Item 1.01 Entry Into A Material Definitive
Agreement.
On May 30, 2016, YOU On Demand, Inc. (the Company), through
its subsidiary YOU on Demand (Asia) Limited, and Megtron Hongkong Investment
Group Co., Limited (Megtron) entered into a Joint Venture Agreement (the JV
Agreement), pursuant to which the Company and Megtron have agreed to form a new
jointly owned company (the JVC) to, among other things, operate, market and
promote certain apps provided by the Company or its affiliates, including apps
pre-installed on smart phones exported from China to overseas market by Megtron
and its affiliates. The JVC will be responsible for the independent server,
bandwidth, promotion and local market application of such apps.
As part of the joint venture, the Company shall ensure that the
JVC is connected with China online channels, overseas local channels and
third-party offline channels under a paid, either fixed fee or profit sharing
model, with respect to the apps and content offered through such apps. The
Company shall also generally support the JVC with regard to operation resources
and technologies. For specific markets, the Company will be able to provide
branding and content customization. For markets other than Asia, however, the
Company shall lead the operations and promotions, but must openly share
operational data with the JVC. The apps provided by the Company shall include,
without limitation, video content with global copyright in film, television,
music, game, shopping finance and news, and social media. Profits from the apps
shall be shared between the Company and the JVC with the specifics to be
determined on a case-by-case basis.
Megtron, an investment company with rich resources and
distribution channels in Asia mobile terminal and telecom market, shall be
responsible for negotiations with carriers and telecom companies of existing
regions covered by the JV Agreement and new regions to be developed in the
future and will try its best to expand the promotion of products and integrate
the JVC with major customers in key markets. Megatron shall also leverage its
industry resources to cause the JVCs app service to be distributed through
pre-installation, channel development and specific distribution chains, to
achieve user installation and loading of such apps on mobile phones and other
smart devices through method of pre-installation, online and offline promotion
installation, refurbishing, or upgrade of previously sold mobile devices.
Under the terms of the JV Agreement, the JVC will have a
registered capital of $10 million, which the Company and Megtron will contribute
$5 million each, to be paid in installments with the first installment
of RMB5.00 million to be paid within one month of the date of incorporation of
the JVC. The parties are responsible for the JVC to the extent of the amount of
their respective capital contribution, and the JVC will be responsible for its
debts. The Company and Megtron are entitled to profits
from the JVC in proportion to their respective capital contribution to the JVCs
registered capital, and responsible for losses of the JVC to the extent of their
capital contribution.
The Company will be entitled to appoint 3 directors to the
JVCs board of directors and Megtron will be entitled to appoint 2 directors.
The chairperson shall be one of the directors appointed by the Company. In
addition, Megtron will be entitled to appoint the CEO and the Company will
appoint the CFO of the JVC. Under the terms of the JV Agreement, certain
corporate actions require a unanimous vote at a shareholders meeting,
including, among other things, amendments to the articles of associations,
merger, dissolutions, liquidations or other changes to the JVCs corporate form,
external investments by the JVC or provision of external guarantees by the
JVC.
The term of the JV Agreement is 30 years, and for any matter
not covered by the JV Agreement, the parties shall negotiate separately and sign
a supplemental agreement.
The foregoing description of the JV Agreement is not purported
to be complete and is qualified in its entirety by reference to the complete
text of such agreement which we will file as an exhibit to our next Quarterly
Report on Form 10-Q.