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Share-Based Compensation | 12 Months Ended
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Dec. 31, 2017
Share-Based Compensation |
16. | SHARE-BASED COMPENSATION
2014 Restricted Shares Plan On April 22 and April 24, 2014, the board of directors and the shareholders of the Company approved to adopt a restricted shares plan (the “2014 Restricted Shares Plan”), respectively. Under the 2014 Restricted Shares Plan, the Company is authorized to issue up to 122,545,665 Class A ordinary shares (excluding shares which have lapsed or have been forfeited) pursuant to the grant of restricted shares and restricted share units thereunder. Unless terminated earlier, the 2014 Restricted Shares Plan will terminate automatically in 2024. The share awards granted under 2014 Restricted Shares Plan had vesting terms of no longer than 5 years from the date of grant. Except for service conditions, there were no other vesting conditions for all the awards under 2014 Restricted Shares Plan. The following table summarizes the Company’s restricted shares with an option feature activity under the 2014 Restricted Shares Plan during the year ended December 31, 2017:
|  | Number of shares |  |  | Weighted Average Exercise Price (US$) |  |  | Weighted Average Grant Date Fair Value (US$) |  |  | Weighted Average Remaining Contractual Term (Years) |  |  | Aggregate Intrinsic Value (US$) |
Outstanding at January 1, 2017 |  |  | 50,865,930 |  |  |  | 0.31 |  |  |  | 1.37 |  |  |  | 7.31 |  |  |  | 32,839 |
Granted |  |  | 13,848,890 |  |  |  | 0.34 |  |  |  | 0.78 |  |  |  |  |  |  |  |  |
Forfeited |  |  | (26,612,224 | ) |  |  | 0.31 |  |  |  | 1.20 |  |  |  |  |  |  |  |  |
Exercised |  |  | (8,277,510 | ) |  |  | 0.28 |  |  |  | 1.50 |  |  |  |  |  |  |  |  |
Outstanding at December 31, 2017 |  |  | 29,825,086 |  |  |  | 0.33 |  |  |  | 1.22 |  |  |  | 6.31 |  |  |  | 26,064 |
Vested and expected to vest at December 31, 2017 |  |  | 29,825,086 |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Exercisable as at December 31, 2017 |  |  | 4,109,262 |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Total intrinsic value of restricted shares with an option feature exercised for the year ended December 31, 2017 was RMB42,548 (US$6,539). The weighted-average grant-date fair value of options granted during the years 2016 and 2017 was US$1.13 and US$0.78, respectively. The grant date fair value of each restricted share with an option feature is estimated on the date of grant using the binomial tree option pricing model with the following assumptions used for grants in 2017:
|  | Year ended December 31, 2017 |
Fair value of ordinary share (US$) |  |  | 0.84~1.21 |
Risk-free interest rates |  |  | 2.81%~2.99 | %
Expected volatility range |  |  | 55.9%~58.0 | %
Expected dividend yield |  |  | 0 | %
Expected exercise multiple |  |  | 2.2 |
Fair value per option granted (US$) |  |  | 0.55~0.93 |
The risk-free interest rate for periods within the contractual life of the restricted shares with an option feature is based on the U.S. Treasury yield curve in effect at the time of grant for a term consistent with the contractual term of the awards. Expected volatility is estimated based on the historical volatility ordinary shares of several comparable companies in the same industry. The dividend yield is estimated based on expected dividend policy over the expected term of the restricted shares with an option feature. The expected exercise multiple is based on management’s estimation, which the Company believes is representative of the future. As of December 31, 2016 and 2017, 3,265,470 and 11,542,980 Class A ordinary shares were issued and outstanding for the exercised share awards under the 2014 Restricted Shares Plan. As of December 31, 2017, there was RMB92,751 (US$14,256) of total unrecognized share-based compensation expenses related to non-vested restricted shares with an option feature and the cost is expected to be recognized over a weighted average period of 2.32 years. Total estimated share-based compensation expenses may be adjusted for future changes in forfeiture rate. 2013 Incentive Scheme On January 2, 2014, the Company adopted an equity incentive scheme (the “2013 Incentive Scheme”). The 2013 Incentive Scheme provides for the grant of ordinary shares, restricted shares, share options and share appreciation rights to the employees, directors or non-employee consultants of the Company. The maximum number of the Company’s ordinary shares which may be issued under the 2013 Incentive Scheme is 64,497,718 (excluding shares which have lapsed or have been forfeited). The 2013 Incentive Scheme is valid and effective for a term of ten years commencing from its adoption. Except for service conditions, there were no other vesting conditions for all the awards under 2013 Incentive Scheme. As of December 31, 2017, all the share awards granted under 2013 Incentive Scheme were restricted shares with an option feature with vesting terms of no longer than 5 years from the date of grant. The fair value of restricted shares with an option feature was determined by reference to the fair value of the Company’s ordinary shares at their respective grant date, which was valued based on retrospective valuation with the assistance of an independent third party valuation firm using the binomial tree model for an option pricing applied. The Company’s management is ultimately responsible for the determination of the estimated fair value of its ordinary shares. Subsequent to the IPO, fair value of the ordinary shares was determined based the price of the Company’s publicly traded ADSs. The following table summarizes the Group’s restricted shares with an option feature activity under the 2013 Incentive Scheme during the year ended December 31, 2017:
|  | Number of shares |  |  | Weighted Average Exercise Price (US$) |  |  | Weighted Average Grant Date Fair Value (US$) |  |  | Weighted Average Remaining Contractual Term (Years) |  |  | Aggregate Intrinsic Value (US$) |
Outstanding at January 1, 2017 |  |  | 48,967,051 |  |  |  | 0.33 |  |  |  | 1.22 |  |  |  | 7.01 |  |  |  | 30,438 |
Granted |  |  | 3,468,360 |  |  |  | 0.34 |  |  |  | 0.60 |  |  |  |  |  |  |  |  |
Forfeited |  |  | (5,009,400 | ) |  |  | 0.34 |  |  |  | 1.27 |  |  |  |  |  |  |  |  |
Exercised |  |  | (5,131,110 | ) |  |  | 0.33 |  |  |  | 1.30 |  |  |  |  |  |  |  |  |
Outstanding at December 31, 2017 |  |  | 42,294,901 |  |  |  | 0.33 |  |  |  | 1.15 |  |  |  | 6.01 |  |  |  | 36,941 |
Vested and expected to vest at December 31, 2017 |  |  | 42,294,901 |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Exercisable as at December 31, 2017 |  |  | 20,073,089 |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Total intrinsic value of restricted shares with an option feature exercised for the year ended December 31, 2017 was RMB24,201 (US$3,720). The weighted-average grant-date fair value of options granted during the years 2017 was US$0.60. The grant date fair value of each restricted share with an option feature is estimated on the date of grant using the binomial tree option pricing model with the following assumptions used for grants in 2017:
|  | Year ended December 31, 2017 |
Fair value of ordinary share (US$) |  |  | 0.84~1.21 |
Risk-free interest rates |  |  | 2.78%~2.99 | %
Expected volatility range |  |  | 56.1%~57.5 | %
Expected dividend yield |  |  | 0 | %
Expected exercise multiple |  |  | 2.2 |
Fair value per option granted (US$) |  |  | 0.53~0.88 |
The risk-free interest rate for periods within the contractual life of the restricted shares with an option feature is based on the U.S. Treasury yield curve in effect at the time of grant for a term consistent with the contractual term of the awards. Expected volatility is estimated based on the historical volatility ordinary shares of several comparable companies in the same industry. The dividend yield is estimated based on expected dividend policy over the expected term of the restricted shares with an option feature. The expected exercise multiple is based on management’s estimation, which the Company believes is representative of the future. As of December 31, 2016 and 2017, 9,983,080 and 15,114,190 Class A ordinary shares were issued and outstanding for the exercised share awards under the 2013 Incentive Scheme, respectively. As of December 31, 2017, there was RMB41,509 (US$6,380) of total unrecognized share-based compensation expenses related to non-vested restricted shares with an option feature and the cost is expected to be recognized over a weighted average period of 1.8 years. Total estimated share-based compensation expenses may be adjusted for future changes in forfeiture rate. 2011 Share Award Scheme On May 26, 2011, the board of directors of the Company approved and adopted the 2011 Share Award Scheme, as amended in September 2013 and November 2016, to recognize the contributions of certain employees and to give incentives thereto in order to retain them for the continued operation and development of the Group. Under the 2011 Share Award Scheme, the board of directors may grant restricted shares to its employees and directors to receive an aggregate of no more than 100,000,000 ordinary shares of the Company (excluding shares which have lapsed or have been forfeited) as at the date of such grant. Unless early terminated by the board of directors of the Company, the 2011 Share Award Scheme is valid and effective for a term of ten years commencing from its adoption. Under the 2011 Share Award Scheme, grantees have no dividend or voting rights until the restricted shares are vested. Upon the occurrence of certain contingent events which are considered outside the Company’s control, the Company has the right to repurchase all of an employee’s vested restricted shares for an aggregate consideration of US$1.00 and any unvested shares would be forfeited. The Group has set up the Share Award Scheme Trust for the purpose of administering the 2011 Share Award Scheme and holding shares awarded to the employees before they vest. As of December 31, 2017, 5,226,718 (2016: 4,793,807) forfeited and ungranted restricted shares are held by the Share Award Scheme and available to be granted in the future. Under the 2011 Share Award Scheme, 3,000,000 restricted shares were granted to two employees who have the unilateral right to request the Company to repurchase their vested restricted shares at a fixed price of RMB4 per share (if certain breaching conditions considered within the control of the employee are not met). The Company also has the option to repurchase up to all of the vested restricted shares at a fixed price of RMB4 per share if (i) the employee has served the Company for more than a year but less than four years; and (ii) employment is terminated for any reason either by the Company or the employee. The restricted shares are accounted for as tandem awards as they provide