’s Republic of China. Our telephone number at this address is 86 (10) 5863-5888. Our registered office in the Cayman Islands is located at the offices of Maples Corporate Services Limited, P.O. Box 309, Ugland House, KY1-1104, Grand Cayman, Cayman Islands.

Our corporate website is www.zhaopin.com. The information contained on our corporate website or other websites operated by us are not a part of this prospectus. Our agent for service of process in the United States is Law Debenture Corporate Services Inc., located at 400 Madison Avenue, 4th Floor, New York, New York 10017.

 

 

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The Offering

 

Offering price

We currently expect that the initial public offering price will be between US$             and US$             per ADS.

 

ADSs offered by us

                    ADSs.

 

ADSs outstanding immediately after this offering

                    ADSs (or                     ADSs if the over-allotment option is exercised in full).

 

Ordinary shares outstanding immediately after this offering

                     Class A ordinary shares and                              Class B ordinary shares (or                     Class A ordinary shares and                              Class B ordinary shares if the over-allotment option is exercised in full).

 

The ADSs

Each ADS represents                     Class A ordinary shares.

 

  The depositary will hold the Class A ordinary shares underlying your ADSs. You will have rights of an ADS holder as provided in the deposit agreement among us, the depositary and owners and beneficial owners of ADSs from time to time. We do not have any present plan to declare or pay any dividends in the near future. If, however, we declare dividends on our ordinary shares, the depositary will pay you the cash dividends and other distributions it receives on our ordinary shares, after deducting its fees and expenses. You may turn in your ADSs to the depositary in exchange for our Class A ordinary shares. The depositary will charge you fees for any exchange. We may amend or terminate the deposit agreement without your consent. If you continue to hold your ADSs, you agree to be bound by the deposit agreement, as amended from time to time.

 

  To better understand the terms of the ADSs, you should carefully read the “Description of American Depositary Shares” section of this prospectus. You should also read the deposit agreement, which is filed as an exhibit to the registration statement that includes this prospectus.

 

Over-allotment option

We have granted the underwriters an option, exercisable within 30 days from the date of this prospectus, to purchase up to              additional ADSs.

 

 

Use of proceeds

We expect that we will receive net proceeds of approximately US$             million from this offering, or approximately US$             million if the underwriters exercise their option to purchase additional ADSs in full, assuming an initial public offering price of US$             per ADS, which is the midpoint of the estimated range of the initial public offering price, after deducting underwriting discounts and commissions and estimated offering expenses payable by us.

 

 

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  We plan to use the net proceeds from this offering to repay our existing indebtedness and for our geographic expansion, product development, upgrade of our information technology system and website, and working capital and general corporate purposes, including strategic investments and potential acquisition opportunities. See “Use of Proceeds” for more information.

 

[Directed share program]

[At our request, the underwriters have reserved for sale, at the initial public offering price, up to an aggregate of                      ADSs offered in this offering to some of our directors, officers, employees, business associates and related persons through a directed share program.]

 

Lock-up

We, our directors and executive officers and our principal shareholders have agreed with the underwriters, [subject to certain exceptions, not to sell, transfer or dispose of any ADSs, ordinary shares or similar securities for a period of 180 days following the date this prospectus becomes effective]. See “Underwriting” for more information.

 

Proposed symbol

ZPIN

 

Depositary

JPMorgan Chase Bank, N.A.

 

Risk factors

See “Risk Factors” and other information included in this prospectus for a discussion of risks you should carefully consider before investing in our ADSs.

The number of ordinary shares that will be outstanding immediately after this offering:

 

   

assumes the conversion of all outstanding preferred shares into 338,496 ordinary shares immediately prior to the completion of this offering;

 

   

excludes                     ordinary shares issuable upon the exercise of options outstanding as of                     , 2014 under our stock option plans; and

 

   

excludes                     ordinary shares reserved for future issuance under our stock option plans as of                     , 2014.

 

 

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Summary Consolidated Financial Data and Operating Data

You should read the following information concerning us in conjunction with our consolidated financial statements and related notes and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included elsewhere in this prospectus.

Our summary consolidated statements of operations data presented below for the fiscal years ended June 30, 2012 and 2013 and our balance sheet data as of June 30, 2012 and 2013 have been derived from our audited consolidated financial statements included elsewhere in this prospectus. Our audited consolidated financial statements are prepared in accordance with U.S. GAAP. Our summary consolidated statements of operations data presented below for the six months ended December 31, 2013 and our balance sheet data as of December 31, 2013 have been derived from our unaudited interim condensed consolidated financial statements included elsewhere in this prospectus.

Our historical results are not necessarily indicative of our results for future periods.

 

     For the fiscal year ended June 30,     For the six months ended December 31,  
     2012     2013     2012     2013  
     RMB     RMB     US$     RMB     RMB     US$  
     (in thousands, except number of shares and per share data)  
                       (unaudited)     (unaudited)  

Summary Consolidated Statements of Operations Data

            

Revenues:

            

Online recruitment services

     692,779        749,842        123,865        378,651        397,979        65,741   

Campus recruitment services

     58,771        67,307        11,118        31,914        52,112        8,608   

Assessment services

     16,956        32,740        5,408        14,362        24,299        4,014   

Other human resources related services

     53,026        39,731        6,564        20,632        26,627        4,398   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total revenues

     821,532        889,620        146,955        445,559        501,017        82,761   

Less: Business tax and surcharges

     (48,636     (41,793     (6,904     (24,549     (11,792     (1,948
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net revenues

     772,896        847,827        140,051        421,010        489,225        80,813   

Cost of services(1)

     (60,534     (67,531     (11,155     (33,001     (47,597     (7,862
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Gross profit

     712,362        780,296        128,896        388,009        441,628        72,951   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating expenses:

            

Sales and marketing expenses(1)

     (374,511     (399,850     (66,051     (199,514     (228,649     (37,770

General and administrative expenses(1)

     (152,784     (171,538     (28,336     (82,708     (105,325     (17,398
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total operating expenses

     (527,295     (571,388     (94,387     (282,222     (333,974     (55,168
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income from operations

     185,067        208,908        34,509        105,787        107,654        17,783   

Other (expenses)/income:

            

Foreign currency exchange loss

     (32     (28     (5     (7     (16     (3

Interest income, net

     15,257        14,672        2,424        9,569        4,385        724   

Other income, net

     668        2,755        455        2,799        999        165   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income before income tax expenses

     200,960        226,307        37,383        118,148        113,022        18,669   

Income tax expenses

     (30,243     (70,393 )       (11,628     (23,294     (24,911     (4,115
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income

     170,717        155,914        25,755        94,854        88,111        14,554   

Less: Deemed dividend to a preferred shareholder

     —          (265,032     (43,780     —          —          —     

Income allocated to participating preferred shareholders

     (166,764     —          —          (92,108     (368     (61
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income/(loss) attributable to ordinary shareholders

     3,953        (109,118     (18,025     2,746        87,743        14,493   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income/(loss) per share:

            

—Basic

     1.95        (20.51     (3.39     1.08        1.09        0.18   

—Diluted

     1.68        (20.51     (3.39     0.93        0.94        0.16   

Weighted average number of shares used in computing net income/(loss) per share:

            

—Basic

     2,027,680        5,319,527        5,319,527        2,549,903        80,673,031        80,673,031   

—Diluted

     101,331,125        5,319,527        5,319,527        102,524,761        93,717,467        93,717,467   

 

 

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(1) 

Including share-based compensation expenses as set forth below:

 

     For the fiscal year ended June 30,      For the six months ended
December 31,
 
     2012      2013      2012      2013  
     RMB      RMB      US$      RMB      RMB      US$  
     (in thousands)  
                          (unaudited)     

(unaudited)

 

Allocation of share-based compensation expense:

                 

Cost of services

     345         239         39         149         62         10   

Sales and marketing expenses

     1,664         1,555         257         976         409         68   

General and administrative expenses

     6,243         3,911         646         2,232         13,165         2,175   

The following table presents a summary of our balance sheet data as of June 30, 2012 and 2013.

 

    As of June 30,     As of December 31,  
    2012     2013     2013     2013     2013  
          Actual     Pro forma(1)     Actual     Pro forma(1)  
    RMB     RMB    

US$

    RMB    

US$

    RMB     US$     RMB     US$  
    (in thousands)  
                                 

(unaudited)

   

(unaudited)

 

Summary Consolidated Balance Sheet Data:

                 

Cash

    617,840        368,946        60,946        368,946        60,946        568,417        93,896        568,417        93,896   

Restricted cash

    —          10,757        1,777        10,757        1,777        10,754        1,776        10,754        1,776   

Time deposits and restricted time deposits

    —          332,340        54,899        332,340        54,899        486,690        80,395        486,690        80,395   

Total current assets

    704,207        794,346        131,217        794,346        131,217        1,187,295        196,126        1,187,295        196,126   

Property and equipment, net

    26,905        30,939        5,111        30,939        5,111        32,471        5,364        32,471        5,364   

Total assets

    733,074        1,021,260        168,700        1,021,260        168,700        1,224,450        202,264        1,224,450        202,264   

Deferred revenues

    330,039        368,250        60,831        368,250        60,831        406,503        67,150        406,503        67,150   

Total liabilities

    448,094        986,124        162,896        986,124        162,896        1,052,969        173,936        1,052,969        173,936   

Total mezzanine equity

    957,803        1,389        230        —          —          1,389        230        —          —     

Total shareholders’ (deficit)/equity

    (672,823     33,747        5,574        35,136        5,804        170,092        28,098        171,481        28,328   

 

(1) 

Reflects the automatic conversion of all of our preferred shares into ordinary shares and acceleration of a long-term loan maturity upon the closing of this offering.

The following tables present certain selected operating data as of the dates and for the periods indicated. For more information, please see “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Key Performance Indicators.”

 

     For the fiscal year
ended June 30,
     For the six months ended
December 31,
 
     2012      2013      2012      2013  

Number of unique customers(1)

     222,449         249,533         176,782         226,195   

Number of job postings(2) (in thousands)

     7,618         10,512         4,609         7,205   
     As of June 30,      As of December 31,  
     2012      2013      2012      2013  

Number of registered users(3) (in thousands)

     56,554         68,378         62,388         74,058   

Number of completed resumes(4) (in thousands)

     41,252         50,119         45,480         54,426   

 

(1) 

A “unique customer” refers to a customer that purchases our online recruitment or other services during a specified period. We make adjustments for multiple purchases by the same customer to avoid double counting. Each customer is assigned a unique identification number in our information management system. Affiliates and branches of a given customer may, under certain circumstances, be counted as separate unique customers.

 

 

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(2) 

We calculate the number of job postings during a specified period by counting the number of job postings newly placed by customers during such period. Job postings that were placed prior to such specified period, even if available during such period, are not counted in the number of job postings for the specified period. Any particular job posting placed on our website may include more than one job opening or position.

(3) 

“Number of registered users” refers to the number of users who have completed the registration process on our website as of a specified date.

(4) 

A “completed resume” refers to a resume that is available as of a specified date and contains all of the information that we require a user to provide before we make the resume available to our customers, such as educational background, work history, qualifications and contact information.

 

 

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RISK FACTORS

You should consider carefully all of the information in this prospectus, including the risks and uncertainties described below, before making an investment in our ADSs. Any of the following risks could have a material adverse effect on our business, financial condition and results of operations. In any such case, the market price of our ADSs could decline, and you may lose all or part of your investment.

Risks Related to Our Business and Industry

Any major financial or economic crisis, or perceived threat of such a crisis, including a significant decrease in business and consumer confidence, may materially and adversely affect our business and results of operations.

Any actual or perceived threat of a financial or economic crisis in China could have a material and adverse impact on our business and results of operations. It is very difficult to predict how the PRC economy may develop in the future and whether it might experience a financial or economic crisis in a manner and scale similar to what the United States and other developed countries have experienced in recent years. Any slowdown in China’s economic development could lead to tighter credit markets, increased market volatility, sudden drops in business and consumer confidence and dramatic changes in business and consumer behaviors. The PRC economy was negatively affected by global financial crises in the past and may be further negatively impacted by economic uncertainties in Europe and the United States. Recently, there has been increasing concerns that the growth rate of China’s gross domestic product is slowing, which weighs on enterprises in China, including us. China’s gross domestic product grew by 7.7% in 2013 from 2012, the slowest since 1999, according to National Bureau of Statistics of the PRC. In response to uncertain economic conditions, employers may defer, reduce or stop hiring new employees. To the extent that any fluctuations in the Chinese economy significantly affect employers’ demand for our services or change their spending habits, our results of operations may be materially and adversely affected.

We face significant competition and may suffer from a loss of users and customers as a result.

The markets for our products and services are highly competitive and rapidly evolving. We face constant pressure to attract and retain users and customers, expand the market for our products and services and incorporate new capabilities and technologies. We face competition in our various lines of services from competitors who focus exclusively on recruitment and career-related services, such as 51job.com, and from those that offer recruitment as part of their services, such as 58.com. Other large internet companies, social networking services websites and classified advertisement websites have also entered the market for online recruitment services. In addition, we face competition from professional networking websites and existing participants in the offline recruitment industry who may develop online recruitment services and products.

We compete with these entities for both users and customers. From time to time, customers may decide not to renew their contracts upon expiration for various reasons. Users may also decide to switch to our competitors’ services. Some of our competitors or potential competitors have longer operating histories and may have greater resources, capabilities and expertise in management, technology, finance, product development, sales, marketing and other areas than us. They may use their experience and resources to compete with us in a variety of ways, including by competing more heavily for users and customers, investing more in research and development and making acquisitions. If we are unable to compete effectively, successfully and at reasonable cost against our existing and future competitors, our business prospects, financial condition and results of operations could be materially and adversely affected.

If internet penetration rates in China do not continue to grow or if online recruitment services do not achieve broad acceptance in China as a recruitment channel, our online recruitment services business may be materially and adversely affected.

We rely on the internet for a majority of our revenues. Currently, internet access in China tends to be more expensive, slower and subject to many social and political uncertainties, and suffers from a more limited capacity

 

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of software, hardware and network infrastructure than in many developed countries. As a result, internet penetration rates are lower in China than in many other developed countries. Also, many of our potential users, particularly smaller companies, have not historically utilized the internet as a recruiting tool, and not all job seekers use the internet to look for jobs. Our future results of operations also depend upon the increase in acceptance and use of the internet for the provision of recruitment services in China. If internet penetration rates in China do not continue to grow or internet-based recruiting does not gain wider acceptance, our business, prospects and results of operations could be materially and adversely harmed.

If we fail to maintain and enhance our brand, our business, results of operations and prospects may be materially and adversely affected.

We believe that maintaining and enhancing our brand are of significant importance to the success of our business. A well-recognized brand is critical to increasing the number and the level of engagement of our users and, in turn, enhancing our attractiveness to customers. We have conducted and may continue to conduct various marketing and brand promotion activities, including print and television advertisements. We cannot assure you, however, that these activities will be successful or that we will be able to achieve the brand promotion effect we expect. In China, we market our services under the brand “ LOGO ,” or “Zhilian Zhaopin” in Chinese pinyin. However, “ LOGO ,” the last two Chinese characters of our Chinese brand, means “hire” or “recruit” in Chinese and is the generic description of the services we provide. As a result, “ LOGO ” is not eligible for intellectual property protection under the PRC law. Competitors may use the Chinese characters “ LOGO ” in their marketing efforts, potentially diluting the strength of our brand. In addition, any negative publicity relating to our products or services, regardless of its veracity, could harm our brand and the perception of our brand in the market. If our brand is harmed, we may not be able to continue to attract a growing user base, which may materially and adversely affect our business, results of operations and financial condition.

If we fail to improve our user experience, product offerings and technology platform, we may not be able to attract and retain users and customers, which may have a material adverse effect on our business, financial condition and results of operations.

Our success depends upon our ability to attract and retain users and customers. Our customers are the primary source of our revenues. A key factor in attracting and retaining customers is our ability to grow our resume database and attract and retain high-quality users. A key factor in attracting and retaining users, in turn, is maintaining and increasing the number of customers using our services and the quantity and quality of job postings on our website.

To satisfy both our users and customers, we need to continue to improve the experience for both users and customers as well as innovate and introduce products and services that users and customers find useful and that cause them to return to our website and use our services more frequently. This includes continuing to improve our technology platform to optimize recruitment search results, tailoring our database to additional geographic and market segments and improving the user-friendliness of our website. In addition, we need to adapt our services, expand and improve our delivery platform to keep up with the changing user preferences. For example, with the growing propensity for our users to use smartphones as their main job searching devices, we need to further optimize our mobile applications and continue to modify and update them to successfully manage the transition to mobile devices of users of our products and services. It is difficult to predict the problems we may encounter in innovating and introducing new products and services, and we may need to devote significant resources to the creation, support and maintenance of our solutions.

We cannot assure you that our initiatives to improve our user experience will always be successful. We also cannot predict whether our new products or service offerings and delivery methods will be well received by users and customers, or whether improving our technology platform or introducing new service delivery channels will be successful or sufficient to offset the costs incurred to offer these services. If we are unable to increase and retain our users and customers, or maintain and increase the quantity or quality of resumes and job postings, our financial condition and results of operations may be materially and adversely affected.

 

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You should consider our prospects in light of the risks and uncertainties that companies in evolving industries may encounter.

We recorded net income of RMB170.7 million and RMB155.9 million (US$25.8 million) in the fiscal years ended June 30, 2012 and 2013, respectively. Our net income for the six months ended December 31, 2013 was RMB88.1 million (US$14.6 million) compared to RMB94.9 million for the same period in 2012. In addition to the impact of economic uncertainty in China resulting from the global financial crisis, our results of operations for the past two years were primarily affected by costs and expenses required to grow our customer and user base, promote our brand, develop our products and services and operate our websites. We expect that we will continue to be subject to the effects of general economic conditions in China and to incur product development, sales and marketing expenses and other costs to launch new services and grow our customer and user bases. We anticipate that expenses associated with our sales force, which numbered 2,002 as of December 31, 2013, will continue to grow as we expand into new markets. We may incur net losses in the future and you should consider our future prospects in light of the risks and uncertainties that are often involved for companies in a rapidly evolving industry. The market for online recruitment services in China is relatively new and may not develop as expected, if at all. In addition, the success of other recruitment services companies both globally and in China may not be indicative of our future financial performance.

Our business may suffer if we do not successfully manage our current and potential future growth.

We have grown significantly in recent years and we intend to continue to expand the scope and geographic reach of the services we provide. Our total revenues increased from RMB821.5 million in the fiscal year ended June 30, 2012 to RMB889.6 million (US$147.0 million) in the fiscal year ended June 30, 2013. Our total revenues were RMB501.0 million (US$82.8 million) for the six months ended December 31, 2013, a 12.4% increase from RMB445.6 million for the same period in 2012. Our anticipated future growth will likely place significant demand on our management and operations. Our success in managing our growth will depend, to a significant degree, on the ability of our executive officers and other members of senior management to operate effectively, and on our ability to improve and develop our financial and management information systems, controls and procedures. In addition, we will likely have to successfully adapt our existing systems and introduce new systems, expand, train and manage our employees and improve and expand our sales and marketing capabilities. If we are unable to properly and prudently manage our operations as they continue to grow, or if the quality of our services deteriorates due to mismanagement, our brand name and reputation could be severely harmed, which would materially and adversely affect our business, financial condition and results of operations.

If we are unable to maintain and expand our scale of operations and generate a sufficient amount of revenues to offset the associated fixed and variable costs, our results of operations may be materially and adversely affected.

Online businesses of our nature tend to involve certain fixed cost bases, and our ability to achieve desired operating margins in our recruitment business depends largely on our success in maintaining a scale of operations and generating a sufficient amount of revenues to offset the associated fixed and variable costs. Our fixed costs typically include compensation of employees for our general administration functions, data storage and bandwidth expenses and office rental expenses. Our variable costs typically include campus recruitment sub-contracting costs, print publishing and distribution costs and candidate assessment sub-contracting costs. Once we establish the technology and network infrastructure to support an online business model, the incremental cost of adding new job postings and resumes online will be relatively insignificant and we can serve additional customers and users with decreasing average cost as our online recruiting services business expands. If we are unable to maintain economies of scale, our operating margin may decrease and our results of operations may be materially and adversely affected.

 

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If user traffic to our website declines for any reason, our business and results of operations may be harmed.

Our ability to attract and maintain user traffic to our website is critical for our continuing growth. If user traffic to our website declines for any reason, our business and results of operations may be harmed. We depend in part on various internet search engines and portals to direct a significant amount of user traffic to our website. However, the amount of user traffic directed to our website is not entirely within our control. Our competitors’ search engine optimization efforts may result in their websites receiving a higher search result page ranking than ours. Internet search engines could revise their methodologies, which may adversely affect the placement of our search result page ranking. Any such changes could decrease user traffic to our website and adversely affect the growth in our user base, which may in turn harm our business and operating results.

Any disruption in internet access, telecommunications networks or our technology platform may cause slow response times or otherwise impair our users’ experience, which may in turn reduce user traffic to our website and significantly harm our business, financial condition and operating results.

Our online recruitment business is highly dependent on the performance and reliability of China’s internet infrastructure, accessibility of bandwidth and servers to our service providers’ networks and the continuing performance, reliability and availability of our technology platform. Compared to more developed countries, internet access in China is subject to greater uncertainties. Telecommunications capacity constraints in China may impede further development of the internet to the extent that users experience delays, transmission errors and other difficulties.

We rely on major Chinese telecommunication companies and other third-party data center service providers to provide us with bandwidth, data storage and other services. We may not have access to comparable alternative networks or services in the event of disruptions, failures or other problems. Any disruption in internet access or in the internet generally could significantly harm our business, financial condition and operating results. Furthermore, we may not timely and effectively scale and adapt our existing technology and network infrastructure to ensure that our website is accessible within an acceptable load time, which may have a material and adverse impact on our business prospects and results of operations.

We may experience website disruptions, outages and other website performance problems due to a variety of factors, including infrastructure changes, human or software errors, capacity constraints due to an overwhelming number of users accessing our website simultaneously and denial of service or fraud or security attacks. In addition, we may experience slow response times or system failures due to a failure of our information storage, retrieval, processing and management capabilities. Slow response times or system failures may drive our users away, reduce the attractiveness of our products and services or discourage customers from posting jobs on our website. If we experience technical problems in delivering our services over the internet either at a national or regional level, we could experience reduced demand for our services, lower revenues and increased costs.

We depend upon talented employees, including our senior management, to grow and operate our business, and if we are unable to retain and motivate our personnel and attract new talent, we may not be able to grow effectively.

Our success depends on our continued ability to identify, hire, develop, motivate and retain talented employees. Our ability to execute and manage our operations efficiently is dependent upon contributions from all of our employees, and in particular upon our senior management team led by Mr. Evan Sheng Guo, our chief executive officer, and Mr. James Jianmin Guo, our chief financial officer. Competition for senior management and key personnel is intense and the pool of qualified candidates is to an extent limited. From time to time, some of our senior officers may choose to leave our company for various reasons, including change of interests or career development plans, compensation, or working relations with our board or with other team members, which could result in management turnover. If we are unable to retain the services of our current senior management team or other key personnel or properly manage the working relationship among our management and

 

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employees, this may mean we will become exposed to legal or administrative proceedings or adverse publicities and our reputation may be harmed and our financial condition and results of operations may be materially and adversely affected.

In addition, we face significant competition for qualified middle management and personnel with relevant experience and expertise. Some of our competitors, especially new market entrants, have attempted to recruit our employees and, in some cases, succeeded in attracting our employees by offering higher compensation and other benefits.

Training of new employees with no prior relevant experience could be time-consuming and require a significant amount of resources. We may also need to increase the compensation we pay in order to retain our skilled employees. If competition in our industry further intensifies, it may be more difficult for us to hire, motivate and retain highly skilled personnel. If we do not succeed in attracting additional highly skilled personnel or retaining or motivating our existing personnel, we may be unable to grow effectively or at all and our business, financial condition and results of operations may be materially and adversely affected.

If our key performance indicators are inaccurate, our ability to form appropriate corporate growth strategies may be impaired and our business, results of operations and prospects may be materially and adversely affected.

We assess our operating performance using a set of key performance indicators, which include the number of unique customers, registered users, completed resumes in our database and job postings on our website. Capturing accurate data is subject to various limitations. We have established controls to systematically remove stale job postings from our website, including removing from our website job postings posted by customers whose contracts with us have expired or job postings that we determine to be disingenuous or illegitimate based on user complaints and our internal control procedures. However, customers may not always remove stale job postings available on our website on a timely basis, and we may not be able to detect and remove all disingenuous or illegitimate job postings. It is also possible a job posting may include duplicative job openings. In addition, users, who generally do not pay for our services, may post resumes and/or job applications and never return to complete the process or update their resumes. In addition, users may upload multiple resumes under separate accounts, leading to double counting. As a result, we cannot assure you that such key operating performance indicators always reflect our actual operating performance or our data collection technologies and tools always capture accurate data. Similarly, we may also incorrectly assess our key operating performance indicators and in turn make incorrect operational and strategic decisions. Failure to capture accurate data or an incorrect assessment of this data may materially harm our business and operating results and have a material adverse effect on the market price of our ADSs.

Certain data and information in this prospectus were obtained from third party sources and were not independently verified by us.

This prospectus contains certain data and information that we obtained from various government and private entity publications. Statistical data in these publications also include projections based on a number of assumptions. The recruitment and human resources services industry in China may not grow at the rate projected by market data, or at all. The failure of our industry to grow at the projected rate may have a material adverse effect on our business and the market price of our ADSs. In addition, the complex and changing nature of the broad macroeconomic factors discussed in this prospectus may result in significant uncertainties for any projections or estimates relating to the growth prospects or future condition of our market. Furthermore, if any one or more of the assumptions underlying the market data is later found to be incorrect, actual results may differ from the projections based on these assumptions.

We have not independently verified the data and information contained in such third-party publications and reports. Data and information contained in such third-party publications and reports may be collected using third-

 

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party methodologies, which may differ from the data collection methods used by us. For example, iResearch prepared the iResearch Survey and the iResearch Public Data utilizing their independently collected unique visitor data of the major players in the market, which are estimations based upon statistical sampling. In addition, these industry publications and reports generally indicate that the information contained therein was believed to be reliable, but do not guarantee the accuracy and completeness of such information.

We may be the subject of allegations, harassing or other detrimental conduct by third parties, which could harm our reputation and cause us to lose market share and customers and adversely affect the price of our ADSs.

We have been subject to allegations by third parties or purported former employees, negative internet postings and other adverse public exposure on our business, operations and staff compensation. We may also become the target of harassment or other detrimental conduct by third parties or disgruntled former or current employees. Such conduct may include complaints, anonymous or otherwise, to regulatory agencies, media or other organizations. We may be subject to government or regulatory investigation or other proceedings as a result of such third-party conduct and may be required to spend significant time and incur substantial costs to address such third-party conduct, and there is no assurance that we will be able to conclusively refute each of the allegations within a reasonable period of time, or at all. Additionally, allegations, directly or indirectly against us, may be posted on the internet, including social media platforms by anyone, whether or not related to us, on an anonymous basis. Any negative publicity on us or our management can be quickly and widely disseminated. Social media platforms and devices immediately publish the content of their subscribers and participants post, often without filters or checks on accuracy of the content posted. Information posted may be inaccurate and adverse to us, and it may harm our reputation, business or prospects. The harm may be immediate without affording us an opportunity for redress or correction. Our reputation may be negatively affected as a result of the public dissemination of negative and potentially false information about our business and operations, which in turn may cause us to lose market share, users or customers, and adversely affect the price of our ADSs.

