XML 54 R24.htm IDEA: XBRL DOCUMENT v3.3.1.900
Subsequent Event
 12 Months Ended
Dec. 31, 2015
Subsequent Event [Text Block]
17. Subsequent Event

(a) On November 23, 2015, the Company entered into a Securities Purchase Agreement (the “SSS Securities Purchase Agreement”) with Beijing Sun Seven Stars Culture Development Limited (“SSS”), a PRC company, pursuant to which the Company agreed to sell and SSS agreed to purchase 4,545,454 shares of common stock of the Company (the “Common Stock”) for $2.20 per share, or total purchase price of $10.0 million. In addition, the Company agreed to issue SSS a two-year warrant (the “Warrant”) to acquire an additional 1,818,182 shares of Common Stock (the “Warrant Shares”) at an exercise price of $2.75 per share. In connection with the SSS Securities Purchase Agreement, the Company will enter into a Content License Agreement (the “Content Agreement”) with SSS pursuant to which SSS shall grant the Company a non-exclusive, royalty-free content distribution right for certain assets valued at approximately $29.1 million, in exchange for 9,208,860 shares of Common Stock, at exchange value of $3.16 per share.

On December 21, 2015, the Company entered into an Amended and Restated Securities Purchase Agreement (the “Amended and Restated SSS Purchase Agreement”) with SSS, pursuant to which the Company agreed to issue and sell and SSS agreed to purchase 4,545,454 shares of common stock of the Company Common Stock for $2.20 per share, or total purchase price of $10.0 million, and issue SSS a Warrant to purchase 1,818,182 Warrant Shares at an exercise price of $2.75 per share. In connection with the closing of the Amended and Restated SSS purchase Agreement, on December 21, 2016, the Company entered into the Revised Content License Agreement (the “Revised Content Agreement”) pursuant to which SSS will grant the Company a non-exclusive royalty-free content distribution rights for certain assets in exchange for a promissory note (the “Note”) that is convertible into 9,208,860 shares of Common Stock (the “IP Shares”). The Note has a stated principal amount of $17.7 million, bears interest at the rate of 0.56% per annum and matures May 21, 2016. In the event of default, the Note will become immediately due and payable. Until receipt of necessary shareholder approvals, the Warrant and the Note may not be exercised or converted to the extent that such exercise or conversion would result in SSS beneficially owning more than 19.99% of the Company’s outstanding Common Stock. Once the necessary shareholder approval is received, the unpaid principal and interest of the Note will automatically convert into the IP Shares.

As of December 31, 2015, the closing of the aforementioned transaction was subject to certain conditions. On March 28, 2015, upon the completion of all closing conditions, the Company issued 4,545,455 shares of Common Stock, the Warrants and the Note in exchange for $10 million cash investment and content assets from SSS.

(b) On November 23, 2015, the Company entered into a Share Purchase Agreement with Tianjin Enternet Network Technology Limited (“Tianjin Enternet”), an affiliate of SSS incorporated in Tianjin, China (the “Tianjin Agreement”). Under the Tianjin Agreement, Tianjin Enternet agreed to contribute 100% equity interest of Tianjin Sevenstarsflix Network Technology Limited (“SSFlix”), a to-be-formed subsidiary of Tianjin Enternet in the PRC. SSFlix will offer a branded paid content service delivered to customers ubiquitously through platform partners, will track and share consumer payment and other behavioral data, will operate a customer management and data-based service and will develop mobile social TV-based customer management portals. In exchange for the sale of the equity interest in SSFlix, Tianjin Enternet shall receive shares of common stock of the Company not to exceed 5.0 million Common Stock (the “Earn Out Share Award”) for each of 2016, 2017 and 2018, with exact amount based on earn-out provisions (the “SSFlix Earn-Out”) as detailed as follows:

  • For 2016, if either (i) the number of homes and/or users subscribing to one or more of the content services provided by SSFlix (the “Homes/Users Passed”) is greater than or equal to 50.0 million Homes/Users Passed, or (ii) the net income of SSFlix’s business is greater than or equal to the earn-out net income threshold of $4.0 million net income;
     
  • For 2017, if either (i) the Homes/Users Passed is greater than or equal to 100.0 million Homes/Users Passed, or (ii) the net income of SSFlix’s business is greater than or equal to the earn-out net income threshold of $6.0 million net income;
     
  • For 2018, if either (i) the Homes/Users Passed is greater than or equal to 150.0 million Homes/Users Passed, or (ii) the net income of SSFlix’s business is greater than or equal to the earn-out net income threshold of $8.0 million net income.

On December 21, 2015, the Company and Tianjin Enternet entered into an Amended and Restated Share Purchase Agreement (the “Amended Tianjin Agreement”) pursuant to which the Earn-Out Share Award is further subject to approval from either (i) the holders of a majority of the total votes cast in person or by proxy at a meeting of the Company’s shareholders or (ii) the holders of a majority of the outstanding voting securities of the Company entitled to vote on the relevant matters, if such action is taken by written consent (the “Earn-Out Required Vote”). In the event the Company has not obtained the Earn-Out Required Vote but SSFlix has met one of the target thresholds described above, the Company will not issue an Earn-Out Share Award to Tianjin Entertnet, but instead will issue to Tianjin a Promissory Note (the “Tianjin Note”), with a principal amount equal to the quotient obtained by multiplying 5.0 million Common Stock by the Company’s applicable stock price.

