Item 1.01 Entry Into A Material Definitive
Agreement.
On December 21, 2015, of YOU On Demand, Inc. (the “Company”)
entered into an Amended and Restated Share Purchase Agreement (the “Amended and
Restated Tianjin Agreement”) with Tianjin Enternet Network Technology Limited, a
PRC Company (“Tianjin”), an affiliate of Beijing Sun Seven Stars Culture
Development Limited, a PRC company (“SSS”), as part of a strategic investment by
SSS in the Company, which was previously described in the Company’s Current
Report on Form 8-K, filed with the Securities and Exchange Commission on
December 24, 2015.
Pursuant to the terms of the Amended and Restated Tianjin
Agreement, on December 21, 2015, Tianjin contributed 100% of the equity
interests of Tianjin Sevenstarsflix Network Technology Limited, a PRC company
(“SSF”), a newly-formed subsidiary of Tianjin to the Company. SSF will offer a
branded pay content service delivered to consumers ubiquitously through all its
platform partners, will track and share consumer payments and other behavior
data, will operate a customer management and data-based service and will develop
mobile social TV-based customer management portals.
In order to comply with PRC regulatory requirements, the
Company operates its businesses through companies which it controls through
contractual arrangements and not equity ownership. By virtue of these
contractual arrangements, the Company controls the economic interests and has
the power to direct the activities of these entities, and is therefore
determined to be the primary beneficiary of these entities and consolidate the
assets, liabilities and financial position of these entities in its consolidated
financial statements. On April 5, 2016, the Company’s subsidiary YOU On Demand
(Beijing) Technology Co., Ltd. (“YOD WFOE”), entered into such variable interest
entity agreements with SSF
(the “SSF VIE Agreements”). Lan Yang, holder
of 99% equity ownership in SSF and a party to certain of the SSF VIE Agreements,
is the spouse of Bruno Zheng Wu, the Company’s Chairman. Yun Zhu, holder of 1%
equity ownership in SSF and a party to certain of the SSF VIE Agreements, is the
Vice President of SSS.
The terms of the SSF VIE Agreements are as follows:
Equity Pledge Agreement
Pursuant to the Equity Pledge Agreement among YOD WFOE, Lan
Yang and Yun Zhu (the “Nominee Shareholders”), dated April 5, 2016, the Nominee
Shareholders pledged all of their capital contribution in SSF to YOD WFOE as security for the performance of the obligations of SSF to make
all the required technical service fee payments pursuant to the Technical
Services Agreement and for performance of the Nominee Shareholders’ obligation
under the Call Option Agreement. The terms of the Equity Pledge Agreement expire
upon satisfaction of all obligations under the Technical Services Agreement and
Call Option Agreement.
Call Option Agreement
Pursuant to the Call Option Agreement among YOD WFOE, SSF and
the Nominee Shareholders, dated April 5, 2016, and entered into in connection
with the Technical Services Agreement, the Nominee Shareholders granted an
exclusive option to YOD WFOE, or its designee, to purchase, at any time and from
time to time, to the extent permitted under PRC law, all or any portion of the
Nominee Shareholders’ equity in SSF. The exercise price of the option shall be
determined by YOD WFOE at its sole discretion, subject to any restrictions
imposed by PRC law. The term of the agreement is until all of the equity
interest in SSF held by the Nominee Shareholders is transferred to YOD WFOE, or
its designee and may not be terminated by any party to the agreement without
consent of the other parties.
Power of Attorney
Pursuant to the Power of Attorney agreements among YOD WFOE,
SSF and each of the respective Nominee Shareholders, dated April 5, 2016, each
of the Nominee Shareholders granted YOD WFOE the irrevocable right, for the
maximum period permitted by law, to all of its voting rights as shareholders of SSF. The Nominee Shareholders may not transfer any of
their equity interest in SSF
to any party other than YOD WFOE. The Power of Attorney agreements may not be
terminated except until all of the equity in SSF has been transferred to YOD
WFOE or its designee.
Technical Service Agreement
Pursuant to the Technical Service Agreement, dated April 5,
2016, between YOD WFOE and SSF, YOD WFOE has the exclusive right to provide
technical service, marketing and management consulting service, financial
support service and human resource support services to SSF, and SSF is required
to take all commercially reasonable efforts to permit and facilitate the
provision of the services by YOD WFOE. As compensation for providing the
services, YOD WFOE is entitled to receive service fees from SSF equivalent to
YOD WFOE’s cost plus 20-30% of such costs. YOD WFOE and SSF agree to
periodically review the service fee and make adjustments as deemed appropriate.
The term of the Technical Services Agreement is perpetual, and may only be
terminated upon written consent of both parties.
Spousal Consent
Pursuant to the Spousal Consent, dated April 5, 2016,
undersigned by the respective spouse of the Nominee Shareholders (collectively, the
“Spouses”), the Spouses unconditionally and irrevocably agreed to the execution
of the Equity Pledge Agreement, Call Option Agreement and Power of Attorney
agreement. The Spouses agreed to not make any assertions in connection with the
equity interest of SSF and to waive consent on further amendment or termination
of the Equity Pledge Agreement, Call Option Agreement and Power of Attorney
agreement. The Spouses further pledge to execute all necessary documents and
take all necessary actions to ensure appropriate performance under these
agreements upon YOD WFOE’s request. In the event the Spouses obtain any equity
interests of SSF which are held by the Nominee Shareholders, the Spouses agreed
to be bound by the SSF VIE Agreements, including the Technical Services
Agreement, and comply with the obligations thereunder, including sign a series
of written documents in substantially the same format and content as the SSF VIE
Agreements.