Concerns about our collection and use of personal data and other privacy-related matters could damage our reputation and deter customers and users from using our services.

Concerns about our practices with regard to the collection, use or disclosure of personal information or other privacy-related matters, even if unfounded, could damage our reputation and operations. The PRC Constitution, the PRC Criminal Law and the General Principles of the PRC Civil Law protect individual privacy in general. In particular, Amendment 7 to the PRC Criminal Law prohibits institutions, companies and their employees in the telecommunications and other industries from selling or otherwise illegally disclosing a citizen’s personal information obtained during the course of performing duties or providing services. Our internal policy also requires our employees to protect the personal data of our users, and employees who violate such policy are subject to disciplinary actions, including dismissal. While we strive to comply with all applicable data protection laws and regulations, as well as our own privacy policies, and we believe we are in compliance with the applicable PRC laws and regulations on data protection, any failure or perceived failure to comply may result in proceedings or actions against us by government entities or private individuals, which could have an adverse effect on our business. Moreover, failure or perceived failure to comply with applicable laws and regulations related to the collection, use, sharing or security of personal information or other privacy-related matters could result in a loss of confidence in us by customers and users, which could adversely affect our business, financial condition and results of operations.

We are exposed to potential legal liability associated with the recruitment process, which may have a material adverse effect on our business and results of operations.

We are exposed to potential claims associated with the recruitment process, including claims by customers and users. In addition, PRC laws and regulations prohibit companies from producing, distributing or publishing any advertisement that contains any content that violates PRC laws and regulations or is reactionary, obscene,

 

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superstitious, absurd or fraudulent. PRC laws and regulations also prohibit human resources service providers from publishing fake recruitment information. We require customers to submit their government-issued business licenses to us before we allow posting of their job openings on our website in order to verify the employers’ identities. Nevertheless, we have limited means to determine whether a job posting is genuine or legitimate. For example, customers may fail to remove postings for positions that have been filled or may keep multiple job postings open for the same position, and companies may use our websites to market their brands and post positions that are not available. Also, while we require customers to submit their government-issued business licenses, we cannot assure you that the supporting documentation provided to us is genuine. Once we receive and verify complaints regarding disingenuous or illegitimate job postings, we remove them from our website. Although the number of job postings that were discovered to be disingenuous or illegitimate in the past has been insignificant and we have not faced any formal legal actions against us brought by users or any government entity, if we are found to fail to protect users from disingenuous or illegitimate job postings, we may be subject to civil actions and our reputation may be harmed, which may have a material adverse effect on our business. If we are found to be in violation of applicable PRC laws and regulations, we may be subject to other penalties.

At the same time, we have limited means to determine the genuineness of the information in the resumes our users upload to our platform. Although employers are expected to independently verify the credentials of the users who they are interested in hiring, we cannot assure you that we will not be subject to claims by customers in connection with fraudulent user resumes. Furthermore, for our executive search services, if we recommend a candidate who subsequently proves unsuitable for the position, it is possible that the relevant customer may seek to hold us liable for any loss suffered by it by claiming negligence or that we have breached our contract. We may also be held liable for claims by candidates against us alleging our failure to maintain the confidentiality of their employment search or discrimination or other violations of employment law or regulations by our customers. Finally, customers or users may allege that our services failed to comply with laws or regulations relating to employment or other matters.

We have not experienced any material claims during the past three years. However, should any such claims be brought against us, regardless of their merit, we may be forced to participate in time-consuming and costly litigation or investigation, which could divert significant management and staff attention and damage our reputation and brand names, any of which may materially and adversely affect our business. We do not maintain insurance coverage for liabilities arising from claims by customers, users or third parties.

If we fail to protect our intellectual property rights, our business and results of operations could be materially and adversely affected.

We rely on a combination of trademark, patent, copyright and trade secret protection laws in the PRC, as well as confidentiality agreements and procedures, to protect our intellectual property rights. Despite our precautions, third parties may obtain and use without our authorization our intellectual property, which includes trademarks related to our brand, products and services, patent applications, registered domain names, copyrights in software and creative content, trade secrets and other intellectual property rights and licenses.

Historically, the legal system and courts of the PRC have not protected intellectual property rights to the same extent as the legal system and courts of the United States. Companies operating in the PRC continue to face an elevated risk of intellectual property infringement as compared to other jurisdictions such as the United States. Furthermore, the validity, application, enforceability and scope of protection of intellectual property rights for many internet-related activities, such as internet commercial methods patents, are uncertain and still evolving, which may make it more difficult for us to protect our intellectual property, and could have a material adverse effect on our business, financial condition and results of operations.

 

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We may be vulnerable to intellectual property infringement claims brought against us by others.

We rely on third-party intellectual property to operate our business to some extent, such as licenses to use software and copyrights. Although we have never experienced any material intellectual property claims against us in the past, as we face increasing competition and as litigation becomes more common in China in resolving commercial disputes, we face a higher risk of being subject to intellectual property infringement claims. A successful infringement claim against us could result in monetary liability or a material disruption in the conduct of our business. Although we require our employees not to infringe others’ intellectual property, we cannot be certain that our products, services, content and brand names do not or will not infringe on valid patents, trademarks, copyrights or other intellectual property rights held by third parties. We may be subject to legal proceedings and claims from time to time relating to the intellectual property of others in the ordinary course of our business.

We may incur substantial expenses in defending against third party infringement claims, regardless of their merit. As a result, due to diversion of management time, expenses required to defend against any claim and the potential liability associated with any lawsuit, any significant litigation could significantly harm our business, financial condition and results of operations. If we were found to have infringed on the intellectual property rights of a third party, we could be liable to that party for license fees, royalty payments, lost profits or other damages, and the owner of the intellectual property may be able to obtain injunctive relief to prevent us from using the technology, software or brand name in the future. If the amount of these payments were significant, if we were prevented from incorporating certain technology or software into our products or services or if we were prevented from using our brand name, our business could be significantly harmed.

We may not be able to successfully halt the operations of copycat websites or misappropriation of our data.

From time to time, third parties have misappropriated our data through website scraping, robots or other means and aggregated this data on their websites with data from other companies. In addition, “copycat” websites may attempt to imitate the functionality of our website. Although none of these events have caused any material adverse effect on our business and results of operations, we cannot assure you that similar events will not occur on a larger scale and materially and adversely impact our results of operations.

If we become aware of such websites, we would employ technological or legal measures in an attempt to halt their operations. However, we may not be able to detect all such websites in a timely manner and, even if we could, technological and legal measures may be insufficient to stop their operations. In some cases, our available remedies may not be adequate to protect us against such websites. Regardless of whether we can successfully enforce our rights against these websites, any measures that we may take could require us to expend significant financial or other resources.

We are subject to risks related to our third party vendors, which may negatively impact our business and results of operations.

We rely on third parties for certain of our services, such as campus recruitment, print advertising services and assessment services. We provide campus recruitment services to customers seeking to recruit college and university students and our services typically include selecting campuses, organizing recruiting events, collecting and managing resumes and conducting interviews and assessment tests with potential candidates. Our campus recruitment services are often provided together with our online and other recruitment services. For our campus recruitment business, we need to maintain good relationships with the schools from which customers plan to recruit students, which typically provide us with the site for any recruiting activities, as well as other third-party vendors, such as printing agencies. For our assessment services, we utilize third-party test designers to create our assessment tests and third-party interviewers to provide evaluations. In addition, we also rely on local newspapers for the distribution of our print recruitment advertisements.

In general, we rely on the operations of our third-party vendors and may not have any control over the costs of the services they provide. Third-party service providers may raise their prices, which may not be commercially

 

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reasonable to us. Our existing vendors may not continue to provide the high-quality services that they currently do. To maintain good working relationships with colleges and universities, our team would need to maintain active communications with them, provide free training and lectures on job searches to students, and proactively reach out to students and student employment offices, which efforts may not always yield our intended results. If we are forced to seek other providers, there is no assurance that we will be able to find alternative providers willing or able to provide comparable high-quality services and there is no assurance that such providers will not charge us higher prices for their services. If the prices that we are required to pay third-party vendors for services rise significantly or we are unable to find suitable providers that offer comparable high-quality services, the results of our operations could be adversely affected.

Computer viruses, undetected software errors and hacking may cause delays or interruptions on our systems and may reduce the use of our services and damage our reputation and brand names.

Our online systems, including our zhaopin.com website, and our other software applications, products and systems could contain undetected errors, or “bugs,” that could adversely affect their performance. Additionally, we regularly update and enhance our website and our other online systems and introduce new versions of our software products and applications. The occurrence of errors in any such update or enhancement may cause disruptions in our services and may, as a result, cause us to lose market share, damage our reputation and brand name and materially and adversely affect our business.

In addition, computer viruses and hacking may cause delays or other service interruptions on our systems. “Hacking” involves efforts to gain unauthorized access to information or systems or to cause intentional malfunctions, loss or corruption of data, software, hardware or other computer equipment.

While we currently employ various antivirus and computer protection software in our operations, we cannot assure you that such protections will successfully prevent hacking or the transmission of any computer virus, which could result in significant damage to our hardware and software systems and databases, disruptions to our business activities, including to our e-mail and other communications systems, breaches of security and the inadvertent disclosure of confidential or sensitive information, interruptions in access to our website through the use of “denial of service” or similar attacks and other material adverse effects on our operations. In 2012, we experienced temporary disruption of services because our internet data center service provider experienced distributed denial-of-services attacks, which lasted for approximately three hours. Although we have requested that our internet data center service provider to take initiatives to prevent recurrence of similar events, we cannot assure you that similar events will not happen again in the future.

We may incur significant costs to protect our systems and equipment against the threat of, and to repair any damage caused by, computer viruses and hacking. Moreover, if a computer virus or hacking affects our systems and is highly publicized, our reputation and brand names could be materially damaged and usage of our services may decrease. In addition, the inadvertent transmission of computer viruses could expose us to a material risk of loss or litigation and possible liability.

We have entered into strategic alliances and joint ventures in the past and may pursue strategic alliances, joint ventures and strategic acquisitions in the future. If we are unable to find suitable acquisitions or partners or if we fail to achieve expected benefits from such acquisitions or partnerships, our business, growth rates and results of operations may be materially and adversely affected.

We may enter into negotiations or agreements relating to potential strategic alliances, joint ventures or strategic acquisitions in the future. If we are unable to identify alliances, joint ventures or acquisitions, there could be a material adverse effect on our business, growth rates and results of operations. Even if we do identify appropriate targets, the success of any material acquisition will depend upon a number of factors, including:

 

   

our ability to acquire businesses on a cost-effective basis;

 

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our ability to integrate acquired personnel, operations, products and technologies into our organization effectively; and

 

   

our ability to retain and motivate key personnel and to retain the clients of acquired firms.

Any such alliance, joint venture or acquisition may require a significant commitment of management time, capital investment and other resources. We may be unable to consummate such transactions, we may not be able to effectively integrate an acquired business or we may be required to incur restructuring and other charges to complete a transaction. As a result, our business, financial condition and results of operations may be materially and adversely affected.

In addition, if we use our equity securities as consideration for transactions, we may dilute the value of your ADSs.

Our independent registered public accounting firm has identified a material weakness and other deficiencies in our internal control over financial reporting. If we fail to maintain an effective system of internal control over financial reporting, our ability to accurately and timely report our financial results or prevent fraud may be adversely affected, and investor confidence and the market price of our ADSs may be adversely impacted.

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 two years ended June 30, 2013, we and our independent registered public accounting firm identified one material weakness in our internal control over financial reporting. As defined in the standards established by the U.S. Public Company Accounting Oversight Board, a “material weakness” is a deficiency, or combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of our company’s annual or interim 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 and SEC reporting requirements to properly address complex U.S. GAAP accounting issues and to prepare and review our consolidated financial statements and related disclosures to fulfill U.S. GAAP and SEC financial reporting requirements. Subsequent to these findings, we have taken initiatives to further improve our internal control over financial reporting and disclosure. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Internal Control Over Financial Reporting.” However, the implementation of these initiatives may not fully address the material weakness and deficiencies in our internal control over financial reporting.

Upon the completion of this offering, we will become a public company in the United States that will be subject to the U.S. Sarbanes-Oxley Act of 2002. Section 404 of the Sarbanes-Oxley Act of 2002, or Section 404, will require that we include a report of management on our internal control over financial reporting in our annual report on Form 20-F starting from the fiscal year ending June 30, 2015. In addition, once we cease to be an emerging growth company as such term is defined in the Jumpstart Our Business Startups Act of 2012, or the JOBS Act, our independent registered public accounting firm must attest to and report on the effectiveness of our internal control over financial reporting. Our management may conclude that our internal control over financial reporting is not effective. Moreover, even if our management concludes that our internal control over financial reporting is effective, our independent registered public accounting firm, after conducting its own independent testing, may issue a report that is qualified if it is not satisfied with our internal controls or the level at which our controls are documented, designed, operated or reviewed, or if it interprets the relevant requirements differently from us. In addition, after we become a public company, our reporting obligations may place a significant strain on our management, operational and financial resources and systems for the foreseeable future. We may be unable to timely complete our evaluation testing and any required remediation.

 

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During the course of documenting and testing our internal control procedures, in order to satisfy the requirements of Section 404, we may identify other weaknesses and deficiencies in our internal control over financial reporting. In addition, if we fail to maintain the adequacy of our internal control over financial reporting, as these standards are modified, supplemented or amended from time to time, we may not be able to conclude on an ongoing basis that we have effective internal control over financial reporting in accordance with Section 404. If we fail to achieve and maintain an effective internal control environment, we could suffer material misstatements in our financial statements and fail to meet our reporting obligations, which would likely cause investors to lose confidence in our reported financial information. This could in turn limit our access to capital markets, harm our results of operations, and lead to a decline in the trading price of our ADSs. Additionally, ineffective internal control over financial reporting could expose us to increased risk of fraud or misuse of corporate assets and subject us to potential delisting from the stock exchange on which we list, regulatory investigations and civil or criminal sanctions. We may also be required to restate our financial statements from prior periods.

Because we recognize most of the revenues from our online recruitment services over the terms of the relevant agreements, a significant downturn in these businesses may not be immediately reflected in our operating results.

We recognize revenues from our online recruitment services over the terms of the relevant agreements, which typically vary from one month to one year. As a result, a significant portion of the revenues we report in each quarter is generated from agreements entered into during previous quarters.

Consequently, a decline in new or renewed agreements in any quarter may not significantly impact our revenues in that quarter but will negatively affect our revenues in future quarters. In addition, we may be unable to adjust our fixed costs in response to reduced revenues. Accordingly, the effect of significant declines in the sales of these products and services may not be reflected in our short-term results of operations.

Our quarterly revenues and operating results may fluctuate, which makes our results of operations difficult to predict and may cause our quarterly results of operations to fall short of expectations.

Our quarterly revenues and operating results have fluctuated in the past and may continue to fluctuate depending upon a number of factors, many of which are out of our control. Seasonal fluctuations and industry cyclicality have affected, and are likely to continue to affect, our online recruitment services and other services. We generally generate less revenue during the national holidays in China due to the slowdown of business during the holidays. In the periods following the Chinese New Year holiday and towards the end of a calendar year, we historically experienced an increase in recruitment activity. The Chinese New Year holiday is based on the lunar calendar, varies from year to year and typically lasts for two weeks, which affects our third quarter results and their comparability to financial results of the same quarter in prior years. During seasonal peak periods, demand for recruitment advertising and other human resource related services may or may not rise significantly depending on the needs of customers as well as their perceptions of the job market. We also have observed seasonal campus recruitment activity by customers in the first and second quarter of each fiscal year. In addition, employers’ spending in China has historically been cyclical, reflecting the overall economic conditions as well as the demand for human resource services and recruitment patterns of employers. For these and other reasons, comparing our operating results on a period-to-period basis may not be meaningful, and you should not rely on our past results as an indication of our future performance. Our operating results in future quarters may fall below expectations. Any of these events could cause the price of our ADSs to fluctuate widely.

 

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If we are unable to comply with the restrictions and covenants contained in our loan agreements, an event of default could occur under the terms of such agreements, which could cause repayment of such debt to be accelerated and affect our liquidity.

In 2013, we entered into facility agreements with three banks, and incurred loans in an aggregate amount of US$68 million, in connection with the repurchase of Series E preferred shares. Pursuant to one of the facility agreements, the loan may be cancelled and the entire outstanding amount under that facility agreement, together with accrued interest shall become immediately due and payable upon, among other things, issuance of equity securities by us by way of public offering, although the proceeds from this offering can be applied towards reduction of the loan. Other facility agreements also have certain restrictions and covenants, including the covenant against material investments by us without the prior consent by the lenders, the covenant against the incurrence of financial indebtedness and the restriction on maximum amount of allowable cash dividends. If we are unable to comply with the restrictions and covenants in these facility agreements, there could be a default under the terms of these agreements. In the event of a default under these agreements, the banks could terminate their commitments to lend to us, accelerate the loans and declare all amounts borrowed due and payable or terminate the agreements, whichever the case may be. We cannot assure you that our assets and cash flow would be sufficient to repay in full all of our indebtedness, or that we would be able to find alternative financing in time. Even if we could obtain alternative financing, we cannot assure you that it would be on terms that are favorable or acceptable to us.

We may not be able to refinance our indebtedness on favorable terms, if at all. Our inability to refinance our indebtedness could materially and adversely affect our liquidity and our ongoing results of operation.

We intend to refinance certain of our bank borrowings with new bank loans as they become due, and as of the date of this prospectus we are in the process of negotiating new bank loans for this purpose. Our ability to refinance indebtedness will depend in part on our operating and financial performance, which, in turn, is subject to prevailing economic conditions and financial, business, legislative, regulatory and other factors beyond our control. In addition, the increase in prevailing interest rates or other factors at the time of refinancing could result in an increase in our interest expense or other refinancing costs. A refinancing of our indebtedness could also require us to comply with more onerous covenants and further restrict our business operations. Our inability to refinance our indebtedness or to do so upon attractive terms could materially and adversely affect our business, prospects, results of operations, financial condition, cash flows and make us vulnerable to adverse industry and general economic conditions.

We have granted, and may continue to grant, stock options and other forms of share-based incentive awards, which may result in significant share-based compensation expenses and dilution to your interests.

Under our stock option plans, the maximum number of shares in respect of which stock option awards may be granted is 42,610,634 as of the date of this prospectus. As of the date of this prospectus, options to purchase a total of 17,166,259 ordinary shares of our company are outstanding under our stock option plans. See “Management—Stock Option Plans.” For the fiscal year ended June 30, 2013, we recorded RMB5.7 million (US$0.9 million) in share-based compensation expenses. For the six months ended December 31, 2013, we recorded RMB13.6 million (US$2.3 million) in share-based compensation expenses. We believe share-based incentive awards enhance our ability to attract and retain key personnel and employees, and we will continue to grant stock options and other share-based awards to employees in the future. If our share-based compensation expenses continue to be significant, our results of operations would be materially and adversely affected. Future grants and exercises of stock options or other forms of share-based compensation will result in dilution to your interests in our company.

 

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If we fail to obtain or maintain all required licenses, permits and approvals or if we are required to take actions that are time-consuming or costly, our business operations may be materially and adversely affected.

We are required to obtain applicable licenses, permits and approvals from different regulatory authorities in order to conduct our business. The government authorities may continue to pass new rules regulating the internet sector. They may require us to obtain additional licenses, permits or approvals so that we can continue to operate our existing businesses or otherwise prohibit our operation of the types of businesses to which the new requirements apply. In addition, new regulations or new interpretations of existing regulations may increase our costs of doing business and prevent us from efficiently delivering services and products over the internet and through mobile operators and expose us to potential penalties and fines.

Pursuant to the PRC Regulations on the Administration of Talents Market, companies that purport to engage in human resources related services need to obtain the human resources service license. Companies conducting human resources related services without the human resources service license may be ordered to cease operations and a fine of up to RMB30,000 per entity may be imposed, by local human resources bureaus. As of the date of this prospectus, 24 out of 28 operating branch offices of Beijing Wangpin have obtained human resources permits, or HR permits. Our Wuxi branch office is in the process of applying HR permits. In addition, our Kunming, Taiyuan and Zhengzhou branch offices have not obtained their respective HR permits. With respect to our Taiyuan branch office, the authority in Taiyuan requested that at least five employees must pass a related exam but it is uncertain when the exam will be held. As a result, we have not been able to obtain HR permit for that branch office. With respect to our other branch offices, the relevant local governmental authorities do not issue any HR permits at the moment or have any procedures to accept and approve the HR permit applications for the branch offices of our joint venture. As of the date of this prospectus, we cannot predict with reasonable certainty when the government authorities will start accepting applications and issue HR permits. Such branch offices with no HR permits contributed 3.7% of our total revenues for the six months ended December 31, 2013. As of the date of this prospectus, no penalty has been imposed by local human resources bureaus on us. In addition, these branch offices may also be deemed to be engaging in services beyond their authorized business scope because of their lack of the HR permits, in which cases local administrations of industry and commerce, or local AICs, may order such branch offices to rectify, fine such branch offices in an amount ranging from RMB10,000 to RMB100,000 per entity, confiscate a portion of their income, or, in serious cases, revoke the business licenses of the entities. In March 2014, Beijing Wangpin newly established a branch office in Guiyang and Nanchang, respectively. These two branch offices are contemplated to conduct human resource related business in the future but as of the date of this prospectus they do not yet have any business operation and consequently are not required to possess HR permits at the moment. Prior to commencing human resource related services, these two branch offices will apply for and obtain HR permits accordingly. As of the date of this prospectus, Beijing Wangpin is in the process of setting up two additional branch offices. We cannot assure you that these branch offices will obtain HR permits in time, if at all.

Furthermore, we historically made available to human resources professionals a magazine, “Chief Human Resources Officer,” in Chinese for free to our customers. However, we were investigated by the relevant authorities and received a fine of RMB1,000 in 2013 for engaging in the publishing and distributing magazines without the requisite license and were required to take remedial actions. As a result, we decided to cease the publication and distribution of this magazine until the necessary publication permit is obtained.

We cannot assure you that all of our subsidiaries and consolidated affiliated entities will conduct their business in strict compliance with their authorized business scopes and with all necessary operating permits. If any of them are deemed by governmental authorities to be operating without appropriate permits or outside of their authorized scopes of business or otherwise fail to comply with relevant laws and regulations, we may be subject to penalties and our business and results of operation may be materially and adversely affected.

There may be some defects with respect to the establishment of our indirect subsidiary, Guangdong Zhilian Culture & Media Co., Ltd., in China. Although the scope of business license of Guangdong Zhilian Culture

 

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& Media Co., Ltd. enables it to conduct its current businesses, it was established without obtaining the prior approval from the relevant government authorities that regulate the relevant industries. We have not received any notice of warning nor have we been subject to penalties or other disciplinary actions by the relevant governmental authorities with respect to these potential defects. However, we cannot assure you that the relevant governmental authorities would not require us to obtain the approvals or the permits from government authorities at proper levels to cure the defects, or take any other actions retrospectively in the future. If the relevant governmental authorities require us to cure such defects, we cannot assure you that we will be able to obtain such approvals, or the permits from governmental authorities at proper levels, in a timely manner or at all.

Increases in labor costs in the PRC may adversely affect our business and our profitability.

China’s economy has experienced significant growth, leading to inflation and increased labor costs. China’s consumer price index, the broadest measure of inflation, rose 2.5% in December 2013 from the level it was in December 2012. China’s overall economy and the average wage in the PRC are expected to continue to grow. As a result, the average wage level for our employees also increased in recent years. If inflation and the cost of labor in China continue to increase and we are unable to pass on these increased labor costs to our customers by increasing prices for our services, our profitability and results of operations could be materially and adversely affected.

Some of our leased property interests may be defective and we may be forced to relocate operations affected by such defects, which could cause significant disruption to our business.

As of the date of this prospectus, we had leased properties in Beijing and 32 other cities in China. According to PRC laws, rules and regulations, in situations where a tenant lacks evidence of the landlord’s title or right to lease, the validity of a lease agreement is uncertain and may be subject to challenge by third parties. The lessor of our executive offices in Beijing, where most of our employees are located, holds proper ownership title certificates. With respect to 14 of our 47 leases outside Beijing, the lessors failed to provide property title certificates or other legal instruments proving their respective title ownership, and only a few of them agreed to indemnify us for damages arising from the lessor’s lack of title. These 14 leases provide a total of 9,337.39 square meters of office space for our local business, or 23.1% of our total leased office space. Prior to signing leases, we typically require the lessors to provide their government-issued title certificates to the leased properties. If the lessors do not have title certificates, we rely on other evidences of ownership, such as the property purchase agreement if the lessor recently purchased the property and has not yet obtained a title certificate from local authorities or a construction permit or a property selling permit if we lease properties directly from developers.

We do not believe that such failure will affect the performance of these leases. However, we cannot assure you that such defects will be remediated in a timely manner or at all. Our business may be interrupted and additional relocation costs may be incurred if we are required to relocate operations from premises affected by such defects. Moreover, if our lease agreements are challenged by third parties, it could result in diversion of management attention and cause us to incur costs associated with defending such actions, even if such challenges are ultimately determined in our favor.

We have limited business insurance coverage.

Insurance companies in China currently do not offer as extensive an array of insurance products as insurance companies do in countries with more developed economies. In line with general industry practice in China, we do not have any business liability or disruption insurance to cover our operations. Any uninsured occurrence of business disruption may result in our incurring substantial costs and the diversion of resources, which could have a material adverse effect on our results of operations and financial condition.

We face risks related to health epidemics and other natural disasters.

Our business could be adversely affected by the effects of H1N1 flu, H7N9 or other avian flus, Severe Acute Respiratory Syndrome, or SARS, or another epidemic or outbreak. China reported a number of cases of

 

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SARS in 2003, which resulted in the closure of many businesses by the PRC government to prevent transmission. In recent years, there have been reports of occurrences of avian flu in various parts of China, including a few confirmed human cases and deaths. In 2009 and 2014, the global spread of H1N1 flu and H7N9 avian flu, respectively, resulted in several confirmed infections and deaths in China.

Restrictions on travel resulting from any prolonged outbreak of H1N1 flu, H7N9 and other avian flus, SARS or another epidemic or outbreak could adversely affect our ability to market our services to new and existing customers and users throughout China. Our business operations could be disrupted if one of our employees is suspected of having H1N1 flu, H7N9 and other avian flus, SARS or another illness related to a health epidemic, which could require that a certain number of our employees be quarantined and/or our offices be disinfected. In addition, our results of operations could be adversely affected to the extent that H1N1 flu, H7N9 and other avian flus, SARS or another health epidemic harms the Chinese economy in general.

We are also vulnerable to natural disasters and other calamities such as fire, floods, typhoons, earthquakes, power loss, telecommunications failures, break-ins, war, riots, terrorist acts or similar events or acts of God. Any of the foregoing events may give rise to server 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 and users. In addition, a severe disaster could affect the operations or financial condition of our customers, users and suppliers, which could harm our results of operations.

Risks Related to Our Corporate Structure

If the PRC government determines that the agreements that establish the structure for operating our business in China do not comply with applicable PRC laws and regulations, we could be subject to severe penalties.