As of December 31, 2015, certain closing conditions, including transfer of SSFlix to the Company, was yet to be completed.

(c) On January 22, 2016, the Company terminated the employment of Mr. Weicheng Liu as Chief Executive Officer (“CEO”) of the Company and entered into a separation agreement with him as of such date (the “Liu Separation Agreement”). In connection therewith, the Board of Directors of the Company (the “Board”) appointed Mr. Mingcheng Tao as the new CEO of the Company, and entered into an employment agreement with Mr. Tao on such date.

Pursuant to the Liu Separation Agreement, the Company agreed to provide Mr. Liu with payment of $405,000, less standard payroll withholdings as applicable, which shall be paid to Mr. Liu in equal installments over a period of 18 months beginning in February 2016. However, payment may be accelerated if Mr. Liu completes all signature and documentation requirements and assist the Company in restructuring its VIE to the Company’s satisfaction prior to February 28, 2016, under which the Company shall pay 1/3 of $405,000 as a lump sum, with the remaining 2/3 paid equally over the following 12 months. In addition, the Company also agreed to provide Mr. Liu (1) a one-time lump sum payment of $60,000, (2) earned, accrued but unpaid salary through January 22, 2015, and (3) four weeks base salary for accrued, earned but unused vacation time, and made these payments to Mr. Liu on February 1, 2016. Furthermore, all outstanding unvested options, warrants or restricted stock previously granted to Mr. Liu became fully vested, and previously granted options and warrants are exercisable for the full term of the option or warrant.

 

Mr. Liu also agreed to provide certain transition services to the Company, including implementation of employment decisions, restructuring the ownership and control of the Company’s VIE structure, assistance in renewing certain client relationships, among others. If Mr. Liu is able to renew certain contractual relationships and receive payments thereunder within defined timeframes, Mr. Liu could earn additional sums.

(d) On February 24, 2016, the Company entered into a property rights transfer agreement with Beijing Kuntin Taiming Investment Management Co., Ltd. (“Taiming”) to purchase office premise located in Xinghu Innovation Park, Taihu Town, Tongzhou District, Beijing (the “Property Agreement”). Total area of land use right is 48,263.497 square meters and land use term is from September 29, 2010 to August 19, 2060. Total purchase price of the building was approximately RMB27 million (approximately $4,158,000).

(e) On January 22, 2016, the Company entered into a Termination Agreement (the “Termination Agreement”) with Sinotop Beijing and Zhang Yan to terminate certain contractual arrangements, including the Option Agreement, dated March 9, 2010, among YOD HK, Sinotop Beijing and Zhang Yan, the sole shareholder of Sinotop Beijing, the Termination, Assignment and Assumption Agreement among YOD HK, YOD WFOE, Sinotop Beijing and Zhang Yan dated June 4,2012, Voting Rights Proxy Agreement among YOD HK, YOD WFOE, Sinotop Beijing and Zhang Yan dated June 4, 2012, Equity Pledge Agreement among YOD HK, YOD WFOE, Sinotop Beijing and Zhang Yan dated June 4, 2012 and Power of Attorney Agreement among YOD HK, YOD WFOE, Sinotop Beijing and Zhang Yan dated June 4,2012 (collectively, the “Old Sinotop VIE Agreements”). Simultaneously, Zhang Yan entered into an Equity Transfer Agreement with Bing Wu and Yun Zhu, whereby Zhang Yan transferred 100% of her equity ownership in Sinotop Beijing to Bing Wu and Yun Zhu. Upon the conclusion of the transfer arrangement, Bing Wu and Yun Zhu held 95% and 5%, respectively, of equity ownership in Sinotop Beijing.

On the same day, the Company entered into the following contractual arrangements with Bing Wu and Yun Zhu: Call Option Agreement among YOD WFOE, Sinotop Beijing, Bing Wu and Yun Zhu, dated as of January 25, 2016; Equity Pledge Agreement among YOD WFOE, Sinotop Beijing, Bing Wu and Yun Zhu, dated as of January 25, 2016; Power of Attorney Agreement among YOD WFOE, Sinotop Beijing and Bing Wu and YOD WFOE, Sinotop Beijing and Yun Zhu, both dated as of January 25, 2016; Technical Services Agreement among YOD WFOE and Sinotop Beijing, dated as of January 25, 2016 (collectively, the “New Sinotop VIE Agreements”).

Although the New Sinotop VIE Agreements will result in a change to the legal shareholders of Sintop Beijing, there will be no change in the Company’s ability to control Sinotop Beijing or the Company’s rights to 100% of the economic benefit of Sinotop Beijing. The Company was the primary beneficiary of Sinotop Beijing prior to the signing of the New Sinotop VIE Agreements and the Company will remain the primary beneficiary of Sinotop Beijing upon the signing of the New Sinotop VIE Agreements.