the employees the option to put the restricted shares back to the Company and therefore, have both an equity and liability component. The equity portion of the restricted share is recognized as share-based compensation based on its grant date fair value over the requisite service period of four years. The redemption right liability as of December 31, 2016 and 2017 were RMB652 and RMB596 (US$92), respectively. The redemption right liability considers the fair value of the employee’s redemption right as of the end of a reporting period and the number of restricted shares that have vested to date. For the year ended December 31, 2017, the change in the fair value of the redemption right liability of RMB27 (US$4) was recorded as share-based compensation expenses and RMB33 (US$5) was recorded in changes in fair value of put options granted to employees, respectively. The fair value of restricted shares was determined by reference to the fair value of the Company’s ordinary shares at their respective grant dates, which was valued based on retrospective valuation with the assistance of an independent third party valuation firm using a discounted cash flow. The Company’s management is ultimately responsible for the determination of the estimated fair value of its ordinary shares. Subsequent to the IPO, fair value of the ordinary shares was determined based on the price of the Company’s publicly traded ADSs. The following table summarizes the restricted shares activity pursuant to the 2011 Share Award Scheme for the year ended December 31, 2017:
|  | Number of ordinary shares |  |  | Weighted average grant date fair value (US$) |
Unvested at January 1, 2017 |  |  | 7,007,672 |  |  |  | 1.30 |
Granted |  |  | 484,000 |  |  |  | 0.91 |
Vested |  |  | (3,128,262 | ) |  |  | 1.23 |
Forfeited |  |  | (916,910 | ) |  |  | 1.23 |
Unvested at December 31, 2017 |  |  | 3,446,500 |  |  |  | 1.32 |
The weighted-average grant-date fair value of restricted share granted during the years 2016 and 2017 was US$1.61 and US$0.91, respectively. As of December 31, 2017, the total estimated unrecognized share-based compensation expenses related to restricted shares awarded to employees pursuant to the 2011 Share Award Scheme amounted to RMB4,979 (US$765), and is expected to be recognized over a weighted-average period of 1.11years. Total unrecognized share-based compensation expenses may be adjusted for future changes in forfeiture rate. The total fair value of vested restricted shares on their respective vesting dates during the years ended December 31, 2015, 2016 and 2017 were RMB301,715, RMB120,343 and RMB21,149 (US$3,251), respectively. Other Share Incentive Awards The Group granted some restricted shares to certain individuals for their employment or consultant service with the Group in connection with certain investments and acquisitions made by the Group. Such awards are subjected to such employees and consultants’ continued employment with the Group for specified terms. The following table summarizes the restricted shares activity pursuant to the Other Share Incentive Awards for the year ended December 31, 2017:
|  | Number of ordinary shares |  |  | Weighted average grant date fair value (US$) |
Unvested at January 1, 2017 |  |  | 1,992,651 |  |  |  | 1.08 |
Vested |  |  | (1,264,554 | ) |  |  | 0.99 |
Forfeited |  |  | (154,062 | ) |  |  | 1.83 |
Unvested at December 31, 2017 |  |  | 574,035 |  |  |  | 1.21 |
The weighted-average grant-date fair value of options granted during the year 2016 was US$1.62. As of December 31, 2017, the total estimated unrecognized share-based compensation expenses related to the Other Share Incentive Award to grantees amounted to RMB436 (US$67), and is expected to be recognized over a weighted-average period of 0.29 years. Total unrecognized share-based compensation expenses may be adjusted for future changes in forfeiture rate. The total fair value of vested restricted shares on their respective vesting dates during the years ended December 31, 2015, 2016 and 2017 were RMB12,247, RMB12,831 and RMB7,888 (US$1,212), respectively. Total share-based compensation expenses recorded by the Group are as follows:
|  | Years ended December 31, |
|  | 2015 |  |  | 2016 |  |  | 2017 |
|  | RMB |  |  | RMB |  |  | RMB |  |  | US$ |
Cost of revenues |  |  | 1,523 |  |  |  | 1,490 |  |  |  | 762 |  |  |  | 117 |
Research and development |  |  | 142,777 |  |  |  | 148,211 |  |  |  | 20,691 |  |  |  | 3,180 |
Selling and marketing |  |  | 18,206 |  |  |  | 13,830 |  |  |  | 39 |  |  |  | 6 |
General and administrative |  |  | 153,234 |  |  |  | 142,618 |  |  |  | 51,824 |  |  |  | 7,965 |
|  |  | 315,740 |  |  |  | 306,149 |  |  |  | 73,316 |  |  |  | 11,268 |

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- Definition The entire disclosure for compensation-related costs for equity-based compensation, which may include disclosure of policies, compensation plan details, allocation of equity compensation, incentive distributions, equity-based arrangements to obtain goods and services, deferred compensation arrangements, employee stock ownership plan details and employee stock purchase plan details. + References Reference 1: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 718 -URI http://asc.fasb.org/topic&trid=2228938 Reference 2: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 505 -SubTopic 50 -URI http://asc.fasb.org/subtopic&trid=2208855 + Details
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