PRC laws and regulations currently place certain restrictions on foreign ownership of companies that engage in internet content, advertising and human resources related business. Specifically, foreign ownership in an internet content service provider or other value-added telecommunications service providers may not exceed 50%. PRC laws and regulations also restrict foreign ownership of companies that conduct advertising business by requiring a Sino-foreign joint venture’s foreign investor to have at least a two-year track record with advertising operations as its main business outside China, and a wholly foreign-owned enterprise’s foreign investor to have at least a three-year track record with advertising operations as its main business outside China. In addition, the PRC government imposed restrictions on foreign ownership in entities that provide human resources related services in 2003. Foreign ownership in entities that provide human resources related services was restricted to 49%, beginning in November 2003, unless the foreign investor is from Hong Kong or Macau, in which case no restriction is imposed.

In order to comply with the relevant PRC laws and regulations, we conduct our operations in China through (i) our wholly-owned PRC subsidiaries, (ii) our joint venture, Beijing Wangpin and (iii) contractual arrangements among our wholly-owned PRC subsidiary, Zhilian Wangpin, and our consolidated affiliated entities in the PRC and their respective shareholders. To the extent permissible under the PRC laws and regulations, we provide services through our three wholly-owned subsidiaries in China, Zhilian Wangpin and Zhilian Yipin. The business scope set forth in the business license of Zhilian Wangpin includes research and development of internet technology and computer software; technology consulting, technical services and technology transfer, computer technology training; and sale of self-manufactured products. The business scope set forth in the business license of Zhilian Yipin includes research and development of internet technology and computer software; production of computer software; technology consulting, technical services and technology transfer; computer technology training; and sale of self-manufactured products. Although the current PRC laws and regulations restrict foreign ownership in entities that provide human resources related services to 49% unless the foreign shareholder is incorporated in Hong Kong or Macau, this restriction does not apply to our joint venture, which is 90% owned by us and 10% owned by Zhilian Sanke. We have been advised by Commerce & Finance Law Offices, our PRC legal counsel, that we may continue to operate our human resources related services through Beijing Wangpin

 

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under the current equity structure because our joint venture was set up in 2000 and received its human resources service license prior to 2003. The current human resources service license is valid for a period of three years until March 31, 2016 and may be subsequently renewed with the relevant authorities.

Our contractual arrangements enable us to receive substantially all the economic benefits from, and exercise effective control over, our consolidated affiliated entities and consolidate their results of operations. For a detailed discussion of these contractual arrangements, see “Our Corporate History and Structure.”

Although we believe our contractual arrangements are in compliance with current PRC regulations, we cannot assure you that the PRC government will agree that these contractual arrangements comply with existing PRC laws and regulations or with PRC laws and regulations 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. Accordingly, there can be no assurance that the PRC regulatory authorities will ultimately take a view that is consistent with the opinion of our PRC legal counsel.

If the corporate structure and contractual arrangements through which we conduct our business in China are found to be in violation of any existing or future PRC laws or regulations, we would be subject to potential actions by the relevant PRC regulatory authorities, including the CSRC, which actions could include:

 

   

revoking or refusing to grant or renew the business and operating licenses required to conduct our operations in China;

 

   

restricting or prohibiting transactions between our PRC subsidiaries and our consolidated affiliated entities;

 

   

imposing fines or other requirements which we or our PRC subsidiaries and consolidated affiliated entities may find difficult or impossible to comply with;

 

   

requiring us or our PRC subsidiaries and consolidated affiliated entities to alter our ownership structure or operations; and

 

   

restricting or prohibiting the use of any proceeds from our public offering to finance our business and operations in China.

The imposition of any of these penalties could result in a material adverse effect on our ability to conduct our business in China, which may have a material adverse effect on our results of operations and financial condition. For risks related to our ICP license, see “—We may be adversely affected by the complexity, uncertainties and changes in PRC regulation on internet businesses and companies.”

Our contractual arrangements with our consolidated affiliated entities and their shareholders may not be as effective in providing operational control as direct ownership. Any failure by our consolidated affiliated entities or their respective shareholders to perform their obligations under our contractual arrangements with them may have a material adverse effect on our business and financial condition.

We have relied and expect to continue to rely on contractual arrangements with our consolidated affiliated entities and their respective shareholders to operate a part of our business in China. For a description of these contractual arrangements, see “Our Corporate History and Structure—Contractual Arrangements with Our Consolidated Affiliated Entities.”

These contractual arrangements may not be as effective in providing us with control over our consolidated affiliated entities as direct ownership. If we had direct ownership of these consolidated affiliated entities, we would be able to exercise our rights as a shareholder to effect changes in their respective boards of directors, which in turn could affect changes at the management level, subject to any applicable fiduciary obligations.

 

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Under the current contractual arrangements, we rely on the performance by our consolidated affiliated entities and their respective shareholders of their respective obligations under the contracts to exercise control over our consolidated affiliated entities. For example, our consolidated affiliated entities and their respective shareholders could breach their contractual arrangements with us by, among other things, failing to operate our business in an acceptable manner or taking other actions that are detrimental to our interests. Our consolidated affiliated entities and their respective shareholders may fail to take certain actions required for our business or follow our instructions despite their contractual obligations to do so. If our consolidated affiliated entities or their respective shareholders fail to perform their obligations under the contractual arrangements with us, we may have to restructure our business operations, and/or incur substantial costs and resources to enforce our rights under the contracts and rely on legal remedies under PRC law, including seeking specific performance or injunctive relief and claiming damages, which may not be effective. For example, we terminated the contractual arrangement with a former consolidated affiliated entity, Henan Wangpin Advertising Co., Ltd., or Henan Wangpin, in 2012, partly because a former non-executive employee in Henan who is a direct equity holder of Henan Wangpin refused to transfer his equity interest in this entity to an individual designated by us despite his contractual obligations to do so. Henan Wangpin accounted for approximately 1.5% of our total revenues for the fiscal year ended June 30, 2012 and was deconsolidated since May 2012. We have conducted our business through our newly established branch office of our joint venture in Henan Province since 2012, and the former employee who is a registered owner of Henan Wangpin does not hold any equity interest in our company or any of our other consolidated affiliated entities. Although we have not experienced any material adverse impact on our business or results of operations due to the above changes, if the shareholders of our consolidated affiliated entities were to refuse to transfer their equity interests in these entities to us or our designee when and if we request so, or if they were otherwise to act in bad faith against us, then we may have to take legal actions to compel them to perform their contractual obligations, or they may bring claims against us to demand their economic and other rights in our consolidated affiliated entities by virtue of the fact that they are direct equity holders of these entities. PRC laws and regulations governing the validity of our contractual arrangements are uncertain and the government authorities, including courts, have broad discretion in interpreting these laws and regulations. See “Risk Factors—Risks Related to Our Corporate Structure—If the PRC government determines that the agreements that establish the structure for operating our business in China do not comply with applicable PRC laws and regulations, we could be subject to severe penalties” and “Risk Factors—Risks Related to Doing Business in China—Uncertainties with respect to the PRC legal system could have a material adverse effect on us.” In addition, the shareholders of our consolidated affiliated entities may not act in the best interests of our company or may not perform their obligations under these contracts.

All the material agreements under our contractual arrangements are governed by PRC law and provide for the resolution of disputes under the agreements through arbitration in the PRC. Accordingly, these contracts would be interpreted in accordance with PRC law and any disputes would be resolved in accordance with PRC legal procedures. The legal system in the PRC is not as developed as 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. Under PRC law, rulings by arbitrators are final, parties cannot appeal the arbitration results in courts, and the prevailing parties may only enforce the arbitration awards in PRC courts through arbitration award recognition proceedings, which would cause additional expenses and delay. In the event we are unable to enforce our contractual arrangements, we may not be able to exercise effective control over our affiliated entities, and our ability to conduct our business may be materially and adversely affected.

Perfection of the pledges in our equity pledge agreements with our consolidated affiliated entities and their shareholders may be adversely affected if these equity pledges are not properly recorded. Two of our consolidated affiliated entities have not registered their equity pledges.

Under the equity pledge agreements with our consolidated affiliated entities and their PRC shareholders, the shareholders have pledged to us all of their respective equity interests in the consolidated affiliated entities. The equity interests are pledged to secure the performance by our consolidated affiliated entities and their PRC shareholders under our contractual arrangements, such as the loan agreements, the business operations agreements and exclusive technology consulting and service agreements.

 

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We conduct our human resources business mostly through the branch offices of Beijing Wangpin, our joint venture, instead of relying on contractual arrangements with our consolidated affiliates entities. We are in the process of liquidating two subsidiaries of Zhilian Wangpin and 13 consolidated affiliated entities. As of the date of this prospectus, such subsidiaries and consolidated affiliated entities have no material business operation. We will not register the pledge agreements for these entities which are in the liquidation process. In addition, Harbin Zhilian Wangcai Advertising Co., Ltd. has registered its equity pledge with the relevant local administration for industry and commerce while Zhilian Sanke and Shenyang Zhilian Wangpin Advertising Co., Ltd. have not made such registrations.

Two of our consolidated affiliated entities have not registered their equity pledges, though we are preparing the necessary documents to register all the equity pledges by the shareholders of our consolidated affiliated entities with the relevant local authorities. It is difficult to predict how long it will take to complete these equity pledge registrations or whether they could be completed at all. See “Our Corporate History and Structure—Our Consolidated Affiliated Entities—Contractual Arrangements with Our Consolidated Affiliated Entities.” For the fiscal years ended June 30, 2012 and 2013 and the six months ended December 31, 2013, we derived 18.8%, 11.2% and 5.7% of our total revenues from our consolidated affiliated entities, respectively. For the fiscal years ended June 30, 2012 and 2013 and the six months ended December 31, 2013, the consolidated affiliated entities that have not registered their equity pledges, Shenyang Zhilian Wangpin Advertising Co., Ltd. and Zhilian Sanke, in the aggregate, contributed 0.5%, 0.3% and 0.2% of our total revenues, respectively. As of the date of this prospectus, two of our consolidated affiliated entities that have not registered equity pledges have total registered capital of RMB1.6 million (US$0.3 million). The registered capital amount is the amount required by the PRC State Administration of Industry and Commerce, or SAIC, to be stated in the application for registration of the equity interest pledges. However, the registered capital amount does not reflect the fair market value of the equity interests that are pledged under the equity pledge agreements; rather, the registered capital amount reflects the amount of capital required to be contributed to the consolidated affiliated entity under its articles of association by the holders of its equity interests. The value secured by equity pledges is not limited to the amount of the registered capital stated on the application form. Instead, under the equity pledge agreements, it covers all debts and liabilities arising from the relevant principal agreements under our contractual arrangements. The lack of registration of the equity pledges does not affect the validity of the equity pledge agreements or our ability to enforce the agreements against the current shareholders of our consolidated affiliated entities. However, the equity pledges, which form part of the contractual arrangements with our consolidated affiliated entities, will not be deemed validly created security interests under the PRC Property Rights Law until they are registered. Until the equity pledges are registered, we may not be able to successfully enforce these pledges, and will not be able to seek remedies against any third party who acquires the equity interests in the two consolidated affiliated entities in good faith. Should a third party acquire the equity interests in good faith, we may lose control of these businesses and may not be able to consolidate the assets, liabilities and results of operations of these entities.

Further, under PRC law and the equity pledge agreements, in the event of a default under our contractual arrangements, our primary remedy would be to engage in a public auction or sale of the shares and not a direct transfer of the pledged equity interest to us if we choose to enforce the pledge. Such an auction or sale may not result in our receipt of full value of the equity or the business of the entities. Under our contractual arrangements, the PRC shareholders of our consolidated affiliated entities have agreed to pledge all their equity interests therein as collateral to us.

If we exercise the option to acquire equity ownership of our consolidated affiliates, the ownership transfer shall be approved or filed with PRC governmental authorities and subject to taxation, which may result in substantial costs.

Pursuant to the contractual arrangements, Zhilian Wangpin (or its designee) has the exclusive right to purchase all or any part of the equity interests in our consolidated affiliates from the respective shareholders for a price being the higher of (i) the registered capital of such consolidated affiliates, or (ii) the minimum price as permitted by the then applicable PRC laws. The equity transfer shall be subject to the approvals from or filings with the MOFCOM, the MIIT, the SAIC and/or their local competent branches. In addition, the equity transfer

 

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price may be subject to review and tax adjustment by the relevant tax authority. The shareholders of our consolidated affiliates will be subject to PRC individual income tax on the difference between the equity transfer price and the then current registered capital of our consolidated affiliates. The shareholders of our consolidated affiliates will pay, after deducting such tax, the remaining amount to Zhilian Wangpin under the contractual arrangements. The amount to be received by Zhilian Wangpin may also be subject to enterprise income tax. Such tax amounts could be substantial.

The shareholders of our consolidated affiliated entities may have potential conflicts of interest with us, which may materially and adversely affect our business and financial condition. We do not have any arrangements in place to address such potential conflicts.

We do not have any equity interest in any of our consolidated affiliated entities except for Harbin Zhilian Wangcai Advertising Co., Ltd. With respect to our principal consolidated affiliated entities, Zhilian Sanke is jointly owned by Mr. Xin Wang and Mr. Yuanwei Xie; Harbin Zhilian Wangcai Advertising Co., Ltd is jointly owned by Zhilian Wangpin and Mr. Hao Liu; and Shenyang Zhilian Wangpin Advertising Co. Ltd. is jointly owned by Mr. Hao Liu and Mr. Xin Wang. Mr. Hao Liu is a director of our company. Mr. Yuanwei Xie and Mr. Xin Wang are nominee shareholders of our consolidated affiliated entities and employees of SEEK Limited, which is the parent company of SEEK International Investments Pty Ltd., or SEEK, our largest shareholder as of the date of this prospectus. Mr. Wang and Mr. Xie became nominee shareholders of our consolidated affiliated entities in May 2014 through equity interest transfers by the previous nominee shareholders. For the equity interest transfers to Mr. Wang and Mr. Xie to become effective against third parties, the transfers need to be registered with the local branches of the SAIC. As of the date of this prospectus, the registration of such transfers is still in process. The time needed to complete such registration varies and we cannot predict when the registration will be complete. In addition, the local branches of the SAIC may require the physical presence of both the transferor and transferee at the same time in their office before they register any transfer. As a result, lack of full cooperation by the nominee shareholders may delay or prevent the completion of the registration process.

Although these individuals are contractually obligated, or obligated as a result of their fiduciary duty to our company, to act in good faith and in our best interest, they still have potential conflicts of interest with us. For

example, occasions may arise when the fiduciary duties these individuals owe to us under Cayman Islands law conflict with the fiduciary duties they owe to our PRC entities under PRC law. Under Cayman Islands law, a director is not released from his or her fiduciary duties owed to us as a director of our company, and his or her obligation to discharge such duties is not affected by any other duties that such director owes or interests which such director may have, including as a director or shareholder of another company, such as our consolidated affiliated entities. We cannot assure you that when conflicts of interest arise, any or all of these individuals will act in the best interests of our company or such conflicts will be resolved in our favor. In addition, these individuals may breach, cause our consolidated affiliated entities to breach or refuse to renew, the existing contractual arrangements with us. Currently, we do not have any arrangements to address potential conflicts of interest between these individuals and our company. We rely on these individuals to abide by the laws of the Cayman Islands and China, which provide that directors owe a fiduciary duty to the company that requires them to act in good faith and in the best interests of the company and not to use their positions for personal gains. There are, however, no specific regulations under the PRC or Cayman Islands laws with respect to the potential conflicts of interest. If we cannot resolve any conflict of interest or dispute between us and the beneficial owners of our consolidated affiliated entities, we would have to rely on legal proceedings, which could disrupt our business, distract management and subject us to substantial uncertainty as to the outcome of any such legal proceedings.

The shareholders of our consolidated affiliated entities may be involved in personal disputes with third parties or other incidents that may have an adverse effect on their respective equity interests in the relevant consolidated affiliated entities and the validity or enforceability of our contractual arrangements with the relevant entity and its shareholders. For example, in the event that any of the shareholders of our consolidated affiliated

 

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entities divorces his or her spouse, the spouse may claim that the equity interest of the relevant consolidated affiliated entities held by such shareholder is part of their community property and should be divided between such shareholder and spouse. If such claim is supported by the court, the relevant equity interest may be obtained by the shareholder’s spouse or another third party who is not subject to obligations under our contractual arrangements, which could result in our losing effective control over the relevant consolidated affiliated entity. Similarly, if any of the equity interests of our consolidated affiliated entities is inherited by a third party on whom the current contractual arrangements are not binding, we could lose our control over the relevant consolidated affiliated entity or have to maintain such control at unpredictable cost, which could cause significant disruption to our business, operations and harm our financial condition and results of operations.

Although under our current contractual arrangements, (i) the spouses of each of the shareholders of our consolidated affiliated entities have executed spousal consent letters, under which they agree that they will not take any actions or raise any claims to interfere with the performance by their spouses of the obligations under these contractual arrangements, including claiming community property ownership on the equity interest, and they renounce any and all right and interest related to the equity interest that they may be entitled to under applicable laws and (ii) it is expressly provided that all these agreements and the rights and obligations thereunder shall be equally effective and binding on the heirs and successors of the contract parties, we cannot assure you that these undertakings and arrangements will be complied with or effectively enforced. In the case any of them is breached or becomes unenforceable and leads to legal proceedings, it could disrupt our business, distract management and subject us to substantial uncertainty as to the outcome of any such legal proceedings.

Contractual arrangements with our consolidated affiliated entities may be subject to scrutiny by the PRC tax authorities and result in adverse tax consequences to us.

Under PRC laws and regulations, arrangements and transactions among related parties may be subject to audit or challenged by the PRC tax authorities. We could face material and adverse tax consequences if the PRC tax authorities determine that the contractual arrangements among Zhilian Wangpin, our wholly-owned subsidiary in China, our consolidated affiliated entities in China and their respective shareholders were not entered into on an arm’s length basis and consequently adjust our consolidated affiliated entities’ income in the form of a transfer pricing adjustment. A transfer pricing adjustment could, among other things, result in a reduction, for PRC tax purposes, of expense deductions recorded by our consolidated affiliated entities, which could in turn increase their tax liabilities. In addition, the PRC tax authorities may impose late payment fees and other penalties upon our consolidated affiliated entities for unpaid taxes. Our consolidated net income may be materially and adversely affected if our consolidated affiliated entities’ tax liabilities increase or if they are subject to late payment fees or other penalties.

We may rely on dividends paid by our subsidiaries for our cash needs, and any limitation on the ability of our subsidiaries to make payments to us could limit our ability to pay dividends to holders of our ADSs and ordinary shares.

We are a holding company and conduct substantially all of our business through our operating subsidiaries and consolidated affiliated entities, which are limited liability companies established in China. We may rely on dividends paid by our subsidiaries for our cash needs, including the funds necessary to pay dividends and other cash distributions to our shareholders, to service any existing or future indebtedness and to pay our operating expenses.

The payment of dividends by entities organized in China is subject to limitations. In particular, regulations in China currently permit payment of dividends only out of accumulated profits as determined in accordance with PRC accounting standards and regulations. Except for joint ventures, which can set aside reserve funds at their boards of directors’ own discretion, PRC companies are required to set aside at least 10% of their after-tax profit based on PRC accounting standards each year to their general reserves until the accumulative amount of such reserves reaches 50% of their registered capital. These reserves are not distributable as cash dividends. In

 

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addition, PRC companies may allocate a portion of their after-tax profit to their staff welfare and bonus fund at the discretion of their boards of directors. In October 2013, we were paid a cash dividend of RMB224.1 million by Beijing Wangpin, our joint venture. Our other PRC subsidiaries and affiliated entities historically have not allocated any of their after-tax profits to staff welfare and bonus funds, since there is no legal requirement to do so, but they may nevertheless decide to set aside such funds in the future. There is no maximum amount of after-tax profit that a company may contribute to such funds. Any direct or indirect limitation on the ability of our PRC subsidiaries, including our joint venture, to distribute dividends and other distributions to us could materially and adversely limit our ability to make investments or acquisitions at the holding company level, pay dividends or otherwise fund and conduct our business.

PRC regulations relating to the establishment of offshore special purpose companies by PRC residents may subject our PRC resident beneficial owners to personal liability and limit our ability to acquire PRC companies or to inject capital into our PRC subsidiaries, limit our PRC subsidiaries’ ability to distribute profits to us or otherwise materially and adversely affect us.

The State Administration of Foreign Exchange, or SAFE, issued Circular 75, requiring PRC residents, including both legal persons and natural persons, to register with the relevant local branch of SAFE before establishing or controlling any company outside of China, referred to as an offshore special purpose company, for the purpose of raising funds from overseas to acquire assets of, or equity interest in, PRC companies. In addition, any PRC resident that is the beneficial owner of an offshore special purpose company is required to amend his or her registration with the local branch of SAFE, with respect to that offshore special purpose company in connection with any increase or decrease in its capital, transfer of shares, merger, division, equity investment or creation of any security interest over any assets located in China. Any failure to comply with the above registration requirements could result in PRC subsidiaries being prohibited from distributing their profits and proceeds from any reduction in capital, share transfer or liquidation to their offshore parent companies, offshore parent companies being restricted in their ability to contribute additional capital into their PRC subsidiaries and other liabilities under PRC laws for evasion of foreign exchange restrictions.

As of the date of this prospectus, none of our shareholders are PRC citizens or residents and therefore no registration under Circular 75 is required for our shareholders. However, we may not at all times be fully aware or informed of the identities of all of our beneficial owners who are PRC citizens or residents, and we may not always be able to compel our beneficial owners to comply with Circular 75; nor can we ensure you that their registrations, if they choose to apply, will be successful. The failure or inability of our PRC resident beneficial owners to make any required registrations or comply with these requirements may subject such beneficial owners to fines and legal sanctions and may also limit our ability to contribute additional capital into or provide loans (including using the proceeds from this offering) to our China operations, limit our PRC subsidiary’s ability to pay dividends or otherwise distribute profits to us or otherwise materially and adversely affect us.

Risks Related to Doing Business in China

Adverse changes in political and economic policies of the PRC government could have a material adverse effect on our business.

Substantially all of our assets and business operations are located in China. Accordingly, our business, financial condition, results of operations and prospects are affected significantly by economic, political and legal developments in China. The economy in China differs from the economies of most developed countries in many respects, including:

 

   

degree of government involvement;

 

   

level of development;

 

   

rate of economic growth;

 

   

control of foreign exchange rates and currency conversion;

 

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access to financing; and

 

   

allocation of resources.

Although China has been transitioning from a planned economy to a more market-oriented economy since the 1970s, the PRC government continues to exercise significant control over China’s economy through resource allocation, foreign exchange control, monetary policies and administrative regulations of certain industries and entities. In recent years, the PRC government has implemented measures emphasizing the reliance on market forces to promote economic reform, reduce state ownership of productive assets and establish corporate governance structures in business enterprises. Nevertheless, a substantial portion of the productive assets in China are still owned by the PRC government. The continued control of these assets and other aspects of the national economy by the government could materially and adversely affect our business.

While the Chinese economy has grown significantly in the past 30 years, the growth has been uneven geographically, among various sectors of the economy and during different periods. We cannot assure you that the Chinese economy will continue to grow, that any growth will be steady and uniform or that any slowdown will not have a negative effect on our business.

Uncertainties with respect to the PRC legal system could have a material adverse effect on us.

The PRC legal system is a civil law system based on written statutes. Unlike the common law system, prior court decisions in a civil law system may be cited for reference but have limited precedential value. Since 1979, PRC legislation and regulations have significantly enhanced the protections afforded to various forms of foreign investments in China. However, since these laws and regulations are relatively new and the PRC legal system continues to rapidly evolve, the interpretations of many laws, regulations and rules are not always consistent, and enforcement of these laws, regulations and rules involves uncertainties, which may limit the available legal protections.

In addition, the PRC administrative and court authorities have significant discretion in interpreting and implementing or enforcing statutory rules and contractual terms, and it may be more difficult to predict the outcome of administrative and court proceedings and the level of legal protection we may enjoy in the PRC than under some more developed legal systems. These uncertainties may affect our judgment on the relevance of legal requirements and our decisions on the measures and actions to be taken to fully comply therewith, and may affect our ability to enforce our contractual or tort rights. Such uncertainties may therefore increase our operating expenses and costs and materially and adversely affect our business and results of operations.

Furthermore, 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 any of these policies and rules until sometime after the violation. Such uncertainties, including uncertainty over the scope and effect of our contractual, property (including intellectual property) and procedural rights, and any failure to respond to changes in the regulatory environment in China could materially and adversely affect our business and impede our ability to continue our operations.

We may be adversely affected by the complexity, uncertainties and changes in PRC regulation on internet businesses and companies.

The PRC government extensively regulates the internet industry, including foreign ownership of, and the licensing and permit requirements pertaining to, companies in the internet industry. These internet-related laws and regulations are relatively new and evolving, and their interpretation and enforcement involve significant uncertainty. As a result, in certain circumstances it may be difficult to determine what actions or omissions may be deemed to be in violation of applicable laws and regulations. Issues, risks and uncertainties relating to PRC regulation of internet businesses include, but are not limited to, the following:

 

   

The evolving PRC regulatory system for the internet industry may lead to the establishment of new regulatory agencies. Further, new laws, regulations or policies may be promulgated or announced that

 

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will regulate internet activities, including online recruitment and online advertising businesses. If these new laws, regulations or policies are promulgated, additional licenses may be required for our operations. If our operations do not comply with these new regulations after they become effective, or if we fail to obtain any licenses required under these new laws and regulations, we could be subject to penalties and our business operation could be disrupted.

 

   

There are uncertainties relating to the regulation of the internet industry in China, including evolving licensing requirements. This means that permits, licenses or operations at some of our companies may be subject to challenge, or we may fail to obtain or renew permits or licenses that applicable regulators may deem necessary for our operations. If we fail to maintain or obtain the required permits or licenses, we may be subject to various penalties, including fines and discontinuation of, or restriction on, our operations. Any such penalty may disrupt our business operations and may have a material adverse effect on our results of operations. For example, audio and video content accessible from our website is hosted on, and delivered through, a third-party website, which has an internet audio/video program transmission license. If this business arrangement is challenged by the PRC government, we may need to apply for the internet audio/video program transmission license. We may not be able to obtain such license in a timely manner or at all. See “Regulation—Regulations on Broadcasting Audio/Video Programs through the internet” for more details.

 

   

The interpretation and application of existing or future PRC laws, regulations and policies relating to the internet industry have created substantial uncertainties regarding the legality of existing and future foreign investments in, and the businesses and activities of, internet businesses in China, including our business. We cannot assure you that we will be able to maintain our existing licenses or obtain any new licenses required under any existing or new laws or regulations. There are also risks that we may be found to violate existing or future laws and regulations given the uncertainty and complexity of China’s regulation of internet businesses.

Any requirement to obtain prior approval from the China Securities Regulatory Commission, or the CSRC, could delay this offering and a failure to obtain this approval, if required, could have a material adverse effect on our business, operating results, reputation and trading price of our ADSs.

On August 8, 2006, six PRC regulatory agencies, namely, the Ministry of Commerce, the State Assets Supervision and Administration Commission, the State Administration for Taxation, the State Administration for Industry and Commerce, the CSRC and SAFE, jointly adopted the Regulations on Mergers and Acquisitions of Domestic Enterprises by Foreign Investors, or the M&A Rule, which became effective on September 8, 2006, as amended on June 22, 2009. The M&A Rule purports to require, among other things, offshore special purpose vehicles, or SPVs, formed for listing purposes through the acquisition 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.