Letter of Indemnification
Pursuant to the Letter of Indemnification among YOD WFOE and
Lan Yang and YOD WFOE and Yun Zhu, both dated as of April 5, 2016, YOD WFOE
agreed to indemnify Nominee Shareholders against any personal, tax or other
liabilities incurred in connection with their role in equity transfer to the
greatest extent permitted under PRC law. YOD WFOE further waived and released
the Nominee Shareholders from any claims arising from, or related to, their role as
the legal shareholder of SSF, provided that their actions as a nominee
shareholder are taken in good faith and are not opposed to YOD WFOE’s best
interests. The Nominee Shareholders will not be entitled to dividends or other
benefits generated therefrom, or receive any compensation in connection with
this arrangement. The Letter of Indemnification will remain valid until either
the
Nominee Shareholders or YOD WFOE terminates the agreement by giving the other
party hereto sixty (60) days’ prior written notice.
Loan Agreement
Pursuant to the Loan Agreement among YOD WFOE and the Nominee
Shareholders, dated April 5, 2016, YOD WFOE agrees to lend RMB 19.8 million and
RMB 2 million, respectively, to the Nominee Shareholders for the purpose of
establishing SSF and for development of its business. The loan can only be
repaid by a transfer by the Nominee Shareholders of their equity interests in
SSF to YOD WFOE or YOD WFOE‘s designated persons, through (i) YOD WFOE having
the right, but not the obligation to at any time purchase, or authorise a
designated person to purchase, all or part of the Nominee Shareholders’ equity
interests in SSF at such price as YOD WFOE shall determine (the “Transfer
Price”), (ii) all monies received by the Nominee Shareholders through the
payment of the Transfer Price being used solely to repay YOD WFOE for the
loans, and (iii) if the Transfer Price exceeds the principal amount of the
loans, the amount in excess of the principal amount of the loans being deemed
as interest payable on the loans, and to be payable to YOD WFOE in cash.
Otherwise, the loans shall be deemed to be interest-free. The term of the Loan
Agreement is perpetual, and may only be terminated upon the Nominee Shareholders
receiving repayment notice, or upon the occurrence of an event of default under the
terms of the agreement.
Management Services Agreement
In addition to the SSF VIE Agreements, the Company’s subsidiary and the
parent company of YOD WFOE, YOU On Demand (Asia) Limited, a company incorporated
under the laws of Hong Kong (“YOD Hong Kong”) entered into a Management Services
Agreement with SSF, dated as of April 6, 2016 (the “Management Services
Agreement”). Pursuant to a Management Services Agreement, YOD
Hong Kong has the exclusive right to provide to SSF management, financial and
other services related to the operation of SSF’s business, and SSF is required
to take all commercially reasonable efforts to permit and facilitate the
provision of the services by YOD Hong Kong. As compensation for providing the
services, YOD Hong Kong is entitled to receive a fee from SSF, upon demand,
equal to 100% of the annual net profits of SSF during the term of the Management
Services Agreement. YOD Hong Kong may also request ad hoc quarterly payments of
the aggregate fee, which payments will be credited against SSF’s future payment
obligations.
In addition, at the sole discretion of YOD Hong Kong, SSF is
obligated to transfer to YOD Hong Kong, or its designee, any part or all of the
business, personnel, assets and operations of SSF which may be lawfully
conducted, employed, owned or operated by YOD Hong Kong, including:
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a)
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business opportunities presented to, or available to SSF
may be pursued and contracted for in the name of YOD Hong Kong rather than
SSF, and at its discretion, YOD Hong Kong may employ the resources of SSF
to secure such opportunities;
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b)
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any tangible or intangible property of SSF, any
contractual rights, any personnel, and any other items or things of value
held by SSF may be transferred to YOD Hong Kong at book value;
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c)
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real property, personal or intangible property,
personnel, services, equipment, supplies and any other items useful for
the conduct of the business may be obtained by YOD Hong Kong by
acquisition, lease, license or otherwise, and made available to SSF on
terms to be determined by agreement between YOD Hong Kong and
SSF;
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d)
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contracts entered into in the name of SSF may be
transferred to YOD Hong Kong, or the work under such contracts may be
subcontracted, in whole or in part, to YOD Hong Kong, on terms to be
determined by agreement between YOD Hong Kong and SSF; and
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e)
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any changes to, or any expansion or contraction of, the
business may be carried out in the exercise of the sole discretion of YOD
Hong Kong, and in the name of and at the expense of, YOD Hong
Kong;
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provided, however, that none of the foregoing may cause or have
the effect of terminating (without being substantially replaced under the name
of YOD Hong Kong) or adversely affecting any license, permit or regulatory
status of SSF.
The term of the Management Services Agreement is 20 years, and
may not be terminated by SSF, except with the consent of, or a material breach
by, YOD Hong Kong.
The foregoing description of the SSF VIE Agreements is not
purported to be complete and is qualified in its entirety by reference to the
complete text of such agreements which we will file as exhibits to our next
Quarterly Report on Form 10-Q.