While the application of the M&A Rule remains unclear, we believe, based on the advice of our PRC legal counsel, Commerce & Finance Law Offices, that while the CSRC generally has jurisdiction over overseas listings of SPVs like us, the CSRC’s approval is not required for this offering given the fact that we are not SPV controlled by a PRC enterprise or PRC individual as defined in M&A Rules. However, we cannot assure you that the relevant PRC government agency, including the CSRC, would reach the same conclusion as our PRC legal counsel. If the CSRC or other PRC regulatory agency subsequently determines that we need to obtain the CSRC’s approval for this offering, we may face sanctions by the CSRC or other PRC regulatory agencies. In such event, these regulatory agencies may impose fines and penalties on our operations in the PRC, limit our operating privileges in the PRC, 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 operation, and prospects, as well as the trading price of our ADSs. The CSRC or other PRC regulatory agencies may also take actions requiring us to halt this offering before settlement and delivery of the ADSs offered by this prospectus.

 

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PRC regulation of loans and direct investment by offshore holding companies to PRC entities may limit the use of the proceeds we receive from this offering for our expansion or operations.

In utilizing the proceeds we receive from this offering in the manner described in “Use of Proceeds,” as an offshore holding company with PRC subsidiaries, we may (i) make additional capital contributions to our PRC subsidiaries, (ii) establish new PRC subsidiaries and make capital contributions to these new PRC subsidiaries, (iii) make loans to our PRC subsidiaries or our consolidated affiliated entities or (iv) acquire offshore entities with business operations in China in an offshore transaction. However, most of these uses are subject to approvals and certain limitations on capital amount. For example:

 

   

capital contributions to our PRC subsidiaries, whether existing or newly established, must be approved by the PRC Ministry of Commerce or its local bureaus;

 

   

loans by us to our PRC subsidiaries, including our joint venture, to finance their activities cannot exceed statutory limits and must be registered with SAFE or its local bureaus; and

 

   

loans by us to our consolidated affiliated entities, as well as the settlements of such loans, must be approved by SAFE or its local bureaus.

In addition, SAFE strengthened its oversight of the flow and use of Renminbi funds converted from the foreign currency-denominated capital of a foreign-invested company. The approved use of such Renminbi funds may not be changed without approval from SAFE. Renminbi funds converted from foreign exchange may not be used to repay loans in Renminbi if the proceeds of such loans have not yet been used.

We expect that the PRC regulations of loans and direct investment by offshore holding companies to PRC entities may continue to limit our use of proceeds of this offering. There are no costs associated with registering loans or capital contributions with relevant PRC governmental authorities, other than nominal processing charges. Under PRC laws and regulations, the PRC governmental authorities are required to process such approvals or registrations or deny our application within a prescribed period. The actual time taken, however, may be longer due to administrative delay. We cannot assure you that we will be able to obtain these government registrations or approvals on a timely basis, if at all, with respect to our future plans to use the U.S. dollar proceeds we receive from this offering for our expansion and operations in China. If we fail to receive such registrations or approvals, our ability to use the proceeds of this offering and to capitalize our PRC operations may be negatively affected, which could materially and adversely affect our liquidity and ability to fund and expand our business.

Our PRC subsidiaries’ business licenses do not specifically authorize equity investments and, as a result, we are prohibited from using Renminbi converted from foreign currency denominated capital to establish new subsidiaries, increase the registered capital of our current subsidiaries or to invest in other companies in China.

On August 29, 2008, SAFE promulgated Circular 142, a notice regulating the conversion by a foreign-invested company of foreign currency denominated capital into Renminbi and restricting the use of such converted Renminbi. Circular 142 provides that a foreign-invested company can only use Renminbi converted from foreign currency denominated capital for purposes within the business scope specified in its business license, as approved by the applicable governmental authorities. Our PRC subsidiaries, including our joint venture, have used Renminbi converted from foreign currency denominated capital to pay advertising expenses, pay salaries and benefits to employees and fund other operational needs, all of which are within the approved business scope of our PRC subsidiaries’ business licenses.

In addition, Circular 142 provides that a foreign-invested company may not use such converted Renminbi for equity investments in the PRC unless its business license specifically includes equity investments within its business scope. Currently, none of our PRC subsidiaries, all of which are foreign-invested enterprises, has an approved business scope that includes equity investments. Furthermore, SAFE promulgated a circular on

 

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November 9, 2010, or Circular 59, which requires the authenticity of settlement of net proceeds from offshore offerings to be closely examined and the net proceeds to be settled in the manner described in the offering documents.

To strengthen Circular 142, SAFE promulgated a “Circular on Further Clarifying and Regulating Relevant Issues Concerning the Administration of Foreign Exchange under Capital Account”, or Circular 45, on November 16, 2011, which expressly prohibits a foreign-invested company from converting its registered capital in foreign exchange currency into Renminbi for the purpose of making domestic equity investments, granting certain entrusted loans, repayment of inter-company loans, and repayment of bank loans that have been transferred to a third party. Furthermore, Circular 45 generally prohibits foreign-invested entities from converting registered capital in foreign exchange into Renminbi for payment of various types of cash deposits. As a result, Circular 142 and Circular 45 may significantly restrict our ability to transfer capital to our consolidated affiliated entities through our PRC subsidiaries, including our joint venture, which may adversely affect the ability of our PRC subsidiaries to expand their business operations and may impact our planned use of proceeds.

As a result, although we may finance our PRC subsidiaries, including our joint venture, through shareholder loans or capital contributions after obtaining approval from, and completing registration with, the applicable PRC governmental authorities, such capital can only be used for approved business purposes specified in the business licenses of our PRC subsidiaries, and none of our PRC subsidiaries is allowed to use such funds to make any equity investment in the PRC by means of establishing new subsidiaries, increasing the registered capital of our current subsidiaries or acquiring an equity interest in other entities in China. Any violation of Circular 142, Circular 59 or Circular 45 may result in severe penalties, including substantial fines. This limitation could adversely affect the ability of our PRC subsidiaries to expand their business operations and may impact our planned use of proceeds. For example, we may not be able to use our proceeds for strategic investment or acquisition in China through our PRC subsidiaries.

Our global income and the dividends that we may receive from our PRC subsidiaries may be subject to PRC taxes under the PRC Enterprise Income Tax Law, which could have a material adverse effect on our results of operations, and non-PRC shareholders may be subject to PRC tax on dividends and gains which may reduce returns on investments in our shares or ADSs.

Under the PRC Enterprise Income Tax Law, an enterprise established outside of the PRC with “de facto management bodies” within the PRC is considered a “resident enterprise,” meaning it can be treated in a manner similar to a Chinese enterprise for enterprise income tax purposes, i.e., it is required to pay enterprise income tax on income derived from sources inside and outside China at a tax rate of 25%, although the dividends paid to one resident enterprise from another may qualify as “tax-exempt income.” The implementation regulations of the PRC Enterprise Income Tax Law define a “de facto management body” as a body that has substantial and overall management and control over the manufacturing and business operations, personnel and human resources, finances and properties of an enterprise, and provides that if the foreign enterprise is deemed to be PRC resident enterprise, dividends and other income obtained by the shareholder from the deemed PRC resident enterprise will be considered PRC-source income and subject to PRC withholding tax, which may be further reduced depending on provision in the double taxation agreement between China and the relevant countries. A circular issued by the PRC State Administration of Taxation on April 22, 2009, or “Circular,” specifies that certain foreign enterprises controlled by a PRC company or a PRC company group will be classified as PRC “resident enterprises” if the following requirements are satisfied: (i) the senior management and core management departments in charge of its daily operations function are mainly in the PRC; (ii) its financial and human resources decisions are subject to determination or approval by persons or bodies in the PRC; (iii) its major assets, accounting books, company seals, and minutes and files of its board and shareholders’ meetings are located or kept in the PRC; and (iv) at least half of the enterprise’s directors with voting rights or senior management reside in the PRC. Although the Circular only applies to offshore enterprises controlled by PRC enterprises and not those controlled by PRC individuals or by foreign individual or enterprise, the determining criteria set forth in the Circular may reflect the State Administration of Taxation’s general position on how the “de facto

 

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management body” test should be applied in determining the tax resident status of offshore enterprises, regardless of whether they are controlled by PRC enterprises or PRC individuals.

We do not believe that Zhaopin Limited is a PRC resident enterprise because it does not meet the conditions above. Zhaopin Limited is a company incorporated outside the PRC, and keeps its respective key assets and records, including resolutions of board of directors and resolutions of shareholders, outside of the PRC. In addition, we are not aware of any offshore holding companies with similar corporate structures to ours that have been deemed to be PRC “resident enterprises” by the PRC tax authorities. Therefore, we do not believe Zhaopin Limited should be treated as a “resident enterprise” for PRC tax purposes. However, as 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” as applicable to our offshore entities, we may be considered a resident enterprise and may therefore be subject to the enterprise income tax at 25% on our global income. If we are considered a resident enterprise and earn income other than dividends from our PRC subsidiary, a 25% enterprise income tax on our global income could significantly increase our tax burden and materially and adversely affect our cash flow and profitability. Moreover, the new “resident enterprise” classification could result in a situation in which a 10% withholding tax is imposed on dividends we pay to our non-PRC resident enterprise shareholders, a 10% PRC tax is imposed on gains derived by our non-PRC resident enterprise shareholders from transferring our shares or ADSs (unless the holder is eligible for a treaty that provides a reduced rate), a 20% withholding tax is imposed on dividends we pay to our non-PRC resident individual shareholders and a 20% PRC tax is imposed on gains derived by our non-PRC resident individual shareholders from transferring our ordinary shares or our ADSs (unless the holder is eligible for a treaty that provides a reduced rate), in each case, if such income is considered PRC-sourced income by the relevant PRC authorities. This could have the effect of increasing our and our shareholders’ effective income tax rates and may require us to deduct withholding tax from any dividends we pay to our non-PRC shareholders. In addition to the uncertainty regarding how the new “resident enterprise” classification may apply, it is also possible that the rules may change in the future, possibly with retroactive effect.

If we are required under the PRC Enterprise Income Tax Law to withhold PRC income tax on our dividends payable to our non-PRC shareholders and ADS holders or our shareholders and ADS holders are subject to PRC tax on gains derived from transferring our ordinary shares or ADSs, your investment in our ordinary shares or ADSs may be materially and adversely affected.

We face uncertainties with respect to application of the Circular on Strengthening the Administration of Enterprise Income Tax for Share Transfer by Non-PRC Resident Enterprises.

Pursuant to the Circular on Strengthening the Administration of Enterprise Income Tax for Share Transfers by Non-PRC Resident Enterprises, or SAT Circular 698, issued by the State Administration of Taxation, or SAT, in December 2009, with retroactive effect from January 1, 2008, where a non-resident enterprise transfers the equity interests of a PRC resident enterprise indirectly by disposition of the equity interests of an overseas holding company, or an Indirect Transfer, and such overseas holding company is located in a tax jurisdiction that: (i) has an effective tax rate of less than 12.5% or (ii) does not impose income tax on foreign income of its residents, the non-resident enterprise, being the transferor, shall report to the competent tax authority of the PRC resident enterprise this Indirect Transfer. Using a “substance over form” principle, the PRC tax authority may disregard the existence of the overseas holding company if it lacks a reasonable commercial purpose and was established for the purpose of reducing, avoiding or deferring PRC tax. As a result, gains derived from such Indirect Transfer may be subject to PRC withholding tax at a rate of up to 10%. SAT Circular 698 also provides that, where a non-PRC resident enterprise transfers its equity interests in a PRC resident enterprise to its related parties at a price that does not comply with arm’s length principles, the relevant tax authority has the power to make a reasonable adjustment to the taxable income of the transaction.

On March 28, 2011, SAT released the SAT Public Notice (2011) No. 24, or SAT Public Notice 24, to clarify several issues related to Circular 698. SAT Public Notice 24 became effective on April 1, 2011. According to

 

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SAT Public Notice 24, the term “effective tax” refers to the effective tax on the gain derived from disposition of the equity interests of an overseas holding company; and the term “does not impose income tax” refers to the cases where the gain derived from disposition of the equity interests of an overseas holding company is not subject to income tax in the country or region where the overseas holding company is a resident.

There is uncertainty as to the application of SAT Circular 698. For example, while the term “Indirect Transfer” is not clearly defined, it is understood that the relevant PRC tax authorities have jurisdiction regarding requests for information over a wide range of foreign entities having no direct contact with the PRC. Moreover, the relevant authority has not yet promulgated any formal provisions or made any formal declaration as to the process and format for reporting an Indirect Transfer to the competent tax authority of the relevant PRC resident enterprise. In addition, there are not any formal declarations concerning how to determine whether a foreign investor has adopted an abusive arrangement in order to reduce, avoid or defer PRC tax. SAT Circular 698 may be determined by the tax authorities to be applicable to our private equity financing transactions and historical restructuring where non-resident investors were involved, if any of such transactions were determined by the tax authorities to lack reasonable commercial purpose. As a result, we and our non-resident investors may become at risk of being taxed by virtue of SAT Circular 698 in connection with our past restructuring and may be required to expend valuable resources to comply with SAT Circular 698 or to establish that we and our non-resident enterprise investors should not be taxed by virtue of SAT Circular 698, which may have a material adverse effect on our financial condition and results of operations or such non-resident investors’ investments in us. Although SAT Circular 698 contains an exemption for transfers of publicly traded stock in a PRC resident enterprise, we do not believe Zhaopin Limited is a PRC resident enterprise and such exemption should not be applicable to the transfer of our ordinary shares or ADSs. If we are regarded as a non-PRC resident enterprise, PRC tax authorities may deem any future transfer of our ordinary shares or ADSs by our shareholders or holders of ADSs to be subject to these regulations, which may subject such shareholders or holders of ADSs to additional reporting obligations or tax burdens. If such shareholders or holders of ADSs fail to comply with these circulars, the PRC tax authorities may take actions, including requesting us to assist in their investigations, which could have a negative impact on our business operations.

Discontinuation of any of the preferential tax treatments currently available to us in China could adversely affect our overall results of operations.

The current PRC Enterprise Income Tax Law imposes a uniform enterprise income tax rate of 25% on all domestic enterprises, including foreign-invested enterprises, unless they qualify for certain exceptions. The PRC enterprise income tax is calculated based on the taxable income determined under the PRC laws and accounting standards. The PRC Enterprise Income Tax Law and its implementation rules permit “high and new technology enterprises strongly encouraged by the state”, or HNTE, which independently own core intellectual property and meet certain other criteria stipulated in the implementation rules to enjoy a preferential enterprise income tax rate of 15%, subject to periodical review of the qualification of HNTE, and approval of relevant taxation administration and other criteria specified in relevant laws and regulations.

Beijing Wangpin received HNTE qualification approval from relevant government authorities in November 2011 and filed its HNTE status with local tax bureau in March 2012, upon which Beijing Wangpin is entitled to enjoy the preferential tax rate of 15% from 2011 to 2013. Beijing Wangpin’s continued qualification as an HNTE will be subject to review by the relevant PRC government authorities every three years and it is required to conduct annual filing with relevant authorities within the effective period of HNTE qualification. There is no assurance that Beijing Wangpin will continue to be accredited as an HNTE, or the current favorable tax policies available to us will not be withdrawn or revoked by the PRC government authorities or become less favorable. If the current preferential tax treatment is no longer available to us in the future, our financial condition and results of operations could be materially and adversely affected.

 

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Fluctuation in the value of the Renminbi may have a material adverse effect on your investment.

The conversion of Renminbi into foreign currencies, including U.S. dollars, is based on rates set by the People’s Bank of China. 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, this appreciation halted and the exchange rate between the Renminbi and the U.S. dollar remained within a narrow band. Since June 2010, the PRC government has allowed the Renminbi to appreciate slowly against the U.S. dollar again. 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. There remains significant international pressure on the Chinese government to substantially liberalize its currency policy, which could result in further appreciation in the value of the Renminbi against the U.S. dollar.

Substantially all of our revenues and costs are denominated in Renminbi. At the Cayman Islands holding company level, we may rely on dividends and other fees paid to us by our subsidiaries and consolidated affiliated entities in China. Any significant revaluation of the Renminbi may materially and adversely affect our cash flows, net revenues, earnings and financial position, and the value of, and any dividends payable on, our ADSs in U.S. dollars. For example, an appreciation of the Renminbi against the U.S. dollar would make any new Renminbi-denominated investments or expenditures more costly to us, to the extent that we need to convert U.S. dollars into Renminbi for such purposes. Conversely, a significant depreciation of the Renminbi against the U.S. dollar may significantly reduce the U.S. dollar equivalent of our earnings, which in turn could adversely affect the price of our ADSs. If we decide to convert Renminbi into U.S. dollars for the purpose of making payments for dividends on our ordinary shares or ADSs, strategic acquisitions or investments or other business purposes, appreciation of the U.S. dollar against the Renminbi would have a negative effect on the U.S. dollar amount available to us.

Very limited hedging options are available in China to reduce our exposure to exchange rate fluctuations. To date, we have not entered into any hedging transactions in an effort to reduce our exposure to foreign currency exchange risk. While we may decide to enter into hedging transactions in the future, the availability and effectiveness of these hedges may be limited and we may not be able to adequately hedge our exposure. In addition, our currency exchange loss may be magnified by PRC exchange control regulations that restrict our ability to convert Renminbi into foreign currency. As a result, fluctuations in exchange rates may have a material adverse effect on your investment.

Governmental control of currency conversion may affect the value of your investment.

The PRC government imposes controls on the convertibility of the Renminbi into foreign currencies and, in certain cases, the remittance of currency out of China. Under our current corporate structure, the income of our Cayman Islands holding company is primarily derived from a share of the earnings from our PRC subsidiaries. Revenues of our PRC subsidiaries are all denominated in Renminbi. Shortages in the availability of foreign currency may restrict the ability of our PRC subsidiaries to remit sufficient foreign currency to pay dividends or other payments to us, or otherwise satisfy their foreign currency-denominated obligations. Under existing PRC foreign exchange regulations, payments of current account items, including profit distributions, interest payments and expenditures from trade-related transactions, can be made in foreign currencies without prior approval from SAFE by complying with certain procedural requirements. However, for any PRC company, dividends can be declared and paid only out of the retained earnings of that company under PRC law. Furthermore, approval from SAFE or its local branch is required where Renminbi is to be converted into foreign currency and remitted out of China to pay capital expenses, such as the repayment of loans denominated in foreign currencies. Specifically, under the existing exchange restrictions, without a prior approval of SAFE, cash generated from the operations of our subsidiaries in China may be used to pay dividends by our PRC subsidiaries to our company and pay employees of our PRC subsidiaries who are located outside China in a currency other than the Renminbi. With a prior approval from SAFE, cash generated from the operations of our PRC subsidiaries and consolidated affiliated entities may be used to pay off debt in a currency other than the Renminbi owed by our subsidiaries and

 

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consolidated affiliated entities to entities outside China, and make other capital expenditures outside China in a currency other than the Renminbi. The PRC government may also at its discretion restrict access in the future to foreign currencies for current account transactions. If the foreign exchange control system prevents us from obtaining sufficient foreign currency to satisfy our currency demands, we may not be able to pay dividends in foreign currencies to our shareholders, including holders of our ADSs.

Failure to comply with the registration requirements for employee stock incentive plans may subject our PRC equity incentive plan participants or us to fines and other legal or administrative sanctions.

On February 15, 2012, SAFE promulgated the Notice on Foreign Exchange Administration of PRC Residents Participating in Share Incentive Plans of Offshore Listed Companies, or Circular 7, which superseded the Administrative Measures of Foreign Exchange Matters for Individuals issued by SAFE in January 2007. Circular 7 regulates the foreign exchange matters associated with employee stock incentive plans or similar plans permitted under applicable laws and regulations granted to PRC residents by companies whose shares are listed on offshore stock exchanges.

Pursuant to Circular 7, all PRC residents participating in share incentive plans of offshore listed companies are required to, through their employers, jointly retain qualified PRC agents to register with SAFE. PRC residents include PRC nationals or foreign citizens having been consecutively residing in PRC for not less than one year who act as directors, supervisors, senior management personnel or other employees of PRC entities affiliated with such offshore listed company. A qualified PRC agent may be a PRC entity involved in the share incentive plan or a PRC institution eligible for assets trusteeship, which is lawfully selected to handle various foreign exchange matters related with share incentive plans and apply annually for a quota for conversion and/or payment of foreign currencies in connection with the PRC residents’ exercise of the employee stock options. The foreign exchange proceeds received by PRC residents from sale of shares under share incentive plans granted by offshore listed companies must be remitted to bank accounts in China opened by their employers or PRC agents.

We and our PRC resident employees or other personnel who participate in our stock option plans will be subject to these regulations when this initial public offering is completed. If we or our PRC optionees fail to comply with these regulations, we or our PRC optionees may be subject to fines and other legal or administrative sanctions. See “Regulation—Regulation of Foreign Currency Exchange and Dividend Distribution—Circular 7.”

Failure to make adequate contributions to various employee benefit plans as required by PRC regulations may subject us to penalties.

Companies operating in China are required to participate in various government sponsored employee benefit plans, including certain social insurance, housing funds and other welfare-oriented payment obligations, and contribute to the plans in amounts equal to certain percentages of salaries, including bonuses and allowances, of our employees up to a maximum amount specified by the local government from time to time at locations where we operate our businesses. The requirement of employee benefit plans has not been implemented consistently by the local governments in China given the different levels of economic development in different locations. From time to time, we did not make full contributions to the social security and housing funds for all employees. We did not pay, or were not able to pay, certain past social security and housing fund contributions in strict compliance with the relevant PRC regulations for and on behalf of our employees due to differences in local regulations and inconsistent implementation or interpretation by local authorities in the PRC and different levels of acceptance of the housing fund system by our employees. As of December 31, 2013, we have recorded RMB31,498 of accruals for estimated underpaid amounts in our financial statements. We may be required to make up the contributions for these plans as well as to pay late fees and fines. If we are subject to late fees or fines in relation to the underpaid employee benefits, our financial condition and results of operations may be adversely affected.

 

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If the custodians or authorized users of our controlling non-tangible assets, including corporate chops and seals, fail to fulfill their responsibilities or misappropriate or misuse these assets, our business and operations could be materially and adversely affected.

In China, a company chop or seal usually serves as the legal representation of the company towards third parties even when unaccompanied by a signature. Under PRC law, legal documents for corporate transactions, including contracts and leases that our business relies on, are executed using “corporate chops,” which are instruments that contain either the official seal of the signing entity or the signature of a legal representative whose designation is registered and filed with SAIC.

Our PRC subsidiaries and consolidated affiliated entities generally execute legal documents with corporate chops. One or more of our corporate chops may be used to, among other things, execute commercial sales or purchase contracts, procurement contracts and office leases, open bank accounts, issue checks and to issue invoices. We believe that we have sufficient controls in place over access to and use of the chops. Our chops are kept securely with our chief executive officer, our chief financial officer or city managers of our PRC subsidiaries or consolidated affiliated entities, as applicable. In addition, some of our contract management employees are authorized to maintain contract chops and apply them to sales contracts with our customers. Use of chops requires proper approvals in accordance with our internal control procedures. The custodians are required to also maintain a log to keep a detailed record of each use of the chops.

However, we cannot assure you that unauthorized access to or use of those chops can be prevented. Our designated employees who hold the corporate chops could abuse their authority by, for example, binding us to contracts against our interests or intentions, which could result in economic harm, disruption of our operations or other damages to us as a result of any contractual obligations, or resulting disputes, that might arise. If the party contracting with us did not act in good faith under such circumstances, then we could incur costs to nullify such contracts. Such corporate or legal action could involve significant time and resources, while distracting management from our operations. In addition, we may not be able to recover corporate assets that are sold or transferred out of our control in the event of such a misappropriation if a transferee relies on the apparent authority of the representative and acts in good faith.

If a designated employee uses a chop in an effort to obtain control over one or more of our PRC subsidiaries and consolidated affiliated entities, we would need to take legal action to seek the return of the applicable chop(s), apply for a new chop(s) with the relevant authorities or otherwise seek legal redress for the violation of their duties. During any period where we lose effective control of the corporate activities of one or more of PRC subsidiaries and consolidated affiliated entities as a result of such misuse or misappropriation, the business activities of the affected entity could be disrupted and we could lose the economic benefits of that aspect of our business. To the extent those chops are stolen or are used by unauthorized persons or for unauthorized purposes, the corporate governance of these entities could be severely and adversely compromised and the operations of these entities could be significantly and adversely impacted.

The financial statements included in this prospectus are audited by an auditor who is not inspected by the Public Company Accounting Oversight Board and, as such, you are deprived of the benefits of such inspection.

Auditors of companies that are registered with the SEC and traded publicly in the United States, including our independent registered public accounting firm, must be registered with the US Public Company Accounting Oversight Board (United States), or PCAOB, and are required by the laws of the United States to undergo regular inspections by the PCAOB to assess their compliance with the laws of the United States and professional standards. Because our auditor is located in the Peoples’ Republic of China, a jurisdiction where the PCAOB is currently unable to conduct inspections without the approval of the PRC authorities, our auditor is not currently inspected by the PCAOB. In May 2013, PCAOB announced that it had entered into a Memorandum of Understanding on Enforcement Cooperation with the CSRC and the PRC Ministry of Finance, which establishes

 

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a cooperative framework between the parties for the production and exchange of audit documents relevant to investigations undertaken by PCAOB, the CSRC or the PRC Ministry of Finance in the United States and the PRC, respectively. PCAOB continues to be in discussions with the CSRC and the PRC Ministry of Finance to permit joint inspections in the PRC of audit firms that are registered with PCAOB and audit Chinese companies that trade on U.S. exchanges.

This lack of PCAOB inspections in China prevents the PCAOB from regularly evaluating audits and quality control procedures of any auditors operating in China, including our auditor. As a result, investors may be deprived of the benefits of PCAOB inspections. The inability of the PCAOB to conduct inspections of auditors in China makes it more difficult to evaluate the effectiveness of our auditor’s 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 financial statements.

The outcome of the administrative proceedings brought by the SEC against the Big Four PRC-based accounting firms, including our independent registered public accounting firm, could result in financial statements being determined to not be in compliance with the requirements of the Securities Exchange Act of 1934, as amended, or the Exchange Act.

In December 2012, the SEC instituted administrative proceedings under Rule 102(e)(1)(iii) of the SEC’s Rules of Practice against the Big Four PRC-based accounting firms, including our independent registered public accounting firm, alleging that these firms had violated U.S. securities laws and the SEC’s rules and regulations thereunder by failing to provide to the SEC the firms’ work papers related to their audits of certain PRC-based companies that are publicly traded in the United States. Rule 102(e)(1)(iii) authorizes the SEC to deny any person, temporarily or permanently, the ability to practice before the SEC if found by the SEC, after notice and opportunity for a hearing, to have willfully violated any such laws or rules and regulations. On January 22, 2014, an initial administrative law decision was issued, sanctioning these accounting firms and suspending them from practicing before the SEC for a period of six months. The Big Four PRC-based accounting firms recently appealed the initial administrative law decision to the SEC. The initial administrative law decision will not take effect until and unless it is endorsed by the SEC. The Big Four PRC-based accounting firms can then further appeal the final decision of the SEC through the federal appellate courts. While we cannot predict the outcome of the SEC’s review nor that of any subsequent appeal process, if the Big Four PRC-based accounting firms, including our independent registered public accounting firm, were denied, temporarily or permanently, the ability to practice before the SEC, and we are unable to timely find another registered public accounting firm which can audit and issue a report on our financial statements, our financial statements could be determined to not be in compliance with the requirements for financial statements in connection with this offering under the Securities Act of 1933, as amended, or the Securities Act, or those of public companies registered under the Exchange Act after our completion of this offering. Such a determination could ultimately lead to the delay or abandonment of this offering, or, after the completion of this offering, delisting of our ADSs from the New York Stock Exchange or deregistration from the SEC, or both, which would substantially reduce or effectively terminate the trading of our ADSs in the United States.

Risks Related to Our ADSs and This Offering

There has been no public market for our ordinary shares or ADSs prior to this offering, and you may not be able to resell our ADSs at or above the price you paid, or at all.

Prior to this initial public offering, there has been no public market for our ordinary shares or ADSs. We have applied to list our ADSs on the New York Stock Exchange. Our ordinary shares will not be listed on any exchange or quoted for trading on any over-the-counter trading system. If an active trading market for our ADSs does not develop after this offering, the market price and liquidity of our ADSs will be materially and adversely affected.

The initial public offering price for our ADSs will be determined by negotiations between us and the underwriters and may bear no relationship to the market price for our ADSs after this initial public offering. We

 

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cannot assure you that an active trading market for our ADSs will develop or that the market price of our ADSs will not decline below the initial public offering price.

We are an emerging growth company and we cannot be certain whether the special accommodations applicable to emerging growth companies will make our ADSs less attractive to investors.

We are an emerging growth company, as defined in the JOBS Act effective on April 5, 2012, or 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. Most of such requirements relate to disclosures that we would only be required to make if we cease to be a foreign private issuer in the future. Nevertheless, as a foreign private issuer that is an emerging growth company, we will not be required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act for up to five fiscal years after the date of this offering. 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 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 billion in non-convertible debt; or (iv) the date on which we are deemed to be a “large accelerated filer” under the Exchange Act. When we are no longer deemed to be an emerging growth company, we will not be entitled to the exemption provided in the JOBS Act discussed above. We cannot predict if investors will find our ADSs less attractive as a result of our reliance on exemptions under the JOBS Act. If some investors find our ADSs less attractive as a result, there may be a less active trading market for our ADSs.

The market price of our ADSs may be volatile.

The trading prices of our ADSs are likely to be volatile and could fluctuate widely due to factors beyond our control. This may happen because of broad market and industry factors, such as the performance and fluctuation in the market prices or the underperformance or declining financial results of other companies based in China that have listed their securities in the United States in recent years. 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 may affect the attitudes of investors toward Chinese companies listed in the United States, which consequently may impact the trading performance of our ADSs, regardless of our actual operating performance. In addition, any negative news or perceptions about inadequate corporate governance practices or fraudulent accounting, corporate structure or matters of other Chinese companies may also negatively affect the attitudes of investors towards Chinese companies in general, including us, regardless of whether we have conducted any inappropriate activities. In addition, securities markets may from time to time experience significant price and volume fluctuations that are not related to our operating performance, which may have a material and adverse effect on the market price of our ADSs.

In addition, the market price for our ADSs is likely to be highly volatile and subject to wide fluctuations in response to factors such as:

 

   

actual or anticipated fluctuations in our operating results;

 

   

changes in financial estimates by securities research analysts;

 

   

changes in the performance or market valuation of other human resources service companies;

 

   

announcements by us or our competitors of material acquisitions, strategic partnerships, joint ventures or capital commitments;

 

   

addition or departure of our executive officers;

 

   

intellectual property litigation;

 

   

release or expiration of lock-up or other transfer restrictions on our outstanding ordinary shares or ADSs; and

 

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substantial sale of ordinary shares upon exercise of our stock option awards;

 

   

economic, regulatory or political conditions in China.

If securities or industry analysts publish negative reports about our business, the price and trading volume of our securities could decline.

The trading market for our securities depends, in part, on the research reports and ratings that securities or industry analysts or ratings agencies publish about us, our business and the human resources services market in China in general. We do not have any control over these analysts or agencies. If one or more of the analysts or agencies who cover us downgrades us or our securities, the price of our securities may decline. If one or more of these analysts ceases coverage of our company or fails to regularly publish reports on us, we could lose visibility in the financial markets, which could cause the price of our securities or trading volume to decline.

We may invest or spend the proceeds of this offering in ways with which you may not agree or in ways which may not yield a return.

We plan to use the net proceeds from this offering to repay our existing indebtedness and for our geographic expansion, product development, upgrade of our information technology system and website, and working capital and general corporate purposes, including strategic investments and potential acquisition opportunities. Our management will have considerable discretion in the application of the net proceeds, and you will not have the opportunity, as part of your investing decision, to assess whether the proceeds are being used appropriately. The net proceeds may be used for corporate purposes that do not increase our operating results or market value. Until the net proceeds are used, they may be placed in investments that do not produce significant income or that may lose value.

Because the initial public offering price is substantially higher than our net tangible book value per share, you will incur immediate and substantial dilution.

If you purchase ADSs in this offering, you will pay more for your ADSs than the amount paid by our existing shareholders for their ordinary shares on a per ADS basis. As a result, you will experience immediate and substantial dilution of approximately US$             per ADS (assuming no exercise by the underwriters of their option to acquire additional ADSs), representing the difference between the assumed initial public offering price of US$             per ADS, the midpoint of the range shown on the front cover page of this prospectus, and our net tangible book value per ADS as of                     , after giving effect to this offering. In addition, you may experience further dilution to the extent that our ordinary shares are issued upon exercise of share options vested. See “Dilution” for a more complete description of how the value of your investment in our ADSs will be diluted upon completion of this offering.

Our proposed dual-class voting structure will limit your ability to influence corporate matters and could discourage others from pursuing any change of control transactions that holders of our Class A ordinary shares and ADSs may view as beneficial.

If the proposed dual-class share structure is approved by our shareholders, our ordinary shares will be divided into Class A ordinary shares and Class B ordinary shares immediately prior to the completion of this offering. Holders of Class A ordinary shares will be entitled to one vote per share, while holders of Class B ordinary shares will be entitled to four votes per share. We will issue Class A ordinary shares represented by our ADSs in this offering. All of our ordinary shares and preferred shares issued and outstanding before the completion of this offering will be redesignated or automatically converted into Class B ordinary shares, while all of the ordinary shares to be issued on or after the completion of this offering will be Class A ordinary shares. We intend to maintain the dual-class voting structure after the completion of this offering. Each Class B ordinary share is convertible into one Class A ordinary share at any time by the holder thereof in the manner set out in our

 

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post-offering memorandum and articles of association. Class A ordinary shares are not convertible into Class B ordinary shares under any circumstances. Upon any transfer of Class B ordinary shares by a holder thereof to any person or entity which is not an affiliate of such holder, such Class B ordinary shares shall be automatically and immediately converted into the equal number of Class A ordinary shares in the manner set out in our post-offering memorandum and articles of association.

Due to the disparate voting powers attached to these two classes of ordinary shares, our pre-IPO shareholders will collectively own approximately         % of the voting power of our outstanding shares immediately after this offering, assuming no exercise of the over-allotment option granted to the underwriters of this offering, and will have decisive influence over matters requiring shareholders’ approval, including appointment of directors and significant corporate transactions, such as a merger or sale of our company or our assets. This concentrated control will limit your ability to influence corporate matters and could discourage others from pursuing any potential merger, takeover or other change of control transactions that holders of Class A ordinary shares and ADSs may view as beneficial.

Substantial future sales or the expectation of substantial sales of our ADSs in the public market could cause the price of our ADSs to decline.

Sales of our ADSs or ordinary shares in the public market after this offering, or the perception that these sales could occur, could cause the market price of our ADSs to decline. Upon completion of this offering, we will have ordinary shares outstanding, including ordinary shares represented by ADSs. All ADSs sold in this offering will be freely transferable without restriction or additional registration under the Securities Act. The remaining ordinary shares outstanding after this offering will be available for sale upon the expiration of the 180-day lock-up period beginning from the date of this prospectus and, in the case of the ordinary shares that certain option holders will receive when they exercise their share options, subject to volume and other restrictions as applicable under Rule 144 and Rule 701 under the Securities Act. Any or all of these shares (other than those held by certain option holders) may be released prior to expiration of the lock-up period at the discretion of the underwriters. To the extent shares are released before the expiration of the lock-up period and these shares are sold into the market, the market price of our ADSs could decline.

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 United States that are applicable to U.S. domestic issuers, including:

 

   

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;

 

   

the sections of the Exchange Act regulating the solicitation of proxies, consents, or authorizations in respect of a security registered under the Exchange Act;

 

   

the sections of the Exchange Act requiring insiders to file public reports of their stock ownership and trading activities and liability for insiders who profit from trades made in a short period of time; and

 

   

the selective disclosure rules by issuers of material nonpublic information under Regulation FD.

We will be required to file an annual report on Form 20-F within four months of the end of each fiscal year. We intend to publish our results on a quarterly basis as press releases, distributed pursuant to the rules and regulations of the New York Stock Exchange. Press releases relating to financial results and material events will also be furnished to the SEC on Form 6-K. However, the information we are required to file with or furnish to the SEC will be less extensive and less frequently compared to that required to be filed with the SEC by U.S.

 

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domestic issuers. As a result, you may not be afforded the same protections or information, which would be made available to you, were you investing in a United States domestic issuer.

We will rely on certain exemptions from corporate governance requirements of the New York Stock Exchange, which may afford less protection to the holders of our ADSs.

We are exempt from certain corporate governance requirements of the New York Stock Exchange, or the NYSE by virtue of being a foreign private issuer. We are required to provide a brief description of the significant differences between our corporate governance practices and the corporate governance practices required to be followed by U.S. domestic companies under the NYSE rules. The standards applicable to us are considerably different than the standards applied to U.S. domestic issuers. The significantly different standards applicable to us do not require us to, among other things:

 

   

have a majority of the board be independent (other than due to the requirements for the audit committee under the United States Securities Exchange Act of 1934, as amended, or the Exchange Act);

 

   

have a minimum of three members or a person with accounting or related financial management expertise in our audit committee;

 

   

have a compensation committee or a nominating and corporate governance committee;

 

   

have regularly scheduled executive sessions with only non-management directors; and

 

   

have at least one executive session of solely independent directors each year.

SEEK, our largest shareholder as of the date of this prospectus, will be entitled after this offering to appoint or remove any number of directors such that SEEK Designated Directors (as such term is defined in our post-offering memorandum and articles of association) constitute a majority of our board of directors. The foregoing right will terminate at such time as SEEK and its affiliates, in the aggregate, possess less than fifty percent of the total voting power of our issued and outstanding voting shares for a period of 180 consecutive days. As of the date of this prospectus, we do not plan to establish a nominating and corporate governance committee. We will rely on the home country practice with respect to the majority independent board requirement and the nominating and corporate governance committee requirement under the NYSE rules. As a result, you will not be provided with the benefits of all the corporate governance requirements of the NYSE.

We are controlled by a small number of our existing shareholders, whose interests may differ from other shareholders, and our board of directors has the power to discourage a change of control.

After our outstanding ordinary and preferred shares are redesignated into Class B ordinary shares prior to the completion of this offering, assuming that the underwriters do not exercise their over-allotment option, SEEK will beneficially own              Class B ordinary shares, or approximately             % of our total outstanding ordinary shares representing             % of the total voting power. Accordingly, SEEK currently has and is expected to continue to have a controlling interest in our company and have significant influence in determining the outcome of any corporate transaction or other matter submitted to the shareholders for approval, including mergers, consolidations and the sale of all or substantially all of our assets, election of directors and other significant corporate actions. SEEK will also have the power to prevent or cause a change in control. Without the consent of SEEK, we may be prevented from entering into transactions that could be beneficial to us. In addition, our directors and officers could violate their fiduciary duties by diverting business opportunities from us to themselves or others. The interests of our largest shareholders may differ from the interests of our other shareholders. The concentration in ownership of our ordinary shares may cause a material decline in the value of our ADSs.

 

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Our post-offering articles of association contain anti-takeover provisions that could discourage a third party from acquiring us, which could limit our shareholders’ opportunity to sell their shares, including ordinary shares represented by our ADSs, at a premium.

Our post-offering articles of association, which will become effective immediately prior to the completion of this offering, contain provisions that limit the ability of others to acquire control of our company or cause us to engage in change-of-control transactions. These provisions could have the effect of depriving our shareholders of an opportunity to sell their shares at a premium over prevailing market prices by discouraging third parties from seeking to obtain control of our company in a tender offer or similar transaction. For example, our board of directors has the authority, without further action by our shareholders, to issue preferred shares. These preferred shares may have better voting rights than our ordinary shares, in the form of ADSs or otherwise, and could be issued quickly with terms calculated to delay or prevent a change in control of our company or make removal of management more difficult. If our board of directors decides to issue preferred shares, the price of our ADSs may fall and the voting rights of the holders of our ordinary shares and ADSs may be diluted.

Holders of ADSs have fewer rights than shareholders and must act through the depositary to exercise those rights.

Holders of ADSs do not have the same rights as 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 post-offering memorandum and articles of association, the minimum notice period required to convene a general meeting is 14 days. To allow ADS holders to act through the depositary to exercise their rights, we typically provide              day’s notice. When a general meeting is convened, you may not receive sufficient notice of a shareholders’ meeting to permit you to withdraw your Class A ordinary shares to allow you to cast your vote with respect to any specific matter. In addition, the depositary and its agents may not be able to send voting instructions to you or carry out your voting instructions in a timely manner. We will make all reasonable efforts to cause the depositary to extend voting rights to you in a timely manner, but we cannot assure you 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, where such failure or other actions result from reasons beyond their control. 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 unless you withdraw your ordinary shares by canceling your ADSs.

You may not receive distributions on our ordinary shares or any value for them if such distribution is illegal or if any required government approval cannot be obtained in order to make such distribution available to you.

The depositary of our ADSs has agreed to pay to you the cash dividends or other distributions it or the custodian receives on ordinary shares or other deposited securities underlying our ADSs, after deducting its fees and expenses. You will receive these distributions in proportion to the number of ordinary shares your ADSs represent. However, the depositary is not responsible if it decides that it is unlawful, inequitable or impractical to make a distribution available to any holders of ADSs. For example, it would be unlawful to make a distribution to a holder of ADSs if it consists of securities that require registration under the Securities Act but that are not properly registered or distributed under an applicable exemption from registration. The depositary may also determine that it is not feasible to distribute certain property through the mail. Additionally, the value of certain distributions may be less than the cost of mailing them. In these cases, the depositary may determine not to distribute such property. We have no obligation to register under U.S. securities laws any ADSs, ordinary shares, rights or other securities received through such distributions. We also have no obligation to take any other action to permit the distribution of ADSs, ordinary shares, rights or anything else to holders of ADSs. This means that you may not receive distributions we make on our ordinary shares or any value for them if it is illegal or

 

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impractical for us to make them available to you. These restrictions may cause a material decline in the value of our ADSs.

We do not expect to pay dividends in the foreseeable future and you may have to rely on price appreciation of our ADSs for any return on your investment.

We currently intend to retain most, if not all, of our available funds and any future earnings to fund the development and growth of our business. As a result, we do not expect to pay any cash dividends in the foreseeable future. Therefore, you should not rely on an investment in our ADSs as a source of future dividend income.

Our board of directors has complete discretion as to whether to distribute dividends. Even if our board of directors decides to declare and pay dividends, the timing, amount and form of future dividends, if any, will depend on, among other things, our future results of operations and cash flow, our capital requirements and surplus, the amount of distributions, if any, received by us from our subsidiaries, our financial condition, contractual restrictions and other factors deemed relevant by our board of directors. Accordingly, the return on your investment in our ADSs will likely depend entirely upon any future price appreciation of our ADSs. There is no guarantee that our ADSs will appreciate in value or even maintain the price at which you purchased the ADSs. You may not realize a return on your investment in our ADSs and you may even lose your entire investment in our ADSs.

You may be subject to limitations on transfers of your ADSs.

Your ADSs are transferable on the books of the depositary. However, the depositary may close its transfer books at any time or from time to time when it deems expedient in connection with the performance of its duties. In addition, the depositary may refuse to deliver, transfer or register transfers of ADSs generally when our books or the books of the depositary are closed, or at any time if we or the depositary deem 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.

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 United States unless we register the rights and the securities to which the rights relate under the Securities Act or an exemption from the registration requirements is available. Also, under the deposit agreement, the depositary will not make rights available to you unless the distribution to ADS holders of both the rights and any related securities are either registered under the Securities Act, or exempted 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. Moreover, we may not be able to establish an exemption from registration under the Securities Act. Accordingly, you may be unable to participate in our rights offerings and may experience dilution in your holdings.

We may be classified as a passive foreign investment company for United States federal income tax purposes, which could result in adverse United States federal income tax consequences to United States investors in the ADSs or ordinary shares.

Depending upon the value of our assets, which may be determined based, in part, on the market value of our ordinary shares and ADSs, and the nature of our assets and income over time, we could be classified as a passive foreign investment company, or a PFIC. Under U.S. federal income tax law, we will be classified as a PFIC for any taxable year if either (i) at least 75% of our gross income for the taxable year is passive income or (ii) at least 50% of the value of our assets (based on the average quarterly value of our assets during the taxable year) is

 

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attributable to assets that produce or are held for the production of passive income. Based on our current income and assets and projections as to the value of our ordinary shares and ADSs following this offering, we do not expect to be classified as a PFIC for the current taxable year or in the foreseeable future. While we do not anticipate being a PFIC, changes in the composition of our income or assets or the value of our assets may cause us to become a PFIC for the current or any subsequent taxable year.

Although the law in this regard is not entirely clear, we treat our consolidated affiliated entities as being owned by us for United States federal income tax purposes, because we control their management decisions and we are entitled to substantially all of the economic benefits associated with these entities, and, as a result, we consolidate their results of operations in our consolidated U.S. GAAP financial statements. If it were determined, however, that we are not the owner of our consolidated affiliated entities for United States federal income tax purposes, we may be treated as a PFIC for the current and any subsequent taxable years. Because of the uncertainties in the application of the relevant rules and because PFIC status is a factual determination made annually after the close of each taxable year on the basis of the composition of our income and the value of our active versus passive assets, there can be no assurance that we will not be a PFIC for the current or any future taxable year. The overall level of our passive assets may also be affected by how, and how quickly, we spend our liquid assets and the cash raised in this offering. Under circumstances where revenues from activities that produce passive income significantly increase relative to our revenues from activities that produce non-passive income or where, and if, we determine not to deploy significant amounts of cash for active purposes, our risk of being classified as a PFIC may substantially increase.

If we were to be or become a PFIC, a U.S. Holder (as defined in “Taxation—Material United States Federal Income Tax Considerations—General”) may incur significantly increased United States income tax on gain recognized on the sale or other disposition of the ADSs or ordinary shares and on the receipt of distributions on the ADSs or ordinary shares to the extent such gain or distribution is treated as an “excess distribution” under United States federal income tax rules. Each U.S. Holder is urged to consult its tax advisor concerning the United States federal income tax consequences of purchasing, holding and disposing of ADSs or ordinary shares if we are or become a PFIC, including the possibility of making a mark-to-market election or “deemed sale” election and the unavailability of the election to treat us as a qualified electing fund. For more information, see “Taxation—Material United States Federal Income Tax Considerations—Passive Foreign Investment Company Considerations.”

We are a Cayman Islands company and, because judicial precedent regarding the rights of shareholders is more limited under Cayman Islands law than that under U.S. law, you may have less protection for your shareholder rights than you would under U.S. law.

Our corporate affairs are governed by our memorandum and articles of association, as amended and restated from time to time, the Cayman Islands Companies Law (as amended) 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 responsibilities 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 that from English common law, which has persuasive, but not binding, authority on a court in the Cayman Islands. The rights of our shareholders and the fiduciary responsibilities 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 United States. In particular, the Cayman Islands has a less developed body of securities laws than the United States. In addition, some U.S. states, such as Delaware, have more fully developed and judicially interpreted bodies of corporate law than the Cayman Islands.

We have been advised by our Cayman Islands legal counsel that the courts of the Cayman Islands are unlikely (i) to recognize or enforce against us judgments of courts of the United States predicated upon the civil liability provisions of the securities laws of the United States or any State; and (ii) in original actions brought in the Cayman Islands, to impose liabilities against us predicated upon the civil liability provisions of the securities

 

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laws of the United States or any State, so far as the liabilities imposed by those provisions are penal in nature. In those circumstances, although there is no statutory enforcement in the Cayman Islands of judgments obtained in the United States, the courts of the Cayman Islands will recognize and enforce a foreign money judgment of a foreign court of competent jurisdiction without retrial on the merits based on the principle that a judgment of a competent foreign court imposes upon the judgment debtor an obligation to pay the sum for which judgment has been given provided certain conditions are met. For a foreign judgment to be enforced in the Cayman Islands, such judgment must be final and conclusive and for a liquidated sum, and must not be in respect of taxes or a fine or penalty, inconsistent with a Cayman Islands judgment in respect of the same matter, impeachable on the grounds of fraud or obtained in a manner, and or be of a kind the enforcement of which is, contrary to natural justice or the public policy of the Cayman Islands (awards of punitive or multiple damages may well be held to be contrary to public policy). A Cayman Islands court may stay enforcement proceedings if concurrent proceedings are being brought elsewhere. There is recent Privy Council authority (which is binding on the Cayman Islands court) in the context of a reorganization plan approved by a New York bankruptcy court which suggests that due to the universal nature of bankruptcy/insolvency proceedings, foreign money judgments obtained in foreign bankruptcy/insolvency proceedings may be enforced without applying the principles outlined above. However, a more recent English Supreme court authority (which is highly persuasive but not binding on the Cayman Islands court), has expressly rejected that approach in the context of a default judgment obtained in an adversary proceeding brought in the New York Bankruptcy court by the receivers of the bankruptcy debtor against a third party, and which would not have been enforceable upon the application of the traditional common law principles summarized above and held that foreign money judgments obtained in bankruptcy/insolvency proceedings should be enforced by applying the principles set out above, and not by the simple exercise of the courts’ discretion. Those cases have now been considered by the Cayman Islands court. The Cayman Islands court was not asked to consider the specific question of whether a judgment of a bankruptcy court in an adversary proceeding would be enforceable in the Cayman Islands, but it did endorse the need for active assistance of overseas bankruptcy proceedings. Our Cayman Islands legal counsel understands that the Cayman Islands court’s decision in that case has been appealed and it remains the case that the law regarding the enforcement of bankruptcy/insolvency related judgments is still in a state of uncertainty.

As a result of all of the above, 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 shareholders of a U.S. public company.

We have also been advised by our Cayman Islands legal counsel that, under Cayman Islands law, the register of members (shareholders) is prima facie evidence of title to shares and this register would not record a third party interest in such shares. However, there is a risk that the register does not reflect the correct legal positions of the members (shareholders) because there are certain limited circumstances where an application may be made to a Cayman Islands court for a determination on whether the register of members reflects the correct legal position. Further, Cayman Islands courts have the power to order that the register of members maintained by a company should be rectified where they consider that the register of members is not accurate. As far as we are aware, such applications are rarely made in the Cayman Islands, but if this were to occur in respect of the ordinary shares, then the validity of such shares may be subject to re-examination by a Cayman Islands court.

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 management or the experts named in this prospectus.

We are a Cayman Islands company and substantially all of our assets are located outside of the United States. Substantially all of our current operations are conducted in the PRC. In addition, most of our directors and officers reside outside the United States. As a result, it may be difficult for you to effect service of process within the United States or elsewhere outside China upon these persons. It may also be difficult for you to enforce in U.S. courts judgments obtained in U.S. courts based on the civil liability provisions of the U.S. federal securities

 

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laws against us and our officers and directors, most of whom are not residents in the United States and the substantial majority of whose assets are located outside of the United States. It may be difficult or impossible for you to bring an action against us in the Cayman Islands if you believe your rights under the U.S. securities laws have been infringed. In addition, there is uncertainty as to whether the courts of the Cayman Islands or the PRC would recognize or enforce judgments of U.S. courts against us or such persons predicated upon the civil liability provisions of the securities laws of the United States or any state and it is uncertain whether such Cayman Islands or PRC courts would hear original actions brought in the Cayman Islands or the PRC against us or such persons predicated upon the securities laws of the United States or any state. See “Enforceability of Civil Liabilities.”

We will incur increased costs as a result of being a public company, particularly after we cease to qualify as an emerging growth company.

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. As a company with less than US$1.0 billion in revenues for our last fiscal year, we qualify as an “emerging growth company” pursuant to the JOBS Act. An emerging growth company may take advantage of specified reduced reporting and other requirements that are otherwise applicable generally to public companies. These provisions include exemption from the auditor attestation requirement under Section 404 of the Sarbanes-Oxley Act of 2002 in the assessment of the emerging growth company’s 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 expect these rules and regulations to increase our legal and financial compliance costs and to make some corporate activities more time-consuming and costly. After we are no longer an emerging growth company, we expect to incur significant expenses and devote substantial management effort toward ensuring compliance with the requirements of Section 404 of the Sarbanes-Oxley Act of 2002 and the other rules and regulations of the SEC. For example, as a result of becoming a public company, we will need to increase the number of independent directors and adopt policies regarding internal controls and disclosure controls and procedures. We also expect that operating as a public company will make it more difficult and more expensive for us to obtain director and officer liability insurance, and we may be required to accept reduced policy limits and coverage or incur substantially higher costs to obtain the same or similar coverage. In addition, we will incur additional costs associated with our public company reporting requirements. It may also be more difficult for us to find qualified persons to serve on our board of directors or as executive officers. We are currently evaluating and monitoring developments with respect to these rules and regulations, and we cannot predict or estimate with any degree of certainty the amount of additional costs we may incur or the timing of such costs.

In the past, shareholders of a public company often brought securities class action suits against the company following periods of instability in the market price of that company’s securities. If we were involved in a class action suit, it could divert a significant amount of our management’s attention and other resources from our business and operations, which could harm our results of operations and require us to incur significant expenses to defend the suit. Any such class action suit, whether or not successful, could harm our reputation and restrict our ability to raise capital in the future. In addition, if a claim is successfully made against us, we may be required to pay significant damages, which could have a material adverse effect on our financial condition and results of operations.

 

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SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS AND INDUSTRY DATA

This prospectus contains forward-looking statements that reflect our current expectations and views of future events. The forward-looking statements are contained principally in the sections entitled “Prospectus Summary,” “Risk Factors,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “Business.” All statements other than statements of historical facts are forward-looking statements. Known and unknown risks, uncertainties and other factors, including those listed under “Risk Factors,” may cause our actual results, performance or achievements to be materially different from those expressed or implied by the forward-looking statements.

You can identify some of these forward-looking statements by words or phrases such as “may,” “will,” “expect,” “anticipate,” “aim,” “estimate,” “intend,” “plan,” “believe,” “is/are likely to,” “potential,” “continue” or other similar expressions. We have based these forward-looking statements largely on our current expectations and projections about future events that we believe may affect our financial condition, results of operations, business strategy and financial needs. These forward-looking statements include, but are not limited to, statements relating to:

 

   

our goals and strategies;

 

   

our future business development, results of operations and financial condition;

 

   

the expected growth of the recruitment and career-related services industry in China;

 

   

the expected growth in internet and mobile penetration in China;

 

   

our expectations regarding demand for and market acceptance of our services;

 

   

our expectations regarding the retention and strengthening of our relationships with key customers;

 

   

our plans to enhance the user experience, infrastructure and service offerings;

 

   

competition in our industry in China; and

 

   

relevant government policies and regulations relating to our industry.

These forward-looking statements involve various risks and uncertainties. Although we believe that our expectations expressed in these forward-looking statements are reasonable, our expectations may later be found to be incorrect. Our actual results could be materially different from our expectations. Important risks and factors that could cause our actual results to be materially different from our expectations are generally set forth in “Prospectus Summary—Our Challenges,” “Risk Factors,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” “Business,” “Regulation” and other sections in this prospectus. Moreover, we operate in a continuously evolving environment. Additional risks and uncertainties that we have not considered or currently deem to be immaterial may adversely affect us. We cannot assess the impact of all risks on our business or the extent to which any factor or combination of factors may cause actual results to differ materially from those contained in any forward-looking statements. You should thoroughly read this prospectus and the documents that we refer to with the understanding that our actual future results may be materially different from and worse than what we expect. We qualify all of our forward-looking statements by these cautionary statements.

This prospectus contains certain data and information that we obtained from various government and private publications. Statistical data in these publications also include projections based on a number of assumptions. The recruitment and human resources services industry in China may not grow at the rate projected by market data, or at all. The failure of our industry to grow at the projected rate may have a material adverse effect on our business and the market price of our ADSs. In addition, the complex and changing nature of the broad macroeconomic factors discussed in this prospectus may result in significant uncertainties for any projections or estimates relating to the growth prospects or future condition of our market. Furthermore, if any one or more of

 

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the assumptions underlying the market data is later found to be incorrect, actual results may differ from the projections based on these assumptions. You should not place undue reliance on these forward-looking statements. In addition, these industry publications and reports generally indicate that the information contained therein was obtained from sources believed to be reliable, but do not guarantee the accuracy and completeness of such information. Although we believe that the publications and reports are reliable, we have not independently verified the data.

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 or revise publicly any forward-looking statements, whether as a result of new information, future events or otherwise, after the date on which the statements are made or to reflect the occurrence of unanticipated events. You should read this prospectus and the documents that we refer to in this prospectus and have filed as exhibits to the registration statement, of which this prospectus forms a part, completely and with the understanding that our actual future results may be materially different from what we expect.

 

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USE OF PROCEEDS

We estimate that we will receive net proceeds from this offering of approximately US$             million, or approximately US$             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. These estimates are based upon an assumed initial offering price of US$             per ADS (the mid-point of the range shown on the front cover page of this prospectus). A US$1.00 increase (decrease) in the assumed initial public offering price of US$             per ADS would increase (decrease) the net proceeds to us from this offering by US$             million, assuming the number of ADSs offered by us, as set forth on the cover page of this prospectus, remains the same and after deducting the estimated underwriting discounts and commissions and estimated expenses payable by us.

The primary purposes of this offering are to create a public market for our shares for the benefit of all shareholders, retain talented employees by providing them with equity incentives in a listed company and obtain additional capital. We plan to use the net proceeds from this offering for our geographic expansion, product development, upgrade of our information technology system and website, and working capital and general corporate purposes, including strategic investments and potential acquisition opportunities. We may also use the net proceeds from this offering to repay part or all of our existing bank loans incurred for the repurchase of Series E preferred shares from Macquarie Zhaopin Holdings Limited with an aggregate outstanding principal amount of US$53 million and RMB24.9 million (US$4.1 million) as of the date of this prospectus, although we have not determined the exact amount of the proceeds that will be used for loan repayment. The interest rates of these loans range from approximately 1.48% per annum to 2.95% above three-month LIBOR per annum and the maturity dates of these facilities range from August 7, 2014 to March 11, 2016. For more information on our existing indebtedness, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Contractual Obligations.”

The foregoing represents our current intentions based upon our present plans and business conditions to use and allocate the net proceeds of this offering. However, we will have significant flexibility and discretion to apply the net proceeds of this offering. If an unforeseen event occurs or business conditions change, we may use the proceeds of this offering differently than as described in this prospectus. To the extent that a certain portion or all of the net proceeds we receive from this offering are not immediately applied for the above purposes, we plan to invest the net proceeds in short-term interest-bearing debt instruments or bank deposits.

In using the proceeds of this offering, as an offshore holding company, we are permitted under the PRC laws and regulations to provide funding to our PRC subsidiaries only through loans or capital contributions and to our PRC affiliated entities only through loans, subject to satisfaction of applicable government registration and approval requirements. There are no costs associated with registering loans or capital contributions with relevant PRC authorities, other than nominal processing charges. Under PRC laws and regulations, the PRC governmental authorities are required to grant approvals and complete registrations or deny our application within 90 days for capital contributions, although the actual time taken may be longer due to administrative delay. PRC laws and regulations do not provide an explicit timeline for approvals or registrations of loans to PRC subsidiaries or affiliated entities. We cannot assure you that we will be able to obtain these government registrations or approvals on a timely basis, if at all. We are prohibited from converting registered capital in foreign exchange into Renminbi for the purpose of domestic equity investment, granting certain entrusted loans, repayment of inter-company loans, and repayment of bank loans which have been transferred to a third party. Our ability to transfer capital to our consolidated affiliated entities through our PRC subsidiaries, including our joint venture, may be significantly restricted, which may adversely affect the ability of our consolidated affiliated entities to expand their business operations. See “Risk Factors—Risks Related to Doing Business in China—PRC regulation of loans and direct investment by offshore holding companies to PRC entities may limit the use of the proceeds we receive from this offering for our expansion or operations.”

 

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Our PRC subsidiaries can utilize the proceeds of this offering through shareholder loans or capital contributions after obtaining approval from, and completing registration with, the applicable PRC governmental authorities for approved purposes specified in the business licenses of our PRC subsidiaries. Therefore, our PRC subsidiaries can utilize the proceeds of this offering to conduct product development, upgrade information technology system and provide services to our PRC affiliated entities, and our joint venture can utilize the proceeds of this offering to carry out geographic expansion by establishing new branch offices, which are permitted under their respective business licenses. However, our PRC subsidiaries’ licenses do not specifically authorize equity investments. As a result, none of our PRC subsidiaries is allowed to use such funds to make any equity investment in the PRC by means of establishing new subsidiaries or acquiring an equity interest in other entities in China. This limitation could adversely affect the ability of our PRC subsidiaries to expand their business operations and may impact our planned use of proceeds. For example, we may not be able to use our proceeds for strategic investment or acquisition in China through our PRC subsidiaries. See “Risk Factors—Risks Related to Doing Business in China—Our PRC subsidiaries’ business licenses do not specifically authorize equity investments and, as a result, we are prohibited from using Renminbi converted from foreign currency denominated capital to establish new subsidiaries, increase the registered capital of our current subsidiaries or to invest in other companies in China.”

 

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DIVIDEND POLICY

We declared dividends of US$24 million to our shareholders on March 7, 2014, approximately US$23.9 million of which was paid on April 14, 2014 with the remainder in process of payment as of the date of this prospectus. We do not have any present plan to pay any cash dividends on our ordinary shares in the foreseeable future. We currently intend to retain most, if not all, of our available funds and any future earnings to operate and expand our business.

Our board of directors has complete discretion over whether to declare dividends, subject to applicable law. Even if our board of directors decides to declare dividends, their form, frequency and amount will depend upon our future operations and earnings, capital requirements and surplus, general financial condition, contractual and statutory restrictions and other factors that the board of directors may deem relevant.

Holders of our ADSs will be entitled to receive dividends, if any, subject to the terms of the deposit agreement, to the same extent as the holders of our ordinary shares. Cash dividends will be paid to the depositary of our ADSs in U.S. dollars, which will distribute them to the holders of ADSs according to the terms of the deposit agreement. Other distributions, if any, will be paid by the depositary to the holders of ADSs in any means it deems legal, fair and practical. See “Description of American Depositary Shares.”

We are a holding company incorporated in the Cayman Islands. We may rely on dividends from our subsidiaries and consolidated affiliated entities in China for our cash needs. To pay dividends to us, our subsidiaries in China need to comply with the current PRC regulations. See “Risk Factors—Risks Related to Our Corporate Structure—We may rely on dividends paid by our subsidiaries for our cash needs, and any limitation on the ability of our subsidiaries to make payments to us could limit our ability to pay dividends to holders of our ADSs and ordinary shares.”

 

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CAPITALIZATION

The following table sets forth our capitalization as of December 31, 2013:

 

   

on an actual basis;

 

   

on a pro forma basis to reflect the automatic conversion of all of our outstanding preferred shares into an aggregate of             ordinary shares and acceleration of a long-term bank loan maturity immediately upon completion of this offering; and

 

   

on a pro forma as adjusted basis to reflect (1) the automatic conversion of all of our outstanding preferred shares into an aggregate of             ordinary shares immediately upon completion of this offering and (2) the sale of                     ordinary shares in the form of ADSs by us in this offering at an assumed initial public offering price of US$             per share, the midpoint of the estimated range of our initial public offering price, after deducting the underwriting discounts and commissions and the estimated offering expenses payable by us.

You should read this table together with our consolidated financial statements and the related notes included elsewhere in this prospectus and the information under “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”

 

    As of December 31, 2013
    Actual     Pro forma     Pro forma as
adjusted
    RMB     US$     RMB     US$     RMB   US$
    (in thousands)

Mezzanine equity

           

Series B convertible preferred shares (US$0.01 par value; 4,013,203 shares authorized, 257,166 shares issued and outstanding as of December 31, 2013; aggregated liquidation value of US$126 as of December 31, 2013, and none outstanding on a pro forma basis as of December 31, 2013 (unaudited))

    1,045        173        —          —         

Series C convertible preferred shares (US$0.01 par value; 15,722,878 shares authorized, 81,330 shares issued and outstanding as of December 31, 2013; aggregated liquidation value of US$42 and as of December 31, 2013, and none outstanding on a pro forma basis as of December 31, 2013 (unaudited))

    344        57        —          —         

Total mezzanine equity

    1,389        230        —          —         
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Shareholders’ (deficit)/equity

           

Ordinary shares (US$0.01 par value; 159,051,299 shares authorized; 84,926,542 shares issued and outstanding as of December 31, 2013; 85,265,038 shares outstanding on a pro forma basis as of December 31, 2013 (unaudited))

    5,879        971        5,899        975       

Additional paid-in capital(1)

    840,060        138,768        841,429        138,994       

Statutory reserves

    9,781        1,616        9,781        1,616       

Accumulated other comprehensive loss

    (414     (68     (414     (68    

Accumulated deficits

    (685,214     (113,189     (685,214     (113,189    

Total shareholders’ (deficit)/equity

    170,092        28,098        171,481        28,328       
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total capitalization

    171,481        28,328        171,481        28,328       
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

(1) 

A US$1.00 increase (decrease) in the assumed initial public offering price of US$             would increase (decrease) each of additional paid-in capital, total shareholders equity and total capitalization by US$            .

 

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DILUTION

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 conversion of our preferred shares and the fact that the initial public offering price per ADS is substantially in excess of the book value per ordinary share attributable to the existing shareholders for our presently outstanding ordinary shares.

Our net tangible book value as of December 31, 2013 was approximately US$             million, or US$             per ordinary share and US$             per ADS as of that date. Net tangible book value represents the amount of our total consolidated assets less the amount of our intangible assets, the amount of our total consolidated liabilities and preferred shares. Dilution is determined by subtracting net tangible book value per ordinary share, after giving effect to the conversion of all outstanding preferred shares into ordinary shares upon the completion of this offering and the additional proceeds we will receive from this offering, from the assumed initial public offering price per ADS, which is the midpoint of the estimated initial public offering price range set forth on the cover page of this prospectus adjusted to reflect the ADS-to-ordinary share ratio, and after deducting underwriting discounts and commissions and estimated offering expenses payable by us.

Without taking into account any other changes in net tangible book value after December 31, 2013, other than to give effect to the conversion of all outstanding preferred shares into ordinary shares upon the completion of this offering and our sale of the ADSs offered in this offering at the initial public offering price US$             per ADS after deduction of the underwriting discounts and commissions and estimated offering expenses payable by us, our pro forma net tangible book value as of December 31, 2013 would have been US$             million, or US$             per outstanding ordinary share and US$             per ADS. This represents an immediate increase in net tangible book value of US$             per ordinary share and US$             per ADS to the existing shareholders and an immediate dilution in net tangible book value of US$             per ordinary share and US$             per ADS to investors purchasing ADSs in this offering. The following table illustrates such dilution:

 

     Per Ordinary
Share
     Per ADS  

Assumed initial public offering price

   US$                    US$                

Net tangible book value per share as of                     

   US$                    US$                

Increase in the net tangible book value per share giving the effect to the conversion of our preferred shares

   US$                    US$                

Pro forma net tangible book value per share after giving effect to the conversion of our preferred shares

   US$                    US$                

Increase in the pro forma net tangible book value per share attributable to the price paid by new investors

   US$                    US$                

Pro forma net tangible book value per share after giving effect to the conversion of our preferred shares and this offering

   US$                    US$                

Dilution in net tangible book value per share to new investors in the offering

   US$                    US$                

 

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The following table summarizes, on a pro forma basis as of December 31, 2013, the differences between existing shareholders, including holders of our preferred shares that will be automatically converted into ordinary shares immediately prior to the completion of this offering, 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/ADS paid before deducting the underwriting discounts and commissions and estimated offering expenses. The total number of ordinary shares does not include ordinary shares underlying the ADSs issuable upon the exercise of the over-allotment option granted to the underwriters.

 

    Ordinary Shares
Purchased
    Total Consideration     Average Price
per Ordinary
Share
  Average
Price per
ADS
    Number   Percent     Amount     Percent          
    (US$ in thousands, except number of shares and percentages)

Existing shareholders

      %      US$                     %       

New investors

      %      US$                     %       
 

 

 

 

 

   

 

 

   

 

 

     

Total

      100.0   US$                     100.0    
 

 

 

 

 

   

 

 

   

 

 

     

A US$1.00 change in the assumed public offering price of US$             per ADS would, in the case of an increase, increase and, in the case of a decrease, decrease total consideration paid by new investors, total consideration paid by all shareholders, average price per ordinary share and average price per ADS paid by all shareholders by US$            , US$            , US$             and US$            , respectively, assuming the sale of                     ADSs at US$            , the midpoint of the range set forth on the 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 our ADSs and other terms of this offering determined at pricing.

The dilution to new investors will be US$             per ordinary share and US$             per ADS, if the underwriters exercise in full their option to purchase additional ADSs.

The discussion and tables above also assume no exercise of any outstanding stock options. As of the date of this prospectus, there were             ordinary shares issuable upon exercise of outstanding stock options at a weighted average exercise price of US$             per share, and there were             Class A ordinary shares available for future issuance upon the exercise of future grants under our stock option plans. To the extent that any of these options are exercised, there will be further dilution to new investors.

 

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EXCHANGE RATE INFORMATION

Our reporting currency is the Renminbi because our business is primarily conducted in China and substantially all of our revenues are denominated in Renminbi. This prospectus contains translations of Renminbi amounts into U.S. dollars at specific rates solely for the convenience of the reader. The conversion of Renminbi into U.S. dollars in this prospectus is based on the rate certified for customs purposes by the Federal Reserve Bank of New York. Unless otherwise noted, all translations from Renminbi to U.S. dollars and from U.S. dollars to Renminbi in this prospectus were made at a rate of RMB6.0537 to US$1.00, the rate in effect as of December 31, 2013. We make no representation that any RMB or U.S. dollar amounts could have been, or could be, converted into U.S. dollars or RMB, as the case may be, at any particular rate, the rates stated herein, or at all. The PRC government imposes control over its foreign currency reserves in part through direct regulation of the conversion of RMB into foreign currencies and through restrictions on international trade. On April 25, 2014, the certified exchange rate was RMB6.2534 to US$1.00.

The following table sets forth information concerning exchange rates between RMB and the U.S. dollar for the periods indicated. These rates are provided solely for your convenience and are not necessarily the exchange rates that we used in this prospectus or will use in the preparation of our periodic reports or any other information to be provided to you.

 

     Exchange Rate  

Period

   Period End      Average(1)      Low      High  
     (RMB per US$1.00)  

2009

     6.8259         6.8295         6.8470         6.8176   

2010

     6.6000         6.7603         6.8330         6.6000   

2011

     6.2939         6.4475         6.6364         6.2939   

2012

     6.2301         6.2990         6.3879         6.2221   

2013

     6.0537         6.1412         6.2438         6.0537   

2013

           

July

     6.1284         6.1343         6.1408         6.1284   

August

     6.1193         6.1213         6.1302         6.1123   

September

     6.1200         6.1198         6.1213         6.1178   

October

     6.0943         6.1032         6.1209         6.0815   

November

     6.0922         6.0929         6.0993         6.0903   

December

     6.0537         6.0738         6.0927         6.0537   

2014

           

January

     6.0590         6.0509        
6.0600
  
     6.0402   

February

     6.1448         6.0816         6.1448         6.0591   

March

     6.2164         6.1729         6.2273         6.1183   

April (through April 25, 2014)

     6.2534         6.2196         6.2534         6.1966   

 

Source: Federal Reserve Statistical Release

 

(1) 

Annual averages were calculated by using the average of the exchange rates on the last day of each month during the relevant year. Monthly averages are calculated by using the average of the daily rates during the relevant month.

 

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ENFORCEABILITY OF CIVIL LIABILITIES

We were incorporated in the Cayman Islands in order to enjoy certain benefits, such as political and economic stability, an effective judicial system, a favorable tax system, the absence of exchange control or currency restrictions and the availability of professional and support services. However, certain disadvantages accompany incorporation in the Cayman Islands. These disadvantages include a less developed body of Cayman Islands securities laws that provide significantly less protection to investors as compared to the laws of the United States, and the potential lack of standing by Cayman Islands companies to sue before the federal courts of the United States.

Our organizational documents do not contain provisions requiring that disputes, including those arising under the securities laws of the United States, between us, our officers, directors and shareholders, be arbitrated.

Substantially all of our operations are conducted in China, and substantially all of our assets are located in China. A majority of our officers are nationals or residents of jurisdictions other than the United States and a substantial portion of their assets are located outside the United States. As a result, it may be difficult for a shareholder to effect service of process within the United States upon 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.

We have appointed Law Debenture Corporate Services Inc., located at 400 Madison Avenue, 4th Floor, New York, New York 10017, as our agent upon whom process may be served in any action brought against us under the securities laws of the United States.

Commerce & Finance Law Offices, our PRC legal counsel, has advised us that there is uncertainty as to whether the courts of China would:

 

   

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; or

 

   

entertain original actions brought in each respective jurisdiction against us or our directors or officers predicated upon the securities laws of the United States or any state in the United States.

Our PRC legal counsel, Commerce & Finance Law Offices has further advised us that the recognition and enforcement of foreign judgments are provided for under the PRC Civil Procedures Law. PRC courts may recognize and enforce foreign judgments in accordance with the requirements of the PRC Civil Procedures Law based either on treaties between China and the country where the judgment is made or on principles of reciprocity between jurisdictions. China does not have any treaties or other form of reciprocity with the United States that provide for the reciprocal recognition and enforcement of foreign judgments. In addition, according to the PRC Civil Procedures Law, courts in the PRC will not enforce a foreign judgment against us or our directors and officers if they decide that the judgment violates the basic principles of PRC law or national sovereignty, security or public interest. As a result, it is uncertain whether and on what basis a PRC court would enforce a judgment rendered by a court in the United States.

Maples and Calder, our counsel as to Cayman Islands law, has advised that there is no statutory recognition in the Cayman Islands of judgments obtained in the United States, although the courts of the Cayman Islands will in the circumstances described below, recognize and enforce a non-penal judgment of a foreign court of competent jurisdiction without retrial on the merits. While there is no binding authority on this point, this is likely to include, in certain circumstances, a non-penal judgment of a United States court imposing a monetary award based on the civil liability provisions of the U.S. federal securities laws.

Maples and Calder has further advised that a judgment obtained in the United States will be recognized and enforced in the courts of the Cayman Islands at common law, without any re-examination of the merits of the

 

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underlying dispute, by an action commenced on the foreign judgment debt in the Grand Court of the Cayman Islands, provided such judgment (i) is given by a foreign court of competent jurisdiction; (ii) imposes on the judgment debtor a liability to pay a liquidated sum for which the judgment has been given; (iii) is final; (iv) is not in respect of taxes, a fine or a penalty; and (v) was not obtained in a manner and is not of a kind the enforcement of which is contrary to natural justice or the public policy of the Cayman Islands. The Grand Court of the Cayman Islands may stay proceedings if concurrent proceedings are being brought elsewhere. Neither the United States nor the PRC has a treaty with the Cayman Islands providing for reciprocal recognition and enforcement of judgments of courts of the United States or the PRC respectively in civil and commercial matters.

 

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OUR CORPORATE HISTORY AND STRUCTURE

We started our operations in 1994 as an executive search firm. Our holding company, Zhaopin.com Limited, was incorporated in the Cayman Islands in 1999 and subsequently changed its name to Zhaopin Limited.

We are a holding company incorporated in the Cayman Islands and we operate our business in China through our wholly-owned subsidiaries, consolidated affiliated entities and our joint venture. Our recruitment services involve different aspects of the PRC laws, including human resources, internet information provision, and advertising. PRC laws and regulations currently limit foreign ownership of companies that provide value-added telecommunications services, advertising services and human resources related services. To comply with these restrictions while maintaining our equity ownership to the extent practical, we conduct our business in China through: (i) our wholly-owned PRC subsidiaries; (ii) our consolidated affiliated entities; and (iii) our joint venture, Beijing Wangpin, of which we hold a 90% equity interest and one of our consolidated affiliated entities holds the remaining 10% of the equity interest. For the fiscal years ended June 30, 2012 and 2013, we derived 11.7% and 10.6% of our total revenues from our wholly-owned subsidiaries, 18.8% and 11.2% from our consolidated affiliated entities through contractual arrangements, and 69.5% and 78.2% of our total revenues from our joint venture, respectively. As of the date of this prospectus, we conduct the majority of our human resources business through the branch offices of our joint venture, instead of relying on contractual arrangements with our consolidated affiliated entities.

The following diagram illustrates our corporate structure, including our principal subsidiaries, consolidated affiliated entities and our joint venture as of the date of this prospectus:

 

LOGO

 

The diagram above does not include our four inactive subsidiaries and our 13 inactive variable interest entities.

* Wholly foreign owned enterprise.
** Variable interest entity. Zhilian Sanke is our website operator and holds an internet content provider license necessary to conduct our internet related operations in China.

 

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*** Beijing Wangpin holds the human resources service license necessary to conduct our human resources related business in China. Beijing Wangpin is our joint venture company.
Consists of Business Operations Agreements, Equity Interest Pledge Agreements, Power of Attorney, Exclusive Technical and Consulting Services Agreements, Exclusive Equity Option Agreements and Loan Agreements. For details on the contractual arrangements, see “Contractual Arrangements with Our Consolidated Affiliated Entities.”

 

(1) 

Mr. Yuanwei Xie and Mr. Xin Wang are both nominee shareholders of our consolidated affiliated entities and employees of SEEK Limited, which is the parent company of SEEK International Investments Pty Ltd., our largest shareholder as of the date of this prospectus.

(2) 

Mr. Hao Liu is a director of our company.

Our Wholly-Owned Subsidiaries

We have two principal wholly-owned subsidiaries in China, Zhilian Wangpin (Beijing) Technology Co., Ltd. and Zhilian Yipin (Beijing) Technology Co., Ltd. To the extent permissible under the PRC law, we provide services through our wholly-owned subsidiaries and our joint venture. The business scope set forth in the business license of Zhilian Wangpin includes research and development of internet technology and computer software; technology consulting, technical services and technology transfer, computer technology training; and sale of self-manufactured products. The business scope set forth in the license of Zhilian Yipin includes research and development of internet technology, computer software; production of computer software; technology consulting, technical services, technology transfer; computer technology training and sale of self-manufactured products.

Our Joint Venture

We conduct our human resources related operations in China primarily through our joint venture, Beijing Wangpin. Beijing Wangpin is a Sino-foreign equity joint venture that is 90% owned by Zhaopin Limited and 10% owned by Zhilian Sanke. In accordance with the joint venture agreement between Zhaopin Limited and Zhilian Sanke, Zhaopin Limited and Zhilian Sanke have each contributed 90% and 10% respectively toward Beijing Wangpin’s total registered capital of US$300,000. No further contributions are required under the joint venture agreement or applicable law. Under the joint venture agreement, Zhaopin Limited and Zhilian Sanke share Beijing Wangpin’s profits and losses in proportion to their respective equity interest in Beijing Wangpin. Through contractual arrangements with Zhilian Sanke and its shareholders, we exercise effective control over, and receive substantially all the economic benefits from, Zhilian Sanke and therefore consolidate Zhilian Sanke’s results of operations, financial position and cash flows. As we directly own 90% of the equity interest of Beijing Wangpin and indirectly control the remaining 10% through Zhilian Sanke, we account for Beijing Wangpin as a consolidated subsidiary in our consolidated financial statements. For details on the contractual arrangements, see “—Contractual Arrangements with Our Consolidated Affiliated Entities.” Beijing Wangpin holds a human resources service license. To the extent permissible under applicable rules and regulations, we intend to conduct our human resources business through the branch offices of Beijing Wangpin instead of relying on contractual arrangements with our consolidated affiliated entities.

The joint venture agreement also provides that Zhaopin Limited may designate three of the five members on Beijing Wangpin’s board of directors, including the chairman of the board, who will also serve as Beijing Wangpin’s legal representative. Zhilian Sanke may designate two members to the board and all matters approved by the board must be approved by at least one director designated by Zhilian Sanke. As we control Zhilian Sanke through contractual arrangements, we therefore have the right to control the joint venture. Both under the joint venture agreement and in practice, Beijing Wangpin’s general manager, who is responsible for the day-to-day management of Beijing Wangpin’s operations, is appointed by unanimous board approval and may be removed at any time for cause by a board resolution and therefore can only be appointed or removed with the approval of at least one director designated by Zhilian Sanke. Beijing Wangpin’s chop is held by our chief executive officer. Pursuant to the joint venture agreement and applicable PRC laws, Zhaopin Limited and Zhilian Sanke each has a right of first refusal when the other party intends to transfer all or part of its equity interest in Beijing Wangpin,

 

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and the transfer price for a transfer to any third party may not be lower than the transfer price for a transfer offered to the other joint venture party. The party intending to transfer its equity interest needs to also obtain prior approval from the other party and the relevant governmental authorities. The joint venture agreement further provides that any dispute arising under the joint venture agreement will be resolved by final and binding arbitration at the China International Economic and Trade Arbitration Commission. As of the date of this prospectus, we have not had any disputes related to our joint venture.

Under the currently effective PRC laws and regulations, foreign ownership in entities that provide human resources related services may not exceed 49%, unless the foreign shareholder is incorporated in Hong Kong or Macau, in which case no restriction is imposed. In addition, foreign investors in human resource service providers are required to have more than three years of experience in human resources business outside of China. Because Zhaopin Limited is incorporated under the laws of the Cayman Islands, our ownership in entities that provide human resources related services would have been subject to the 49% ownership and three-year experience restrictions except for the reasons described below. Such restrictions were not adopted until 2003 when the PRC government promulgated the Interim Regulations on the Administration of China-foreign Equity Joint Venture as Human Resource Agencies. We have been advised by Commerce & Finance Law Offices, our PRC legal counsel, that we may continue to operate our human resources related services through Beijing Wangpin under the current equity structure because our joint venture was set up in 2000 when there was no percentage limitation for setting up a joint venture conducting human resources business and received its human resources service license prior to 2003. The current human resources service license is valid for three years and will not expire until March 31, 2016 and may be subsequently renewed with the relevant authorities.

Our Consolidated Affiliated Entities

We currently conduct internet related operations through our consolidated affiliated entities in China. Our principal consolidated affiliated entity is Zhilian Sanke, which is our website operator and holds the ICP license necessary to conduct our internet related operations in China.

Our wholly-owned PRC subsidiary, Zhilian Wangpin, has entered into a series of contractual arrangements with our consolidated affiliated entities and their respective shareholders, which enable us to:

 

   

exercise effective control over the business management and shareholders’ voting rights of our consolidated affiliated entities;

 

   

receive substantially all of the economic benefits of our consolidated affiliated entities through service fees in consideration for the technical and consulting services provided by Zhilian Wangpin; and

 

   

have an exclusive option to purchase all of the equity interests in each of our consolidated affiliated entities to the extent permitted under PRC laws, regulations and legal procedures.

We do not have any equity interest in our consolidated affiliated entities except for in Harbin Zhilian Wangcai Advertising Co., Ltd. However, as a result of contractual arrangements, we retain control over and are considered the primary beneficiary of each of our consolidated affiliated entities, and we have consolidated the financial results of these companies in our consolidated financial statements in accordance with generally accepted accounting principles of the United States, or U.S. GAAP. If our consolidated affiliated entities and their shareholders fail to perform their respective obligations under the contractual arrangements, we could be limited in our ability to enforce the contractual arrangements that give us effective control over our consolidated affiliated entities and consequently, we may be unable to conduct our internet related operations because the ICP License and domain name are held by Zhilian Sanke and we may potentially lose control over Beijing Wangpin, our joint venture. Further, if we are unable to maintain effective control, we would not be able to continue to consolidate the financial results of our consolidated affiliated entities in our financial statements. For the fiscal years ended June 30, 2012 and 2013 and the six months ended December 31, 2013, we respectively derived 18.8%, 11.2% and 5.7% of our total revenues from our consolidated affiliated entities through contractual arrangements. Although we are able to consolidate the financial results of our consolidated affiliated entities, this does not mean that we are able to have unfettered access to the revenues and profits of our wholly-owned

 

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subsidiaries and consolidated affiliated entities due to the significant PRC legal restrictions on the payment of dividends by PRC companies, foreign exchange control restrictions and the restrictions on foreign investment, among other things. In the fiscal year ended June 30, 2012, we received service fees of RMB2.5 million from our consolidated affiliated entities. The service fees that we received from our consolidated affiliated entities in the fiscal year ended June 30, 2013 and the six months ended December 31, 2013 were insignificant. For a detailed description of the regulatory environment that necessitates the adoption of our corporate structure, see “Regulation.” For a detailed description of the risks associated with our corporate structure, see “Risk Factors—Risks Related to Our Corporate Structure.”

Contractual Arrangements with Our Consolidated Affiliated Entities

The following is a summary of the material provisions of the agreements among our wholly owned PRC subsidiary, Zhilian Wangpin, our consolidated affiliated entities and the respective shareholders of our consolidated affiliated entities. For more complete information you should read these agreements in their entirety. Directions on how to obtain copies of these agreements are provided in this prospectus under “Where You Can Find Additional Information.”

Agreements that Provide Us Effective Control over Our Consolidated Affiliated Entities

Business Operations Agreements. Pursuant to the business operations agreement among Zhilian Wangpin, Zhilian Sanke and its shareholders, Zhilian Sanke and its shareholders must appoint the persons designated by Zhilian Wangpin to be its directors, and Zhilian Sanke must appoint the persons designated by Zhilian Wangpin to be its general manager, chief financial officer and any other senior officers. Zhilian Sanke and its shareholders agree to accept the proposals provided by Zhilian Wangpin, at any time, relating to employment, daily business and financial management of Zhilian Sanke. Without Zhilian Wangpin’s prior written consent, Zhilian Sanke shall not conduct any transaction which may materially affect its assets, obligations, rights or operations, including, but not limited to, incurrence or assumption of any indebtedness, sale or purchase of any assets or rights, incurrence of any encumbrance on any of its assets or intellectual property rights in favor of a third party, or transfer of any rights or obligations under this agreement to a third party. The term of this agreement is ten years and will be extended if Zhilian Wangpin provides a written notice requesting extension prior to the expiration date. Zhilian Wangpin may terminate the agreement at any time by providing advance written notice to Zhilian Sanke. Neither Zhilian Sanke nor any of its shareholders may terminate this agreement prior to the expiration date.

The business operations agreements among Zhilian Wangpin, other consolidated affiliated entities and their respective shareholders contain terms substantially similar to the business operations agreement described above.

Equity Interest Pledge Agreements. Pursuant to the equity interest pledge agreement among Zhilian Wangpin, Zhilian Sanke and its shareholders, the shareholders of Zhilian Sanke pledge all of their equity interest in Zhilian Sanke to Zhilian Wangpin to guarantee Zhilian Sanke and its shareholders’ performance of their obligations under, where applicable, the loan agreement, the exclusive technology consulting and service agreement, the business operations agreement and the exclusive equity option agreement. If Zhilian Sanke and/or any of its shareholders breach their contractual obligations under these agreements, Zhilian Wangpin, as pledgee, will be entitled to certain rights, including the right to sell the pledged equity interests. Without Zhilian Wangpin’s prior written consent, shareholders of Zhilian Sanke shall not transfer or assign the pledged equity interests, or create or allow any encumbrance that would prejudice Zhilian Wangpin’s interests. The equity interest pledge will expire two years after the date on which Zhilian Sanke and its shareholders have fully performed their obligations under the exclusive technology consulting and service agreement, the loan agreement, the exclusive equity option agreement and the business operations agreement.

The equity interest pledge agreements among Zhilian Wangpin, other consolidated affiliated entities and their respective shareholders contain terms substantially similar to the equity interest pledge agreement described above.

 

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We have not yet registered the pledge of the equity interests in Zhilian Sanke and Shenyang Zhilian Wangpin Advertising Co., Ltd. with relevant local branches of SAIC. With respect to Zhilian Sanke, since we recently replaced its nominee shareholders, we will seek to register the equity pledges by its new nominee shareholders after the completion of the registration of the new shareholding structure with the SAIC. With respect to Shenyang Zhilian Wangpin Advertising Co., Ltd., the delay in registration of the equity pledges is because we need to spend more time to explain the business arrangements underlying the documents and to justify the needs for such registration with the relevant local authority in Shenyang City, Liaoning Province. In addition, the local authority requires that the nominee shareholders of Shenyang Zhilian be physically present at the local administration of industry and commerce to register the equity pledges. We are working with the local authority to resolve such issues. See “Risk Factors—Risks Related to Our Corporate Structure—Perfection of the pledges in our equity pledge agreements with our consolidated affiliated entities and their shareholders may be adversely affected if these equity pledges are not properly recorded. Two of our consolidated affiliated entities have not registered their equity pledges.”

Power of Attorney. Pursuant to the power of attorney contracts, each shareholder of Zhilian Sanke irrevocably appointed the person designated by Zhilian Wangpin as his/her attorney-in-fact to vote on his/her behalf on all matters of Zhilian Sanke requiring shareholder approval under PRC laws and regulations and Zhilian Sanke’s articles of association. The appointment of the person designated by Zhilian Wangpin as the attorney-in-fact is conditional upon such person’s employment with Zhilian Wangpin or its affiliates. Each power of attorney will remain in force for ten years and may be extended at the request of Zhilian Wangpin unless terminated earlier upon the occurrence of any of the following: (i) the person designated by Zhilian Wangpin terminates his or her employment with Zhilian Wangpin or its affiliates; (ii) Zhilian Wangpin issues a written notice to dismiss or replace the person designated by Zhilian Wangpin with another person; or (iii) the business operations agreement among Zhilian Wangpin, Zhilian Sanke and its shareholders terminates or expires.

Each of the shareholders of other consolidated affiliated entities have also executed an irrevocable power of attorney appointing the person designated by Zhilian Wangpin as their attorney-in-fact to vote on their behalf on all matters of the consolidated affiliated entities requiring shareholder approval, with terms substantially similar to the power of attorney executed by the shareholders of Zhilian Sanke described above.

Agreements that Transfer Economic Benefits to Us

Exclusive Technical and Consulting Services Agreements. Pursuant to the exclusive technical and consulting services agreement between Zhilian Wangpin and Zhilian Sanke, Zhilian Wangpin has the exclusive right to provide Zhilian Sanke with technical and consulting services relating to, among other things, server maintenance and related internet platform management service, development and upgrade of application software for servers and users, training of technical and business personnel, and other services agreed upon by the parties. Upon the written notice issued by Zhilian Wangpin, Zhilian Sanke shall pay service fees to Zhilian Wangpin calculated based upon the revenues and profits of Zhilian Sanke during the relevant period. Without Zhilian Wangpin’s prior written consent, Zhilian Sanke shall not engage any third party for any of the technical and consulting services provided under this agreement. In addition, Zhilian Wangpin exclusively owns all intellectual property rights resulting from the performance of all services under this agreement. The term of this agreement is ten years and will be extended upon the written notice made by Zhilian Wangpin for a period determined by Zhilian Wangpin. Zhilian Wangpin can terminate the agreement at any time by providing 30 days’ prior written notice. Zhilian Sanke is not permitted to terminate the agreement prior to the expiration date, unless due to Zhilian Wangpin’s gross negligence, fraud, unlawful conduct or bankruptcy.

The exclusive technical and consulting services agreements between Zhilian Wangpin and other consolidated affiliated entities contain terms substantially similar to the exclusive technical and consulting services agreement described above.

 

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Agreements that Provide Us the Option to Purchase the Equity Interest in Our Consolidated Affiliated Entities

Exclusive Equity Option Agreements. Pursuant to the exclusive equity option agreement among Zhilian Wangpin, Zhilian Sanke and the shareholders of Zhilian Sanke, Zhilian Sanke’s shareholders have granted Zhilian Wangpin or its designees an exclusive option to purchase, to the extent permitted under PRC law, all or part of their equity interest in Zhilian Sanke in consideration for the loans extended to Zhilian Sanke’s shareholders under the loan agreement mentioned below. Pursuant to the agreement, Zhilian Wangpin has the option to acquire the equity interest at the lowest price then permitted by PRC law in consideration of the cancellation of all or part of the loans extended to Zhilian Sanke’s shareholders under the loan agreement. Zhilian Wangpin or its designated representatives have sole discretion to decide when to exercise such option, either in part or in full, although the transfer of equity ownership resulting from the exercise of the option is subject to governmental approval and taxation. See “Risk Factors—Risk Related to Our Corporate Structure—If we exercise the option to acquire equity ownership of our consolidated affiliates, the ownership transfer shall be approved or filed with PRC governmental authorities and subject to taxation, which may result in substantial costs.” Zhilian Wangpin or its designated representatives are entitled to exercise the option an unlimited number of times until all of the equity interests have been acquired, and can freely transfer the option to any third party. Without Zhilian Wangpin’s consent, Zhilian Sanke’s shareholders may not transfer, donate, pledge or otherwise dispose of their equity interest in Zhilian Sanke in any way. The term of this agreement is ten years and must be extended upon Zhilian Wangpin’s written notice prior to the expiration date. The exclusive equity option agreement remains in full force and effect during the term of the agreement and extended period unless Zhilian Wangpin gives advance written notice of termination to the shareholders of Zhilian Sanke or Zhilian Sanke files bankruptcy, is dissolved or is forced to be closed.

The equity option agreements among Zhilian Wangpin, other consolidated affiliated entities and their respective shareholders contain terms substantially similar to the exclusive equity option agreement described above.

Loan Agreements. Under the loan agreement between Zhilian Wangpin and the shareholders of Zhilian Sanke, Zhilian Wangpin extended interest-free loans with an amount of RMB1.0 million to the shareholders of Zhilian Sanke solely for the increase of capitalization of Zhilian Sanke. The loan can be repaid only with the proceeds from the sale of all of the equity interest in Zhilian Sanke to Zhilian Wangpin or its designated representatives upon the written request of Zhilian Wangpin. The term of the loan is ten years from the date of the execution of the loan agreement, and will be automatically extended for another one year for an unlimited number of times unless terminated by written notice from Zhilian Wangpin to the shareholders of Zhilian Sanke thirty days prior to the due date.

The loan agreements among Zhilian Wangpin and the shareholders of other consolidated affiliated entities contain terms substantially similar to the loan agreement described above, except that the aggregate amount of the loans extended to the shareholders of other consolidated affiliated entities was RMB6.9 million.

In the opinion of our PRC legal counsel, Commerce & Finance Law Offices, the ownership structure and the contractual arrangements among Zhilian Wangpin and our consolidated affiliated entities and their respective shareholders, comply with, and immediately after this offering, will comply with, current PRC laws and regulations.

We have been advised by our PRC legal counsel, however, that there are substantial uncertainties regarding the interpretation and application of current and future PRC laws, regulations and rules. Accordingly, the PRC regulatory authorities may in the future take a view that is contrary to the above opinion of our PRC legal counsel. We have been further advised by our PRC legal counsel that if the PRC government finds that the agreements that establish the structure for operating our PRC online recruitment, advertising and human resources related businesses do not comply with relevant PRC government restrictions on foreign investment in value-added telecommunications and human resources related services, we could be subject to severe penalties,

 

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including being prohibited from continuing operations. See “Risk Factors—Risks Related to Our Corporate Structure—If the PRC government determines that the agreements that establish the structure for operating our businesses in China are not in compliance with applicable PRC laws and regulations, we could be subject to severe penalties” and “Risk Factors—Risks Related to Doing Business in China—Uncertainties with respect to the PRC legal system could have a material adverse effect on us.”

 

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SELECTED CONSOLIDATED FINANCIAL AND OPERATING DATA

You should read the following information concerning us in conjunction with our consolidated financial statements and related notes and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included elsewhere in this prospectus.

Our selected consolidated statements of operations data presented below for the fiscal years ended June 30, 2012 and 2013 and our selected balance sheet data as of June 30, 2012 and 2013 have been derived from our audited consolidated financial statements included elsewhere in this prospectus. Our audited consolidated financial statements are prepared in accordance with U.S. GAAP. Our selected consolidated statements of operations data presented below for the six months ended December 31, 2013 and our balance sheet data as of December 31, 2013 have been derived from our unaudited interim consolidated financial statements included elsewhere in this prospectus.

Our historical results do not necessarily indicate results expected for any future periods.

 

    For the fiscal year ended June 30,     For the six months ended
December 31,
 
    2012     2013     2012     2013  
    RMB     RMB     US$     RMB     RMB     US$  
    (in thousands, except number of shares and per share data)  
                      (unaudited)    

(unaudited)

 

Selected Consolidated Statements of Operations Data

           

Revenues:

           

Online recruitment services

    692,779        749,842        123,865        378,651        397,979        65,741   

Campus recruitment services

    58,771        67,307        11,118        31,914        52,112        8,608   

Assessment services

    16,956        32,740        5,408        14,362        24,299        4,014   

Other human resources related services

    53,026        39,731        6,564        20,632        26,627        4,398   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total revenues

    821,532        889,620        146,955        445,559        501,017        82,761   

Less: Business tax and surcharges

    (48,636     (41,793     (6,904     (24,549     (11,792     (1,948
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net revenues

    772,896        847,827        140,051        421,010        489,225        80,813   

Cost of services(1)

    (60,534     (67,531     (11,155     (33,001     (47,597     (7,862
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Gross profit

    712,362        780,296        128,896        388,009        441,628        72,951   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating expenses:

           

Sales and marketing expenses(1)

    (374,511     (399,850     (66,051     (199,514     (228,649     (37,770

General and administrative expenses(1)

    (152,784     (171,538     (28,336     (82,708     (105,325     (17,398
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total operating expenses

    (527,295     (571,388     (94,387     (282,222     (333,974     (55,168
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income from operations

    185,067        208,908        34,509        105,787        107,654        17,783   

Other (expenses)/income:

           

Foreign currency exchange loss

    (32     (28     (5     (7     (16     (3

Interest income, net

    15,257        14,672        2,424        9,569        4,385        724   

Other income, net

    668        2,755        455        2,799        999        165   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income before income tax expenses

    200,960        226,307        37,383        118,148        113,022        18,669   

Income tax expenses

    (30,243     (70,393     (11,628     (23,294     (24,911     (4,115
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income

    170,717        155,914        25,755        94,854        88,111        14,554   

Less: Deemed dividend to a preferred shareholder

    —          (265,032     (43,780     —          —          —     

Income allocated to participating preferred shareholders

    (166,764     —          —          (92,108     (368     (61
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income/(loss) attributable to ordinary shareholders

    3,953        (109,118     (18,025     2,746        87,743        14,493   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income/(loss) per share:

           

—Basic

    1.95        (20.51     (3.39     1.08        1.09        0.18   

—Diluted

    1.68        (20.51     (3.39     0.93        0.94        0.16   

Weighted average number of shares used in computing net income/(loss) per share:

           

—Basic

    2,027,680        5,319,527        5,319,527        2,549,903        80,673,031        80,673,031   

—Diluted

    101,331,125        5,319,527        5,319,527        102,524,761        93,717,467        93,717,467   

 

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(1) 

Including share-based compensation expenses as set forth below:

 

     For the fiscal year ended June 30,      For the six months ended
December 31,
 
     2012      2013      2012      2013  
     RMB      RMB      US$      RMB      RMB      US$  
     (in thousands)  
                          (unaudited)     

(unaudited)

 

Allocation of share-based compensation expense:

                 

Cost of services

     345         239         39         149         62         10   

Sales and marketing expenses

     1,664         1,555         257         976         409         68   

General and administrative expenses

     6,243         3,911         646         2,232         13,165         2,175   

The following table presents our selected consolidated balance sheet data as of June 30, 2012 and 2013.

 

    As of June 30,     As of December 31,  
    2012     2013     2013     2013     2013  
          Actual     Pro forma(1)     Actual     Pro forma(1)  
    RMB     RMB     US$     RMB     US$     RMB     US$     RMB     US$  
    (in thousands)  
                                 

(unaudited)

   

(unaudited)

 

Selected Consolidated Balance Sheet Data:

                 

Cash

    617,840        368,946        60,946        368,946        60,946        568,417        93,896        568,417        93,896   

Restricted cash

    —          10,757        1,777        10,757        1,777        10,754        1,776        10,754        1,776   

Time deposits and restricted time deposits

    —          332,340        54,899        332,340        54,899        486,690        80,395        486,690        80,395   

Total current assets

    704,207        794,346        131,217        794,346        131,217        1,187,295        196,126        1,187,295        196,126   

Property and equipment, net

    26,905        30,939        5,111        30,939        5,111        32,471        5,364        32,471        5,364   

Total assets

    733,074        1,021,260        168,700        1,021,260        168,700        1,224,450        202,264        1,224,450        202,264   

Deferred revenues

    330,039        368,250        60,831        368,250        60,831        406,503        67,150        406,503        67,150   

Total liabilities

    448,094        986,124        162,896        986,124        162,896        1,052,969        173,936        1,052,969        173,936   

Total mezzanine equity

    957,803        1,389        230        —          —          1,389        230        —          —     

Total shareholders’ (deficit)/equity

    (672,823     33,747        5,574        35,136        5,804        170,092        28,098        171,481        28,328   

Ordinary shares(2)

    168        5,480        905        5,501        909        5,879        971        5,899        975   

 

(1) 

Reflects the automatic conversion of all of our preferred shares into ordinary shares and acceleration of a long-term loan maturity upon the closing of this offering.

(2) 

159,051,299 shares authorized; 2,027,680, 78,438,133 and 84,926,542 shares issued and outstanding as of June 30, 2012 and 2013 and December 31, 2013, respectively; 78,776,629 and 85,265,038 shares outstanding on a pro forma basis as of June 30, 2013 and December 31, 2013.

The following tables present certain selected operating data as of the dates and for the periods indicated. For more information, please see “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Key Performance Indicators.”

 

     For the fiscal year
ended June 30,
     For the six months
ended December 31,
 
     2012      2013      2012      2013  

Number of unique customers(1)

     222,449         249,533         176,782         226,195   

Number of job postings(2) (in thousands)

     7,618         10,512         4,609         7,205   
     As of June 30,      As of December 31,  
     2012      2013      2012      2013  

Number of registered users(3) (in thousands)

     56,554         68,378         62,388         74,058   

Number of completed resumes(4) (in thousands)

     41,252         50,119         45,480         54,426   

 

(1) 

A “unique customer” refers to a customer that purchases our online recruitment or other services during a specified period. We make adjustments for multiple purchases by the same customer to avoid double counting. Each customer is assigned a unique identification

 

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number in our information management system. Affiliates and branches of a given customer may, under certain circumstances, be counted as separate unique customers.

(2) 

We calculate the number of job postings during a specified period by counting the number of job postings newly placed by customers during such period. Job postings that were placed prior to such specified period, even if available during such period, are not counted in the number of job postings for the specified period. Any particular job posting placed on our website may include more than one job opening or position.

(3) 

“Number of registered users” refers to the number of users who have completed the registration process on our website as of a specified date.

(4) 

A “completed resume” refers to a resume that is available as of a specified date and contains all of the information that we require a user to provide before we make the resume available to our customers, such as educational background, work history, qualifications and contact information.

 

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MANAGEMENT’S 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 and Operating 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.

Overview

We are a leading career platform in China, focusing on connecting users with relevant job opportunities throughout their career lifecycle. Our zhaopin.com website is the most popular career-focused website in China as measured by average daily unique visitors in each month of 2013, according to the iResearch Public Data. We are the second largest online recruitment services provider as measured by revenues in 2013, according to the iResearch Public Data.

We provide a broad range of services, including online recruitment, campus recruitment, assessment and other human resources related services. Through our zhaopin.com website, we provide classified job postings and display advertisements, resume access services and other online recruitment and career-related services. We provide our campus recruitment services primarily to customers seeking to recruit college and university students. These services include selecting campuses, organizing recruiting events, collecting and managing resumes and conducting interviews and assessment tests with candidates. We provide online and offline assessment services to assist customers in evaluating capabilities and dispositions of their job candidates and existing employees. Our other human resources related services mainly include executive search.

We primarily focus on providing online recruitment services, which are highly scalable and have higher gross margin than our offline recruitment services. Revenues from our online recruitment services accounted for 84.3% of our total revenues in both fiscal years ended June 30, 2012 and 2013 and 79.4% of our total revenues the six months ended December 31, 2013. We have a diverse customer base that includes multinational corporations, small and medium-sized private businesses, state-owned enterprises, government agencies and educational institutions.

We have experienced significant growth, mainly driven by the growth of our online recruitment services. Our total revenues increased by 8.3% from RMB821.5 million in the fiscal year ended June 30, 2012 to RMB889.6 million (US$147.0 million) in the fiscal year ended June 30, 2013. Our total revenues were RMB501.0 million (US$82.8 million) for the six months ended December 31, 2013, representing a 12.4% increase from RMB445.6 million for the same period in 2012. We recorded net income of RMB155.9 million (US$25.8 million) in the fiscal year ended June 30, 2013, RMB170.7 million in the fiscal year ended June 30, 2012 and RMB88.1 million (US$14.6 million) in the six months ended December 31, 2013. The net income amounts include the impact of non-cash charges associated with share-based compensation expenses in an aggregate amount of RMB8.3 million in the fiscal year ended June 30, 2012, RMB5.7 million (US$0.9 million) in the fiscal year ended June 30, 2013 and RMB13.6 million (US$2.3 million) in the six months ended December 31, 2013.

Key Performance Indicators

We utilize a set of operating and financial performance indicators that are frequently reviewed by our senior management. This facilitates timely evaluation of the performance of our business and the effectiveness of our strategies, allowing our business to react promptly to changing demands of users and customers and evolving market conditions. As we believe is the case with many online businesses, however, there are inherent challenges with respect to gathering and assessing the data underlying our performance indicators. See “Risk Factors—Risks Related to Our Business and Industry—If our key performance indicators are inaccurate, our ability to form appropriate corporate growth strategies may be impaired and our business, results of operations and prospects may be materially and adversely affected.”

 

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Key Operating Performance Indicators

We use the following key operating performance indicators to assess our overall market penetration for online recruitment services, which comprise the majority of our revenues, and to measure the performance of our platform in creating a robust marketplace that attracts customers and users: the number of unique customers, the number of job postings on our website, the average daily unique visitors to our website, the number of registered users and the number of completed resumes in our database.

The following tables set forth our key operating performance indicators as of the dates or for each period indicated:

 

     For the fiscal year
ended June 30,
     For the six months
ended December 31,
 
     2012      2013      2012      2013  

Number of unique customers

     222,449         249,533         176,782         226,195   

Number of job postings (in thousands)

     7,618         10,512         4,609         7,205   
     As of June 30,      As of December 31,  
     2012      2013      2012      2013  

Number of registered users (in thousands)

     56,554         68,378         62,388         74,058   

Number of completed resumes (in thousands)

     41,252         50,119         45,480         54,426   

A “unique customer” refers to a customer that purchases our online recruitment or other services during a specified period. The “number of job postings” refers to the number of job postings newly placed by customers on our website during a specified period. In a job posting placed on our website, customers may post more than one job opening or position. A larger customer base and greater number of job postings on our website enhance our ability to attract and retain users to use our website.

The “number of registered users” and the “number of completed resumes” measure our ability to attract users to register on our website as members and submit resumes for job applications, respectively. An increasing number of registered users and resumes will increase opportunities for customers using our platform to identify and recruit talent.

Our revenues are driven in part by the number of unique customers who purchase our services and more specifically, based on the number of job postings and display advertisements they place on our platform and the number of completed resumes they download from our database. Although we do not directly generate revenues from job-seekers for using our services, our large and increasing number of registered users and the number of average daily unique visitors are key indicators of the scale of our platform, which enable us to encourage our existing customers to purchase more services and to attract new customers. The size and growth of our customer base and job postings, the number of users that use our online platform and the number of resumes generated by our users increase the value we deliver to all participants in our marketplace. We believe that we have reached a critical scale that allows us to benefit from these network effects, and that the breadth and depth of our network is difficult to replicate, which creates barriers to entry for potential competitors.

The increases in the number of unique customers, number of job postings, number of completed resumes and number of registered users indicate the growth of our online recruitment services. The growth of our online recruitment services is driven by an overall expansion of the online recruitment market in China, our ability to retain customers and cross-sell and up-sell our services, and our efforts to attract new customers and users. This includes our continual improvement of our website and platform to enhance users’ experience, the effects of our marketing and brand promotion efforts and expansion into new geographic markets and targeted industry verticals.

 

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Key Financial Performance Indicators

Our key financial performance indicators, which consist of our revenues, our cost of services and our operating expenses, are discussed in the following paragraphs.

Revenues

Our revenues are significantly affected by the growth and development of the Chinese economy, the recruitment services market in general, and our market position in the competitive landscape. China’s strong economic growth and structural transformations to service-based economy have resulted in an expansion of labor markets, increasing job opportunities and growing demand for educated and skilled workers. This has elevated the importance of identifying and attracting qualified employees in China and increased demand for our recruitment services. Our future revenue growth will depend significantly upon our ability to gain or maintain market share to capitalize on China’s continued economic growth.

The following table sets forth our revenues derived from each of our service lines, both in absolute amount and as a percentage of total revenues for the periods presented.

 

    Years ended June 30,     Six months ended December 31,  
    2012     2013     2012     2013  
    RMB     %     RMB     US$     %     RMB     %     RMB     US$     %  
    (in thousands, except percentages)  
                                  (unaudited)           (unaudited)        

Revenues:

                   

Online recruitment services

    692,779        84.3     749,842        123,865        84.3  

 

378,651

  

 

 

85.0

 

 

397,979

  

 

 

65,741

  

 

 

79.4

Campus recruitment services

    58,771        7.2     67,307        11,118        7.6  

 

31,914

  

 

 

7.2

 

 

52,112

  

 

 

8,608

  

 

 

10.4

Assessment services

    16,956        2.1     32,740        5,408        3.7     14,362        3.2     24,299        4,014        4.9

Other human resources related services

    53,026        6.4     39,731        6,564        4.4  

 

20,632

  

 

 

4.6

 

 

26,627

  

 

 

4,398

  

 

 

5.3

Total revenues

    821,532        100.0     889,620        146,955        100.0  

 

445,559

  

 

 

100.0

 

 

501,017

  

 

 

82,761

  

 

 

100.0

Less: Business tax and surcharges

    (48,636     (5.9 )%      (41,793     (6,904     (4.7 )%      (24,549     (5.5 )%      (11,792     (1,948     (2.4 )% 

Net revenues

    772,896        94.1     847,827        140,051        95.3  

 

421,010

  

 

 

94.5

 

 

489,225

  

 

 

80,813

  

 

 

97.6

Online Recruitment Services Revenues

Revenues from our online recruitment services were RMB692.8 million, RMB749.8 million (US$123.9 million) and RMB398.0 million (US$65.7 million) for the fiscal year ended June 30, 2012 and 2013 and the six months ended December 31, 2013, respectively, accounting for 84.3% of our total revenues in both fiscal years ended June 30, 2012 and 2013 and 79.4% of our total revenues in the six months ended December 31,2013. Our online recruitment services revenues, including those generated from classified job postings and display advertisements, resume access services and other online services, are primarily driven by the number of unique customers, the volume and the mix of services that customers purchase from us and the price we charge for our services.

The key growth driver of our online recruitment services revenues in our historical periods has primarily been the growth in the number of customers using these services. The number of unique customers that used our online recruitment service increased from 222,449 for the fiscal year ended June 30, 2012 to 249,533 for the

 

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fiscal year ended June 30, 2013 and to 226,195 in the six months ended December 31, 2013. Because new customers tend to initially select lower-priced services, increases in the number of new customers generally result in higher aggregate online recruitment services revenues but lower average revenue per unique customer. We set the prices for our services based on the length of contracts, the number of job postings our customers place on our website, the size and location of display advertisements and the number of resumes our customers can access. The prices charged are generally affected by our ability to provide valuable services, locate suitable candidates and the prices charged by our competitors for comparable services within the same city or geographic area.

Our online recruitment services revenues have continued to grow, primarily because of (i) the growing acceptance of the internet as a recruitment and job-search channel in China; (ii) the advantages offered by online recruitment services that better address the evolving and increasingly sophisticated needs of both job seekers and employers; and (iii) our ability to attract and retain users and customers using our online recruitment services. Our contract terms typically require customers to pay us the full price of all services purchased within five days of entering into a contract for online recruitment services, although we may offer certain credit terms to selected customers on a case-by-case basis.

We expect that revenues from our online recruitment services will continue to contribute a substantial majority of our total revenues in the foreseeable future.

Campus Recruitment Services Revenues

Revenues from our campus recruitment services were RMB58.8 million, RMB67.3 million (US$11.1 million) and RMB52.1 million (US$8.6 million) for the fiscal year ended June 30, 2012 and 2013 and the six months ended December 31, 2013, respectively, accounting for 7.2%, 7.6% and 10.4% of our total revenues in the respective periods. The growth of our campus recruitment services revenues was driven primarily by the number of on-site campus recruiting events we organized and completed for our customers and the average selling price for our services.

Our campus recruitment services revenues are generated through fees we charge customers for services, such as planning campus recruitment activities to promote the image of our customers to students, conducting interviews with students and organizing other campus recruitment events. Our campus recruitment services are primarily customized to serve our major corporate customers as a component of the integrated solutions that we provide.

Assessment Services Revenues

Revenues from our assessment services were RMB17.0 million, RMB32.7 million (US$5.4 million) and RMB24.3 million (US$4.0 million) for the fiscal year ended June 30, 2012 and 2013 and the six months ended December 31, 2013, respectively, accounting for 2.1%, 3.7% and 4.9% of our total revenues in the respective periods. The significant growth of our assessment services revenues was driven primarily by an increase in demand for such services. Our assessment services revenues comprise of fees we charge to customers for using our online assessment platform or offline services, such as planning, organizing assessment events and summarizing assessment results. Our assessment services customers are primarily corporate employers, for whom we provide and administer assessment tests to assist them in evaluating the personality and capabilities of their job candidates and existing employees.

Other Human Resources Related Services Revenues

Our other human resources related services revenues were RMB53.0 million, RMB39.7 million (US$6.6 million) and RMB26.6 million (US$4.4 million) for the fiscal years ended June 30, 2012 and 2013 and the six months ended December 31, 2013, respectively, accounting for 6.4%, 4.4% and 5.3% of our total revenues in the respective periods.

 

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Our other human resources related services revenues comprised revenues from our executive search and print advertising services. Our executive search revenues are generated through executive search fees we charge customers, who are typically corporate employers. We provide our executive search services under our “Alliance” brand through our full-time headhunting consultants located in three cities in China. Our print advertising services revenues are generated through fees charged to customers for newspaper advertisements.

The change in our other human resources related services revenues reflects our strategy to exit certain non-core and non-strategic service lines in order to focus on online recruitment and complementary services. Our other human resources related services revenues may decrease in the foreseeable future if we continue to exit certain non-core service lines.

Cost of Services

Our cost of services were RMB60.5 million, RMB67.5 million (US$11.2 million) and RMB47.6 million (US$7.9 million) for the fiscal years ended June 30, 2012 and 2013 and the six months ended December 31, 2013, respectively, constituting 7.8%, 8.0% and 9.7% of our net revenues for the respective periods. Our cost of services consists primarily of salary and other compensation expenses, campus recruitment subcontracting costs, data storage and bandwidth costs, print publishing and distribution expenses and other expenses. Although the amount of our cost of services increased from the fiscal year ended June 30, 2012 to the fiscal year ended June 30, 2013, cost of services as a percentage of our net revenues remained stable during the same period primarily because of the increasing revenue contribution from our online recruitment services, which have lower incremental costs than offline services, such as print advertisement and campus recruitment. Cost of services as a percentage of our net revenues increased during the six months ended December 31, 2013 from the same period a year ago, primarily because of the increased revenue contribution from our campus recruitment services which had higher incremental costs than our online recruitment services. We expect that the absolute amount of our cost of services will increase as our business grows, and that our cost of services as a percentage of our net revenues may remain stable or increase as revenue contribution from our offline services may increase, which is characterized by higher incremental costs, as compared with our online recruitment services.

Operating Expenses

Our operating expenses consist of sales and marketing expenses and general and administrative expenses. The following table sets forth the components of our operating expenses, both in absolute amount and as a percentage of total operating expenses for the periods indicated:

 

    Years ended June 30,     Six months ended December 31,  
    2012     2013     2012     2013  
    RMB      %     RMB      US$      %     RMB      %     RMB      US$      %  
    (in thousands, except percentages)  
                                     (unaudited)            (unaudited)         

Operating Expenses:

                         

Sales and marketing expenses

    374,511         71.0     399,850         66,051         70.0     199,514         70.7     228,649         37,770         68.5

General and administrative expenses

    152,784         29.0     171,538         28,336         30.0     82,708         29.3     105,325         17,398         31.5
 

 

 

    

 

 

   

 

 

    

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

 

 

    

 

 

 

Total operating expenses

    527,295         100.0     571,388         94,387         100.0     282,222         100.0     333,974         55,168         100.0
 

 

 

    

 

 

   

 

 

    

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

 

 

    

 

 

 

Sales and Marketing Expenses

Our sales and marketing expenses were RMB374.5 million, RMB399.9 million (US$66.1 million) and RMB228.6 million (US$37.8 million) for 2012 and 2013 and the six months ended December 31, 2013, respectively, representing 48.5%, 47.2% and 46.7% of our net revenues in the respective periods. Our sales expenses consist primarily of salary and benefits, sale commissions, share-based compensation expenses, office rental expenses, travel expenses, business development expenses and other expenses related to sales operations. We rely on our field sales force to acquire customers in cities or regions where we operate and use our call center to reach out to customers in cities or in regions where we do not have an office.

 

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Our marketing expenses consist primarily of advertising, branding, field promotion, and public relations expenses. Advertising and promotion expenses generally represent the cost of promotions to build our brand and enhance our image among customers and users. Our marketing expenditures vary from city to city, depending on local competition, our strategic objectives in each market and the marketing channels we use to support our growth and promote our brand. We plan to continue to invest in marketing activities in order to strengthen our brand recognition and grow our user and customer base.

As a result of our strategy to expand our business operations, we expect that our sales and marketing expenses will continue to increase in absolute amount as we grow our sales force to expand our network coverage and strengthen our marketing efforts in new and existing geographic areas. If we can leverage our strong brand and utilize the scalability of our business model, our sales and marketing expenses may decrease as a percentage of our net revenues.

General and Administrative Expenses

Our general and administrative expenses primarily include salary and benefits to managerial and administrative staff, share-based compensation expenses, office rental and property management fees, professional services fees, depreciation of equipment and other administrative office expenses. We anticipate that our general and administrative expenses will continue to increase as we hire additional personnel and incur additional costs in connection with the expansion of our business operations, enhancing our product development and internal management capabilities, and becoming a publicly traded company, including expenses associated with improving our internal controls.

Share-Based Compensation Expenses

Our cost of services and our operating expenses include share-based compensation expenses. Share-based compensation expenses are recorded in the financial statement line-item corresponding to the nature of services provided by the grantees. The following table sets forth the allocation of our share-based compensation expenses, both in absolute amount and as a percentage of total share-based compensation expenses, among the cost and expense items set forth below.

 

    Years ended June 30,     Six months ended December 31,  
    2012     2013     2012     2013  
    RMB     %     RMB     US$     %     RMB     %     RMB     US$     %  
    (in thousands, except percentages)  
          (unaudited)           (unaudited)        

Allocation of share-based compensation expenses:

                   

Cost of services

    345        4.2     239        39        4.2     149        4.4     62        10        0.5

Sales and marketing expenses

    1,664        20.1     1,555        257        27.2     976        29.1     409        68        3.0

General and administrative expenses

    6,243        75.7     3,911        646        68.6     2,232        66.5     13,165        2,175        96.5
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total share-based compensation expenses

    8,252        100.0     5,705        942        100.0     3,357        100.0     13,636        2,253        100.0
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

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 each of the two years ended June 30, 2013, we and our independent registered public accounting firm identified one material weakness in our internal control over financial reporting. As defined in the standards established by the U.S. Public Company Accounting Oversight Board, a “material weakness” is a deficiency, or combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of our company’s annual or interim financial statements will not be prevented or detected on a timely basis.

 

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The material weakness identified relates to the lack of sufficient financial reporting and accounting personnel with appropriate knowledge of U.S. GAAP and SEC reporting requirements to properly address complex U.S. GAAP accounting issues and to prepare and review our consolidated financial statements and related disclosures to fulfill U.S. GAAP and SEC financial reporting requirements.

We have taken initiatives to improve our internal control over financial reporting. We have hired a new senior financial reporting manager with relevant U.S. GAAP accounting and reporting experience to lead accounting and financial reporting matters at our headquarters. We intend to hire a financial reporting supervisor with relevant U.S. GAAP accounting and reporting experience to further improve our financial reporting capability. In addition, we provide regular training to existing financial and accounting employees related to U.S. GAAP accounting and reporting issues. In addition, we plan to take additional measures to further improve our internal controls over financial reporting, including (i) establishing an independent audit committee to oversee the design and implementation effectiveness of our internal control over financial reporting; and (ii) continuing to hire qualified professionals with U.S. GAAP accounting experience and providing proper training to our accounting personnel. However, the implementation of these initiatives may not fully address the material weakness and deficiencies in our internal control over financial reporting. See “Risk Factors—Risks Relating to Our Business and Industry—Our independent registered public accounting firm has identified a material weakness and other deficiencies in our internal control over financial reporting. If we fail to maintain an effective system of internal control over financial reporting, our ability to accurately and timely report our financial results or prevent fraud may be adversely affected, and investor confidence and the market price of our ADSs may be adversely impacted.”

As a company with less than US$1.0 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 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 company’s 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.

Taxation

Cayman Islands

The following is a discussion on certain Cayman Islands income tax consequences of an investment in our ordinary shares or ADSs. The discussion is a general summary of present law, which is subject to prospective and retroactive change. It is not intended as tax advice, does not consider any investor’s particular circumstances, and does not consider tax consequences other than those arising under Cayman Islands law.

No stamp duty, capital duty, registration or other issue or documentary taxes are payable in the Cayman Islands on the creation, issuance or delivery of ordinary shares or ADSs. The Cayman Islands currently have no form of income, corporate or capital gains tax and no estate duty, inheritance tax or gift tax. There are currently no Cayman Islands’ taxes or duties of any nature on gains realized on a sale, exchange, conversion, transfer or redemption of ordinary shares. Payments of dividends and capital in respect of ordinary shares or ADSs will not be subject to taxation in the Cayman Islands and no withholding will be required on the payment of interest and principal or a dividend or capital to any holder of ordinary shares, nor will gains derived from the disposal of ordinary shares be subject to Cayman Islands income or corporation tax as the Cayman Islands currently have no form of income or corporation taxes.

 

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We have been incorporated under the laws of the Cayman Islands as an exempted company with limited liability and, as such, have applied for and obtained an undertaking from the Governor of the Cayman Islands that no law enacted in the Cayman Islands during the period of 20 years from the date of the undertaking imposing any tax to be levied on profits, income, gains or appreciation shall apply to us or our operations and no such tax or any tax in the nature of estate duty or inheritance tax shall be payable (directly or by way of withholding) on ordinary shares, debentures or other obligations of ours. There are no exchange control regulations or currency restrictions in the Cayman Islands.

PRC

Prior to September 2012, our direct and indirect subsidiaries and our consolidated affiliated entities that are incorporated in the PRC were subject to business taxes and related surcharges on the revenues earned for services provided in the PRC after certain deductions . The applicable rate of business taxes is 5%. Effective January 2012, the PRC Ministry of Finance and the State Administration of Taxation launched the Value Added Tax, or VAT, Pilot Program, which imposes VAT in lieu of business tax for transportation industry and certain “modern service industries.” According to the implementation circulars regarding the pilot program, “modern service industries” include research, development and technological services, information technology services, cultural innovation services, logistics support, lease of corporeal properties, attestation and consulting services and radio and television services. The pilot program was implemented in Shanghai since January 2012, and has been expanded to other regions, including Beijing, since September 2012. Accordingly, most of our PRC subsidiaries and our consolidated affiliated entities were covered by the pilot program and subject to VAT at a rate of 6%.

In addition, our direct and indirect PRC subsidiaries and our consolidated affiliated entities are subject to PRC enterprise income tax on their taxable income in accordance with the relevant PRC income tax laws. Until January 1, 2008, Chinese companies were generally subject to PRC enterprise income tax at a statutory rate of 33%. On January 1, 2008, the PRC Enterprise Income Tax Law in China took effect and applies a uniform 25% enterprise income tax rate to both foreign-invested enterprises and domestic enterprises, except where a special preferential rate applies. Under the PRC Enterprise Income Tax Law, entities established before March 16, 2007 that enjoyed a favorable income tax rate of less than 25% under the previous income tax laws and rules are provided with a five-year transitional period to gradually change their rates to 25%.

In April 2006, our subsidiary, Zhilian Wangpin was designated as an HNTE, and was subject to a 15% preferential tax rate as long as it maintained the required qualification, which was subject to review every two years according to then applicable laws and regulations. Upon the expiration of its HNTE qualification in 2008, the tax rate applicable to Zhilian Wangpin increased from 15% to 25%. Beijing Wangpin received HNTE qualification approval from the relevant government authorities in November 2011 and filed its HNTE status with local tax bureau in March 2012, upon which Beijing Wangpin was entitled to enjoy the preferential tax rate of 15% from 2011 to 2013. Other than Beijing Wangpin, all PRC entities are subject to 25% income tax.

Under the PRC Enterprise Income Tax Law, dividends paid by PRC enterprises out of profits earned after 2007 to non-PRC tax resident investors are subject to a PRC withholding tax of 10%. A lower withholding tax rate may be applied based on an applicable tax treaty with certain countries. See “Risk Factors—Risks Related to Doing Business in China—Our global income and the dividends that we may receive from our PRC subsidiaries may be subject to PRC taxes under the PRC Enterprise Income Tax Law, which could have a material adverse effect on our results of operations, and non-PRC shareholders may be subject to PRC tax on dividends and gains which may reduce returns on investments in our shares or ADSs.”

Under the PRC Enterprise Income Tax Law, enterprises that are established under the laws of foreign countries or regions and whose “de facto management bodies” are located within the PRC territory are considered PRC resident enterprises, and will be subject to the PRC enterprise income tax at the rate of 25% on their worldwide income. Under the implementation rules of the PRC Enterprise Income Tax Law, “de facto management bodies” are defined as the bodies that have material and overall management and control over the

 

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manufacturing and business operations, personnel and human resources, finances and treasury and acquisition and disposition of properties and other assets of an enterprise. See “Risk Factors—Risks Related to Doing Business in China—Our global income and the dividends that we may receive from our PRC subsidiaries may be subject to PRC taxes under the PRC Enterprise Income Tax Law, which could have a material adverse effect on our results of operations, and non-PRC shareholders may be subject to PRC tax on dividends and gains which may reduce returns on investments on our shares or ADSs.”

Critical Accounting Policies

We prepare financial statements in accordance with U.S. GAAP, which requires us to make judgments, estimates and assumptions that affect the reported amounts of our assets and liabilities and the disclosure of our contingent assets and liabilities at the end of each fiscal period and the reported amounts of revenues and expenses during each fiscal period. We continually evaluate these judgments and estimates based on our own historical experience, knowledge and assessment of current business and other conditions, and our expectations regarding the future based on available information and assumptions that we believe to be reasonable, which together form our basis for making judgments about matters that are not readily apparent from other sources. Since the use of estimates is an integral component of the financial reporting process, our actual results could differ from those estimates. Some of our accounting policies require a higher degree of judgment than others in their application.

The selection of critical accounting policies, the judgments and other uncertainties affecting application of those policies and the sensitivity of reported results to changes in conditions and assumptions are factors that should be considered when reviewing our financial statements. We believe the following accounting policies involve the most significant judgments and estimates used in the preparation of our financial statements.

Revenue Recognition

Revenues are recognized when persuasive evidence of an arrangement exists, service has been rendered, the price is fixed or determinable and collection is reasonably assured. Revenues are deferred until these criteria are met as described below and any cash payments received upfront are recognized as deferred revenues.

Revenues presented in the consolidated statements of comprehensive income include revenues from online recruitment services, campus recruitment services, assessment services and other human resources related services.

Online Recruitment Services

We provide online recruitment services such as classified job postings, display advertisements, resume access services and other online recruitment services. We enter into standard service agreements with customers, under which different service arrangements, service fulfillment period, total consideration and other terms are agreed upon by both parties. Revenues are recognized ratably over the service fulfillment period, which normally ranges from one week to one year. Online recruitment services contracts may consist of multiple deliverables in the arrangement such as those services described above. Each deliverable is a separate unit of accounting, as they have value to the customer on a standalone basis and there are no customer-negotiated refunds or return rights for the delivered items. Arrangement consideration is allocated to each unit of accounting at the inception of the arrangement based on the relative selling price of each unit of accounting according to the selling price hierarchy established by ASU No.2009-13, “Revenue Recognition—Multiple-Deliverable Revenue Arrangements” and recognized over the service fulfillment period. We use (a) vendor-specific objective evidence of selling price, if it exists, otherwise, (b) third-party evidence of selling price. If neither (a) nor (b) exists, we will use (c) the management’s best estimate of the selling price for that deliverable. Selling price is generally determined by vendor specific objective evidence, which is the price charged for a deliverable when it is sold on a standalone basis. For all the periods presented, the service fulfillment period for the separate unites of accounting within the

 

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multiple-element arrangement is the same. Therefore, the allocation between the separate unit of accounting for online recruitment services does not have a material impact on our consolidated financial statements.

Campus Recruitment Services

We provide campus recruitment services to corporate employers, including planning, recruitment advertising, and recruitment activities organizing. Upon completion of these activities, a completion report is delivered to customers summarizing the activities carried out. Fees for these types of services are recognized upon delivery of the completion report.

Assessment Services

We provide both online and offline assessment services to corporate employers. Online assessment services are provided through our online assessment platform, fees charged to the customers are recognized ratably over the predetermined service fulfillment period. Offline assessment services include activities such as planning, organizing assessment events and summarizing assessment results. Upon completion of these activities, a completion report is delivered to customers summarizing the activities carried out. Fees for these types of services are recognized upon delivery of the completion report.

Other Human Resources Related Services

We provide other human resources related services such as executive search services, print advertising services, training services, human resources agent services and other services. Arrangements for other human resources related services are generally short-term in nature. Fees for these types of services are recognized when fees are fixed or determinable, collectability is reasonably assured and service performance completed.

Income Tax

Our current income taxes are provided on the basis of income for financial reporting purposes, adjusted for income and expense items which are not assessable or deductible for tax purposes, in accordance with the regulations of the relevant tax jurisdictions. We follow ASC 740, Income Taxes, and account for income taxes under the asset and liability method. Deferred tax assets and liabilities are recognized for tax consequences attributable to differences between carrying amounts of existing assets and liabilities in financial statements, their respective tax basis, and operating loss carry-forwards. Deferred tax assets and liabilities are measured using enacted tax rates to be applied to taxable income in the year in which those temporary differences are expected to be recovered or settled.

We currently have deferred tax assets resulting from net operating loss carryforwards and deductible temporary differences, all of which are available to reduce future tax payable in our relevant tax jurisdictions. Significant components of our deferred assets are operating loss carryforwards generated by our PRC subsidiaries and consolidated affiliated entities due to their historical operating losses and future deductible advertising expenses. A valuation allowance is provided to reduce the carrying amount of deferred tax assets if it is considered more likely than not that some portion, or all, of the deferred tax assets will not be realized. Accordingly, we consider various tax planning strategies, forecasts of future taxable income and our most recent operating results in assessing the need for a valuation allowance. The effect on deferred tax assets and liabilities arising from changes in tax rates is recognized in the consolidated statements of comprehensive (loss)/income in the period of such change. If we subsequently determine that all or a portion of the carryforwards and future deductible advertising expenses are more like than not to be realized, the valuation allowance will be released, which will result in a tax benefit in our consolidated statements of comprehensive (loss)/income.

Historically, tax benefits arising from tax losses brought forward was fully provided for because of our history of operating losses, including Beijing Wangpin and Shenyang Zhilian Recruitment Service Co., Ltd. We

 

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determined the amount of valuation allowance to be reversed based on the amount of tax losses utilized to offset the taxable income generated by these entities during the years ended June 30, 2012 and 2013. As a result of this utilization of tax losses, lower income tax expenses were recorded for the years ended June 30, 2012 and 2013. In determining whether a valuation allowance will be released for an entity, we evaluated positive and negative factors affecting our assessment, including: profitability in past periods, whether future losses are still expected to occur, the entity’s ability to forecast and meet profit targets, unfavorable circumstances that would adversely affect future operations and profit levels on a continuing basis and whether existing sales contracts will produce more than enough taxable income to realize the deferred tax asset based on existing sales price and cost structures. Based on this assessment, when positive factors outweigh negative factors, we would determine the amount of valuation allowance to be reversed based on the taxable profits made by the relevant entity during the relevant period. While some of our entities have started to be profitable, there are other entities which continue to incur losses. Valuation allowances have been maintained for those entities where future losses are still expected to occur and management has assessed that it is more likely than not that the deferred tax asset will not be utilized.

We adopted the guidance on accounting for uncertainty in income taxes as of January 1, 2008. 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. Significant judgment is required in evaluating the uncertain tax positions and determining its provision for income taxes. We have elected to recognize interest and penalties, if any, under accrued expenses and other current liabilities on our balance sheet and under income tax expenses in our statement of comprehensive income. As of June 30, 2012 and 2013, we did not have any tax provisions related to uncertain tax positions or interest and penalties associated with such uncertain tax positions.

Share-based Compensation

We grant share-based awards to eligible employees and directors pursuant to our Share Incentive Plans. Share-based compensation expenses for all share-based awards granted to employees and directors are determined based on the grant date fair value of the awards and are recognized using a graded vesting method, net of estimated forfeitures, over the requisite service period, which is generally the vesting period. Forfeiture rates are estimated at the time of grant and revised in the subsequent periods if actual forfeitures differ from the initial estimates.

Total share-based compensation expenses recognized in the years ended June 30, 2012 and 2013 and the six months ended December 31, 2013 amounted to RMB8.3 million, RMB5.7 million (US$0.9 million) and RMB13.6 million (US$2.3 million), respectively.

Significant batches of share options granted under our Share Incentive Plans are set forth below:

 

Grant date

   Ordinary
shares
underlying
options granted
     Exercise price
per option
     Fair value
per ordinary
share
at the grant date
     Fair value of
share options
granted
 

October 1, 2011

     1,632,340       US$ 4.00       US$ 2.57       US$ 1.01   

January 1, 2012

     200,000       US$ 4.00       US$ 3.18       US$ 1.47   

June 28, 2013

     2,370,000       US$ 2.80–4.00       US$ 4.31       US$ 2.02–2.44   

March 31, 2014

     2,790,000       US$ 2.80–5.00       US$ 5.50       US$ 2.39–3.26   

April 17, 2014

     80,000       US$ 6.75       US$ 5.50       US$ 2.44–2.97   

We engaged an independent third-party appraiser to assist us in our determination of the fair value of our share options as of each grant date. Our management is ultimately responsible for such determination.

 

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In determining the fair value of our share options, the binomial option pricing model was applied. The key assumptions used to determine the fair value of the options at the relevant grant dates in 2012 and 2013 are as follows. Changes in these assumptions could significantly affect the fair value of stock options and hence the amount of compensation expenses we recognize in our consolidated financial statements.

 

     Risk-free
interest rate
     Expected
volatility
     Contractual
life of
options